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10-K/A 1 w86905e10vkza.htm ANNUAL REPORT, AMENDMENT NO.1 e10vkza

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
Amendment No. 1

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-24539
ECLIPSYS CORPORATION
(Exact name of registrant as specified in its charter)


Delaware (State of Incorporation)		65-0632092 (I.R.S. Employer Identification Number)

1750 Clint Moore Road
Boca Raton, Florida
33487
(Address of principal executive offices)

(561) 322-4321
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value, and Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act rule 12b-2). Yes [X] No [ ]

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2002 based upon the closing price of the Common Stock on the Nasdaq National Market for such date, was $234,313,808.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


	Shares
	Outstanding as of
Class	March 19, 2003
Common Stock, $.01 par value		45,218,965

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company’s definitive Proxy Statement to be used in connection with the annual meeting of stockholders for the year 2003 will be incorporated by reference into Part III of this Form 10-K.

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to the Annual Report on Form 10-K of Eclipsys Corporation (“the Company”) for the year ended December 31, 2002 (the “Original Form 10-K”) is to revise the pro forma disclosure information that is required by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” for each of the years ended December 31, 2000, 2001 and 2002. The revised disclosure is contained in Note 2 to the Company’s consolidated financial statements under the caption “Stock-Based Compensation”.

The Company has amended in its entirety Item 8 “Financial Statements and Supplementary Data” of the Original Form 10-K, which is the only Item affected by the revision. The Company has also amended in its entirety Item 15 “Exhibits, Financial Statement Schedules, and Reports on Form 8-K” of the Original Form 10-K to reflect the refiling of Exhibits 23 and 99.1 thereto. This Amendment No. 1 does not reflect events occurring after the filing of the Original Form 10-K, or modify or update any disclosures contained in the Original Form 10-K (including disclosures relating to risks, uncertainties and other factors that may affect the Company’s future performance), in any way, except as required to revise the pro forma disclosure.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements:

Financial Statements:


	Page

Report of Independent Accountants		4
Consolidated Balance Sheets as of December 31, 2001 and 2002		5
Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002		6
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002		7
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2000, 2001 and 2002		8
Notes to the Consolidated Financial Statements		9

Financial Statement Schedules:

Schedule II — Valuation of Qualifying Accounts for each of the three years in the period ended December 31, 2002		26

All other schedules are omitted as they are not applicable or the required information is shown in the financial statements or notes thereto



Signatures			30
Certifications			31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and the Stockholders of Eclipsys Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index on page 31 present fairly, in all material respects, the financial position of Eclipsys Corporation and its subsidiaries at December 31, 2001 and December 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index on page 31 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2 to the consolidated financial statements, the Company has revised the pro forma disclosure information that is required by Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation.”

As discussed in Note 2, the Company adopted statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” as of January 1, 2002.

PricewaterhouseCoopers LLP

Atlanta, Georgia
January 24, 2003 except for the disclosure information in Note 2 under the caption “Stock-Based Compensation,” for which the date is May 22, 2003

ECLIPSYS CORPORATION
Consolidated Balance Sheets
(in thousands, except share and per share data)


			December 31,

			2001			2002

Assets
Current assets:
	Cash and cash equivalents		$	168,942		$	183,500
	Accounts receivable, net of allowance for doubtful accounts of $5,572 and $3,412 at December 31, 2001 and 2002, respectively			66,094			46,822
	Inventory			667			656
	Other current assets			18,424			16,921

		Total current assets		254,127			247,899
Property and equipment, net				21,675			26,800
Capitalized software development costs, net				13,831			16,375
Acquired technology, net				3,345			267
Goodwill, net				454			454
Intangible assets, net				174
Other assets				6,888			9,402

		Total assets	$	300,494		$	301,197

Liabilities and Stockholders’ Equity
Current liabilities:
	Deferred revenue		$	56,428		$	79,235
	Accrued compensation costs			12,219			14,442
	Other current liabilities			10,529			13,854

		Total current liabilities		79,176			107,531
Deferred revenue				2,418			843
Other long-term liabilities				699			226
Commitments and contingencies (See note 8)
Stockholders’ Equity:
	Common stock, $0.01par value, 200,000,000 shares authorized; issued and outstanding, 44,382,413 and 45,088,872			444			451
	Additional paid-in capital			400,242			405,380
	Unearned stock compensation			(32	)		(1,021	)
	Accumulated deficit			(182,051	)		(211,814	)
	Accumulated other comprehensive income			(402	)		(399	)

		Total stockholders’ equity		218,201			192,597

		Total liabilities and stockholders’ equity	$	300,494		$	301,197

The accompanying notes are an integral part of these consolidated financial statements.

ECLIPSYS CORPORATION
Consolidated Statements of Operations
(in thousands, except share and per share data)


			Year Ended December 31,

			2000			2001			2002

Revenues:
	Systems and services		$	208,224		$	223,171		$	203,218
	Hardware			13,094			16,505			14,850

		Total revenues		221,318			239,676			218,068

Costs and expenses:
	Cost of systems and services revenues			145,153			124,255			119,044
	Cost of hardware revenues			10,350			13,571			12,270
	Sales and marketing			40,143			42,698			53,175
	Research and development			37,382			37,034			46,228
	General and administrative			10,380			10,278			12,434
	Depreciation and amortization			13,442			13,900			8,531
	Pooling and transaction costs			1,900			(472	)		—
	Restructuring charge			1,198			—			—

		Total costs and expenses		259,948			241,264			251,682

Loss from operations				(38,630	)		(1,588	)		(33,614	)

Interest income, net				1,075			5,996			4,016
Other income, net				3,596			—			—

(Loss) income before income taxes				(33,959	)		4,408			(29,598	)
Provision for income taxes				—			—			165

Net (loss) income			$	(33,959	)	$	4,408		$	(29,763	)

Net (loss) income per share:
	Basic net (loss) income per common share		$	(0.92	)	$	0.10		$	(0.67	)

	Diluted net (loss) income per common share		$	(0.92	)	$	0.09		$	(0.67	)

	Basic weighted average common shares outstanding			36,765,975			43,243,512			44,710,754

	Diluted weighted average common shares outstanding			36,765,975			46,795,361			44,710,754

The accompanying notes are an integral part of these consolidated financial statements.

ECLIPSYS CORPORATION
Consolidated Statements of Cash Flows
(in thousands)


					Year Ended December 31,

					2000			2001			2002

Operating activities:
	Net (loss) income				$	(33,959	)	$	4,408		$	(29,763	)
	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Depreciation and amortization				36,418			36,472			19,576
		Provision for bad debts				3,855			4,305			2,205
		Write-down of accounts receivable				9,400			—			—
		Write-down of investment				836			—			—
		Gain on sale of investment				(4,462	)		—			—
		Stock compensation expense				144			144			134
		Changes in operating assets and liabilities:
			Accounts receivable			(1,061	)		(6,487	)		16,443
			Inventory			(880	)		202			11
			Other current assets			6,349			(11,570	)		1,503
			Other assets			(1,825	)		(684	)		(4,203	)
			Deferred revenue			(7,911	)		7,617			21,233
			Other current liabilities			(16,184	)		(5,613	)		5,547
			Other long-term liabilities			(1,387	)		(928	)		(473	)

				Total adjustments		23,292			23,458			61,976

				Net cash (used in) provided by operating		(10,667	)		27,866			32,213
Investing activities:
	Purchase of investments					(7,905	)		—			—
	Sale of investments					12,432			—			—
	Purchases of property and equipment					(8,019	)		(11,601	)		(12,857	)
	Capitalized software development costs					(6,407	)		(6,876	)		(8,823	)

		Net cash used in investing activities				(9,899	)		(18,477	)		(21,680	)

Financing activities:
	Borrowings					2,012			—			—
	Payments on borrowings					(521	)		(1,491	)		—
	Exercise of warrants					4			—			—
	Sale of common stock					—			123,231			—
	Exercises of stock options					4,330			14,683			1,470
	Employee stock purchase plan					1,492			2,498			2,552

		Net cash provided by financing activities				7,317			138,921			4,022

Effect of exchange rates on cash and cash equivalents						92			(167	)		3
Net (decrease) increase in cash and cash equivalents						(13,157	)		148,143			14,558
Cash and cash equivalents — beginning of year						33,956			20,799			168,942

Cash and cash equivalents — end of year					$	20,799		$	168,942		$	183,500

Cash paid for interest					$	388		$	51		$	—

Cash paid for income taxes					$	62		$	69		$	110

The accompanying notes are an integral part of these consolidated financial statements.

ECLIPSYS CORPORATION
Consolidated Statement of Changes in Stockholders’ Equity
(in thousands)

	Voting and
	Non-Voting															Accumulated
	Common Stock				Additional		Unearned									Other
					Paid-in		Stock			Accumulated			Comprehensive			Comprehensive
	Shares		Amount		Capital		Compensation			Deficit			Income (Loss)			Income (Loss)			Total

Balance at December 31, 1999		36,303,825	$	363	$	254,085	$	(320	)	$	(152,500	)				$	(327	)	$	101,301
Exercise of stock options		495,328		5		2,988														2,993
Employee stock purchase plan		296,203		3		2,704														2,707
Exercise of warrants		40,765		—		4														4
Compensation expense recognized						122		144												266
Net loss											(33,959	)	$	(33,959	)					(33,959	)
Foreign currency translation adjustment														92			92			92

Other comprehensive income														92

Comprehensive income														(33,867	)

Balance at December 31, 2000		37,136,121		371		259,903		(176	)		(186,459	)					(235	)		73,404
Exercise of stock options		1,317,632		15		14,668														14,683
Employee stock purchase plan		178,660				2,498														2,498
Public offering		5,750,000		58		123,173														123,231
Compensation expense recognized								144												144
Comprehensive income:
Net income											4,408			4,408						4,408
Foreign currency translation adjustment														(167	)		(167	)		(167	)

Other comprehensive income														(167	)

Comprehensive income														4,241


Balance at December 31, 2001		44,382,413		444		400,242		(32	)		(182,051	)					(402	)		218,201

Exercise of stock options		190,917		2		1,468														1,470
Employee stock purchase plan		365,542		4		2,548														2,552
Issuance of restricted stock		150,000		1		1,122		(1,123	)											—
Compensation expense recognized								134												134
Comprehensive income:
Net loss											(29,763	)		(29,763	)					(29,763	)
Foreign currency translation adjustment														3			3			3

Other comprehensive income														3

Comprehensive income														(29,760	)

Balance at December 31, 2002		45,088,872	$	451	$	405,380	$	(1,021	)	$	(211,814	)				$	(399	)	$	192,597

The accompanying notes are an integral part of these consolidated financial statements.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Eclipsys Corporation (“Eclipsys”) and its subsidiaries (collectively, the “Company”) is a healthcare information technology company. Eclipsys designs and offers a comprehensive package of software applications and services that together enable providers in a variety of healthcare settings to improve the effectiveness of their operations. Eclipsys’ advanced software solutions and services assist healthcare organizations (HCOs) in improving their outcomes by augmenting the quality of care and the level of patient satisfaction, reducing costs and enhancing revenues. Eclipsys’ products perform the core information technology functions required by healthcare organizations and other healthcare providers throughout the healthcare enterprise. Eclipsys’ services offerings include consulting, outsourcing, remote hosting, networking technologies and other related services.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The financial statements include the accounts of Eclipsys and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company manages its business as one reporting segment.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results could differ from those estimates. The most significant potential differences relate to the allowance for doubtful accounts, revenues recognized under the percentage-of-completion method, the amounts recorded for capitalized software development costs and the valuation allowance for deferred tax assets.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 2002 presentation. See discussion of EITF Issue 01-14, under New Accounting Pronouncements, herein.

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value.

Revenue Recognition

Revenues are derived from licensing of computer software, software and hardware maintenance, remote hosting and outsourcing, training, implementation assistance, consulting and the sale of computer hardware. The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2 “Software Revenue Recognition” (“SOP 97-2”) which requires, among other matters, that there be a signed contract evidencing an arrangement exists, delivery of the software has occurred, the fee is fixed or determinable and collectibility of the fee is probable.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

Systems and Services Revenue

Multiple Element Arrangements

The Company generally contracts under multiple element arrangements, which include software license fees, hardware and services including consulting, implementation and software maintenance for periods of 3 to 7 years. Under these arrangements, where vendor specific objective evidence (“VSOE”) exists for all undelivered elements, the Company accounts for the delivered elements in accordance with the “residual method” prescribed by the AICPA Statement of Position (“SOP”) 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect of Certain Transactions.” For arrangements in which VSOE does not exist for each element, including specified upgrades, revenue is deferred and not recognized until delivery of all of the elements without VSOE has occurred. For software license arrangements that are bundled with services and maintenance where services are considered essential to the functionality of the software and provide for payments upon the achievement of implementation milestones, we recognize revenues using the percentage-of-completion method. Under these arrangements, software license fees and implementation fees are recognized over the implementation period, which has typically ranged from 12 to 24 months.

In 2000, the Company began entering into long-term multiple element arrangements in which it provides its customers with comprehensive technology solutions. These arrangements typically include multiple software products (including the right to future products within the suites purchased), implementation and consulting services, maintenance, and, where desired by the customer, outsourcing and remote hosting services. The customer is entitled to these elements throughout the term of the arrangements, which range from seven to ten years. Payments are due yearly, quarterly or monthly over the arrangement term. The Company bundles all fees due under these comprehensive multiple element arrangements and recognizes the revenue ratably over the contract term. Additionally, these contracts may contain provisions by which the Company may earn additional fees based on customer savings or other objectives, as defined in the arrangements. These additional fees are recognized as revenues upon receipt of payment from the customer. In addition, the Company capitalizes related direct costs consisting of third party software costs and direct software implementation costs. These costs are amortized over the term of the arrangement. During 2002, we began to enter into arrangements that consist of fees for a multi-year, time-based software license, hardware and services including implementation, consulting and software maintenance. The Company recognizes the revenue under these arrangements in accordance with SOP No. 97-2, including the AICPA Software Revenue Recognition Task Force Technical Practice Aid 5100.54.

Revenue from other software license fees, which are bundled with long-term maintenance agreements (with terms from 3 to 7 years), is recognized on a straight-line basis over the contracted maintenance period. Other software license fee arrangements relate to certain “add-on” modules sold to customers in the installed base. Because the Company does not sell the “add-on” modules or the associated extended term maintenance elements separately, the entire arrangement fee is recognized as revenue over the contracted maintenance period in accordance with paragraph 12 of SOP 97-2.

Services

Remote hosting and outsourcing services are marketed under long-term arrangements generally over periods from 5 to 10 years. Revenues from these arrangements are recognized as the services are performed.

Software maintenance fees are marketed under annual and multi-year agreements and are recognized as revenue ratably over the contracted maintenance term. The Company’s software maintenance arrangements include when and if available upgrades and do not contain specific upgrade rights.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

Implementation revenues and other services, including training and consulting are recognized as services are performed for time and material arrangements and using the percentage of completion method based on labor input measures for fixed fee arrangements. The Company sells these services separately and accordingly has sufficient vendor specific objective evidence of the element to recognize revenue.

Hardware Sales and Maintenance Revenue

Hardware sales are generally recognized upon delivery of the equipment to the customer. Hardware maintenance revenues are billed and recognized monthly over the contracted maintenance term.

Unbilled Accounts Receivable and Deferred Revenue

The timing of revenue recognition and contractual billing terms under certain multiple element arrangements may not precisely coincide, resulting in the recording of unbilled accounts receivable or deferred revenue. Customer payments are due under these arrangements in varying amounts upon the achievement of certain contractual milestones throughout the implementation periods, which generally range from 12 to 24 months. The current portion of unbilled accounts receivable is included in accounts receivable in the accompanying financial statements.

In addition, the Company maintains certain long-term contracts used to finance a portion of certain customer hardware and software fees owed. These arrangements generally provide for payment terms that range from three to five years and carry interest rates that range from 7% to 10%. Such amounts are recorded as non-current unbilled accounts receivables until the customers are billed which is generally on a monthly basis. The non-current portion of amounts due related to these arrangements was $1.8 million and $1.5 million as of December 31, 2001 and 2002, respectively, and is included in other assets in the accompanying financial statements. The current portion of amounts due related to these arrangements is included in accounts receivable in the accompanying financial statements. Accounts receivable was composed of the following as of December 31, (in thousands):


		2001		2002

Accounts Receivable:
	Billed accounts receivable, net	$	56,114	$	42,280
	Unbilled accounts receivable related to long-term contracts (current portion)		3,212		2,860
	Other unbilled accounts receivable, net		6,768		1,682

	Total unbilled accounts receivable, net		9,980		4,542

Total accounts receivable, net		$	66,094	$	46,822

Inventory

Inventory consists of computer equipment, parts and peripherals and is stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

Capitalized Software Development Costs

The Company capitalizes a portion of its computer software development costs incurred subsequent to establishing technological feasibility. These costs include salaries, benefits, consulting and other directly related costs incurred in connection with programming and testing software products. Capitalization ceases when the products are generally released for sale to customers. Management monitors the net realizable value

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

of all capitalized software development costs to ensure that the investment will be recovered through margins from future sales. Capitalized software development costs were approximately $6.4 million, $6.9 million and $8.8 million for the years ended December 31, 2000, 2001 and 2002, respectively. These costs are amortized over the greater of the ratio that current revenues bear to total and anticipated future revenues for the applicable product or the straight-line method over three years. Amortization of capitalized software development costs, which is included in cost of systems and services revenues, was approximately $2.9 million, $4.5 million and $6.3 million for the years ended December 31, 2000, 2001 and 2002, respectively. Accumulated amortization of capitalized software development costs was $14.1 million and $20.4 million as of December 31, 2001 and 2002, respectively.

Acquired Technology and Intangible Assets

Acquired technology and intangible assets are amortized on a straight-line basis over their estimated useful lives. The carrying values of acquired technology and intangible assets are reviewed if the facts and circumstances suggest that they may be impaired and goodwill is reviewed at least annually. This review indicates whether assets will be recoverable based on future expected cash flows. The gross and net amounts for acquired technology, goodwill and intangible assets consisted of the following as of December 31, (in thousands):


		2001				2002

		Gross		Net		Gross		Net		Useful Life

Amounts subject to amortization:
	Acquired technology	$	95,795	$	3,345	$	95,795	$	267	3 - 7 years
	Ongoing customer relationships		10,690		174		10,690		—	5 years
	Network services		5,764		—		5,764		—	3 years

			112,249		3,519		112,249		267
Amounts not subject to amortization:
	Goodwill		17,834		454		454		454

		$	130,083	$	3,973	$	112,703	$	721

Amortization of acquired technology and ongoing customer relationships for the year ended December 31, 2002 was $3,078,000 and $174,000, respectively. The ongoing customer relationships became fully amortized during the first quarter of 2002. The estimated amortization expense for the next five fiscal years is as follows (in thousands):

For year ending 12/31/03
267

Thereafter
—

Total
$ 267

Amortization of the acquired technology and network services assets is included in the cost of systems and services revenues.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142 “Goodwill and Other Intangible Assets.” Under this new standard, the FASB eliminated amortization of goodwill and created indefinite life intangible assets and established new impairment measurement procedures for goodwill. In accordance with SFAS 142, goodwill is no longer amortized, but instead tested for impairment at least once annually. There was no impairment of goodwill upon adoption of SFAS 142, and amortization ceased as of January 1, 2002, leaving a recorded balance of $454,000 for goodwill as of December 31, 2001 and 2002. The

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

effect of adopting SFAS 142 was to reduce depreciation and amortization expense by $454,000 for the year ended December 31, 2002. Net income and earnings per share adjusted to exclude amortization expense is as follows for the years ended December 31, (in thousands, except earnings per share):


			2000			2001

Net income:
	Reported net income		$	(33,959	)	$	4,408
	Goodwill amortization			5,061			4,636

		Adjusted net income	$	(28,898	)	$	9,044

Basic and diluted net income per share:
	Reported basic net income per share		$	(0.92	)	$	0.10
	Goodwill amortization			0.13			0.11

		Adjusted basic net income per share	$	(0.79	)	$	0.21

	Reported diluted net income per share		$	(0.92	)	$	0.09
	Goodwill amortization			0.13			0.10

		Adjusted diluted net income per share	$	(0.79	)	$	0.19

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, and other current liabilities, approximate fair value.

Income Taxes

The Company accounts for income taxes utilizing the liability method, and deferred income taxes are determined based on the estimated future tax effects of differences between the financial reporting and income tax basis of assets and liabilities and tax carry-forwards given the provisions of the enacted tax laws.

Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Under this method, compensation cost for stock options is measured as the excess, if any, of the estimated market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. Accordingly, the Company provides the additional disclosures required under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure.”

The Company has adopted the disclosure only provision of SFAS No. 123. On May 19, 2003, the Company revised its SFAS No. 123 pro forma stock option disclosure presented below to reflect the proper calculation of pro forma stock option expense for all periods presented. Had compensation cost for the Company’s stock option grants described above been determined based on the fair value at the grant date for awards in 2000, 2001 and 2002, consistent with the provisions of SFAS No. 123, the Company’s net loss and loss per

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

share would have been increased to the pro forma amounts indicated below for the years ended December 31, (in thousands, except per share data):


		2000			2001			2002

Net (loss) income:
	As reported	$	(33,959	)	$	4,408		$	(29,763	)
	Add: Stock-based employee compensation expense included in reported net (loss) income, net of related tax effects		144			144			134
	Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(23,793	)		(26,036	)		(24,182	)

	Pro forma as revised	$	(57,608	)	$	(21,484	)	$	(53,811	)
	Pro forma originally reported	$	(45,032	)	$	1,252		$	(33,419	)
Basic net (loss) income per share:
	As reported	$	(0.92	)	$	0.10		$	(0.67	)
	Pro forma	$	(1.57	)	$	(0.50	)	$	(1.20	)
Diluted net (loss) income per share:
	As reported	$	(0.92	)	$	0.09		$	(0.67	)
	Pro forma	$	(1.57	)	$	(0.50	)	$	(1.20	)

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 2000, 2001 and 2002: dividend yield of 0% for all years, risk-free interest rate of 5.75% for 2000, 4.27% for 2001 and 3.11% for 2002, expected life of 9.88, 6.81 and 4.61 years based on the plan and volatility of 100% for 2000, 93% for 2001 and 92% for 2002, respectively.

Basic and Diluted Net (Loss) Income Per Share

For all periods presented, basic and diluted net (loss) income per common share is presented in accordance with SFAS 128, “Earnings per Share,” which provides for the accounting principles used in the calculation of earnings per share. Basic net (loss) income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share reflects the potential dilution from assumed conversion of all dilutive securities such as stock options and warrants. Stock options to acquire 9,148,878, 8,006,072 and 9,020,711 shares of common stock at December 31, 2000, 2001 and 2002, respectively, and warrants to acquire up to 5,160 shares of common stock at December 31, 2000, 2001 and 2002, were the only securities issued which would be included in the diluted earnings per share calculation, if dilutive. In 2000 and 2002 the inclusion of stock options and warrants would have been

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

antidilutive due to the net loss reported by the Company and therefore excluded from the calculation. The computations of the basic and diluted per share amounts were as follows for the years ended December 31,:


		2000			2001		2002

Basic Earnings Per Share:
Net (loss) income (in thousands)		$	(33,959	)	$	4,408	$	(29,763	)
Weighted average shares outstanding			36,765,975			43,243,512		44,710,754

Basic (loss) earnings per share		$	(0.92	)	$	0.10	$	(0.67	)

Diluted Earnings Per Share:
Net (loss) income (in thousands)		$	(33,959	)	$	4,408	$	(29,763	)
Weighted average shares:
	Outstanding		36,765,975			43,243,512		44,710,754
	Effect of dilutive stock options		—			3,551,849		—

	Total shares		36,765,975			46,795,361		44,710,754

Diluted (loss) earnings per share		$	(0.92	)	$	0.09	$	(0.67	)

Concentration of Credit Risk

The Company’s customers operate primarily in the healthcare industry. The Company sells its products and services under contracts with varying terms. The accounts receivable amounts are unsecured. Management believes the allowance for doubtful accounts is sufficient to cover credit losses. The Company does not believe that the loss of any one customer would have a material effect on the financial position of the Company.

Foreign Currency

The financial position and results of operations of foreign subsidiaries are measured using the currency of the respective countries as the functional currency. Assets and liabilities are translated at the foreign exchange rate in effect at the balance sheet date, while revenue and expenses for the year are translated at the average exchange rate in effect during the year. Translation gains and losses are not included in determining net income or loss but are accumulated and reported as a separate component of stockholders’ equity. The Company has not entered into any hedging contracts during the three-year period ended December 31, 2002.

Comprehensive Income

Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income” requires that the total changes in equity resulting from revenue, expenses, and gains and losses, including those that do not affect the accumulated deficit, be reported. Accordingly, those amounts, which are comprised solely of foreign currency translation adjustments, are included in other comprehensive income in the consolidated statement of changes in stockholders’ equity.

New Accounting Pronouncements

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001. This statement supercedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it retains the fundamental provisions of SFAS 121 for the

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale. Impairment of goodwill is not included in the scope of SFAS 144 and will be treated in accordance with the accounting standards established in SFAS 142. According to SFAS 144, long-lived assets are measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing or discontinued operations. The statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Unusual and Infrequently Occurring Events and Transactions,” for the disposal of segments of a business. The adoption of SFAS 144 has had no impact on the Company’s financial position or results of operations.

In November 2001, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue 01-09, “Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products,” which is a codification of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a vendor to a customer or reseller of the vendor’s products is a reduction in the selling prices of the vendor’s product and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income statement and could lead to negative revenue under certain circumstances. Revenue reduction is required unless the consideration related to a separate identifiable benefit and the benefit’s fair value can be established. The Company adopted EITF 01-09 effective January 1, 2002, and it had no material impact on the Company’s financial position or results of operations.

In January 2002, the EITF reached a consensus on EITF Issue 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred.” This consensus requires that reimbursements received for out-of-pocket expenses incurred be characterized as revenue in the income statement. The Company adopted EITF 01-14 effective January 1, 2002 and has made the appropriate reclassifications as required by EITF 01-14. The effect of adopting EITF 01-14 was to increase both revenues and expenses by $4,780,000, $2,682,000 and $2,990,000 for 2000, 2001 and 2002, respectively.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. It nullifies the guidance in EITF Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under EITF 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS 146, the Board acknowledges that an entity’s commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability. SFAS 146 also establishes that fair value is the objective for the initial measurement of the liability. SFAS 146 became effective for exit or disposal activities that were initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 to have a significant impact on the Company’s financial position or results of operations.

In November 2002, the FASB reached a consensus on EITF Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“the Issue”). The guidance in this Issue is effective for revenue arrangements entered into fiscal years beginning after June 15, 2003. The Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, the Issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one earnings process and, if it does, how to divide the arrangement into separate units of accounting consistent with the identified earnings processes for revenue recognition purposes. The Issue also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. We currently follow the appropriate accounting pronouncement as discussed in our Revenue Recognition policy note and anticipate that the Issue will have no impact on the results of operations, financial position or cash flows.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies – (Continued)

In November 2002, the FASB issued FASB Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” This interpretation clarifies the requirements of SFAS 5, “Accounting for Contingencies,” relating to guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with a separately identified premium and guarantees issued without a separately identified premium. The interpretation’s provisions for initial recognition and measurement are required on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of both interim and annual periods that ended after December 15, 2002. We have adopted the disclosure provisions of this interpretation and it did not have a material impact on our financial position, results of operations, or cash flows. We will adopt the remaining provisions on January 1, 2003 and believe that this Interpretation will not have a material impact on our financial position, results or operations, or cash flows.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock Based Compensation-Transition and Disclosure- an Amendment to SFAS 123.” SFAS 148 provides two additional transition methods for entities that adopt the preferable method of accounting for stock based compensation. Further, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. The amendments to SFAS 123, which provides for additional methods, are effective for periods beginning after December 15, 2002, although earlier application is permitted. The amendments to the disclosure requirements are required for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We anticipate that we will adopt the additional disclosure requirements in our interim and annual filings of SFAS 148 and will continue to account for stock based compensation under APB No. 25.

In January 2003, the FASB issued FASB Interpretation 46, “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities that possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. We do not have any ownership in any variable interest entities as of December 31, 2002. We will apply the consolidation requirement of the interpretation in future periods if we should own any interest in any variable interest entity.

3. Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives, which generally range from two to seven years. Computer equipment is depreciated over two to five years. Office equipment is depreciated over two to seven years. Purchased software for internal use is amortized over three years. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the remaining term of the lease. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Expenditures for repairs and maintenance not considered to

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Property and Equipment – (Continued)

substantially lengthen the property and equipment lives are charged to expense as incurred. The balances for property and equipment were as follows as of December 31, (in thousands):


	2001			2002

Computer equipment	$	18,204		$	25,702
Office equipment and other		5,824			6,561
Purchased software		6,633			11,084
Leasehold improvements		7,183			7,972

		37,844			51,319
Less: Accumulated depreciation and amortization		(16,169	)		(24,519	)

	$	21,675		$	26,800

Depreciation and amortization expense of property and equipment totaled approximately $5.7 million, $6.7 million and $8.4 million in 2000, 2001 and 2002, respectively.

4. Stockholders’ Equity

Restricted Stock Grant

On July 15, 2002, Mr. Paul Ruflin joined the Company as its Chief Executive Officer and President. Under his employment arrangement with the Company, Mr. Ruflin received a restricted stock grant effective July 15, 2002 of 150,000 shares of the Company’s common stock subject to a five-year vesting schedule, plus an option to purchase 850,000 shares of the Company’s common stock at a price of $7.50, with vesting over a five-year period. During 2002, stock compensation related to this restricted stock grant amounted to $103,000 and as of December 31, 2002, the Company had unearned stock compensation of $1,021,000 recorded in stockholders’ equity.

Undesignated Preferred Stock

The Company has available for issuance, 5,000,000 shares of preferred stock. As discussed below under “Shareholder Rights Plan” the Board has designated 100,000 of the 5,000,000 authorized shares of preferred stock as Series A Junior Participating Preferred Stock. The Company has a balance of 4,900,000 authorized shares of undesignated preferred stock (the “Undesignated Preferred”). The liquidation, voting, conversion and other related provisions of the Undesignated Preferred will be determined by the Board of Directors at the time of issuance. Currently, there are no outstanding shares.

Shareholder Rights Plan

On July 26, 2000, the Board of Directors of the Company declared a dividend of one Right for each outstanding share of the Company’s Common Stock to stockholders of record at the close of business on August 9, 2000. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value per share, at a Purchase Price of $65.00 in cash, subject to adjustment. The Rights will initially trade together with the Eclipsys Common Stock and will not be exercisable. If a person or group (other than an exempt person) acquires 15% or more of the outstanding shares of Eclipsys Common Stock, the Rights generally will become exercisable and allow the holder (other than the 15% purchaser) to purchase shares of Eclipsys Common Stock at a 50% discount to the market price. The effect will be to discourage acquisitions of 15% or more of Eclipsys Common Stock without negotiations with the Board. The terms of the Rights are set forth in a Rights Agreement dated as of July 26, 2000 (the “Rights Agreement”) between the Company and Fleet National Bank, as Rights Agent. The Board

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Stockholders’ Equity – (Continued)

has designated 100,000 of the 5,000,000 authorized shares of preferred stock as Series A Junior Participating Preferred Stock.

Secondary Offering of Common Stock

On January 23, 2001, the Company completed a follow-on public offering for 5,750,000 shares of its common stock. Net proceeds from the offering were approximately $123.2 million.

5. Proposed Merger

During the quarter ended March 31, 2000, the Company recorded a gain on its investment in Shared Medical Systems Corp. (“SMS”) of approximately $4.5 million. The investment was made in connection with a proposed merger with SMS that was not consummated. In connection with the proposed merger, the Company recorded transaction costs of approximately $50,000.

On March 30, 2000, the Company entered into a definitive merger agreement to merge with Neoforma.com, Inc. (“Neoforma”) of Santa Clara, California. Neoforma is a provider of business-to-business e-commerce services in the medical products, supplies and equipment industry. During the quarter ended June 30, 2000, the Company and Neoforma agreed to terminate the Merger Agreement between them without the payment of a termination fee. Transaction costs incurred in connection with the proposed merger were approximately $1.9 million.

6. Income Taxes

The income tax provision / (benefit) is calculated as follows for the years ended December 31, (in thousands):


		2000			2001			2002

Current Tax Provision / (Benefit):
	Federal	$	—		$	—		$	—
	State		—			—			165

		$	—		$	—		$	165

Deferred Provision / (Benefit):
	Federal	$	(10,734	)	$	(171	)	$	(10,076	)
	State		(1,257	)		(20	)		(1,180	)
	Valuation allowance		11,991			191			11,256

		$	—		$	—		$	—


Total Provision / (Benefit)		$	—		$	—		$	165

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Income Taxes – (Continued)

A reconciliation of the effect of applying the federal statutory rate and the effective income tax rate on the Company’s income tax provision is as follows for the years ended December 31, (in thousands):


	2000			2001			2002

Statutory federal income tax rate	$	(11,546	)	$	1,499		$	(10,119	)
State income taxes		(1,345	)		175			(1,013	)
Non-deductible amortization		2,640			1,943			—
Other		301			344			479
Valuation allowance, includes effect of acquisitions		9,950			(3,961	)		10,818

Income tax provision	$	—		$	—		$	165

The significant components of the Company’s net deferred tax assets/(liabilities) were as follows as of December 31, (in thousands):


		2001			2002

Deferred tax assets:
	Intangible assets	$	40,823		$	37,804
	Allowance for doubtful accounts		3,241			2,725
	Accrued expenses		203			2,442
	Other		1,719			2,274
	Net operating loss carryforwards		48,419			60,396

		$	94,405		$	105,641

Deferred tax liabilities:
	Unbilled accounts receivable	$	(5,647	)	$	(3,798	)
	Depreciation		(500	)		(1,362	)
	Capitalization of software development costs		(5,250	)		(6,217	)

	Net deferred tax asset		83,008			94,264
	Valuation allowance		(83,008	)		(94,264	)

		$	—		$	—

At December 31, 2002, the Company had net operating loss carryforwards for federal income tax purposes of approximately $153.2 million. The carryforwards expire in varying amounts through 2022. Of this amount, $40.4 million relate to stock option tax deductions, which will be tax-effected and the benefit credited as additional paid-in-capital when realized. Additionally, the Company has Canadian net operating loss carryovers of approximately $5.9 million that expire in varying amounts through 2009.

Under the Tax Reform Act of 1986, the amounts of, and the benefits from, net operating loss carryforwards may be impaired or limited in certain circumstances. The Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code in November 1998. As a result of the ownership change, net operating loss carryforwards of approximately $16 million at November 1998, which were incurred prior to the date of the change, are subject to annual limitations on their future use. As of December 31, 2002, a valuation allowance has been established against the deferred tax assets that management does not believe are more likely than not to be realized.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Employee Benefit Plans

1996 Stock Option Plan

In April 1996, the Board of Directors of the Company (the “Board”) adopted the 1996 Stock Plan (the “1996 Stock Plan”). The 1996 Stock Plan, as amended, provided for grants of stock options, awards of Company stock free of any restrictions and opportunities to make direct purchases of restricted stock of the Company. The 1996 Stock Plan allowed for the issuance of options or other awards to purchase up to 2,500,000 shares of Common Stock. Pursuant to the terms of the 1996 Stock Plan, a committee of the Board was authorized to grant awards to employees and non-employees and establish vesting terms. The options expire ten years from the date of grant. No additional options or other awards may be granted under the 1996 Stock Plan.

1998 Stock Incentive Plan

In January 1998, the Board adopted the 1998 Stock Incentive Plan (the “Incentive Plan”). The Incentive Plan provided for the granting of stock options, stock appreciation rights, restricted stock awards or unrestricted stock awards. No additional options or other awards may be granted under the Incentive Plan.

1999 Stock Incentive Plan

In February 1999, the Board adopted the 1999 Stock Incentive Plan (the “1999 Plan”). The 1999 Plan provided for the granting of stock options, restricted stock, or other stock-based awards. No additional options or other awards may be granted under the 1999 Plan.

2000 Stock Incentive Plan

At the Annual Meeting of Stockholders of the Company held on May 8, 2002, the shareholders voted to approve the amendment and restatement of the Company’s 2000 Stock Incentive Plan, 1999 Stock Incentive Plan, 1998 Stock Incentive Plan and Amended and Restated 1998 Employee Stock Purchase Plan to reflect an increase in the number of shares of common stock authorized for issuance under all of the Company’s stock plans (the 2000 Stock Incentive Plan, the 1999 Stock Incentive Plan, the Amended and Restated Employee Stock Purchase Plan, the 1998 Stock Incentive Plan and the 1996 Stock Plan) from 12,000,000 to 15,000,000. There were 2,194,120 shares available for future issuance under all of the Company’s stock plans as of December 31, 2002. A summary of stock options transactions were as follows during the years ended December 31,:


		2000					2001					2002

					Weighted Average					Weighted Average					Weighted Average
		Options			Exercise Price		Options			Exercise Price		Options			Exercise Price

Outstanding at beginning of the year			5,494,673		$	16.98		9,148,878		$	12.87		8,006,072		$	12.22
	Granted		4,977,159			8.46		1,196,284			14.70		1,922,925			8.20
	Exercised		(510,253	)		6.62		(1,342,619	)		10.96		(195,277	)		7.53
	Forfeited		(812,701	)		17.71		(996,471	)		22.89		(713,009	)		15.14

Outstanding at end of year			9,148,878			12.87		8,006,072			12.22		9,020,711			11.23

Exercisable at end of the year			2,319,237					3,425,434					4,960,438

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Employee Benefit Plans – (Continued)


	2000				2001				2002

	Weighted Average		Weighted Fair		Weighted Average		Weighted Fair		Weighted Average		Weighted Fair
Option Granted During the Year	Exercise Price		Market Value		Exercise Price		Market Value		Exercise Price		Market Value

Option price > Fair market value		—				—				—
Option price = Fair market value	$	8.46			$	14.70			$	8.20
Option price < Fair market value		—				—				—
Weighted Fair Market Value Options			$	7.98			$	10.70			$	6.59

The following table summarizes information about stock options outstanding at December 31, 2002:


	Options Outstanding						Options Exercisable

			Weighted Average
			Remaining
	Number Outstanding		Contractual Life		Weighted Average		Number Exercisable		Weighted Average
Range of Exercise Price	at 12/31/02		(in years)		Exercise Price		at 12/31/02		Exercise Price

$0.10-$6.44		1,316,169		8.53	$	5.88		394,594	$	5.63
$6.50-$7.50		1,326,440		7.74		7.17		396,840		6.59
$8.25-$8.25		2,572,894		7.53		8.25		1,755,474		8.25
$9.06-$13.20		996,222		7.83		11.60		468,247		10.74
$13.21-$15.13		1,274,287		7.35		14.63		808,971		14.69
$15.63-$22.00		911,816		7.44		18.42		540,798		18.71
$23.00-$23.38		522,611		6.23		23.35		495,242		23.35
$25.71-$25.71		22,049		4.11		25.71		22,049		25.71
$35.83-$35.83		39,374		4.58		35.83		39,374		35.83
$43.57-$43.57		38,849		4.88		43.57		38,849		43.57

		9,020,711

Employee Savings Plan

During 1997, the Company established a Savings Plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), whereby employees may contribute a percentage of their compensation, not to exceed the maximum amount allowable under the Code. At the discretion of the Board, the Company may elect to make matching contributions, as defined in the Plan. For the years ended December 31, 2000, 2001 and 2002, the Board authorized matching contributions totaling $801,000, $532,000 and $750,000, respectively.

1998 Employee Stock Purchase Plan

Under the Company’s 1998 Employee Stock Purchase Plan (the “Purchase Plan”) (implemented in April 1998), employees of the Company, including directors of the Company who are employees are eligible to participate in quarterly plan offerings in which payroll deductions may be used to purchase shares of Common Stock. The purchase price of such shares is the lower of 85% of the fair market value of the Common Stock on the day the offering commences and 85% of the fair market value of the Common Stock on the day the offering terminates.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Commitments and Contingencies

Noncancelable Operating Leases

The Company leases its office space and certain equipment under noncancelable operating leases. Rental expense under operating leases was approximately $10.6 million, $11.4 million and $11.8 million for the years ended December 31, 2000, 2001 and 2002, respectively. Future minimum rental payments under noncancelable operating leases as of December 31, 2002 are as follows (in thousands):


Year Ending December 31,
2003	$	10,185
2004		8,244
2005		5,997
2006		5,478
2007		3,885
Thereafter		3,270

	$	37,059

Subsequent to December 31, 2002 the Company contracted for a minimum number of hours for airplane charters with a related (note 9). The minimum commitment amounts to $761,000 per year for 2003 through 2005.

Litigation

From July through September 2002, the Company and three of its officers (Messrs. Colletti, Patton and Wilson) were named in seven complaints filed by purported shareholders of the Company in the United States District Court, Southern District of Florida, West Palm Beach Division (the “District Court”). Each complaint seeks certification as a class and monetary damages and alleges that the Company and the named officers violated federal securities laws. The Company believes that the actions are without merit, and intends to conduct a vigorous defense against these allegations.

In September 2002, various parties filed motions to be appointed as lead plaintiffs and to consolidate all of the shareholder suits described above. On February 4, 2003, the District Court issued an order consolidating all seven cases into one single case and appointing the City of Philadelphia Board of Pensions and Retirement, Louis Giannakokas and Norman K. Mielziner to serve as lead plaintiffs (the “Consolidation Order”). The Consolidation Order also sets certain timelines by which responsive pleadings must be filed by the Company and the lead plaintiffs in the consolidated case. Under the Consolidation Order, the lead plaintiffs have until March 31, 2003 to file an amended, consolidated complaint. Once the amended, consolidated complaint is filed, the Company shall have sixty (60) days from such date to answer or move to dismiss the amended complaint.

The Company is involved in other litigation incidental to its business from time to time. In the opinion of management, after consultation with legal counsel, the ultimate outcome of such litigation will not have a material adverse effect on the Company’s financial position or results of operations or cash flows.

9. Related Party Transactions

Eclipsys has a policy that all transactions between it and its executive officers, directors and affiliates must be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. Additionally, these transactions must be approved by a majority of the members of the Board of Directors and by a majority of the disinterested members of the Board of Directors.

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Related Party Transactions – (Continued)

The Company leases office space in Boston, Massachusetts from a former stockholder of SDK, who is a current employee. During the years ended December 31, 2000, 2001 and 2002 the Company paid $849,000, $692,000 and $579,000, respectively, under this lease. The lease, which was amended to increase the space at the end of 1999, is noncancelable and expires in 2009.

The Company’s Chairman Emeritus, Harvey J. Wilson, owns a company, which leases an aircraft to a charter company. The charter company provides aircraft charter services to Eclipsys as well other outside parties. Mr. Wilson has no ownership or other interest in the charter company. Eclipsys paid the charter company $412,000, $775,000 and $885,000 in 2000, 2001 and 2002, respectively, for charters using the aircraft owned by Mr. Wilson’s company. Eclipsys also paid the charter company $43,000 and $265,000, in 2001 and 2002, respectively, for charters of other aircraft, not owned by Mr. Wilson’s company. Mr. Wilson’s company received $298,000, $481,000 and $533,000 during 2000, 2001, and 2002, respectively, from the charter company for these transactions. Subsequent to December 31, 2002 Eclipsys contracted for a minimum number of hours for airplane charters to extend the current pricing terms. The minimum commitment amounts to $761,000 per year for 2003 through 2005.

In July 1999, Eclipsys invested in HEALTHvision, Inc. (“HEALTHvision,”) a Dallas-based, privately held internet healthcare company, in conjunction with VHA, Inc. and investment entities affiliated with General Atlantic Partners, LLC. HEALTHvision provides Internet solutions to hospital organizations to assist them in improving patient care in the local communities they serve. Eclipsys purchased 3,400,000 shares of common stock for $34,000, which at the time represented 34% of the outstanding common stock on an if converted basis. As of December 31, 2002 the Company’s shares represented 28% of the common stock of HEALTHvision on an if converted basis. The Company accounts for the investment in HEALTHvision using the equity method of accounting. Due to losses recognized under the equity method, the recorded balance of the investment in HEALTHvision was $0 as of December 31, 2002. In connection with the Company’s relationship with HEALTHvision, Eclipsys entered into a joint marketing arrangement under which both organizations agreed to jointly market products and services to their customers. Under this agreement, Eclipsys paid HEALTHvision $2,247,000 during 2002 and owed HEALTHvision $432,000 as of December 31, 2002. Also during 2002, the Company earned revenues from HEALTHvision of $1,043,000 for hosting and other related services and had accounts receivable due from HEALTHvision of $353,000 at December 31, 2002. Additionally, the Company has a note receivable from HEALTHvision for $293,000 as of December 31, 2002, bearing interest at the prime rate, with repayments due quarterly beginning March 31, 2004. For the year ended December 31, 2002, HEALTHvision, Inc had total revenues of approximately $21.9 million (unaudited) and a net loss of approximately $4.6 million (unaudited) with total assets of approximately $12.2 million (unaudited) as of December 31, 2002. The Company’s Chairman Emeritus, Harvey J. Wilson also serves as co-chairman of HEALTHvision. Eclipsys is not required to provide funding to HEALTHvision and has made no guarantees on their behalf.

The Company has a license agreement with Partners HealthCare System, Inc. (“Partners”). Under the terms of this license, the Company may develop, commercialize, distribute and support certain technology and license it, as well as sell related services, to other healthcare providers and hospitals throughout the world (with the exception of the Boston, Massachusetts metropolitan area). Prior to the Company’s initial public offering, no sales of products incorporating the licensed technology were made and, consequently, no royalties were paid by the Company pursuant to the license with Partners. The royalty arrangement under the license terminated upon the Company’s initial public offering. After the Company’s initial public offering, the Company sold products incorporating the licensed technology. The Company is obligated to offer to Partners and certain of its affiliates a license for internal use, granted on most favored customer terms, to all new software applications developed by the Company, whether or not derived from the licensed technology, and major architectural changes to the licensed technology. Partners and certain of its affiliates are also entitled to

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Related Party Transactions – (Continued)

receive internal use licenses, also granted on most favored customer terms, for any changes to any module or application included in the licensed technology requiring at least one person-year of technical effort.

Additionally, as part of the agreement, the Company has provided development services to Partners related to commercializing the intellectual property. Fees paid to the Company for these development services totaled $274,000 for the year ended December 31, 2000 and were included as a reduction in research and development expenses. No amounts were paid in 2001 and 2002.

In 2001, Partners entered into a contract with the Company for the license of a new software application and related professional services. This new software application consisted of an upgrade to an existing software application that Partners had licensed from Transition Systems, Inc, an entity that was acquired by the Company in December 1998. Under this new contract, Partners paid the Company $954,000 in 2001 and $1,032,000 in 2002. As of December 31, 2002, Partners owed the Company $98,000 related to this new contract. Jay Pieper, a director of the Company, is Vice President of Corporate Development and Treasury Affairs for Partners. Partners was not affiliated with the Company at the time of the negotiation of the Partners license from Transition Systems, Inc.

ECLIPSYS CORPORATION
SCHEDULE II-VALUATION OF QUALIFYING ACCOUNTS
For Each of the Three Years in the Period Ended December 31, 2002



		Balance at							Balance at End of
		Beginning of Period		Additions		Write-offs			Period

December 31, 2000
	Allowance for doubtful accounts	$	3,692	$	13,255	$	(11,291	)	$	5,656
	Valuation allowance for deferred tax asset		70,826		11,991					82,817
December 31, 2001
	Allowance for doubtful accounts		5,656		4,305		(4,389	)		5,572
	Valuation allowance for deferred tax asset		82,817		191					83,008
December 31, 2002
	Allowance for doubtful accounts		5,572		3,533		(5,693	)		3,412
	Valuation allowance for deferred tax asset		83,008		11,256					94,264

Quarterly Results (Unaudited)

The following table presents quarterly statement of operations data for each of the eight quarters in the years ended December 31, 2001 and 2002. The statement of operations data for the quarters are unaudited, and in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial data for such periods. Additionally, the statement of operations data is derived from, and are qualified by reference to, Eclipsys’ audited financial statements, which appear elsewhere in this document.

ECLIPSYS CORPORATION
For the Year Ended December 31, 2001
(In thousands, except per share data)


	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter		Year

Revenues	$	55,351		$	59,995	$	63,096	$	61,235	$	239,676
Gross profit margin		21,290			25,639		28,496		26,426		101,850
Net (loss) income		(3,176	)		1,491		3,965		2,128		4,408
Basic net (loss) income per share	$	(0.08	)	$	0.03	$	0.09	$	0.05	$	0.10
Diluted net (loss) income per share	$	(0.08	)	$	0.03	$	0.08	$	0.05	$	0.09

ECLIPSYS CORPORATION
For the Year Ended December 31, 2002
(In thousands, except per share data)


	First		Second			Third			Fourth
	Quarter		Quarter			Quarter			Quarter			Year

Revenues	$	62,819	$	54,252		$	47,549		$	53,448		$	218,068
Gross profit margin		30,507		23,626			14,146			18,474			86,754
Net income (loss)		5,309		(3,047	)		(17,174	)		(14,852	)		(29,763	)
Basic net (loss) income per share	$	0.12	$	(0.07	)	$	(0.38	)	$	(0.33	)	$	(0.67	)
Diluted net (loss) income per share	$	0.11	$	(0.07	)	$	(0.38	)	$	(0.33	)	$	(0.67	)

Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements included in Item 8 of this report on Form 10-K
2. Financial Statement Schedules included in Item 8 of this report on Form 10-K
3. The following exhibits are included in this report:


2.1*		Agreement and Plan of Merger dated as of October 29, 1998 by and among the Registrant, Exercise Acquisition Corp. and Transition Systems, Inc.
2.2**		Agreement of Merger among Alltel Healthcare Information Services, Inc., Alltel Information Services, Inc., Eclipsys Corporation and Eclipsys Solutions Corp. dated as of January 24, 1997
2.3**		Amended and Restated Stock Purchase Agreement among Eclipsys Corporation, SDK Medical Computer Services Corporation and the Selling Stockholders listed therein dated June 26, 1997
2.4**		Asset Purchase Agreement by and among Motorola, Inc. Eclipsys Corporation and Emtek Healthcare Corporation dated January 30, 1998
2.5****		Agreement and Plan of Merger dated as of February 5, 1999, by and among Eclipsys PCS and Sub
2.6****		Escrow Agreement dated as of February 17, 1999, by and among Eclipsys, Sub, PCS and the PCS Stockholders and Noteholders
2.7*****		Stock Purchase and Sale Agreement dated as of March 6, 1999 by and among Sun Gard Data Systems Inc., Sun Gard Investment Ventures, Inc., Med Data Systems, Inc., Intelus Corporation, and Eclipsys Corporation and Eclipsys Solutions Corp
2.8******		Agreement and Plan of Merger dated as of June 17, 1999, by and among Eclipsys Corporation, Eclipsys Merger Corp., MSI Solutions, Inc., MSI Integrated Services, Inc., Anna L. Bean, Michael R. Cote, Robert J. Feldman and the 1997 Feldman Family Trust
2.9*******		Asset Purchase Agreement by and among Quadramed Corporation, Eclipsys Corporation and Med Data Systems, Inc. dated July 1, 1999
3.1***		Third Amended and Restated Certificate of Incorporation of the Registrant
3.2**		Third Amended and Restated Bylaws of the Registrant
3.3********		Certificate of Designation of Series A Junior Participating Preferred
4.1**		Specimen certificate for shares of Common Stock
4.2********		Rights Agreement, dated July 26, 2000, by and between Eclipsys Corporation and Fleet National Bank, as Rights Agent
10.1**		Second Amended and Restated Registration Rights Agreement
10.2**		Second Amended and Restated Stockholders Agreement
10.5**+		Information Systems Technology License Agreement, dated as of May 3, 1996, by and among Partners Healthcare System, Inc. and Integrated Healthcare Solutions, Inc.
10.6**		Preferred Stock Purchase Agreement by and among Eclipsys Corporation, General Atlantic Partners 47, L.P. and GAP Coinvestment Partners, L.P. dated February 4, 1998
10.7**		1996 Stock Plan


10.8*********		Amended and Restated 1998 Stock Incentive Plan
10.9*********		Second Amended and Restated 1998 Employee Stock Purchase Plan
10.13**		Settlement of Claims Agreement, dated as of March 13, 1998, between ALLTEL Information Services, Inc. and Eclipsys Corporation
10.14*********		Amended and Restated 1999 Stock Incentive Plan, as amended
10.15*********		Amended and Restated 2000 Stock Incentive Plan
10.16*********		Employment Agreement for Paul L. Ruflin
10.17***********		Resignation Letter from Harvey J. Wilson
21**********		Subsidiaries of the Registrant
23		Consent of PricewaterhouseCoopers LLP
99.1		Certification Pursuant to 18 U.S.C. Section 1350


+		Confidential treatment granted on August 6, 1998 in connection with the Registrant’s initial public offering
*		Incorporated by reference to the Joint Proxy Statement/ Prospectus included in the Registrant’s Registration Statement on Form S-4 (File No. 333-68353)
**		Incorporated by reference to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-50781)
***		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 000-24539)
****		Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 3, 1999 (File No. 000-24539)
*****		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 000-24539)
******		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 000-24539)
*******		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 000-24539)
********		Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 8, 2000 (File No. 000-24539)
*********		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 000-24539)
**********		Incorporated by reference to Exhibit 21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 000-24539)
***********		Included in the Original Form 10-K (File No. 000-24539)

(b) Reports on Form 8-K.

None.

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.


Signature	Title	Date


/s/ PAUL L. RUFLIN	President, Chief Executive Officer, Director (Principal Executive Officer)	May 22, 2003
Paul L. Ruflin

/s/ ROBERT J. COLLETTI	Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)	May 22, 2003
Robert J. Colletti

/s/ STEVEN A. DENNING	Director	May 22, 2003
Steven A. Denning

/s/ G. FRED DIBONA	Director	May 22, 2003
G. Fred Dibona

/s/ EUGENE V. FIFE	Director	May 22, 2003
Eugene V. Fife

/s/ BRADEN KELLY	Director	May 22, 2003
Braden Kelly

/s/ JAY B. PIEPER	Director	May 22, 2003
Jay B. Pieper

CERTIFICATIONS

I, Paul L. Ruflin, certify that:

1. I have reviewed this annual report on Form 10-K, including this Amendment No. 1 on Form 10-K/A, of Eclipsys Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 23, 2003 /s/ Paul L. Ruflin

Paul L. Ruflin
Chief Executive Officer

CERTIFICATIONS

I, Robert J. Colletti, certify that:

1. I have reviewed this annual report on Form 10-K, including this Amendment No. 1 on Form 10-K/A, of Eclipsys Corporation;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 23, 2003 /s/ Robert J. Colletti

Robert J. Colletti
Chief Financial Officer


[X]		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the fiscal year ended December 31, 2002 or
[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Dated: May 23, 2003		/s/ Paul L. Ruflin Paul L. Ruflin Chief Executive Officer


Dated: May 23, 2003		/s/ Robert J. Colletti Robert J. Colletti Chief Financial Officer