-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GbspIOg//emBfCeA6GUlU1CiJBz+240vsA94IVdphSlHd+1cTrTvP5mE+clsT1Ds 2etNNP6ZIHT8zn6AbsZqhw== 0001047469-98-009475.txt : 19980313 0001047469-98-009475.hdr.sgml : 19980313 ACCESSION NUMBER: 0001047469-98-009475 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980312 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HBO & CO CENTRAL INDEX KEY: 0000310377 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 370986839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09900 FILM NUMBER: 98564008 BUSINESS ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 7703936000 MAIL ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 0-9900 HBO & COMPANY (Exact name of registrant as specified in its charter) DELAWARE 37-0986839 (State or other jurisdiction (IRS Employer of incorporation or Identification organization) No.) 301 PERIMETER CENTER NORTH ATLANTA, GEORGIA 30346 (Address of principal (Zip Code) executive office)
Registrant's telephone number, including area code: (770) 393-6000 ------------------------ Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.05 PAR VALUE (Title of Class) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. / / Aggregate market value of the voting stock held by nonaffiliates of the registrant, computed using the closing price as reported by The Nasdaq Stock Market's National Market for the Company's common stock on February 28, 1998: $11,551,179,807. Indicate the number of shares outstanding of the registrant's common stock as of the latest practicable date:
OUTSTANDING AT FEBRUARY 28, CLASS 1998 - ---------------------------------- ---------------- Common Stock, $.05 par value...... 213,416,717
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1997, are incorporated by reference into Parts I, II and IV of this Form 10-K. Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 1998, are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1: BUSINESS GENERAL OVERVIEW. HBO & Company (HBOC or the Company), incorporated in 1974, provides integrated patient care, clinical, financial, managed care and strategic management software solutions for the healthcare industry. These open systems applications facilitate the integration of clinical, financial and administrative data from a wide range of customer systems and software. HBOC's broad product portfolio can be implemented in a variety of combinations from stand-alone to enterprisewide, enabling healthcare organizations to add incremental capabilities to their existing information systems without making prior capital investments obsolete. HBOC also provides a full complement of network communications technologies, including wireless capabilities, as well as outsourcing services that are offered under contract management agreements whereby its staff manages and operates data centers, information systems, medical call centers, organizations and business offices of healthcare institutions of various sizes and structures. In addition, the Company offers a wide range of electronic commerce services, including electronic medical claims and remittance advice services as well as statement processing. HBOC markets its products and services to integrated health delivery networks, hospitals, physicians' offices, home health providers, pharmacies, reference laboratories, managed care providers and payors. HBOC also sells its products and services internationally through subsidiaries and/or distribution agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait, Australia, Puerto Rico and New Zealand. As of December 31, 1997, HBOC had 6,286 employees worldwide. INDUSTRY. The healthcare industry continues to undergo significant and rapid change. Healthcare delivery costs have increased dramatically in recent years compared to the overall rate of inflation, while the growing influence of managed care has resulted in increased pressure on participants in healthcare systems to contain costs. Accordingly, healthcare systems are migrating toward more managed care reimbursement, including discounted fee-for-service and capitation. Under capitation, providers are paid a predetermined fee per individual to provide all healthcare services, thereby assuming the potential financial risks of escalating healthcare costs. To deliver care in a more cost-effective manner, providers are forming integrated health delivery networks that may include acute-care hospitals, physicians' offices, outpatient clinics, homecare, long-term care facilities and payor entities. The success of these comprehensive delivery networks is dependent on effectively managing and delivering information to caregivers and managers across multiple points of care. Traditionally, the acute-care hospital market has been the largest segment of healthcare information services. Industry analysts anticipate that the healthcare industry spent approximately $12 billion in 1997 for products and services to support automated information systems. Analysts also expect that information systems expenditures in healthcare will grow to $18 billion by the year 2000 as hospitals and other providers spend a larger percentage of their operating budgets on systems that will enable them to provide caregivers and managers with access to the information needed to quantify and control costs, a key mandate of managed care. In the 1997 Annual HIMSS/Hewlett-Packard Leadership Survey, an industry survey conducted by Hewlett-Packard at the Healthcare Information and Management Systems Society conference, 51 percent of the respondents stated that their information system investments will increase at a rate of 20 percent or more over the next two years. Fifty-six percent of respondents indicated that the need to control costs as the result of managed care pressures is a key business/operating imperative driving computerization in their organizations. In addition, 28 percent of the respondents noted that their most important information system priority was upgrading information technology infrastructure. 1 With the increasing prevalence of managed care and capitation, healthcare information systems are evolving to meet new and more complex information requirements. Initially, these systems were financially oriented, focusing on the ability to capture charges and generate patient bills. However, as reimbursement has shifted more toward risk sharing and capitation, providers and payors alike need to better manage risk by controlling costs, demonstrating quality, measuring outcomes and influencing utilization. Because this requires integration of clinical and financial information, systems have evolved from processing billing information to include enterprisewide systems capable of capturing, storing and analyzing both clinical and financial data across the continuum of care. While the availability of a complete, timely and cost-effective patient-focused information system is essential to providing quality care and controlling costs, the source of patient information usually covers a number of different sites. Therefore, current and historical paper records must be made available by computer at all points of care. All players in the delivery network need information systems that can capture data at the point of care, communicate data across the continuum of care, and process and store large volumes of data necessary for the development of a lifelong computer-based patient record. STRATEGY HBOC's strategy is to provide a comprehensive range of computer-based information systems and services designed to meet the evolving needs of health enterprises, thereby enabling healthcare organizations to add incremental capabilities to their existing information systems without making prior capital investments obsolete. The key elements of this strategy are as follows: LEVERAGE THE EXISTING CUSTOMER BASE. With one or more of its products installed in approximately 52 percent of the community hospitals (over 100 beds) in the United States, HBOC is a leader in the healthcare information systems marketplace. HBOC expands its customer base through sales and marketing efforts and through strategic acquisitions such as the 1997 acquisitions of Enterprise Systems, Inc. and HPR Inc., which had 1,000 hospital customers and 300 payor customers, respectively (see "Recent Acquisitions" below.) This expanded customer base offers HBOC significant opportunities to sell both additional applications of its product lines, including its Pathways 2000-Registered Trademark- enterprise solutions and its Payor Solutions Group medical management and business systems. In addition, HBOC believes its relationships with customers and its familiarity with their existing systems give HBOC an advantage over many of its competitors in marketing applications to meet the evolving needs of these customers. HBOC also seeks to further leverage its relationships with existing customers to access additional providers and payors throughout newly formed health delivery networks. PROVIDE ENTERPRISEWIDE SOLUTIONS TO THE EVOLVING HEALTHCARE MARKET. HBOC offers one of the broadest product lines in the healthcare information systems industry to serve the patient care, clinical, financial and strategic management needs of providers and payors. Through its Pathways 2000 family of enterprisewide information systems, HBOC facilitates the more efficient integration of delivery networks. HBOC's Pathways 2000 client/server applications are designed to provide a common information infrastructure that enables organizations to collect, manage and disseminate clinically oriented information organized on the basis of a patient's entire history of care regardless of the setting where care is delivered. Pathways 2000 provides the capability to create longitudinal computerized patient records as well as connectivity along the entire continuum of care, enabling users to access patient data from any point within an integrated delivery system. PROVIDE SUPERIOR INTEGRATION OF PRODUCTS AND DATA. HBOC's products offer healthcare organizations open system solutions with the flexibility to add incremental capabilities, which enables them to protect their capital investments. In addition, HBOC's client/server architecture facilitates the integration of clinical data with financial and administrative data from both HBOC and non-HBOC applications for efficient resource allocation, allowing organizations to benefit from price/performance advances. HBOC 2 believes that these features will be of key significance to its customers as they face industry consolidation and evolve as part of integrated delivery systems. EXPAND INTO NEW MARKETS. HBOC strives to provide premier business-critical applications to every essential care setting as well as to the payor market. HBOC believes that as healthcare organizations expand and decentralize, management information requirements at the point of care will increase. HBOC is developing or has acquired client/server applications to meet these needs in the physician's office, home health market, reference laboratory and the payor market. The Company constantly reviews opportunities to develop or acquire applications for other components of the care delivery network, such as long-term care. CONTINUE PRODUCT DEVELOPMENT. HBOC believes that a key to its growth is an ongoing focus on research and development to ensure its product offerings will continue to strive to meet the evolving needs of its existing and potential customer base. HBOC's research efforts focus on enhancements to existing product offerings as well as new product development. In developing products, HBOC's goal is to ensure its information systems are highly flexible and quickly adaptable and can serve the information access needs of an increasingly broad range of users. HBOC's product developers use state-of-the-art application development tools such as program generators, artificial intelligence and expert systems, which decrease development time and lower the cost of new products. While HBOC's efforts focus primarily on the internal research and development of new products, HBOC has made and continues to explore strategic acquisitions of developers of niche product software to complement and diversify its product portfolio. RECENT ACQUISITIONS A substantial portion of HBOC's recent growth has resulted from acquisitions of companies that have expanded its product lines and enhanced its installed customer base. The following table outlines acquisitions since 1993:
DATE ACQUIRED COMPANY PRIMARY SIGNIFICANCE - ------------------ ------------------------------- ------------------------------------------------------- June 1993 Biven Software, Inc. Managed care applications December 1993 Data-Med Computer Services Installed base of 100 hospitals in the United Kingdom Limited May 1994 IBAX Healthcare Systems Presence in the IBM AS/400 market, installed base of 475 hospitals September 1994 Serving Software, Inc. Enterprisewide patient and resource scheduling software December 1994 Care 2000, Inc. Case management methodologies February 1995 Advanced Laboratory Systems, Laboratory software for the healthcare and commercial Inc. markets June 1995 First Data Health Systems Installed base of 500 hospitals Corporation July 1995 Pegasus Medical Ltd. Electronic patient record built by physicians, for physicians September 1995 CliniCom Incorporated Multidisciplinary point-of-care clinical information systems August 1996 CyCare Systems, Inc. Physician group practice management solutions and electronic data interchange services September 1996 Management Software, Inc. Homecare information solutions
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DATE ACQUIRED COMPANY PRIMARY SIGNIFICANCE - ------------------ ------------------------------- ------------------------------------------------------- December 1996 GMIS Inc. Data quality tools and decision support for payors December 1996 Gemini Ltd. Remote processing services in the United Kingdom June 1997 AMISYS Managed Care Systems, Managed care information systems for the payor market Inc. June 1997 Enterprise Systems, Inc. Resource management solutions including materials management, general ledger, accounts payable, O.R. and staff scheduling October 1997 AT&T's UK Specialist Healthcare Software and remote processing services, including the Services Division ClearNET electronic commerce offering December 1997 HPR Inc. Medical management solutions for payors December 1997 National Health Enhancement Medical call centers, computer telephony and disease Systems, Inc. management
PRODUCT SUMMARY HBOC's products and services are designed to serve the information needs of all participants in the integrated health delivery system: the caregiver, in whatever discipline or capacity; the institution or enterprise, in whatever aspect of its business; and the patient (increasingly referred to by healthcare organizations as the "customer" or "member"), in whatever setting of care. Today, the health services delivery network through which these participants relate can include acute-care hospitals, outpatient clinics, physicians' offices, reference laboratories, commercial pharmacies, long-term care facilities, patients' homes and wellness centers. In addition, employers, payors and governmental agencies play a major role in directing how healthcare resources are deployed, which impacts capital spending by healthcare enterprises. (See "Factors Affecting Forward-Looking Statements.") To serve this wide-ranging and diverse network of health delivery, HBOC bases its offerings on a strategic mix of applications and technologies backed by implementation, support and other services. HBOC's product portfolio is organized into eight components: acute-care or HIS (hospital information systems), infrastructure, community health management, clinical management, practice management, access management, resource management and enterprise management. In addition, HBOC offers an extensive suite of services that allows healthcare organizations the flexibility to select the level of resources that most effectively serves their needs. HIS -- HIS applications automate the operation of individual departments and their respective functions within the inpatient environment. These hospital-based transaction and decision support systems form the core of systems that, in conjunction with other tools designed to directly support clinical decision-making, help streamline the care process over the continuum of care. HBOC's HIS systems include applications for patient care, laboratory, pharmacy, radiology, financials and management decision-making. INFRASTRUCTURE -- Infrastructure applications are not limited to a single department or function; rather, they form the foundation of the emerging information structures of health enterprises. HBOC's wide array of networking and database applications provide the key elements for integrating and uniting providers across the continuum of care. Components include local, wide area and value-added networks, as well as wireless technology and electronic data interchange (EDI) capabilities. An interface manager coordinates the flow of information, often from disparate sources, throughout the entire system, and a data repository 4 stores patient information for access throughout the enterprise. In bringing the enterprise together, these solutions establish the physical basis for a lifelong patient record. COMMUNITY HEALTH MANAGEMENT -- These applications focus on managing the demand for healthcare services by predicting what care may be required, preventing illness and managing the care required as cost effectively as possible. Under a community health management strategy, the consumer is encouraged to partner with the health enterprise as his or her own care manager. Components of HBOC's community health management strategy include medical call center management to provide nurse triage and give consumers information on self-care, enabling and encouraging personal health management. Data analysis provides early identification of members with high-risk/high-cost diseases and health conditions, while guidelines and standards enable enterprises to improve care management processes. Finally, sophisticated computer telephony and "branded" Internet access provide electronic links between providers and consumers. CLINICAL MANAGEMENT -- Clinical applications facilitate and improve the actual practice of medicine in a variety of care settings, whether they be hospitals, physician office, home or clinic. Drawing from a common database of patient information, computer technology gives professionals immediate access to the critical information necessary to provide better quality care wherever they are in the delivery system. HBOC's point-of-care applications allow physicians and other clinicians to document patient information, establish and manage guidelines or standards of care, enter and manage orders, and view all results and clinical information. These clinical solutions support the need for collaboration among multiple disciplines and for integration with other information systems in the health delivery network. PRACTICE MANAGEMENT -- Practice management applications provide a comprehensive solution for medical groups and physician enterprises, whether they are independent or part of an integrated health network. With business office management as its cornerstone, HBOC's practice management solution gives physician groups or enterprises the flexibility to manage their business under many different organizational and reimbursement models. Also included are risk management and managed care capabilities, clinical systems for managing patient care, and scheduling that can handle multiple providers, facilities, and equipment within the enterprise. Additional capabilities to help accelerate cash flow, reduce costs and increase productivity include decision support, data quality analysis and electronic commerce. ACCESS MANAGEMENT -- Access management solutions allow the healthcare organization's "customers" to access health services more easily and cost-effectively. Indexing applications organize the vast information collected about a person throughout the enterprise, allowing patients to be tracked and information about them to be accessed wherever they go for care. Scheduling systems instantly register and schedule patients anywhere in the enterprise, as well as the resources needed to serve them. Other system capabilities allow for information tied to specific episodes of care to be collected and managed. Besides increasing accuracy, these applications help alleviate patient frustration with having to provide duplicate information from one setting of care to another thereby enhancing "customer satisfaction." RESOURCE MANAGEMENT -- Resource management applications help healthcare organizations maximize the efficiency of healthcare delivery through better management of people, facilities, supplies, services and equipment. By integrating materials management, accounts payable/general ledger, surgical services management and staff scheduling functions, health enterprises can control and reduce the costs associated with various healthcare procedures. Besides the ability to link costs to clinical management for continuous quality improvement, organizations can better monitor and manage the supply chain from point-of-entry to point-of-use, eliminating nonproductive steps throughout the materials and financial management process. The result is more efficient care and a strong return on investment. ENTERPRISE MANAGEMENT -- Enterprise management applications facilitate and improve the management and operation of all aspects of the health enterprise -- for payors as well as providers. These applications focus on providing managers with the clinical, financial and other information necessary to 5 contain costs while ensuring high-quality care. Examples include utilization management and accounts receivable management, as well as managed care contracting and member management applications. The following table outlines the principal products in each area:
PRODUCT DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- HIS: STAR 2000, Precision 2000, Paragon(SM) RISC-based patient care, clinical and financial systems HealthQuest-Registered Trademark- 2000, Plus 2000 IBM mainframe-based patient care, clinical and financial systems Series 2000, OR Series IBM AS/400-based patient care, clinical, financial, scheduling and management systems Surgi-Server 2000, Omni-Server 2000, DME 2000 PC-based scheduling, management and equipment tracking systems Host 2000 Tandem-based patient care management systems and remote processing systems for patient financials INFRASTRUCTURE: Pathways Interface Manager Interface engine that manages network traffic and performs protocol conversion and translation Pathways Health Network Server Relational database and repository for all patient information Pathways Health Network Expert Enterprisewide expert person matching solution that generates unique universal identifiers Pathways Image Manager Electronic imaging and storage solution Connect Technology Group Local and wide area networks and wireless technologies Value Added Network EDI capabilities that support the movement of information among various sources COMMUNITY HEALTH MANAGEMENT: HBOC Call Center Medical call center management, including self-care and referral information, nurse triage, telephonic case management and compliance management Intelligent Voice Response Computer telephony, including health and referral information, automation of patient test results reporting and appointment confirmation Clinical Care Management System Integrated system of applications and clinical knowledge bases that supports the entire medical management process, including focused case management, authorization and referral management, disease management, early identification of high-cost cases and population-based health strategies.
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PRODUCT DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- CLINICAL MANAGEMENT: Pathways Coordinated Care Enterprisewide solution for longitudinal health record spanning all settings, includes results and profile viewing, orders, guidelines, and alerts and reminders Pathways Smart Medical Record-Registered Trademark- Clinical information system for physician offices Pathways Care Manager Multidisciplinary point-of-care system for hospitals and affiliated clinics Pathways Homecare Office clinical, personnel scheduling, point of care, reimbursement, homecare pharmacy and home medical equipment Pathways Laboratory Laboratory system that includes commercial, reference and hybrid laboratory capabilities PRACTICE MANAGEMENT: Practice 2000 Application suite for the medical group enterprise that includes the following products: Pathways Practice Manager Physician practice system with master patient index, billing and registration capabilities Pathways Smart Medical Record Clinical information system for physician offices Pathways Managed Care Risk management tool for the physician enterprise with full-function management of contractual agreements for providers, payors, HMOs, PPOs, PHOs and others Practice Schedule Manager Scheduling tool for the physician enterprise Pathways Healthcare Scheduling Enterprisewide patient and resource scheduling Pathways Decision Support Enterprisewide decision support system Physician Office Manager Full-featured practice management system for smaller physician practices ACCESS MANAGEMENT: Pathways Health Network Management Enterprisewide system for managing information about an enrolled population Pathways Authorization Management Authorization and referral tracking Pathways Healthcare Scheduling Enterprisewide patient and resource scheduling system Pathways Encounter Management Enterprisewide system for managing information about patients' episodes of care RESOURCE MANAGEMENT: Nova.IDN-TM- Client/server enterprisewide materials management system Titan.IDN-TM- Enterprisewide accounts payable/general ledger solution Pathways Healthcare Scheduling Enterprisewide patient and resource scheduling system Pathways Surgical Manager Surgical services management, including scheduling, perioperative charting, staff assignments, credentialing and supplies ESP-TM- For Windows Enterprisewide staff scheduling
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PRODUCT DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- ENTERPRISE MANAGEMENT: Pathways Contract Management Monitoring and management of multiple varied contracts for providers with managed care focus Pathways Managed Care Full-function management of contractual agreements for providers and smaller IDNs AMISYS-Registered Trademark- Whole-system managed care solution for large, at-risk organizations TRENDSTAR-Registered Trademark- Decision support system, including cost accounting, budgeting and forecasting QUANTUM-Registered Trademark- Enterprise information system Pathways Decision Support Enterprisewide decision support system Autocoder-Registered Trademark-, Data quality/claims auditing tools for the payor market ClaimCheck-Registered Trademark-, ClaimCheck Dental, Clinical Payment Management System-TM- (includes CodeReview, ProMatch and Patterns Review) Credentialing Management System Physician credentialing check system Clinical Resource Management System-TM-, Comprehensive medical management system for payors ICAS-Registered Trademark- EC2000 Electronic commerce solutions, including claims processing, eligibility, remittances and laser statement printing
In addition to the above applications, HBOC offers software applications provided by a host of industry-leading business partners. These partnerships also include value-added reseller agreements with computer hardware manufacturers such as Data General Corp., Digital Equipment Corp., Hewlett- Packard Co. and IBM Corp. In 1997, HBOC selected IBM as its exclusive Microsoft NT-Registered Trademark- platform development partner. INTERNATIONAL OFFERINGS Most of the Pathways 2000 and HIS products in HBOC's product portfolio are offered internationally. In addition, products added to the HBOC product line with the acquisition of Data-Med Computer Services Limited in December 1993 are available in the United Kingdom, as are products added by the 1997 acquisition of AT&T UK Specialist Healthcare Services Division, including the TotalCARE offering that includes software solutions and remote processing services for financial and payroll areas. In most cases, the applications offered internationally have been customized or developed to meet the particular needs of the country in which they are implemented. SERVICES Installation and implementation services are provided for purchasers of all HBOC software products to assist with the smooth introduction of or transition to those products. HBOC also provides software maintenance and enhancement services, as well as custom programming and system modifications to meet special customer requirements. Equipment maintenance services are provided by HBOC or through its various hardware partners. ENTERPRISE SERVICES. HBOC provides a suite of specially developed services to serve the needs of enterprises whose dependence on information systems is growing. Those services include UNIX processing support, remote system monitoring and single-point issue resolution. In addition, the Company's service track implementation methodology provides a flexible suite of implementation services that can include an 8 enterprise project manager to assist in planning, installing and supporting Pathways 2000 products. Other service areas include education, enterprise consulting, application-specific services, computer telephony and software product support, and services that assist customers in achieving year 2000 compliance. CONNECT TECHNOLOGY GROUP. To support the connectivity needs of healthcare organizations, medical group practices and their affiliates, the Connect Technology Group (CTG) provides total network installation and support. In addition, CTG offers a comprehensive Value Added Network, a suite of information services that extend local area networks outside of the hospital to include payors, vendors, financial institutions and the Internet. All together, HBOC's networking solutions provide customers with a complete network solution for electronic access throughout a provider enterprise. OUTSOURCING SERVICES GROUP. HBOC has been in the outsourcing business in the United States for more than 20 years and offers outsourcing services in the United Kingdom as well. With the change and uncertainty engendered by healthcare reform and resulting economic pressures, information systems outsourcing is becoming increasingly popular in the United States. Outsourcing services go beyond managing hospital data processing operations (traditionally known as facilities management) to encompass strategic management services in information systems planning, receivables management, business office administration and major system conversions. ELECTRONIC COMMERCE GROUP. With the 1996 acquisition of CyCare Systems, Inc., and its CyData subsidiary, HBOC acquired significant capabilities in EDI services, including claims processing, eligibility verification, remittance advice as well as statement printing. HBOC's Electronic Commerce Group operates the nation's 12th largest electronic clearinghouse and serves approximately 35 percent of the medical group practices in the United States. FIRST STRATEGIC GROUP. With the 1997 acquisition of National Health Enhancement Systems, Inc., HBOC added strategic marketing capabilities and sales consultation services related to medical call centers and general payor and provider market positioning needs. Services provided include the development of strategic marketing and marketing communications plans, managed care marketing, advertising campaigns and creative services for TV, radio, print, collateral and outdoor advertising, positioning and branding development, market research and syndicated marketing programs. SOURCES OF REVENUE Information regarding sources of revenue is included in the table "Revenue by Business Region" on page 10 of the Company's Annual Report to Stockholders for the year ended December 31, 1997 (the Annual Report), and under the caption "Revenue Recognition" in Note 1 of "Notes to Consolidated Financial Statements" on pages 16 and 17 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. BACKLOG Information regarding backlog as of December 31, 1997, is included in the "Financial Review" section under the caption "General" on page 6 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. RESEARCH AND DEVELOPMENT The Company's product development effort applies advanced computer technology and installation methodologies to specific information processing needs of hospitals. The Company believes a substantial and sustained commitment to such research and development (R&D) is important to the long-term success of the business. 9 Investment in software development, including both R&D expense as well as capitalized software, has increased as the Company has addressed new software applications and enhanced existing products for installed systems. The Company expensed $124 million (10% of revenue) for R&D activities during 1997, as compared to $112 million (12% of revenue) and $95 million (13% of revenue) during 1996 and 1995, respectively. The Company capitalized 28%, 25% and 28% of its R&D expenditures in 1997, 1996 and 1995, respectively. Information regarding R&D is included in the schedule "Five-Year Selected Financial Information" on page 5 of the Annual Report and under the captions "Capitalized Software" and "Nonrecurring Charges" in Note 1 of "Notes to Consolidated Financial Statements" on pages 16 and 17 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. The substantial majority of technical concepts and codes embodied in the Company's computer programs and program documentation are not protected by patents or copyrights but constitute trade secrets that are proprietary to the Company. The Company and its subsidiaries are the owners of various trademarks and service marks, including the federally registered trademarks or service marks "MEDPRO," "IFAS," "CLINPRO," "MEDIPAC," "CML," "COSTREP," "TRENDSTAR," "TRENDSERVE," "TRENDPAC I," "BUDGET+," "CLINIPAC," "CLINSTAR," "HOSTS," "HSL," "PARAGON," "PARS," "GIVING DATA A VOICE," "LET YOUR DATA SPEAK FOR ITSELF," "QUANTUM," "ERS," "HEALTHQUEST," "PATHWAYS 2000," "PATIENT VIEW," "SAINT," "SAINT PLUS," "THE PRECISION ALTERNATIVE," "WIN," "CHARISMA," "CYCARE SYSTEMS," "CYCARE," "SPECTRAMED," "CYDATA," "DOCUMENTATION PLUS," "CLAIMCHECK," "PROVIDER INSIGHT," "AUTOCODER," "TITAN," "TOUCHSCAN," "TS-2000," "NOVA," "ENTERPRISE SCHEDULING," "ENTERPRISE SYSTEMS," "AMISYS," "PATTERNS REVIEW," "EPISODE PROFILER," "PATTERNS OF TREATMENT," "THE PROFESSIONALS," "REFERRAL ONE," "HEALTHFONE--YOUR CONFIDENTIAL SOURCE," "CENTRAMAX," and the triangular design that forms the Company logo, but such registration provides limited protection as to the trademark or service mark. "First Inform" is used under license from First Data Corporation. "SMR" and "Smart Medical Record" are used under license from HBOC Medical, Ltd. COMPETITION HBOC experiences substantial competition from many firms, including other computer services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, and hardware vendors. Competition varies in size from small to large companies, in geographical coverage, and in scope and breadth of products and services offered. Although some of the Company's competitors are comparable in size to the Company, the Company believes that few, if any, competitors offer a comparable range of healthcare information systems and services that compare favorably with respect to all of the competitive criteria, mainly price and service. YEAR 2000 Software applications that use only two digits to identify a year may fail or create errors in the year 2000 (the "Year 2000 issue.") HBOC began evaluating the Year 2000 issue in 1994 and is currently continuing such efforts. The Company has implemented upgrades to a substantial portion of its products to address the Year 2000 issue. HBOC is currently evaluating the status of each of its products which is not, at present, Year 2000 compliant and anticipates that it will be able to substantially quantify its costs and required actions later in 1998. Although to date the expense of upgrading product applications to make them Year 2000 compliant has not been material, there can be no assurance that HBOC will not incur material costs with respect to such issues in the future. In addition, the Company has plans in place to make all critical internal systems Year 2000 compliant by the end of 1998 and will incur non-material costs to do so. 10 FACTORS AFFECTING FORWARD-LOOKING STATEMENTS This report, and other reports, proxy statements and other communications to stockholders, as well as oral statements made by representatives of the Company, may contain forward-looking statements with respect to, among other things, the Company's future revenues, operating income and earnings per share, as well as plans and objectives of management. The following are some, but not necessarily all, of the factors that may cause the Company's actual results to vary materially from those which are the subject of any such forward-looking statements. An important element of HBOC's business strategy has been and will continue to be expansion through acquisitions, both to extend its customer base and to acquire strategic technology. The Company's ability to expand successfully through acquisitions depends on many factors including the identification of appropriate acquisition opportunities, negotiation of suitable terms and management's ability to effectively integrate and operate the acquired businesses. The Company competes for acquisitions with other companies, certain of which have significantly greater financial and management resources. HBOC's financial performance will be subject to the risks of the performance of the acquired businesses as well as the financial effects associated with integration of such businesses. The healthcare industry is subject to changing political, economic and regulatory influences, many of which relate to control of healthcare costs. Such changes may affect operational aspects of the healthcare industry, including procurement practices and the availability and/or allocation of capital funds, which could result in greater selectivity, thus adversely affecting HBOC's ability to sell its products. HBOC cannot predict with any certainty what impact, if any, future regulation or healthcare reform might have on its results of operations, financial condition or business. While HBOC maintains insurance protecting against certain asserted claims, there can be no assurance that its insurance coverage would adequately cover any such claims asserted against HBOC. Competition in the Company's industry is subject to continual change in not only the products and services offered but also in the manner in which vendors are selected by customers. Accordingly, HBOC's continued success will be dependent on its ability to develop new products and services on a timely basis and at competitive prices. The Company must anticipate and adapt to evolving industry standards and new technological developments. The market for the Company's products is characterized by continued and rapid technological advances. HBOC's future success will depend in part on its ability to be responsive to these technological developments and challenges, which could also lower the cost of products and services or otherwise result in competitive pricing pressures. HBOC relies on a combination of trade secret, copyright and trademark laws, together with nondisclosure, other contractual provisions and technical measures to protect its proprietary rights in its products. There can be no assurance that these protections will be adequate or that HBOC competitors will not independently develop technologies that are equivalent or superior to HBOC's technology. Although the Company believes that its products and other proprietary rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company in the future. The stock market has, from time to time, experienced extreme price and volume fluctuations, particularly in the high technology sector, which have often been unrelated to the operating performance of particular companies. HBOC experiences fluctuations in its stock price related to these general market swings as well as announcements of technological innovations, new product introductions by HBOC or its competitors, market conditions in the computer software or hardware industries and healthcare reform measures. These fluctuations may adversely affect the Company's ability to make acquisitions utilizing its stock. 11 ITEM 2: PROPERTIES The Company's principal administrative and research offices are located at 301 and 303 Perimeter Center North, Atlanta, Georgia. The offices consist of approximately 226,000 square feet of space under a lease that expires in 1999. The rental expense for these offices totaled approximately $3.9 million for 1997. The Company also owns two buildings and leases space in approximately 45 buildings throughout the United States, Canada, the United Kingdom and Israel. Information regarding the Company's leases is included in Note 2 of "Notes to Consolidated Financial Statements" on page 18 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. Information regarding the Company's principal offices is included on the back cover of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. ITEM 3: LEGAL PROCEEDINGS Information regarding Legal Proceedings is included in Note 9 of "Notes to Consolidated Financial Statements" on page 22 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended December 31, 1997, there were no matters submitted to a vote of security holders. 12 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on The Nasdaq Stock Market's National Market under the symbol HBOC. Information regarding the high and low sales prices, the number of holders of the Company's common stock and dividends is presented under the caption "Common Stock Data" on page 22 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K and is incorporated herein by reference. ITEM 6: SELECTED FINANCIAL DATA The following is the Company's Five-Year Selected Financial Data:
(000 OMITTED EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993 - --------------------------------------- ------------ ------------ ---------- ---------- ---------- Revenue................................ $ 1,203,204 $ 950,911 $ 715,902 $ 525,490 $ 409,354 Net Income (Loss)...................... $ 143,537 $ 82,333 $ (7,895) $ 34,500 $ 19,893 Earnings (Loss) Per Share.............. $ .67 $ .39 $ (.04) $ .19 $ .11 Total Assets........................... $ 1,312,586 $ 1,012,749 $ 771,550 $ 425,093 $ 296,781 Long-Term Debt......................... $ 1,022 $ 769 $ 4,054 $ 15,067 $ 6,700 Dividends Declared Per Share........... $ .06 $ .04 $ .04 $ .04 $ .038
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information included in the "Financial Review" section on pages 6 through 9 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K, is incorporated herein by reference. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not invest in derivative financial instruments. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information included on pages 11 through 22 of the Annual Report, a copy of which is included as an exhibit to this Form 10-K, under the captions "Condensed Consolidated Quarterly Statements of Income," "Consolidated Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" is incorporated herein by reference. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES The Company has neither changed its independent public accountants nor had any disagreements on accounting and financial disclosures with such accountants. 13 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the executive officers of the Company as of February 28, 1998. Additional information regarding the Board of Directors is included in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 1998, under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," which is incorporated herein by reference.
NAME AGE POSITION WITH THE COMPANY - ---------------------------- --- ---------------------------------------------------- Charles W. McCall 53 Chairman of the Board of Directors, President and Chief Executive Officer Albert J. Bergonzi 48 President and Co-Chief Operating Officer Jay P. Gilbertson 37 President, Co-Chief Operating Officer, Chief Financial Officer, Treasurer, Principal Accounting Officer and Secretary Jay M. Lapine 46 Senior Vice President, General Counsel and Assistant Secretary Russell G. Overton 50 Senior Vice President-Business Development
Charles W. McCall has served as the Chairman of the Board of Directors since February 1998 and as a Director, President and Chief Executive Officer of the Company since 1991. Mr. McCall is also a Director of EIS International, Inc., WestPoint Stevens Inc. and AMERIGROUP INC. Albert J. Bergonzi has served as President and Co-Chief Operating Officer since December 1997, and served as President, Enterprise Solutions since 1996. He served as Executive Vice President-Sales from 1995 to 1996. From 1985 through 1995 he served as the Vice President and General Manager of HBOC's Amherst Product Group. Jay P. Gilbertson has served as President and Co-Chief Operating Officer since December 1997. He served as Executive Vice President and Secretary since 1996 and Senior Vice President since 1995. Since 1993 he has served as Vice President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary. Mr. Gilbertson is also a Director of Anacomp, Inc. Jay M. Lapine has served as Senior Vice President since December 1997 and as Vice President, General Counsel and Assistant Secretary since 1996. From 1994 to 1996, he served as Associate General Counsel. From 1992 to 1994, prior to joining the Company, Mr. Lapine was Executive Vice President and General Counsel of Premier Anesthesia, a publicly held contract management firm providing physician services to hospitals. Russell G. Overton has served as Senior Vice President-Business Development since 1992. 14 ITEM 11: EXECUTIVE COMPENSATION The Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 1998, contains under the captions "Compensation of Directors" and "Executive Compensation," information relating to director and executive compensation for the year ended December 31, 1997, which is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 1998, contains under the captions "Security Ownership of Certain Beneficial Owners and Management" information relating to security ownership of beneficial owners and management, which is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 1998, under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference. 15 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this report: (a)1. Financial Statements The Annual Report contains the following information on pages 11 through 22: "Condensed Consolidated Quarterly Statements of Income," "Consolidated Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements." The report of Arthur Andersen LLP on these financial statements is on page 23 of the Annual Report. These financial statements and the report of Arthur Andersen LLP are incorporated herein by reference. (a)2. Financial Statement Schedules - Report of Independent Public Accountants as to Schedules Supporting Financial Statements - Schedules Supporting Financial Statements
SCHEDULE NUMBER --------- II Valuation and Qualifying Accounts for the Three Years Ended December 31, 1997.
Schedules not listed have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. (a)3. Exhibits The following exhibits filed with the Securities and Exchange Commission are incorporated by reference as shown below. Items marked with an asterisk, "*," relate to management contracts or compensatory plans or arrangements.
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- ON MAY 13, 1981, AS PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NUMBER 2-72275): 4(a) --Specimen forms of certificates for Common Stock of Registrant. 10(e) --Standard Form of EPLA Agreement. ON MARCH 21, 1989, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1988: 10(a) --Standard Form of Software License Agreement. 10(b) --Standard Form of Hardware Purchase Agreement. ON FEBRUARY 15, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-75987): *4 --HBO & Company 1981 Incentive Stock Option Plan, as amended. ON FEBRUARY 22, 1991, AS PART OF ITS FORM 8-K: 4 --HBO & Company Rights Agreement. ON MARCH 27, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-12051): *4 -- HBO & Company 1986 Employee Nonqualified Stock Option Plan, as amended. ON MARCH 27, 1991, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1990: 10(c) -- Standard Form of HealthQuest Ltd. Software License and Maintenance Agreement.
16
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- ON MARCH 27, 1992, AS A PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1991: 10(a) -- Standard Form of Credit Agreement with recourse between the Company and Sanwa Business Credit Corporation. 10(b) -- Standard Form of Credit Agreement without recourse between the Company and Sanwa Business Credit Corporation. ON AUGUST 12, 1993, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-67300): *4 -- HBO & Company 1993 Stock Option Plan for Nonemployee Directors. ON JULY 20, 1994 AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED JULY 19, 1994, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE COMMISSION ON AUGUST 11, 1994, AND FURTHER AMENDED BY AMENDMENT NO. 2 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED AUGUST 11, 1994: 3 --Amended Bylaws of Registrant. 10(b) -- Credit Agreement, dated June 13, 1994, between the Company and Wachovia Bank of Georgia, N.A. ON AUGUST 17, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-82962): *4 --HBO & Company 1990 Executive Incentive Plan, as amended. ON SEPTEMBER 15, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-84034): *4 -- 1986 Incentive Stock Option Plan of Serving Software, Inc. ON MARCH 17, 1995, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994: *4 --Chief Executive Officer Incentive Plan. ON MAY 9, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-59173): *4 -- HBO & Company 1986 Nonqualified Stock Option Agreement, HBO & Company 1991 Nonqualified Stock Option Agreement 1 and HBO & Company 1991 Nonqualified Stock Option Agreement 2. ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213): *4 --1985 Employee Stock Option Plan of CliniCom Incorporated. ON MAY 21, 1996, AS PART OF ITS FORM 8-K DATED MAY 21, 1996: 3(i) -- HBO & Company Certificate of Incorporation, as amended. ON JUNE 11, 1996, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED JUNE 11, 1996, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED JULY 18, 1996, AND FILED WITH THE COMMISSION ON JULY 18, 1996: 2 -- Agreement of Merger dated May 18, 1996, by and among HBO & Company, HBO & Company of Georgia and CyCare Systems, Inc. ON AUGUST 22, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10603): *4 -- CyCare Systems, Inc. 1995 Long-term Incentive Plan (Including the predecessor CyCare Systems, Inc. Stock Option Plan). ON OCTOBER 18, 1996, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED OCTOBER 18, 1996, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED NOVEMBER 6, 1996, AND FILED WITH THE COMMISSION ON NOVEMBER 6, 1996: 2 -- Agreement of Merger dated September 23, 1996, as amended, by and among HBO & Company, HBO & Company of Georgia and GMIS Inc.
17
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17583): *4(a) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Josephine G. Kaple. *4(b) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Lawrence Koenig. ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17551): *4 --GMIS Inc. 1991 Stock Option Plan. ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17579): *4 -- Gabrieli Medical Information Systems, Inc. 1984 Stock Option Plan. ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17555): *4 --GMIS Inc. 1995 Stock Option Plan. ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10479): *4 -- Gabrieli Medical Information Systems, Inc. 1985 Non-Qualified Common Stock Option Plan. ON MARCH 7, 1997, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED MARCH 7, 1997 (REGISTRATION NUMBER 333-22929), AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AND FILED ON APRIL 22, 1997, AS FURTHER AMENDED BY AMENDMENT NO. 2 TO FORM S-4 DATED AND FILED ON MAY 5, 1997, AS FURTHER AMENDED BY AMENDMENT NO. 3 TO FORM S-4 DATED AND FILED ON MAY 13, 1997: 2 -- Agreement of Merger dated February 10, 1997, by and among HBO & Company, HBO & Company of Georgia, and AMISYS Managed Care Systems, Inc. ON MAY 14, 1997, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED MAY 14, 1997 (REGISTRATION NUMBER 333-27045), AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AND FILED ON MAY 29, 1997: 2 -- Agreement of Merger dated March 13, 1997, by and among HBO & Company, HBO & Company of Georgia, and Enterprise Systems, Inc. ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29365): *4 -- AMISYS Managed Care Systems, Inc. Directors' Stock Option Plan. ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29367): *4 -- AMISYS Managed Care Systems, Inc. 1994 Equity Incentive Plan. ON JUNE 30, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-30373): *4 --Enterprise Systems, Inc. Long Term Incentive Plan. ON AUGUST 6, 1997, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997: 10 -- Second Amended and Restated Revolving Credit Agreement dated June 30, 1997 among HBO & Company, HBO & Company of Georgia, BankBoston, N.A., NationsBank of Texas, N.A. and other lending institutions, and BankBoston, N.A. as Agent. ON NOVEMBER 5, 1997, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED NOVEMBER 5, 1997 (REGISTRATION NUMBER 333-39525), AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AND FILED ON NOVEMBER 24, 1997: 2 -- Agreement of Merger dated September 27, 1997, by and among HBO & Company, HBO & Company of Georgia, and National Health Enhancement Systems, Inc.
18
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- ON NOVEMBER 13, 1997, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED NOVEMBER 13, 1997 (REGISTRATION NUMBER 333-40087), AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AND FILED ON NOVEMBER 21, 1997: 2 -- Agreement of Merger dated September 27, 1997, by and among HBO & Company, HBO & Company of Georgia, and HPR Inc. ON DECEMBER 22, 1997 AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-42871): *4 -- HBO & Company 1998 Employee Discount Stock Purchase Plan. ON DECEMBER 29, 1997 AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43375): *4 --HPR Inc. HPR 1995 Eligible Directors Stock Plan. ON DECEMBER 29, 1997 AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43377): *4 -- HPR Inc. Amended and Restated HPR 1995 Stock Plan, HPR Inc. Amended and Restated HPR 1991 Stock Plan. ON JANUARY 2, 1998 AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43673): *4 -- National Health Enhancement Systems, Inc. Amended 1988 Stock Option Plan. ON JANUARY 2, 1998 AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43679): *4 --Expert Systems, Inc. 1993 Stock Option Plan. THE FOLLOWING EXHIBITS ARE INCLUDED IN THIS FORM 10-K: 11 -- Computation of Earnings (Loss) Per Share of Common Stock for the Years Ended December 31, 1997, 1996 and 1995. 13 --Annual Report to Stockholders for the year ended December 31, 1997. 21 --Subsidiaries of Registrant. 23 --Consent of Arthur Andersen LLP. 27 --Financial Data Schedule. 27a --Financial Data Schedule restated for September 30, 1997. 27b --Financial Data Schedule restated for June 30, 1997. 27c --Financial Data Schedule restated for March 31, 1997. 27d --Financial Data Schedule restated for December 31, 1996. 27e --Financial Data Schedule restated for September 30, 1996. 27f --Financial Data Schedule restated for June 30, 1996. 27g --Financial Data Schedule restated for March 31, 1996. 27h --Financial Data Schedule restated for December 31, 1995.
(b) Reports on Form 8-K during the quarter ended December 31, 1997, or subsequent to that date but prior to the filing date of this Form 10-K: FORM 8-K DATED FEBRUARY 10, 1998: Reporting under Item 5 that on February 10, 1998, the Board of Directors of HBO & Company declared a quarterly cash dividend of $.02 per share payable on April 22, 1998, to stockholders of record on March 31, 1998. Reporting under Item 5 of the unaudited combined operations for the first full month subsequent to the December 23, 1997, pooling acquisition of HPR Inc. and the December 29, 1997, pooling acquisition of National Health Enhancement Systems, Inc., as follows: revenue and net income for January 1998 was $100.0 million and $10.5 million, respectively; revenue and net income for January 1997 was $65.4 million and $5.5 million, respectively. 19 FORM 8-K DATED FEBRUARY 12, 1998: Reporting under Item 5 that on February 10, 1998, the Board of Directors of HBO & Company elected Charles W. McCall, HBOC president and chief executive officer, to replace Holcombe T. Green, Jr., as chairman of the board. Reporting under Item 5, the Company announced the formation of HBOC Ventures, Inc., an organization designed to provide venture capital to small companies with promising healthcare technologies. In conjunction with this, HBOC has entered into a letter agreement with The Ohio Partners, LLC, an Ohio based venture capital fund, whereby the companies plan to initially invest up to $30 million in several companies over the next three years. The funds will be jointly managed by The Ohio Partners, LLC and HBOC. 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of HBO & Company: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in HBO & Company's annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in item 14(a)2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia February 6, 1998 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HBO & COMPANY By: /s/ CHARLES W. MCCALL ----------------------------------------- Charles W. McCall CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER Date: February 28, 1998
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.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ CHARLES W. MCCALL Chairman of the Board of - ------------------------------ Directors, President and February 28, 1998 (Charles W. McCall) Chief Executive Officer President, Co-Chief Operating Officer, Chief /s/ JAY P. GILBERTSON Financial Officer, - ------------------------------ Treasurer, Principal February 28, 1998 (Jay P. Gilbertson) Accounting Officer and Secretary /s/ ALFRED C. ECKERT III - ------------------------------ Director February 28, 1998 (Alfred C. Eckert III) /s/ HOLCOMBE T. GREEN, JR. - ------------------------------ Director February 28, 1998 (Holcombe T. Green, Jr.) /s/ PHILIP A. INCARNATI - ------------------------------ Director February 28, 1998 (Philip A. Incarnati) /s/ ALTON F. IRBY III - ------------------------------ Director February 28, 1998 (Alton F. Irby III) /s/ GERALD E. MAYO - ------------------------------ Director February 28, 1998 (Gerald E. Mayo) /s/ JAMES V. NAPIER - ------------------------------ Director February 28, 1998 (James V. Napier) /s/ DONALD C. WEGMILLER - ------------------------------ Director February 28, 1998 (Donald C. Wegmiller)
22 SCHEDULE II HBO & COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (000 OMITTED)
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND DEDUCTIONS END OF PERIOD EXPENSES USE OF RESERVE ADJUSTMENTS PERIOD ------------ ----------- --------------- ------------- ----------- YEAR ENDED DECEMBER 31, 1995: Allowance for Doubtful Accounts............... $ 4,399 $ 3,262 $ 1,206 $ 5,246 $ 11,701 Inventory Reserves............................ $ 870 $ 2,075 $ 233 $ -- $ 2,712 YEAR ENDED DECEMBER 31, 1996: Allowance for Doubtful Accounts............... $ 11,701 $ 2,895 $ 2,697 $ -- $ 11,899 Inventory Reserves............................ $ 2,712 $ -- $ 2,217 $ -- $ 495 YEAR ENDED DECEMBER 31, 1997: Allowance for Doubtful Accounts............... $ 11,899 $ 4,188 $ 324 $ 5,000 $ 20,763 Inventory Reserves............................ $ 495 $ -- $ 495 $ -- $ --
23 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - --------------- ----------------------------------------------------------------------------------------------- 11 -- Computation of Earnings (Loss) Per Share of Common Stock for years ended December 31, 1997, 1996 and 1995............................................................................... 13 -- Annual Report to Stockholders for the year ended December 31, 1997.......................... 21 -- Subsidiaries of Registrant.................................................................. 23 -- Consent of Arthur Andersen LLP..............................................................
EX-11 2 EXHIBIT 11 EXHIBIT 11 HBO & COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (000 OMITTED EXCEPT FOR PER SHARE DATA)
1997 1996 1995 ---------- ---------- ---------- Weighted Average Number of Common Shares Outstanding......................... 208,511 202,400 185,030 ADD -- Shares of common stock assumed issued upon exercise of stock options using the "treasury stock" method as it applies to the computation of diluted earnings per share *............................................... 5,951 8,484 -- ---------- ---------- ---------- Number of Common and Common Equivalent Shares Outstanding.................... 214,462 210,884 185,030 Net Earnings (Loss) for Basic and Diluted Earnings (Loss) Per Share.................................................................. $ 143,537 $ 82,333 $ (7,895) ---------- ---------- ---------- ---------- ---------- ---------- Earnings (Loss) Per Share: Basic...................................................................... $ .69 $ .41 $ (.04) ---------- ---------- ---------- ---------- ---------- ---------- Diluted.................................................................... $ .67 $ .39 $ (.04) ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ * Common Equivalent Shares are not presented for 1995 because the effect is anti-dilutive. All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. EX-13 3 EXHIBIT 13 EXHIBIT 13 HBOC ANNUAL REPORT 1997 [LOGO] IMPROVING HEALTHCARE PERFORMANCE Contents Financial Highlights 2 Letter to Stockholders 3 Five-Year Selected Financial Information 5 Financial Review 6 Revenue by Business Region 10 Condensed Consolidated Quarterly Statements of Income 11 Consolidated Financial Statements 12 Notes to Consolidated Financial Statements 16 Common Stock Data 22 Report of Independent Public Accountants 23 Stockholder Information 23 Board of Directors and Corporate Officers 24 HBOC Offices Back
At HBOC, our people products and services have a primary goal: To serve health enterprises by putting the right information in the right hands at the right time. In all that we do, we are committed to a continuous pursuit of quality in fact and quality in perception, so that every product and service we offer is known as the best in the industry. From the HBOC Mission Statement. Company Profile For more than 20 years, HBOC has served the information systems needs of the health enterprise by providing leading-edge software solutions, technological innovation and comprehensive services. The Company's customers include integrated delivery networks, managed care organizations, physician practices and clinics, payors (insurance companies, HMOs, PPOs, etc.), home health agencies and hospitals. HBOC's products and services address virtually every need the enterprise has for integrated information, whether for patient care, financial, clinical, homecare, managed care or strategic management. Because the Company maintains a strong commitment to open systems architecture, its solutions can be implemented in a variety of combinations from stand-alone to enterprisewide, allowing customers to choose their own paths for reaching their information management goals. HBOC also provides a full complement of networking technologies and electronic commerce services as well as outsourcing services for managing business offices and information systems operations. HBOC's sole focus is the healthcare market. It is an industry leader in revenue and market share with products and services that serve more than 9,000 customers worldwide. Organizational Highlights - - Acquired Enterprise Systems, Inc., giving HBOC best-of-class solutions for enterprisewide materials management and resource management. - - Introduced Connect 2000-TM-, a network-based "thin-client" solution that significantly improves management of healthcare information technology resources. - - Announced the general availability of Pathways Decision Support, a decision-making tool for the enterprise and specialty settings. - - Launched EC2000, HBOC's electronic commerce service offering. - - Acquired AT&T's UK Specialist Healthcare Services Division, strengthening HBOC's leadership position in the United Kingdom. - - Took the lead position in the payor market with the acquisitions of HPR Inc. and AMISYS Managed Care Systems, Inc. By year-end, HBOC had more than 600 payor customers. - - Entered the community health management market with the acquisition of National Health Enhancement Systems, Inc., and a partnership with HealthDesk Corporation. Financial HIGHLIGHTS
- --------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------- (Operating Income, Net Income and Diluted Earnings Per Share Exclude Nonrecurring Charges) (000 Omitted Except Per Share Data and Employees) Revenue $1,203,204 $ 950,911 $ 715,902 $ 525,490 $ 409,354 Operating Income $ 318,058 $ 199,439 $ 113,718 $ 61,596 $ 33,967 Net Income $ 200,664 $ 124,456 $ 70,321 $ 38,650 $ 19,893 Diluted Earnings Per Share $ .94 $ .59 $ .36 $ .21 $ .11 Total Assets $1,312,586 $1,012,749 $ 771,550 $ 425,093 $ 296,781 Long-Term Debt $ 1,022 $ 769 $ 4,054 $ 15,067 $ 6,700 Stockholders' Equity $ 900,582 $ 650,646 $ 500,787 $ 215,848 $ 176,242 Employees at Year-End 6,286 5,417 5,030 4,019 3,306 Revenue Per Average Number of Employees $ 204 $ 182 $ 158 $ 143 $ 120
- ---------------- All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. [GRAPHIC] All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. EXTENDING THE LEAD TO OUR STOCKHOLDERS How do you top a winning performance? You set the bar higher. That's what HBOC did in 1997, using past successes as a springboard to set new financial performance records, make strategic moves in new and existing markets, and deliver solutions that are helping healthcare organizations of all sizes and shapes improve their performance. The results speak for themselves. HBOC finished 1997 as a billion-dollar company, with revenue topping $1.2 billion. Earnings per share was $0.94 excluding acquisition-related charges, an increase of 59 percent over 1996. The Board of Directors declared a two-for-one stock split and kept the quarterly dividend at $0.02 per share, in effect doubling the dividend payout. Standard & Poor's added the Company to its S&P 500 stock index, putting HBOC in the company of other highly regarded corporations. Strong demand for enterprise solutions fueled quarterly software sales of $100 million or more for three consecutive quarters. And to ensure that the Company has the proper infrastructure and leadership to support ongoing rapid growth into the 21st century, HBOC established an Office of the President that includes myself, Albert J. Bergonzi and Jay P. Gilbertson. The foundation of HBOC's success continues to be its ability to provide software solutions that span multiple care settings and help healthcare organizations improve quality while they reduce costs. With the increasing complexities created by managed care, more health enterprises than ever are looking to HBOC for "one-stop shopping" so obtain integrated, best-of-class solutions and the expertise to deploy them enterprisewide -- from hospitals and outpatient facilities to physician offices, home health agencies and payor entities. This is especially important as organizations seek ways to eliminate redundancy, automate manual processes, streamline access and move from a paradigm of healing sickness to managing health. Using an HBOC solution, the return on investment from such efforts can be substantial. For example, HBOC's Pathways Care Manager software, which allows caregivers to document care at the point of service, can help improve the speed and accuracy of clinical documentation. Organizations using HBOC's enterprisewide scheduling software report an increase in patient volume and caregiver productivity through more efficient, centralized scheduling of services. HBOC's materials management software often pays for itself within 18 to 24 months of deployment. And customers using the Company's decision support software have achieved multimillion-dollar annual savings through the use of clinical paths and other system capabilities. HBOC continues to take these efforts forward by expanding its product line to address strategic areas of the health enterprise, both through internal development of products such as Pathways Health Network Expert and Pathways Decision Support and by integrating acquired groups into the Company. For example, the 1997 addition of Enterprise Systems, Inc. not only brought new customers but provided HBOC with integrated, best-of-class resource management software that enables more efficient management of people, facilities, services, supplies and equipment across multiple care settings. The addition of National Health Enhancement Systems, Inc., placed HBOC squarely in the community health market, bringing solutions that include medical call centers, computer telephony, and demand and disease management software. Combined with Internet access to healthcare resources through a business partnership with HealthDesk Corporation, HBOC now offers health enterprises and "at-risk" organizations a powerful means to promote consumer health, ensure appropriate care and better manage the demand for high-cost, acute-care services. With the interests of providers and payors converging in at-risk environments, HBOC has also positioned itself to provide healthcare payors with the same breadth and depth of software solutions that it now offers provider organizations. Over the past two years through stock-based acquisitions valued at more than $700 million, HBOC has acquired leaders in the payor industry such as GMIS Inc., HPR Inc., and AMISYS Managed Care Systems, Inc. As a result, today HBOC is the only vendor with solutions that span the entire continuum of payor needs, from traditional financial and administrative systems to highly sophisticated, clinically oriented decision support. The Company's Payor Solutions Group has the largest customer base in the payor sector, with more than 600 customers representing approximately 150 million covered lives. In addition to broadening HBOC's market reach and expanding its portfolio, the Company continues to deliver on its integration commitment. Some 1997 successes include companywide use of a standard user desktop, the ability of home health professionals to view information collected in the hospital, and productive use of the enterprise repository to view laboratory results and other clinical data collected from feeder systems, enabling more informed clinical and business decisions. From a service perspective, HBOC is integrating its implementation groups through the adoption of best practices and companywide standard methodology, providing customers with a common "look and feel" regardless of products line. What can you expect in 1998? More of the same as HBOC moves forward on these and other initiatives to provide greater value to customers and stockholders. The market potential remains strong in both the provider and payor segments as organizations seek to improve their clinical and financial performance by automating and integrating the health enterprise. With leading-edge, integrated solutions and the backing of more than 6,200 employees committed to excellence, we believe we have what it takes to extend our lead in '98. /s/ Charles W. McCall - --------------------- Charles W. McCall Chairman, President & CEO February 6, 1998 FIVE-YEAR SELECTED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31 ---------------------------------------------------- 1997(1) 1996(2) 1995(3) 1994(4) 1993 ---------- ---------- -------- -------- -------- (000 OMITTED EXCEPT FOR %S, PER SHARE DATA, RATIOS, STOCKHOLDERS AND EMPLOYEES) OPERATIONS (EXCLUDING NONRECURRING CHARGES) Revenue................................................... $1,203,204 $ 950,911 $715,902 $525,490 $409,354 Operating Income.......................................... $ 318,058 $ 199,439 $113,718 $ 61,596 $ 33,967 Income Before Income Taxes................................ $ 334,440 $ 206,661 $114,323 $ 62,410 $ 37,837 Net Income................................................ $ 200,664 $ 124,456 $ 70,321 $ 38,650 $ 19,893 AS A PERCENT OF REVENUE (EXCLUDING NONRECURRING CHARGES) Operating Income.......................................... 26% 21% 16% 12% 8% Income Before Income Taxes................................ 28% 22% 16% 12% 9% Net Income................................................ 17% 13% 10% 7% 5% PERCENT CHANGE FROM PRIOR YEAR (EXCLUDING NONRECURRING CHARGES) Revenue................................................... 27% 33% 36% 28% 14% Operating Income.......................................... 59% 75% 85% 81% 1% Income Before Income Taxes................................ 62% 81% 83% 65% 13% Net Income................................................ 61% 77% 82% 94% (10)% SHARE INFORMATION (EXCLUDING NONRECURRING CHARGES) Stockholders of Record.................................... 3,231 2,993 3,056 3,124 3,170 Weighted Average Shares Outstanding (Diluted)............. 214,462 210,884 195,561 182,274 174,685 Diluted Earnings Per Share................................ $ .94 $ .59 $ .36 $ .21 $ .11 Cash Dividends Per Share.................................. $ .06 $ .04 $ .04 $ .04 $ .038 Book Value at Year-End Per Share.......................... $ 4.26 $ 3.18 $ 2.56 $ 1.28 $ 1.08 Stock Sale Price Per Share--High.......................... $ 48.63 $ 36.25 $ 21.63 $ 9.19 $ 5.78 --Low........................... $ 21.25 $ 16.38 $ 8.22 $ 4.69 $ 2.09 CAPITALIZED SOFTWARE Research and Development Expenditures..................... $ 123,729 $ 112,465 $ 94,921 $ 77,556 $ 62,726 Capitalized Software Expenditures......................... $ 34,670 $ 28,481 $ 26,628 $ 21,436 $ 19,007 Research and Development Capitalization Rate.............. 28% 25% 28% 28% 30% FINANCIAL RATIOS Return (excluding nonrecurring charges) on Average Stockholders' Equity......................... 26% 22% 20% 20% 12% Current Ratio............................................. 2.28:1 1.83:1 1.61:1 1.29:1 1.86:1 Long-Term Debt to Stockholders' Equity.................... -- -- .01:1 .07:1 .04:1 FINANCIAL POSITION AT YEAR-END Cash and Short-Term Investments........................... $ 437,458 $ 247,484 $154,622 $ 58,293 $ 91,833 Working Capital........................................... $ 519,140 $ 295,240 $156,488 $ 53,330 $ 89,723 Total Assets.............................................. $1,312,586 $1,012,749 $771,550 $425,093 $296,781 Long-Term Debt............................................ $ 1,022 $ 769 $ 4,054 $ 15,067 $ 6,700 Stockholders' Equity...................................... $ 900,582 $ 650,646 $500,787 $215,848 $176,242 ---------- ---------- -------- -------- -------- ---------- ---------- -------- -------- -------- OTHER FINANCIAL INFORMATION Employees at Year-End..................................... 6,286 5,417 5,030 4,019 3,306 Revenue Per Average Number of Employees................... $ 204 $ 182 $ 158 $ 143 $ 120
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. Periods prior to October 1997 do not include the purchase acquisition of AT&T's UK Specialist Healthcare Services Division. Periods prior to January 1997 do not include the purchase acquisition of Gemini, Ltd. Periods prior to June 1995 do not include the purchase acquisition of First Data Health Systems Corporation. Periods prior to May 1994 do not include the purchase acquisition of IBAX Healthcare Systems. All share and per share amounts have been restated to reflect the 1997 stock split effected in the form of a stock dividend. (1) 1997 Income Statement related items exclude the nonrecurring charge of $95,250. The Net Income is $143,537 and Diluted Earnings Per Share is $.67 including the nonrecurring charge. (2) 1996 Income Statement related items exclude the nonrecurring charge of $70,203. The Net Income is $82,333 and Diluted Earnings Per Share is $.39 including the nonrecurring charge. (3) 1995 Income Statement related items exclude the nonrecurring charge of $130,270. The Net Loss is ($7,895) and Diluted Loss Per Share is ($.04) including the nonrecurring charge. (4) 1994 Income Statement related items exclude the nonrecurring charge of $6,927. The Net Income is $34,500 and Diluted Earnings Per Share is $.19 including the nonrecurring charge. FINANCIAL REVIEW GENERAL Unless stated otherwise, all expense, income and per share amounts exclude the following nonrecurring charges and include the dilutive effect of stock options where appropriate: $95.3 million in 1997, $70.2 million in 1996, and $130.3 million in 1995. All prior period financial information has been restated for acquisitions accounted for as poolings of interests. Unless otherwise noted, management's discussion of financial results is based on restated figures excluding nonrecurring charges. Once again in 1997, HBO & Company ("the Company" or "HBOC") achieved record revenue and earnings. For 1997, the Company posted earnings per share of $.94, a 59% increase over earnings per share of $.59 for 1996. The significant increase in earnings per share resulted from strong revenue growth, to $1.2 billion in 1997 from $951 million in 1996, an increase of 27%, and an increase in operating income as a percent of revenue to 26% in 1997 compared to 21% in 1996. Including nonrecurring charges, net income was $143.5 million in 1997 and $82.3 million in 1996, and net loss was $7.9 million in 1995. Including nonrecurring charges (and excluding the dilutive effect of stock options for 1995), earnings per share for 1997 was $.67 compared to $.39 in 1996 and a loss per share of $(.04) in 1995. The Company's operating expense continued to grow at a slower rate than revenue due to increased software sales, successful cost-control programs and productivity enhancements. The Company continues to improve employee productivity, with 1997 revenue per average number of employees of $203,700, an increase from $181,600 for 1996 and $158,200 for 1995. RESULTS OF OPERATIONS The following table presents annual comparative income statements excluding acquisition-related nonrecurring charges.
PERCENT OF PERCENT OF PERCENT OF 1997 REVENUE 1996 REVENUE 1995 REVENUE ------------ ------------- ---------- ------------- ---------- ------------- (000 OMITTED EXCEPT FOR PER SHARE DATA) Revenue.......................................... $ 1,203,204 100% $ 950,911 100% $ 715,902 100% Cost of Operations............................... 511,082 43% 413,471 43% 329,684 46% Marketing........................................ 176,194 15% 146,207 16% 114,994 16% Research and Development......................... 89,059 7% 83,984 9% 68,293 10% General and Administrative....................... 108,811 9% 107,810 11% 89,213 12% ------------ --- ---------- --- ---------- --- Total Operating Expense...................... 885,146 74% 751,472 79% 602,184 84% ------------ --- ---------- --- ---------- --- Operating Income................................. 318,058 26% 199,439 21% 113,718 16% Other Income, Net................................ 16,382 2% 7,222 1% 605 0% ------------ --- ---------- --- ---------- --- Income Before Income Taxes....................... 334,440 28% 206,661 22% 114,323 16% Provision for Income Taxes....................... 133,776 11% 82,205 9% 44,002 6% ------------ --- ---------- --- ---------- --- Net Income....................................... $ 200,664 17% $ 124,456 13% $ 70,321 10% ------------ --- ---------- --- ---------- --- ------------ --- ---------- --- ---------- --- Earnings Per Share: Basic.......................................... $ .96 $ .61 $ .38 Diluted........................................ $ .94 $ .59 $ .36 Weighted Average Shares Outstanding: Basic.......................................... 208,511 202,400 185,030 Diluted........................................ 214,462 210,884 195,561
In 1997, the Company completed the pooling acquisitions of AMISYS Managed Care Systems, Inc. (AMISYS), Enterprise Systems, Inc. (ESi), HPR Inc. (HPR), and National Health Enhancement Systems, Inc. (NHES). The Company also acquired AT&T's UK Specialist Healthcare Services Division (AT&T Healthcare) in a purchase transaction. These strategic acquisitions have expanded the Company's product and customer base into markets that had previously been largely untapped by the Company. The non-dilutive effect of these acquisitions demonstrates HBOC's ability to leverage its strong sales and distribution network and quickly introduce new products into its broad portfolio of product and service offerings. The Company ended 1997 with a strong backlog. At December 31, 1997, system sales not yet delivered and installed totaled $207 million in revenue. Future contracted outsourcing fees totaled $194 million, and future payments under monthly service fee agreements totaled more than $2 million. In addition, the Company derives significant revenue from maintenance and support contracts that automatically renew unless canceled, as well as recurring revenue from multiyear remote and electronic processing contracts. The Company continues to maintain a healthy liquidity position. Cash and short-term investments grew to $437 million at December 31, 1997, from $247 million at December 31, 1996. Cash flow from operations was $263 million for 1997, an increase of 86% over 1996; $90 million of cash was utilized in investing activities, and $54 million of cash was provided by net financing activities. HBOC financed all 1997 acquisitions through equity or with cash from operations and had no bank debt at year-end. YEARS ENDED DECEMBER 31, 1997 AND 1996 Revenue increased 27% to $1.2 billion in 1997 from $951 million in 1996. This growth was mainly due to significant increases in sales of enterprise client/server software, hardware and services. Software revenue grew 35% to $439 million in 1997, compared to $325 million in 1996. Software revenue as a percent of total revenue increased to 37% in 1997 compared to 34% in 1996. These increases were primarily due to the continuing strong demand for the Pathways 2000-Registered Trademark- line of enterprise solutions, including strong homecare product sales and increased sales of HBOC's materials management products. The Company also experienced strong growth in software revenue for payor solutions due to the integration of the existing payor solutions applications and the 1997 acquisition of HPR. The growth in sales of products from acquired companies demonstrates not only the Company's ability to transition and quickly integrate products into its portfolio, but also the desire for customers to partner with a single vendor for solutions that span the continuum of care. Hardware revenue increased 22% to $180 million in 1997 compared to $147 million in 1996. This increase resulted primarily from strong sales of RISC-based processors sold in conjunction with enterprise solutions software. The Company continues to support an open systems approach with the ability to support multiple networking options as well as the leading hardware platforms. Systems revenue, which represents all software and hardware revenue, increased slightly to 51% of total revenue in 1997 from 50% in 1996. Implementation and other one-time services revenue increased 34% in 1997 over 1996 and represented 16% of total revenue in 1997 compared to 15% in 1996. The revenue increase primarily reflects the increase in implementations resulting from strong system sales. Installation and implementation services are provided for purchasers of all HBOC software products to assist with the smooth deployment and integration of the Company's solutions. Maintenance and support revenue increased 14% in 1997 from 1996 and represented 20% of total revenue in 1997 compared to 22% in 1996. The increase for 1997 was primarily due to growth in existing product lines and the expansion of the maintenance customer base to include newly acquired product lines. To manage this growth, the Company is now using a single support system that allows faster resolution of issues that cross product lines and presents users with a common "look and feel" for all HBOC support processes. Outsourcing services revenue increased 53% in 1997, due primarily to a full year of revenue from HBOC's new UK data center that performs computer processing operations for healthcare providers in the South Thames region of the United Kingdom. The Company also experienced growth in revenue from its claims and remote processing operations. In 1997, the AICPA issued SOP 97-2, Software Revenue Recognition. Although SOP 97-2 is not effective until 1998, HBOC has been reviewing the exposure drafts for over a year to ensure that the adoption of the SOP would not have an adverse effect on the Company's revenue. See the Notes to Financial Statements for an explanation of the Company's revenue recognition policy. Cost of operations as a percent of revenue remained constant at 43% in 1997 and 1996. Hardware margins improved slightly in 1997 compared to 1996. Cost of operations expense increased 24% in 1997 primarily due to increased hardware costs associated with the growth in hardware sales, increased software royalties expense due to increases in software sales and increased implementation, support and outsourcing personnel expense due to the overall growth of the Company. Marketing expense as a percent of revenue decreased to 15% for 1997 from 16% for 1996. Actual marketing expense increased 21% in 1997 over 1996, primarily due to higher personnel and travel expense directly related to the growth in size and revenue of the Company. Research and development (R&D) expense as a percent of revenue decreased to 7% in 1997 compared to 9% in 1996. The R&D capitalization rate increased to 28% in 1997 from 25% in 1996. The R&D capitalization rate increased due to the combination of a lower rate in 1996 from restatements of prior periods due to acquisitions (the 1995 rate was 28%) and increased capitalization in newly acquired groups due to HBOC's integration strategy. Actual R&D expense increased 6% from 1996, mainly due to additional personnel for new product development. General and administrative (G&A) expense as a percent of revenue decreased to 9% for 1997 compared to 11% for 1996 as the Company continued to leverage its fixed costs against its growing revenue. The Company also continues to reduce costs as newly acquired groups are quickly integrated. Actual G&A expense increased less than 1% in 1997 primarily due to increased facilities costs and increased personnel expense due to growth of the Company. Operating expense grew at a slower rate than revenue in 1997 compared to 1996 due to strong high-margin software sales, successful cost-control programs and productivity enhancements. Total operating income increased 59% compared to 1996. In addition, operating income as a percent of revenue increased to 26% in 1997 from 21% in 1996. These increases represent a significant growth in volume and increased efficiency in operations. Including nonrecurring charges, total operating income increased 72% in 1997 from 1996, and operating income as a percent of revenue increased to 19% in 1997 from 14% in 1996. YEARS ENDED DECEMBER 31, 1996 AND 1995 Revenue in 1996 increased 33% over 1995 due to increased sales of enterprise systems, hardware and services. For 1996, cost of operations expense as a percent of revenue decreased to 43% from 46% in 1995. This decrease was mostly in the area of personnel expense resulting from employee productivity enhancements. Total cost of operations expense increased over 1995 primarily due to higher personnel expense, higher hardware costs and software royalty fees, and increased facilities expense. Cost of operations expense also increased due to costs associated with 1995 purchase acquisitions such as the cost of the Charlotte Product Group (CPG) data center, and hardware and software maintenance expense. Marketing expense as a percent of revenue remained constant at 16% for 1996 and 1995. Actual marketing expense increased in 1996 over 1995 primarily due to higher personnel and commission expense directly related to the growth in size and revenue of the Company. R&D expense as a percent of revenue decreased to 9% in 1996 from 10% in 1995. The R&D capitalization rate decreased to 25% for 1996 from 28% in 1995. Actual R&D expense increased in 1996 mainly due to additional personnel expense for product development. G&A expense as a percent of revenue decreased to 11% in 1996 compared to 12% in 1995 as the Company continued to realize synergies from acquisitions. Actual G&A expense increased in 1996 primarily due to increased facilities costs and increased personnel expense resulting from acquisitions and growth of the Company. Total operating income as a percent of revenue increased significantly to 21% in 1996 from 16% in 1995. This was the result of increased sales of high-margin software and a continuing effort to increase the efficiency of operations and personnel. Including nonrecurring charges, operating income as a percent of revenue increased to 14% in 1996 from (2%) in 1995. NONRECURRING CHARGES HBOC recorded nonrecurring charges of $95.3 million in 1997 related to the pooling acquisitions of AMISYS, ESi, HPR and NHES, and the purchase acquisition of AT&T Healthcare. These charges consisted of the write-down of long-lived assets of $33.6 million, severance and employee-related costs of $19.6 million, transaction costs of $13.2 million, product-related costs of $21.2 million and purchased research and development costs of $7.7 million. In 1996, the Company recorded nonrecurring charges totaling $70.2 million primarily related to the pooling acquisitions of CyCare Systems, Inc. (CyCare), Management Software, Inc. (MSI), GMIS, and ESi's acquisition of the materials management division of Continental Healthcare Systems, Inc. These charges consisted of transaction costs of $11.4 million, a write-down of long-lived assets of $38.5 million, severance and employee-related costs of $7.1 million and other product-related costs of $13.2 million. In 1995, the Company recorded nonrecurring charges totaling $130 million primarily related to the purchase acquisition of First Data Health Systems Corporation (now known as CPG) and the pooling acquisition of CliniCom Incorporated. These charges consisted mainly of purchased research and development costs related to the purchase of CPG, severance and other acquisition-related costs. TAXES Including the nonrecurring charges, the effective tax rate for 1997 and 1996 was 40%, and for 1995, 50%. A comparison of the 1996 and 1995 effective rates is affected by the pooling acquisition of MSI, which was a Subchapter S corporation and therefore did not provide for corporate taxes on a historical basis. SHARES In 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings Per Share. The Company has adopted the new guidelines for the calculation and presentation of earnings per share. All prior period per share amounts have been restated to conform to the new guidelines. Basic and diluted weighted average shares outstanding both increased in 1997 from 1996 mainly due to shares issued under employee stock option and purchase programs. Diluted average shares outstanding increased in 1996 from 1995 due to the issuance of shares in connection with the employee stock option and purchase programs and the dilutive effect of stock options (a net loss was realized in 1995). YEAR 2000 Software applications that use only two digits to identify a year may fail or create errors in the year 2000 (the "Year 2000 issue"). HBOC began evaluating the Year 2000 issue in 1994 and is currently continuing such efforts. The Company has implemented upgrades to a substantial portion of its products to address the Year 2000 issue. HBOC is currently evaluating the status of each of its products which is not, at present, Year 2000 compliant and anticipates that it will be able to substantially quantify its costs and required actions later in 1998. Although to date the expense of upgrading product applications to make them Year 2000 compliant has not been material, there can be no assurance that HBOC will not incur material costs with respect to such issues in the future. In addition, the Company has plans in place to make all critical internal systems Year 2000 compliant by the end of 1998 and anticipates that it will incur non-material costs to do so. INFLATION HBOC is affected by inflation through increased salaries, benefits and other operating and administrative expenses. To the extent permitted by the marketplace, the Company attempts to pass on increasing costs by periodically increasing prices of products and services. Standard software maintenance and support agreements contain clauses allowing the Company to increase fees annually to reflect changes in costs. Other products and services are generally contracted for short periods and are therefore not exposed to inflationary pressure. LIQUIDITY AND CAPITAL RESOURCES The Company continues to improve the strength and quality of its balance sheet. At December 31, 1997, HBOC had $437 million in cash and short-term investments compared to $247 million at December 31, 1996. During 1997, the Company declared a stock split effected in the form of a stock dividend and because of strong liquidity, maintained a $0.02 per share post-split quarterly dividend, effectively doubling the dividend payout. With strong cash and liquid assets, no bank debt and an improving current ratio, the Company remains well positioned for continued growth. During 1997, the Company generated $263 million in cash flow from operations, used $90 million in investing activities and provided $54 million from net financing activities. As a result of this cash activity, the Company's cash balance increased 111% to $432 million at December 31, 1997, from $205 million at December 31, 1996. The Company's current ratio increased to 2.3:1 at December 31, 1997, from 1.8:1 at December 31, 1996. Current assets increased $274 million, mainly reflecting increases in receivables and cash. The Company's management places a high priority on the area of receivables, and the Company continues to maintain a low delinquency rate. Current liabilities increased $50 million due to an increase in acquisition-related accruals, deferred revenue and income taxes payable. The Company is planning to use cash on hand to finance the building of its new headquarters scheduled to be completed during 1999. The Company has also formed HBOC Ventures, Inc., an organization designed to provide venture capital to small companies with promising healthcare technologies. The Company has access to several financing sources, including a $5 million line of credit and a $50 million revolving credit agreement. As of December 31, 1997, there were no outstanding balances on either. The Company has the ability to and does occasionally sell customer receivables. Management believes that the Company's existing cash and short-term investment balances, anticipated cash flow from operations and amounts available under existing credit arrangements are sufficient to meet ongoing operational and capital expenditure requirements, fund R&D efforts and cover costs associated with future equity acquisitions and small acquisitions for cash. FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements, which are qualified by the risks and uncertainties described from time to time in HBOC's reports filed with the Securities and Exchange Commission, including the 1997 Annual Report on Form 10-K. REVENUE BY BUSINESS REGION
1997 -------------------------------------------------------- NORTH AMERICA INTERNATIONAL TOTAL REVENUE PERCENT -------------- ------------ ------------- ----------- (000 OMITTED EXCEPT FOR %S) SYSTEMS REVENUE Software................................................. $ 436,903 $ 2,477 $ 439,380 37% Hardware................................................. 176,493 3,096 179,589 14% -------------- ------------ ------------- --- Total Systems Revenue.................................. 613,396 5,573 618,969 51% -------------- ------------ ------------- --- SERVICES REVENUE One-Time Services........................................ 182,255 11,029 193,284 16% Recurring Services....................................... 356,814 34,137 390,951 33% -------------- ------------ ------------- --- Total Services Revenue................................. 539,069 45,166 584,235 49% -------------- ------------ ------------- --- TOTAL REVENUE.............................................. $ 1,152,465 $ 50,739 $ 1,203,204 100% -------------- ------------ ------------- --- -------------- ------------ ------------- ---
1996 -------------------------------------------------------- NORTH AMERICA INTERNATIONAL TOTAL REVENUE PERCENT -------------- ------------ ------------- ----------- (000 OMITTED EXCEPT FOR %S) SYSTEMS REVENUE Software................................................. $ 320,331 $ 4,797 $ 325,128 34% Hardware................................................. 144,957 1,944 146,901 16% -------------- ------------ ------------- --- Total Systems Revenue.................................. 465,288 6,741 472,029 50% -------------- ------------ ------------- --- SERVICES REVENUE One-Time Services........................................ 137,095 7,310 144,405 15% Recurring Services....................................... 320,397 14,080 334,477 35% -------------- ------------ ------------- --- Total Services Revenue................................. 457,492 21,390 478,882 50% -------------- ------------ ------------- --- TOTAL REVENUE.............................................. $ 922,780 $ 28,131 $ 950,911 100% -------------- ------------ ------------- --- -------------- ------------ ------------- ---
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. CONDENSED CONSOLIDATED QUARTERLY STATEMENTS OF INCOME (UNAUDITED)
1997 ------------------------------------------------------------ QUARTER ---------------------------------------------- 1ST 2ND 3RD 4TH TOTAL ---------- ---------- ---------- ---------- ------------ (000 OMITTED EXCEPT FOR PER SHARE DATA) REVENUE............................................ $ 263,292 $ 291,494 $ 307,176 $ 341,242 $ 1,203,204 Operating Expense.................................. 201,894 216,963 223,302 242,987 885,146 Nonrecurring Charge................................ -- 35,420 -- 59,830 95,250 ---------- ---------- ---------- ---------- ------------ OPERATING INCOME................................... 61,398 39,111 83,874 38,425 222,808 Other Income, Net.................................. 2,610 4,525 4,471 4,776 16,382 ---------- ---------- ---------- ---------- ------------ Income Before Income Taxes......................... 64,008 43,636 88,345 43,201 239,190 Provision for Income Taxes......................... 25,632 17,524 35,137 17,360 95,653 ---------- ---------- ---------- ---------- ------------ NET INCOME......................................... $ 38,376 $ 26,112 $ 53,208 $ 25,841 $ 143,537 ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ------------ EARNINGS PER SHARE: Basic............................................ $ .19 $ .13 $ .25 $ .12 $ .69 Diluted.......................................... $ .18 $ .12 $ .25 $ .12 $ .67 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic............................................ 205,584 207,942 209,541 210,932 208,511 Diluted.......................................... 213,509 214,387 216,587 218,094 214,462 CASH DIVIDENDS DECLARED PER SHARE.................. $ .01 $ .01 $ .02 $ .02 $ .06
1996 ------------------------------------------------------------ QUARTER ---------------------------------------------- 1ST 2ND 3RD 4TH TOTAL ---------- ---------- ---------- ---------- ------------ (000 OMITTED EXCEPT FOR PER SHARE DATA) REVENUE............................................ $ 203,706 $ 231,481 $ 246,869 $ 268,855 $ 950,911 Operating Expense.................................. 166,586 185,070 192,586 207,230 751,472 Nonrecurring Charge................................ -- 8,789 26,214 35,200 70,203 ---------- ---------- ---------- ---------- ------------ OPERATING INCOME................................... 37,120 37,622 28,069 26,425 129,236 Other Income, Net.................................. 1,705 1,652 1,590 2,275 7,222 ---------- ---------- ---------- ---------- ------------ Income Before Income Taxes......................... 38,825 39,274 29,659 28,700 136,458 Provision for Income Taxes......................... 15,211 15,488 11,889 11,537 54,125 ---------- ---------- ---------- ---------- ------------ NET INCOME......................................... $ 23,614 $ 23,786 $ 17,770 $ 17,163 $ 82,333 ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ------------ EARNINGS PER SHARE: Basic............................................ $ .12 $ .12 $ .09 $ .08 $ .41 Diluted.......................................... $ .11 $ .11 $ .08 $ .08 $ .39 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic............................................ 200,677 201,541 202,382 204,284 202,400 Diluted.......................................... 209,554 211,379 211,368 212,788 210,884 CASH DIVIDENDS DECLARED PER SHARE.................. $ .01 $ .01 $ .01 $ .01 $ .04
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 ------------------------------------ 1997 1996 1995 ------------ ---------- ---------- (000 OMITTED EXCEPT FOR PER SHARE DATA) REVENUE: Systems.................................................................. $ 618,969 $ 472,029 $ 330,933 Services................................................................. 584,235 478,882 384,969 ------------ ---------- ---------- Total Revenue.......................................................... 1,203,204 950,911 715,902 OPERATING EXPENSE: Cost of Operations....................................................... 511,082 413,471 329,684 Marketing................................................................ 176,194 146,207 114,994 Research and Development................................................. 89,059 83,984 68,293 General and Administrative............................................... 108,811 107,810 89,213 Nonrecurring Charge*..................................................... 95,250 70,203 130,270 ------------ ---------- ---------- Total Operating Expense................................................ 980,396 821,675 732,454 ------------ ---------- ---------- OPERATING INCOME (LOSS).................................................... 222,808 129,236 (16,552) Other Income, Net.......................................................... 16,382 7,222 605 ------------ ---------- ---------- Income (Loss) Before Income Taxes.......................................... 239,190 136,458 (15,947) Provision (Credit) for Income Taxes........................................ 95,653 54,125 (8,052) ------------ ---------- ---------- NET INCOME (LOSS).......................................................... $ 143,537 $ 82,333 $ (7,895) ------------ ---------- ---------- ------------ ---------- ---------- EARNINGS (LOSS) PER SHARE: Basic.................................................................... $ .69 $ .41 $ (.04) Diluted.................................................................. $ .67 $ .39 $ (.04) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic.................................................................... 208,511 202,400 185,030 Diluted.................................................................. 214,462 210,884 185,030
- ------------------------ * The Nonrecurring Charges consist of costs associated with the Company's acquisitions. All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------ 1997 1996 ----------- ----------- (000 OMITTED) ASSETS CURRENT ASSETS: Cash and Cash Equivalents................................................ $ 432,477 $ 204,952 Short-Term Investments................................................... 4,981 42,532 Receivables, Net of Allowance For Doubtful Accounts of $20,763 and $11,899 in 1997 and 1996............................................... 421,876 351,458 Current Deferred Income Taxes............................................ 36,311 25,020 Inventories.............................................................. 6,513 7,406 Prepaids and Other Current Assets........................................ 21,515 18,152 ----------- ----------- Total Current Assets................................................... 923,673 649,520 INTANGIBLES Net of Accumulated Amortization of $48,559 and $32,974 in 1997 and 1996................................................................... 174,233 181,927 CAPITALIZED SOFTWARE Net of Accumulated Amortization of $50,618 and $43,290 in 1997 and 1996................................................................... 69,535 65,368 PROPERTY AND EQUIPMENT Net of Accumulated Depreciation of $102,295 and $113,635 in 1997 and 1996................................................................... 101,409 59,903 DEFERRED INCOME TAXES...................................................... 36,600 39,899 OTHER NONCURRENT ASSETS, NET............................................... 7,136 16,132 ----------- ----------- TOTAL ASSETS............................................................... $ 1,312,586 $ 1,012,749 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Deferred Revenue......................................................... $ 125,399 $ 104,817 Other Current Liabilities................................................ 279,134 249,463 ----------- ----------- Total Current Liabilities.............................................. 404,533 354,280 LONG-TERM DEBT............................................................. 1,022 769 OTHER LONG-TERM LIABILITIES................................................ 6,449 7,054 ----------- ----------- Total Liabilities...................................................... 412,004 362,103 ----------- ----------- COMMITMENTS AND CONTINGENCIES ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock, 1,000 Shares Authorized and No Shares Issued in 1997 and 1996................................................................... -- -- Common Stock, $.05 Par Value, 250,000 Shares Authorized; 211,380 and 140,794 Shares Issued in 1997 and 1996................................. 10,569 7,040 Additional Paid-in Capital............................................... 574,863 536,328 Retained Earnings........................................................ 315,150 187,012 ----------- ----------- 900,582 730,380 Treasury Stock, at Cost (0 and 33,283 Shares in 1997 and 1996)........... -- (79,734) ----------- ----------- Total Stockholders' Equity............................................. 900,582 650,646 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 1,312,586 $ 1,012,749 ----------- ----------- ----------- -----------
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------------------------------------------- COMMON STOCK SHARES ADDITIONAL ------------------------------------- COMMON PAID-IN RETAINED TREASURY ISSUED TREASURY OUTSTANDING STOCK CAPITAL EARNINGS STOCK --------- ----------- ------------- ----------- ----------- ----------- ----------- (000 OMITTED) BALANCE, DECEMBER 31, 1994....... 71,772 20,174 51,598 $ 3,588 $ 181,926 $ 128,772 $ (98,714) Common Stock Issued: Business Combination......... 4,000 (19) 4,019 200 199,906 -- 490 Conversion of Class A Stock...................... 1,680 -- 1,680 84 2,316 -- -- Public Offering.............. 1,783 -- 1,783 87 60,828 -- -- Stock Options Exercised-- Including Related Tax Benefits................... 325 (1,018) 1,343 17 31,931 (928) 6,791 Employee Stock Purchase Plan....................... 22 (114) 136 -- 1,374 -- 727 Purchase of Treasury Stock..... (26) 69 (95) -- (530) -- (1,997) Other.......................... (26) (7) (19) -- (115) (108) 72 Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... -- -- -- -- -- 8 -- Cash Dividends Declared ($.04 Per Share)............. -- -- -- -- -- (8,043) -- Net Loss for the Year.......... -- -- -- -- -- (7,895) -- --------- ----------- ------------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1995....... 79,530 19,085 60,445 3,976 477,636 111,806 (92,631) Common Stock Issued: Conversion of Preferred Stock........................ 3,315 -- 3,315 166 -- -- -- Public Offering.............. 1,145 -- 1,145 58 17,920 -- -- Stock Options Exercised-- Including Related Tax Benefits................... 1,067 (1,222) 2,289 53 33,458 -- 3,292 Employee Stock Purchase Plan....................... 14 (198) 212 1 3,251 -- 481 Purchase of Treasury Stock..... 4 42 (38) -- -- -- (1,031) Retirement of Treasury Stock... (885) (885) -- (44) (10,111) -- 10,155 Other.......................... 7 (17) 24 -- 336 955 -- Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... -- -- -- -- -- 900 -- Tax Adjustment for MSI Acquisition.................. -- -- -- -- 16,668 -- -- Cash Dividends Declared ($.04 Per Share)............. -- -- -- -- -- (8,982) -- Effect of Two-for-One Stock Split........................ 56,597 16,478 40,119 2,830 (2,830) -- -- Net Income for the Year........ -- -- -- -- -- 82,333 -- --------- ----------- ------------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1996....... 140,794 33,283 107,511 7,040 536,328 187,012 (79,734) Common Stock Issued: Conversion of Preferred Stock.... 154 -- 154 8 (8) -- -- Stock Offering............... 114 -- 114 6 2,494 -- -- Stock Options Exercised-- Including Related Tax Benefits................... 1,661 (2,220) 3,881 24 101,124 -- 5,431 Employee Stock Purchase Plan....................... 21 (151) 172 1 6,253 -- 368 Purchase of Treasury Stock..... (8) 18 (26) -- -- -- (572) Retirement of Treasury Stock... (30,930) (30,930) -- (1,489) (71,181) (1,837) 74,507 Other.......................... 38 -- 38 2 4,830 (654) -- Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... -- -- -- -- -- (900) -- Cash Dividends Declared ($.06 Per Share)............. -- -- -- -- -- (12,008) -- Effect of Two-for-One Stock Split........................ 99,536 -- 99,536 4,977 (4,977) -- -- Net Income for the Year........ -- -- -- -- -- 143,537 -- --------- ----------- ------------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997....... 211,380 -- 211,380 $ 10,569 $ 574,863 $ 315,150 $ -- --------- ----------- ------------- ----------- ----------- ----------- ----------- --------- ----------- ------------- ----------- ----------- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE, DECEMBER 31, 1994....... $ 215,572 Common Stock Issued: Business Combination......... 200,596 Conversion of Class A Stock...................... 2,400 Public Offering.............. 60,915 Stock Options Exercised-- Including Related Tax Benefits................... 37,811 Employee Stock Purchase Plan....................... 2,101 Purchase of Treasury Stock..... (2,527) Other.......................... (151) Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... 8 Cash Dividends Declared ($.04 Per Share)............. (8,043) Net Loss for the Year.......... (7,895) ------------- BALANCE, DECEMBER 31, 1995....... 500,787 Common Stock Issued: Conversion of Preferred Stock........................ 166 Public Offering.............. 17,978 Stock Options Exercised-- Including Related Tax Benefits................... 36,803 Employee Stock Purchase Plan....................... 3,733 Purchase of Treasury Stock..... (1,031) Retirement of Treasury Stock... -- Other.......................... 1,291 Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... 900 Tax Adjustment for MSI Acquisition.................. 16,668 Cash Dividends Declared ($.04 Per Share)............. (8,982) Effect of Two-for-One Stock Split........................ -- Net Income for the Year........ 82,333 ------------- BALANCE, DECEMBER 31, 1996....... 650,646 Common Stock Issued: Conversion of Preferred Stock.... -- Stock Offering............... 2,500 Stock Options Exercised-- Including Related Tax Benefits................... 106,579 Employee Stock Purchase Plan....................... 6,622 Purchase of Treasury Stock..... (572) Retirement of Treasury Stock... -- Other.......................... 4,178 Net Change in Unrealized Gain/Loss on Investments Available-for-Sale........... (900) Cash Dividends Declared ($.06 Per Share)............. (12,008) Effect of Two-for-One Stock Split........................ -- Net Income for the Year........ 143,537 ------------- BALANCE, DECEMBER 31, 1997....... $ 900,582 ------------- -------------
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ------------------------------- 1997 1996 1995 --------- --------- --------- (000 OMITTED) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) for the Year................................................. $ 143,537 $ 82,333 $ (7,895) --------- --------- --------- Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Nonrecurring Charges......................................................... 95,250 70,203 130,270 Depreciation and Amortization................................................ 62,367 55,497 46,795 Loss on Sale of Assets....................................................... 2,009 -- -- Provision (Credit) for Noncurrent Deferred Income Taxes...................... 2,952 2,982 (1,461) Changes in Assets and Liabilities, Net of Acquisitions: Receivables, Net........................................................... (65,837) (132,109) (28,079) Current Deferred Income Taxes.............................................. (5,069) (6,367) (12,643) Inventories................................................................ 441 500 (5,220) Prepaids and Other Current Assets.......................................... (10,624) 7,890 5,085 Noncurrent Deferred Income Tax............................................. (2,413) (2,639) (24,330) Other Noncurrent Assets.................................................... 2,800 (796) (74) Deferred Revenue........................................................... 16,186 17,055 21,204 Other Current Liabilities.................................................. 21,982 46,640 (13,126) Other, Net................................................................... (376) 179 (27) --------- --------- --------- Total Adjustments........................................................ 119,668 59,035 118,394 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................................ 263,205 141,368 110,499 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Property and Equipment................................................. 3,755 1,278 823 Capital Expenditures........................................................... (63,068) (27,868) (20,750) Capitalized Software........................................................... (34,670) (28,481) (26,628) Purchases of Businesses, Net of Cash Acquired.................................. (39,964) (21,862) (12,694) Proceeds from Sale or Maturity of Investments.................................. 106,065 90,717 5,622 Purchase of Investments........................................................ (61,371) (96,559) (50,717) Other.......................................................................... (490) 1,890 (1,274) --------- --------- --------- Net Cash Used in Investing Activities.................................... (89,743) (80,885) (105,618) --------- --------- --------- NET CASH PROVIDED BEFORE FINANCING ACTIVITIES............................ 173,462 60,483 4,881 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-Term Debt................................................... -- -- 70,500 Repayment of Long-Term Debt and Capital Leases................................. (1,626) (6,149) (82,729) Net Repayment of Short-Term Debt............................................... -- -- (12,139) Proceeds from Issuance of Common Stock......................................... 65,856 47,983 85,617 Purchase of Treasury Stock..................................................... (572) (1,031) (2,527) Payment of Dividends........................................................... (9,595) (8,774) (7,710) --------- --------- --------- Net Cash Provided by Financing Activities................................ 54,063 32,029 51,012 --------- --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS............................................ 227,525 92,512 55,893 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 204,952 112,440 56,547 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR......................................... $ 432,477 $ 204,952 $ 112,440 --------- --------- --------- --------- --------- --------- CASH PAID DURING THE YEAR FOR: Interest....................................................................... $ 131 $ 1,001 $ 4,972 Income Taxes................................................................... $ 39,766 $ 32,878 $ 15,643
- ------------------------ All prior period amounts have been restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., in pooling transactions. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The consolidated financial statements include the accounts of HBO & Company and its wholly owned subsidiaries, collectively referred to as "the Company" or "HBOC." All significant intercompany transactions and balances have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to current presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION HBOC delivers enterprisewide patient care, clinical, financial, managed care, payor and strategic management software solutions, as well as networking technologies, electronic commerce, outsourcing and other services to healthcare organizations throughout the U.S. and certain foreign countries. The American Institute of Certified Public Accountants has issued Statement of Position (SOP) 97-2, Software Revenue Recognition, effective for fiscal years beginning after December 15, 1997. The Company has reviewed the SOP and does not anticipate any material change to its revenue recognition policy as a result of the adoption of the SOP. SYSTEMS--Information systems are marketed under equipment purchase and software license agreements as well as service agreements. One-time software and hardware revenue is generally recognized at the time of delivery. HBOC ensures that in addition to delivery, there is persuasive evidence that an arrangement exists, the fee is fixed and determinable, and collectibility is probable before software revenue is recognized. HBOC's contracts generally allow separate accounting treatment for the systems and services components of the agreement. The Company also licenses software using multiyear agreements under which revenue is recognized on an annual basis. SERVICES--Implementation fees are recognized as the work is performed or on a percentage-of-completion basis. Maintenance and support agreements are marketed under annual and multiyear agreements and are recognized ratably over the period covered by the agreements. Electronic commerce and remote processing services are recognized monthly as the work is performed. Outsourcing services are recognized as the work is performed or on a percentage-of-completion basis. NONRECURRING CHARGES During 1997, the Company recorded a $95.3 million nonrecurring charge related to the acquisitions of AMISYS Managed Care Systems, Inc. (AMISYS), Enterprise Systems, Inc. (ESi), HPR Inc. (HPR), National Health Enhancement Systems, Inc. (NHES), and AT&T's UK Specialist Healthcare Services Division (AT&T Healthcare). The charge consisted of transaction costs of $13.2 million, write-downs of long-lived assets of $33.6 million, severance and employee-related costs of $19.6 million, other product-related costs of $21.2 million, and purchased research and development costs of $7.7 million. During 1996, the Company recorded a nonrecurring charge of $70.2 million primarily related to the acquisitions of CyCare Systems, Inc. (CyCare), Management Software, Inc. (MSI), GMIS Inc. (GMIS), and ESi's acquisition of the materials management division of Continental Healthcare Systems, Inc. This NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) charge consisted of transaction costs of $11.4 million, a write-down of long- lived assets of $38.5 million, severance and employee-related costs of $7.1 million and other product-related costs of $13.2 million. During 1995, the Company recorded a $130 million nonrecurring charge primarily consisting of $115 million of purchased research and development related to the acquisition of First Data Health Systems Corporation (now known as CPG), $8 million of severance and other acquisition-related costs, and a $3 million mainframe capitalized research and development net book value adjustment. Also in 1995, the Company recorded a nonrecurring charge of $11 million related to the acquisition of CliniCom Incorporated, primarily consisting of severance and transaction costs. These charges were partially offset by a gain on litigation settlement. OTHER INCOME, NET Other income, net, consists primarily of interest income on cash, cash equivalents, investments and notes receivable; interest expense on long-term debt and short-term line of credit borrowings, and miscellaneous expense related primarily to foreign exchange transaction gains and losses. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, effective for fiscal years ending after December 15, 1997. The Company has adopted the new guidelines for the calculation and presentation of earnings per share, and all prior periods have been restated. Basic earnings per share is based upon the weighted average number of shares outstanding. Diluted earnings per share is based upon the weighted average number of shares outstanding and the dilutive effect of stock options outstanding using the treasury stock method. Loss per share is based only upon the weighted average number of shares outstanding, since the effect of stock options is anti-dilutive. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less from the date of purchase to be cash equivalents. INVESTMENTS Investments at December 31, 1997, and 1996, consist of marketable equity securities. Pursuant to the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company has classified its investment portfolio as available-for-sale. Such securities are recorded at fair value, and unrealized gains and losses net of the related tax effect are recorded as a component of retained earnings until realized. Realized gains and losses are determined on the specific identification method and are reflected in the income statement. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined either by the specific identification or first-in, first-out valuation methods. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INTANGIBLES Intangibles consist of certain items related to the Company's acquisitions as follows:
DECEMBER 31, ---------------------------------------------- 1997 1996 ---------------------- ---------------------- GROSS NET GROSS NET ---------- ---------- ---------- ---------- (000 OMITTED) Series Customer Lists........................ $ 53,789 $ 40,403 $ 53,815 $ 44,264 CPG Customer Lists........................... 101,982 84,610 101,812 91,223 Goodwill..................................... 59,878 47,258 48,447 40,838 Other........................................ 7,143 1,962 10,827 5,602 ---------- ---------- ---------- ---------- Total.................................. $ 222,792 $ 174,233 $ 214,901 $ 181,927 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The Series and CPG customer lists are being amortized over 15 years beginning in June 1994 and June 1995, respectively. Goodwill relates to 11 acquisitions and is being amortized over periods ranging from five to 15 years from the various acquisition dates. CAPITALIZED SOFTWARE The Company capitalizes costs to develop software products once the project has reached the point of technological feasibility. Management monitors the net realizable value of all software development investments to ensure that the investment will be recovered through future sales. Completed projects are amortized after reaching the point of general availability using the straight-line method based on an estimated useful life of three years. HBOC capitalized software development costs of $34.7 million, $28.5 million and $26.6 million in 1997, 1996 and 1995, respectively. The Company's nonrecurring charges include capitalized software net realizable value adjustments of $11.6 million in 1997, $13.8 million in 1996 and $4.7 million in 1995. Amortization of capitalized software costs totaled $18.2 million, $14.9 million and $17.2 million in 1997, 1996 and 1995, respectively. Royalty fees of $47.2 million, $36.5 million and $19.5 million were expensed in 1997, 1996 and 1995, respectively, for software provided by third-party business partners. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Computer equipment is depreciated over useful lives of three to five years using the straight-line method. Office furniture and equipment is depreciated over useful lives of two to 10 years using the straight-line method. Real property is depreciated using the straight-line method over various lives of up to 39 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life or remaining lease term. OTHER NONCURRENT ASSETS Other noncurrent assets consist primarily of the long-term portion of notes receivable and the long-term balance in a compensation trust. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments classified as current assets or liabilities, including cash and cash equivalents, receivables and accounts payable, approximate carrying value due to the short-term maturity of the instruments. The fair value of short-term and long-term debt approximate carrying value based on their effective interest rates compared to current market rates. LONG-LIVED ASSETS The Company periodically reviews the values assigned to long-lived assets, such as intangibles, capitalized software and property and equipment, to determine if any impairments are other than temporary. Management believes long-lived assets in the accompanying balance sheets are appropriately valued. 2. INDEBTEDNESS AND COMMITMENTS: The Company entered into a long-term revolving credit agreement in June 1994. In the second quarter of 1997, the Company amended and restated its $50 million long-term revolving credit agreement. As of December 31, 1997, there was no outstanding balance. Interest is payable at the Company's option of prime or LIBOR plus 0.5% (6.4375% as of December 31, 1997). A commitment fee of 0.25% per annum is payable quarterly on the unused portion of the commitment. The agreement, which expires June 30, 1999, contains certain net worth, cash flow and financial ratio covenants. The Company is in compliance with these covenants at December 31, 1997. The Company has a $5 million uncommitted, unsecured line of credit available. No facility fees or compensating balances are associated with this line. On April 7, 1997, the Company canceled its agreement with a financial institution whereby the Company could sell on an ongoing basis, with partial recourse, an undivided interest in a pool of customer receivables. The Company occasionally sells customer receivables on a non-recourse basis to financial institutions while retaining administrative responsibility for collection of the receivables. In compliance with Statement of Financial Accounting Standards No. 125, receivables are shown net of the amount sold. The Company occupies leased facilities and leases customer and other equipment under noncancelable leases that expire through 2007. Most of the leases contain certain options to renew. The future minimum lease commitments under the terms of the Company's noncancelable leases with terms in excess of one year, as of December 31, 1997, were as follows:
(000 OMITTED) ------------- 1998........................................................................... $ 27,804 1999........................................................................... 21,753 2000........................................................................... 11,814 2001........................................................................... 5,989 2002 and thereafter............................................................ 21,413 ------------- Total.................................................................... $ 88,773 ------------- -------------
3. CAPITAL STOCK: In August 1997, the Company declared a two-for-one stock split of all common stock outstanding effected in the form of a stock dividend, which was paid on September 9, 1997, to all stockholders of record NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CAPITAL STOCK: (CONTINUED) on August 25, 1997. All share and per share amounts (except for stockholders' equity) have been restated for this stock split. In addition, the Company retired all treasury stock on September 9, 1997. In May 1996, the Company declared a two-for-one stock split of all common stock outstanding and in the treasury, effected in the form of a stock dividend that was paid on June 10, 1996, to all stockholders of record on May 27, 1996. All share and per share amounts (except for stockholders' equity) have been restated for this stock split. In addition, stockholders approved an increase in the number of shares of authorized common stock from 60 million to 250 million, effective May 15, 1996. On February 12, 1991, the Company designated 20,000 shares of its 1,000,000 shares of authorized preferred stock with no par value as Series A Junior Participating Preferred Stock with no par value and declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of the Company's common stock. Due to the 1994, 1996 and 1997 stock splits, each such outstanding share is entitled to one-eighth of a Right. Each Right, when exercisable, entitles its holder to buy one-thousandth of a share of the newly authorized preferred stock at an exercise price of $35, subject to adjustment. The Rights initially will trade together with the Company's common stock and will not be exercisable unless certain triggering events occur. Until exercisable, the Rights will not have a dilutive effect on earnings per share. Following certain events, including the acquisition of 15% of the Company's common stock, the Board of Directors may elect to exchange each outstanding whole Right for eight shares of the Company's common stock, subject to adjustment. In certain other circumstances, including the acquisition of 20% or more of the Company's common stock, the Rights may become exercisable for common stock of the Company having a market value of two times the Right's exercise price. The Company will be entitled to redeem the Rights at one cent per Right at any time prior to the time the Rights become exercisable. If the Company is acquired in a merger or other business combination transaction and the Rights have not been redeemed, each Right will entitle its holder to purchase, at the Right's then current exercise price, a number of the acquiring company's common shares having a market value at the time of twice the Right's exercise price. The Rights will expire on February 22, 2001. 4. EMPLOYEE BENEFIT PLANS: STOCK PURCHASE PLAN The Company has an employee discount stock purchase plan for all eligible employees of HBOC and designated subsidiaries. Participants may use up to 10% of their annual compensation or $21,250, whichever is higher, to purchase, through payroll deductions, the Company's common stock at the end of each plan year for 85% of the lower of the beginning or ending stock price for the plan year. The weighted average fair value of shares sold under the plan in 1997 was $20.24. At December 31, 1997, there were 3,668,086 shares of stock reserved for issuance under this plan. STOCK OPTION PLANS The Company has nonqualified and incentive stock option plans to provide key employees and directors with an increased incentive to work for the success of the Company. The option price for all stock options is the market value at the date of grant and thus the plans are non-compensatory. The options expire 10 years after the dates of their respective grants. The Company accounts for the stock purchase and stock option plans under APB Opinion No. 25, which requires compensation costs to be recognized only when the option price differs from the market price at the grant date. FASB Statement No. 123 allows a company to follow APB Opinion No. 25 with the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. EMPLOYEE BENEFIT PLANS: (CONTINUED) following additional disclosure that shows what the Company's net income (loss) and earnings (loss) per share would have been using the compensation model under FASB Statement No. 123:
1997 1996 1995 ---------- --------- ---------- (000 OMITTED) Net Income (Loss) As Reported.............................. $ 143,537 $ 82,333 $ (7,895) Pro Forma................................. $ 117,500 $ 66,744 $ (15,161) Earnings (Loss) per Share: Basic As Reported............................... $ .69 $ .41 $ (.04) Pro Forma................................. $ .56 $ .33 $ (.08) Diluted As Reported............................... $ .67 $ .39 $ (.04) Pro Forma................................. $ .55 $ .32 $ (.08)
Because the Statement 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free interest rate of 6.32%, 6.25% and 6.65%; expected dividend yield of 0.19%, 0.18% and 0.36%; expected term of 8.5, 8.8 and 7.3 years; expected forfeiture of 1.5%, 4.5% and 7.8%; and volatility of 49% for 1997 and 36% for both 1996 and 1995. The total value of options granted for 1997, 1996 and 1995 were computed as $90.2 million, $70.5 million and $25.0 million, respectively. The following table presents a summary of the status of the Company's stock option plans at December 31, 1997, 1996 and 1995, as well as changes during the years then ended.
WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ------------ ----------------- BALANCE--DECEMBER 31, 1994.................................... 15,288,940 $ 4.11 ------------ Granted..................................................... 6,301,311 $ 11.90 Exercised................................................... 4,756,021 $ 3.12 Forfeited................................................... 1,720,978 $ 7.43 ------------ BALANCE--DECEMBER 31, 1995.................................... 15,113,252 $ 7.30 ------------ Granted..................................................... 6,006,844 $ 25.61 Exercised................................................... 3,571,264 $ 4.53 Forfeited................................................... 1,052,548 $ 15.53 ------------ BALANCE--DECEMBER 31, 1996.................................... 16,496,284 $ 13.71 ------------ Granted..................................................... 4,409,853 $ 32.89 Exercised................................................... 6,041,780 $ 9.17 Forfeited................................................... 1,025,668 $ 20.76 ------------ BALANCE--DECEMBER 31, 1997.................................... 13,838,689 $ 21.28 ------------ ------ ------------ ------ EXERCISABLE AT DECEMBER 31, 1997.............................. 4,457,742 $ 12.46 ------------ ------ ------------ ------ RESERVED FOR FUTURE OPTIONS................................... 4,748,701 ------------ ------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. EMPLOYEE BENEFIT PLANS: (CONTINUED) The following table summarizes information about the Company's outstanding stock options at December 31, 1997. OPTIONS OUTSTANDING
WEIGHTED AVERAGE RANGE OF WEIGHTED AVERAGE REMAINING EXERCISE PRICES SHARES EXERCISE PRICE CONTRACTUAL LIFE - --------------- ------------ ----------------- ------------------- $ 0.00-$10.00 4,216,352 $ 4.87 5.35 $ 10.01-$20.00 1,561,320 $ 16.50 7.05 $ 20.01-$30.00 5,672,435 $ 26.95 8.47 $ 30.01-$40.00 978,068 $ 34.28 9.15 $ 40.01-$50.00 1,410,514 $ 42.02 9.80 ------------ ------ --- Total 13,838,689 $ 21.28 7.54 ------------ ------ --- ------------ ------ ---
OPTIONS EXERCISABLE
RANGE OF WEIGHTED AVERAGE EXERCISE PRICES SHARES EXERCISE PRICE - --------------- ---------- ----------------- $ 0.00-$10.00 2,513,311 $ 3.69 $ 10.01-$20.00 493,353 $ 15.47 $ 20.01-$30.00 1,224,388 $ 25.50 $ 30.01-$40.00 216,176 $ 32.44 $ 40.01-$50.00 10,514 $ 44.27 ---------- ------ Total 4,457,742 $ 12.46 ---------- ------ ---------- ------
PROFIT SHARING AND SAVINGS PLAN The Company has a qualified profit sharing and savings plan covering all employees with more than six months of service. Participants, except for certain highly paid employees who are subject to certain limitations, may contribute up to 15% of their compensation to the plan. The Company matches these contributions at a rate determined annually by its Board of Directors (75% of the first 4% of compensation contributed in 1997, 1996 and 1995). In addition, the Company's Board may, at its discretion, authorize within prescribed limits a profit sharing contribution to all eligible participants. Total plan expense was $5.8 million in 1997, $4.1 million in 1996 and $3.1 million in 1995. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES: The provision (benefit) for income taxes consists of the following components:
1997 1996 1995 --------- --------- --------- (000 OMITTED) Current Portion-- Federal.................................................... $ 85,549 $ 49,581 $ 28,436 State...................................................... 12,221 7,083 4,062 --------- --------- --------- 97,770 56,664 32,498 --------- --------- --------- Deferred Portion............................................. (2,117) (2,539) (40,550) --------- --------- --------- Total Provision (Benefit) for Income Taxes................... $ 95,653 $ 54,125 $ (8,052) --------- --------- --------- --------- --------- ---------
A reconciliation from the federal statutory rate to the total provision (benefit) for income taxes is as follows:
1997 1996 1995 --------- --------- --------- (000 OMITTED) Tax at Statutory Rate........................................ $ 83,717 $ 47,760 $ (5,581) State Income Taxes, Net of Federal Taxes..................... 11,936 6,910 (888) Non-Taxable S Corp Earnings.................................. -- (545) (1,583) --------- --------- --------- Provision (Benefit) for Income Taxes......................... $ 95,653 $ 54,125 $ (8,052) --------- --------- --------- --------- --------- ---------
-------------------------------------- NOTE: MSI qualified as an S Corporation prior to acquisition, and the tax impact was borne by the former stockholders of MSI. Due to the taxable nature of the acquisition, deferred tax assets of $16.7 million were recorded reflecting the excess of acquired tax basis over book basis. The components of the Company's net deferred tax asset are as follows:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (000 OMITTED) DEFERRED TAX LIABILITIES: Capitalized Software................................................ $ (25,563) $ (18,024) Deferred Revenue.................................................... -- (4,040) ---------- ---------- Total Deferred Tax Liabilities.................................. (25,563) (22,064) ---------- ---------- DEFERRED TAX ASSETS: Intangibles......................................................... 57,273 54,735 Accruals............................................................ 24,768 19,709 Bad Debt............................................................ 6,547 2,742 Tax Credit Carryforward............................................. 2,339 2,339 Other............................................................... 7,547 7,458 ---------- ---------- Total Deferred Tax Assets....................................... 98,474 86,983 ---------- ---------- NET DEFERRED TAX ASSET................................................ $ 72,911 $ 64,919 ---------- ---------- ---------- ----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INVESTMENTS: Short-term investments consisted of the following:
DECEMBER 31, ---------------------------------------------- 1997 1996 ---------------------- ---------------------- COST FAIR VALUE COST FAIR VALUE --------- ----------- --------- ----------- (000 OMITTED) Marketable Equity Securities...................... $ 4,981 $ 4,981 $ 41,032 $ 42,532 --------- ----------- --------- ----------- --------- ----------- --------- -----------
Unrealized gain on investments available-for-sale was $0 and $900,000, net of tax, at December 31, 1997 and 1996, respectively. 7. OTHER CURRENT LIABILITIES: The following significant items are included in other current liabilities:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (000 OMITTED) Accounts Payable...................................................... $ 57,065 $ 46,454 Acquisition Product Reserves.......................................... 21,051 22,584 Accrued Commissions and Incentives.................................... 32,552 37,954 Income Taxes Payable.................................................. 32,074 16,668 Customer Deposits..................................................... 29,433 38,368 Accrued Royalties..................................................... 24,065 18,370 Payroll and Employee Benefits......................................... 20,472 14,355 Other Accrued Expenses................................................ 62,422 54,710 ---------- ---------- $ 279,134 $ 249,463 ---------- ---------- ---------- ----------
The following table presents a roll forward of the Company's severance and product-related acquisition reserves:
BALANCE BALANCE BALANCE 12/31/95 ADDITIONS USAGE 12/31/96 ADDITIONS USAGE 12/31/97 --------- ----------- --------- --------- ----------- --------- --------- (000 OMITTED) Severance.................. $ 3,756 $ 7,084 $ 5,953 $ 4,887 $ 19,545 $ 10,615 $ 13,817 Product-Related............ 20,504 13,213 11,133 22,584 21,172 22,705 $ 21,051 --------- ----------- --------- --------- ----------- --------- --------- Total................ $ 24,260 $ 20,297 $ 17,086 $ 27,471 $ 40,717 $ 33,320 $ 34,868 --------- ----------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- ----------- --------- ---------
8. ACQUISITIONS: On June 13, 1997, the Company completed the acquisition of AMISYS, a leading provider of information systems for managed care entities and other parties that assume financial risk for healthcare populations. AMISYS stockholders received 0.175 of a share of HBOC common stock for each share of AMISYS common stock, or approximately 5.4 million HBOC shares. On June 26, 1997, the Company completed the acquisition of ESi, a leading developer of resource management solutions including materials management, operating room logistics, scheduling and financial management. The stockholders of ESi received 0.22895 of a share of HBOC common stock for each share of ESi common stock, or approximately 7.6 million HBOC shares. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. ACQUISITIONS: (CONTINUED) On December 23, 1997, the Company completed the acquisition of HPR, a leading provider of clinical information systems for the managed care industry. The stockholders of HPR received 0.6 of a share of HBOC common stock for each share of HPR common stock, or approximately 9.2 million HBOC shares. On December 29, 1997, the Company completed the acquisition of NHES, a leading provider of health information technology solutions specializing in demand and disease management products. The stockholders of NHES received 0.3084 of a share of HBOC common stock for each share of NHES common stock, or approximately 1.8 million HBOC shares. On August 21, 1996, the Company completed the acquisition of CyCare, a provider of physician practice management software systems and electronic commerce services for medical group practices, faculty practice plans and medical enterprises. CyCare stockholders received 0.43 of a share of HBOC Common Stock for each share of outstanding CyCare Common Stock, or an aggregate of approximately 8.8 million shares. On September 19, 1996, the Company completed the acquisition of MSI, a privately held provider of software solutions for the homecare industry. MSI stockholders received approximately 1.7 million shares of HBOC Common Stock in the transaction. On December 9, 1996, the Company completed the acquisition of GMIS, a developer of data quality and decision support software for the payor marketplace. GMIS stockholders received 0.21 of a share of HBOC Common Stock for each share of GMIS Common Stock, or an aggregate of approximately 7.4 million shares. All of the above acquisitions were accounted for as poolings of interests, therefore, all prior period amounts have been restated. A reconciliation between revenue and net income as previously reported and as restated follows:
FOR THE YEAR ENDED DECEMBER 31 ---------------------- 1996 1995 ---------- ---------- (000 OMITTED) REVENUE: As Previously Reported.............................................. $ 796,578 $ 607,242 AMISYS, ESi, HPR & NHES............................................. 154,212 108,661 Adjustments......................................................... 121 (1) ---------- ---------- As Restated......................................................... $ 950,911 $ 715,902 ---------- ---------- ---------- ---------- NET INCOME (LOSS): As Previously Reported.............................................. $ 73,954 $ (17,569) AMISYS, ESi, HPR & NHES............................................. 8,306 10,254 Adjustments......................................................... 73 (580) ---------- ---------- As Restated......................................................... $ 82,333 $ (7,895) ---------- ---------- ---------- ----------
The following acquisitions have been accounted for under the purchase method of accounting. The results of operations for each acquisition have been included in the accompanying financial statements since each date of acquisition. On October 31, 1997, the Company completed the acquisition, for approximately $30 million in cash, of AT&T Healthcare, a provider of software solutions and remote processing services for financial and payroll needs of healthcare providers in the United Kingdom. In connection with the acquisition, the Company allocated $7.7 million of the purchase price to incomplete research and development projects as determined by independent appraisal. Accordingly, these costs were expensed as of the acquisition date. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. ACQUISITIONS: (CONTINUED) On December 31, 1996, the Company completed the acquisition of Gemini, Ltd., the National Health Service (NHS) business unit of Cap Gemini UK PLC, for approximately $3.5 million. Gemini Ltd. runs remote processing operations in the South Thames region of the NHS organization in the United Kingdom. In June, 1995, the Company acquired CPG in exchange for HBOC Common Stock valued at approximately $200 million. The following unaudited pro forma information was prepared assuming the transaction was consummated on January 1, 1995, and excludes the effect of the 1995 nonrecurring charge.
FOR THE YEAR ENDED DECEMBER 31 1995 ----------------- (000 OMITTED) Revenue.................................................................... $ 784,097 Net Income................................................................. $ 74,256 Earnings per Share......................................................... $ .38
This pro forma information is not necessarily indicative of the results of operations that would have been attained had the acquisition been consummated on January 1, 1995, or that may be attained in the future. 9. LEGAL PROCEEDINGS: The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of potential liability with respect to these actions will not materially affect the Company's financial position or results of operations. COMMON STOCK DATA (UNAUDITED) The tables below present the quarterly high and low sales prices and dividend information for the Company's Common Stock as furnished by The Nasdaq Stock Market's National Market. There were 3,231 holders of record of the Company's Common Stock as of December 31, 1997.
1997 ----------------------------------- DIVIDENDS DECLARED QUARTER HIGH LOW PER SHARE - --------------------------------------------------------------- --------- --------- ------------- First.......................................................... $ 36.13 $ 23.75 $ .01 Second......................................................... $ 36.06 $ 21.25 $ .01 Third.......................................................... $ 42.25 $ 34.25 $ .02 Fourth......................................................... $ 46.83 $ 37.00 $ .02 --- Total.......................................................................... $ .06 --- ---
1996 ----------------------------------- DIVIDENDS DECLARED QUARTER HIGH LOW PER SHARE - --------------------------------------------------------------- --------- --------- ------------- First.......................................................... $ 25.48 $ 16.38 $ .01 Second......................................................... $ 35.38 $ 23.88 $ .01 Third.......................................................... $ 35.00 $ 25.25 $ .01 Fourth......................................................... $ 36.25 $ 25.00 $ .01 --- Total.......................................................................... $ .04 --- ---
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of HBO & Company: We have audited the accompanying consolidated balance sheets of HBO & Company (a Delaware Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HBO & Company and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Atlanta, Georgia Arthur Andersen LLP February 6, 1998 STOCKHOLDER INFORMATION CORPORATE HEADQUARTERS INVESTOR INFORMATION HBO & Company The Company routinely sends its annual and 301 Perimeter Center North quarterly reports to interested investors. To Atlanta, Georgia 30346 receive information, please write the Company (770) 393-6000 or call: FAX: (770) 393-6092 (800) HBOC-411 http://www.hboc.com [(800) 426-2411] STOCK LISTING INVESTOR RELATIONS HBO & Company's common stock is traded on The Security analysts and other investor Nasdaq Stock Market's National Market inquiries should be directed to: (symbol: HBOC). Put and call options on HBO & Monika Brown Company are traded on the Pacific Stock Investor Relations Exchange. HBO & Company (800) HBOC-411 [(800) 426-2411] ANNUAL MEETING SEC FORM 10-K HBO & Company's annual meeting will be held Copies of the 10-K report filed with the on Tuesday, May 12, 1998, at 9:00 a.m. Securities and Exchange Commission are Eastern time at its Corporate Headquarters. available without charge, except for You are cordially invited to attend. exhibits. To request a copy, please write the Company or call: (800) HBOC-411 [(800) 426-2411] TRANSFER AGENT AND REGISTRAR AUDITORS SunTrust Bank, Atlanta Arthur Andersen LLP Corporate Trust Department 133 Peachtree Street, N.E. P.O. Box 4625 Atlanta, Georgia 30303 Atlanta, Georgia 30302 (404) 658-1776 (800) 568-3476 (404) 588-7815 Communications regarding transfers, lost CORPORATE COUNSEL certificates, dividends or change of address Jones, Day, Reavis & Pogue should be directed to SunTrust Bank at the 3500 SunTrust Plaza above address. 303 Peachtree Street, N.E. Atlanta, Georgia 30308-3242 (404) 521-3939
BOARD OF DIRECTORS CHARLES W. MCCALL--CHAIRMAN ALTON F. IRBY III President and Chief Executive Officer Deputy Chairman and Chief Executive HBO & Company NatWest Markets Global Corporate Advisory ALFRED C. ECKERT III Limited President GERALD E. MAYO Greenwich Street Capital Partners, Inc. Chairman HOLCOMBE T. GREEN, JR. Midland Financial Services, Inc. Chairman and Chief Executive Officer JAMES V. NAPIER WestPoint Stevens Inc. Chairman PHILIP A. INCARNATI Scientific-Atlanta, Inc. President and Chief Executive Officer DONALD C. WEGMILLER McLaren Health Care Corporation President and Chief Executive Officer Management Compensation Group/HealthCare Compensation
CORPORATE OFFICERS CHARLES W. MCCALL* DOMINICK A. DEROSA Chairman of the Board, Senior Vice President--Enterprise Sales President and Chief Executive Officer TIMOTHY S. HEYERDAHL ALBERT J. BERGONZI* Senior Vice President--Finance and Treasury, President and Co-Chief Operating Officer and Accounting Officer JAY P. GILBERTSON* CHARLES W. MILLER President, Co-Chief Operating Officer, Chief Senior Vice President--Operations Financial Officer, Treasurer, Principal GLENN N. ROSENKOETTER Accounting Officer and Secretary Senior Vice President--Payor Solutions Group JAY M. LAPINE* and HBOC UK Ltd. Senior Vice President, General Counsel and E. CHRISTINE RUMSEY Assistant Secretary Senior Vice President--Human Resources RUSSELL G. OVERTON* Senior Vice President--Business Development
- ------------------------ * Executive Officer HBOC OFFICES Corporate Headquarters 301 Perimeter Center North Atlanta, GA 30346 (770) 393-6000 http://www.hboc.com United States Canada Amherst, MA London, Ontario Boulder, CO Hamilton, Ontario Cambridge, MA Charlotte, NC Puerto Rico Chicago, IL Dallas, TX Hato Ray Dubuque, IA Eugene, OR United Kingdom Hauppauge, NY Lexington, MA Buckinghamshire Longwood, FL Newcastle Malvern, PA Nottingham Minneapolis, MN Redditch Mt. Laurel, NJ Romford Phoenix, AZ Sheffield Pittsburgh, PA South Bank Rockville, MD Salt Lake City, UT Ireland San Diego, CA San Francisco, CA Dublin Scottsdale, AZ Springfield, MO Israel Tampa, FL Wheeling, IL Jerusalem Copyright-COPYRIGHT-1998 HBO & Company. All rights reserved. Pathways 2000 is a registered trademark of HBO & Company. Connect 2000 is a trademark of HBO & Company. Improving Healthcare Performance is a service mark of HBO & Company. AR3/98 EX-21 4 EXHIBIT 21 EXHIBIT 21 HBO & COMPANY AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Company are as follows:
JURISDICTION OF INCORPORATION ------------------------- HBO & Company of Georgia 100% Delaware, USA HBO & Company (UK) Limited 100% United Kingdom HBO & Company (VI), Inc. 100% U.S. Virgin Islands HBO & Company Canada Ltd. 100% Canada Data-Med Computer Services Limited 100% owned by HBO & Company (UK) United Kingdom Limited HBOC Medical, Ltd. 100% owned by HBO & Company of Georgia Israel First Data Health Systems (Ireland), 100% owned by HBO & Company of Georgia Ireland Ltd. HBO & Company (ST & SW), Ltd. 100% owned by HBO & Company (UK) United Kingdom (formerly Gemini Ltd.) Limited Health Enhancement International, Inc. 90% owned by HBO & Company of Georgia Arizona, USA HBOC Ventures, Inc. 100% Delaware, USA
EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K into the Company's previously filed Registration Statements on Form S-8, which are listed in Part IV, Item 14(a)3 of this Form 10-K. ARTHUR ANDERSEN LLP Atlanta, Georgia March 9, 1998 EX-27. 6 EX-27
5 This schedule contains summary financial information extracted from HBO & Company Consolidated Statement of Income for the Year ended 12/31/97 and HBO & Company Consolidated Balance Sheet at 12/31/97 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 432,477 4,981 442,639 20,763 6,513 923,673 203,704 102,295 1,312,586 404,533 1,022 0 0 10,569 890,013 1,312,586 618,969 1,203,204 205,379 885,146 78,868 0 0 239,190 95,653 143,537 0 0 0 143,537 0.69 0.67
EX-27.A 7 EX-27.A
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO & COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED 9/30/97 AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 9/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 353,631 26,062 384,471 14,709 6,821 800,885 210,561 130,650 1,177,016 311,093 368 0 0 10,521 846,518 1,177,016 436,871 861,962 150,124 642,159 23,814 0 0 195,989 78,293 117,696 0 0 0 117,696 0.57 0.55
EX-27.B 8 EX-27.B
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO & COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED 6/30/97 AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 277,106 44,668 361,973 15,256 8,245 726,262 200,537 124,175 1,097,286 323,595 448 0 0 6,979 758,064 1,097,286 273,661 554,786 97,273 418,857 28,285 0 0 107,644 43,156 64,488 0 0 0 64,488 0.31 0.30
EX-27.C 9 EX-27.C
5 This schedule contains summary financial information extracted from HBO & Company Consolidated Statement of Income for the Three Months Ended 3/31/97 and HBO & Company Consolidated Balance Sheet at 3/31/97 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 249,308 37,661 349,497 14,541 10,108 677,577 177,645 117,474 1,040,699 315,620 579 0 0 7,062 709,331 1,040,699 124,493 263,292 45,186 201,894 (2,610) 0 0 64,008 25,632 38,376 0 0 0 38,376 0.19 0.18
EX-27.D 10 EX-27.D
5 This schedule contains summary financial information extracted from HBO & Company Consolidated Statement of Income for the Twelve Months Ended 12/31/96 and HBO & Company Consolidated Balance Sheet at 12/31/96 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 204,952 42,532 363,357 11,899 7,406 649,520 173,538 113,635 1,012,749 354,280 769 0 0 7,040 643,606 1,012,749 472,029 950,911 165,575 751,472 62,981 0 0 136,458 54,125 82,333 0 0 0 82,333 0.41 0.39
EX-27.E 11 EX-27.E
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO & COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED 9/30/96 AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 125,497 63,906 288,287 11,284 7,327 507,617 177,948 120,935 881,203 267,025 521 0 0 7,017 596,684 881,203 328,900 682,056 114,680 544,242 30,056 0 0 107,758 42,588 65,170 0 0 0 65,170 0.32 0.31
EX-27.F 12 EX-27.F
5 This schedule contains summary financial information from HBO & Company Consolidated Statement of Income for the Six Months Ended 6/30/96 and HBO & Company Consolidated Balance Sheet at 6/30/96 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 128,936 39,335 261,515 11,410 6,705 457,861 171,013 115,126 824,364 249,174 3,127 0 0 7,051 557,531 824,364 203,326 435,187 71,922 351,656 5,432 0 0 78,099 30,699 47,400 0 0 0 47,400 0.24 0.23
EX-27.G 13 EX-27.G
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO & COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED 3/31/96 AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 3/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 122,056 41,677 235,050 11,358 9,711 425,960 165,824 109,932 786,913 240,997 3,622 0 0 3,992 530,993 786,913 88,667 203,706 30,776 166,586 (1,705) 0 0 38,825 15,211 23,614 0 0 0 23,614 0.12 0.11
EX-27.H 14 EX-27.H
5 This schedule contains summary financial information extracted from HBO & Comopany Consolidated Statement of Income for the Twelve Months Ended 12/31/95 and HBO & Company Consolidated Balance Sheet at 12/31/95 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 112,440 42,182 229,246 11,701 8,185 412,479 161,963 105,360 771,550 255,991 4,054 0 0 3,976 496,811 771,550 330,933 715,902 112,995 602,184 129,665 0 0 (15,947) (8,052) (7,895) 0 0 0 (7,895) (0.04) (0.04)
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