<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to___________
Commission file number 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction (I.R.S. Employer Identification Number)
of 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 29, 1996, was $1,243,236,000. See
page 9 herein for assumptions on which this calculation is based.
On February 29, 1996, there were 23,381,457 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, 1995 are incorporated by reference into Part I and Part
II of this Form 10-K. Certain portions of the Company's definitive Proxy
Statement that was mailed to stockholders on or about March 22, 1996, are
incorporated by reference into Part III of this Form 10-K.
<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 health industry in North America and Europe.
The Company's products are offered to integrated health networks, multi-
entity health corporations, community health information networks,
hospitals, physician groups, and other health providers. These products
include a full range of financial, patient management, clinical,
ambulatory care, managed care, imaging, decision support, and electronic
data interchange systems that use diverse computing and networking
technologies, ranging from remote processing, to distributed processing
systems, to onsite systems. The Company also provides professional
services related to its information processing systems business.
Domestically, the Company markets its products and provides installation
services and ongoing technical and educational support with a field staff
working from branch offices. At its Corporate Headquarters and
Information Services 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 nine countries.
The Company's primary customers are acute-care hospitals, generally with
100 or more beds, multi-entity health corporations, integrated health
networks, community health information networks, physician groups, and
other health 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 health information processing services
and systems market in Europe. The Company currently has customer
contracts in Belgium, the Czech Republic, France, Germany, Hungary,
Ireland, Italy, the Netherlands, Poland, Spain, and the United Kingdom.
For financial information by geographic area, refer to page 34 of the
Company's 1995 Annual Report to Stockholders, Notes to Consolidated
Financial Statements, Business Segment Information (Note 10), which is
incorporated herein by reference.
Although the number of stand-alone acute-care hospital beds has declined
slightly in recent years, the demand for integrated information systems
in the health industry has grown due to the emergence of integrated
health networks, multi-entity health organizations, and community health
information networks. As the information processing requirements of the
health industry have continued to grow, the business of providing
information services and systems has become more complex. Additionally,
<PAGE>
3
changes in the way health organizations are structured and reimbursed,
combined with pressures to control costs, improve quality, and increase
market share have created new and increased demands for the Company's
services and systems.
Services and Systems Offered
----------------------------
The principal health information systems and related services offered by
the Company are:
Health 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
within health organizations. These systems also facilitate
communications among departments.
. Ambulatory Care Systems, which provide integrated systems that
facilitate the sharing of clinical and financial information between
health providers in non-acute care settings.
. 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.
. Systems for integrated health networks, which are generally comprised
of a variety of health delivery organizations, such as acute-care
hospitals, skilled nursing facilities, home health agencies,
rehabilitation facilities, clinics, physician practices, and others.
These systems include patient indexes that provide for rapid
identification of patients anywhere in the network, scheduling of
network-wide resources, a cumulative electronic patient record,
sophisticated software that addresses the issues involved with managed
care, and communications facilities that enhance communications among
all elements of the network.
<PAGE>
4
Electronic Data Interchange Systems - these systems facilitate the
-----------------------------------
sharing and standardization of information, such as eligibility
verifications, claims and remittance transmissions, throughout the
health industry.
Professional Services - these services consist of a variety of
---------------------
activities related to the Company's health information processing
systems. These professional services include installation, support and
education. In addition, the Company provides specialized consulting
services for the design and integration of software and networks,
facilities management, information systems planning, and system-related
process re-engineering.
The Company's health 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 Services Center (i.e.
remotely), or as part of a distributed network. Distributed network
systems generally process the financial applications at the Company's
Information Services Center, while the patient management and clinical
applications operate on computers located at the customer's site. These
systems are also offered with networking features that enable multi-
entity health 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, 1995, 1994, and 1993 were $592,509,000, $504,386,000, and
$452,797,000, 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,
1995, 1994, and 1993 were $58,132,000, $46,383,000, and $48,486,000,
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 ten
years, or perpetual license contracts. 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. Management estimates that the total amount
of future revenues under contract as of December 31, 1995 are in excess
of $1.5 billion. In 1995, 1994, and 1993, no single customer accounted
for 10% or more of consolidated revenues.
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.
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5
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.
Competition
-----------
The Company experiences intense competition from a number of firms in the
health information services and systems market. Virtually all health
organizations use some form of computer-based information processing. The
Company's 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 services and systems to health organizations. Competition
among those providing information processing services and systems to
health organizations, physician groups, and other health providers is
based upon the breadth and reliability of the services and systems
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 health organizations. Profitability of newly
developed services and systems depends upon attainment of sufficient
sales volumes and continuing improvement and efficiency of the systems.
The Company expenses all research and non-capitalized development costs,
which generally consist of 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 $45,385,000 in 1995, $39,226,000 in 1994, and $37,087,000 in
1993.
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.
The Company amortizes computer software using the straight-line method
over its expected useful life, which is generally five years. Capitalized
internally produced computer software costs, net of accumulated
amortization, were $32,785,000 and $31,657,000 as of December 31, 1995
and 1994, respectively. Amortization related to capitalized internally
produced software was $7,722,000 in 1995, $6,290,000 in 1994 and
$5,464,000 in 1993. Purchased software, net of accumulated amortization,
was $10,170,000 and $7,144,000 as of December 31, 1995 and 1994,
respectively.
Personnel
---------
As of December 31, 1995, the Company had a total of 4,826 full-time
employees.
<PAGE>
6
Item 2. Properties.
The Company owns 116 acres of land in Chester County, Pennsylvania. The
Company has constructed three buildings on this site; an information
services 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 unused portion of this land can be used for
possible future expansion. In addition, the Company leases office space
near the Company's corporate headquarters, which is utilized by certain
corporate-based operations. The Company also leases office space in most
major metropolitan areas in the United States for marketing, installation
and support personnel. In Europe the Company owns an office building in
Spain and leases office space in various locations to support its
operations. These properties are adequate for existing operations.
The Company also owns 241 acres of land in Chester County, Pennsylvania
for possible future expansion.
As of December 31, 1995, the Company's Information Services Center, which
is used primarily to process customer information and to support the
Company's internal software development, contains one 5995-8650 AMDAHL
processor, one 9672/RX3 IBM processor, and three 9021-982 IBM processors,
all of which were obtained under operating leases. The Company's
Information Services Center also includes related mainframe peripherals
and network 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.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
7
Executive Officers of the Registrant
Listed below are the name, age as of December 31, 1995, position(s) with
the Company and principal occupation(s) for the past five years of each
of the executive officers of the Company.
<TABLE>
<CAPTION>
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
------------------- --- ----------------------------------------------
<S> <C> <C>
R. James Macaleer 61 Chairman of the Board since August 1995. Prior
to this, Mr. Macaleer served as Chairman of the
Board and Chief Executive Officer since the
Company's founding in 1969.
Marvin S. Cadwell 52 Director, President and Chief Executive
Officer since August 1995. Prior to this, Mr.
Cadwell served as Director, President and
Chief Operating Officer, May 1995 - August
1995; President and Chief Operating Officer,
March 1995 - May 1995; Executive Vice
President, October 1993 - March 1995; Senior
Vice President, Managing Director and Chief
Operating Officer of SMS Europe, March 1992 -
March 1995; and Vice President, Managing
Director and Chief Operating Officer of SMS
Europe, September 1986 - March 1992.
Mr. Cadwell originally joined the Company in
1975.
Michael B. Costello 52 Vice President of Administration and
Corporate Communications since January 1991.
Mr. Costello originally joined the Company in 1979.
Edward J. Grady 43 Controller and Assistant Treasurer since February
1993. Prior to this, Mr. Grady served as Controller,
May 1985 - February 1993. Mr. Grady originally joined
the Company in 1980.
James C. Kelly 56 Secretary since June 1990. Mr. Kelly originally
joined the Company in 1972.
Terrence W. Kyle 45 Vice President of Finance, Treasurer and
Assistant Secretary since June 1990. Mr. Kyle
originally joined the Company in 1976.
Francis W. Lavelle 46 Senior Vice President of U.S. Customer Operations
since December 1993. Prior to this, Mr. Lavelle
served as Vice President of New Business
Development, January 1991 - December 1993.
Mr. Lavelle originally joined the Company in 1988.
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
Positions with Company and Principal
Name Age Occupation(s) - Past Five Years
------------------- --- ----------------------------------------------
<S> <C> <C>
Robert J. McNeill 57 Vice President of Marketing and Customer
Service since March 1995. Prior to this, Mr.
McNeill served as Vice President of Customer
Service, January 1993 - March 1995;
and Vice President of Marketing, Installations
and Support, January 1991 - January 1993.
Mr. NcNeill originally joined the Company in 1981.
David F. Perri 46 Vice President of Technology Solutions since
March 1995. Prior to this, Mr. Perri served
as Vice President of Technical Affairs,
June 1990 - March 1995. Mr. Perri originally
joined the Company in 1980.
Terry A. Pitts 46 Vice President of the Company's Outsourcing
Services, Strategic Services and MedSeries4
Divisions since August 1995. Prior to this Mr.
Pitts served as Vice President of the Company's
Outsourcing Services and Strategic Services
Divisions, October 1994 - August 1995; National
Managing Partner of Information Technology Health
Services, Coopers and Lybrand LLP, October 1993 -
October 1994; and General Manager of the Company's
Strategic Services Division, September 1989 -
October 1993. Mr. Pitts originally joined the
Company in 1989.
Bonnie L. Shuman 47 General Counsel and Assistant Secretary since June
1990. Ms. Shuman originally joined the Company in 1983.
Marion G. Tomlin 56 Senior Vice President of the Company's Turnkey
Systems Division since January 1991. Mr. Tomlin
originally joined the Company in 1988.
Matthew B. Townley 39 Vice President of Health Solutions of the Company
since March 1995. Prior to this, Mr. Townley
served as General Manager of the Company's
Healthcare Data Exchange and Physician Services
Divisions, February 1994 - March 1995; General
Manager of the Company's Physicians Services
Division, September 1992 - February 1994; Regional
Manager of the Company's Northwest Region,
February 1991 - September 1992; and President of
Healthcare Recruiters of the Northwest, a sole
proprietorship, November 1989 - February 1991.
Mr. Townley originally joined the Company in 1982.
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9
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 29, 1996.
Part II
The following information contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1995 is incorporated herein
by reference:
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Page 23, Section titled Market Price and Dividends Declared Per Share -
"1995" and "1994" columns and related footnote
Item 6. Selected Financial Data.
Page 23, Section titled Summary of Consolidated Operations - "Revenues",
"Net Income", and "Net Income Per Share" line items
Page 23, Section titled Summary of Consolidated Financial Position -
"Total Assets" and "Long-Term Debt and Capital Leases" line items
Page 23, Section titled Operating Ratios and Other Selected Financial
Data - "Cash Dividends Declared Per Share" line item
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pages 18 through 22, Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data.
Pages 24 through 34
Page 35, Report of Independent Public Accountants
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 that was mailed to stockholders on or about March 22, 1996 is
incorporated herein by reference:
Item 10. Directors and Executive Officers of the Registrant.
Section titled "Security Ownership": subsection titled "Directors and
Management": columns "Name of Beneficial Owner" and "Director Since" for
the portion of the table titled "Directors"
Section titled "Compliance with Section 16(a) of the Securities Exchange
Act of 1934"
(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.
Section titled "Election of Directors": the subsection titled
"Compensation of Directors"
Section titled "Executive Compensation": subsections titled "Compensation
Committee Interlocks and Insider Participation" and "Compensation
Summaries"
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Section titled "Security Ownership"
Item 13. Certain Relationships and Related Transactions.
Section titled "Executive Compensation": subsection titled "Compensation
Committee Interlocks and Insider Participation", paragraph two of this
subsection
<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. Financial Statements - the following consolidated financial
statements included on pages 24 through 34 in the Company's
Annual Report to Stockholders for the year ended
December 31, 1995 are included in this report.
. Consolidated Balance Sheet as of December 31, 1995 and 1994
(page 24)
. Consolidated Statement of Income for the years ended
December 31, 1995, 1994, and 1993 (page 25)
. Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 (page 26)
. Consolidated Statement of Stockholders' Investment for the
years ended December 31, 1995, 1994, and 1993 (page 27)
. Notes to Consolidated Financial Statements for the years
ended December 31, 1995, 1994, and 1993 (pages 28 through 34)
. Report of Independent Public Accountants (page 35)
. Selected Quarterly Financial Data (Unaudited) for the years
ended December 31, 1995 and 1994 as reported in Note 9 to
Consolidated Financial Statements (page 33)
2. Financial Statement Schedules - the following Financial
Statement Schedules required by Article 5 of Regulation S-X are
included in this report:
. Report of Independent Public Accountants
. Schedule II - Valuation and Qualifying Accounts
. Schedules omitted - the following schedules are omitted since
they are not required, or not applicable: I, III, IV, and V
<PAGE>
12
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 August 10, 1995 (filed as
Exhibit (3) to the Company's Form 10-Q Report for the
quarter ended September 30, 1995)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer
James C. Kelly
Marvin S. Cadwell (filed as Exhibit (10) to the
Company's Form 10-Q Report for the quarter ended
September 30, 1995)*
Performance bonus plans - 1995:**
R. James Macaleer (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31, 1994)*
Marvin S. Cadwell (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31, 1994)*
Marion G. Tomlin (filed as Exhibit (10) to the
Company's Form 10-Q Report for the quarter
ended June 30, 1995)*
Francis W. Lavelle (filed as Exhibit (10) to the
Company's Form 10-Q Report for the quarter ended
September 30, 1995)*
Robert J. McNeill
David F. Perri
Terry A. Pitts
Matthew B. Townley
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
13
No. Description
---- ------------------------------------------------------
Performances bonus plans - 1994:**
R. James MaCaleer (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31, 1994)*
Marvin S. Cadwell (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31,1994)*
Marion G. Tomlin (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31, 1994)*
Insurance Agreements:**
R. James Macaleer
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
Commpany's Form 10-K report for the year ended
December 31, 1991)*
Stock Option Plans:
1987 Non-Qualified Stock Option Plan for Non-
Employee Directors (filed as Exhibit (10) to the
Company's Form 10-K Report for the year ended
December 31, 1993)*
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, 1995***
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or comlpensatory arrangement.
***With the exception of the material specifically incorporated by
reference in Part I and Part II of this Form 10-K, the Annual Report to
Stockholders for the year ended December 31, 1995 is not to be deemed
"filed" as part of this Form 10-K.
<PAGE>
14
No. Description
---- ------------------------------------------------------
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
(99) Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995
(b) No reports on Form 8-K were filed during the three month period
ended December 31, 1995.
<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, 1996
------------------------------------- ------------------
R. James Macaleer - Chairman of the
Board
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, 1996
------------------------------------- ------------------
R. James Macaleer - Chairman of the
Board
By: /s/ Raymond K. Denworth, Jr. Date: March 29, 1996
------------------------------------- -----------------
Raymond K. Denworth, Jr. - Director
By: /s/ Frederick W. DeTurk Date: March 29, 1996
------------------------------------- ------------------
Frederick W. DeTurk - Director
By: /s/ Josh S. Weston Date: March 29, 1996
------------------------------------- ------------------
Josh S. Weston - Director
By: /s/ Jeffrey S. Rubin Date: March 29, 1996
------------------------------------- ------------------
Jeffrey S. Rubin - Director
By: /s/ Marvin S. Cadwell Date: March 29, 1996
------------------------------------ -----------------
Marvin S. Cadwell - Director,
President and Chief Executive Officer
By: /s/ Terrence W. Kyle Date: March 29, 1996
------------------------------------- ------------------
Terrence W. Kyle - Vice President
of Finance, Treasurer and Assistant
Secretary
By: /s/ Edward J. Grady Date: March 29, 1996
------------------------------------- ------------------
Edward J. Grady
Controller and Assistant Treasurer
<PAGE>
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
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 1995
Annual Report to Stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 6, 1996. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Item 14 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/S/ Arthur Andersen LLP
Philadelphia, PA
February 6, 1996
<PAGE>
17
SCHEDULE II
SHARED MEDICAL SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
-----------------------------------------------------
<TABLE>
<CAPTION>
Balance Balance
Beginning of Charges to Additions/ End of
Year Expenses Deductions Year
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
December 31, 1995 $5,317,000 $820,000 $(1,290,000) (1) $4,847,000
========== ======== =============== ==========
December 31, 1994 $4,279,000 $818,000 $ 220,000 (2) $5,317,000
========== ======== =============== ==========
December 31, 1993 $4,991,000 $810,000 $(1,522,000) (1) $4,279,000
========== ======== =============== ==========
</TABLE>
(1)Write-offs of uncollectible accounts
(2)Write-offs of uncollectible accounts offset by additions resulting
from the Company's acquisition of GTE Health Systems Incorporated on
September 30, 1995.
<PAGE>
18
Exhibit Index
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 August 10, 1995
(filed as Exhibit (3) to the Company's
Form 10-Q Report for the quarter ended
September 30, 1995)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer
James C. Kelly
Marvin S. Cadwell (filed as Exhibit
(10) to the Company's Form 10-Q Report
for the quarter ended September 30, 1995)*
Performance bonus plans - 1995:**
R. James Macaleer (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1994)*
Marvin S. Cadwell (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1994)*
Marion G. Tomlin (filed as Exhibit (10)
to the Company's Form 10-Q Report for
the quarter ended June 30, 1995)*
Francis W. Lavelle (filed as Exhibit (10)
to the Company's Form 10-Q Report for
the quarter ended September 30, 1995)*
Robert J. McNeill
David F. Perri
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
19
No. Description
---- ---------------------------------------------
Terry A. Pitts
Matthew B. Townley
Performance bonus plans - 1994:**
R. James Macaleer (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1994)*
Marvin S. Cadwell (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1994)*
Marion G. Tomlin (filed as Exhibit (10)
to the Company's Form 10-K Report for
the year ended December 31, 1994)*
Insurance agreements:**
R. James Macaleer
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)*
Stock Option Plans:
1987 Non-Qualified Stock Option Plan for
Non-Employee Directors (filed as Exhibit
(10) to the Company's Form 10-K Report
for the year ended December 31, 1993)*
*Previously filed as indicated and incorporated herein by reference.
**May be deemed a management contract or compensatory arrangement.
<PAGE>
20
No. Description
---- -------------------------------------------
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, 1995**
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
(99) Cautionary Statements for Purposes of the "Safe
Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995
*Previously filed as indicated and incorporated herein by reference.
**With the exception of the material specifically incorporated by
reference in Part I and Part II of this Form 10-K, the Annual Report to
Stockholders for the year ended December 31, 1995 is not to be deemed
"filed" as part of this Form 10-K.
<PAGE>
Exhibit (10)
DEFERRED COMPENSATION AGREEMENT
AGREEMENT made this 1st day of January, 1977 by and between SHARED
MEDICAL SYSTEMS CORPORATION, a Delaware corporation ("SMS") and R. James
Macaleer ("Employee").
WHEREAS, since the founding of SMS Employee has rendered valuable
services to SMS; 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 Employee's past services and of
the mutual promises herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. SMS agrees to pay to Employee, subsequent to the termination of
Employee's employment with SMS for any reason (other than (a) for conduct
deemed by the Board of Directors of SMS to have been fraudulent against
SMS, or (b) for total and permanent disability as provided for in
paragraph 3 hereof) a sum of money on the first day of each month for a
period of months as indicated in Exhibit A. Should Employee die while he
is receiving such payments, and before the last payment to him by SMS
hereunder, the payments shall be continued in their entirety to
Employee's beneficiary, as designated as Exhibit B (the "Beneficiary").
(Employee shall have the right from time to time to change the
Beneficiary by appropriate written notice to SMS). Employee shall give
the SMS Board of Directors (the "Board") at least twelve months' prior
notice in writing of the termination of his employment, through normal
retirement or otherwise. Should Employee give SMS less than twelve
month's prior notice, Employee shall forfeit to SMS an
<PAGE>
amount, from the first payments to be made hereunder, equal to one
month's payment times the difference between twelve months and the number
of full months' notice actually given. The first month's payment under
this paragraph shall be made on the first day of the month following the
month in which employment terminated; provided however that the first
payment shall not be payable prior to the later of January 1, 1989 or the
expiration of a twelve month period following the date of Employee's
notice of the termination of his employment.
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, starting on the first day of the month following
the month in which the Employee's death occurred.
3. Should Employee become totally and permanently disabled while
employed by SMS but prior to January 1, 1986, such that either
(a) pursuant to the terms of any insurance policy procured by
SMS pursuant to paragraph 7, such policy may, because of such dis-
ability, be maintained in force without payment of any premium
thereon or
(b) if there is no such insurance policy, the Board determines
in its absolute discretion on the basis of medical evidence that
employee is physically or mentally incapable of performing his
customary duties and that such incapacity is expected to continue
until January 1, 1987,
then SMS shall pay to Employee monthly the amounts listed in Exhibit C,
2
<PAGE>
starting on January 1 of the year in which the first premium which need
not be paid on such insurance policy would otherwise be due or, if there
is no such insurance policy, on the first January 1 which occurs after
the Board's determination of Employee's total disability (but only for so
long as the total and permanent disability, determined as provided above,
continues). Starting on the later of January 1, 1987 (assuming Employee,
while employed by SMS, has become totally and permanently disabled as
defined above) or the first day of the month following the month in which
Employee, while employed by SMS, has become totally and permanently
disabled as defined above, SMS shall pay to Employee monthly the amounts
listed in Exhibit A. Should Employee die after he has become totally and
permanently disabled as defined above but prior to January 1, 1987, the
monthly payments designated in Exhibit A shall be made to Employee's
Beneficiary, starting on the first day of the month following the month
in which Employee's death occurred. Should Employee die after he has
become totally and permanently disabled as defined above but on or after
January 1, 1987, the remaining payments listed in Exhibit A shall be
continued to Employee's Beneficiary. The Board shall have no obligation
to determine that Employee is disabled as contemplated above if Employee
declines to permit a physician selected by SMS to examine him or re-
examine him, or materially hinders any investigation ordered by SMS.
4. Employee agrees that he will not enter into competition with SMS
at any time from the date hereof through a period of two years after the
completion of the payments listed in Exhibit A. Employee shall be deemed
to be in competition if he directly or indirectly, whether as consultant,
agent, officer, director, holder of at least 1% of a class of
3
<PAGE>
equity security, employee or otherwise enters into an association with
another business enterprise which then is one of the competitors of SMS
respecting one or more of SMS' business activities. The parties agree
that one of the essential considerations for the deferred compensation
provided Employee hereunder is to protect and preserve the good will of
SMS and its respective enterprises, and that said good will would be
substantially diminished in value if Employee were to enter into
competition with SMS while this Agreement is in effect or for two years
thereafter. As SMS' business activities are national in scope, the
prohibition against competition relates to any competitor wherever it may
be located within the United States. In the event Employee is deemed to
be in competition contrary to the provisions of this paragraph, thereupon
he shall forfeit all rights to any unmade payments of deferred
compensation under this Agreement.
5. 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.
6. This Agreement shall be binding upon SMS, its successors and
4
<PAGE>
assigns. Employee may not assign this Agreement or any of his rights
hereunder, except that he may designate a beneficiary to receive payments
in the event of his death as provided herein.
7. SMS in its discretion may apply for and procure as owner and for
its own benefit insurance on the life of Employee, in such amounts and in
such forms as SMS may choose. Employee shall have no interest whatsoever
in any such policy or policies, but at the request of SMS he shall submit
to medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to
whom SMS has applied for insurance. The rights of Employee, or his
beneficiary, or estate, to benefits under this Agreement shall be solely
those of an unsecured creditor of SMS. Any insurance policy or other
assets acquired or held by SMS in connection with the liabilities assumed
by it pursuant to this Agreement shall not be deemed to be held under any
trust for the benefit of Employee, a beneficiary of his estate, or to be
security for the performance of the obligations of SMS. This Agreement
may be canceled by SMS if insurance procured by SMS under this paragraph
is canceled by the insurance company because of misrepresentation by
Employee.
8. This Agreement shall be governed by the laws of Pennsylvania.
/s/ Gwen M. Martin /s/ R. James Macaleer
---------------------------- ---------------------------
Witness Employee
/s/ James C. Kelly
---------------------------
SMS Corporate Officer
5
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Year of
Termination of Monthly Number of Total Deferred
Employment Payments Monthly Payments Compensation
- ---------------- -------- ---------------- --------------
<S> <C> <C> <C>
1977 $ 295 240 $ 70,800
1978 709 240 170,160
1979 1085 240 260,400
1980 1422 240 341,280
1981 1743 240 418,320
1982 2048 240 491,520
1983 2335 240 560,400
1984 2601 240 624,240
1985 2836 240 680,640
1986 and 3052 240 732,480
subsequent
</TABLE>
(1) Employee may elect fewer than 240 payments but not less than 120
payments. If fewer than 240 payments are selected, the amount of each
monthly payment shall equal the Total Deferred Compensation
(determined by the year of Termination of Employment as shown on the
table above) divided by the number of months selected, with the
quotient thereof divided by (1.01) 20-n [Exponent],where n equals
one-twelfth of the number of months selected for payment rounded to the
nearest whole number plus the number of whole years subsequent to 1989, if
any, by which Employee has elected to delay the start of the deferred
compensation, provided, however, that n shall never exceed 20.
(2) The deferred payments shall not start before January 1, 1989.
Employee may defer the start of the deferred payments to any date
subsequent to the termination of his employment. However, the total
amount of deferred compensation shall depend on the year of
termination of employment, as listed above, and as modified in
footnote (1), above.
<PAGE>
EXHIBIT B
---------
I, R. James Macaleer, hereby designate L. Jean Macaleer
----------------- ----------------
as my beneficiary for payments to be made subsequent to my death under
the Deferred Compensation Agreement dated January 1, 1977 between me and
Shared Medical Systems Corporation. I hereby revoke all prior beneficiary
designations made by me pursuant to such Deferred Compensation Agreement.
If my wife should not survive me, I designate my children as
beneficiaries in equal shares.
/s/ Gwen M. Martin /s/ R. James Macaleer
------------------------------ -----------------------------------
Witness Employee
Dated: 1/23/77
<PAGE>
EXHIBIT C
---------
Monthly Payments /(1)/By Year (In Dollars)
-----------------------------
<TABLE>
<CAPTION>
Year of
Designated
Disability 1978 1979 1980 1981 1982 1983 1984 1985 1986
- ---------- ------ ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1977 3424 3424 3424 3424 3424 3424 3424 3424 3424
1978 -- 5444 5444 5444 5444 5444 5444 5444 5444
1979 -- -- 5793 5793 5793 5793 5793 5793 5793
1980 -- -- -- 6153 6153 6153 6153 6153 6153
1981 -- -- -- -- 6176 6176 6176 6176 6176
1982 -- -- -- -- -- 6176 6176 6176 6176
1983 -- -- -- -- -- -- 6176 6176 6176
1984 -- -- -- -- -- -- -- 6176 6176
1985 -- -- -- -- -- -- -- -- 6176
</TABLE>
(1) Payments start on the first day of January, following the year of
Employee's disability.
<PAGE>
Exhibit (10)
SPLIT DOLLAR AGREEMENT
This split dollar agreement (the "Agreement") is entered into on the
dates set forth below, to be effective as of July 28, 1995, by and between
SHARED MEDICAL SYSTEMS CORPORATION (the "Corporation") and RAYMOND K. DENWORTH,
JR. and WILLIAM C. BULLITT, TRUSTEES under The LJM 95 Trust under deed of trust
of L. Jean Macaleer dated as of July 28, 1995 ("Trustees").
RECITALS:
A. R. James Macaleer (the "Employee") is employed by the Corporation; and
B. The Trustees wish to acquire life insurance on the life of the
Employee to be owned by the Trustees; and
C. The Corporation wishes to provide this life insurance protection under
the policies which are described in Exhibit A to this Agreement (separately "the
Policy" and collectively "the Policies"); and
D. The Corporation is willing to pay a portion of the premiums due on the
Policies as an additional employment or retirement benefit to the Employee, on
the term and conditions hereinafter set forth; and
E. Trustees will be the owners of the Policies and, as such, will possess
all of the incidents of ownership in and to the Policies; and
F. The Corporation wishes to have the Policies collaterally assigned to
it by the Trustees, in order to secure the repayment of the amounts it will pay
towards the premiums on the Policies; and
<PAGE>
G. The parties intend that by such collateral assignment, the
Corporation shall receive only the right to such repayment, with the Trustees
retaining all incidents of ownership and other rights in the Policies, as
specified herein.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the parties agree as follows:
1: Purchase of the Policy
The parties agree that they will take all necessary actions to cause
the Policies to be issued to the Trustees and to cause the Policies to conform
to the terms of this Agreement. The parties agree that the Policies will be
subject to the terms and conditions of the Agreement and of the collateral
assignment filed with the insurance company issuing the Policy (the "Insurer")
relating to such Policy.
2: Incidents of Ownership
The Trustees shall be the sole and absolute owner of each Policy, and
they alone may exercise all ownership rights and incidents of ownership granted
to the Policy's owner by the Insurer, except as may be expressly provided to the
contrary in its Agreement. It is the intention of the parties that the Trustees
retain all rights which the Policy grants to the owner thereof, except the
Corporation's right to be repaid the amounts that it pays, net of any
reimbursement received by the Corporation from the Employee or the Trustees,
towards the
2
<PAGE>
premiums on the Policy (such net amounts referred to hereinafter as the
Corporation's "Policy Interest"). Specifically (but not limited thereto), the
Corporation may neither have nor exercise any right as collateral assignee of
the Policy that could in any way defeat or impair the Trustees' right to receive
the cash surrender value or the death proceeds of the Policy in excess of the
amount due the Corporation under this Agreement. All provisions of this
Agreement and of the collateral assignment shall be construed so as to carry out
such intention.
3: Dividends Or Other Payments
Before the death of the Insured, all dividends, excess interest
credits, or other amounts paid or declared with respect to any Policy shall be
applied to build the internal value of the Policy in the most efficient manner
set forth in the Policy until such time as such dividends, excess interest
credits or other amounts are sufficient to pay all future Policy charges to
maturity based on the Insurer's then current interest, mortality and expense
assumptions. At such time as future dividends, excess interest credits or other
amounts are projected to be sufficient to pay such future Policy charges to
maturity, such amounts shall be applied first to the payment of such premiums,
and any excess shall be applied further to increase Policy values.
3
<PAGE>
4: Premium Payments
Except as otherwise provided in this Agreement, on or before the due
date of each Policy premium, or within the grace period provided in the Policy,
the Corporation shall pay to the Insurer the full amount of the premium. Within
30 days of being notified by the Company that it has made such payment, the
Trustees shall pay to the Company that portion of the premium listed on Exhibit
"A" of this Agreement, so that the net premium payment borne by the Corporation
shall be the amount shown in the column headed "Corporation" on Exhibit "A" (the
provisions of which are incorporated herein and made a part hereof).
5: Right of Repayment
5.1 Source. To secure the repayment to the Corporation of
------
the Corporation's Policy Interest, the Trustees have, contemporaneously
herewith, assigned each Policy to the Corporation as collateral, under a form
accepted by the Insurer for such assignments, which collateral assignment
specifically limits the Corporation's right thereunder to the repayment of its
Policy Interest. Such repayment shall be made from the Policy's cash surrender
value (as defined in the Policy) if this Agreement is terminated or if the
Trustees surrender or cancel the Policy, or from the Policy's death proceeds if
the insured should die while the Policy and this Agreement remain in force. In
no event shall the Corporation have any right to borrow against the Policy.
4
<PAGE>
5.2 Timing. At such time after premiums are no longer required
------
to be paid in cash to an Insurer with respect to a Policy but before the
termination of this Agreement or the death of the insured, the Trustees shall
commence repayment of the Corporation's Policy Interest with respect to such
Policy in installments as set forth in Exhibit "A." Any payment made by the
Trustees pursuant to this paragraph shall reduce the remaining amount of the
Corporation's Policy Interest.
5.3 Termination of Assignment. Except as provided in Paragraph
-------------------------
8.2., the Policy's collateral assignment shall not be terminated, altered or
amended by the Trustees without the express written consent of the Corporation.
The parties hereto agree to take all actions necessary to cause such collateral
assignment to conform to the provisions of this Agreement.
6: Rights of Trustees in the Policy
6.1 Rights of the Corporation Protected. The Trustees shall take no
-----------------------------------
action with respect to any Policy that would in any way compromise or jeopardize
the Corporation's right to be repaid its Policy Interest.
6.2 Right to Borrow.
---------------
(a) The Trustees may pledge or assign any Policy, subject to the
terms and conditions of this Agreement, in order to secure a loan from the
Insurer or from a third party, in an amount which, except as provided in
subparagraph 6.2(b), shall not exceed the Policy's cash surrender value (as
defined in the Policy) as of the date on which the premiums have been paid, less
5
<PAGE>
the amount of the Corporation's Policy Interest. Interest charges on such loan
shall be the responsibility of and shall be paid by the Trustees. For each
Policy year in which the Trustees borrow against the Policy, the Corporation
shall be correspondingly relieved of its obligation to pay any amounts towards
premiums for a Policy year.
(b) The limitation on the amount that the Trustees may borrow
against the Policy hereunder shall be not apply to the extent that the amount
borrowed is paid over to the Corporation to reduce its Policy Interest.
6.3 Right to Cancel. The Trustees shall have the sole right to
---------------
surrender or cancel the Policy and to receive the Policy's full cash surrender
value directly from the Insurer. Upon any surrendering or cancellation of the
Policy, the Corporation shall have the unqualified right to receive a portion of
the cash surrender value equal to its Policy Interest. Immediately upon receipt
of the cash value, the Trustees shall pay to the Corporation the portion of such
cash value to which it is entitled under this Agreement, and shall retain the
balance, if any.
7: Upon The Insured's Death
Upon the death of the Insured, the Corporation and the Trustees shall
promptly take all action necessary to obtain the death benefit provided under
the Policies. The Corporation shall have the unqualified right to receive a
portion of such death benefits from each Policy equal to its Policy Interest in
that
6
<PAGE>
Policy. The balance of the death benefits provided under each Policy, if any,
shall be paid directly to the beneficiary designated by the Trustees in the
manner and in the amount provided in the Policy's beneficiary designation
provisions. In no event shall the amount payable to the Corporation on account
of payments made for each Policy under this Agreement exceed the Policy proceeds
payable at the death of the Employee. No amount shall be paid from the death
benefits of a specific Policy to the beneficiary designated by the Trustees
until the full amount due to the Corporation on account of such Policy has been
paid.
8: Termination and Release of Collateral Assignment
8.1 Notice of Termination. The Trustees may terminate this Agreement
---------------------
with regard to any or all of the Policies, by written notice to the Corporation,
effective on the date of such notice.
8.2 Release of Assignment. For sixty (60) days after the date this
---------------------
Agreement is terminated under this Section, the Trustees shall have the option
of obtaining the release of the collateral assignment of all or any of the
Policies to the Corporation. The Trustees may exercise this option by repaying
the Corporation the total amount of its Policy Interest with respect to such
Policy and upon receipt of such amount, the Corporation shall release the
Policy's collateral assignment by its execution and delivery of an appropriate
instrument of release. If the Trustees fail to exercise such option with regard
to any such Policy within the said sixty-day period, then at the Corporation's
written request, the Trustees shall execute
7
<PAGE>
any document required by the Insurer to transfer the Trustees' interest in the
Policy to the Corporation. Alternatively, the Corporation may enforce its right
to be repaid the amount of its Policy Interest from the Policy's cash surrender
value under the Policy's collateral assignment, and if the cash surrender value
exceeds the amount of such premium payments, the excess will be paid to the
Trustees.
9: Source of Funds
The Corporation's obligations hereunder shall be satisfied from the general
assets of the Corporation. Any assets which may be set aside, earmarked or
identified by the Corporation as being intended for the payment of premiums
under this Agreement shall remain assets of the Corporation and shall be subject
to the claims of its general creditors. The Trustees shall be a general and
unsecured creditor of the Corporation and shall have no right, title or interest
in any specific asset that the Corporation may set aside, earmark, or identify
as for the payment of premiums under this Agreement. The Corporation's
obligations under this Agreement shall be merely that of an unfunded and
unsecured promise of the Corporation to pay money in the future.
10: Miscellaneous
10.1 Insurer Protected. Each Insurer shall be fully discharged from
-----------------
its obligations under the Policy by payment of the Policy's death benefit to the
beneficiary named in the
8
<PAGE>
Policy, subject to the Policy's terms and conditions. In no event shall the
Insurer be considered a party to this Agreement. No provision of this Agreement
shall in any way be construed as enlarging, changing, varying, or in any other
way affecting the Insurer's obligations as expressly provided in the Policy,
except insofar as the provisions of this Agreement are made a part of the Policy
by the collateral assignment document executed by the Trustees and filed with
the Insurer in connection with this Agreement.
10.2 Binding Agreement. This Agreement is binding on and enforceable
-----------------
by and against the parties, their successors, legal representatives, and
assigns.
10.3 Governing Law. This Agreement will be governed by
-------------
and construed according to the laws of Pennsylvania.
10.4 Severability. No part of this Agreement will be affected
------------
if any other part of it is held invalid or unenforceable.
10.5 Notices. All notices required or permitted to be given under
-------
this Agreement must be given in writing, and will be deemed given when
personally delivered or, if earlier, when received after mailing by registered
or certified United States mail, postage prepaid, with return receipt requested.
Notice to the Trustees is valid if sent to them at their address as it appears
in the Corporation's records.
9
<PAGE>
10.6 "Days" Defined. Any reference in this Agreement to "days" means
--------------
all calendar days, whether or not such days are legal holidays under the laws of
the United States or any state.
10.7 Waiver. Any party's failure to insist on compliance or
------
enforcement of any provision of this Agreement shall not affect its validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement.
10.8 Copies. More than one (1) copy of this Agreement may be
------
executed and all parties agree and acknowledge that each executed copy shall be
a duplicate original.
10.9 Gender and Number. Whenever the context of this Agreement
-----------------
requires, the masculine gender includes the feminine and neuter, and the
singular number includes the plural and vice versa.
10.10 Facility of Payment. Either party shall have the right
-------------------
to advance funds due on behalf of the other.
Agreed to by each of the undersigned effective as of July 28, 1995.
Dated: 12/12/95 /s/ William C. Bullitt
------------------ -----------------------------------
TRUSTEE
Dated: 12/14/95 /s/ Raymond K. Denworth [SEAL APPEARS
------------------ ---------------------------- HERE]
TRUSTEE
SHARED MEDICAL SYSTEMS CORPORATION
10
<PAGE>
Dated: 12/22/95 By:/s/ Marvin S. Cadwell [SEAL APPEARS
------------------ ------------------------ HERE]
President
Attest: Bonnie L. Shuman [SEAL APPEARS
-------------------- HERE]
Secretary
11
<PAGE>
EXHIBIT "A"
TO SPLIT DOLLAR AGREEMENT
ALLOCATION OF PAYMENTS WITH RESPECT TO THE POLICIES
---------------------------------------------------
<TABLE>
<CAPTION>
PREMIUM YEAR TRUSTEES CORPORATION
------------ -------- -----------
<S> <C> <C>
1 $62,787 $371,997
2 64,719 369,151
3 67,218 366,652
4 70,003 363,867
5 73,387 360,483
6 76,616 357,254
7 80,194 353,676
8 84,141 349,729
9 88,381 345,489
10 60,187 178,853
11* 67,898* *
12 82,537
13 99,227
14 117,978
15 139,465
16 157,916
17 179,030
18 201,625
19 262,725
20 289,479
21 333,532
22 382,968
23 441,198
24 375,772
25 285,801
</TABLE>
* The parties recognize that the actual amount of the premiums
payable after Policy Year 9 may vary from that set out above and that
adjustments to the Schedule may be necessary in light of the actual performance
of the Policy. If additional amounts are required to be paid in cash to the
Insurers, such amounts shall be paid by the Corporation, and the Trustees'
obligation to repay the Corporation shall be extended beyond Year 25 (if the
Insured has not died before then) until the Corporation has been repaid its
entire Policy Interest.
12
<PAGE>
Exhibit (10)
This AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT is made as of the
1st day of November, 1995 by and between SHARED MEDICAL SYSTEMS CORPORATION, a
Delaware corporation ("SMS") and JAMES C. KELLY ("Employee").
BACKGROUND
SMS and Employee have entered into a Deferred Compensation Agreement dated
March 8, 1991 (the "Original Agreement"). SMS and Employee desire to amend and
restate the Original Agreement.
NOW THEREFORE, intending to be legally bound, the parties hereto agree that
the Original Agreement shall be amended and restated to read as follows:
1. Pre-Retirement Payments. SMS shall pay to Employee $3,000 per month on
-----------------------
the first day of each month during the period beginning on October 1, 1995 and
ending on the earlier of (i) Employee's Retirement (as defined below), or (ii)
June 1, 2014.
2. Deferral Account. SMS shall establish on its books a deferral account
----------------
for Employee, which will be credited with $3,000 as of the date of each payment
made to Employee under Section 1. Interest shall be credited to the Employee's
deferral account at a rate of 7% per annum, compounded monthly as of the end of
each month. Any amounts credited to the Employee's deferral account shall be
merely book entries and no assets shall be held in such account.
3. Post-Retirement Payments; Distribution of Deferral Account.
----------------------------------------------------------
(a) SMS shall pay to Employee or his beneficiary $6,000 per month on the
first day of each month during the period beginning on the first day of the
first full calendar month following Employee's Retirement and ending on June 1,
2014 (the "Post-Retirement Period").
(b) The amount credited to Employee's deferral account shall be paid to
him or his beneficiary in substantially equal monthly installments over the
Post-Retirement Period (or if Employee's Retirement has not occurred prior to
June 1, 2014, in a single lump sum distribution on such date). Such monthly
installment payments shall be in addition to, and made on the same dates as, the
$6,000 monthly payments referred to in subparagraph (a). Amounts credited to
Employee's deferral account shall continue to bear interest as specified in
Section 2 during the installment payout period.
4. Retirement. As used herein the term "Retirement" shall mean (i) the
----------
termination of Employee's employment with SMS, whether part-time or full-time,
for any reason, including death or disability, or (ii) a "Change-in-Control" (as
defined below). As used herein, the term "Change in Control" shall mean the
acquisition by any person (other than SMS or any affiliate or associate of SMS),
as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the combined
voting power of SMS' then outstanding securities, or the approval by the
stockholders of SMS of (aa) any merger or consolidation where stockholders of
SMS immediately prior to the merger or consolidation do not immediately
thereafter hold more than 50% of the combined voting power of the surviving
<PAGE>
company's then outstanding securities, (bb) a liquidation or dissolution of SMS,
or (cc) a sale of all or substantially all of SMS' assets.
5. Death of Employee. Upon Employee's death, the payments required to be
-----------------
made under Section 3 shall be made to a beneficiary designated by Employee to
SMS (the current beneficiary is Employee's wife, Lyn E. Kelly).
6. Forfeiture of Benefits. Notwithstanding the foregoing, if Employee
----------------------
violates the Non-Competition Agreement between Employee and SMS dated April 2,
1990, Employee shall thereupon forfeit all rights to receive to any unmade
payments under this Agreement.
7. Agreement Unfunded. The obligation of SMS to pay any benefits under
------------------
this Agreement shall be unfunded and unsecured and any payment under this
Agreement shall be made from the general assets of SMS.
8. No Contract of Employment. 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
restrict the right of SMS to discharge Employee or restrict the right of
Employee to terminate his employment.
9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
10. Agreement Binding. This Agreement shall be binding upon and inure to
-----------------
the benefit of SMS, its successors and assigns, and Employee and his heirs,
executors, administrators and legal representatives. Employee may not assign
this Agreement or any of his rights hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first written above.
SHARED MEDICAL SYSTEMS CORPORATION
By: /s/ Terrence W. Kyle
--------------------------
Name:
Title:
/s/ James C. Kelly
------------------------------
James C. Kelly
<PAGE>
Exhibit (10)
Performance Bonus Plans - 1995: Robert J. McNeill, David F. Perri, Terry A.
Pitts and Matthew B. Townley
The performance bonus plans for Messrs. McNeill, Perri, Pitts and Townley for
1995 were not set forth in formal documents.
Mr. Pitts' plan operated as follows: A portion of Mr. Pitts' bonus
(approximately 50%) was based on the extent to which the actual attainment of
pre-tax income for two divisions of the Company for which Mr. Pitts was
responsible exceeded pre-determined target levels. The remainder of Mr. Pitts'
bonus was determined based on subjective considerations of his managerial
performance against certain pre-defined goals.
The plans for Messrs. McNeill, Perri and Townley operated in a manner similar to
the performance bonus plan for 1995 for Francis W. Lavelle filed as Exhibit 10
to the Company's Form 10-Q Report for the quarter ended September 30, 1995 and
incorporated by reference as an exhibit to this filing. Thus, under each plan,
90% of the base bonus value was tied to corporate sales, revenue and profit
performance and the remaining 10% of the base bonus value was tied to subjective
considerations of managerial performance against certain pre-defined goals.
<PAGE>
EXHIBIT (13)
1995 Annual Report
[LOGO OF SMS CORP.]
<PAGE>
Through long-term partnerships
in the health industry, we help our
customers improve their quality of
care, financial performance, and
strategic position by providing
superior, cost-effective solutions
based on information systems
and services.
SMS Mission Statement
/(C)/ Copyright 1996 SMS
Shared Medical Systems Corporation
<PAGE>
[SMS LOGO APPEARS HERE]
Annual Report 1995
SMS is the leading provider of health information service and system
solutions worldwide. SMS customers include integrated health networks, multi-
entity health corporations, community health information networks (which include
payers and employers), hospitals, physician groups, and other health providers
in North America and Europe. SMS solutions include a comprehensive line of
health information systems, providing clinical, financial, administrative,
ambulatory care, managed care, decision support, and EDI systems for both the
public and private health sectors. To meet each health organization's
requirements, SMS provides these systems on computers operating at the customer
site, at the SMS Information Services Center, or as part of a distributed
network.
SMS solutions also include a broad array of professional services critical
to the successful design and management of our customers' strategic information
systems. These professional services include system installation, support, and
education. In addition, SMS provides specialized consulting services for the
design and integration of software and networks, for facilities management, for
information systems planning, and for system-related process re-engineering.
Financial Highlights
(Amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Results: 1995 1994 % Increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $650,641 $550,769 18.1%
- --------------------------------------------------------------------------------
Income Before Income Taxes $ 65,220 $ 57,540 13.3%
- --------------------------------------------------------------------------------
Net Income $ 39,783 $ 35,099 13.3%
- --------------------------------------------------------------------------------
Net Income Per Share $ 1.68 $ 1.51 11.3%
- --------------------------------------------------------------------------------
Cash Dividends Declared Per Share $ .84 $ .84 -
- --------------------------------------------------------------------------------
Weighted Average Common Shares 23,697 23,280 1.8%
- --------------------------------------------------------------------------------
Year End Position:
- --------------------------------------------------------------------------------
Total Assets $434,973 $380,065 14.4%
- --------------------------------------------------------------------------------
Retained Earnings $265,010 $244,698 8.3%
- --------------------------------------------------------------------------------
Total Stockholders' Investment $248,820 $219,196 13.5%
- --------------------------------------------------------------------------------
Current Ratio 1.7 1.5
- --------------------------------------------------------------------------------
Common Stock Outstanding 23,261 22,943
- --------------------------------------------------------------------------------
Number of Stockholders of Record 6,124 5,627
- --------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE>
TO OUR STOCKHOLDERS:
From The Chairman...
For more than 26 years (from January of 1969 to August of 1995) it was my
privilege to serve as Chief Executive Officer and Chairman of the Board of SMS.
However, at the beginning of 1995 I indicated to our Board of Directors a desire
to spend less time on day-to-day operational activities. As a result, on August
10 of this past year, our Board enthusiastically selected our President and
Chief Operating Officer, Marvin S. Cadwell, as SMS' new Chief Executive Officer.
I will continue as Chairman of the Board.
Mr. Cadwell has over 30 years of experience in the health information
systems industry. He joined SMS in 1975 and has since held a series of
increasingly important positions within the Company. In 1986 he moved to London,
England, where for the next five years he directed the very successful
turnaround of our European operations.
Mr. Cadwell is eminently qualified to lead SMS into the twenty-first
century. I look forward to working with him, our Board of Directors, and our
very talented and dedicated group of SMS employees. Together we expect to
increase shareholder value through the strengthening of SMS' position as the
leading provider of health information systems worldwide.
[R. JAMES MACALEER SIGNATURE APPEARS HERE]
R. James Macaleer
Chairman of the Board
From The Chief Executive Officer...
The health services delivery system in the United States continues to
evolve, with more and more emphasis on treatment in ambulatory care settings,
such as outpatient clinics, physician offices, and the home. Similar evolutions
are occurring in many European countries, where SMS has a substantial presence.
Change, however, generally creates opportunities, and the changes noted above
are no exception.
As health provider organizations become larger (primarily through mergers
and acquisitions), they become more complex. Their information needs are also
more complex, and as a result these organizations want more from suppliers of
information systems than just a disparate array of hardware, software, systems,
networks, and services. What they want and need are solutions. That is what SMS
is providing and what distinguishes SMS among a crowded field of health
information systems companies.
SMS focuses on solving our customers' problems through a coordinated
approach to application design, systems development, sales and marketing,
installation activities, and follow-on services. Our sales results during 1995
and early 1996 appear to indicate that this approach to the marketplace is being
favorably received by both existing and potential customers.
During the past several years we have spent over $200 million on the
development of application and delivery systems to enable our customers to cope
with the changing environment. We have placed
2
<PAGE>
particular emphasis on systems and services that will help our customers reduce
their operating costs -- our document and medical imaging systems, our EDI-based
eligibility system, our managed care contract management system, our consulting
services, and our newly formed Outsourcing Services Division (OSD), to name a
few.
All of these systems and services, and others as well, have been very
successful in providing both short-term and longer-term cost savings. OSD is the
newest of these, but during the end of 1995 and the beginning of 1996, OSD was
selected by seven customers for services worth in excess of $200 million over
the next ten years. SMS will provide these customers with software, information
processing, personnel management, and technical support.
SMS' European operations continued to grow in each of the eleven countries
in which we have a significant presence. We continued to add customers in three
Eastern European countries (Hungary, Poland, and the Czech Republic), as well as
in Western European countries. In Germany, in particular, we increased our
market share significantly through our normal sales activities. In addition, we
added several dozen customers through the acquisition of a German competitor.
We also increased our presence in the United Kingdom (UK) through the
acquisition of a major regional healthcare data center. This acquisition
provides SMS with the resources to offer remote computing and other services in
the UK, where we were already the major supplier of information systems to UK
hospitals.
During 1995, SMS' revenues increased by $100 million over 1994 revenues to
$650 million. Most of this increase was achieved through internal growth. Net
income and earnings per share increased by 13.3% and 11.3%, respectively,
compared to the previous year. Our revenue backlog increased during 1995 to more
than $1.5 billion, which is quite possibly larger than the combined backlog of
all other health information system companies.
In 1995 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 product and
service solutions. And despite the uncertainty that surrounds healthcare reform,
we are optimistic that in 1996 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, while providing more opportunities for our
employees.
[MARVIN S. CADWELL SIGNATURE APPEARS HERE]
Marvin S. Cadwell
President and Chief Executive Officer
3
<PAGE>
SMS Information Solutions
[ART WORK APPEARS HERE]
The Synthesis of Information
Information is the lifeblood of the health industry. The practice of
medicine, the provision of health services, and the successful management of the
business of health involve the synthesis of information from many different and
frequently unique sources. Health systems need information to accommodate
changes in policy, evaluate clinical protocols, achieve their business metrics,
improve their business processes, establish and track health status, and
continue to improve quality. Care providers need immediate access to up-to-date
individual and global information in order to make informed, effective clinical
decisions. Patient data must be current, comprehensive, integrated, and
cumulative, even though it may have been collected at multiple locations over
multiple episodes of care. In addition, the patients themselves need
information, such as eligibility status, co-pay amounts, appointments,
referrals, discharge summaries, and statements.
As a result, information is no longer simply a necessity for contemporary
health systems, it is a vital strategic asset. To accommodate the ever-
increasing demand for information, to unite, manage, and support their networks
of provider entities, and to continue to improve business metrics while
maintaining the highest possible standards for care, health systems require
fully integrated information solutions - a combination of information
technology,
4
<PAGE>
processes, applications, and services - that create a seamless continuum of
information. This information continuum, in turn, enables effective decision
making on every level of the organization because all users have all the
information they need at their fingertips - whatever they need, wherever and
whenever they need it, and in whatever format is most useful to them.
Strategic Information Partners
Contemporary health systems are actively seeking strategic partners who
will help them in this new information venture. Health systems want strategic
information partners who are experienced enough to provide solutions to their
current problems, bold enough to share their risks, and visionary enough to
anticipate their future needs. SMS is such a partner. We have the most
experience in the industry, and we are producing results on a daily basis with
health systems around the world.
At the same time, we are creating new solutions that both enhance our
customers' capability to meet their current needs and anticipate what will be
needed tomorrow as well. What follows is a description of what will be possible
within the next two years, for those who have access to our complete spectrum of
solutions. Much of what is described on the following pages is already in use by
our customers around the world.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
Without a continuum of information, you cannot provide a continuum of care. We
challenged SMS to provide an enterprise-wide solution to our automation needs,
to assist us in standardizing our information systems, and to integrate the flow
of information among all ten of our facilities, and they really came through for
us. We are now standardizing our related processes and procedures in order to
capitalize on the strategic value of our SMS information system.
David Bowen
Chief Information Officer and
Senior Vice President of Information Systems
Baptist Health System, Birmingham, Alabama
- --------------------------------------------------------------------------------
5
<PAGE>
A Vision of Health Service Delivery...
Maria H. is preparing to leave for Dr. Crewe's office for an early morning
appointment. Maria is thinking about the way she chose Dr. Crewe as her family
practitioner, and about how different her experience with this health services
organization has been when compared to her previous provider.
Almost two years ago, her company introduced the new health provider
organization to its employees. Maria sat at a personal computer and answered a
series of questions about her health services preferences. She was, for example,
able to indicate the service areas and locations that were most convenient for
her. In addition, she indicated the most convenient times for her appointments
as well as her preference for female clinicians.
Based on her choices, Maria received a list of primary care physicians who
met her criteria. She was then able to review their education, credentials, and
even their pictures online. From among the choices available to her, she chose
Dr. Amanda Crewe.
Maria could not believe how easy it was to schedule her first appointment.
When Maria called, Dr. Crewe's staff had all her demographic information and
even knew about her $7.00 co-pay. They were aware of her preference for early
morning appointments and offered her an appointment four days later.
Since then, all of Maria's health services have been completely
coordinated. When she needed some blood tests and an X ray, the system
automatically scheduled them 30 minutes apart in adjacent facilities. When she
was referred to another physician, all her referrals and medical information
were available to the specialist online, just as they always are to Dr. Crewe.
That same morning, as Maria is preparing to drive to Dr. Crewe's office,
the doctor is at home using her laptop to check her electronic "to do" list for
the day. As Dr. Crewe scans the list left over from the previous day, she
notices an item that she had highlighted for immediate follow-up.
She also notices that a new item was added over night. This item is also
flagged, and represents an abnormal result from an EKG that Dr. Crewe ordered
late yesterday.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
We saved $210,000 in the first six months. SMS' integrated eligibility was
definitely the right choice for us.
Mary Wells
Assistant Director of Finance
Santa Clara Valley Medical Center
Santa Clara, California
- --------------------------------------------------------------------------------
6
<PAGE>
Dr. Crewe decides to explore the new message first. Using "point and click"
technology, she displays Michael R.'s electronic patient folder. The doctor
notes that Michael was admitted through the emergency room of the local hospital
for injuries sustained in an automobile accident. Dr. Crewe then reviews
Michael's flowsheets for vital signs for the last 24 hours.
The online graphing features quickly show Dr. Crewe that all vital signs
appear normal and stable. Satisfied, Dr. Crewe displays the most recent EKG and
compares it to his prior EKG, concluding that there have not been any
significant changes. Satisfied, she charts a brief note in Michael's electronic
patient folder and inserts a reminder on her electronic "to do" list to visit
Michael in the hospital later in the day.
Before leaving for the office, Dr. Crewe decides to access the other
flagged "to do" item from the previous day. Upon doing so, she discovers a
follow-up reminder on Matthew R., one of her elderly patients with a recent hip
replacement, whom she discharged from the hospital yesterday. The follow-up item
reminds Dr. Crewe to ensure that there is continuity of care and that the
appropriate rehabilitation is continued at home by the home health agency.
[ART WORK APPEARS HERE]
Accessing Matthew's chart online, Dr. Crewe sees that Matthew received a
detailed system-generated discharge summary when he left the hospital. She also
sees that Matthew has already been scheduled for assessment in his home by a
therapist. Knowing that all of Matthew's demographic and clinical information is
online and accessible to the physical therapist, the doctor closes out the "to
do" window and leaves for the office.
Arriving at her office a short time later, Dr. Crewe turns on her
workstation to review her appointment schedule for the day. Her first
appointment is with Maria H. The doctor has not seen Maria for some time. To
review Maria's clinical history, Dr. Crewe switches to the screen that allows
her to access Maria's electronic patient record and notices that a health
maintenance flag is highlighted in red.
7
<PAGE>
Dr. Crewe sees that Maria is overdue for her annual mammogram and places
the order by using the "point and click" method. She continues to peruse Maria's
clinical history online, noting all the various incidences of health maintenance
service as well as the various episodes of care that Maria has had since joining
the health network a little over two years ago.
Maria's online clinical record reveals that a few months ago Maria was
treated by one of the HMO orthopedic services in another part of the state. In
fact, Maria has had surgery to correct a condition stemming from rheumatoid
arthritis. Dr. Crewe reviews Maria's discharge summary and X rays, which are
part of her online patient record. The doctor also reviews online graphs of
Maria's blood chemistries, her problem list, current medications, and vital
signs.
Dr. Crewe is troubled by Maria's most recent blood work and notices that
while in the hospital Maria was started on an investigational medication. She
immediately switches to the protocol for rheumatoid arthritis, which is online,
and is relieved to note that although some blood variations are typical with
this particular medication, Maria's blood values are still well within the
expected range. Satisfied, Dr. Crewe notes her observation in Maria's electronic
patient record and is ready to see Maria.
Maria is waiting in the exam room. Dr. Crewe performs a physical exam and
updates Maria's clinical record. Her doctor's workstation includes a clinical
knowledge expert system, which facilitates documentation for both the physical
exam and the clinical record and helps the doctor coordinate Maria's care plan.
Dr. Crewe notes that Maria has some white cells in her urine and has
complained about a burning sensation. Clearly, she requires an antibiotic. Dr.
Crewe orders Ampicillin, but the system automatically generates a
contraindication warning that Maria has allergies, which might cross-react with
Ampicillin. The doctor has had some good results with Ciprofloxicin for urinary
infections and chooses that.
[ART WORK APPEARS HERE]
However, the system generates another message that Ciprofloxicin is quite
expensive relative to the payment guide of Maria's HMO and displays a list of
less expensive alternatives. The doctor chooses Gantricin; the system displays
the recommended dose of this drug, which has been automatically calculated
specifically for Maria. Dr. Crewe approves the order with a single "click."
8
<PAGE>
Maria also requests a refill for her arthritis medicine. Dr. Crewe selects
the medication from her medication list and authorizes three refills. The order
for the antibiotic is electronically sent to Maria's local pharmacy. The order
for the arthritis medication goes to the mail order drug supply company.
Furthermore, when Maria is ready to leave, Dr. Crewe's staff will give her
system-generated information on her rheumatoid arthritis, her urinary infection,
and the medications she is currently receiving.
That evening Dr. Crewe attends the regularly scheduled health network
executive meeting at which both financial and clinical issues are discussed. The
health network's Executive Information System (EIS) produces reports about the
performance of the entire enterprise and of each health delivery unit within the
network, and provides quick access to contracts, costs, and receivables. The
quality of the care being provided is also monitored. Immunization rates,
wellness status, and patient satisfaction results are displayed along with the
financial data.
Tonight there is discussion of a problem with cost overruns with several
contracts. A major component of the overrun are costs for MRI studies at one
facility, which far exceed projections. The executives agree to use the EIS to
study the operational effectiveness of that particular facility.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
"Gemeinsam mit unserem Partner SMS werden wir unsere strategische Ausrichtung
zum Gesundheitszentrum vorantreiben.
"With SMS as our partner, we are moving forward on our strategic direction of
being a regional integrated health center.
Jurgen Jung
Kaufmunnischer Direktor
(Chief Executive Officer)
Stadtklinik Baden-Baden
Baden-Baden, Germany
- --------------------------------------------------------------------------------
In addition, the executives note that patient satisfaction remains high,
but that there are problems with compliance with some health maintenance
reminders. This will probably require some new education efforts aimed at the
entire member population.
As she heads home after the meeting, Dr. Crewe reflects on how reassuring
it is to know that her health network now has ways of verifying the quality of
the care they are providing.
9
<PAGE>
What does this scenario demonstrate?... Satisfied patients moving smoothly
through a health services network; skillful care providers treating them
efficiently and effectively; and a health services network that is well
positioned to operate successfully in its market because services are integrated
and coordinated. The patients, the physician, and the parent health enterprise
are all supported by the information they need, whenever and wherever they need
it. SMS is singularly qualified to turn this scenario into reality by virtue of
our unique combination of assets - financial resources, experience, and all the
requisite technology, applications, processes, and services.
The Industry Leader
SMS supplies more information solutions to more customers in more countries
than does any other HIS supplier. Whether one considers number of customers,
types of customers, customer retention, number of countries served, number of
systems installed and operational, integrated technologies, revenues, sales, or
revenue backlog, SMS is the recognized industry leader and has been since the
early 1970s. As the industry leader, we have been setting the standard of
excellence for health information solutions, and we expect to continue doing so
into the next century.
The Leader in Information Solutions
SMS offers the broadest array of integrated information solutions -
technology, applications, processes, and services - in the HIS industry. SMS
solutions include applications and services for clinical results, orders,
laboratory, radiology, pharmacy, nursing, patient registration, medical and
document imaging, scheduling, physicians' offices, payroll and HR, billing and
receivables, managed care, outcomes management,
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
We have been an SMS customer for 25 years, and our relationship is a true
partnership. We required a scaleable network solution to support existing
systems, new client/server applications, such as imaging, and remote access. SMS
partnered with us through all stages of building a network solution, including
the design and implementation of a high-speed infrastructure. SMS is helping us
to achieve our goal of providing universal access to an electronic patient
record.
Joe Fisne
Chief Information Officer
Community Medical Center
Scranton, Pennsylvania
- --------------------------------------------------------------------------------
10
<PAGE>
financial reporting, ambulatory care, EDI services, clinical and financial
decision making, and a full complement of executive information systems. SMS is
particularly strong in the clinical areas and has more clinical systems
installed worldwide than any other HIS supplier.
SMS also provides extensive business and professional services to our
customers. So many, in fact, that SMS is fast becoming the service vendor of
choice within the health industry. Progressive, proactive health enterprises
that are searching for strategic information partners capable of delivering real
solutions are increasingly turning to SMS to help them craft the solutions they
need.
[ART WORK APPEARS HERE]
SMS services include systems installation, integration, and optimization;
education and training; outsourcing and facilities management; network design,
installation, and monitoring; re-engineering of business offices, patient
protocols, and medical records; custom programming; and general consulting. SMS
consultants around the world help our customers identify opportunities, resolve
problems, and create action plans that coordinate with their strategic business
objectives.
The Leader in Networking Solutions
For 27 years, SMS has operated the largest health communications networks
and the largest health communications network operations center in the industry.
For example, one of our U.S. health communications networks connects more than
130,000 terminals at over 900 provider sites via more than one-half million
miles of communications lines, and transmits more than 50 billion characters of
information each day. SMS plans, designs, installs, and provides remote
monitoring for hundreds of customer communications networks, supporting our
customers with invaluable diagnostic and troubleshooting utilities and services.
SMS creates networks for the future today, integrating voice, data, and
imaging capabilities that position our customers for continued success. We
enable single-device access for our customers, who, as a result, are able to
switch back and forth from clinical applications,
11
<PAGE>
such as Orders, to office automation products, such as e-mail and word
processing, to departmental systems, such as Pharmacy, all from the same
workstation. In conjunction with AT&T and local phone companies, SMS uses frame-
relay and ISDN (integrated services digital network) technology to provide our
physician customers and other authorized users with access to patient
information and clinical results from remote locations, such as their homes and
offices.
SMS takes pride in providing our customers with enterprise-wide networking
communications solutions in support of the total spectrum of their business
activities - not simply their SMS systems and applications. To ensure that our
customers have the strategic advantage of the best in network technology
solutions combined with a seamless, single-vendor approach, SMS has formed
alliances with industry leaders in networking and telecommunications. AT&T,
Novell, Microsoft, Memorex Telex, and Digital are among our communications
business partners.
The Leader in IHN and CHIN Solutions
SMS is the most experienced HIS vendor in the integrated health network
(IHN) and community health information network (CHIN) marketplaces. We currently
provide more systems and services to more provider organizations and physicians
associated with more IHNs and CHINs than does any other supplier of health
information systems.
SMS' experience with IHNs and IHN solutions dates back to 1987, when we
were involved in creating information solutions for one of the very first
integrated health networks to form in the United States. SMS provides our IHN
and CHIN customers with information solutions at every level of their
organization - enterprise-wide, institutional, and departmental - linking their
existing systems horizontally and vertically and connecting all of these to
payers and other organizations outside of their networks.
[ART WORK APPEARS HERE]
We currently support health networks as diverse as the national military
patient identification network in Spain, the statewide public health system in
Oregon, the regional healthcare district model in Great Britain, the largest
CHIN in the United States, a statewide system of ambulatory clinics in
Mississippi, a regional health network in the Netherlands, and a myriad of
university health networks throughout North America.
12
<PAGE>
The Leader in EDI Services
EDI services are fundamental to the successful operation and management of
the IHN, and SMS is the clear leader among HIS vendors in providing these
services. SMS' EDI services connect the providers with the insurers, purchasing
entities, and governmental agencies that finance and regulate the delivery of
health services. In 1996 we estimate that SMS EDI services will handle more than
50 million eligibility transactions, which will save our customers millions of
real dollars, in addition to reducing registration time, increasing claims
acceptance, reducing discrepancies, and resolving conflicts at the point of
service. In fact, one of our large urban IHN customers generates over 35,000
transactions per day using SMS' eligibility services and estimates that these
services alone save them in excess of $14 million each year.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
C' est a ma connaissance le premier exemple en France ou une telle installation
est devenue operationnelle dans un delai aussi court. Ce fut un travail d'equipe
client-fournisseur ou personne n'a menage ses efforts.
I believe this is the first time in France that such an installation has gone
operational in such a short time frame. This was a customer-supplier partnership
in which nobody spared any effort.
A. Lecherf
Director
Centre Hospitalier
de l'Arrondissement de Montreuil
Montreuil-sur-Mer, France
- --------------------------------------------------------------------------------
The Leader in Systems Integration
SMS is the leading systems integrator in the HIS industry and ranks in the
top twenty among systems integrators across all industries, including such
technology giants as IBM, EDS, and AT&T. SMS' extensive capabilities in systems
integration are a direct result of our technical expertise with many different
technologies.
SMS offers information solutions on a variety of industry-standard hardware
platforms (RISC, PC, mainframe, and mini) and operating systems, including DEC
VMS and OSF1 (UNIX); IBM MVS, OS2, and AIX (UNIX); and HP/UX (UNIX). We employ a
variety of relational data base technologies including DB2, Sybase, Oracle, RDB,
and SQL Server. Our communications technologies include TCPIP, Ethernet, Token
Ring, and Novell Netware, among others. In addition, our solutions include the
use of expert systems, sound, image, voice, and computer-based training, along
with the extensive use of client/server technologies.
13
<PAGE>
SMS focuses on providing solutions that meet our customers' needs while
protecting their investment in technology. The ability to integrate our
solutions with those developed by others is critically important to our
customers and to the health industry as a whole. Therefore, SMS solutions enable
any-to-any connectivity regardless of the vendor or technology platform. We are
committed to providing our customers with solutions that address the total needs
of their business, solutions that are efficient, effective, and
interconnectable.
The Leader in HIS Outsourcing
SMS has been the leading provider of remote processing services to the HIS
industry for over 27 years. Many people refer to this type of service as a form
of outsourcing. Others may define outsourcing as being responsible for a health
organization's in-house computer operations and associated personnel. And, in
fact, both can be viewed as types of outsourcing. SMS, however, also offers a
more comprehensive spectrum of outsourcing services. These services include
remote or on-site processing (or a combination, also known as distributed
processing), total personnel management, design and management of communications
networks, management of a help desk, systems integration, and software
selection, some of which may be SMS software and some of which could be supplied
by other vendors. Some contracts also include the management of a business
office for an IHN or the operation of a department responsible for the analysis
and processing of managed care contracts. Frequently, these outsourcing
contracts are based on performance service levels that match the goals and
objectives of the customer, so that SMS is a true partner with the IHN, MSO, or
other health organization.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
The staff used to spend half of their time chasing paper. Now they can sit at
their desks and focus on the task at hand and I can measure productivity. SMS
document imaging provides direct access to all documents. Our savings are
significant; we now have greater control and the tools we need to get the job
done efficiently.
Mark Paraska
Director of Financial Patient Services
Bethesda Memorial Hospital
Boynton Beach, Florida
- --------------------------------------------------------------------------------
14
<PAGE>
One of SMS' outsourcing customers is a large IHN located in the
northeastern part of the United States. This state-of-the-art health services
enterprise includes four acute-care hospitals, both visiting nurse and home
health organizations, a wellness complex, five long-term care facilities, and a
managed care organization that is associated with a network of more than 3,000
physicians. Interestingly, this large IHN has a permanent information services
(IS) staff of only five people who handle all of the information processing
requirements for their dozens of affiliated health delivery providers. This IHN
outsources most of its IS needs to SMS. Consequently, we supplement their staff
of five with SMS employees who provide support and technical expertise in areas
such as installations, operations, networking, applications, distribution, and
the help desk.
[ART WORK APPEARS HERE]
Leading from Strength
SMS' financial strength significantly differentiates us from all other HIS
vendors. Founded in 1969 and profitable every year since 1972, SMS revenues have
been over one-half billion dollars each of the past two years. In addition, our
revenue backlog now exceeds $1.5 billion. SMS' financial resources enable us to
invest tens of millions of dollars each year in research and development. In the
last few years, our R&D expenditures alone have exceeded $200 million. This, in
turn, enables us and our customers to contend with the rapid pace of
technological change. We have the resources to avail ourselves of that which is
state-of-the-art in the multiplicity of technologies with which we create our
information solutions.
SMS employees collectively constitute one of the largest, most experienced,
most well-informed group of health information professionals in the world, more
than 70% of whom are dedicated solely to providing support for our thousands of
customers. SMS has dozens of offices in a dozen countries so that we can
literally be close to our customers. In addition, because of worldwide
networking and teleconferencing capabilities, virtually our entire support staff
is available to address customer issues and concerns, regardless of how specific
or unique
15
<PAGE>
those concerns might be. Physically, our support specialists cannot be
everywhere, but virtually they can be wherever they are needed whenever they are
needed. At SMS, we support our customers around the clock, seven days a week.
As we enter the last half of the last decade of the twentieth century, we
find ourselves in a health industry that has been transforming itself for some
time and will apparently continue to do so into the next century. As a result,
health organizations are choosing strategic information partners whose long-term
goals are in concert with their own and who have demonstrated the bold,
visionary leadership that emanates from strength, singular focus, and decades of
accumulated experience. SMS is such a partner.
Leading with Confidence
There is not much certainty within the health industry today, other than
that more change is inevitable. There is, however, a great deal of certainty at
SMS. Regardless of how or when the health industry completes its metamorphosis,
we are certain that this inexorable process of transformation will necessitate
new information solutions for all health providers. We are equally certain that
SMS will continue to anticipate the need for those solutions, and having
anticipated them, will continue to lead the industry in delivering them.
[CUSTOMER CALL-OUT QUOTE]
- --------------------------------------------------------------------------------
SMS invested in our success. From the beginning, we were impressed with SMS'
approach. They wanted to be part of the Good Samaritan team and adopted our
goals as their own. SMS approached their tasks not as a single, short-term
project, but as a long-term investment in our success. That made the difference.
Gary J. Guidetti
Vice President of Rehabilitation Services
Good Samaritan Hospital
Baltimore, Maryland
- --------------------------------------------------------------------------------
There is also a great deal of optimism and confidence at SMS. We are
optimistic about our customers' future success, and we believe that their
success will ensure our own. We are confident that we have the knowledge, the
resources, the experience, and the sheer determination to work in tandem with
our customers, so that together we might transform our shared vision of health
delivery at its best into reality for the communities our customers serve. And
we are equally confident that through our dedication and our efforts, we will
continue to make a vital contribution to the world community by serving those
whose ultimate purpose is to improve the quality of health delivery worldwide.
16
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Financial Statements
<TABLE>
<S> <C>
Index
- ------------------------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of Operations 18
- ------------------------------------------------------------------------------------------------
Selected Financial Data 23
- ------------------------------------------------------------------------------------------------
Consolidated Balance Sheet 24
- ------------------------------------------------------------------------------------------------
Consolidated Statement of Income 25
- ------------------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows 26
- ------------------------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment 27
- ------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 28
- ------------------------------------------------------------------------------------------------
Report of Independent Public Accountants 35
- ------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Results of Operations - General
The Company's only line of business is providing information service and
system solutions to health organizations, such as integrated health networks,
multi-entity health corporations, community health information networks,
hospitals, physician groups, and other health providers in North America and
Europe.
The Company's revenues are derived from service and system fees for computer-
based information processing systems and software, and related professional
services and support. The Company's professional services consist of a variety
of services related to its information processing systems, 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 customers.
As the information processing requirements of the health industry have
continued to grow, the business of providing information solutions has become
more complex. Additionally, changes in the way health organizations are
structured and reimbursed, combined with pressures to control costs, improve
quality, and increase market share have created new and increased demands for
the Company's services and systems.
The Company's services and systems are provided to customers under both
fixed-period contracts and perpetual license contracts. Fixed-period contracts
have terms primarily ranging from one to ten 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.
There is an important distinction to be drawn in comparing the revenues
reported by the Company with other companies that provide software to their
customers under perpetual licenses. Such companies generally recognize software
revenue and related installation fees, if there are any, during the course of
the customer's installation. Excluding support fees, all revenues recognized are
non-recurring. The Company does sell some of its software products under
perpetual licenses. However, the majority of the Company's business is primar-
ily focused around providing services to customers through long-term contracts.
Revenues under these service agreements are recognized as they are earned over
the life of the long-term contract. A substantial portion of these revenues are
recognized after installation is complete, as contrasted to perpetual license
arrangements where revenue recognition generally ends upon completion of the
installation. As a result, the Company's revenues tend to be more stable than
those of many software companies. Also, at any point in time, the Company has a
significant amount of revenues to be realized in the future as installation work
is completed and processing services are performed. Management estimates the
total amount of future revenues under contract at December 31, 1995 is in excess
of $1.5 billion.
The Company's health 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 Services Center (i.e., remotely), or as part
of a distributed network. Depending on the type of product or service selected,
equipment utilized by the customer can be provided by the Company under fixed-
period lease agreements or sales agreements.
Results of Operations for 1995 Compared to 1994
In 1995, revenues grew 18.1%, to $650,641,000, compared to 1994. Net income
was $39,783,000 and net income per share was $1.68 for the year ended December
31, 1995, which represented increases of 13.3% and 11.3%, respectively, compared
to 1994.
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Analysis of Changes in Consolidated Cost and Expenses
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Change Change
from from
1995 Prior Year 1994 Prior Year 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating and development....................................... $282,763 $47,788 $234,975 $24,727 $210,248
Percentage of service and system fees revenues............. 47.7% 46.6% 46.4%
Marketing and installation...................................... 200,191 29,250 170,941 15,611 155,330
Percentage of service and system fees revenues............. 33.8% 33.9% 34.3%
General and administrative...................................... 51,619 4,111 47,508 3,401 44,107
Percentage of service and system fees revenues............. 8.7% 9.4% 9.8%
Interest........................................................ 2,976 1,533 1,443 94 1,349
Percentage of service and system fees revenues............. 0.5% 0.3% 0.3%
----------------------------------------------------------------
Total.................................................... $537,549 $82,682 $454,867 $43,833 $411,034
================================================================
Percentage of service and system fees revenues........ 90.7% 90.2% 90.8%
================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of hardware sales.......................................... $ 47,872 $ 9,510 $ 38,362 $ (209) $ 38,571
================================================================
Percentage of hardware sales revenues...................... 82.4% 82.7% 79.6%
================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Service and system fees revenues were $592,509,000, an increase of 17.5%, in
1995 compared to 1994. This increase was primarily due to higher levels of
professional services, system processing fees, and system sales. Also
affecting the change were revenues associated with the Company's MedSeries4
Division, which was acquired and recorded as a purchase on September 30,
1994; the acquisitions of two businesses in Europe during 1995, both of which
were recorded as a purchase; and a weaker U.S. dollar relative to certain
European exchange rates in 1995 compared to 1994.
The higher level of professional services was generally attributable to
system support, installations, and consulting fees. The increase in system
processing fees was primarily due to the higher level of customer
applications processed at the Company's Information Services Center.
. Hardware sales revenues increased to $58,132,000 in 1995 from $46,383,000 in
1994, primarily due to the change in the timing and product mix of systems
installed.
. Operating and development expenses increased to 47.7% of service and system
fees revenues in 1995 from 46.6% in 1994. This increase was primarily due to
increased computer hardware and associated costs related to the higher levels
of system processing services provided to customers by the Company's
Information Services Center, and the addition of new operations in Europe.
. Marketing and installation expenses decreased to 33.8% of service and system
fees revenues in 1995 from 33.9% in 1994, primarily due to improved
efficiency in providing installations and support services to customers, and
the Company's ongoing efforts to control certain marketing and installation
costs.
. General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 8.7% in 1995 from 9.4% in 1994, primarily due to
the Company's continuing efforts to control the growth of administrative
costs.
. Interest expense was $2,976,000 in 1995 compared to $1,443,000 in 1994. This
change was primarily due to a higher level of outstanding short-term
borrowings, which was partially attributable to funds used to acquire
businesses in 1995 and 1994.
. Cost of hardware sales decreased to 82.4% of hardware sales revenues in 1995
from 82.7% in 1994. This change was primarily due to the different product
mixes of systems installed in each year.
. Income taxes increased $2,996,000 in 1995 when compared to 1994. This change
was due to an increase of $7,680,000 in income before income taxes. The
Company's effective rate for federal, state and foreign income taxes was
39.0% in 1995 and 1994.
19
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
- --------------------------------------------------------------------------------
Results of Operations for 1994 Compared to 1993
In 1994, revenues grew 9.9%, to $550,769,000 compared, to 1993. Net income
was $35,099,000 and net income per share was $1.51 for the year ended December
31, 1994, which represented increases of 13.2% and 11.9%, respectively, compared
to 1993.
. Service and system fees revenues increased 11.4% to $504,386,000 in 1994
compared to 1993. This increase was primarily due to higher levels of
professional services, system processing fees, and system sales. The higher
level of professional services was generally attributable to systems
installation and support fees.
. Hardware sales revenues decreased to $46,383,000 in 1994 from $48,486,000 in
1993, primarily due to the change in the timing and product mix of systems
installed.
. Operating and development expenses increased to 46.6% of service and system
fees revenues in 1994 from 46.4% in 1993. This change was primarily due to
increased personnel costs to support higher levels of professional services,
and computer hardware and associated costs to support the growth in the base
of customers operating their systems at the Company's Information Services
Center.
. Marketing and installation expenses decreased to 33.9% of service and system
fees revenues in 1994 from 34.3% in 1993. This decrease was primarily due to
improved efficiency in providing installations and support services to the
Company's growing base of customers. This decrease was partially offset by
higher costs incurred for equipment and training to improve staff
productivity.
. General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 9.4% in 1994 from 9.8% in 1993, primarily due to
the Company's ongoing efforts to control administrative costs.
. Interest expense was $1,443,000 in 1994 compared to $1,349,000 in 1993. This
change was primarily due to a higher level of average outstanding borrowings
associated with the Company's short-term loan and capital lease obligations
in 1994 compared to 1993.
. Cost of hardware sales increased to 82.7% of hardware sales revenues in 1994
from 79.6% in 1993. This change was primarily due to the different product
mixes of systems installed in each year, and reduced hardware margins in line
with industry trends.
. Income taxes were $22,441,000 in 1994 and $20,665,000 in 1993. The Company's
effective tax rate for federal, state, and foreign income taxes was 39.0% in
1994 compared to 40.0% in 1993. The lower rate in 1994, when compared to
1993, was primarily due to the additional provision made in 1993 to adjust
the Company's deferred tax liability to the increased federal tax rate of
35.0%.
The impact of currency fluctuations on the Company's European operations
was not significant in 1994.
Inflation
Significant portions of the Company's expenses are inflation sensitive.
Rising costs for the years ended December 31, 1995, 1994, and 1993 have been
partially offset by increased employee and computer productivity.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's financial position remained strong in 1995. Total assets
increased from $341,442,000 at January 1, 1994 to $434,973,000 at December 31,
1995. Stockholders' investment increased from $198,206,000 to $248,820,000 over
the same period. This growth resulted primarily from operations. Most of the
Company's capital expenditures and working capital requirements were financed
from operations, supplemented with short-term and long-term borrowings. The
major uses of funds during this period were for investments in computer
equipment and software, the payment of quarterly dividends, and the acquisition
of businesses. At the end of 1995, cash and short-term investments were
$23,310,000 compared to $35,826,000 at the beginning of 1994.
Net cash flows from operating activities decreased to $38,294,000 in 1995
compared to $46,932,000 in 1994. This change was primarily due to an increase in
the growth of accounts receivable of $12,719,000 and prepaid expenses and other
current assets of $7,327,000. The growth in accounts receivable was caused by
higher business levels and greater amounts of revenues recognized which are
contractually billable in future periods. The increase in prepaid expenses and
other current assets was primarily related to deferred equipment expenses
associated with upcoming customer installations. These reductions in cash flows
were partially offset by the increase in net income, adjusted for non-cash
expenses such as depreciation and amortization, of $9,329,000.
Net cash flows from operating activities decreased to $46,932,000 in 1994
compared to $67,778,000 in 1993. This change was primarily due to the growth in
accounts receivable of $17,391,000 and reductions in deferred revenues of
$14,765,000. The increase in accounts receivable was caused by higher business
levels and greater amounts of revenues recognized which are contractually
billable in future periods. These reductions in cash flows were partially offset
by the increase in net income, adjusted for non-cash expenses such as
depreciation and amortization, of $5,393,000.
The Company's investing activities were $44,248,000, $49,664,000, and,
$44,021,000 in 1995, 1994, and 1993, respectively. During this period, the
Company's investments were primarily for equipment, software, and business
acquisitions. The following summarizes the Company's significant investments for
the three-year period ended December 31, 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Inhouse computer and network
communications equipment......................... $11,514 $14,093 $11,316
Capitalized internally
produced software................................ 8,850 8,725 8,700
Purchased software.................................. 4,984 4,349 2,411
Minicomputers and peripherals
leased to customers.............................. 2,496 2,859 3,259
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
- --------------------------------------------------------------------------------
Additionally, the Company invested in the following during the three-year
period ended December 31, 1995:
. In 1995, the Company purchased Professional Datacare (PDC), a provider of
processing services to health organizations in the United Kingdom, for
$8,497,000, and the health division of Atlas Datensysteme GmbH (ADS), a
provider of patient management and financial systems in Germany, for
$3,611,000. These acquisitions were financed primarily through long-term
borrowings.
. In 1994, the Company acquired all of the outstanding capital stock of GTE
Health Systems Incorporated, which became the Company's MedSeries4 Division, a
provider of information systems to the domestic health industry, for
$17,287,000.
. In 1993, the Company acquired a 50% ownership share in Delta Health Systems,
a partnership related to home health software, for $6,500,000.
The most significant use of cash for financing activities for each of the
three years in the period ended December 31, 1995 was for the payment of common
stock dividends, which were $19,404,000 in 1995, $19,192,000 in 1994, and
$18,989,000 in 1993. The most significant source of cash provided from financing
activities was short-term and long-term borrowings of $23,715,000 in 1995 and
$6,553,000 in 1994.
Management is not aware of any potential material impairments to the
Company's financial position. The most significant requirements for funds now
anticipated are as follows:
. Equipment - During 1996, 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,
1995, 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 $19,600,000 in dividends in 1996.
. 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, 1995, 2,873,500 shares, at a cumulative cost of $54,325,000, have
been repurchased. No shares were repurchased under this plan during the three-
year period ended December 31, 1995.
The Company expects to finance most of its capital requirements with
internally generated funds, supplemented from time to time with short-term
borrowings. Currently, the Company has lines of credit with banks, primarily at
their prime interest rates, of approximately $69,500,000. At December 31, 1995,
approximately $48,500,000 of these lines of credit were unused.
22
<PAGE>
- --------------------------------------------------------------------------------
Selected Financial Data
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Operations
- -------------------------------------------------------------------------------------------------------------------
Revenues..................................................... $650,641 $550,769 $501,283 $469,624 $438,705
Cost and Expenses............................................ $585,421 $493,229 $449,605 $424,578 $399,193
Income Before Income Taxes................................... $ 65,220 $ 57,540 $ 51,678 $ 45,046 $ 39,512
Income Taxes................................................. $ 25,437 $ 22,441 $ 20,665 $ 16,667 $ 14,224
Net Income................................................... $ 39,783 $ 35,099 $ 31,013 $ 28,379 $ 25,288
Net Income Per Share......................................... $ 1.68 $ 1.51 $ 1.35 $ 1.24 $ 1.11
Weighted Average Common Shares............................... 23,697 23,280 23,046 22,880 22,761
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Financial Position
- -------------------------------------------------------------------------------------------------------------------
Current Assets............................................... $220,605 $177,478 $165,536 $156,428 $151,007
Total Assets................................................. $434,973 $380,065 $341,442 $305,604 $292,790
Current Liabilities.......................................... $132,699 $116,847 $ 92,840 $ 87,944 $ 81,956
Long-Term Debt and Capital Leases............................ $ 16,960 $ 4,974 $ 6,395 $ 2,291 $ 4,237
Total Liabilities............................................ $186,153 $160,869 $143,236 $119,008 $115,577
Stockholders' Investment..................................... $248,820 $219,196 $198,206 $186,596 $177,213
Common Shares Outstanding.................................... 23,261 22,943 22,753 22,566 22,454
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Operating Ratios and Other Selected Financial Data
- -------------------------------------------------------------------------------------------------------------------
Operating Margin............................................. 9.3% 9.8% 9.2% 8.2% 7.2%
Hardware Margin.............................................. 17.6% 17.3% 20.4% 21.9% 23.9%
Pretax Margin................................................ 10.0% 10.4% 10.3% 9.6% 9.0%
Net Margin................................................... 6.1% 6.4% 6.2% 6.0% 5.8%
Effective Tax Rate........................................... 39.0% 39.0% 40.0% 37.0% 36.0%
Return on Average Investment................................. 17.0% 16.8% 16.1% 15.6% 14.5%
Working Capital.............................................. $ 87,906 $ 60,631 $ 72,696 $ 68,484 $ 69,051
Current Ratio................................................ 1.66 :1 1.52 :1 1.78 :1 1.78 :1 1.84 :1
Stockholders' Investment Per Share........................... $ 10.70 $ 9.55 $ 8.71 $ 8.27 $ 7.89
Cash Dividends Declared Compared to Prior Year's Net Income.. 55.5% 62.0% 67.0% 74.8% 83.2%
Cash Dividends Declared Per Share............................ $ .84 $ .84 $ .84 $ .84 $ .84
Depreciation and Amortization................................ $ 36,767 $ 32,122 $ 30,815 $ 29,617 $ 29,007
Research and Development..................................... $ 45,385 $ 39,226 $ 37,087 $ 33,703 $ 33,639
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Market Price and Dividends Declared Per Share *
- -------------------------------------------------------------------------------------------------------------------
First Quarter
High.................................................... $ 37 7/8 $ 29 3/8 $ 24 3/8 $ 24 3/8 $ 19 1/8
Low..................................................... $ 30 7/8 $ 23 5/8 $ 20 3/4 $ 19 1/4 $ 13 7/8
Dividends Declared...................................... $ .21 $ .21 $ .21 $ .21 $ .21
Second Quarter
High.................................................... $ 41 1/2 $ 28 1/4 $ 23 7/8 $ 20 5/8 $ 22 3/4
Low..................................................... $ 32 $ 22 1/8 $ 19 1/2 $ 16 7/8 $ 16 1/8
Dividends Declared...................................... $ .21 $ .21 $ .21 $ .21 $ .21
Third Quarter
High.................................................... $ 42 3/4 $ 28 1/2 $ 24 1/2 $ 22 3/8 $ 23 3/8
Low..................................................... $ 35 5/8 $ 22 3/4 $ 17 1/2 $ 17 3/4 $ 19 7/8
Dividends Declared...................................... $ .21 $ .21 $ .21 $ .21 $ .21
Fourth Quarter
High.................................................... $ 57 5/8 $ 34 1/2 $ 26 $ 22 3/4 $ 22 7/8
Low..................................................... $ 37 3/8 $ 25 3/8 $ 21 1/2 $ 19 7/8 $ 17
Dividends Declared...................................... $ .21 $ .21 $ .21 $ .21 $ .21
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of December 31, 1995 there were 6,124 stockholders of record of the
Company's common stock. The Company's common stock trades on The Nasdaq Stock
Market 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.
23
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and short-term investments................... $ 23,310 $ 21,249
Accounts receivable, net.......................... 171,320 138,554
Prepaid expenses and other current assets......... 25,975 17,675
--------------------
Total Current Assets............................ 220,605 177,478
Property and Equipment, net............................ 101,164 105,087
Computer Software, net................................. 42,955 38,801
Other Assets........................................... 70,249 58,699
--------------------
$434,973 $380,065
====================
Liabilities and Stockholders' Investment
Current Liabilities:
Notes payable..................................... $ 20,920 $ 12,383
Current portion of long-term debt and capital
leases........................................... 4,654 3,100
Dividends payable................................. 4,885 4,818
Accounts payable.................................. 28,301 23,633
Accrued expenses.................................. 39,469 38,189
Current deferred revenues......................... 23,557 28,133
Accrued and current deferred income taxes......... 10,913 6,591
--------------------
Total Current Liabilities....................... 132,699 116,847
--------------------
Deferred Revenues...................................... 13,209 17,352
--------------------
Long-Term Debt and Capital Leases...................... 16,960 4,974
--------------------
Deferred Income Taxes.................................. 23,285 21,696
--------------------
Commitments
Stockholders' Investment:
Preferred stock, par value $.10; authorized
1,000,000 shares; none issued.................... - -
Common stock, par value $.01; authorized
60,000,000 shares; 27,288,942 shares
issued in 1995 and 26,964,821 in 1994............. 273 270
Paid-in capital................................... 39,561 32,365
Retained earnings................................. 265,010 244,698
Common stock in treasury, at cost, 4,027,815
shares in 1995 and 4,022,275 in 1994............. (55,286) (55,116)
Cumulative translation adjustment................. (738) (3,021)
--------------------
Total Stockholders' Investment.................. 248,820 219,196
--------------------
$434,973 $380,065
====================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
24
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Statement of Income
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Service and system fees....................... $592,509 $504,386 $452,797
Hardware sales................................ 58,132 46,383 48,486
------------------------------
650,641 550,769 501,283
------------------------------
Cost and Expenses:
Operating and development..................... 282,763 234,975 210,248
Marketing and installation.................... 200,191 170,941 155,330
General and administrative.................... 51,619 47,508 44,107
Cost of hardware sales........................ 47,872 38,362 38,571
Interest...................................... 2,976 1,443 1,349
------------------------------
585,421 493,229 449,605
------------------------------
Income Before Income Taxes...................... 65,220 57,540 51,678
Provision for Income Taxes...................... 25,437 22,441 20,665
------------------------------
Net Income...................................... $ 39,783 $ 35,099 $ 31,013
==============================
Net Income Per Common Share..................... $1.68 $1.51 $1.35
==============================
Number of shares used to compute per share
amounts........................................ 23,697 23,280 23,046
==============================
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
- ----------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................... $ 39,783 $ 35,099 $ 31,013
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization............................ 36,767 32,122 30,815
Asset (increase) decrease -
Accounts receivable.................................... (32,766) (20,047) (2,656)
Prepaid expenses and other current assets.............. (8,300) (973) (1,480)
Other assets........................................... (1,960) (5,321) (7,982)
Liability increase (decrease) -
Accounts payable and accrued expenses.................. 5,948 11,585 4,030
Accrued and current deferred income taxes.............. 4,322 (788) 39
Deferred revenues...................................... (8,719) (4,977) 9,788
Deferred income taxes.................................. 1,589 (686) 6,192
Other.................................................... 1,630 918 (1,981)
-------------------------------
Net cash provided by operating activities.............. 38,294 46,932 67,778
-------------------------------
Cash Flows from Investing Activities:
Property and equipment additions............................. (18,764) (20,328) (24,945)
Investment in computer software.............................. (13,834) (13,074) (11,111)
Dispositions of equipment.................................... 458 1,025 235
Acquisition of businesses.................................... (12,108) (17,287) (8,200)
-------------------------------
Net cash used for investing activities................. (44,248) (49,664) (44,021)
-------------------------------
Cash Flows from Financing Activities:
Dividends paid............................................... (19,404) (19,192) (18,989)
Change in treasury stock..................................... (170) (168) (84)
Payments of capital lease obligations........................ (3,325) (2,576) (1,845)
Increase (decrease) in notes payable......................... 8,537 6,553 (1,104)
Proceeds from long-term debt................................. 15,178 -- --
Exercise of stock options.................................... 7,199 3,538 3,237
-------------------------------
Net cash provided by (used for) financing activities... 8,015 (11,845) (18,785)
-------------------------------
Net Increase (Decrease) in Cash and Short-Term Investments........ 2,061 (14,577) 4,972
Cash and Short-Term Investments, Beginning of Year................ 21,249 35,826 30,854
-------------------------------
Cash and Short-Term Investments, End of Year...................... $ 23,310 $ 21,249 $ 35,826
===============================
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Consolidated Statement of Stockholders' Investment
For the Years Ended December 31, 1995, 1994, and 1993 (Amounts in thousands)
<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, 1993........................ 26,580 $266 $25,594 $216,846 $(54,864) $(1,246)
Common stock transactions -
Exercise of stock options and grant
of restricted shares..................... 191 2 2,610 (91)
Employee stock purchase plan............... 7
Tax benefit from the exercise of
non-qualified stock options and
vesting of restricted shares............. 625
Dividends on common stock
($.84 per share)......................... (19,028)
Net income................................. 31,013
Translation adjustment..................... (3,528)
-----------------------------------------------------------------------------
Balance, December 31, 1993...................... 26,771 268 28,829 228,831 (54,948) (4,774)
Common stock transactions -
Exercise of stock options and grant
of restricted shares................... 194 2 2,622 (132)
Employee stock purchase plan............. (36)
Tax benefit from the exercise of
non-qualified stock options and
vesting of restricted shares........... 914
Dividends on common stock
($.84 per share)......................... (19,232)
Net income................................. 35,099
Translation adjustment..................... 1,753
-----------------------------------------------------------------------------
Balance, December 31, 1994...................... 26,965 270 32,365 244,698 (55,116) (3,021)
Common stock transactions -
Exercise of stock options and grant
of restricted shares................... 324 3 4,544 (126)
Employee stock purchase plan............. (44)
Tax benefit from the exercise of
non-qualified stock options and
vesting of restricted shares........... 2,652
Dividends on common stock
($.84 per share)......................... (19,471)
Net income................................. 39,783
Translation adjustment..................... 2,283
-----------------------------------------------------------------------------
Balance, December 31, 1995...................... 27,289 $273 $39,561 $265,010 $(55,286) $ (738)
=============================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. The financial statements 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. All significant
intercompany transactions and accounts have been eliminated. The Company's
investment in Delta Health Systems, a 50%-owned affiliate, is accounted for
under the equity method.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses.
During 1995, the Financial Accounting Standards Board issued a statement on
accounting for the impairment or disposition of long-lived assets. The Company
will adopt this new statement effective January 1, 1996, and, based on a
preliminary review, no material impact is anticipated.
Recognition of Revenues - The Company's services and systems are provided
based upon contractual agreements. Service revenues, which include processing,
professional service and support fees, are recorded in the period in which the
services are performed. Service contracts can have terms which range from one to
ten years. System fees, consisting of software applications provided under
perpetual licensing agreements, are recognized primarily over the system's
installation period and when collection is deemed probable in order to properly
match revenues with expenses incurred. Hardware sales are recognized generally
upon installation of the equipment at the customer site. All service and system
fees are billable according to the terms in each customer contract.
Current and noncurrent deferred revenues totaling $36,766,000 at December 31,
1995 and $45,485,000 at December 31, 1994, represent funds received by the
Company in advance of the performance of services or installation of systems,
which are deferred and recognized as revenues when earned.
Interest income from short-term investments included in revenues was
$319,000 in 1995, $484,000 in 1994, and $745,000 in 1993.
Accounts Receivable - Accounts receivable consists primarily of unsecured
short-term amounts due from the Company's customers. Included in accounts
receivable at December 31, 1995 and 1994 were unbilled revenues recognized under
certain long-term software license, installation, and hardware contracts of
$64,068,000 and $55,800,000, respectively. Such unbilled receivables arise from
the consistent application of the Company's revenue recognition policies
described previously. Invoicing of unbilled receivables, which generally occurs
within six months of the recognition of the related revenues, is based upon the
terms of the individual customer contracts.
The Company's credit risk with respect to accounts receivable is concentrated
in the health industry, which is highly influenced by government regulations.
This concentration of credit risk is limited due to the number and types of
entities comprising the Company's customer base and their geographic
distribution. The Company routinely monitors its exposure to credit losses and
maintains an allowance for anticipated losses. At December 31, 1995 and 1994,
the allowance for doubtful accounts was $4,847,000 and $5,317,000, respectively.
The Company has provided long-term financing arrangements for systems and
hardware to some of its customers. Some of these long-term financing
arrangements are partially collateralized by customer equipment. The long-term
portion of these financing arrangements, which are included in other assets,
have terms ranging from three to ten years and bear interest at rates, which may
be stated or imputed, ranging from 7% to 12%. The long-term portion of these
financing arrangements, which approximate fair value, was $24,262,000 and
$29,162,000 at December 31, 1995 and 1994, respectively. Interest income earned
on long-term financing arrangements was $2,184,000, $2,018,000, and $1,541,000
in 1995, 1994, and 1993, respectively. The Company has had no material negative
collection experience associated with these long-term financing arrangements.
Prepaid Expenses and Other Current Assets - Included in prepaid expenses and
other current assets are deferred charges of $10,745,000 at December 31, 1995
and $6,562,000 at December 31, 1994, representing the cost of equipment which
will be expensed when the related hardware revenues are earned.
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. The major classes of property and equipment at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements............................ $ 10,719 $ 10,711
Buildings............................................. 60,597 59,402
Equipment............................................. 172,335 169,487
------------------
243,651 239,600
Less accumulated depreciation
and amortization................................. 142,487 134,513
------------------
$101,164 $105,087
==================
- --------------------------------------------------------------------------------
</TABLE>
Research and Development - The Company expenses all research and non-
capitalized development costs, which generally consist of costs incurred to
establish the technological feasibility of internally produced computer
software. These expenses were primarily for computer costs and salaries of
personnel, and amounted to $45,385,000 in 1995, $39,226,000 in 1994, and
$37,087,000 in 1993.
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. The
Company amortizes computer software using the straight-line method over its
expected useful life, which is generally five years.
Capitalized internally produced software costs, net of accumulated
amortization, were $32,785,000 and $31,657,000 as of December 31, 1995 and 1994,
respectively. Amortization related to capitalized internally produced software
was $7,722,000 in 1995, $6,290,000 in 1994, and $5,464,000 in 1993. Purchased
software, net of accumulated amortization, was $10,170,000 and $7,144,000 as of
December 31, 1995 and 1994, respectively. The accumulated amortization for
capitalized internally produced and purchased software at December 31, 1995 and
1994 was $45,317,000 and $36,158,000, respectively.
Acquisition of Businesses - On June 1, 1995, the Company acquired the assets
and business of Professional Datacare (PDC), a provider of financial processing
services, from the National Health Service's North West Regional Health
Authority in the United Kingdom for $8,497,000. On September 1, 1995, the
Company acquired the assets and business of Atlas Datensysteme GmbH (ADS), a
provider of patient management and financial systems in Germany, for $3,611,000.
These acquisitions were accounted for using the purchase method. PDC's and ADS'
results of operations have been included in the Company's consolidated results
of operations since their respective dates of acquisition. Pro forma financial
information has not been provided since neither of these acquisitions was
material to the Company's consolidated results.
On September 30, 1994, the Company acquired all of the outstanding capital
stock of GTE Health Systems Incorporated, a provider of information systems to
the domestic health industry, from GTE Directories Corporation for $17,287,000.
This acquisition was accounted for using the purchase method.
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 health organizations.
Goodwill - Included in other assets are amounts for goodwill which represent
the excess of the purchase price of acquisitions over the fair value of the net
assets acquired. Goodwill is amortized using the straight-line method over
twenty years. The amount of goodwill included in other assets, net of
accumulated amortization, was $30,346,000 and $20,089,000 as of December 31,
1995 and 1994, respectively.
Accrued Expenses - Included in accrued expenses are incentive compensation
plan accruals of $17,485,000 at December 31, 1995 and $14,136,000 at December
31, 1994. Incentive compensation plan payments are primarily based on revenues
generated and on the signing of new and renewal contracts. Accrual balances for
incentive compensation plans can vary based on the timing of revenues
recognized, draws and related settlements, and are not necessarily indicative of
sales activities for the year.
29
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
Income Taxes - The Company uses the liability method of accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
provided based upon temporary differences in the recognition of revenues and
expenses (principally depreciation and the cost of internally produced software)
for tax and financial reporting purposes.
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 1995, 1994, and 1993.
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, 1995 and 1994, the carrying
amount of cash and short-term investments approximates fair value. The Company
paid income taxes, net of refunds, of $16,397,000 in 1995, $23,018,000 in 1994,
and $13,959,000 in 1993. During the same periods, interest payments were
$2,853,000, $1,404,000, and $1,360,000, respectively. Capital lease obligations
of $1,917,000, $1,822,000, and $7,089,000 were added by the Company in 1995,
1994, and 1993, respectively.
2. Net Income per Common Share:
For each of the three years in the period ended December 31, 1995, 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.
3. Income Taxes:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current...................................... $17,900 $17,131 $16,527
Current deferred............................. 3,277 3,495 1,265
Noncurrent deferred.......................... 1,438 (578) 626
--------------------------
22,615 20,048 18,418
--------------------------
State and foreign:
Current...................................... 2,288 2,226 2,011
Current deferred............................. 383 275 (241)
Noncurrent deferred.......................... 151 (108) 477
--------------------------
2,822 2,393 2,247
--------------------------
Provision for
income taxes................................. $25,437 $22,441 $20,665
==========================
- --------------------------------------------------------------------------------
</TABLE>
The provision for income taxes results in effective tax rates for the years
ended December 31, 1995, 1994, and 1993, which differ from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage of Income
------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate................... 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit..................... 2.6 2.7 2.8
Effect on deferred tax liability of
statutory federal income tax
rate increase.................................. -- -- 1.0
Other............................................... 1.4 1.3 1.2
------------------------
39.0% 39.0% 40.0%
========================
- --------------------------------------------------------------------------------
</TABLE>
The significant components of the combined current and noncurrent net
deferred tax liability for the years ended December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization........................ $10,432 $10,402
Capitalized internally produced software............. 11,999 11,606
Accrued and deferred revenues, net................... 5,675 2,065
Other temporary differences.......................... 3,244 2,029
--------------------
$31,350 $26,102
====================
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1995 the Company had foreign net operating loss carryforwards
of approximately $8,600,000, most of which can be carried forward indefinitely.
The Company also has approximately $9,800,000 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. The cumulative unremitted foreign earnings amounted
to $12,560,000 at December 31, 1995.
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 nine mutual investment funds. The Company matches a certain portion of
employee contributions under the plan. The Company's matching contributions
charged to expenses in 1995, 1994, and 1993 were $3,025,000, $2,096,000, and
$1,640,000, respectively.
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, 1995, 2,873,500 shares had
been acquired, at a cumulative cost of $54,325,000. During 1995, 1994, and 1993
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 were granted on the
effective date of the plan to all
31
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
non-employee directors then on the Board. Subsequent to the effective date of
the plan, options are issued upon a director's initial election to the Board and
on each five-year anniversary 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.
The following table summarizes the activity of all option plans during the
three years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year............. 1,894,505 1,606,772 2,065,077
Granted............................... 489,400 524,815 62,500
Exercised............................. (297,445) (176,642) (173,079)
Cancelled............................. (51,335) (60,440) (347,726)
---------------------------------
Outstanding, end of year................... 2,035,125 1,894,505 1,606,772
=================================
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, a maximum of 1,898,729 and 241,000 of additional
options may be granted to key employees and non-employee directors,
respectively, under these plans. As of December 31, 1995, options to purchase
2,035,125 shares were outstanding at option prices ranging from $12.50 to $37.00
per share. Options covering 381,607 shares, with an average option price of
$14.78 per share and an aggregate option price of $5,642,000, were exercisable
as of December 31, 1995. The outstanding options expire on various dates through
2015. Options were exercised at prices ranging from $12.50 to $23.38 in 1995,
$12.50 to $19.94 in 1994, and $12.50 to $20.13 in 1993.
The Company may also grant restricted shares of its common stock under two 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, 1995, there were 37,345 restricted shares outstanding under these plans.
7. Long-Term Debt and Lines of Credit:
In 1995, the Company entered into long-term borrowing agreements with a bank,
which are repayable over seven years. Under certain conditions, these loans are
callable in 1998. These loans were used to partially finance acquisitions of
businesses and for operations. Long-term debt consisted of the following at
December 31, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Amounts in thousands) 1995
- --------------------------------------------------------------------------------
Payable in foreign currency:
<S> <C>
7.87% Pound Sterling note due through 2002..................... $8,479
6.75% Deustche Mark note due through 2002...................... 3,699
Payable in U.S. dollars:
5.47% note due through 2002.................................... 3,000
-------
15,178
Less current portion........................................... 874
-------
$14,304
=======
- --------------------------------------------------------------------------------
</TABLE>
Aggregate maturities of long-term debt are:
1996 - $874,000, 1997 - $1,128,000, 1998 - $1,321,000, 1999 - $1,644,000, 2000 -
$1,875,000, 2001 through 2002 - $8,336,000. At December 31, 1995, the carrying
amount of long-term debt approximates fair value.
The Company had lines of credit with banks totaling $69,463,000, generally at
their prime interest rates. At December 31, 1995, $48,543,000 of these lines of
credit were unused.
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. Long-Term Leases and Other Commitments:
The Company leases equipment, which is primarily used at the Company's
Information Services Center, 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
(Amounts in thousands) Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1996........................................................ $24,595 $4,082
1997........................................................ 22,340 2,623
1998........................................................ 9,302 168
1999........................................................ 7,577 --
2000........................................................ 2,689 --
---------------
$66,503 6,873
=======
Less interest................................................... 437
Present value of future capital lease obligations............... $6,436
======
- --------------------------------------------------------------------------------
</TABLE>
Rental expenses for the operating leases described above were $29,031,000 in
1995, $20,124,000 in 1994, and $17,453,000 in 1993.
Operating lease obligations for office space, primarily branch offices,
expiring at various dates through 2001 require minimum aggregate annual rentals
of: 1996 - $9,660,000, 1997 - $8,811,000, 1998 - $5,587,000, 1999 - $4,601,000,
2000 - $3,193,000. Rental expenses for these facilities amounted to $9,760,000
in 1995, $9,078,000 in 1994, and $8,198,000 in 1993.
In 1995, the Company entered into a resale agreement with a supplier of
client/server software applications. This agreement, which is renewable, expires
in 2005. The minimum payments due under this agreement are: 1996 - $2,100,000,
1997 - $2,600,000, 1998 - $3,100,000, 1999 - $2,600,000.
9. Selected Quarterly Financial Data (Unaudited):
The following table summarizes quarterly financial data for 1995 and 1994
(refer to Note 1 for businesses acquired in 1995 and 1994):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share amounts)
Income
Before
Income Net Net
Quarter Revenues Taxes Income Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
First................................. $125,170 $14,007 $ 8,544 $.37
Second................................ 132,607 14,036 8,562 .37
Third................................. 138,834 14,639 8,930 .38
Fourth................................ 154,158 14,858 9,063 .39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1995:
First................................. $145,339 $15,722 $ 9,591 $.41
Second................................ 155,279 15,871 9,681 .41
Third................................. 169,213 16,391 9,998 .42
Fourth................................ 180,810 17,236 10,513 .44
- --------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
10. Business Segment Information:
The Company's only line of business is providing information service and
system solutions to health organizations in North America and Europe. Revenues
and operating profits for the three years ended December 31, 1995, and
identifiable assets at the end of each of those years, classified by geographic
area, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
North
(Amounts in thousands) America Europe Consolidated
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1995:
Revenues............................. $557,877 $92,764 $650,641
==================================
Operating profit..................... $ 60,663 $ 7,533 $ 68,196
====================
Interest expense..................... 2,976
--------
Income before income taxes......... $ 65,220
========
Identifiable assets.................. $329,555 $82,108 $411,663
====================
Corporate assets..................... 23,310
--------
Total assets....................... $434,973
========
- --------------------------------------------------------------------------------
1994:
Revenues............................. $480,076 $70,693 $550,769
==================================
Operating profit..................... $ 52,904 $ 6,079 $ 58,983
====================
Interest expense..................... 1,443
--------
Income before income taxes......... $ 57,540
========
Identifiable assets.................. $304,131 $54,685 $358,816
====================
Corporate assets..................... 21,249
--------
Total assets....................... $380,065
========
- --------------------------------------------------------------------------------
1993:
Revenues............................. $439,260 $62,023 $501,283
==================================
Operating profit..................... $ 47,255 $ 5,772 $ 53,027
====================
Interest expense..................... 1,349
--------
Income before income taxes......... $ 51,678
========
Identifiable assets.................. $264,208 $41,408 $305,616
====================
Corporate assets..................... 35,826
--------
Total assets....................... $341,442
========
- --------------------------------------------------------------------------------
</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 1995, 1994, and 1993, no single customer accounted for 10% or
more of consolidated revenues.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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,
1995 and 1994, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shared Medical Systems
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Philadelphia, PA Arthur Andersen LLP
February 6, 1996
- --------------------------------------------------------------------------------
Directors
R. James Macaleer, Chairman of the Board
Mr. Macaleer has been Chairman since the Company's founding in 1969. He also
served as Chief Executive Officer from the Company's founding in 1969 until
August 1995.
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.
Jeffrey S. Rubin, Director
Mr. Rubin has been a Director since 1993. He is Vice Chairman of Vanstar
Corporation, a technology services company.
Marvin S. Cadwell, Director, President and Chief Executive Officer
Mr. Cadwell was elected as a Director in May 1995. He has served as President
and Chief Executive Officer since August 1995. Mr. Cadwell previously served in
a variety of executive positions since joining the Company in 1975.
Executive Officers
R. James Macaleer, Chairman of the Board
Marvin S. Cadwell, President and Chief Executive Officer
Michael B. Costello, Vice President, Administration and Corporate Communications
Edward J. Grady, Controller and Assistant Treasurer
James C. Kelly, Secretary
Terrence W. Kyle, Vice President of Finance, Treasurer, and
Assistant Secretary
Francis W. Lavelle, Senior Vice President
Robert J. McNeill, Vice President
David F. Perri, Vice President
Terry A. Pitts, Vice President
Bonnie L. Shuman, General Counsel and Assistant Secretary
Marion G. Tomlin, Senior Vice President
Matthew B. Townley, Vice President
35
<PAGE>
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 New Orleans
313-994-8300 504-835-3894
Atlanta New York
770-993-2490 212-563-2380
Atlanta (MedSeries4 Division) Oakland
800-783-4833 510-444-3434
Boston Philadelphia
617-224-0817 610-640-4490
Charlotte Pittsburgh
704-362-4802 412-921-6400
Chicago Salt Lake City
708-806-0666 800-243-8483
Cleveland San Francisco
216-524-0313 510-463-9750
Columbus San Juan
614-885-0198 809-756-6700
Dallas Santa Barbara
214-783-6737 805-964-5561
Florida Seattle
954-771-4880 206-827-4455
Indianapolis St. Louis
317-293-3360 314-542-0100
Kansas City Virginia
913-384-4811 703-713-3490
Los Angeles Wilmington
310-596-4554 302-655-8514
Nashville
615-377-1244
New Jersey
908-906-8900
International
Administration-Europe
SMS Europe
Key House
Sarum Hill
Basingstoke, Hants
Hampshire RG21 1SR
England
011-44-256-467556
Operating Companies
Belgium The Netherlands
SMS Belgium SMS Nederland b.v.
Zaventem Nieuwegein
011-32-2-725-0407 011-31-3402-52852
France United Kingdom
SMS France SMS United Kingdom, Ltd.
Montpellier Basingstoke
011-33-6-704-1143 011-44-256-57100
Germany Belfast
Zweigniederlassung 011-44-1232-854333
der SMS Corporation
Huntingdon
Berlin 011-44-1480-456155
011-49-30-66-32034
Warrington
Frankfurt 011-44-1925-851171
011-49-6196-9240
Hungary
SMS Hungary
Budapest
011-36-1252-7345
Ireland
SMS Ireland, Unlimited
Dublin
011-353-1-8420022
Italy
SMS Italia, S.r.l.
Rome
O11-39-6-439-3350
Spain
SMS Corp y Cia S.R.C.
Barcelona
011-34-3-201-6811
Madrid
011-34-1-807-7500
36
<PAGE>
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 Thursday, April 25, 1996,
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 trades on
The Nasdaq Stock Market under
the symbol SMED.
Transfer Agent
Chemical Mellon Shareholder
Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
800-851-9677
Counsel
Drinker Biddle & Reath
Philadelphia, PA
Independent Public Accountants
Arthur Andersen LLP
Philadelphia, PA
Member
[LOGO of American Business Conference]
American
Business
Conference
SMS is an Equal Employment
Opportunity/Affirmative
Action Employer.
[LOGO FOR RECYCLE] This annual report is printed on recycled paper.
<PAGE>
[LOGO OF SMS CORP.]
Shared Medical Systems Corporation
51 Valley Stream Parkway
Malvern, PA 19355
610-219-6300
<PAGE>
Exhibit (21)
Subsidiaries of the Registrant
------------------------------
SMS Enterprises Corporation (a Delaware corporation)
SMS Europe Unlimited (a United Kingdom Unlimited corporation)
<PAGE>
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 6, 1996 included (or incorporated by
reference) in Shared Medical Systems Corporation's 10-K for the year
ended December 31, 1995, 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, 33-47572 and 33-61967).
/s/ Arthur Andersen LLP
Philadelphia, PA
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 23,310
<SECURITIES> 0
<RECEIVABLES> 176,167
<ALLOWANCES> 4,847
<INVENTORY> 0
<CURRENT-ASSETS> 220,605
<PP&E> 243,651
<DEPRECIATION> 142,487
<TOTAL-ASSETS> 434,973
<CURRENT-LIABILITIES> 132,699
<BONDS> 16,960
0
0
<COMMON> 273
<OTHER-SE> 248,547
<TOTAL-LIABILITY-AND-EQUITY> 434,973
<SALES> 58,132
<TOTAL-REVENUES> 650,641
<CGS> 47,872
<TOTAL-COSTS> 482,954
<OTHER-EXPENSES> 51,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,976
<INCOME-PRETAX> 65,220
<INCOME-TAX> 25,437
<INCOME-CONTINUING> 39,783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,783
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
<PAGE>
Exhibit (99)
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------------
The Company wishes to identify the following important factors which
could cause the Company's actual financial and operational results to
differ materially from those included in any forward-looking statement
made by, or on behalf of, the Company.
(a) Increasing and changing governmental regulation in the health
industry, including especially regulation concerning reimbursement and
capital expenditures, which could cause health providers to curtail or
defer investment in the Company's products or services;
(b) Regulation of additional Company products as medical devices by the
federal Food and Drug Administration, which could cause increases in the
costs associated with developing and manufacturing such products and
delays in marketing such products;
(c) The Company's ability to keep pace with technological developments
and to change its existing products or introduce new products to meet the
evolving needs of its customers;
(d) The Company's ability to protect its proprietary rights in its
software;
(e) Intense competition in the health information services and systems
market, including increasing price competition; the entry of new
competitors and the introduction of new products by new and existing
competitors;
(f) The frequency of termination or non-renewal of customer contracts,
or renewal on less favorable terms;
(g) Any interruption in the availability of Company resources necessary
to provide the Company's software products and services;
(h) Errors or bugs in software products, which could result in delays in
delivery and market acceptance of the products;
(i) Difficulties in installation of the Company's products, which could
affect the Company's ability to fully realize its future revenues under
contract;
(j) The Company's ability to successfully integrate other business
operations which it acquires;
(k) The dependence of the Company on third party suppliers of software,
hardware and technologies;
(l) Exchange rate fluctuations and significant changes in interest
rates and taxes.
