<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to___________
Commission file number 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 219-6300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.
-----
The aggregate market value of the voting stock (Common Stock) held by non-
affiliates of the registrant as of February 28, 1994, was $576,107,000. See
page 8 herein for assumptions on which this calculation is based.
On February 28, 1994, there were 22,815,973 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Certain portions of the Company's Annual Report to Stockholders for the
year ended December 31, 1993 are incorporated by reference into Part II of
this Form 10-K. Certain portions of the Company's definitive Proxy Statement
mailed to stockholders on or about March 25, 1994 are incorporated by
reference into Part III and Part IV of this Form 10-K.
Page 1 of 87 Pages.
The exhibit index appears on sequentially numbered pages 25 through 27.
<PAGE>
-2-
Part I
Item 1. Business.
The Company, incorporated in Delaware in January 1969, and its subsidiaries
provide computer-based information processing systems and associated services
to the healthcare industry in North America and Europe.
The Company's products are offered to hospitals of all types (urban, teaching,
suburban, rural, specialty), proprietary hospital companies, and
not-for-profit multihospital groups. The Company's products are also
offered to healthcare organizations such as clinics, physician group
practices, medical schools, public health departments and home healthcare
organizations. These products include a full range of financial, patient
management, clinical, and decision support software systems that use diverse
computing and networking technologies, ranging from remote processing, to
distributed processing systems, to onsite turnkey systems. The Company also
provides professional services related to its information processing systems
business, such as system installation, support, and education.
Domestically, the Company markets its products and provides installation
services and ongoing technical and educational support with a field staff
working out of branch offices. At its Corporate Headquarters and Information
Systems Center, the Company has a customer service staff, applications
specialists, and communications and computer operations personnel who assist
customers in their day-to-day use of the Company's products; and system
designers and programmers who work to improve existing programs and develop
additional data processing products. In Europe, the Company markets,
installs, and supports its products through local offices in seven countries.
The Company's primary markets are acute-care (short-stay) hospitals, generally
with 100 or more beds, multientity healthcare corporations, physician groups,
and other healthcare providers. In the United States, which has historically
been the Company's most significant market, the Company currently has
contracts with hospitals in 47 states, the District of Columbia and Puerto
Rico.
In 1981, the Company entered the healthcare information processing systems and
services market in Europe. The Company currently has hospital contracts in
the United Kingdom, Ireland, Holland, Germany, Spain, France, Italy, and
Portugal. The Company is also currently negotiating customer contracts in
three additional countries in Europe.
For financial information by geographic area, refer to page 30 of the
Company's 1993 Annual Report to Stockholders, Notes to Consolidated Financial
Statements, Business Segment Information (Note 9), which is incorporated
herein by reference.
Although the number of stand-alone acute-care hospital beds has
<PAGE>
-3-
declined slightly in recent years, the demand for integrated information
systems in the healthcare industry has grown due to the emergence of
multientity healthcare organizations, increases in information required by the
government and private insurers, additional medical services provided by
healthcare organizations, and the needs related to health maintenance
organizations and preferred provider organizations. In addition, cost
containment pressures on healthcare providers require more sophisticated
levels of information systems and services.
Services and Systems Offered
----------------------------
The principal healthcare information systems and related services offered by
the Company are:
Healthcare Information Systems -
------------------------------
. Financial Systems, which consist of a full range of financial functions
that include patient accounting (including billing and receivables),
accounting and financial management, materials management, personnel, and
property.
. Patient Management Systems, which assist in the administration of patient
care through specialized programs for various hospital departments, such
as admissions, outpatient, utilization review, and medical records.
. Clinical Systems, which automate many labor-intensive tasks performed in
the nursing, radiology, laboratory, pharmacy, and other departments in
the hospital. These systems also facilitate communications among
departments.
. Decision Support Systems, which provide access to a range of strategic
information collected from the clinical, financial, and patient
management systems.
. Physician Information Systems, which provide information processing and
administrative support to physician groups, clinics, and medical schools
with features such as scheduling, electronic claims processing, automated
billing and rebilling, and online collections system.
. Ambulatory Systems, which provide an integrated network that share
clinical and financial information between healthcare providers in non-
acute care settings.
Healthcare Data Exchange Services - which facilitates the sharing and
---------------------------------
standardization of information, such as eligibility verifications, claims
and remittance transmissions, throughout the healthcare industry.
Professional Services - These services consist of a variety of activities
---------------------
related to the Company's healthcare information processing systems, such as
systems installation and support,
<PAGE>
-4-
software and network customization, information system planning and
integration, business office consulting, facilities management, and customer
education.
The Company's hospital information systems and related services operate on
computer systems that range from personal computers to minicomputers to
mainframes. These systems are offered on computers operating at the
customer's site, at the Company's Information Systems Center (i.e. remotely),
or as part of a distributed network. Distributed network systems generally
process the financial applications at the Company's Information Systems
Center, while the patient management and clinical applications operate on
computers located at the customer's site or at the Company's Information
Systems Center. These systems are also offered with networking features that
enable multientity healthcare organizations to process information for
affiliated hospitals, physician groups and clinics.
The service and system fees earned by the Company for the years ended December
31, 1993, 1992, and 1991 were $452,797,000, $421,620,000, and $390,626,000,
respectively. The hardware at the customer sites associated with these
services and systems, can be sold or leased to the Company's customers.
Hardware sales for the years ended December 31, 1993, 1992, and 1991 were
$48,486,000, $48,004,000, and $48,079,000, respectively.
Customers
---------
The Company's services and systems are provided to customers under various
contractual agreements. These agreements may be structured as fixed-period
contracts with terms generally ranging from one to seven years (and in certain
circumstances customer contracts can have terms up to ten years) or perpetual
license contracts. Fixed-period agreements produce recurring revenues over
the term of each contract, in contrast to perpetual license agreements, under
which most revenues are recognized over a much shorter period, which can range
from a few months to two years. No single customer or organization accounted
for 10% or more of the Company's total revenues during 1993.
Revenues from individual customers will vary, depending on the number and type
of the Company's services and systems that are used. Because of the high
fixed costs of the Company's operations, the loss of any customer under a
fixed-period contract would have the effect of reducing the Company's net
income by a greater percentage than the percentage of total revenues lost.
Presently, no more than one quarter of the Company's fixed-period contracts
expire in any future year. Although the Company strives to retain its
customers, not all of the Company's past contracts have been renewed, and
there can be no assurance that existing customers will either renew their
contracts or convert to another type of system offered by the Company upon the
expiration of their current contract.
<PAGE>
-5-
Competition
-----------
The Company experiences intense competition in the healthcare information
systems and services market. Virtually all hospitals with more than 100 beds
use some form of computer-based information processing. The Company has
competition from a number of firms, and its competitors vary in size, in
geographical coverage, and in scope and breadth of products and services
offered.
The Company considers itself to be a major supplier of information processing
systems and services to healthcare organizations. Some of its competitors are
divisions of major corporations. These corporations are considerably larger,
financially stronger, and more diversified than the Company.
Competition among those providing information processing systems and services
to hospitals, physician groups, and other healthcare providers is based upon
the breadth and reliability of the systems and services provided and, to the
extent that the services are comparable, upon price.
Research and Development
------------------------
The Company is continually investigating the feasibility of enhancing existing
systems and developing new systems to meet the information processing needs of
healthcare organizations. Profitability of newly-developed systems and
services depends upon attainment of sufficient sales volumes and continuing
improvement and efficiency of the systems.
In addition to developing its own computer software, the Company uses computer
software from third parties. Some of the Company's development efforts are
directed towards modification of this software to enable it to meet more fully
the Company's specifications.
The Company expenses all research and non-capitalized development costs, which
are primarily the costs incurred to establish the technological feasibility of
internally produced computer software. These expenses are primarily for
computer costs and salaries of personnel. These expenses amounted to
$37,087,000 in 1993, $33,703,000 in 1992, and $33,639,000 in 1991.
The Company capitalizes the cost of certain internally produced computer
software and purchased software. Capitalization for internally produced
software begins when a project reaches technological feasibility and ceases
when the software is available for general release to customers. Internally
produced computer software costs, net of accumulated amortization, were
$29,222,000 and $25,986,000 as of December 31, 1993 and 1992, respectively.
Amortization related to internally produced software amounted to $5,464,000 in
1993, $4,894,000 in 1992, and $4,026,000 in 1991. Purchased software, net of
accumulated amortization, was $4,325,000 and $3,498,000 as of December 31,
1993 and 1992, respectively. Computer software is amortized over its expected
useful life, which is generally five years.
<PAGE>
-6-
Personnel
---------
As of December 31, 1993, the Company had a total of 4,015 full-time employees.
Item 2. Properties.
The Company purchased 116 acres of land in Chester County, Pennsylvania in
1978. The Company has constructed three buildings on this site, namely, an
information systems center (81,000 square feet) which was put into service in
1979, and two office buildings with an aggregate of 431,000 square feet, the
first of which was placed in service in 1981 and the second of which was
placed in service in 1983. These office buildings serve as the Company's
corporate headquarters. The Company also leases office space near the
Company's corporate headquarters, which is utilized by certain corporate-based
operations. These facilities are adequate for existing operations.
In 1986, the Company purchased additional land (241 acres) in Chester County,
Pennsylvania for possible future expansion.
The Company leases office space in most major metropolitan areas in the United
States for marketing, installation, and support personnel. The Company also
leases office space in various locations for its European operations. In
addition, the Company acquired in 1993 an office building in Spain for its
local operations.
As of December 31, 1993, the Company's Information Systems Center, which is
used primarily to process customer information, contains one 5995-6650 AMDAHL
processor, one IBM 9021-942 processor, and one IBM 9021-900 processor, all of
which were obtained under operating leases. The Company's Information Systems
Center also includes related mainframe peripherals, and data communications
equipment that has been purchased or obtained under leases. These leases are
generally contracted on a month-to-month basis or under fixed-period
agreements, with terms that range from one to five years.
Item 3. Legal Proceedings.
In October, 1991, the Securities and Exchange Commission (SEC) sued the
Company and certain of its officers in the United States District Court for
the Eastern District of Pennsylvania, alleging, among other things, that
during 1986 and 1987 the Company and the officers made untrue and/or
misleading statements of material fact and violated certain reporting
requirements of the SEC.
In February, 1994, the SEC dropped from its lawsuit all claims against the
Company (and certain claims against the officers). The SEC's lawsuit now
alleges only that Mr. R. James Macaleer sold shares of the Company's common
stock (or caused the sale of shares of the Company's common stock) in 1986
while in possession of material non-public information.
The Company continues to believe that this suit against Mr.
<PAGE>
-7-
Macaleer is without merit and that the outcome of the suit will not have a
material effect on the Company's financial position.
Also in February 1994, in order to settle claims concerning the Company's 1986
10-K and first quarter 1987 10-Q, the Company agreed to the entry of an
administrative cease-and-desist order (in an administrative proceeding)
requiring that it comply with the SEC's reporting requirements in all future
filings. The SEC's claims concerned the failure of the Company to include in
its 10-K and 10-Q filings information which was previously disclosed in a
press release.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrant
Listed below are the name, age as of December 31, 1993, position(s) with the
Company and principal occupation(s) for the past five years of each of the
executive officers of the Company.
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
------------------ --- ------------------------------------
R. James Macaleer 59 Chairman of the Board and Chief Executive
Officer of the Company since 1969.
Marvin S. Cadwell 50 Executive Vice President of the Company since
October 1993. Prior to this, Mr. Cadwell served
as Senior Vice President, Managing Director and
Chief Operating Officer of the Company's SMS
Europe operations since March 1992; and Vice
President, Managing Director and Chief Operating
Officer of the Company's SMS Europe operations,
September 1986 - March 1992.
James C. Kelly 54 Secretary of the Company since June 1990. Prior
to this, Mr. Kelly served as Executive Vice
President, Treasurer and Secretary of the
Company, May 1985 - June 1990.
Francis W. Lavelle 44 Senior Vice President of the Company since
December 1993. Prior to this, Mr. Lavelle served
as Vice President of New Business Development,
January 1991 - December 1993; and National Sales
and Installation Manager of the Company's
Laboratory Division, September 1988 - December
1990.
<PAGE>
-8-
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
------------------- --- ------------------------------------
Marion G. Tomlin 54 Senior Vice President and General Manager of the
Company's Turnkey Systems Division since
January 1991. Prior to this, Mr. Tomlin served
as Senior Vice President of the Installation
and Support group of the Company's Hospital
Systems Division, February 1988 - January
1991.
Michael B. Costello 50 Vice President of Administration and Corporate
Communications of the Company since January
1991. Prior to this, Mr. Costello served as
Vice President of Administration of the
Company, February 1990 - January 1991; and
Vice President of Administration and Human
Resources of the Company, May 1986 - February
1990.
Terrence W. Kyle 43 Vice President of Finance, Treasurer and
Assistant Secretary of the Company since June
1990. Prior to this, Mr. Kyle served as Vice
President of Finance of the Company, May 1985 -
June 1990.
Edward J. Grady 41 Controller and Assistant Treasurer of the
Company since February 1993. Prior to this,
Mr. Grady served as Controller of the Company,
May 1985 - February 1993.
Bonnie L. Shuman 45 General Counsel and Assistant Secretary of the
Company since June 1990. Prior to this, Ms.
Shuman served as General Counsel of the Company,
September 1985 - June 1990.
- --------------------------------------------------------------------------------
In calculating the aggregate market value of voting stock held by non-
affiliates as shown on the cover page of this Form 10-K Report, the Company
has included all of its directors, and only its directors, as affiliates of
the Company. This is not an admission by the Company that any or all of its
directors are in fact affiliates. The aggregate market value of voting stock
held by non-affiliates was computed by using the average bid and asked prices
of the stock as of February 28, 1994.
<PAGE>
-9-
Part II
The following information contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1993 is incorporated herein by
reference:
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Page 19, Table II
Item 6. Selected Financial Data.
Page 14, Summary of Consolidated Operations - "Revenues", "Net Income", and
"Net Income Per Share" columns and related footnotes
Page 17, Summary of Consolidated Financial Position - "Total Assets" and
"Long-Term Obligations" columns and related footnote
Page 19, Table I, "Cash Dividends Declared - Per Share" column
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pages 14, 15, 16, 17, and 18, Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 15, Analysis of Changes in Consolidated Expenses
Item 8. Financial Statements and Supplementary Data.
Page 19, Table III
Pages 20 through 30
Page 31, Report of Independent Public Accountants
Page 19, Table I, "Cash Dividends Declared - Per Share" column
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
-10-
Part III
The following information contained in the Company's definitive Proxy
Statement mailed to stockholders on or about March 25, 1994 is incorporated
herein by reference:
Item 10. Directors and Executive Officers of the Registrant.
Pages 2 and 3, section titled "Directors and Management": "Name of Beneficial
Owner", the section titled "Directors", and "Director Since" columns
Page 12, section titled "Compliance With Section 16(a) of the Exchange Act"
(For information concerning the Company's Executive Officers see pages 7 and 8
hereof, section titled "Executive Officers of the Registrant")
Item 11. Executive Compensation.
Pages 4 and 5, section titled "Election of Directors": the subsection titled
"Compensation of Directors"
Pages 5 through 10, section titled "Executive Compensation": the subsections
titled "Compensation Committee Interlocks and Insider Participation", and
"Compensation Summaries"
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Pages 1 through 3, section titled "Security Ownership": subsections titled
"Principal Stockholders" and "Directors and Management": "Name of Beneficial
Owner", "Common Stock Beneficially Owned", and "Percent of Class" columns and
related footnotes
Item 13. Certain Relationships and Related Transactions.
Page 2, section titled "Directors and Management": "Name of Beneficial Owner"
column with respect to Raymond K. Denworth, Jr.
<PAGE>
-11-
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. The consolidated financial statements included on pages 20 through
31 in the Company's Annual Report to Stockholders for the year ended
December 31, 1993, have been incorporated by reference in Part II,
Item 8, of this Form 10-K Report:
. Consolidated Balance Sheet as of December 31, 1993 and 1992 (pages
20 and 21)
. Consolidated Statement of Income for the years ended December 31,
1993, 1992, and 1991 (page 22)
. Consolidated Statement of Cash Flows for the years ended December
31, 1993, 1992, and 1991 (page 23)
. Consolidated Statement of Stockholders' Investment for the years
ended December 31, 1993, 1992, and 1991 (page 24)
. Notes to Consolidated Financial Statements for the years ended
December 31, 1993, 1992, and 1991 (pages 25 through 30)
. Report of Independent Public Accountants (page 31)
2. The financial statement schedules included on page 19, Table I and
Table III, in the Company's Annual Report to Stockholders for the
year ended December 31, 1993, have been incorporated by reference in
Part II, Item 8 of this Form 10-K:
. Operating Ratios "Cash Dividends Declared - Per Share" column for
the years ended December 31, 1993, 1992, and 1991
. Selected Quarterly Financial Data for the years ended December 31,
1993 and 1992
The following Financial Statement Schedules required by Article 5 of
Regulation S-X are included in this report:
. Report of Independent Public Accountants on Schedules
. Schedule I - Marketable Securities - Other Security Investments
<PAGE>
-12-
. Schedule II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than Related Parties
. Schedule V - Property and Equipment
. Schedule VI - Accumulated Depreciation and Amortization - Property
and Equipment
. Schedule VIII - Valuation and Qualifying Accounts
. Schedule IX - Short-Term Borrowings
. Schedule X - Supplementary Income Statement Information
. Schedules omitted - the following schedules are omitted since they
are not required, or not applicable: III, IV, VII, XI, XII, XIII
and XIV
3. The following exhibits are included in this report:
No. Description
---- ------------------------------------------------------------
(3) Articles of Incorporation and By-Laws -
Certificate of Amendment of Certificate of Incorporation dated
June 19, 1992 (filed as Exhibit (4) to the Company's Form 10-Q
Report for the quarter ended June 30, 1992)*, By-laws as
amended through January 29, 1992 (filed as Exhibit (3) to the
Company's Form 10-K Report for the year ended December 31,
1991)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1990)*
James C. Kelly
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
-13-
No. Description
---- ---------------------------------------------------------------
Performance bonus plans - 1993:**
R. James Macaleer (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1992)*
Jack L. Ernsberger (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1992)*
Graham O. King (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1992)*
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1992)*
Marion G. Tomlin (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1992)*
Insurance agreements:**
Jack L. Ernsberger (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1989)*
Marion G. Tomlin (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1991)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1991)*
Marion G. Tomlin (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1991)*
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
-14-
No. Description
---- --------------------------------------------------------------
Jack L. Ernsberger (filed as Exhibit (10) to the Company's
Form 10-K Report for the year ended December 31, 1989)*
Graham O. King (filed as Exhibit (10) to the Company's Form
10-K Report for the year ended December 31, 1989)*
Separation agreements:**
Jack L. Ernsberger
Graham O. King
Stock Option Plans:
1987 Non-Qualified Stock Option Plan for Non-Employee
Directors
1991 Non-Qualified Stock Option Plan for Non-Employee
Directors (filed as Exhibit B to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May
1, 1991)*
(13) Annual Report to Stockholders for the year ended December 31,
1993***
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(b) No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1993.
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
***With the exception of the material specifically incorporated by reference
in Part II of this Form 10-K, the Annual Report to Stockholders for the year
ended December 31, 1993 is not to be deemed "filed" as part of this Form 10-K.
<PAGE>
-15-
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.
SHARED MEDICAL SYSTEMS CORPORATION
By: /S/ R. James Macaleer Date: March 29, 1994
----------------------------------- --------------------
R. James Macaleer - Chairman of the
Board and Chief Executive Officer
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.
By: /S/ R. James Macaleer Date: March 29, 1994
----------------------------------- --------------------
R. James Macaleer - Chairman of the
Board and Chief Executive Officer
By: /S/ Raymond K. Denworth, Jr. Date: March 29, 1994
----------------------------------- --------------------
Raymond K. Denworth, Jr. - Director
By: /S/ Frederick W. DeTurk Date: March 29, 1994
----------------------------------- --------------------
Frederick W. DeTurk - Director
By: /S/ Josh S. Weston Date: March 29, 1994
------------------------------------ --------------------
Josh S. Weston - Director
By: Date:
----------------------------------- --------------------
Harvey J. Wilson - Director
By: /S/ Jeffrey S. Rubin Date: March 29, 1994
----------------------------------- --------------------
Jeffrey S. Rubin - Director
By: /S/ Terrence W. Kyle Date: March 29, 1994
----------------------------------- --------------------
Terrence W. Kyle - Vice President
of Finance, Treasurer and Assistant
Secretary
By: /S/ Edward J. Grady Date: March 29, 1994
----------------------------------- --------------------
Edward J. Grady
Controller and Assistant Treasurer
<PAGE>
-16-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shared Medical Systems Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Shared Medical Systems Corporation's 1993
Annual Report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 7, 1994. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedules listed in Item 14 are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Philadelphia, Pennsylvania
February 7, 1994
<PAGE>
-17-
SCHEDULE I
SHARED MEDICAL SYSTEMS CORPORATION
MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993
-----------------------------------------
<TABLE>
<CAPTION>
Market
Name of Issuer and Title of Each Issue Cost Value (1)
-------------------------------------------- ----------- -----------
Tax-Exempt Short-Term Investments
---------------------------------
<S> <C> <C>
Provident Institutional Municipal Fund $13,819,000 $13,819,000
=========== ===========
</TABLE>
(1) The amounts shown represent the amount included in the Company's
consolidated balance sheet.
<PAGE>
-18-
SCHEDULE II
<TABLE>
<CAPTION>
SHARED MEDICAL SYSTEMS CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
------------------------------------------------------------------------
Deletions Balance at
Balance at ----------------------- End of Period
Beginning Amounts Amounts --------------------
of Year Additions Collected Written Off Current Non-Current
---------- ------------ ----------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Employee $ 300,000 $ 0 $ 0 $ 0 $ 0 $ 300,000
========== ========= ========= ========= ========= =========
Year Ended December 31, 1992:
Employees $ 550,000 $ 300,000(1) $ 0 $(550,000)(2) $ 0 $ 300,000
========== ========= ========= ========= ========= =========
Year Ended December 31, 1991:
Employee $ 0 $ 550,000(2) $ 0 $ 0 $ 550,000 $ 0
========== ========= ========= ========= ========= =========
</TABLE>
(1) This amount represents a non-interest bearing, six year term loan to Marvin
S. Cadwell which is secured by a mortgage on a principal residence.
(2) This amount represents an unsecured, non-interest bearing receivable from
Frederick L. Morefield which was due in installments through April 30, 1992.
<PAGE>
-19-
<TABLE>
<CAPTION>
SCHEDULE V PAGE 1 OF 2
SHARED MEDICAL SYSTEMS CORPORATION
PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
Balance
Beginning Balance
of Additions Retirements Other End of
Year at Cost or Sales Changes (3) Year
------------ --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land and land improvements $ 10,599,000 $ 125,000 $ - $ (21,000) $ 10,703,000
Buildings 51,670,000 6,632,000(1) (173,000) (761,000) 57,368,000
Equipment 174,451,000 25,276,000(2) (15,390,000) (1,080,000) 183,257,000
------------ ------------- ------------ ----------- ------------
$236,720,000 $ 32,033,000 $(15,563,000) $(1,862,000) $251,328,000
============ ============= ============ =========== ============
Year ended December 31, 1992:
Land and land improvements $ 10,599,000 $ - $ - $ - $ 10,599,000
Buildings 50,294,000 1,742,000(1) (366,000) - 51,670,000
Equipment 184,841,000 18,877,000(2) (28,382,000) (885,000) 174,451,000
------------ ------------- ------------ ----------- ------------
$245,734,000 $ 20,619,000 $(28,748,000) $ (885,000) $236,720,000
============ ============= ============ =========== ============
Year ended December 31, 1991:
Land and land improvements $ 10,587,000 $ 12,000 $ - $ - $ 10,599,000
Buildings 49,850,000 522,000(1) (78,000) - 50,294,000
Equipment 176,917,000 22,437,000(2) (13,334,000) (1,179,000) 184,841,000
------------ ------------- ------------ ----------- ------------
$237,354,000 $ 22,971,000 $(13,412,000) $(1,179,000) $245,734,000
============ ============= ============ =========== ============
</TABLE>
<PAGE>
-20-
SCHEDULE V PAGE 2 OF 2
SHARED MEDICAL SYSTEMS CORPORATION
PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
FOOTNOTES:
- ---------
(1) Additions during 1993 are primarily for an office building for the Company's
Spanish operations. Also included are improvements associated with the
Corporate Headquarters and Information Systems Center building. Building
additions during 1992 and 1991 are primarily for improvements associated
with the Corporate Headquarters and Information Systems Center building.
(2) During 1993, 1992, and 1991 the Company purchased minicomputers and
terminals, most of which are leased to the Company's customers, at a total
cost of $3,259,000, $3,562,000, and $8,088,000, respectively. The Company
also acquired computer equipment for internal use, primarily in its
Information Systems Center, at a total cost of $16,753,000 in 1993,
$9,481,000 in 1992, and $8,880,000 in 1991. For 1993, 1992, and 1991,
equipment additions referred to above include $7,089,000, $2,196,000, and
$1,421,000, respectively, of equipment acquired under capital leases. The
remaining additions were primarily for office equipment and data
communications equipment for data transmission.
(3) The amount included in Other Changes represents the effect of translation
adjustments primarily for European property and equipment during 1993, 1992,
and 1991.
Property and Equipment Depreciation and Amortization Methods
- ------------------------------------------------------------
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives. Depreciable lives for equipment range from two to
fifteen years. Leased property under capital leases is depreciated over the
initial term of the lease. The Company's buildings, not including equipment
therein, are being depreciated using a 45-year life.
<PAGE>
-21-
SCHEDULE VI
SHARED MEDICAL SYSTEMS CORPORATION
ACCUMULATED DEPRECIATION AND AMORTIZATION-PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
----------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Charged Balance
Beginning of to Retirements Other End of
Year Expenses or Sales Changes (1) Year
------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings $ 12,990,000 $ 1,874,000 $ (173,000) $ (2,000) $ 14,689,000
Equipment 126,928,000 20,323,000 (14,729,000) (748,000) 131,774,000
------------ ----------- ------------ --------- ------------
$139,918,000 $22,197,000 $(14,902,000) $(750,000) $146,463,000
============ =========== ============ ========= ============
Year ended December 31, 1992:
Buildings $ 11,597,000 $ 1,733,000 $ (340,000) $ - $ 12,990,000
Equipment 133,750,000 20,459,000 (26,801,000) (480,000) 126,928,000
------------ ----------- ------------ --------- ------------
$145,347,000 $22,192,000 $(27,141,000) $(480,000) $139,918,000
============ =========== ============ ========= ============
Year ended December 31, 1991:
Buildings $ 9,844,000 $ 1,832,000 $ (79,000) $ - $ 11,597,000
Equipment 125,192,000 21,094,000 (11,890,000) (646,000) 133,750,000
------------ ----------- ------------ --------- ------------
$135,036,000 $22,926,000 $(11,969,000) $(646,000) $145,347,000
============ =========== ============ ========= ============
</TABLE>
(1) The amount included in Other Changes represents the effect of translation
adjustments primarily for European accumulated depreciation for property
and equipment during 1993, 1992, and 1991.
<PAGE>
-22-
SCHEDULE VIII
SHARED MEDICAL SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Balance Balance
Beginning of Charges to End of
Year Expenses Deductions Year
------------ ---------- --------------- -----------
<S> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
December 31, 1993 $ 4,991,000 $ 810,000 $(1,522,000)(1) $ 4,279,000
=========== ========== =========== ===========
December 31, 1992 $ 5,072,000 $ 491,000 $ (572,000)(1) $ 4,991,000
=========== ========== =========== ===========
December 31, 1991 $ 4,929,000 $ 449,000 $ (306,000)(1) $ 5,072,000
=========== ========== =========== ===========
Accumulated Amortization
Computer Software:
December 31, 1993 $24,002,000 $7,039,000 $(2,489,000)(2) $28,552,000
=========== ========== =========== ===========
December 31, 1992 $18,014,000 $6,682,000 $ (694,000)(2) $24,002,000
=========== ========== =========== ===========
December 31, 1991 $14,577,000 $5,451,000 $(2,014,000)(2) $18,014,000
=========== ========== =========== ===========
</TABLE>
(1) Write-offs of uncollectible accounts.
(2) Write-offs of fully-amortized computer software.
<PAGE>
-23-
SCHEDULE IX
SHARED MEDICAL SYSTEMS CORPORATION
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
End of Interest During the During the During the
Period Rate Period Period Period (1)
---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Lines of Credit $5,830,000 9.4% $23,838,000 $12,501,000 7.9%
========== ======== =========== =========== ==========
Year ended December 31, 1992:
Lines of Credit $6,934,000 12.6% $ 7,291,000 $ 5,808,000 12.7%
========== ======== =========== =========== ==========
Year ended December 31, 1991:
Lines of Credit $4,587,000 12.6% $ 9,509,000 $ 4,622,000 12.0%
========== ======== =========== =========== ==========
</TABLE>
Amounts borrowed under these lines of credit were primarily used to partially
fund certain of the Company's European and domestic operations.
(1) The weighted average interest rate during the period was calculated by
dividing the annual interest expense by the related average amount
outstanding during the period.
<PAGE>
-24-
SCHEDULE X
SHARED MEDICAL SYSTEMS CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and Repairs $19,582,000 $18,989,000 $18,746,000
=========== =========== ===========
Amortization of Intangible Assets:
Computer Software $ 7,039,000 $ 6,682,000 $ 5,451,000
Other 1,579,000 743,000 630,000
----------- ----------- -----------
$ 8,618,000 $ 7,425,000 $ 6,081,000
=========== =========== ===========
</TABLE>
No amounts have been reflected for depreciation and amortization of preoperating
costs and similar deferrals, taxes other than payroll and income taxes,
royalties, or advertising costs, because there were none or the amounts were
less than one percent of revenue during these years.
<PAGE>
-25-
Exhibit Index
Sequential page
where Exhibit
No. Description can be found
---- --------------------------------------------- ---------------
(3) Articles of Incorporation and By-Laws -
Certificate of Amendment of Certificate of
Incorporation dated June 19, 1992 (filed
as Exhibit (4) to the Company's Form 10-Q
Report for the quarter ended June 30, 1992)*,
By-laws as amended through January 29, 1992
(filed as Exhibit (3) to the Company's
Form 10-K Report for the year ended
December 31, 1991)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1990)*
James C. Kelly Page 28
Performance bonus plans - 1993:**
R. James Macaleer (filed as Exhibit
(10) to the Company's Form 10-K Report
for the year ended December 31, 1992)*
Jack L. Ernsberger (filed as Exhibit
(10) to the Company's Form 10-K Report
for the year ended December 31, 1992)*
Graham O. King (filed as Exhibit (10)
to the Company's Form 10-K Report
for the year ended December 31, 1992)*
Marvin S. Cadwell (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1992)*
*Previously filed as indicated and incorporated herein by reference on
sequentially numbered pages 12 through 14.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
-26-
Sequential page
where Exhibit
No. Description can be found
---- --------------------------------------------- ---------------
Marion G. Tomlin (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1992)*
Insurance agreements:**
Jack L. Ernsberger (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1989)*
Marion G. Tomlin (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1991)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1991)*
Marion G. Tomlin (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1991)*
Jack L. Ernsberger (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1991)*
Graham O. King (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1991)*
Separation Agreements:**
Jack L. Ernsberger Page 30
Graham O. King Page 34
Stock Option Plans:
1987 Non-Qualified Stock Option Plan for
Non-Employee Directors Page 39
1991 Non-Qualified Stock Option Plan for
Non-Employee Directors (filed as Exhibit
B to the Company's Proxy Statement for
the Annual Meeting of Stockholders held
on May 1, 1991)*
*Previously filed as indicated and incorporated herein by reference on
sequentially numbered pages 12 through 14.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
-27-
Sequential page
where Exhibit
No. Description can be found
---- --------------------------------------------- ---------------
(13) Annual Report to Stockholders for the year
ended December 31, 1993*** Page 50
(21) Subsidiaries of the Registrant Page 86
(23) Consent of Independent Public Accountants Page 87
***With the exception of the material specifically incorporated by reference
in Part II of this Form 10-K, the Annual Report to Stockholders for the year
ended December 31, 1993 is not to be deemed "filed" as part of this Form 10-K.
<PAGE>
-28-
(Exhibit 10)
DEFERRED COMPENSATION AGREEMENT
AGREEMENT made as of the 8th day of March, 1991 by and between SHARED
MEDICAL SYSTEMS CORPORATION, a Delaware corporation ("SMS") and James C. Kelly
("Employee").
WHEREAS, employee has been employed as Executive Vice President, Secretary,
and Treasurer and,
WHEREAS, in further consideration for such services the parties hereto wish
to provide for certain deferred benefits for Employee pursuant to an
arrangement that also provides certain advantages to SMS'
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. SMS agrees to pay Employee, on the first day of each month for 240
consecutive months (20 years) beginning July 1, 1994, an amount equal to
$6,000.00 per month. Employee is fully vested in this amount on the date
this agreement is signed. In addition,
2. Should Employee die, while employed by SMS or otherwise, prior to the
beginning of payments under paragraph 1, above, to which he would otherwise
have been entitled, then such monthly payments shall be made to Employee's
beneficiary (his wife, Lyn E. Kelly).
3. In the event Employee, before or during the payment period, violates the
Non-Competition Agreement between Employee and SMS dated April 2, 1990,
thereupon he shall automatically forfeit all rights to any unmade payments
to deferred compensation under this Agreement.
4. The benefits payable under this Agreement shall be independent of, and
in addition to, any other agreement relating to Employee's employment that
may exist from time to time between the parties hereto, or any other
compensation payable by SMS to Employee, whether salary, bonus or otherwise.
This Agreement shall not be deemed to constitute a contract of Employment
between the parties hereto, nor shall any provision hereof, except as
expressly stated, restrict the right of SMS to discharge Employee or
restrict the right of Employee to terminate his employment.
5. This Agreement shall be binding upon SMS, its successors and assigns.
Employee may not assign this Agreement or any of his rights hereunder,
except that he may designate his beneficiary to receive payments in the
event of his death as provided herein.
<PAGE>
-29-
6. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
/S/ Michele Drake /S/ James C. Kelly
------------------------------- ---------------------------------
Witness Employee, James C. Kelly
SHARED MEDICAL SYSTEM CORPORATION
BY /S/ R. James Macaleer
------------------------------
<PAGE>
- 30 -
(Exhibit 10)
SEPARATION AGREEMENT
JACK ERNSBERGER and SHARED MEDICAL SYSTEMS CORPORATION have reached the
following Agreement. In this Agreement, "Employee" refers to Mr. Ernsberger.
"Company" refers to Shared Medical Systems Corporation.
1. Benefits and Payments.
---------------------
The Company will pay Employee the following on a monthly basis until the
earlier of July 31, 1994 or Employee's subsequent employment (including self-
employment):
(1) an amount equal to Employee's current monthly salary before taxes;
(2) premium payments to continue Employee's medical and dental benefits under
COBRA; and (3) premiums payments to continue Employee's life insurance
coverage of $250,000 under an individual policy converted from the group
policy. If Employee continues medical and dental coverage under COBRA or life
insurance coverage under the converted individual policy after the above
stated time period, Employee will be responsible for the premium payments.
Employee understands that the Company will deduct from this settlement amount
federal withholding taxes and other deductions the Company is required by law
to make from wage payments to employees.
SMS will cause to vest on October 1, 1993 the following Employee stock
options: 17,857 options granted on November 6, 1989 and scheduled to vest on
November 6, 1993, and 20,000 options granted on January 9, 1991 and scheduled
to vest on January 9, 1994. Pursuant to the non-qualified stock option
agreement signed by Employee, all vested options must be exercised within 90
days of termination of employment. SMS will, within a reasonable time after
December 31, 1993 and based on actual performance of the Company, pay Employee
75% of any bonus Employee would have earned had he remained with the Company
until December 31, 1993. After Employee pays SMS the cash surrender value of
$16,725.68 for Employee's split-dollar life insurance policy, SMS will
transfer ownership of such policy to Employee and Employee will be responsible
for any premium payments after September 30, 1993. As described in Employee's
Employment Agreement, Employee will remain eligible for retirement pay of
$4000 monthly for 20 years beginning at age 60. Employee's Retirement Savings
Plan monies will be paid in accordance with Plan provisions. Payment of the
settlement amount will be made in accordance with the normal Company payroll
cycle.
Employee understands that these amounts are all Employee is entitled to
receive from the Company. Employee will receive no further wage, vacation,
stock option or other payments or grants from the Company. Employee will be
responsible for any and all
1
<PAGE>
- 31 -
taxes relating to the amount paid to him pursuant to this Agreement.
2. Complete Release. For and in consideration of the foregoing benefits and
----------------
payments, which you agree are more than the Company is required to pay under
its normal policies and procedures, you have agreed to release the Company,
any related companies, and the employees and directors of any of them from all
claims or demands Employee may have based on Employee's employment with the
Company or the termination of that employment. This includes a release of any
rights or claims Employee may have under the Age Discrimination in Employment
Act, which prohibits age discrimination in employment; Title VII of the Civil
Rights Act of 1964 and the Civil Rights Act of 1991, which prohibits
discrimination in employment based on race, color, national origin, religion
or sex; the Equal Pay Act, which prohibits paying men and women unequal pay
for equal work; the Americans with Disabilities Act which prohibits
discrimination based on disability; or any other federal, state or local laws
or regulations prohibiting employment discrimination. This includes a release
by Employee of any claims relating to pay and commissions owed or any other
form of additional compensation other than as set forth in the first
paragraph. This also includes a release by Employee for any claims for
wrongful discharge. This release covers both claims that Employee knows about
and those he may not know about.
This Agreement does not waive or release any rights or claims that Employee
may have under the Age Discrimination in Employment Act which arise after the
date the Employee signs this Agreement.
This release does not include a release of Employee's right, if any, to
pension, retiree health or similar benefits under the Company's standard
retirement program.
3. No Future Lawsuits.
------------------
Employee agrees never to file a lawsuit asserting any claims that are released
in the second paragraph.
4. Non-Admission of Liability.
--------------------------
The Company makes this Agreement to avoid the cost of defending against any
possible lawsuit. By making this Agreement, the Company does not admit that
it has done anything wrong.
5. Consequences of Employee Violation of Promises.
----------------------------------------------
If Employee breaks Employee's promise in the third paragraph of this Agreement
and files a lawsuit based on legal claims that Employee has released, Employee
will pay for all costs incurred by the Company, any related companies or the
directors or
2
<PAGE>
- 32 -
employees of any of them, including reasonable attorneys' fees, in defending
against the Employee's claim.
6. Period for Review and Consideration.
-----------------------------------
Employee understands that Employee has been given a period of 21 days to
review and consider this Agreement before signing it. Employee further
understands that Employee may use as much of this 21 day period as Employee
wishes prior to signing. Employee is advised to consult with an attorney
before signing this Agreement. Employee understands that whether or not to do
so is Employee's decision.
Employee may revoke this Agreement within 7 days of Employee's signing it.
Revocation can be made by delivering a written notice of revocation to Mr. R.
James Macaleer, Chairman, Shared Medical Systems Corporation, 51 Valley Stream
Parkway, Malvern, Pennsylvania 19355. For this revocation to be effective,
written notice must be received by Mr. Macaleer no later than the close of
business on the seventh day after Employee signs this Agreement. If Employee
revokes this Agreement it shall not be effective or enforceable and Employee
will not receive the benefits and payments described in the first paragraph.
7. Termination of Employment.
-------------------------
Employee's resignation will be effective as of October 1, 1993.
8. Confidential Information.
------------------------
Employee shall not disclose the fact or terms of this Agreement to any person
or entity except for disclosures to members of Employee's immediate family or
financial or legal advisors who have been or will be involved with the matters
herein in the ordinary course and who will keep the information confidential,
except as ordered by a court.
Employee acknowledges that during his employment, he has had access to trade
secrets, proprietary and other Company confidential business information
(including, without limitation, customer lists, customer needs and
requirements, existing programs and programs in development, marketing plans,
pricing information and formulas, employee lists, salaries and benefits) and
information which the Company has obtained from third parties. Because
confidentiality of such information is critical to the Company's ability to
compete, and the Company is contractually bound to keep the third party
information confidential, upon termination of his employment, Employee agrees
not to disclose any of the above information at any time. Employee agrees to
continue to honor his confidentiality obligations under his Employment
Agreement with the Company.
3
<PAGE>
- 33 -
9. Other Employment.
----------------
Employee agrees that should he find other employment, he will notify Company
promptly and the settlement payments will cease immediately. In addition,
Employee agrees to repay Company for any monies received after the time when
he begins new employment.
Company agrees not to protest Employee's entitlement to unemployment
compensation.
10. Entire Agreement.
----------------
This is the entire Agreement between Employee and the Company. This Agreement
supersedes any and all other prior agreement(s) between Employee and the
Company. The Company has made no promises to Employee other than those in
this Agreement. This Agreement can only be modified in writing signed by both
Employee and the Company.
PLEASE READ THIS AGREEMENT CAREFULLY. IF YOU AGREE THAT IT ACCURATLEY SETS
FORTH THE TERMS OF OUR AGREEMENT, THEN PLEASE SIGN AND RETURN ONE ORIGINAL TO
ME AT YOUR EARLIEST CONVENIENCE, AND IN NO EVENT LATER THAN 21 DAYS FROM
TODAY. AFTER YOU DO SIGN IT, YOU WILL HAVE 7 DAYS TO CHANGE YOUR MIND AND
REVOKE YOUR AGREEMENT.
/s/ Jack L. Ernsberger
----------------------------------
Employee
Date: 10/21/93
------------------------
SHARED MEDICAL SYSTEMS CORPORATION
By: /s/ R. James Macaleer
-------------------------------
Date: 9/30/93
------------------------
4
<PAGE>
- 34 -
(Exhibit 10)
SEPARATION AGREEMENT
GRAHAM KING and SHARED MEDICAL SYSTEMS CORPORATION have reached the
following Agreement regarding Mr. King's resignation from the Company
effective as of November 30, 1993. In this Agreement, "Employee" refers to
Mr. King. "Company" refers to Shared Medical Systems Corporation.
A. Settlement Amounts.
------------------
1. PAYMENTS.
After November 30, 1993 and until the earlier of October 31, 1994 or
Employee's subsequent full-time employment (including full-time self-
employment), the Company will pay Employee the following on a monthly basis:
(1) an amount equal to Employee's current monthly salary before taxes; (2)
premium payments to continue Employee's medical and dental benefits under
COBRA; (3) premium payments to continue Employee's life insurance coverage of
$250,000 under an individual policy converted from the group policy; and (4)
premium payments to continue Employee's disability insurance coverage at the
same level of current Company policy. If Employee continues medical and
dental coverage under COBRA or life insurance or disability coverage under the
individual policies after the above stated time period, Employee will be
responsible for the premium payments.
If prior to October 31,1994 Employee is employed part-time, or self-employed
part-time, SMS will pay Employee monthly (i) the difference between
Employee's current monthly salary before taxes and the amount of Employee's
income from employment or self-employment before taxes during the month, and
(ii) the amounts described in items (2), (3) and (4) above.
Employee will remain covered under the term life insurance policy provided by
SMS until the first anniversary of such policy on July 18, 1994. Employee
will be eligible for retirement pay of $5000 monthly for 20 years beginning at
age 58. Subsequent to October 31, 1994, upon Employee's request, SMS will
consider starting the retirement payments at an earlier date, on a discounted
basis; the number of monthly payments would not change. However, SMS will not
commit to this change at this time. In the event the Employee dies prior to
receiving full payment of his retirement income, his spouse at the time of his
death shall receive the remaining monthly payments until the earlier of (i)
her death or (ii) the time at which all required
1
<PAGE>
- 35 -
payments have been made. Employee's Retirement Savings Plan monies will be
paid in accordance with Plan provisions.
Notwithstanding the above, SMS shall have the right to discontinue payments
of the amount equal to Employee's monthly salary (or a portion of it) and
the bonus payment if Employee hires or solicits for employment any person
who is currently an SMS employee, or if Employee makes any negative comments
about SMS (except as required under subpoena).
2. OPTIONS.
a. GRANT UNDER THE 1986 PLAN.
Employee holds 37,800 currently exercisable Options granted by the Company
to Employee on January 9, 1991 under the Company's 1986 Non-Qualified Stock
Option Plan. Company will cause such Options to remain exercisable until
April 30, 1994, subject to the restriction below. Company will make the
"Trade Saver" cashless exercise program available to Employee for the cashless
exercise and sale of the 37,800 Options at any time between the date of this
Agreement and April 30, 1994, subject to the restriction below.
b. GRANT UNDER THE 1982 PLAN.
The Company will cause to vest on October 15, 1993, 20,000 Options granted
to Employee on January 9, 1991 under the Company's 1982 Non-Qualified Stock
Option Plan and originally scheduled to vest on January 9, 1994. In
accordance with the 1982 Plan, these 20,000 Options must be exercised on or
before November 30, 1993, the effective date of Employee's resignation,
subject to the restriction below.
c. RESTRICTION.
Employee acknowledges that the Company is currently in a "black-out"
period, during which the Company prohibits all trading of its securities by
executive officers, except for exercises of outstanding options. Employee
further acknowledges that the Trade Saver cashless exercise program, because
it involves a sale of the shares issued upon exercise of options, will not be
available to Employee during such black-out period. Employee agrees not to
sell any shares (including those resulting from exercised options) prior to
notification from the Company that the black-out period has expired.
3. TOTAL AMOUNT; TAXES. Employee understands that this settlement is more
than the Employee is entitled and that this settlement amount is the total
amount the Employee will receive from the Company. Employee will receive no
further wage, vacation, stock option or any other payments or grants from the
Company. Those settlement amounts which are monthly payments will be made in
accordance with the normal Company payroll cycle. Employee understands that
the Company will deduct from the settlement payments any federal withholding
taxes and other deductions the Company is required by law to make from wage
payments to employees. Employee will be responsible for any and
2
<PAGE>
- 36 -
all taxes relating to the amounts paid to him pursuant to this Agreement,
including withholding taxes on the exercise of options.
B. Complete Release.
----------------
For and in consideration of the foregoing benefits and payments, which you
agree are more than the Company is required to pay under its normal policies
and procedures, you have agreed to release the Company, any related companies,
and the employees and directors of any of them from all claims or demands
Employee may have based on Employee's employment with the Company or the
termination of that employment. This includes a release of any rights or
claims Employee may have under the Age Discrimination in Employment Act, which
prohibits age discrimination in employment; Title VII of the Civil Rights Act
of 1964 and the Civil Rights Act of 1991, which prohibits discrimination in
employment based on race, color, national origin, religion or sex; the
Americans with Disabilities Act which prohibits discrimination based on
disability; or any other federal, state or local laws or regulations
prohibiting employment discrimination. This includes a release by Employee of
any claims relating to pay and commissions owed or any other form of
additional compensation other than as set forth in the first paragraph. This
also includes a release by Employee for any claims for wrongful discharge.
This release covers both claims that Employee knows about and those he may not
know about.
This Agreement does not waive or release any rights or claims that Employee
may have under the Age Discrimination in Employment Act which arise after the
date the Employee signs this Agreement.
This Agreement does not waive or release any rights that Employee may have for
indemnification under SMS' By-Laws.
C. No Future Lawsuits.
-- ------------------
Employee agrees never to file a lawsuit asserting any claims that are released
in the above paragraph. If Employee breaks Employee's promise of no future
lawsuits and files a lawsuit based on legal claims that Employee has released,
Employee will pay for all costs incurred by the Company, any related companies
or the directors or employees of any of them, including reasonable attorneys'
fees, in defending against the Employee's claim.
D. Non-Admission of Liability.
--------------------------
The Company makes this Agreement to avoid the cost of defending against any
possible lawsuit. By making this Agreement, the Company does not admit that
it has done anything wrong.
3
<PAGE>
- 37 -
E. Period for Review and Consideration.
-----------------------------------
Employee understands that Employee has been given a period of 21 days to
review and consider this Agreement before signing it. Employee further
understands that Employee may use as much of this 21 day period as Employee
wishes prior to signing. Employee is advised to consult with an attorney
before signing this Agreement. Employee understands that whether or not to do
so is Employee's decision.
Employee may revoke this Agreement within 7 days of Employee's signing it.
Revocation can be made by delivering a written notice of revocation to Mr. R.
James Macaleer, Chairman, Shared Medical Systems Corporation, 51 Valley Stream
Parkway, Malvern, Pennsylvania 19355. For this revocation to be effective,
written notice must be received by Mr. Macular no later than the close of
business on the seventh day after Employee signs this Agreement. If Employee
revokes this Agreement it shall not be effective or enforceable and Employee
will not receive the benefits and payments described in the first paragraph.
F. Employee's Obligations.
----------------------
Employee shall not disclose the fact or terms of this Agreement to any person
or entity except for disclosures to members of Employee's immediate family or
financial or legal advisors who have been or will be involved with the matters
herein in the ordinary course and who will keep the information confidential,
except as ordered by a court.
Employee agrees to honor his post-employment obligations as described in
Provisions 9, 10 and 11 of his Employment Agreement, dated January 10, 1991,
with the Company. All payments under this Agreement will be voided if
Employee violates these provisions.
G. Other Employment.
----------------
Employee agrees that should he find other employment, he will notify Company
promptly and the settlement payments will cease immediately. In addition,
Employee agrees to repay Company for any monies received after the time when
he begins new employment. Company agrees not to protest Employee's
entitlement to unemployment compensation.
H. Entire Agreement.
----------------
This is the entire Agreement between Employee and the Company. This Agreement
supersedes any and all other prior agreement(s) between Employee and the
Company, including without limitation, the Employment Agreement dated January
10, 1991, except to the extent provisions of such Employment Agreement survive
as
4
<PAGE>
-39-
Exhibit (10)
SHARED MEDICAL SYSTEMS CORPORATION
1987 NON-QUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
------------------------------------
1. Purpose
-------
The 1987 Non-Qualified Stock Option Plan for NonEmployee Directors (the
"Plan") is designed to aid Shared Medical Systems Corporation (the "Company"),
through the grant of non-qualified stock options to purchase common stock of
the Company ("Common Stock"), par value $.01 per share, to members of the
Board of Directors of the Company who are not employees of the Company
("Directors"), in attracting and retaining experienced and knowledgeable
independent directors of the Company and to provide an inducement to such
directors to promote the best interests of the Company by enabling and
encouraging them to acquire stock ownership in the Company.
As used in the Plan, the term "non-qualified stock option" ("Option") means
an option which, at the time such option is granted does not qualify as an
incentive stock option within the meaning of section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), and is designated as a non-
qualified stock option in the Option Agreement (as hereinafter defined).
2. Administration
--------------
The Plan shall be administered by a committee (the "Committee") of three
(3) members. One (1) of the members shall be the Chairman of the Board of
Directors of the Company (the "Board"). The other two (2) members shall also
be directors of the Company and shall be appointed by, and shall serve at the
pleasure of, the Board. Each member of such Committee, while serving as such,
shall be deemed to be acting in his capacity as a director of the Company.
Except as otherwise permitted under Section 16(b) of the
<PAGE>
-40-
Securities Exchange Act of 1934, and the rules and regulations thereunder, no
member of the Committee shall be eligible, nor shall have been eligible at any
time within one (1) year prior to his appointment to the Committee, for
selection as a person to whom stock may be allocated or to whom Options may be
granted pursuant to the Plan or any other plan of the Company or of any of its
affiliates, as defined in the Securities Exchange Act of 1934, entitling
participants therein to acquire stock, or stock options, of the Company or of
any of its affiliates.
The Committee shall have full authority, subject to the terms of the Plan,
to select the Directors to be granted Options under the Plan, to grant Options
on behalf of the Company and to set the date of grant and the other terms of
such Options. The Committee also shall have the authority to establish such
rules and regulations, not inconsistent with the provisions of the Plan, for
the proper administration of the Plan, and to amend, modify or rescind any
such rules and regulations, and to make such determinations and interpreta-
tions under, or in connection with, the Plan, as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its stockholders and all
Directors, and upon their respective legal representatives, beneficiaries,
successors and assigns and upon all other persons claiming under or through
any of them.
3. Eligibility
-----------
Any Director who became a member of the Board after January 1, 1980, and
who is not and has never been an employee of the Company or of any of its
majority-owned subsidiaries and who is not at the time of grant of an Option
under the Plan a member of the Committee shall be eligible to receive Options
under the Plan. More than one Option may be granted to a Director under the
Plan, but no Director shall be eligible to receive
<PAGE>
-41-
Options to purchase more than an aggregate of ten thousand (10,000) shares of
Common Stock (not including Options granted a Director to the extent that they
have expired or have otherwise terminated for any reason whatsoever,
including, but not limited to, the Director's surrender thereof, without
having been exercised) under the Plan.
4. Stock
-----
Options may be granted under the Plan to purchase up to a maximum of one-
hundred thousand (100,000) shares of Common Stock, subject to adjustment as
hereinafter provided. Shares issuable under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
If any Option granted under the Plan expires or otherwise terminates for
any reason whatever (including, without limitation, the Director's surrender
thereof) without having been exercised, the shares subject to the unexercised
portion of such Option shall continue to be available for the granting of
Options under the Plan as fully as if such shares had never been subject to an
Option.
5. Granting of Options
-------------------
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
to Directors under the Plan such Options as it determines are warranted. The
granting of an Option under the Plan shall not be deemed either to entitle the
Director to, or to disqualify the Director from, any participation in any
other grant of Options under the Plan. In making any determination as to
whether a Director shall be granted an Option and as to the number of shares
to be covered by such Option, the Committee shall take
<PAGE>
-42-
into account the duties of the Director, his present and potential
contributions to the success of the Company, and such other factors as the
Committee shall deem relevant in accomplishing the purposes of the Plan.
Moreover, the Committee may provide in the Option that said Option may be
exercised only if certain conditions, as determined by the Committee, are
fulfilled.
6. Terms and Conditions of Options
-------------------------------
Each Option granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions, as well as such other provisions
not inconsistent with the provisions of this Plan as the Committee shall deem
desirable:
(a) Number of Shares
----------------
A statement of the number of shares to which the Option pertains.
(b) Price
-----
A statement of the Option price which shall be determined and fixed by
the Committee in its discretion but which shall not be less than the higher of
one hundred percent (100%) of the fair market value of the optioned shares of
Common Stock, or the par value thereof, on the date the Option is granted.
The fair market value of the optioned shares of Common Stock shall be
arrived at by a good faith determination of the Committee and shall be (i) the
mean between the highest and lowest quoted selling price, if there is a market
for the Common Stock on a registered securities exchange or in an over-the-
counter market, on the date of grant, or (ii) the weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant, if there are no sales on the date of
grant but there are sales on dates within a reasonable period both before and
after the date of grant, or (iii) the mean between
<PAGE>
-43-
the bid and asked prices, as reported by the National Quotation Bureau on the
date of grant, if actual sales are not available during a reasonable period
beginning before and ending after the date of grant, or (iv) such other method
of determining fair market value as shall be authorized by the Code, or the
rules or regulations thereunder, and adopted by the Committee. Where the fair
market value of the optioned shares of Common Stock is determined under (ii)
above, the average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant is to be
weighted inversely by the respective numbers of trading days between the date
of grant and the valuation date, in accordance with Treas. Reg. (S) 20.2031-
2(b)(1).
(c) Term
----
Subject to earlier termination as provided in Subsections (e), (f), and
(g) below and in Section 8 hereof, the term of each Option shall be not less
than two (2) years and not more than ten (10) years from the date of grant.
(d) Exercise
--------
Options shall be exercisable in such installments and on such dates,
not less than one (1) year from the date of grant, as the Committee may
specify. Any Option shares, the right to the purchase of which has accrued,
may be purchased at any time up to the expiration or termination of the
Option. Exercisable Options may be exercised in whole or in part from time to
time by giving written notice of exercise to the Company at its principal
office, specifying the number of shares to be purchased and accompanied by
payment in full of the aggregate Option price for such shares. Only full
shares shall be issued under the Plan, and any fractional share which might
otherwise be issuable upon exercise of an Option granted hereunder shall be
forfeited. The Option price shall be payable in cash or its equivalent.
<PAGE>
-44-
(e) Termination of Tenure on Board of Directors
-------------------------------------------
If a Director ceases to be a director of the Company for any reason
other than death, disability, or retirement with the consent of the Committee,
all Option rights of such Director under any outstanding Option shall
terminate immediately, unless and to the extent that the terms of such Option
Agreement expressly indicate otherwise. If a Director ceases to be a director
of the Company by reason of retirement with the consent of the Committee prior
to the expiration date fixed for his Option, such Option may be exercised, to
the extent of the number of shares with respect to which the Director could
have exercised it on the date of such retirement, by the Director at any time
prior to the earlier of (i) the expiration date specified in such Option, or
(ii) the later of ninety (90) days after such retirement or the relevant date,
if any, specified in such Option.
(f) Exercise upon Disability of Director
------------------------------------
If a Director ceases to be a director of the Company by reason of
physical disability, as determined by the Committee in its sole discretion,
prior to the expiration date fixed for his Option, such Option may be
exercised, to the extent of the number of shares with respect to which the
Director could have exercised it on the date of such cessation, by the
Director at any time prior to the earlier of (i) the expiration date specified
in such Option, or (ii) the later of ninety (90) days after such cessation or
the relevant date, if any, specified in such Option. In the event of the
Director's legal disability, such Option may be so exercised by the Director's
legal representative.
(g) Exercise upon Death of Director
-------------------------------
If a Director shall die during his term of office, and prior to the
expiration date fixed for his Option, such Option may be exercised, to the
extent of the number of shares with respect to which the Director could
<PAGE>
-45-
have exercised it on the date of his death, by the Director's estate, personal
representative or beneficiary who acquired the right to exercise such Option
by bequest or inheritance or by reason of the death of the Director, at any
time prior to the earlier of (i) the expiration date specified in such Option
or (ii) the later of one-hundred twenty (120) days after the date of the
Director's death or the relevant date, if any, specified in such Option.
(h) Non-Transferability
-------------------
No Option shall be assignable or transferable by a Director otherwise
than by will or by the laws of descent and distribution, and during the
lifetime of the Director the Option shall be exercisable only by him or by his
guardian or legal representative.
(i) Rights as a Stockholder
-----------------------
A Director shall have no rights as a stockholder with respect to any
shares covered by his Option until the issuance of a stock certificate to him
for such shares.
(j) Listing and Registration of Shares
----------------------------------
Each Option shall be subject to the requirement that, if at any time
the Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares covered thereby upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the
purchase of shares thereunder, or that action by the Company or by the
Director should be taken in order to obtain an exemption from any such
requirement, no such Option may be exercised, in whole or in part, unless and
until such listing, registration, qualification, consent, approval, or action
shall have been effected, obtained, or taken under conditions acceptable to
the Committee. Without limiting the generality of the
<PAGE>
-46-
foregoing, each Director or his legal representative or beneficiary may also
be required to give satisfactory assurance that shares purchased upon exercise
of an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
(k) Withholding
-----------
The obligation of the Company to deliver shares of Common Stock upon
the exercise of any Option shall be subject to applicable federal, state and
local tax withholding requirements.
7. Option Instruments - Other Provisions
-------------------------------------
Each Option granted under the Plan shall be evidenced by a written document
("Option Agreement") in such form as the Committee shall, from time to time,
approve, which Option Agreement shall contain such provisions, not
inconsistent with the provisions of the Plan as the Committee shall deem
advisable, and shall be signed by the Director.
8. Capital Adjustments
-------------------
The number of shares which may be issued under the Plan, as stated in
Section 4 hereof, and the number of shares issuable upon exercise of
outstanding Options under the Plan (as well as the Option price per share
under such outstanding Options), shall be adjusted as may be deemed
appropriate by the Committee, to reflect any stock dividend, stock split,
share combination, or similar change in the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 425(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option may be
assumed by the surviving or successor corporation; provided, however, that,
<PAGE>
-47-
in the event of a proposed corporate transaction, the Committee may terminate
all or a portion of the outstanding Options if it determines that such
termination is in the best interests of the Company. If the Committee decides
to terminate outstanding Options, the Committee shall give each Director
holding an Option to be terminated not less than seven (7) days' notice prior
to any such termination by reason of such a corporate transaction, and any
such Option which is to be so terminated may be exercised (if and only to the
extent that it is then exercisable) up to and including the date immediately
preceding such termination. Further, the Committee, in its discretion, may
accelerate, in whole or in part, the date on which any or all Options become
exercisable, regardless of the provisions of Section 6(d) hereof or of the
terms of any Option Agreement.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction.
9. Amendment or Discontinuance of the Plan
---------------------------------------
The Board from time to time may suspend or discontinue the Plan or amend it
in any respect whatsoever, except that no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Option without the consent of such holder.
10. Rights
------
Neither the adoption of the Plan nor any action of the Board or the
Committee shall be deemed to give any individual any right to be granted an
Option, or any other right hereunder, unless and until the Committee shall
have granted such individual an Option, and then his rights shall be only such
as are provided by the Option Agreement.
Any Option under the Plan shall not entitle the holder thereof to any
rights as a stockholder of the Company prior to the exercise of such Option
<PAGE>
-48-
and the issuance of the shares pursuant thereto.
11. Indemnification of Board and Committee
--------------------------------------
(a) Indemnification
---------------
Without limiting any other rights of indemnification which they may
have from the Company, any member of the Committee and any member of the Board
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of any action taken or failure to
act under, or in connection with, the Plan or any Option granted thereunder,
shall be indemnified by the Company against expenses (including attorneys'
fees), judgments, fines, excise taxes and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permissible under Delaware law.
(b) Advances
--------
Any person claiming indemnification within the scope of Subsection (a)
of this Section 11 shall be entitled to advances from the Company for payment
of the expenses of defending actions against such person in the manner and to
the full extent permissible under Delaware law.
(c) Procedure
---------
On the request of any person requesting indemnification under
Subsection (a) of this Section 11, the Board or a committee thereof shall
determine whether such indemnification is permissible or such determination
shall be made by independent legal counsel if the Board or Committee so
directs or if the Board or Committee is not empowered by statute to make such
determination.
<PAGE>
-49-
12. Application of Funds
--------------------
Any cash received in payment for shares upon exercise of an Option to
purchase Common Stock shall be added to the general funds of the Company and
shall be used for its corporate purposes.
13. Effective Date
--------------
The effective date of the Plan shall be June 22, 1987 (the date of the
Plan's adoption by the Board).
14. No Obligation to Exercise Option
--------------------------------
The granting of an Option shall impose no obligation upon a Director to
exercise such Option.
15. Termination of Plan
-------------------
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on
June 21, 1997, which date is within ten (10) years after the date the Plan was
adopted by the Board, and no Options hereunder shall be granted thereafter.
Nothing contained in this Section 15, however, shall terminate or affect the
continued existence of rights created under Options issued hereunder and
outstanding on June 21, 1997,which by their terms extend beyond such date.
16. Governing Law
-------------
The laws of the state of Delaware shall govern the operation of the Plan,
the Option Agreements and any Options granted thereunder.
<PAGE>
-50-
EXHIBIT (13)
1993 Annual Report
(LOGO OF SHARED MEDICAL SYSTEMS APPEARS HERE)
<PAGE>
-51-
(INSIDE OF ANNUAL REPORT COVER PAGE)
Copyright 1994 SMS
Shared Medical Systems Corporation
<PAGE>
-52-
[LOGO OF SHARED MEDICAL SYSTEMS APPEARS HERE]
Annual Report 1993
SMS is the leading provider of healthcare information systems and
services to hospitals, multientity healthcare corporations, physician groups,
and other healthcare providers in North America and Europe. SMS also provides
a full complement of solutions for the newly emerging integrated health
networks. In response to the increasing demand for information, SMS offers a
comprehensive line of healthcare information systems, including clinical,
financial, administrative, ambulatory, and decision support systems for both
the public and private healthcare sectors. To meet each healthcare
organization's requirements, these systems are offered on computers operating
at the customer site, at the SMS Information Systems Center, or as part of a
distributed network.
SMS also provides a portfolio of professional services critical to our
customers' successful management of their information systems. These
professional services include system installation, support, and education. In
addition, we provide specialized consulting services for the design and
integration of software and networks, for facilities management, and for
information systems planning.
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------
Operating Results: 1993 1992 % Increase
================================================================================
<S> <C> <C> <C>
Revenues $501,283,000 $469,624,000 7%
- --------------------------------------------------------------------------------
Income Before Income Taxes $51,678,000 $45,046,000 15%
- --------------------------------------------------------------------------------
Net Income $31,013,000 $28,379,000 9%
- --------------------------------------------------------------------------------
Net Income Per Share $1.35 $1.24 9%
- --------------------------------------------------------------------------------
Cash Dividends Declared Per Share $.84 $.84 -
- --------------------------------------------------------------------------------
Average Number of Common Shares 23,046,000 22,880,000 1%
- --------------------------------------------------------------------------------
Year End Position:
================================================================================
Total Assets $341,442,000 $305,604,000 12%
- --------------------------------------------------------------------------------
Retained Earnings $228,831,000 $216,846,000 6%
- --------------------------------------------------------------------------------
Total Stockholders' Investment $198,206,000 $186,596,000 6%
- --------------------------------------------------------------------------------
Current Ratio 1.8 1.8
- --------------------------------------------------------------------------------
Common Stock Outstanding 22,752,808 22,566,297
- --------------------------------------------------------------------------------
Number of Stockholders of Record 5,684 5,304
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
-53-
T o O u r S t o c k h o l d e r s :
1993 marked SMS' 25th year in business. Almost from its inception SMS
became the leading supplier of automated information systems to healthcare
organizations in the U.S., and for the past ten years has served the same role
in Europe. We are proud of what we have accomplished since January of 1969 and
of the people who made it possible, a great many of whom are still part of the
SMS team.
SMS was born in the crucible of change - the need for hospitals to
automate to cope with the data gathering and reporting demands that resulted
from the mid-1960s implementation of Medicare and Medicaid - and it has
prospered during a 25 year period characterized by frequent change with
respect to the demands placed upon healthcare delivery organizations and the
needs of these organizations as they responded to these changes. It has
survived as the leading healthcare information systems vendor during a period
when literally many dozens of competitors have not survived at all.
And while we reflect with pride on these 25 years, we are acutely
sensitive to the importance of looking forward, rather than basking in the
glow of past successes. During the remainder of this decade we will see
changes to our healthcare system that will dwarf all the changes we have seen
since SMS' inception, and our focus will be on helping our customers cope
effectively with the changes. We will adhere to the advice of the legendary
baseball philosopher, Satchel Paige*, who is probably best remembered, not for
being one of the best, or perhaps the best, pitcher in baseball history, but
for the following one-liner, "Don't look back. Something might be gaining on
you." While Mr. Paige was probably referring to Father Time (see footnote),
his advice is equally applicable in the very competitive healthcare
information systems industry.
Unless you are from another planet, you probably have read and heard more
during this past year alone than you ever wanted to know about what our
Federal Government might do to change our healthcare system. However, even if
the Federal Government does nothing (devoutly to be wished but unlikely), most
of the changes they visualize (with the exception of universal coverage) are
already well underway, driven primarily by insurers, providers, employers, and
state governments.
Physicians and hospitals, and in some cases insurers, are banding together
to provide more cost-effective care through local and regional enterprises.
These new partnerships have additional information system requirements. SMS' R
& D activities are providing solutions for these requirements.
* Satchel Paige had the misfortune to play most of his professional baseball
career at a time when the major leagues did not accept African-Americans. His
only option prior to the late 1940s was to play in the Negro Leagues. At the
end of his career he did get a chance to play in the major leagues and did so
with distinction. He claimed to be in his early to mid-forties when he
played. However, some observers believe he was on the shady side of age fifty.
2
<PAGE>
-54-
Today's solutions, and tomorrow's, must meet an expanded set of objectives:
they must be more cost-effective, user-friendly (easy to use), and open. "Open"
solutions, while subject to a variety of definitions, generally are those that
can easily exchange data with solutions from other sources. SMS has been a
pioneer in this area. For many years our systems have effectively communicated
with other systems that use hardware and software from literally hundreds of
different vendors. The experience we have gained in these efforts positions us
at the forefront of information systems suppliers who can deal effectively
with the systems integration issues of the nineties.
One example of our expertise is our service as an intermediary to allow our
customers to exchange data with hundreds of payors - organizations, such as
insurance companies, HMOs, and government agencies, who are responsible for
paying patients' healthcare bills. In an extension of this capability, we enable
our customers to use their existing systems from SMS to inquire directly into
payor files to determine eligibility for healthcare services. This new service,
now being expanded from a few test areas, has enabled our customers to quickly
identify sources of reimbursement for millions of dollars of services rendered
that might otherwise have had to be written off. We also facilitate the
remittance of payments electronically, thereby significantly improving cash flow
for our customers.
One of the mainstays of the healthcare system of the future will be an
electronic patient record that contains a cumulative history of all of a
patient's encounters with various healthcare providers -- physicians, clinics,
in-hospital stays, home healthcare agencies, etc. SMS is ready today to meet our
customers' needs for this technology. In fact, several of our customers are
already using SMS' electronic patient record, and many more will begin using it
in 1994.
The complete electronic patient record must include images-of X rays, CAT
scans, MRIs, nuclear medicine scans, EKGs, ultrasounds, and, on a more mundane
basis, of documents. SMS' customers are already taking advantage of the imaging
capabilities of the SMS electronic patient record. Some customers are scanning
X rays, taken in locations such as an emergency room, and displaying them
electronically elsewhere in the hospital. Others are electronically storing and
displaying images from CAT scans, MRIs, and nuclear medicine scans.
Still others are using SMS' document imaging system to reduce paperwork and
increase efficiency. Numerous SMS customers are using this technology to
eliminate paper documents in their administrative activities, particularly those
that involve billing data, insurance claims, and patient inquiries. As a result,
customer business offices are becoming paperless and more efficient through SMS'
advanced technology. In addition, during 1994 SMS' customers will begin using
document imaging to include scanned documents as part of the electronic patient
record.
(CALL OUT - CHAIRMAN QUOTE)
Through long-term partnerships in the healthcare industry, SMS helps our
customers improve their quality of care, financial performance, and strategic
position by providing superior, cost-effective, information system and
service solutions.
3
<PAGE>
-55-
In 1993, compared to 1992, SMS produced significant increases in revenues,
income, and earnings per share. Revenues exceeded half a billion dollars, a new
record for your Company. Pretax income grew by 15%. Aftertax income and earnings
per share grew by a smaller percentage (9% each) due to the Clinton Administra-
tion's recent tax increase. During 1993 our balance sheet continued to
improve, with an increased cash balance at year-end and no long-term debt
(other than that associated with equipment under capital leases). Dividends
were paid to shareholders in 1993 equal to 67% of our 1992 net income (which
is the basis for 1993's dividend) and 61% of our 1993 net income.
The lackluster economy in Europe and a strengthening of the dollar slowed
the growth of revenues and profits of our European operations. (The 1993 profits
from our European operations would have been approximately 20% higher than
reported had the average currency translation rates for 1993 been equal to those
of 1992.) Nevertheless, there were impressive sales and installation activities
in the seven countries in which we currently operate: namely, Ireland, the
United Kingdom, the Netherlands, Germany, Spain, and our two newest country
operations in Italy and France. In Germany, alone, we added twenty new hospital
customers.
Since our last annual report was published, we strengthened our Board of
Directors with the addition of Jeffrey Rubin, Executive Vice President and
Chief Financial Officer of NYNEX Corporation, one of the seven Bell regional
operating companies. Unfortunately, we also lost an outstanding director,
Arthur Levitt, to the Clinton Administration. Arthur provided thoughtful
counsel and insight to our management team, and while we miss his
contributions, we wish him well in the difficult arena of Washington politics
and regulatory affairs.
In 1993 SMS was again successful in many areas: achieving meaningful
earnings growth, making substantial sales to new and existing customers,
improving customer satisfaction, and introducing new and improved products.
And despite the uncertainty that surrounds healthcare reform, we are
optimistic that in 1994, as we enter our second quarter century, we will
continue the progress we have made during the past several years in these and
other areas, thereby delivering more value to our customers and stockholders
and more opportunities for our employees.
/s/ R. James Macaleer
R. James Macaleer
Chairman of the Board
4
<PAGE>
-56-
S O L U T I O N S
For over two decades, government regulations have played a major role in
influencing the direction of the healthcare industry and in creating new and
expanded information system requirements. In the 1960s, the U. S. government
introduced Medicare and Medicaid, thereby creating a need for financial
information systems. In the 1980s, government-mandated Diagnostic Related
Groups (DRGs), designed to reduce inpatient costs, intensified the need for
clinical information systems. This year President Clinton's national health
plan proposal provided the impetus for the most far-reaching market changes to
date. These proposed changes will require the most sophisticated information
and electronic communication systems in the history of U.S. healthcare.
In response to financial pressures and anticipated governmental reform,
today's healthcare entities are undergoing dramatic organizational
transformations and are implementing aggressive business strategies to
position themselves for future success. The stand-alone, acute-care hospital
that focuses primarily on inpatient services is increasingly rare. Varying
combinations of hospitals, physicians groups, clinics, skilled nursing
facilities, home health agencies, and imaging centers are joining forces to
form healthcare enterprises. The central goal of these enterprises is to
provide cost-effective, high-quality managed care programs to enrolled patient
populations for an entire continuum of care. Their approach to healthcare
delivery includes increasing emphasis on preventative, conveniently located
ambulatory services aimed at preserving patients' health and at performing as
many services and procedures as possible on an outpatient basis.
To effectively unite, manage, and support their new organizational
structures and delivery methodologies, these healthcare enterprises require
progressive, fully integrated information system solutions that extend across
and beyond their networks' boundaries. They need to connect and communicate
electronically with all points of their organization, and with a spectrum of
healthcare participants, including providers, employers, payors, financial
institutions, and government agencies. They must share clinical and financial
information across their networks and present a seamless view of patient-
centered data.
In addition, these healthcare conglomerates need to comply with new
regulatory requirements, control and monitor costs, and standardize their
medical practices to achieve more productive, high-quality treatment and
outcomes. They must develop and assimilate managed care programs throughout
their enterprises and successfully administer these programs in diverse
arenas. And they need to make timely, broad-based management decisions and
select strategic healthcare partners who will help them evolve and prosper in
the future.
(CALL OUT - CUSTOMER QUOTE)
When we decided to install a new network, we wanted a vendor with both network
and healthcare experience. Working with SMS, we planned and implemented a cost-
effective, state-of-the-art network. With SMS' help, we are now positioned to
deliver local and regional healthcare services.
Paul G. Marier
Chief Information Officer
St. Elizabeth's Medical Center of Boston
Boston, Massachusetts
5
<PAGE>
-57-
For 25 years, SMS has anticipated the needs of the healthcare industry
and has focused on developing innovative software and service solutions that
help our customers successfully deal with opportunities and issues as they
arise. As the world's leading provider of comprehensive clinical and financial
healthcare information systems, networks, and services, SMS is uniquely
positioned to help the modern healthcare organization meet the dynamic
challenges of the reform era.
Customer Satisfaction Is Priority One
SMS' success in pioneering progressive healthcare information system
solutions is a direct result of our strong customer partnerships and our
commitment to the highest possible customer satisfaction. Customer-Driven
Quality (CDQ) is the cornerstone of our strategy. CDQ initiatives benefit our
own organization and those of our customers by helping to increase
productivity, streamline business processes, reduce costs, and improve
employee and customer satisfaction. We continually refine and expand our CDQ
strategy by learning from our customers and from other companies, such as
Malcolm Baldrige winners, that are recognized as effectively employing total
quality management techniques.
SMS partners with customers on every stage of product planning,
development, and implementation to ensure that our products and services meet
customer-defined requirements. Advisory boards and national user groups of our
customers and industry experts help SMS understand market needs and provide
valuable input to product planning. Annual customer satisfaction surveys
provide vital feedback to every aspect of our business. Joint customer
development projects enable us to work closely with customers to create
sophisticated products that meet their most immediate needs.
SMS continues to focus on improving customer access to SMS support
personnel and services, and to help customers optimize their use of their
systems. Customer service teams of SMS Field and Corporate representatives
provide a knowledgeable source for all customer questions and requests.
Enhanced Customer Care Programs use joint goal setting and account planning to
identify and satisfy the individual support needs of each customer. Education
centers located across the United States offer customers extensive industry
and product training programs, and employ state-of-the-art methods, such as
teleconferencing, to expand customer access.
Solutions for Connecting The Healthcare Network
As healthcare organizations continue to merge and align with each other,
they face the complex challenge of building a communication infrastructure (or
electronic highway) that electronically links the different parts of their own
organizations with each other as well as with those of a variety of external
parties. SMS' ability to integrate these healthcare networks electronically is
unparalleled, having connected more providers, blended more healthcare
information systems, joined more physicians, and linked more payors than any
other company. From our
(CALL OUT - CUSTOMER QUOTE)
Joint TQM with SMS was rewarding. In essence, our two corporations formed a
joint team to address major interactions and issues between us. We've set a nice
direction for how we can work together.
Pat Skarulis
Chief Information Officer and Vice President of
Information Services
Rush-Presbyterian-St. Luke's Medical Center
Chicago, Illinois
6
<PAGE>
-58-
Information Systems Center in Malvern, PA, SMS operates the largest
healthcare network in the United States, with online connections to over 800
customer sites. Our wide area network consists of over 500,000 miles of
communications lines, contains over 3,000 communication devices, connects over
62,000 customer terminals and printers, and transmits the equivalent of over
100,000,000 pages of information per day.
SMS offers open system solutions that help customers interconnect the
disparate operational systems, products, and technologies of new network
members without major changes to any of the individual systems. The SMS
interface engine acts as a central communications hub that easily and cost-
effectively interfaces any system or application to another, using any
protocol or data format, including VMS, UNIX, NT, MVS, and DOS-based systems.
This enables customers to rapidly transmit and receive information to and from
SMS and non-SMS systems and throughout their healthcare network.
SMS products are founded on state-of-the-art operating software and
technology platforms, minimizing the risk of obsolescence and facilitating
cost-effective migration to new systems, software, and applications. We
continually incorporate the most progressive technologies and user tools--such
as intelligent workstations, graphical displays, handheld terminals, and
multimedia--to make our systems easy to use and to provide quick access to
meaningful information from any location. Extensive security features address
the complexity of multi-institutional settings and ensure that confidential
data are accessed only by authorized personnel.
In order for healthcare enterprises to communicate meaningful information
to external parties electronically, their data must be in a format that other
systems can use. Since 1987, SMS has pioneered the development of healthcare-
specific electronic data interchange products and services. SMS Healthcare
Data Exchange (HDX) facilitates the electronic communication of industry
standardized information among all parties involved in the healthcare
industry. For example, HDX electronically links an expansive, 250,000 member
community healthcare network in New England--comprised of hospitals, physician
groups, multispecialty clinics, laboratories, health insurers, government
agencies, and financial institutions--for eligibility verifications, claims,
and remittance transmissions. In today's increasingly complex managed care
environment, HDX provides a vital electronic solution that streamlines
healthcare administration and enhances the quality of care by the timely
exchange of data among various entities along the health network.
Solutions for Sharing Data Across the Network
SMS provides healthcare enterprises with sophisticated clinical, financial,
and departmental systems that help them manage every facet of their business
operations--from preregistration and eligibility screening, to patient care
and outcomes measurement, through electronic billing and remittance. Over the
years, as their needs
(CALL OUT - CUSTOMER QUOTE)
I view the HDX eligibility service as the precursor to a complete EDI solution
for healthcare. It is invaluable to my operations and I'm seeing a terrific
return on investment. I believe this service will be applicable to whatever
comes our way from healthcare reform.
David Jupp
Director of Patient Accounting
St. Luke's Medical Center
Cleveland, Ohio
7
<PAGE>
-59-
have evolved, we have proactively expanded SMS systems to fit our customers'
changing requirements. Today, SMS products and services include the important,
specialized systems designed to manage individual operations and clinical
functions. SMS also offers new, powerful applications that enable healthcare
providers to share integrated, patient-centered information across their
networks and to project a seamless view of their multifaceted enterprises to
patients and healthcare constituents.
For example, the SMS electronic patient record unifies comprehensive
clinical and financial information entered by disparate parts of the
healthcare enterprise into a central repository, retaining this information
during a patient's lifetime. Recipient of a National Managed Health Care
Congress award for information technology excellence, SMS' electronic patient
record helps improve productivity and reduce administrative costs at all
levels of the healthcare organization by providing online, simultaneous access
to patient-centered information across all episodes of care at any time and
from any location.
It facilitates care delivery by enabling providers to admit, track, and
identify patients wherever and whenever they access care, eliminating the need
for patients to supply redundant information at different locations. Care
givers can access up-to-the-minute patient information--including test results,
family histories, vital signs, medication lists, allergies, and transcribed
reports--that provides the basis for sound treatment decisions. In addition,
SMS' Multi-Resource Scheduling efficiently integrates the scheduling of multiple
patient tests, procedures, and appointments throughout the healthcare
enterprise, helping to increase patient satisfaction by minimizing waiting time
and return visits.
Home healthcare is an increasingly vital component of the continuum of
care and of our customers' mission to provide care across a full spectrum of
delivery environments. SMS' Home Health System provides a full range of home
health applications--including referral and admission tracking, scheduling,
clinical charting and treatment plans, hospice support, and financial
management--to support the care of patients in a home setting.
The growing convergence between public and private healthcare sectors is
increasing the automation needs of public health departments. SMS' Public
Health System helps providers integrate program information and databases,
manage healthcare assessment and quality management, acquire and monitor grant
funding, and administer electronic billing and reimbursement. In addition,
proposed reform legislation specifies increased public health funding for
preventative services. SMS' Immunization Tracking and Registry System, which
one state health department is currently implementing on a state-wide basis,
lets healthcare providers store and monitor a population's immunization
service history and assess patients' immunization requirements based on user-
defined clinical protocols.
(CALL OUT - CUSTOMER QUOTE)
Our objective is to provide our staff with all the information they need to
optimize patient care. SMS systems and the support of SMS employees enable us to
achieve this objective.
Dieter Weissenborn
Manager, MIS
Klinik am Eichert
Goppingen
Germany
8
<PAGE>
-60-
S O L U T I O N S
Solutions that Balance Cost with Quality
In response to growing economic and regulatory conditions, healthcare
providers are striving to develop medical practices and delivery methods that
enable them to control costs, without compromising the quality of patient
care. SMS provides sophisticated clinical and managed care solutions that help
customers refine their medical practices to deliver the highest quality, most
efficient medical services in the most cost-effective settings. SMS'
comprehensive clinical applications completely document patient treatment from
beginning to end, providing care givers with a complete picture of each
patient's past and current medical status. They increase productivity and
enhance patient care by organizing massive amounts of data into online,
clinically significant patient profiles that support medical decision making.
SMS' innovative case management system lets providers define clinical
treatment protocols, measure patient progress against these protocols, and
report variances of outcomes. SMS is working with customers to create critical
paths that define the optimum sequencing and time intervals for entire
episodes of care, from preadmission and inpatient services through
rehabilitation, follow-up visits, and outcomes measurement. These critical
paths will help to streamline the patient care documentation process by
allowing care givers to note only the variances to endorsed treatment patterns
instead of charting the entire care process.
SMS' diagnostic and document imaging systems offer healthcare enterprises
significant opportunities for cost savings, increased productivity, and quality
improvement by providing enterprise-wide access to information on a scale that
is unthinkable using paper records. Patient information--including financial
documents, X rays, MRIs, CAT scans, and other kinds of images--are digitally
scanned or captured automatically from equipment, and stored online. The
system integrates these images with existing applications and functions
throughout the enterprise, providing authorized users with instant and
simultaneous access to valuable diagnostic and financial records. For example,
care givers can view digitized X rays and other medical images from patient
care locations, such as intensive care and trauma units, thus saving vital
time when treating critically ill patients.
SMS' advanced clinical workstation offers care providers a seamless,
intuitive view of network-wide patient activities and treatment across the
continuum of care. It offers graphical formats, windows, and icons that
facilitate quick, easy access and entry from any on-site or satellite
location. It includes all clinical applications and electronic patient record
information, enabling care givers to more easily review and update
observations, vital signs, assessments, progress notes, orders, medications,
and results. They can also view medical images, control clinical monitors
remotely, and access electronic mail and reference libraries.
(CALL OUT - CUSTOMER QUOTE)
Our state-of-the-art information system has helped us recruit and retain
physicians, nurses, and other care providers and has helped us cut the time
spent on nursing documentation. The success of our implementation is the
result of a strong nursing link to Information Systems as well as our strong
partnership with SMS.
Sally Mapstone, M.S.N., R.N.
Vice President of Nursing
Hamot Health Foundation
Erie, Pennsylvania
9
<PAGE>
-61-
Solutions for Managing Operations
SMS financial systems provide tools that help healthcare executives
proactively manage their operations and respond to a tougher reimbursement
environment. They encompass the entire spectrum of financial functions,
including billing and receivables management, accounting and financial
management, and personnel, property, and materials management. Managed care
tools, such as SMS cost accounting, aid executives in evaluating service
costs, assessing product line profitability, and reviewing diverse contractual
arrangements. SMS systems also provide the flexibility to accommodate the
financial needs of individual entities, such as physicians groups, as well as
those of the enterprise as a whole.
The SMS electronic business office combines powerful document imaging,
financial management, and automated data exchange capabilities that improve
cash flow, speed collections, and increase productivity. Customers have the
ability to perform pre-billing, billing, and collection activities in a highly
automated, virtually paperless environment. Document imaging significantly
enhances productivity by enabling healthcare professionals to quickly and
easily store and access financial documents online from any location.
Receivables management tools help customers successfully manage patient
accounts from pre-admission to patient follow-up, reducing AR days and
enhancing patient relations. And SMS' Healthcare Data Exchange enables
healthcare networks to electronically send and receive clinical and financial
data such as eligibility verifications, claims, and remittances,
electronically to payors, government agencies, employers, and other
organizations.
SMS' Laboratory, Radiology, Pharmacy, Nursing, and Medical Records systems
provide ancillary departments with comprehensive productivity, quality, and
inventory control tools that are fully integrated with our network-wide
healthcare information systems. Requests, orders, and results can be entered
once from any location, communicated throughout the network, and maintained as
an integral part of the electronic patient record. SMS' new ancillary system
enhancements, including the medical image review workstation, mammography
module, and rules-based laboratory management protocols, assist our customers
in their efforts to provide responsive, clinically advanced, and cost-
effective services to their patients.
Solutions for Developing Successful Enterprises
SMS Decision Support systems translate data from internal and
external sources into knowledge-based, graphical information that healthcare
executives can use to build successful healthcare enterprises. These unique
management tools enable customers to merge their
(CALL OUT - CUSTOMER QUOTE)
If we can't manage information, we can't manage healthcare. SMS provides the
medium by which we manage all the information we need to deliver quality
healthcare.
Leo Mercer, M.D.
Chief of Staff
R.E. Thomason
General Hospital
El Paso, Texas
10
<PAGE>
-62-
information with that from other healthcare institutions and public sources to
obtain insight to the development of profitable alliances. Comparative
reporting against physician populations aids administrators in identifying the
highest quality and most efficient providers to include in their network.
Customers can also simulate managed care contracts to determine the
organizations with which to contract, as well as the rates and terms of those
contracts. And cross-organization reporting integrates information across
their entire network, facilitating the evaluation of their overall operations
and strengthening their business operations and market position.
Solutions that Span the Globe
In 1993, SMS extended our European operations by opening new European-based
offices, expanding our management and support teams, and implementing Customer-
Driven Quality initiatives. Despite an economic recession and a changing
political climate, our growth in new and add-on sales continued in the United
Kingdom, Germany, Spain, Holland, Ireland, France, and Italy. SMS remains the
leading global provider of healthcare information systems, serving more
customers in more European countries than any European vendor and more than
all other U.S.-based vendors combined.
United States and European healthcare delivery and national financing
methods continue to converge, increasing the value and importance of sharing
ideas, resources, and efforts across the Atlantic. Like their United States
counterparts, European healthcare providers require unified, comprehensive
clinical and financial information systems, seamless patient views, and open
system solutions. They, too, must improve patient access to healthcare
services while balancing costs with quality treatment and outcomes.
SMS' healthcare information systems, networks, and services are designed
and enhanced to meet the needs of all of our customers, both domestic and
international. At the same time, our systems provide the flexibility and
online customization tools to accommodate the unique needs of each country and
every individual customer. SMS' proven ability to package, transport, and
deliver new products and technologies across the globe reinforces our long-
term commitment to the European community.
Solutions for Added Value
SMS provides value-added professional services that help healthcare
enterprises respond strategically to today's healthcare reform issues by
employing a combination of procedures, software, hardware, and technology.
SMS' process engineering services assist customers in making changes to their
operational environments that dramatically improve efficiency and productivity
throughout their entire enterprise.
(CALL OUT - CUSTOMER QUOTE)
Excellent cooperation with SMS Nederland over the past six years and our
confidence in their development of new products led to our decision to imple-
ment a new SMS system hospital wide in 1994.
J.G.M. Wolters
Manager, EDP
Streekziekenhuis Koningin Beatrix
Winterswijk
The Netherlands
11
<PAGE>
-63-
In 1993, SMS clinical, financial, and technical specialists worked with
many healthcare providers to enhance their performance by blending newly
defined clinical protocols into their healthcare delivery process. For
example, we helped one customer reduce annual variable costs by $1 million by
building care protocols and implementing them throughout their organization.
SMS worked with another healthcare partner to develop prototypes for automated
treatment and outcomes protocols that can be integrated with patient care
delivery. And as a by-product of our professional services efforts, SMS
continually identifies new information system capabilities and technical
solutions which have broad applicability and which we can then make available
to all our customers.
When evaluating the impact of reform on their business, many healthcare
enterprises recognize outsourcing as a way to preserve capital and free time for
healthcare-related initiatives. Today, many hundreds of SMS' U.S. customers
enjoy the advantages and risk protection of having SMS operate their software
remotely at our Information Systems Center. SMS also offers a range of
outsourcing services at customer locations, from computer programming to the
management of an entire data center.
Facing the Future Together
In 1993, healthcare enterprises throughout the world relied on SMS
information systems to help them make the changes to their business structures
and delivery methods that will effectively address skyrocketing costs and
government health reforms. SMS' electronic patient record, imaging, Healthcare
Data Exchange, managed care applications, and Decision Support systems are
helping customers build strategic networks, connect and share data
electronically, and balance costs with quality.
SMS is well positioned to provide the vast array of products and services
that the future healthcare environment will require. Long-standing
partnerships with our customers and employees enable SMS to continue to set
the standard of excellence for healthcare information systems and to maintain
a solid position of industry leadership. As their dedicated partner, SMS will
continue to work with our customers to define strategic business solutions
that will secure their future success.
(CALL OUT - CUSTOMER QUOTE)
Previously we viewed SMS as a vendor. Now we are including SMS in our stategic
planning as an integral part of our management team. We are thinking along the
same lines and are developing what is best for our community.
M.T. Philpot
President and
Chief Executive Officer
Tarrant County
Hospital District
Fort Worth, Texas
12
<PAGE>
-64-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Index
<S> <C>
- --------------------------------------------------------------------------------
Summary of Consolidated Operations 14
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
- --------------------------------------------------------------------------------
Analysis of Changes in Consolidated Expenses 15
- --------------------------------------------------------------------------------
Summary of Consolidated Financial Position 17
- --------------------------------------------------------------------------------
Consolidated Balance Sheet 20
- --------------------------------------------------------------------------------
Consolidated Statement of Income 22
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows 23
- --------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment 24
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 25
- --------------------------------------------------------------------------------
Report of Independent Public Accountants 31
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
-65-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Summary of Consolidated Operations
(000 omitted, except per share amounts)
The following should be read in conjunction with the accompanying consolidated
financial statements and related notes appearing elsewhere in this report.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Income Average
Before Income Net Net Income Shares
Revenues Expenses(1) Taxes Taxes Income Per Share Outstanding
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993.............. $501,283 $449,605 $51,678 $20,665 $31,013 $1.35 23,046
1992.............. 469,624 424,578 45,046 16,667 28,379 1.24 22,880
1991.............. 438,705 399,193 39,512 14,224 25,288 1.11 22,761
1990.............. 403,127 369,308 33,819 11,160 22,659 1.01 22,437
1989.............. 390,004 362,964 27,040(2) 8,922 23,118(2) 1.01(2) 22,907
- -----------------------------------------------------------------------------------------------------------
(1) Cost of Hardware Sales is included in the Expenses column.
(2) In 1989, income before taxes includes nonrecurring charges related primarily
to certain employee benefit plans and equipment reserves. In addition,
net income includes a $5,000,000 favorable cumulative adjustment ($.22 per
share) for the change in accounting for income taxes from the deferral to the
liability method.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS - GENERAL
The Company provides services and systems to healthcare organizations, such
as clinics, physician group practices, medical schools, public health
departments, home healthcare organizations, hospitals of all types (urban,
teaching, suburban, rural, specialty), proprietary hospital companies, and not-
for-profit multihospital groups. The Company's revenues include service and
system fees derived from computer-based information processing systems and
software, related professional services and support, and hardware leases. These
professional services consist of a variety of services related to the
information processing systems business, such as systems installation and
support, software and network customization, information system planning and
integration, business office consulting, facilities management, and customer
education. The remainder of the Company's revenues are primarily generated from
hardware sales to its healthcare customers and interest on short-term
investments.
As the information processing requirements of the healthcare industry
have continued to grow, the business of providing information has become more
complex. Additionally, changes in the way healthcare organizations are
structured and reimbursed, combined with pressures to control costs and
eliminate excess capacity in the healthcare delivery system, have created new
and increased demands for the Company's services and systems. The Company's
services and systems have been provided to customers under both fixed-period
contracts and perpetual license contracts. Fixed-period contracts have terms
primarily ranging from one to seven years, and generally allow price increases
annually, limited to the increase in the Consumer Price Index. The Company has
increased some of its prices under these contract provisions. Fixed-period
agreements produce recurring revenues over the term of each contract, in
contrast to perpetual license agreements, where software fees are recognized
over the installation period and the related support fees are recognized over
the term of the support agreement.
The Company's information processing services and systems operate on
computer systems that range from personal computers to minicomputers to
mainframes. Depending on the type of product or service selected, most equipment
utilized by the customer is provided by the Company under fixed-period lease
agreements or sales agreements.
RESULTS OF OPERATIONS FOR 1993 COMPARED TO 1992
In 1993, revenues grew 6.7%, to $501,283,000 compared to 1992. Net income
was $31,013,000 and net income per share was $1.35 for the year ended December
31, 1993, which represent increases of 9.3% and 8.9%, respectively, compared
to 1992.
14
<PAGE>
-66-
- --------------------------------------------------------------------------------
Analysis of Changes in Consolidated Expenses
(000 omitted)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Change Change
from from
1993 Prior Year 1992 Prior Year 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of hardware sales......................................... $38,571 $1,077 $37,494 $912 $36,582
===============================================================
Percentage of hardware sales revenues....................... 79.6% 78.1% 76.1%
===============================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Operating and development.................................... $210,248 $ 4,970 $205,278 $(1,201) $206,479
Percentage of service and system fees revenues............. 46.4% 48.7% 52.8%
Marketing and installation................................... 155,330 16,667 138,663 21,063 117,600
Percentage of service and system fees revenues............. 34.3% 32.9% 30.1%
General and administrative................................... 44,107 2,069 42,038 4,529 37,509
Percentage of service and system fees revenues............. 9.8% 10.0% 9.6%
Interest..................................................... 1,349 244 1,105 82 1,023
Percentage of service and system fees revenues............. 0.3% 0.2% 0.3%
--------------------------------------------------------------
Total.................................................... $411,034 $23,950 $387,084 $24,473 $362,611
==============================================================
Percentage of service and system fees revenues......... 90.8% 91.8% 92.8%
==============================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Service and system fees revenues increased to $452,797,000 in 1993 from
$421,620,000 in 1992. Contributing to this change were higher levels of
professional services, support and installations, and system processing fees.
. Hardware sales revenues of $48,486,000 in 1993 did not vary significantly from
the prior year.
. Cost of hardware sales increased to 79.6% of hardware sales revenues in 1993
from 78.1% in 1992, due primarily to the different product mixes for systems
installed in each year, and reduced hardware margins in line with industry
trends.
. Operating and development expenses decreased to 46.4% of service and system
fees revenues in 1993 from 48.7% in 1992, primarily due to efficiencies gained
through decreased costs for computer hardware at the Company's Information
Systems Center, which were partially offset by increased personnel costs to
support higher levels of professional services, primarily related to
installations, provided by the Company in 1993.
. Marketing and installation expenses increased to 34.3% of service and system
fees revenues in 1993 from 32.9% in 1992, due to increased costs for
personnel, travel and living, and outside consulting fees, which were related
to higher levels of professional services for installation and support
activities. Also contributing to this change were increases in commissions
expense, which were primarily due to the higher level of revenues generated in
1993.
. General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 9.8% in 1993 from 10.0% in 1992 primarily due to
decreases in certain administrative expenses as part of the Company's ongoing
efforts to control costs, which were partially offset by increased personnel
costs.
. Interest expense was $1,349,000 in 1993 compared to $1,105,000 in 1992. This
increase was primarily due to a higher level of average outstanding borrowings
associated with the Company's short-term loan obligations and capital leases
in 1993 compared to 1992.
. Income Taxes were $20,665,000 in 1993 and $16,667,000 in 1992. The Company's
effective tax rate for federal, state, and foreign income taxes was 40.0% in
1993 compared to 37.0% in 1992. The higher rate in 1993 compared to 1992 was
primarily due to the increase in the statutory corporate rate for federal
income taxes enacted in 1993, additional tax provisions to adjust the
Company's deferred tax liability resulting from the new federal rate, and
increases in certain non-deductible items. Excluding the additional provision
needed to increase the Company's deferred tax liability to the new federal tax
rate, the Company's effective tax rate for 1993 was 39.0%.
15
<PAGE>
-67-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR 1992 COMPARED TO 1991
In 1992, revenues grew 7.0%, to $469,624,000 compared to 1991. Net income
was $28,379,000 and net income per share was $1.24 for the year ended December
31, 1992, which represent increases of 12.2% and 11.7%, respectively, compared
to 1991.
. Service and system fees revenues increased to $421,620,000 in 1992 from
$390,626,000 in 1991. Contributing to this change were higher levels of
professional services and support fees, and increased system sales and
installations. This increase was partially offset by reduced revenues caused
by the disposition of the Company's physician's practice management business
in the first quarter of 1992.
. Hardware sales revenues of $48,004,000 in 1992 did not vary significantly from
the prior year.
. Cost of hardware sales increased to 78.1% of hardware sales revenues in 1992
from 76.1% in 1991, due primarily to the different product mixes for systems
installed in each year.
. Operating and development expenses decreased to 48.7% of service and system
fees revenues from 52.8% in 1991, primarily due to decreased costs associated
with the disposition of the Company's physician's practice management business
in the first quarter of 1992. This decrease was partially offset by increased
personnel costs to support higher levels of professional services provided
by the Company in 1992.
. Marketing and installation expenses increased to 32.9% of service and system
fees revenues in 1992 from 30.1% in 1991, due to increased costs for personnel
and outside consulting fees, which were related to higher levels of
professional services for installation and support activities. Also
contributing to this change were increases in commissions expense, which were
primarily due to the higher levels of contracts signed and revenues generated
in 1992.
. General and administrative expenses, as a percentage of service and system
fees revenues, increased to 10.0% in 1992 from 9.6% in 1991 primarily due to
increased legal and personnel costs.
. Interest expense was $1,105,000 in 1992 compared to $1,023,000 in 1991. This
increase was primarily due to a higher level of average outstanding borrowings
associated with the Company's short-term loan obligations and capital leases
in 1992 compared to 1991.
. Income Taxes were $16,667,000 in 1992 and $14,224,000 in 1991. The Company's
effective tax rate for federal, state, and foreign income taxes was 37.0% in
1992 compared to 36.0% in 1991. This variation in rates was primarily due to
an increase in the effective rate for foreign and state income taxes.
INFLATION
Significant portions of the Company's expenses are inflation sensitive.
Rising costs for the years ended December 31, 1993, 1992, and 1991 have been
partially offset by increased employee and computer productivity.
16
<PAGE>
-68-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Summary of Consolidated Financial Position
(000 omitted, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Stockholder's Investment
------------------------
Total Long-Term Total Current Current Working Current
Assets Obligations Liabilities(1) Amount Per Share Assets Liabilities Capital Ratio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993....$341,442 $6,395 $143,236 $198,206 $8.71 $165,536 $92,840 $72,696 1.78:1
1992.... 305,604 2,291 119,008 186,596 8.27 156,428 87,944 68,484 1.78:1
1991.... 292,790 4,237 115,577 177,213 7.89 151,007 81,956 69,051 1.84:1
1990.... 286,021 4,415 113,657 172,364 7.69 140,178 82,196 57,982 1.71:1
1989.... 277,581 4,805 109,733 167,848 7.45 133,491 75,139 58,352 1.78:1
- ----------------------------------------------------------------------------------------------------------------------
(1) Long-Term Obligations are included in the Total Liabilities column.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased from $292,790,000 at January 1, 1992 to $341,442,000
at December 31, 1993. Stockholders' investment increased from $177,213,000 to
$198,206,000 over the same period. These changes resulted primarily from
operations. During this period, the Company financed most of its capital
expenditures and working capital requirements from operations. The major uses of
funds during this period were for investments in computer equipment and
software, quarterly dividends, and the acquisition of and related loan to a
newly-formed home healthcare software partnership. At the end of 1993, cash and
short-term investments were $35,826,000 compared to $27,297,000 at the beginning
of 1992.
Net cash flows from operating activities increased to $67,778,000 in 1993
compared to $50,156,000 in 1992. This change was primarily due to the
improvements in cash flows caused by increases in deferred revenues of
$13,316,000, accrued and deferred income taxes of $6,014,000, and the growth in
net income, adjusted for non-cash expenses such as depreciation and
amortization, of $3,832,000. These increases in cash flows were partially offset
by reduced cash flows related to accounts payable and accrued expenses of
$2,326,000, and prepaid expenses, inventories, etc. of $2,260,000. Cash flows
related to accounts receivable were essentially unchanged in 1993 when compared
to 1992. Accounts receivable increased 2.4% in 1993 over 1992, however, accounts
receivable days outstanding decreased in 1993 when compared to 1992.
Net cash flows from operating activities decreased to $50,156,000 in 1992
compared to $65,174,000 in 1991. This change was primarily due to reduced cash
flows related to other assets of $11,813,000, accounts receivable of $9,180,000,
and deferred revenues of $5,232,000. Reduced cash flows related to other assets
was primarily due to growth in long-term receivables. These long-term
receivables arose in the normal course of business and bear interest at market
rates. Accounts receivable increased 2.5% in 1992 over 1991, however, accounts
receivable days outstanding decreased in 1992 when compared to 1991. Also
affecting this change in cash flows was the Company's successful restructuring
of its collection process in 1991. These reductions in cash flows, in 1992
compared to 1991, were partially offset by increased cash flows provided from
the growth in net income, adjusted for non-cash expenses such as depreciation
and amortization, of $3,701,000, and the increase in accounts payable and
accrued expenses of $8,345,000.
17
<PAGE>
-69-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
- --------------------------------------------------------------------------------
Cash flows used for investing activities were $44,021,000, $27,817,000, and
$28,103,000 in 1993, 1992, and 1991, respectively. Investing cash flows in 1993
included the Company's acquisition of a 50% ownership share in Delta Health
Systems, a newly-formed home healthcare software partnership, for $6,500,000,
issuance of a long-term loan to Delta Health Systems of $1,700,000, purchase of
an office building in Spain for $4,811,000, and an increase of $2,665,000 in
purchases of inhouse computer and data communications equipment compared to
1992.
The following is an analysis of major additions to property, equipment,
and computer software, excluding equipment acquired under capital leases, for
the three-year period ended December 31, 1993:
<TABLE>
<CAPTION>
(000 omitted)
- -------------------------------------------------------------------------
1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Inhouse computer and data
communications equipment...................... $11,316 $8,651 $10,644
Minicomputers and terminals, most
of which are leased to customers.............. 3,259 3,562 8,088
Internally produced capitalized
software...................................... 8,700 8,150 6,500
Purchased software.............................. 2,411 2,318 1,345
Building........................................ 4,811 - -
- -------------------------------------------------------------------------
</TABLE>
Inhouse computer and data communications equipment is used primarily to
process, store, and retrieve customer information at the Company's Information
Systems Center. Capital expenditures for inhouse computer equipment vary
depending upon whether the equipment is purchased or obtained under operating
leases. Capital expenditures for minicomputers and terminals fluctuate due to
changes in vendor pricing, unit volumes, and the customers' decisions to buy or
lease hardware.
Cash flows used for financing activities were $18,785,000, $18,782,000, and
$20,469,000 in 1993, 1992, and 1991, respectively. The significant use of cash
in each of these three years was for the payment of common stock dividends.
These dividend payments were $18,989,000 in 1993, $18,883,000 in 1992, and
$18,844,000 in 1991.
Management is not aware of any potential material impairments to the
Company's strong financial position. The most significant requirements for funds
now anticipated are as follows:
. Equipment - During 1994, the Company anticipates that capital expenditures for
equipment will be in line with similar expenditures in recent years. Factors
such as business activity levels, buy versus lease decisions, and vendor
pricing will continue to affect capital equipment expenditures.
. Dividends - During each of the three years in the period ended December 31,
1993, cash dividends declared were $.84 per share. All dividends were declared
in the last month of each calendar quarter and paid the following month. The
Company anticipates paying approximately $19,000,000 in dividends in 1994.
. Stock repurchase - The Company's Board of Directors has authorized the
repurchase of up to 5,000,000 shares of the Company's common stock. As of
December 31, 1993, 2,873,500 shares, at a cumulative cost of $54,325,000, have
been repurchased. During 1993, 1992, and 1991, no shares were repurchased.
The Company expects to finance most of its capital requirements with
internally generated funds. Currently, the Company has lines of credit with
banks of approximately $50,000,000, primarily at their prime interest rates.
These lines are used from time to time to supplement cash provided from
operating activities.
18
<PAGE>
-70-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table I
- --------------------------------------------------------------------------------
Operating Ratios
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Dividends Declared
-----------------------
Return on Compared to
Operating Hardware Pretax Net Tax Average Prior Year's Per
Margin Margin Margin Margin Rate Investment Net Income Share
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993................... 9.2% 20.4% 10.3% 6.2% 40.0% 16.1% 67.0% $.84
1992................... 8.2 21.9 9.6 6.0 37.0 15.6 74.8 .84
1991................... 7.2 23.9 9.0 5.8 36.0 14.5 83.2 .84
1990................... 5.8 28.2 8.4 5.6 33.0 13.3 81.4 .84
1989................... 4.1(1) 25.2 6.9(1) 5.9(1) 33.0 13.7 65.3 .84
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1989, operating margin and pretax margin include nonrecurring charges
related primarily to certain employee benefit plans and equipment reserves.
In addition, net margin includes a $5,000,000 favorable cumulative
adjustment ($.22 per share) for the change in accounting for income taxes
from the deferral to the liability method.
Table II
- --------------------------------------------------------------------------------
Market Price and Dividends Declared Per Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dividends
1992 High Low Declared
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter...................... $24 3/8 $19 1/4 $.21
Second Quarter..................... 20 5/8 16 7/8 .21
Third Quarter...................... 22 3/8 17 3/4 .21
Fourth Quarter..................... 22 3/4 19 7/8 .21
- --------------------------------------------------------------------------------
<CAPTION>
1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter...................... $24 3/8 $20 3/4 $.21
Second Quarter..................... 23 7/8 19 1/2 .21
Third Quarter...................... 24 1/2 17 1/2 .21
Fourth Quarter..................... 26 21 1/2 .21
- --------------------------------------------------------------------------------
</TABLE>
Note: As of December 31, 1993, there were 5,684 stockholders of record of the
Company's common stock. The Company's common stock is traded over-the-
counter in the NASDAQ National Market System under the symbol SMED. The
prices shown in the table above are the high and low transaction prices
as quoted in the NASDAQ National Market System.
Table III
- --------------------------------------------------------------------------------
Selected Quarterly Financial Data.
(000 omitted except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Net Net Income
1992 Revenues Before Taxes Income Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter......... $112,459 $10,806 $6,808 $.30
Second Quarter........ 116,724 11,310 7,125 .31
Third Quarter......... 115,896 11,390 7,176 .31
Fourth Quarter........ 124,545 11,540 7,270 .32
- --------------------------------------------------------------------------------
<CAPTION>
1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter......... $117,220 $12,159 $7,539 $.33
Second Quarter........ 124,146 12,657 7,847 .34
Third Quarter......... 123,734 13,019 7,192 .31
Fourth Quarter........ 136,183 13,843 8,435 .37
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
-71-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets:
Cash and short-term investments................ $ 35,826,000 $ 30,854,000
Accounts receivable, net of
reserve of $4,279,000 in 1993 and
$4,991,000 in 1992 (Note 1)................... 113,138,000 110,482,000
Prepaid expenses, inventories, etc.
(Note 1)...................................... 16,572,000 15,092,000
---------------------------
Total Current Assets......................... 165,536,000 156,428,000
---------------------------
Property and Equipment, at cost (Notes 1 & 8):
Land and land improvements..................... 10,703,000 10,599,000
Buildings...................................... 57,368,000 51,670,000
Equipment...................................... 183,257,000 174,451,000
---------------------------
251,328,000 236,720,000
Less: Accumulated depreciation and
amortization................................ 146,463,000 139,918,000
---------------------------
104,865,000 96,802,000
---------------------------
Computer Software, net of accumulated
amortization of $28,552,000 in 1993 and
$24,002,000 in 1992 (Note 1)..................... 33,547,000 29,484,000
---------------------------
Other Assets (Note 1)............................. 37,494,000 22,890,000
---------------------------
$341,442,000 $305,604,000
===========================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
</TABLE>
20
<PAGE>
-72-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Investment
Current Liabilities:
Notes payable (Note 7)....................... $ 5,830,000 $ 6,934,000
Current portion of long-term obligations
under capital leases (Note 8)............... 2,433,000 1,293,000
Dividends payable............................ 4,778,000 4,739,000
Accounts payable............................. 16,509,000 14,838,000
Accrued expenses (Note 1).................... 32,434,000 30,075,000
Current deferred revenues (Note 1)........... 23,477,000 22,725,000
Accrued and current deferred income
taxes (Notes 1 & 3)......................... 7,379,000 7,340,000
-----------------------------
Total Current Liabilities................. 92,840,000 87,944,000
-----------------------------
Deferred Revenues (Note 1)...................... 21,619,000 12,583,000
-----------------------------
Long-Term Obligations Under Capital
Leases (Note 8)................................ 6,395,000 2,291,000
-----------------------------
Deferred Income Taxes (Notes 1 & 3)............. 22,382,000 16,190,000
-----------------------------
Commitments (Note 8)
Stockholders' Investment (Notes 1, 5 & 6):
Preferred stock, par value $.10; authorized
1,000,000 shares; none issued................ - -
Common stock, par value $.01;
authorized 60,000,000 shares;
1993 1992
----------------------
Shares issued........... 26,770,731 26,580,251
Less--
Treasury shares:
Donated............. 1,114,400 1,114,400
Purchased........... 2,903,523 2,899,554
Shares outstanding...... 22,752,808 22,566,297 268,000 266,000
Paid-in capital (Note 6)....................... 28,829,000 25,594,000
Retained earnings.............................. 228,831,000 216,846,000
Purchased common stock in treasury,
at cost (Note 5).............................. (54,948,000) (54,864,000)
Cumulative translation adjustment (Note 1)..... (4,774,000) (1,246,000)
-----------------------------
Total Stockholders' Investment.............. 198,206,000 186,596,000
-----------------------------
$341,442,000 $305,604,000
=============================
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
-73-
Shared Medical Systems Corporation
- ----------------------------------------------------------------------------
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Service and system fees
(Note 1).................. $452,797,000 $421,620,000 $390,626,000
Hardware sales (Note 1).... 48,486,000 48,004,000 48,079,000
---------------------------------------------
501,283,000 469,624,000 438,705,000
Cost of Hardware Sales...... 38,571,000 37,494,000 36,582,000
---------------------------------------------
Revenues Less Cost of
Hardware Sales............. 462,712,000 432,130,000 402,123,000
---------------------------------------------
Expenses:
Operating and development.. 210,248,000 205,278,000 206,479,000
Marketing and installation. 155,330,000 138,663,000 117,600,000
General and administrative. 44,107,000 42,038,000 37,509,000
Interest (Notes 7 & 8)..... 1,349,000 1,105,000 1,023,000
---------------------------------------------
411,034,000 387,084,000 362,611,000
---------------------------------------------
Income Before Income Taxes.. 51,678,000 45,046,000 39,512,000
Provision for Income Taxes
(Note 3)................... 20,665,000 16,667,000 14,224,000
---------------------------------------------
Net Income.................. $ 31,013,000 $ 28,379,000 $ 25,288,000
=============================================
Net Income Per Common Share
(Note 2)................... $1.35 $1.24 $1.11
=============================================
Number of shares used to
compute per share amounts.. 23,046,000 22,880,000 22,761,000
</TABLE> =============================================
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
<PAGE>
-74-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
- ---------------------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................... $ 31,013,000 $ 28,379,000 $ 25,288,000
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation and amortization..... 30,815,000 29,617,000 29,007,000
Asset (increase) decrease -
Accounts receivable.............. (2,656,000) (2,644,000) 6,536,000
Prepaid expenses, inventories,
etc............................. (1,480,000) 780,000 (763,000)
Other assets..................... (7,982,000) (7,952,000) 3,861,000
Liability increase (decrease) -
Accounts payable and accrued
expenses........................ 4,030,000 6,356,000 (1,989,000)
Accrued and current deferred
income taxes.................... 39,000 487,000 2,510,000
Deferred revenues................ 9,788,000 (3,528,000) 1,704,000
Deferred income taxes............ 6,192,000 (270,000) 254,000
Other............................. (1,981,000) (1,069,000) (1,234,000)
--------------------------------------------
Net cash provided by operating
activities...................... 67,778,000 50,156,000 65,174,000
--------------------------------------------
Cash Flows from Investing Activities:
Property and equipment additions.... (24,945,000) (18,423,000) (21,550,000)
Investment in computer software..... (11,111,000) (10,468,000) (7,845,000)
Partnership investment and related
loan............................... (8,200,000) -- --
Dispositions of equipment........... 235,000 1,074,000 1,292,000
--------------------------------------------
Net cash used for investing
activities......................... (44,021,000) (27,817,000) (28,103,000)
--------------------------------------------
Cash Flows from Financing Activities:
Dividends paid...................... (18,989,000) (18,883,000) (18,844,000)
Purchase of treasury stock.......... (84,000) (202,000) (139,000)
Payments on long-term obligations... (1,845,000) (4,181,000) (1,635,000)
(Decrease) increase in notes payable (1,104,000) 2,347,000 (352,000)
Exercise of stock options........... 3,237,000 2,137,000 501,000
--------------------------------------------
Net cash used for financing
activities...................... (18,785,000) (18,782,000) (20,469,000)
--------------------------------------------
Net Increase in Cash and Short-Term
Investments.......................... 4,972,000 3,557,000 16,602,000
Cash and Short-Term Investments,
Beginning of Year.................... 30,854,000 27,297,000 10,695,000
--------------------------------------------
Cash and Short-Term Investments, End
of Year.............................. $ 35,826,000 $ 30,854,000 $ 27,297,000
============================================
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
-75-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment
For the Years Ended December 31, 1993, 1992, and 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Cumulative
------------------------------ Paid-in Retained Treasury Translation
Shares Par Value Capital Earnings Stock Adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991....... 26,415,564 $264,000 $22,958,000 $200,937,000 $(54,523,000) $ 2,728,000
Common stock transactions -
Exercise of stock options
and grant of restricted
shares (Note 6)............. 40,846 1,000 500,000
Change in treasury stock..... (139,000)
Dividends on common stock..... (18,851,000)
Net income.................... 25,288,000
Translation adjustment (Note
1)........................... (1,950,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 1991..... 26,456,410 265,000 23,458,000 207,374,000 (54,662,000) 778,000
Common stock transactions -
Exercise of stock options
and grant of restricted
shares (Note 6)............. 123,841 1,000 1,836,000
Tax benefit from the
exercise of
non-qualified stock options. 300,000
Change in treasury stock..... (202,000)
Dividends on common stock..... (18,907,000)
Net income.................... 28,379,000
Translation adjustment (Note
1)........................... (2,024,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 1992..... 26,580,251 266,000 25,594,000 216,846,000 (54,864,000) (1,246,000)
Common stock transactions -
Exercise of stock options
and grant of restricted
shares (Note 6)............. 190,480 2,000 2,610,000
Tax benefit from the exercise
of non-qualified stock
options..................... 625,000
Change in treasury stock..... (84,000)
Dividends on common stock..... (19,028,000)
Net income.................... 31,013,000
Translation adjustment (Note
1)........................... (3,528,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 1993..... 26,770,731 $268,000 $28,829,000 $228,831,000 $(54,948,000) $(4,774,000)
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
24
<PAGE>
-76-
Shared Medical Systems Corporation
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. The financial position and
results of operations of the Company's foreign branches and subsidiaries are
included in the accompanying consolidated financial statements on the basis of
their fiscal year ends, all of which are within three months of the calendar
year end. The Company's investment in Delta Health Systems, a 50%-owned
affiliate, is accounted for under the equity method. All significant
intercompany transactions and accounts have been eliminated.
Recognition of Revenues - The Company's products are provided to customers
based upon contractual agreements generally ranging from one to seven years.
Service revenues, which include processing fees, professional service and
support fees, are recorded in the period in which the services are performed.
Perpetual software license fees are recognized primarily over the installation
period. Hardware sales are recognized generally upon productive use of the
equipment. All fees are billable according to the specific terms in each
customer contract. Current and noncurrent deferred revenues totalling
$45,096,000 at December 31, 1993 and $35,308,000 at December 31, 1992, represent
funds received by the Company in advance of services being performed, which are
deferred and recognized as revenues when earned. At December 31, 1993 and 1992,
accounts receivable included $42,167,000 and $39,255,000, respectively, of
unbilled revenues recognized under certain long-term software license,
installation, and hardware contracts. Such unbilled receivables arise from the
consistent application of the revenue recognition policies described above, and
have increased due to the growth in the Company's business. These receivables
will be billed in accordance with individual customer contracts, which generally
occurs within six months of revenue recognition. The Company has provided
long-term financing arrangements, at market rates of interest, to some of its
customers. The long-term portion of these financing arrangements, included in
other assets, was $21,679,000 and $14,310,000 at December 31, 1993 and 1992,
respectively. Interest income from short-term investments included in revenues
was $745,000 in 1993, $1,627,000 in 1992, and $1,029,000 in 1991.
Prepaid Expenses, Inventories, etc. - Included in prepaid expenses,
inventories, etc. are deferred charges of $5,503,000 at December 31, 1993 and
$5,088,000 at December 31, 1992, representing the cost of equipment which will
be expensed when the related revenues are earned.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives, which range from two to fifteen years. The
Company's buildings, not including equipment therein, are being depreciated
using a 45-year life.
Computer Software - The Company capitalizes the cost of certain internally
produced computer software and purchased software. Capitalization for
internally produced software begins when a project reaches technological
feasibility and ceases when the software is available for general release to
customers. Internally produced computer software costs, net of accumulated
amortization, were $29,222,000 and $25,986,000 as of December 31, 1993 and 1992,
respectively. Amortization related to internally produced software amounted to
$5,464,000 in 1993, $4,894,000 in 1992, and $4,026,000 in 1991. Purchased
software, net of accumulated amortization, was $4,325,000 and $3,498,000 as of
December 31, 1993 and 1992, respectively. Computer software is amortized over
its expected useful life, which is generally five years.
25
<PAGE>
-77-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
- --------------------------------------------------------------------------------
Research and Development - The Company expenses all research and non-
capitalized development costs, which are primarily costs incurred to establish
the technological feasibility of internally produced computer software. These
expenses are primarily for computer costs and salaries of personnel. These
expenses amounted to $37,087,000 in 1993, $33,703,000 in 1992, and $33,639,000
in 1991.
Investment - During 1993, the Company acquired a 50% ownership share in
Delta Health Systems for approximately $6,500,000. Delta Health Systems provides
information systems and services to home healthcare organizations.
Commissions - Included in accrued expenses are commissions payable of
$11,545,000 at December 31, 1993 and $8,778,000 at December 31, 1992. Commission
payments are primarily based on revenues generated and on the signing of new and
renewal contracts. Accrual balances for commissions can vary based on the timing
of revenues recognized, and commission draws and related settlements, and are
not necessarily indicative of sales activities for the year.
Income Taxes - The Company uses the liability method of accounting for
income taxes. Under this method, deferred income taxes result from temporary
differences in the recognition of revenues and expenses (principally
depreciation and the cost of internally produced software) for tax and financial
reporting purposes. Effective January 1, 1993, the Company adopted a recently
issued Financial Accounting Standards Board pronouncement which modified the
liability method of accounting for income taxes. The adoption of this
pronouncement had no impact on the Company's results of operations. However, due
to different criteria used for determining the classification of deferred income
taxes, $5,090,000 was reclassified from current deferred income taxes to
noncurrent deferred income taxes.
Translation of Foreign Currencies - Assets and liabilities of foreign
branches and subsidiaries are translated at current exchange rates, and the
effects of these translation adjustments are reported as a separate component of
stockholders' investment. Revenues and expenses of foreign branches and
subsidiaries are translated at the average exchange rates that prevailed over
the applicable year.
Foreign Currency Transactions - Transactions of the Company and its foreign
branches and subsidiaries are periodically made in currencies other than their
own and are included in income as they occur. There were no material gains or
losses arising from foreign currency transactions during 1993, 1992, and 1991.
Statement of Cash Flows - The Company's short-term investments have
original maturities of less than 91 days and are deemed to be cash equivalents
for purposes of reporting cash flows. At December 31, 1993 and 1992, the
Company's carrying amount for cash and short-term investments approximates fair
value. Cash paid for income taxes, net of refunds, was $13,959,000 in 1993,
$15,833,000 in 1992, and $11,459,000 in 1991. In 1993, 1992, and 1991, cash paid
for interest was $1,360,000, $1,122,000, and $1,020,000, respectively. Capital
lease obligations of $7,089,000, $2,196,000, and $1,421,000 were added by the
Company in 1993, 1992, and 1991, respectively.
2. NET INCOME PER COMMON SHARE:
For each of the three years in the period ended December 31, 1993, net
income per common share was computed using the weighted average number of shares
of common stock and common stock equivalents outstanding. Common stock
equivalents result from the assumed exercise of stock options. Primary income
per share and fully diluted income per share were the same in each period.
26
<PAGE>
-78-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current........................ $16,527,000 $14,724,000 $13,132,000
Current deferred............... 1,265,000 791,000 (653,000)
Noncurrent deferred............ 626,000 (622,000) 320,000
---------------------------------------------
18,418,000 14,893,000 12,799,000
---------------------------------------------
State:
Current........................ 2,011,000 1,440,000 1,641,000
Current deferred............... (241,000) (18,000) (150,000)
Noncurrent deferred............ 477,000 352,000 (66,000)
---------------------------------------------
2,247,000 1,774,000 1,425,000
---------------------------------------------
Provision for income
taxes.......................... $20,665,000 $16,667,000 $14,224,000
=============================================
- --------------------------------------------------------------------------------
</TABLE>
The provision for income taxes results in effective tax rates for the years
ended December 31, 1993, 1992, and 1991, which differ from the statutory federal
income tax rate, as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Income
--------------------------
1993 1992 1991
- --------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit...... 2.8 2.6 2.4
Effect on deferred tax liability
of statutory federal income tax
rate increase.................. 1.0 - -
Other............................ 1.2 0.4 (0.4)
--------------------------
40.0% 37.0% 36.0%
==========================
</TABLE>
- --------------------------------------------------------------------------------
The significant components of the deferred income tax liability for the
year ended December 31, 1993 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
- ---------------------------------------------------
<S> <C>
Depreciation and amortization........ $10,730,000
Internally produced computer software 10,760,000
Other temporary differences.......... 892,000
-----------
$22,382,000
===========
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1993 the Company had foreign net operating loss
carryforwards of approximately $9,400,000, which can be carried forward
indefinitely. The Company also has approximately $9,600,000 of tax basis in
excess of book value which may be utilized to offset taxable income in the
future. Due to their contingent nature, these deferred tax assets have been
fully offset by a valuation allowance.
The Company does not provide for U.S. income and foreign withholding taxes
on the unremitted earnings of its foreign subsidiaries which the Company
considers to be permanently invested. These cumulative unremitted foreign
earnings amounted to $9,378,000 at December 31, 1993.
4. EMPLOYEE BENEFIT PLAN:
The Company has a Section 401(k) retirement and savings plan. As part of
this plan, employees may contribute a portion of their earnings, which are then
invested, as specified by the employees, in the common stock of the Company or
in any of five mutual investment funds. The Company matches a certain portion of
employee contributions under the plan. The Company's matching contributions
charged to expenses in 1993, 1992, and 1991, were $1,640,000, $1,395,000, and
$1,052,000, respectively.
27
<PAGE>
-79-
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
- --------------------------------------------------------------------------------
5. CAPITAL STOCK:
The Board of Directors may authorize the issuance of one or more series of
preferred stock with dividend rates, redemption prices, conversion privileges,
and sinking fund requirements as determined by the Board.
During 1987 and 1988, the Board adopted resolutions authorizing, but not
requiring, the Company to repurchase up to a total of 5,000,000 shares of its
common stock from time to time. As of December 31, 1993, 2,873,500 shares had
been acquired, at a cumulative cost of $54,325,000. During 1993, 1992, and 1991,
no additional shares were repurchased under these resolutions.
In 1991, the Board of Directors adopted a stockholder rights plan and
declared a dividend of one preferred stock purchase right for each outstanding
share of common stock. In general, such rights only become exercisable, or
transferable apart from the common stock, after a person or group (Acquiring
Person) acquires beneficial ownership of, or commences a tender or exchange
offer for, 15% or more of the Company's common stock. Each right then may be
exercised to acquire one one-thousandth of a share of a newly-created Series A
Junior Participating Preferred Stock at an exercise price of $80.
Alternatively, upon the occurrence of certain events (for example, if the
Company is the surviving corporation in a merger with an Acquiring Person), the
rights entitle holders other than the Acquiring Person to acquire common stock
having a value of twice the exercise price of the rights, or, upon the
occurrence of certain other events (for example, if the Company is acquired in a
merger or other business combination transaction in which the Company is not the
surviving corporation), to acquire common stock of the Acquiring Person having a
value twice the exercise price of the rights. In general, the rights may be
redeemed by the Company at $.001 per right at any time until the tenth day
following public announcement that a 15% position has been acquired. The rights
will expire on December 31, 2001.
6. STOCK OPTIONS:
The Company has issued stock options to key employees under various
incentive and non-qualified stock option plans. These stock options may have
terms ranging up to twenty years. Incentive stock options are exercisable at
the fair market value of the Company's common stock as determined on the date of
the grant. Non-qualified stock options are exercisable at prices no less than
75% of the fair market value of the Company's common stock as determined on the
date of the grant.
The Company also has issued stock options under two non-qualified stock
option plans for non-employee directors. Under one of these plans a committee of
the Board, comprised of members who may not participate in this plan, may grant
options at prices no less than the fair market value of the Company's common
stock on the date of the grant. These non-qualified options become exercisable
as determined by the committee and may have terms ranging from two to ten years.
Under the other plan for non-employee directors, options are issued upon either
the directors' initial election to the Board or the effective date of the plan
and on each five-year anniversary thereafter of continuous service by the
director on the Board. These non-qualified options become exercisable during the
five-year period from the date of grant and have a ten-year term.
28
<PAGE>
-80-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following table summarizes the activity of all option plans during the
three years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year.. 2,065,077 1,856,927 1,059,983
Granted...................... 62,500 415,000 961,498
Exercised.................... (173,079) (117,468) (30,063)
Cancelled.................... (347,726) (89,382) (134,491)
----------------------------------
Outstanding, end of year........ 1,606,772 2,065,077 1,856,927
==================================
</TABLE>
As of December 31, 1993, a maximum of 837,027 and 235,000 of additional
options may be granted to key employees and non-employee directors,
respectively, under these plans. As of December 31, 1993, options to purchase
1,606,772 shares were outstanding at option prices ranging from $12.50 to $25.13
per share. Options covering 230,276 shares, with an average option price of
$14.08 per share and an aggregate option price of $3,242,000, were exercisable
as of December 31, 1993. The options outstanding expire on various dates through
2003.
The Company may also grant restricted shares of its common stock under one
of these plans. Restricted stock grants are recorded as compensation expense
during the vesting terms, which currently range from three to six years. As of
December 31, 1993, there were 41,185 restricted shares outstanding under this
plan.
7. LINES OF CREDIT:
At December 31, 1993, the Company had lines of credit with banks
totaling $50,406,000, generally at their prime interest rates. At December 31,
1993, $44,576,000 of these lines of credit was unused.
8. LONG-TERM LEASES:
The Company leases equipment for its own account for periods ranging up to
60 months. Obligations for this type of equipment for the next five years are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Operating Capital
Year ending December 31 Leases Leases
- -----------------------------------------------------------------------------
<S> <C> <C>
1994................................... $15,487,000 $2,914,000
1995................................... 11,925,000 2,878,000
1996................................... 10,126,000 2,596,000
1997................................... 5,191,000 1,238,000
1998................................... 549,000 216,000
------------------------
$43,278,000 9,842,000
===========
Less interest................................................... 1,014,000
---------
Present value of future capital lease obligations............... $8,828,000
===========
- -----------------------------------------------------------------------------
</TABLE>
Rental expenses for the operating leases shown above were $17,453,000 in
1993, $20,730,000 in 1992, and $21,426,000 in 1991.
Operating lease obligations for office space, primarily branch offices,
expiring at various dates through 1999 require minimum aggregate annual rentals
of: 1994 - $7,865,000, 1995 - $6,958,000, 1996 - $5,273,000, 1997 - $3,181,000,
1998 - $2,152,000. Rental expenses for these facilities amounted to $8,198,000
in 1993, $7,867,000 in 1992, and $7,895,000 in 1991.
29
<PAGE>
-81-
Shared Medical Systems Corporation
- -----------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
- -----------------------------------------------------------------------------
9. BUSINESS SEGMENT INFORMATION:
The only line of business of the Company is computer-based information
processing services and systems which are primarily provided to healthcare
organizations, such as clinics, physician group practices, medical schools,
public health departments, home healthcare organizations, hospitals of all types
(urban, teaching, suburban, rural, specialty), proprietary hospital companies,
and not-for-profit multihospital groups. Revenues and operating profits for the
three years ended December 31, 1993, and identifiable assets at the end of each
of those years, classified by geographic area, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
North
America Europe Consolidated
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1993:
Revenues.................... $439,260,000 $62,023,000 $501,283,000
==========================================
Operating profit............ $47,255,000 $5,772,000 $53,027,000
===========================
Interest expense............ 1,349,000
------------
Income before income taxes $51,678,000
============
Identifiable assets......... $264,208,000 $41,408,000 $305,616,000
===========================
Corporate assets............ 35,826,000
------------
Total assets.............. $341,442,000
============
- ---------------------------------------------------------------------------
1992:
Revenues.................... $403,992,000 $65,632,000 $469,624,000
==========================================
Operating profit............ $40,309,000 $5,842,000 $46,151,000
===========================
Interest expense............ 1,105,000
------------
Income before income taxes $45,046,000
============
Identifiable assets......... $234,174,000 $40,576,000 $274,750,000
===========================
Corporate assets............ 30,854,000
------------
Total assets.............. $305,604,000
- ---------------------------------------------------------------============
1991:
Revenues.................... $385,747,000 $52,958,000 $438,705,000
==========================================
Operating profit............ $36,429,000 $4,106,000 $40,535,000
===========================
Interest expense............ 1,023,000
------------
Income before income taxes $39,512,000
============
Identifiable assets......... $234,200,000 $31,293,000 $265,493,000
===========================
Corporate assets............ 27,297,000
------------
Total assets.............. $292,790,000
============
- ---------------------------------------------------------------------------
</TABLE>
Operating profit equals total revenues less operating expenses and cost of
hardware sales. In computing operating profit, interest expense is excluded.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are cash and short-term
investments. In 1993, 1992, and 1991, no single customer accounted for more than
10% of revenues.
30
<PAGE>
-82-
- -------------------------------------------------------------------------------
Report of Independent Public Accountants
To the Stockholders and Board of Directors, Shared Medical Systems Corporation:
We have audited the accompanying consolidated balance sheet of Shared
Medical Systems Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1993. 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 Shared Medical Systems
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
Philadelphia, PA Arthur Andersen & Co.
February 7, 1994
- -------------------------------------------------------------------------------
Directors
R. James Macaleer, Chairman of the Board and
Chief Executive Officer
Mr. Macaleer has been Chairman and Chief Executive Officer since the Company's
founding in 1969.
Raymond K. Denworth, Jr., Director
Mr. Denworth has been a Director since 1976. He is a partner of Drinker Biddle &
Reath, attorneys and counsel to the Company.
Frederick W. DeTurk, Director
Mr. DeTurk has been a Director since 1981. He is President of DeTurk
Enterprises, Inc., a management consulting firm.
Josh S. Weston, Director
Mr. Weston has been a Director since 1987. He is Chairman and Chief Executive
Officer of Automatic Data Processing, Inc., an information processing services
company.
Harvey J. Wilson, Director
Mr. Wilson has been a director since February 1993. He is a private investor.
Mr. Wilson previously served as an officer and member of the Board from the
Company's founding in 1969 to 1984.
Jeffrey S. Rubin, Director
Mr. Rubin was appointed as a director in October 1993. He is Executive Vice
President and Chief Financial Officer of NYNEX Corporation, a regional
telecommunications company.
Executive Officers
R. James Macaleer, Chairman of the Board and
Chief Executive Officer
Marvin S. Cadwell, Executive Vice President
James C. Kelly, Secretary
Michael B. Costello, Vice President of Administration and Corporate
Communications
Edward J. Grady, Controller and Assistant Treasurer
Terrence W. Kyle, Vice President of Finance, Treasurer and Assistant Secretary
Francis W. Lavelle, Senior Vice President
Bonnie L. Shuman, General Counsel and Assistant Secretary
Marion G. Tomlin, Senior Vice President
31
<PAGE>
-83-
Shared Medical Systems Corporation
- -------------------------------------------------------------------------------
Domestic and International Offices
- -------------------------------------------------------------------------------
Domestic
Corporate Headquarters
SMS
51 Valley Stream Parkway
Malvern, PA 19355
610-219-6300
Branch Offices
Ann Arbor
4251 Plymouth Road
Ann Arbor, MI 48105
313-994-8300
Atlanta
400 Northridge Road
Atlanta, GA 30350
404-993-2490
Boston
301 Edgewater Place
Wakefield, MA 01880
617-224-0817
Charlotte
29 Coltsgate Road
Charlotte, NC 28210
704-554-7366
Chicago
1600 Golf Road
Rolling Meadows, IL 60008
708-806-0666
Cleveland
3 Summit Park Drive
Independence, OH 44131
216-524-0313
Columbus
2550 Corporate Exchange Drive
Columbus, OH 43231
614-895-3232
Dallas
800 E. Campbell Road
Richardson, TX 75081
214-783-6737
Denver
1355 S. Colorado Boulevard
Denver, CO 80222
303-692-9244
Dover
15 Old Rollingsford Road
Dover, NH 03820
603-743-4811
Indianapolis
2780 Waterfront Parkway E. Drive
Indianapolis, IN 46214
317-293-3360
Kansas City
4350 Shawnee Mission Parkway
Shawnee Mission, KS 66205
913-384-4811
Los Angeles
3010 Old Ranch Parkway
Seal Beach, CA 90740
310-596-4554
Miami
100 West Cypress Creek Road
Ft. Lauderdale, FL 33309
305-771-4880
Nashville
Three Maryland Farms Boulevard
Brentwood, TN 37027
615-377-1244
New Orleans
3850 N. Causeway Boulevard
Metairie, LA 70002
504-835-3894
New York
2 Penn Plaza
New York, NY 10121
212-563-2380
Oakland
2201 Broadway
Oakland, CA 94612
510-444-3434
Philadelphia
100 Berwyn Park
Berwyn, PA 19312
610-640-4490
Pittsburgh
Foster Plaza #9
750 Holiday Drive
Pittsburgh, PA 15220
412-921-6400
St. Louis
1801 Park 270 Drive
St. Louis, MO 63146
314-542-0100
San Francisco
6000 Stoneridge Mall Road
Pleasanton, CA 94588
510-463-9750
San Juan
654 Luis Munoz Rivera Avenue
Hato Rey, PR 00918
809-756-6700
Santa Barbara
4231 State Street
Santa Barbara, CA 93110
805-964-5661
Seattle
3055 112th Avenue, N.E.
Bellevue, WA 98004
206-827-4455
Somerset
II Executive Drive
Somerset, NJ 08873
908-560-1600
Washington, D.C.
2411 Dulles Corner Park
Herndon, VA 22071
703-713-3490
Wilmington
1010 Concord Avenue
Wilmington, DE 19802
302-655-8514
International
Administration-Europe
SMS Europe
Deane House
Sarum Hill
Basingstoke
Hampshire RG21 1SR
England
011-44-256-467556
Operating Companies
France
SMS France
Batiment, 8
Mini Parc
Parc Euromedicine
Montpellier 34198
Cedex 5
France
011-33-6-7041143
Germany
SMS Zweigniederlassung
der SMS Corporation
Kolner StraB 10b
W-6236 Eschborn/Ts.bei
Frankfurt
Germany
###-##-####/9240
Ireland
SMS Ireland, Unlimited
SMS House
St. Johns Court Business Centre
Swords Road Santry
Dublin 9
Ireland
011-353-1-8420022
Italy
SMS Italia, S.r.l.
Piazza Sante Bargellini
00157 Rome
Italy
O11-39-6-439-3350
Spain
SMS Corp y Cia S.R.C.
Avenida de los
Encuartes, 21
Tres Cantos, Madrid
Spain
011-34-1-807-7500
The Netherlands
SMS Nederland b.v.
Nevelgaarde 4
3436 ZZ Nieuwegein
The Netherlands
011-31-3402-52852
United Kingdom
SMS United Kingdom, Ltd.
Sarum Gate
Sarum Hill
Basingstoke
Hampshire RG21 1SR
England
011-44-256-57100
32
<PAGE>
-84-
Corporate Headquarters
Shared Medical Systems Corporation
51 Valley Stream Parkway
Malvern, PA 19355
610-219-6300
Annual Stockholders Meeting
The Annual Stockholders Meeting will be held on Friday, April 29, 1994, at the
Union League of Philadelphia, 140 South Broad Street, Philadelphia,
Pennsylvania, at 11:30 a.m. You are cordially invited to attend.
Common Stock
SMS common stock is traded over-the-counter in the NASDAQ National Market System
under the symbol SMED.
Transfer Agent
Chemical Bank
J.A.F. Building
P.O. Box 3068
New York, NY 10116-3068
1-800-851-9677
Counsel
Drinker Biddle & Reath
Philadelphia, PA
Independent Public Accountant
Arthur Andersen & Co.
Philadelphia, PA
(MEMBER OF AMERICAN BUSINESS CONFERENCE LOGO APPEARS HERE)
(RECYCLED PAPER LOGO APPEARS HERE) THIS ANNUAL REPORT IS
PRINTED ON RECYCLED PAPER
SMS is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
-85-
(LOGO OF SHARED MEDICAL SYSTEMS APPEARS HERE)
SHARED MEDICAL SYSTEMS CORPORATION
51 VALLEY STREAM PARKWAY
MALVERN, PA 19355
610-219-6300
<PAGE>
-86-
Exhibit (21)
Subsidiaries of the Registrant
------------------------------
SMS Properties Corporation (a Delaware corporation)
SMS Europe Unlimited (United Kingdom)
<PAGE>
-87-
Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shared Medical Systems Corporation:
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 7, 1994 included or incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 (File Nos. 2-72055, 2-83465, 2-84938, 2-85345, 2-85346, 2-96224,
2-96225, 33-18161, 33-25009, 33-25010, 33-34089, 33-34410, 33-37742, and
33-47572).
/s/ Arthur Andersen & Co.
Arthur Andersen & Co
Philadelphia, Pennsylvania
March 29, 1994
