Item 1. Business.
General - -------
The Company, incorporated in Delaware in 1969, is a leading supplier of information solutions to health providers in 20 countries and territories in North America, Europe, and Asia Pacific. The Company's customers include hospitals, physician offices, clinics, ambulatory care facilities, psychiatric facilities, hospices, home health providers, pharmacies, rehabilitation and long-term care facilities, and health enterprises, which are comprehensive networks comprised of multiple health providers.
The Company develops and delivers a wide range of comprehensive solutions to meet the information technology needs of its customers. These solutions include clinical, financial and administrative, and enterprise mangement systems. Complementary services offered by the Company include system support, remote processing, networking, specialized clinical, financial and technology consulting services; and information technology, managed care administration and business office outsourcing. The Company's information systems operate on hardware platforms that range from personal computers, to client/server networks, to minicomputers, to mainframes, which are operated remotely at the Company's Information Services Center (ISC), at the customer's site, or as part of a distributed network.
The Company has two geographic segments, North America and International. Financial information by business segment and geographic area can be found on page 30 of the Company's 1998 Annual Report to Stockholders, Notes to Consolidated Financial Statements, Business Segment Information (Note 9), which is incorporated herein by reference. North America has historically been the Company's largest market, accounting for approximately 88% of 1998 revenues. The Company currently has contracts with health providers in 47 states, the District of Columbia, Puerto Rico, and Canada. The Company markets its information services and systems and provides installation services and ongoing technical and educational support with a field staff working from branch offices. At its Corporate Headquarters and ISC, the Company has customer service staff, applications specialists, and communications and computer operations personnel who assist customers in their day-to-day use of the Company's systems, and system designers and programmers who work to improve existing software applications and develop additional information systems. In 1998, the Company increased its ownership interest in Delta Health Systems, a provider of home health information systems, from 50% to 100%.
The Company's international operations accounted for approximately 12% of 1998 revenues. The Company entered the health information market in Europe in 1981 and the Asia Pacific market in New Zealand in 1997. Currently, the Company has customers in 15 European countries. In 1998, the Company acquired Data-Plan Software GmbH, a provider of client/server health information systems in Germany, D.P. Informatica, Srl, a provider of health information systems and services in Italy, and Pyrenees Informatique, SA, a provider of health information systems in France.
Industry Overview - -----------------
The health industry continues to experience significant changes. In order to reduce increasing costs, the industry has moved in recent years from a traditional fee-for-service reimbursement model to alternative payment models, which shift the financial risk from the payer to the health provider. The resulting pressures to control costs have caused the health industry to focus on providing quality care in the most efficient and cost-effective manner. The health industry is also experiencing significant consolidation among health providers and the formation of large health enterprises, which are designed to better manage risk and create continuity of quality patient care.
Health industry consolidation and changes in the way health providers are structured and reimbursed, combined with pressures to control costs, improve quality, and increase market share, continue to create new demands for information solutions. The growth of health enterprises in particular has resulted in demands for information systems, which can gather financial and clinical information from diverse and dispersed sources and make it consistent and easily accessible throughout the enterprise. The effort to control costs has meant increased demands for systems and services, which can enable health providers to measure quality and outcomes by capturing, analyzing, and storing information.
Services and Systems - --------------------
Service and system fees earned by the Company for the years ended December 31, 1998, 1997, and 1996 were $946,212,000, $802,528,000, and $717,096,000, respectively. Service and system fees are derived primarily from software and related services and professional services.
Software and Related Services - -----------------------------
The Company offers software systems and related remote processing and support services, which are proprietary to the Company or offered as part of strategic alliances with other vendors. These systems are designed to meet the information needs of hospitals, physicians, continuing care providers, and consumers, and include clinical, financial and administrative, and enterprise management applications.
Clinical applications provide clinicians with point-of-care data entry and access to clinical information. These systems automate many labor-intensive tasks performed in the admissions, nursing, radiology, laboratory, pharmacy, and other departments within health organizations, while facilitating communications among them.
Financial and administrative applications include provider accounting (including billing and receivables), human resources, payroll, materials management, general ledger, and property.
Enterprise management systems are designed to meet the clinical and financial information needs of consolidating health provider networks. The Company's NOVIUS product line is specifically designed to meet the clinical and financial information needs of these health enterprises by offering a single-platform, fully integrated client/server solution. Enterprise management systems connect all points of care in the enterprise to assist in the administration of patient care through patient indices that identify patients anywhere within the network, schedule network-wide resources, and retain cumulative electronic patient records for various health organization support functions. As part of its enterprise management solutions the Company offers decision support and electronic data interchange (EDI) systems. Decision support systems enable health executives and managers to set performance standards, identify variances, and analyze results by providing access to a range of strategic information collected from clinical, financial, and other enterprise management systems. EDI facilitates the sharing and standardization of information, such as eligibility verifications, and claims and remittance transmissions between health providers and payers.
The Company's principal systems are as follows:
BASE SYSTEMS: INVISION(R) A clinical, financial and administrative system offered either in-house or by remote processing operating on an IBM-based platform.
MedSeries4(R) A turnkey or remote system offering a range of integrated clinical and financial applications, operating on the IBM AS/400 platform.
UNITY(R) A system offering in-house processing of clinical information and remote processing of financial information.
ALLEGRA(R) A turnkey system offering a suite of clinical, financial and administrative applications operating on a Compaq-based platform.
Eagle 2000(R) A financial management system designed primarily for health providers in the State of New York.
CLINICOM* A clinical, financial and administrative system sold in Europe.
AMBULATORY CARE SYSTEMS:
SIGNATURE(R) A financial and administrative system for large group physician practices.
NOVIUS(R) Physician Enterprise A clinical and financial suite of ManagerTM integrated applications for physician practices.
CONTINUING CARE SYSTEMS:
Delta Health Systems(R) A clinical and financial system for home health providers.
Long-Term Care Information systems for skilled nursing providers.
CONSUMER RESOURCES & EDUCATION SYSTEM:
HealthAnswers** Internet/Intranet applications to address the healthcare information needs of consumers, patients and professionals.
CLINICAL SYSTEMS:
Common Vocabulary Engine Provides a single information source of terms and concepts that comprise the medical vocabulary of a health provider.
Clinical Documentation Enables clinicians to design their own views of information.
Clinical Observations and Results Provides a common repository for all of a patient's active clinical observations and charting.
Order Processing Provides online order processing.
Patient Management Provides online, interactive admissions, discharges, transfers, registration, and planning.
Rules Engine Provides a rule-based system of alerts and reminders for clinicians.
Protocols Enables implementation of treatment guidelines, variance management, and outcomes measurement.
Medical Imaging Provides access to medical images for review.
Radiology Management Supports radiology department operations.
SMS OPENLab(R) Supports clinical laboratory operations.
Pharmacy System Supports the pharmacy department operations.
FINANCIAL & ADMINISTRATIVE SYSTEMS:
General Financials Provides general accounting and financial applications, which include general ledger, accounts payable, materials management and property for hospitals.
Patient Accounting Provides applications that support the management of patient billing and receivables for hospitals.
Human Resources Management System Provides human resource and payroll applications for hospitals.
Document Imaging Provides electronic imaging of documents and records for the business office.
ENTERPRISE MANAGEMENT SYSTEMS:
Enterprise Access Directory(R) A common repository for patient demographic, insurance and visit information.
Lifetime Clinical Record(R) A clinical data repository of a longitudinal view of a patient's lifetime clinical history.
NOVIUS(R) Data Warehouse A centralized source of management information for decision support.
NOVIUS(R) Scheduling An application for scheduling of provider services.
NOVIUS(R) Quality Advisor An application that allows organizations to identify and monitor performance using key quality indicators.
NOVIUS(R) General Financials Provides general accounting and financial applications, which include general ledger, accounts payable, materials management, property, human resources, and payroll.
NOVIUS(R) Integrated Multimedia Document and medical imaging applications to support clinical and business office operations.
NOVIUS(R) Encounter An electronic patient record application, which supports a physician practice.
Groupware Applications that act as a repository of policies and procedures.
Medico A clinical, financial and administrative system for European providers.
Contract Management Operational tools for administration and assessment of managed care agreements for the provider.
Managed Care Administration A set of applications to support administrative and financial management for the provider/payer.
Integrated Eligibility Service Provides automatic eligibility verification for patient insurance information.
Electronic Claims and Remittance Enables customers to electronically Services submit UB-92 and HCFA1500 claims to Medicare and other payers and receive automatic same-day posting of remittances to patient accounts.
SMS OPENLink(R) Provides a tool for application integration.
The product names marked with a (R) are registered trademarks of the Company or its subsidiaries.
*CLINICOM is a registered trademark of the Company or its subsidiaries in Germany, Ireland, Switzerland and the United Kingdom.
**HealthAnswers is a trademark of Healthway Communications International, Inc. used under license.
Remote Processing Services --------------------------
The Company offers its customers remote processing services for certain of its information systems. Remote processing involves processing a customer's applications using the Company's equipment and personnel. This service frees the Company's customers from having to maintain the facilities, equipment and technical staff required for systems processing. The Company processes information for over 900 customer facilities at the ISC.
Support Services ----------------
The Company offers support services to maintain the operation of its information systems in accordance with the corresponding documentation.
Professional Services ---------------------
The Company offers a wide variety of professional services that complement the Company's information systems. These services include system installation, Internet services, networking, customer education, specialized clinical, financial and technology consulting, and information technology, business office and managed care administration outsourcing.
Implementation Services -----------------------
The Company offers services to facilitate the implementation of its information systems and technology offerings to health providers using a well-defined implementation methodology.
Networking Services -------------------
The Company offers networking services consisting of systems integration and network assessment, planning, design and management.
Consulting Services -------------------
The Company offers clinical, financial and technology consulting services. Clinical consulting services help customers analyze their clinical performance and develop critical pathways, case management processes, and outcome management programs. Financial consulting services assist customers by analyzing current operational and technical processes and automating processes to improve cash flows. Technology consulting services include strategic planning, systems integration, and process re-engineering services designed to assist the Company's customers in synchronizing both systems and processes throughout their organizations.
Outsourcing Services --------------------
The Company offers information technology, business office, and managed care administration outsourcing services. Information technology outsourcing encompasses a range of engagements, from interim management arrangements, where the responsibilities of the chief information officer are assumed, to full facilities management partnerships, where all datacenter and other information technology responsibilities are assumed. In business office outsourcing engagements, the Company assumes administrative responsibility for the business and operational aspects of a customer's billing, collections, cash management, and related functions. Managed care administration outsourcing provides customers with the information technology and managed care administrative methodology to assist with the management and administrative aspects of customers' risk- bearing contracts with managed care payers.
Education Services ------------------
The Company provides education and training services to support users of the Company's applications and related technologies. Services are provided at the Company's education and training sites, at customer sites or through computer-based training.
Hardware Sales --------------
In connection with sales of its software systems, the Company may also sell to its customers third-party hardware ranging from personal computers, to client/server networks, to minicomputers, to mainframes. Hardware sales revenues for the years ended December 31, 1998, 1997, and 1996 were $189,181,000, $118,813,000, and $89,854,000, respectively.
Customers ---------
The Company's customers include health providers, such as health enterprises and hospitals, as well as other health providers along the continuum of care, including physician offices, clinics, ambulatory care facilities, psychiatric facilities, hospices, home health providers, pharmacies, and rehabilitation and long-term care facilities.
The Company's services and systems are provided to customers under long-term service contracts and perpetual license agreements. Revenues from individual customers vary depending on the number and type of the Company's services and systems that are used. Because of the high fixed costs of the Company's operations, the loss of any single customer under a long-term service contract would reduce the Company's net income by a greater percentage than the percentage of total revenues lost. Presently, no more than one quarter of the Company's long-term service contracts expire in any future year. Although the Company strives to retain its customers, not all of the Company's past contracts have been renewed, and there can be no assurance that existing customers will either renew their contracts or convert to another type of system offered by the Company upon the expiration of their current contract.
In 1998, 1997, and 1996, no single customer accounted for 10.0% or more of consolidated revenues. At December 31, 1998, total future revenues under contract exceeded $2.4 billion.
Competition - -----------
The health information system (HIS) market is intensely competitive. Competition among HIS vendors is based on a combination of breadth of product offerings, service, and price. In the United States, the Company's principal competitors are other national vendors focused on the health market, including McKesson HBOC, Inc., IDX Systems Corporation, Medical Information Technology, Inc. (Meditech), and Cerner Corporation. In each sector of the HIS market, however, the Company also competes with niche vendors serving only that sector. In addition, some hospitals have developed their own proprietary systems. The Company competes for consulting, planning, re-engineering, integration and management engagements with regional, national and international consulting firms. In its international business, the Company competes with one or more regional or local providers in each country.
Research and Development - ------------------------
The Company continually enhances existing services and systems and develops new services and systems to meet the information processing needs of the health industry. Profitability of newly-developed services and systems depends upon attainment of sufficient sales volumes and continued improvement and efficiency of the services and systems.
The Company expenses all research and non-capitalized development costs, which generally consist of costs incurred to establish the technological feasibility of internally produced computer software. These expenses, which are primarily for salaries of personnel and computer costs, were $80,141,000 in 1998, $65,919,000 in 1997, and $56,402,000 in 1996.
The Company capitalizes costs of internally produced computer software intended to be licensed to customers. Capitalization for internally produced software begins when a project reaches technological feasibility and ends when the software is available for general release to customers. Technological feasibility for computer software development projects is established when detailed program designs, which substantiate that the software product can be produced to meet its design specifications, including applicable program functions, features and technical performance requirements, are completed. The Company amortizes computer software on a product-by-product basis using the greater of the amount computed by the straight-line method over the estimated useful life of the product, or the ratio of current revenues compared to total estimated revenues. Capitalized internally produced computer software costs, net of accumulated amortization, were $49,739,000 and $40,911,000 as of December 31, 1998 and 1997, respectively. Amortization related to capitalized internally produced software was $9,871,000 in 1998, $7,867,000 in 1997, and $7,993,000 in 1996.
Intellectual Property - ---------------------
The Company depends upon a combination of trade secret, copyright and trademark laws, license agreements, employee education, and nondisclosure, noncompetition and other contractual provisions to protect its proprietary rights and its products. The Company attempts to protect its trade secrets and other proprietary information through agreements with its customers, employees, and consultants.
Personnel - ---------
As of December 31, 1998, the Company had 7,657 full-time employees.
Item 2.
Item 2. Properties.
The Company owns 116 acres of land in Chester County, Pennsylvania and has constructed three buildings on this site: an information services center (81,000 square feet), which was put into service in 1979, and two office buildings with an aggregate of 431,000 square feet, the first of which was placed in service in 1981 and the second of which was placed in service in 1983. These office buildings serve as the Company's corporate headquarters. In 1999, the Company plans to complete construction of a 230,000 square-foot office building at its corporate headquarters in order to consolidate corporate-based personnel currently located nearby in leased office space. The Company also leases office space in most major metropolitan areas in the United States for marketing, installation and support personnel. The Company also owns office buildings in Spain and the United Kingdom and leases office space in various locations to support its international operations. These properties are adequate for existing operations. The Company also owns a separate tract of 241 acres of land in Chester County, Pennsylvania for possible future expansion.
The Company's ISC, which is used primarily to process customer information and to support the Company's internal systems operations, contains IBM CMOS processors obtained under operating leases. The Company's ISC also contains IBM AS/400 minicomputers, various types of servers, as well as related mainframe peripherals and network communications equipment that have been purchased or leased. These leases are generally contracted with terms that range from one to five years.
Item 3.
Item 3. Legal Proceedings.
The Company is currently in discussions with federal authorities regarding a civil investigation of billing and accounting practices at Straub Clinic & Hospital, a former Company customer. In September 1998, Straub paid federal and state authorities $2.4 million to settle allegations of wrongdoing, including Straub's improper retention of funds from government reimbursement programs. The current investigation is not focused on the operation of the Company's billing software used at Straub, and the government does not allege any improper receipt or retention of federal funds by the Company or any of its employees. Rather, the investigation concerns the role of a single Company employee in this situation. The Company believes that its employee's actions were appropriate and lawful, and does not believe that the outcome of this matter will have a material adverse effect on the Company's financial position or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrant
Listed below are the name, age as of December 31, 1998, position(s) with the Company and principal occupation(s) for the past five years of each of the current executive officers of the Company.
In calculating the aggregate market value of voting stock held by non-affiliates as shown on the cover page of this Form 10-K Report, the Company has included all of its directors, and only its directors, as affiliates of the Company. This is not an admission by the Company that any or all of its directors are in fact affiliates. The aggregate market value of voting stock held by non-affiliates was computed by using the high and low prices of the stock as of February 26, 1999.
Part II
The following information contained in the Company's Annual Report to Stockholders for the year ended December 31, 1998 is incorporated herein by reference:
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Page 19, Section titled Market Price and Dividends Declared Per Share *- "1998" and "1997**" columns and the related footnotes
Item 6.
Item 6. Selected Financial Data.
Page 19, Section titled Summary of Consolidated Operations - "Revenues," "Net Income," "Net Income Per Share - Basic," and "Net Income Per Share - Diluted" line items
Page 19, Section titled Summary of Consolidated Financial Position - "Total Assets" and "Long-Term Debt and Capital Leases" line items
Page 19, Section titled Operating Ratios and Other Selected Financial Data - "Cash Dividends Declared Per Share" line item
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Pages 13 through 18, Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Pages 20 through 30
Page 31, Report of Independent Public Accountants
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Part III
The following information contained in the Company's definitive Proxy Statement to be mailed to stockholders on or about March 31, 1999 is incorporated herein by reference:
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Section titled "Security Ownership": subsection titled "Directors and Management": columns "Name of Beneficial Owner" and "Director Since" for the portion of the table titled "Directors"
(For information concerning the Company's Executive Officers see pages 12 and 13 hereof, section titled "Executive Officers of the Registrant")
Item 11.
Item 11. Executive Compensation.
Section titled "Election of Directors": subsection titled "Compensation of Directors"
Section titled "Executive Compensation": subsections titled "Compensation Committee Interlocks and Insider Participation" and "Compensation Summaries"
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Section titled "Security Ownership"
Item 13.
Item 13. Certain Relationships and Related Transactions.
Section titled "Executive Compensation": subsection titled "Compensation Committee Interlocks and Insider Participation"
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements - the following consolidated financial statements included on pages 20 through 31 in the Company's Annual Report to Stockholders for the year ended December 31, 1998 are included in this report.
o Consolidated Balance Sheet as of December 31, 1998 and 1997 (page 20)
o Consolidated Statement of Income for the years ended December 31, 1998, 1997, and 1996 (page 21)
o Consolidated Statement of Cash Flows for the years ended December 31, 1998, 1997, and 1996 (page 22)
o Consolidated Statement of Stockholders' Investment for the years ended December 31, 1998, 1997, and 1996 (page 23)
o Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997, and 1996 (pages 24 through 30)
o Selected Quarterly Financial Data (Unaudited) for the years ended December 31, 1998 and 1997 as reported in Note 10 to Consolidated Financial Statements (page 30)
o Report of Independent Public Accountants (page 31)
2. Financial Statement Schedules - the following Financial Statement Schedules required by Article 5 of Regulation S-X are included in this report:
o Report of Independent Public Accountants on Schedule
o Schedule II - Valuation and Qualifying Accounts
o Schedules omitted - the following schedules are omitted since they are not required, or not applicable: I, III, IV, and V
3. The following exhibits are included in this report:
No. Description ---- -----------------------------------------------------------------
(3) Articles of Incorporation and By-laws -
Certificate of Amendment of Restated Certificate of Incorporation dated May 21, 1997 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
Restated Certificate of Incorporation dated May 14, 1992 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*, By-laws as amended through August 10, 1995 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended September 30, 1995)*
(4) Instruments defining the rights of security holders, including indentures -
Rights Agreement dated as of May 1, 1991, between the Registrant and Pittsburgh National Bank, as Rights Agent (filed as Exhibit (4) to Company's Form 10-K Report for the year ended December 31, 1996)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
James C. Kelly (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
Form of deferred compensation agreement:**
Marvin S. Cadwell
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr. (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1997)*
*Previously filed as indicated and incorporated herein by reference. **May be deemed a management contract or compensatory arrangement.
No. Description ---- -----------------------------------------------------------------
Performance bonus plans - 1998:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1998)*
Form of performance bonus plan (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1998)*:
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Performance bonus plans - 1997:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
Form of performance bonus plan (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997):*
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Insurance agreement:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1996)*
V. Brewster Jones (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
*Previously filed as indicated and incorporated herein by reference. **May be deemed a management contract or compensatory arrangement.
No. Description ---- -----------------------------------------------------------------
Form of executive employment agreement (filed as Exhibit (10.2) to the Company's Form 10-Q Report for the quarter ended September 30, 1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Form of senior management employment agreement (filed as Exhibit (10.3) to the Company's Form 10-Q Report for the quarter ended September 30, 1996)*:
Michael B. Costello
Edward J. Grady
Bonnie L. Shuman
Construction contract for new office building located at the Company's corporate headquarters (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1997)**
(13) Annual Report to Stockholders for the year ended December 31, 1998***
(21) Significant Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
(b) As previously reported in the Company's Form 10-Q Report for the quarter ended September 30, 1998, a report on Form 8-K was filed on October 20, 1998 reporting a press release issued by the Company on October 19, 1998 concerning its financial results for the quarter ended September 30, 1998.
*Previously filed as indicated and incorporated herein by reference. May be deemed a management contract or compensatory arrangement.
**Previously filed as indicated and incorporated herein by reference.
***With the exception of the material specifically incorporated by reference in Part I and Part II of this Form 10-K, the Annual Report to Stockholders for the year ended December 31, 1998 is not to be deemed "filed" as part of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SHARED MEDICAL SYSTEMS CORPORATION
By: /S/ R. James Macaleer Date: March 31, 1999 ----------------------------------------- -------------- R. James Macaleer - Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /S/ R. James Macaleer Date: March 31, 1999 ----------------------------------------- -------------- R. James Macaleer - Chairman of the Board
By: /S/ Marvin S. Cadwell Date: March 31, 1999 ----------------------------------------- -------------- Marvin S. Cadwell - Director, President, and Chief Executive Officer
By: /S/ Raymond K. Denworth Date: March 31, 1999 ----------------------------------------- -------------- Raymond K. Denworth, Jr. - Director
By: /S/ Frederick W. DeTurk Date: March 31, 1999 ----------------------------------------- -------------- Frederick W. DeTurk - Director
By: /S/ Josh S. Weston Date: March 31, 1999 ----------------------------------------- -------------- Josh S. Weston - Director
By: /S/ Jeffrey S. Rubin Date: March 31, 1999 ----------------------------------------- -------------- Jeffrey S. Rubin - Director
By: /S/ Gail R. Wilensky Date: March 31, 1999 ----------------------------------------- -------------- Gail R. Wilensky - Director
By: /S/ Terrence W. Kyle Date: March 31, 1999 ----------------------------------------- -------------- Terrence W. Kyle - Senior Vice President, Treasurer, and Assistant Secretary
By: /S/ Edward J. Grady Date: March 31, 1999 ----------------------------------------- -------------- Edward J. Grady - Vice President, Controller, and Assistant Treasurer
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Shared Medical Systems Corporation:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Shared Medical Systems Corporation's 1998 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 8, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 is 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 audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/S/ Arthur Andersen LLP
Philadelphia, PA February 8, 1999
SCHEDULE II
SHARED MEDICAL SYSTEMS CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997*, AND 1996* -------------------------------------------------------
(1)Additions/(Write-offs) of uncollectible accounts
* Restated to reflect the acquisition of Data-Plan Software GmbH in 1998, which was accounted for as a pooling of interests.
Exhibit Index
No. Description ---- -----------------------------------------------------------------
(3) Articles of Incorporation and By-laws -
Certificate of Amendment of Restated Certificate of Incorporation dated May 21, 1997 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
Restated Certificate of Incorporation dated May 14, 1992 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*, By-laws as amended through August 10, 1995 (filed as Exhibit (3) to the Company's Form 10-Q Report for the quarter ended September 30, 1995)*
(4) Instruments defining the rights of security holders, including indentures -
Rights Agreement dated as of May 1, 1991, between the Registrant and Pittsburgh National Bank, as Rights Agent (filed as Exhibit (4) to Company's Form 10-K Report for the year ended December 31, 1996)*
(10) Material Contracts -
Deferred compensation agreements:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
James C. Kelly (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
Form of deferred compensation agreement:**
Marvin S. Cadwell
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr. (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1997)*
*Previously filed as indicated and incorporated herein by reference. **May be deemed a management contract or compensatory arrangement.
No. Description ---- -----------------------------------------------------------------
Performance bonus plans - 1998:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1998)*
Form of performance bonus plan (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1998)*:
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Performance bonus plans - 1997:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
Form of performance bonus plan (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997):*
V. Brewster Jones
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Insurance agreement:**
R. James Macaleer (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1995)*
Employment agreements:**
Marvin S. Cadwell (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1996)*
V. Brewster Jones (filed as Exhibit (10) to the Company's Form 10-Q Report for the quarter ended June 30, 1997)*
*Previously filed as indicated and incorporated herein by reference. **May be deemed a management contract or compensatory arrangement.
No. Description ---- -----------------------------------------------------------------
Form of executive employment agreement (filed as Exhibit (10.2) to the Company's Form 10-Q Report for the quarter ended September 30, 1996)*:
Terrence W. Kyle
Francis W. Lavelle
David F. Perri
Guillermo N. Ramas, Sr.
Form of senior management employment agreement (filed as Exhibit (10.3) to the Company's Form 10-Q Report for the quarter ended September 30, 1996)*:
Michael B. Costello
Edward J. Grady
Bonnie L. Shuman
Construction contract for new office building located at the Company's corporate headquarters (filed as Exhibit (10) to the Company's Form 10-K Report for the year ended December 31, 1997)**
(13) Annual Report to Stockholders for the year ended December 31, 1998***
(21) Significant Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
*Previously filed as indicated and incorporated herein by reference. May be deemed a management contract or compensatory arrangement.
**Previously filed as indicated and incorporated herein by reference.
***With the exception of the material specifically incorporated by reference in Part I and Part II of this Form 10-K, the Annual Report to Stockholders for the year ended December 31, 1998 is not to be deemed "filed" as part of this Form 10-K.