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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
 
                                   FORM 10-K
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 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)
 
<TABLE>
<S>                                             <C>
                  DELAWARE                                       65-0632092
          (State of Incorporation)                (I.R.S. Employer Identification Number)
</TABLE>
 
                            777 EAST ATLANTIC AVENUE
                                   SUITE 200
                             DELRAY BEACH, FLORIDA
                                     33483
                    (Address of principal executive offices)
 
                                 (561)-243-1440
              (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
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
 
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant as of March 10, 1999 based upon the closing
price of the Common Stock on the Nasdaq National Market for such date, was
$392,384,416.
 
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
 
<TABLE>
<CAPTION>
                                                                   SHARES
                                                              OUTSTANDING AS OF
CLASS                                                          MARCH 10, 1998
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<S>                                                           <C>
Common Stock, $.01 par value................................     31,101,547
Non-voting Common Stock, $.01 par value.....................        597,621
</TABLE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's definitive Proxy Statement to be used in
connection with the annual meeting of stockholders to be held on April 21, 1999
and to be mailed to stockholders on or about March 30, 1999, are incorporated by
reference into Part III of this Form 10-K.
 
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<PAGE>   2
 
                                     PART I
 
     This report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the forgoing, the
words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. The important
factors discussed below under the caption "Certain Factors that May Affect
Future Operating Results/Risk Factors," among others, could cause actual results
to differ materially from those indicated by forward-looking statements made
herein and presented elsewhere by management from time to time. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
 
ITEM 1. BUSINESS
 
OVERVIEW
 
     Eclipsys (the "Company") is a healthcare information technology company
delivering solutions that enable healthcare providers to achieve improved
clinical, financial and administrative outcomes. Eclipsys offers an integrated
suite of healthcare products in five critical areas -- clinical management,
access management, patient financial management, strategic decision support and
integration. These products can be purchased in combination to provide an
enterprise-wide solution or individually to address specific needs. Eclipsys'
products have been designed specifically to deliver a measurable impact on
outcomes, enabling Eclipsys' customers to quantify clinical benefits and return
on investment in a precise and timely manner. Eclipsys' products can be
integrated with a customer's existing information systems, which Eclipsys
believes reduces overall cost of ownership and increases the attractiveness of
its products. Eclipsys also provides outsourcing, remote processing and
networking services to assist customers in meeting their healthcare information
technology requirements. Eclipsys markets its products primarily to large
hospitals, academic medical centers and integrated health networks. Eclipsys has
one or more of its products installed or being installed in over 1,300
facilities. To provide direct and sustained customer contact, Eclipsys maintains
decentralized sales, implementation and customer support teams in each of its
eight North American regions. Eclipsys' field sales force has an average of 18
years of experience in the healthcare industry.
 
     Eclipsys was formed in December 1995 and has grown primarily through a
series of acquisitions, all completed since January 1997. The first three
acquisitions were accounted for utilizing the purchase method of accounting and
accordingly Eclipsys' financial statements reflect the results of these
businesses from the date acquired. These acquisitions were (1) the acquisition
of ALLTEL Healthcare Information Services, Inc. ("Alltel") in January 1997, (2)
the acquisition of SDK Medical Computer Services Corporation ("SDK") in June
1997 and (3) the acquisition of the North American operations of Emtek
Healthcare Systems, a division of Motorola, Inc. ("Emtek"), in January 1998. The
fourth acquisition was a merger with Transition Systems, Inc. ("Transition"),
effective on December 31, 1998, and was accounted for as a pooling of interests.
Accordingly, Eclipsys' financial results have been retroactively restated as if
the Transition transaction had occurred as of the earliest period presented. In
addition, Transition had acquired HealthVISION, Inc. ("HealthVISION") in
December 1998, shortly before the closing of Eclipsys' acquisition of
Transition. These transactions, together with internally generated growth, have
resulted in revenues of $183.3 million in 1998 on the pro forma basis as if the
acquisitions occurred on January 1, 1998.
 
     A fifth acquisition, a merger with PowerCenter Systems, Inc. ("PCS"), was
completed in February 1999 and will be accounted for as a pooling of interests.
Because this acquisition occurred subsequent to December 31, 1998, it is not
reflected in Eclipsys' financial results for the periods presented in this
report.
 
COMPETITIVE STRENGTHS
 
     Eclipsys believes that its products and services, focus on physicians'
needs, leading technology, strategic relationships, management team and
well-positioned customer base are competitive strengths that will enable it to
capitalize on continued opportunities for growth.
 
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--  Comprehensive Product Offering.  Through acquisitions and internal
    development, Eclipsys has assembled a comprehensive suite of products that
    perform core functions in the five areas Eclipsys believes are most critical
    to its customers -- clinical management, access management, patient
    financial management, strategic decision support and integration. Eclipsys'
    approach is to integrate the individual products to provide a comprehensive
    healthcare information technology solution. Eclipsys' product strategy has
    been to acquire or develop industry-leading products in each core category
    and then integrate them to provide a comprehensive healthcare information
    technology solution.
 
--  Physician-Oriented Products.  Eclipsys' clinical products are designed to
    reflect and support the way physicians work and include features such as
    alerts, reminders, just-in-time clinical decision support, sub-second
    response times, an intuitive graphical user interface, continuous event
    monitoring and a customizable rules and protocol engine. This focus on the
    physician is central to Eclipsys' product strategy. Eclipsys believes that
    physicians are key decision-makers in the trend toward the use of healthcare
    information technology solutions to improve work processes and outcomes
    across the continuum of healthcare delivery.
 
--  Leading Technology.  Eclipsys recently announced the development of, and has
    commenced migrating its products to, its new structured object layered
    architecture ("SOLA"). SOLA is a browser-enabled, multi-tiered,
    database-neutral architecture that supports multiple platforms and can be
    used across a broad range of computing environments from client-server
    systems to legacy mainframes. SOLA is designed to facilitate the integration
    of Eclipsys' products with its customers' existing systems, as well as with
    future products developed or acquired by Eclipsys.
 
--  Strategic Relationships.  One of Eclipsys' important strategic relationships
    is with Partners HealthCare System, Inc. ("Partners"), including two of its
    hospital subsidiaries, Brigham and Women's Hospital, Inc. ("Brigham") and
    Massachusetts General Hospital ("MGH"). This relationship provides intensive
    physician-driven research and development for new and existing products,
    testing and development support. In addition, Brigham and MGH, academic
    medical centers affiliated with Harvard Medical School, provide potential
    forums for training future users and customers. Eclipsys also has
    relationships with other academic medical centers, which also provide
    testing and development support.
 
--  Proven Management Team with Successful Track Record.  Eclipsys' senior
    management team averages over 22 years in the healthcare and information
    technology industries and includes four former chief executive officers.
    Harvey J. Wilson, Chairman of the Board and Chief Executive Officer of
    Eclipsys, was a co-founder of Shared Medical Systems Corporation ("SMS").
    Eclipsys believes that the range and depth of its senior management team
    position it to address the evolving requirements of its customers and to
    manage the growth required to meet its strategic goals.
 
--  Well-positioned Customer Base.  Eclipsys' customers include large hospitals,
    integrated health networks and academic medical centers. Eclipsys believes
    that these entities are generally the first to adopt new technology and are
    the drivers of industry consolidation. Management believes that Eclipsys'
    commitment to quality, innovation, rapid product implementation and ongoing
    customer support has enabled it to build and maintain strong and stable
    customer relationships and positions it to capitalize on the opportunities
    for growth within its existing customer base.
 
INDUSTRY
 
     In recent years, the healthcare industry has undergone, and continues to
undergo, radical and rapid change. The increasing cost of providing healthcare
has led the government sector, followed by the private sector, to develop new
payment mechanisms that encourage healthcare providers to contain costs. This
has caused the provider reimbursement environment to move away from the
indemnity model, characterized by fee-for-service arrangements and traditional
indemnity insurance, toward the managed-care model, in which providers are
aligned within networks and healthcare delivery must follow plan-established
rules to qualify for reimbursement. As a result, the emphasis of healthcare
providers has shifted from providing care regardless of cost to providing
high-quality care in the most cost-effective manner possible. Many providers are
realizing that the traditional method of cost containment -- cutting expenses --
is not by itself enough to maintain their
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competitiveness in the face of these pressures. Management believes that
providers must also improve the processes by which healthcare is provided,
including improving the quality of care, the efficiency with which it is
delivered and patient and provider satisfaction. In particular, healthcare
providers are focusing on avoiding costly adverse clinical events.
 
     The pressures to achieve successful clinical outcomes more efficiently
while managing costs more effectively has led to significant industry
consolidation, as healthcare providers seek to offer and control the full
continuum of healthcare. The result has been the development of large integrated
health networks. These are comprehensive vertical networks of healthcare
providers, typically organized around an anchor hospital, and include
physicians, outpatient facilities, laboratories, radiology facilities, home
healthcare providers and long-term and rehabilitative facilities. As these
networks grow larger and more dispersed, the challenge of effectively managing
and delivering information throughout the enterprise also increases.
 
     Traditional healthcare information systems are limited in their ability to
support restructuring of healthcare delivery processes or the evolving
requirements of integrated health networks. Such systems have generally been
financially oriented, focusing primarily on the ability to capture charges and
generate bills. Many information technology vendors have attempted to apply
their existing financially oriented systems to meet the demand for clinical
solutions. However, because these systems were not originally developed to
address clinical requirements, they often lack the basic structure and
functionality to support better overall management of costs, care quality,
outcome measurement and patient satisfaction across the healthcare delivery
continuum. Moreover, because these vendors historically developed and marketed
such systems primarily to financial managers, physicians, who influence a
significant portion of variable healthcare costs, were often excluded from the
design of healthcare information systems and from the system selection process.
In addition, traditional systems were typically designed to operate in a single
facility, which has made them less effective in today's widely dispersed
integrated health networks.
 
     The growth of the managed care environment and the rise of integrated
health networks has created an opportunity for new healthcare information
technology products and services. Healthcare providers are increasingly
demanding integrated solutions that offer all of the core functions required to
manage the entire healthcare delivery process. These core functions include
clinical management, access management and patient financial management
functions. In addition, large and widely spread health networks require decision
support tools that permit them to effectively analyze past performance, model
new plans for the future and measure and monitor the effectiveness of those
plans -- to measure clinical results and return on investment and to support
process improvement. These solutions must also allow providers to preserve their
investment in existing legacy applications and technologies, which often are
significant and vary from facility to facility. Finally, active physician use of
healthcare information technology is necessary for these solutions to improve
clinical outcomes. Eclipsys believes that active physician use will increase as
information technology solutions provide greater functionality, including
alerts, reminders, sub-second response times, just-in-time clinical decision
support, an intuitive graphical user interface and the ability to log on to the
system remotely.
 
     Historically, the healthcare industry has invested relatively less in
technology compared to certain other industries. Eclipsys believes that
healthcare providers are realizing that a relatively small investment in
healthcare information technology can significantly reduce variable costs. As a
result of industry trends, healthcare providers are making significant
investments in healthcare information technology solutions that capitalize on
evolving information management technologies. Industry analysts estimate that
healthcare organizations spent approximately $17 billion in 1997 for information
technology solutions, and anticipate that such expenditures will increase to
approximately $28 billion annually by 2002.
 
STRATEGY
 
     Eclipsys' objective is to become the leading provider of healthcare
information technology solutions to meet the needs of the healthcare industry as
it consolidates and evolves. Key elements of Eclipsys' strategy to achieve this
objective include:
 
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     Provide Comprehensive, Integrated Healthcare Information Technology
Solutions.  Eclipsys is focusing on providing a full suite of clinical
management, access management, patient financial management, strategic decision
support and integration solutions. Eclipsys' products are designed to be:
 
     --   responsive to physicians' needs for alerts, reminders, sub-second
          response times, continuous event monitoring and practice-specific
          clinical information, rules, and protocols which provide just-in-time
          clinical decision support;
 
     --   outcomes-oriented, so customers can easily determine clinical benefits
          and return on investment; and
 
     --   user-friendly through an intuitive graphical user interface. Eclipsys
          believes that its healthcare information technology solutions
          facilitate the clinical and business decision process, enabling its
          customers to improve their overall work processes, clinical outcomes
          and return on investment.
 
     Further Penetrate Existing Customer Base.  Eclipsys believes there is a
significant opportunity to sell its integrated healthcare technology solutions
to its existing customers. Eclipsys has at least one of its products installed
or being installed at over 1,300 facilities. Of these customers, only a few have
an enterprise-wide healthcare information system. Eclipsys believes that it is
well-positioned to capitalize on the growth opportunity within its existing
customer base as a result of several factors:
 
     --   its broad, integrated product suite;
 
     --   the ability of its products to work with a customer's existing
          information systems;
 
     --   the ability to document clinical benefits and return on investment;
 
     --   management's industry experience and relationships;
 
     --   alignment of its pricing and payment schedule with the value received
          by its customers; and
 
     --   its ongoing customer support and service programs.
 
     Employ a Targeted Marketing Approach.  Eclipsys' target market primarily
includes large hospitals, integrated health networks and academic medical
centers. Eclipsys believes that these entities are the first to adopt new
technology and are the drivers of industry consolidation. As the size and
complexity of these customers grow, their need for integrated information
technology solutions increases. Eclipsys has identified potential new customers,
including those who are currently relying on legacy systems that lack the
functions and features such customers require, and is targeting decision makers
within these entities. In particular, Eclipsys believes that physicians are
becoming increasingly involved in the information technology selection process
as recent technological developments and the impact of managed care have
increased the utility of information systems to physicians. Eclipsys believes
that its clinically oriented, physician-designed products provide it with an
advantage as it competes for business. Eclipsys also leverages the extensive
industry experience of its senior management and sales force, as well as its
strategic relationships with leading institutions such as Brigham and MGH, to
pursue this opportunity.
 
     Continue to Enhance and Develop New Solutions.  Eclipsys intends to
continue upgrading existing products and developing new solutions to meet the
evolving healthcare information needs of its customers. For example, Eclipsys is
currently focusing on migrating its products to SOLA, which is designed to
facilitate the integration of new and existing applications as they are
developed or acquired by Eclipsys with legacy systems of its customers. Eclipsys
has a team of approximately 400 internal research, development and technical
support professionals dedicated to developing, enhancing, supporting and
commercializing new and enhanced healthcare information technology products.
Eclipsys also has an exclusive right of first offer to commercialize new
information technologies developed in connection with Partners. In addition,
Eclipsys' relationship with Partners allows it to test new and existing products
in a potential forum that provides feedback from medical and administrative
users, which Eclipsys believes gives it a competitive advantage in developing
new products.
 
     Pursue Selected Acquisitions.  Eclipsys intends to continue pursuing
selected acquisitions that will enhance its product line, customer base,
technological capabilities and management team. Historically,
 
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Eclipsys has experienced significant growth through acquisitions, and intends to
continue to target acquisitions that will help it achieve its overall strategic
goals. Eclipsys also believes that such transactions will provide it with the
opportunity to leverage its existing sales, marketing and development teams and
offer the potential to achieve operating synergies across the organization.
 
PRODUCTS
 
     Eclipsys' products perform the core information technology functions
required by integrated health networks and other healthcare providers across the
entire continuum of healthcare. These functions include (i) clinical management,
(ii) access management, (iii) patient financial management, (iv) strategic
decision support and (v) integration.
 
--  Sunrise Clinical Manager products assist the physician and other clinicians
    in making clinical decisions throughout the care process. These systems give
    physicians and other clinicians immediate access to complete and up-to-date
    patient records at all stages, enable physicians to enter on-line orders for
    specialized services, such as radiology or laboratory testing and
    prescriptions, provide clinical rules to facilitate clinical decisions and
    alert the physician to potential adverse reactions.
 
--  Sunrise Access Manager products provide access to patient information from
    any point in the healthcare delivery system and coordinate the gathering of
    additional patient data at each stage of the patient encounter. Access
    Manager also coordinates the scheduling of patient appointments throughout
    the treatment process and includes an enterprise-wide master person index.
 
--  Sunrise Patient Financial Manager products coordinate compliance with
    managed-care contract reimbursement terms, patient billing and collection
    and third-party reimbursement. These products support the growing trend
    toward the centralized business office, which manages compliance with
    managed-care contracts across the entire healthcare enterprise and for all
    stages of the healthcare continuum.
 
--  Sunrise Decision Support Manager products create an integrated clinical and
    financial repository to support the management process of analyzing past
    clinical, operational and financial performance; modeling new approaches for
    the future; transforming those models into actionable plans; and measuring
    and monitoring actual practice against those plans.
 
--  Sunrise Integration Manager products provide tools to enable the integration
    of data from existing legacy systems while undergoing systematic replacement
    of those systems.
 
     These products enable Eclipsys to offer a comprehensive line of core
applications that can be purchased individually or combined to form a fully
integrated single-source information technology solution. Most of Eclipsys'
products are functional in several different healthcare settings, including
ambulatory care, critical care and acute care.
 
     The Sunrise Clinical Manager suite, the Sunrise Access Manager suite, the
Sunrise Patient Financial Manager suite, the Sunrise Decision Support Manager
suite and the Sunrise Integration Manager suite are generally available to
Eclipsys' customers.
 
SUNRISE CLINICAL MANAGER
 
     Sunrise Clinical Manager is a physician-oriented application that provides
patient information to the physician and other clinicians at the point-of-care
anywhere in the healthcare continuum, allows a physician to quickly and
efficiently enter orders directly into the system and provides clinical decision
support at the time of order entry. The functionality of the Sunrise Clinical
Manager suite is derived from Alltel's TDS 7000 Series, Emtek's Continuum 2000
application, the BICS program developed at Brigham and licensed from Partners
and from HealthVISION's CareVISION product. Eclipsys has used the former
CareVISION product as the foundation on which to incorporate the selected best
features of the other heritage programs to integrate into its Sunrise Clinical
Manager suite. Eclipsys continues to enhance and support these heritage products
for its installed customer base in order to allow these customers to make the
transition to the Sunrise Clinical Manager suite over time. Sunrise Clinical
Manager includes the following features:
 
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     --   Health Data Repository, which permanently stores clinical and
          financial information into patient care records that are easily and
          quickly accessible in ambulatory, acute care and other healthcare
          settings.
 
     --   Sunrise Viewer, which provides physicians with access to patient
          information, such as complete patient records covering treatments at
          both ambulatory and acute care facilities, whether they are accessing
          the records from within the healthcare facility or a remote location.
 
     --   Clinical documentation, which gathers and presents organized, accurate
          and timely patient information. The application creates an electronic
          patient chart, accepting and arranging input from caregivers,
          laboratories or monitoring equipment.
 
     --   Order entry, communication and management, which enables physicians to
          enter on-line prescriptions and orders for laboratory or diagnostic
          tests or procedures. The application also routes the order to the
          appropriate department or party within the organization for
          fulfillment.
 
     --   Knowledge-Based Orders, which is a clinical, decision support system
          that activates automatically during the order entry process. This
          sophisticated system provides real-time guidance to physicians by
          alerting them to possible problems with or conflicts between newly
          entered orders and existing patient information using the system's
          rules database. A comprehensive set of clinical rules developed by
          physicians is available with Knowledge-Based Orders. Customers can
          modify these existing rules or can develop their own clinical rules.
 
     --   Clinical decision support, which is a continuous event monitoring
          system. Clinical decision support triggers alerts, which can include
          e-mail or pager notification, upon the occurrence of a specified
          change in a patient's condition or any other physician-designated
          event, such as the delivery of unfavorable laboratory results. The
          application tracks new patient data, relates it to information already
          in the system for that patient, identifies significant new
          relationships, alerts the physician to the changed relationship and
          prompts corrective actions on a real-time basis.
 
     --   Clinical pathways and scheduled activities list, which provide access
          to standardized patient care profiles and assist in the scheduling and
          monitoring of procedures. These applications provide listings of
          clinical treatment procedures for individual patient care and generate
          scheduled activities lists in each department based on information
          from those lists. This allows the resources of a department to be
          deployed in the most effective and efficient manner.
 
     Eclipsys is currently developing a clinical reporting application, which
will provide periodic reports to physicians enabling them to identify their
practice group's clinical performance. Eclipsys is also developing referral and
medical management features, which will allow a physician to refer a patient
instantly to another healthcare provider with appropriate patient information
attached to the referral.
 
SUNRISE ACCESS MANAGER
 
     Sunrise Access Manager enables the healthcare provider to identify the
patient at any point in the healthcare delivery system and to collect and
maintain patient information throughout the entire continuum of patient care on
an enterprise-wide basis. The single database structure of Sunrise Access
Manager permits simultaneous access to the entire patient record from any access
point on the system. The Sunrise Access Manager suite is based primarily on the
SDK products, which Eclipsys has integrated with its other product offerings and
has continued to enhance. It also includes the Enterprise Person Identifier from
Transition. The elements of Sunrise Access Manager include:
 
     --   Patient registration/ADT, which is used to register a patient in an
          ambulatory setting, and to admit, discharge and transfer patients in
          an acute care setting. Patient information -- such as demographics,
          personal contacts, primary-care provider, allergies or medications,
          health history, employment and insurance coverage -- is taken at the
          patient's initial visit and is immediately accessible on-line to all
          authorized personnel across the enterprise. Subsequent visits require
          only
 
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        confirmation and updates as necessary. Visit-specific information, such
        as the date and the reason for the visit, the care provided and the
        caregivers providing service, is collected at each visit.
 
     --   Patient scheduling and resource management, which is used to schedule
          patient appointments across an organization from any location within
          the enterprise. The application has the flexibility to provide for
          patient preferences and resource availability.
 
     --   Enterprise Person Identifier, which is a single index of all patients
          and healthcare plan members within a healthcare provider's system.
          Records can be accessed from the index by searching a variety of
          characteristics, such as name, Social Security number or other
          demographic data, including a combination of several characteristics.
          Enterprise Person Identifier works with most existing legacy systems
          as well.
 
     Sunrise Access Manager also includes managed care support features such as
verifying insurance eligibility on-line and compliance with managed care plan
rules and procedures, as well as medical records abstracting, which compiles
patient data into statistical information. The integrated nature of Sunrise
Access Manager allows healthcare providers to complete pre-registration as part
of the scheduling process and view patient records from multiple sites within an
enterprise. This eliminates the generation of redundant records, thereby saving
both patient and caregiver time, and permits the efficient scheduling of
resources throughout the organization.
 
SUNRISE PATIENT FINANCIAL MANAGER
 
     Sunrise Patient Financial Manager uses a single, integrated database for
patient accounting processes, including the automatic generation of patient
billing and accounts receivable functions, a system of reimbursement management
to monitor receivables, the automation of collection activities and contract
compliance analysis, as well as follow-up processing and reporting functions.
Billing and receivables management activities are automated through rules-based
processing and can be customized to reflect each organization's specific
procedures. This product suite supports the growing trend toward the centralized
business offices for multiple entities, which improves compliance with managed
care contracts across the entire enterprise and at all stages of the healthcare
delivery continuum. The Sunrise Patient Financial Manager suite is based
primarily on the products acquired in the SDK acquisition, which Eclipsys has
integrated with its other product offerings and has continued to enhance.
Sunrise Patient Financial Manager includes the following functions:
 
     --   Patient accounting, which automates the patient billing and accounts
          receivable functions. For bill generation, the application
          incorporates rules-based calculations of expected reimbursement and
          provides users with the option for automatic generation of contractual
          allowances at the time of billing or the time of payment. Rules may be
          generated for each insurance plan accepted by an organization.
          Receivables management functions include account write-offs, on-line
          work lists of accounts requiring follow-up, extensive account comments
          and standard and ad hoc reporting. Paperless processing is achieved
          through real-time inquiry, editing, sorting, reporting, commenting and
          updating from other applications, including modules in Sunrise Access
          Manager and Sunrise Clinical Manager.
 
     --   Contract management, which includes a repository for the payment
          terms, restrictions, approval requirements and other rules and
          regulations of each insurance plan and managed care contract accepted
          by an organization. Contract management is used in conjunction with
          other Sunrise products to ensure that patient care complies with these
          rules and regulations.
 
     --   Reimbursement management, which facilitates monitoring receivables,
          performing collection activity, reconciling with third parties and
          analyzing contract compliance and performance.
 
SUNRISE DECISION SUPPORT MANAGER
 
     Sunrise Decision Support Manager creates a clinical and financial data
repository by integrating data from across the enterprise. Sunrise Decision
Support Manager gathers information from the many different
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departmental information systems through interfaces that enable concurrent
updating of distributed data. The data can then be analyzed to determine the
patient-level costs of care and identify areas for improvement. This information
allows the organization to evaluate its cost structure, make changes in clinical
processes to reduce costs and accurately price reimbursement contracts on a
profitable basis. Sunrise Decision Support Manager also analyzes and measures
clinical process and outcomes data, helping to identify the practice patterns
that most consistently result in the highest quality at the lowest cost. In
addition, Sunrise Decision Support Manager includes capabilities for case mix,
reimbursement and utilization management, cost and profitability analysis,
strategic planning, modeling and forecasting. Sunrise Decision Support is an
important component of the customers' ability to measure and document improved
clinical outcomes and return on investment. The Sunrise Decision Support Manager
suite is based primarily on products acquired in the Transition Merger.
 
SUNRISE INTEGRATION MANAGER
 
     Sunrise Integration Manager provides tools to enable the integration of
data from existing legacy systems. As integrated health networks form, the
individual entities within the emerging network will have their own information
systems. It is important that the clinical and financial data in these disparate
systems be integrated to provide an enterprise-wide view. The applications in
Integration Manager create this required integration.
 
OTHER PRODUCTS
 
     Other Eclipsys' products include OpenHUB which Eclipsys distributes under a
license. OpenHUB is Eclipsys' interface engine, which provides a fast, flexible
means of integrating systems and data, allowing an organization to select the
best data processing solution regardless of the hardware or software platforms.
 
     To extend the capability of Sunrise Clinical Manager to the ambulatory
setting, Eclipsys has entered into a remarketing agreement with Medicalogic for
the Logician product.
 
     Eclipsys recently announced its acquisition of PowerCenter Systems, Inc.
and its enterprise resource planning products. These products will be integrated
into the Sunrise enterprise suite of products as Sunrise Resource Planning (ERP)
Manager.
 
     Eclipsys and Simione Central Holdings, Inc. ("Simione") have entered into a
Remarketing Agreement pursuant to which Eclipsys has the right to distribute
certain Simione software products designed for home healthcare providers.
 
     In connection with providing healthcare information technology solutions,
Eclipsys also sells hardware to its customers.
 
STRUCTURED OBJECT LAYERED ARCHITECTURE (SOLA)
 
     Eclipsys recently announced the development of, and has commenced migrating
its products to, SOLA, which Eclipsys believes will facilitate integration,
enhance automation, increase reliability and improve security and workflow
processes. SOLA draws on a thin-client architecture to integrate business logic
with an intuitive graphical user interface thereby enhancing automation and
reducing the cost of ownership. This thin-client architecture enables the user
interface to be improved without disturbing the core application set and
facilitates integration of Eclipsys' products with new operating systems,
display environments and devices. SOLA also features a high performance rules
engine to implement a sizable portion of the business logic for Eclipsys'
products. These rules guide clinical and business workflow, clinical decision
support for order entry, clinical and financial event monitoring and screen
logic, enabling structured development of new applications while maintaining
consistency across applications. Because the rules are managed and stored as
data, customers are able to update the business logic without modifying and
distributing new code. This enables customers to reduce programming expenses,
while enhancing the flexibility of Eclipsys' applications and facilitating their
rapid adoption. SOLA features a seamless and consistent architecture which
promotes reliability for mission-critical applications and fault tolerance. SOLA
also uses advanced technology to maintain security across both the Internet and
organization Intranets. This ability to support secure
 
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<PAGE>   10
 
communications and incorporate reliable protocols for authenticating users and
services permits the confidentiality of patient information to be maintained.
Certain products being migrated to SOLA are currently undergoing field trials in
several locations.
 
SERVICES
 
     Drawing on the functionality and flexibility of its software products,
Eclipsys offers a range of professional services as part of its healthcare
information technology solutions. These services include outsourcing, remote
processing, network services and business solutions.
 
     Outsourcing Services.  Outsourcing Services typically involve Eclipsys
assuming the management of the customer's entire information technology function
on-site using Eclipsys' employees. Outsourcing Services include Facilities
Management, Network Outsourcing and Transition Management.
 
     Facilities Management enables customers to improve their information
technology operations by having Eclipsys assume responsibility for all aspects
of the customer's information technology operations, from equipment to human
resources.
 
     Network Outsourcing provides customers with total healthcare information
network support, relieving the customer of the need to secure and maintain
expensive resources in a rapidly changing technological environment.
 
     Transition Management offers customers a solution for migrating their
information technology to new processes, technologies or platforms without
interfering with the existing rules and initiatives critical to the delivery of
healthcare.
 
     Remote Processing Services.  Remote Processing Services include complete
processing of an enterprise's applications from Eclipsys' site using Eclipsys'
equipment and personnel. This service frees an organization from having to
maintain the environment, equipment and technical staff required for systems
processing and offers support for an organization's fault management,
configuration management and utilization management processes.
 
     Network Services.  Network Services is a comprehensive package of services
allowing Eclipsys' customers to receive critical data quickly and accurately
without incurring a substantial increase in cost. Eclipsys assesses changes in
network utilization and function, forecasts any necessary upgrades to
accommodate growth of the customer and designs any changes necessary to provide
the customer with the required performance and functionality. Eclipsys offers
its services in various forms ranging from on-site assistance on a time and
expense basis to complete turnkey project deliveries with guaranteed fixed price
rates and outcomes.
 
     Business Solutions.  This new service focuses on aiding Eclipsys customers
in achieving improved return on investment through their use of information
obtained from Eclipsys products.
 
IMPLEMENTATION, PRODUCT SUPPORT AND TRAINING
 
     Eclipsys believes that a high level of service and support is critical to
its success. Furthermore, Eclipsys believes that a close and active service and
support relationship is important to customer satisfaction and provides Eclipsys
with important information regarding evolving customer requirements and
additional sales opportunities. To facilitate successful product implementation,
Eclipsys' consultants assist customers with initial installation of a system,
conversion of a customer's historical data and ongoing training and support.
This also includes Year 2000 consulting, programming and conversion services to
help customers prepare for transition and to address Year 2000 compliance and
performance issues. In addition, 24-hour telephone support is available and
Eclipsys offers electronic distribution to provide clients the latest
information regarding Eclipsys' products. Eclipsys also provides regular
maintenance releases to its customers. Eclipsys' service and support activities
are supplemented by comprehensive training programs, including introductory
training courses for new customers and seminars for existing customers, to
educate them about the capabilities of Eclipsys' systems.
 
                                       10
<PAGE>   11
 
PRICING
 
     Historically, Eclipsys has employed a traditional software pricing and
payment model in which the entire software license fee is payable upon
commencement of the license, service fees are paid as performed and maintenance
fees, typically equal to a fixed percentage of the license fee, are paid over
the life of the license. More recently, Eclipsys has begun to offer a variety of
creative pricing models in furtherance of its philosophy that pricing and
payment schedules should be closely aligned with the value received by the
customer. Eclipsys encourages customers to elect a payment schedule that spreads
software license payments, together with service fees and maintenance fees on a
bundled basis, regularly over the life of the license. In addition, Eclipsys has
commenced offering software license and maintenance fees that vary with the
amount of patient traffic serviced by the customer, enabling the customer to
analyze the cost on a per-case basis. Eclipsys also encourages customers to
consider pricing models in which Eclipsys' primary compensation takes the form
of sharing in cost savings or other performance benefits realized by the
customer. The pricing of Eclipsys' contracts can vary significantly, depending
upon the pricing model, product configuration and features, and implementation.
 
CUSTOMERS, MARKETING AND SALES
 
     Eclipsys' marketing and sales efforts focus on large hospitals, integrated
health networks and academic medical centers. Eclipsys sells its products and
services in North America exclusively through its direct sales force. To provide
direct and sustained customer contact, management of the sales force is
decentralized, with nine regional presidents having primary responsibility for
sales and marketing within their regions. Some multi-region accounts are managed
by national account representatives. Within each region, the direct sales force
is generally organized into two groups, one focused principally on generating
sales to new customers and the other focused on additional sales to existing
customers. The direct sales force works closely with Eclipsys' implementation
and product line specialists. Eclipsys' field sales force has an average of 18
years of experience in the healthcare industry. A significant component of
compensation for all direct sales personnel is performance based, although
Eclipsys bases quotas and bonuses on a number of factors in addition to actual
sales, including customer satisfaction and accounts receivable performance.
 
     Eclipsys has customers in Belgium, France, the Netherlands, the United
Kingdom, Germany, Canada, Australia, New Zealand, Singapore and Japan.
International sales representatives generally report to the Regional President
of the International Region and are responsible for all customers within their
sales regions. Eclipsys may also use sales agents to market its products
internationally.
 
RESEARCH AND DEVELOPMENT
 
     Eclipsys believes that its future success depends in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
requirements. A significant portion of Eclipsys' research and development and
product testing effort is performed in conjunction with physicians at Brigham,
MGH and other academic medical centers. Eclipsys' current development efforts
are focused on the migration of its products to the SOLA architecture and the
development of additional functionality and applications for its existing
products. Eclipsys believes that the open, integrated nature of its SOLA
architecture will facilitate the development of applications without the need
for major rewriting or reconfiguration of code. As of March 5, 1999, Eclipsys'
research, development and technical support organization consisted of
approximately 400 employees. Eclipsys' research and development expenses were
$40.5 million for 1998, on the pro forma basis described herein.
 
COMPETITION
 
     The market for Eclipsys' products and services is intensely competitive and
is characterized by rapidly changing technology, evolving user needs and the
frequent introduction of new products. Eclipsys' principal competitors include
Cerner Corp., McKesson HBOC Inc., IDX Systems Corp. and SMS. Eclipsys also faces
competition from providers of practice management systems, general decision
support and database systems and other segment-specific applications, as well as
from healthcare technology consultants. A number of
 
                                       11
<PAGE>   12
 
Eclipsys' competitors are more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources than Eclipsys. Eclipsys also expects that competition will continue to
increase as a result of consolidation in both the information technology and
healthcare industries. Eclipsys believes that the principal factors affecting
competition in the healthcare information technology market include product
functionality, performance, flexibility and features, use of open standards
technology, quality of service and support, company reputation, price and
overall cost of ownership.
 
PROPRIETARY RIGHTS
 
     Eclipsys is dependent upon its proprietary information and technology.
Eclipsys relies primarily on a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect its rights in its
software products and other proprietary technology. Eclipsys requires
third-party consultants and contractors to enter into nondisclosure agreements
to limit use of, access to and distribution of its proprietary information. In
addition, Eclipsys currently requires employees who receive option grants under
any of its stock plans to enter into nondisclosure agreements. There can be no
assurance that Eclipsys' means of protecting its proprietary rights will be
adequate to prevent misappropriation. The laws of some foreign countries may not
protect Eclipsys' proprietary rights as fully or in the same manner as do the
laws of the United States. Also, despite the steps taken by Eclipsys to protect
its proprietary rights, it may be possible for unauthorized third parties to
copy aspects of Eclipsys' products, reverse engineer such products or otherwise
obtain and use information that Eclipsys regards as proprietary. In certain
limited instances, customers can access source code versions of Eclipsys'
software, subject to contractual limitations on the permitted use of such source
code. Although Eclipsys' license agreements with such customers attempt to
prevent misuse of the source code, the possession of Eclipsys' source code by
third parties increases the ease and likelihood of potential misappropriation of
such software. Furthermore, there can be no assurance that others will not
independently develop technologies similar or superior to Eclipsys' technology
or design around the proprietary rights owned by Eclipsys.
 
EMPLOYEES
 
     As of March 5, 1999, Eclipsys employed 1,406 people, including 398 in
research, development and technical support, 686 in operations, 205 in marketing
and sales, 95 in finance and administration and 22 in international operations.
The success of Eclipsys depends on its continued ability to attract and retain
highly skilled and qualified personnel. Competition for such personnel is
intense in the information technology industry, particularly for talented
software developers, service consultants, and sales and marketing personnel.
There can be no assurance that Eclipsys will be able to attract and retain
qualified personnel in the future. Eclipsys' employees are not represented by
any labor unions. Eclipsys considers its relations with its employees to be
good.
 
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS/RISK FACTORS
 
     As a stockholder of Eclipsys, you should carefully consider the following
risk factors together with the other information included and incorporated by
reference in this document.
 
     Difficulty of Integrating Acquisition.  Eclipsys only recently completed
its acquisitions of Transition (which had just completed its acquisition of
HealthVISION) and PCS, and the integration of the operations of these companies
with the operations of Eclipsys is in its early stages. This integration will be
difficult and time consuming. Management of the combined company will need to
successfully integrate, among other things, the product offerings, the product
development, sales and marketing and customer service functions, and the
management information systems of both companies. In addition, the combined
company will need to retain the management, key employees, customers,
distributors, vendors and other business partners of both companies. The
integration of these organizations may temporarily distract management from the
day-to-day business of the combined company. The combined company may fail to
manage this integration so as to achieve any of the anticipated synergies and
other benefits that both companies had hope to achieve from the merger.
 
                                       12
<PAGE>   13
 
     Limited Operating History of Eclipsys; History of Operating
Losses.  Eclipsys began operations in 1996 and has grown primarily through a
series of acquisitions completed since January 1997. Accordingly, there is only
a limited combined operating history of Eclipsys and its acquired operations
upon which to base an evaluation of Eclipsys and its prospects. In addition to
managing the integration with Transition, HealthVISION and PCS, Eclipsys will
need to continue to integrate the operations of these other acquired businesses
and to consolidate their product offerings. Eclipsys has incurred net losses in
each year since its inception, including net losses of $125.0 million in 1997
and $34.7 million in 1998. These losses resulted primarily from certain
write-offs related to acquisitions completed by Eclipsys during 1997 and 1998,
and charges in the first quarter of 1998 related to the buyout by Eclipsys of
certain obligations under an agreement entered into in connection with one of
the acquisitions. Eclipsys expects to continue to incur net losses for the
foreseeable future. Eclipsys cannot predict when or if it will achieve
profitability.
 
     Management of Growth.  The rapid growth in the size and complexity of
Eclipsys' business as a result of its acquisitions has placed a significant
strain on Eclipsys' management and other resources. To compete effectively and
to manage future growth, if any, Eclipsys will need to continue to implement and
improve operational and financial systems on a timely basis and to expand,
train, motivate and manage its work force. The Company's personnel, systems,
procedures and controls may not be adequate to support its operations.
 
     Risks Associated with Future Acquisitions.  An important element of
Eclipsys' business strategy has been expansion through acquisitions. Eclipsys
expects to continue this strategy. This acquisition strategy involves a number
of risks, which include:
 
     --   There is significant competition for acquisition opportunities in the
          healthcare information technology industry. Competition may intensify
          due to consolidation in the industry, which could increase the costs
          of future acquisitions. The Company will compete for acquisition
          opportunities with other companies, some of which may have
          significantly greater financial and management resources than the
          Company.
 
     --   The anticipated benefits from any acquisition may not be achieved
          unless the operations of the acquired business are successfully
          combined with those of the Company. The integration of acquired
          businesses requires substantial attention from management. The
          diversion of the attention of management and any difficulties
          encountered in the transition process could hurt the Company.
 
     --   Future acquisitions could result in the issuance of additional shares
          of capital stock or the incurrence of additional indebtedness, could
          entail the payment of consideration in excess of book value and could
          have a dilutive effect on the Company's net income per share.
 
     --   Many business acquisitions must be accounted for under the purchase
          method of accounting. Consequently, such acquisitions may generate
          significant goodwill or other intangible assets and result in
          substantial amortization charges to the Company. Acquisitions could
          also involve significant one-time charges As a result of previous
          acquisitions, Eclipsys recorded amortization expenses for
          acquisition-related intangible assets of $21.1 million in 1998, wrote
          off $2.4 million of in-process research and development and recorded a
          charge of $7.2 million related to the write-off of acquisition related
          intangibles. Additionally, in 1998, the Company incurred expenses
          related to acquisitions of approximately $5.0 million.
 
     Potential Fluctuations in Quarterly Performance.  Eclipsys has experienced
significant variations in revenues and operating results from quarter to
quarter. The quarterly operating results of the Company may continue to
fluctuate due to a number of factors, including:
 
     --   potential deferrals of sales resulting from customer concerns over the
          Year 2000 issue;
 
     --   the timing and size of future acquisitions;
 
     --   the timing, size and nature of the Company's product sales and
          implementations;
 
     --   the length of the sales cycle;
 
     --   the success of implementation efforts; market acceptance of new
          services, products or product enhancements by the Company or its
          competitors;
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<PAGE>   14
 
     --   product and price competition;
 
     --   the relative proportions of revenues derived from systems and services
          and from hardware;
 
     --   changes in operating expenses;
 
     --   personnel changes;
 
     --   the performance of the Company's products; and
 
     --   fluctuations in economic and financial market conditions.
 
     It is difficult to predict the timing of revenues from product sales
because the sales cycle can vary depending upon several factors. These factors
include the size of the transaction, the changing business plans of the
customer, the effectiveness of the customer's management and general economic
conditions. In addition, because revenue is recognized at various points during
the term of a contract, the timing of revenue recognition varies considerably.
Factors affecting the timing of revenue recognition include the type of
contract, the availability of personnel, the implementation schedule and the
complexity of the implementation process. Because a significant percentage of
the Company's expenses will be relatively fixed, a variation in the timing of
sales and implementations could cause significant variations in operating
results from quarter to quarter. Eclipsys believes that period-to-period
comparisons of its historical results of operations are not necessarily
meaningful. You should not rely on these comparisons as indicators of future
performance.
 
     Long Sales and Implementation Cycles.  Eclipsys has experienced long sales
and implementation cycles. How and when to implement, replace, expand or
substantially modify an information system, or modify or add business processes
or lines of business, are major decisions for customers. Furthermore, the
purchase of solutions like those provided by Eclipsys typically require
significant capital expenditures by the customer. The sales cycle for Eclipsys'
systems has ranged from six to 18 months or more from initial contact to
contract execution. Historically, Eclipsys' implementation cycle has ranged from
six to 36 months from contract execution to completion of implementation.
Although Eclipsys believes that the migration of its products to its new SOLA
architecture will significantly shorten the implementation cycle, Eclipsys
cannot provide any assurance in this regard. During the sales cycle and the
implementation cycle, the Company will expend substantial time, effort and funds
preparing contract proposals, negotiating the contract and implementing the
solution.
 
     Risks Associated with Development by Eclipsys of Integrated Clinical
Management Suite.  Eclipsys is currently in the process of integrating selected
features and functionalities from a number of heritage clinical management
products acquired in its mergers and acquisitions and licensed from Partners to
create the Sunrise Clinical Manager suite. This product suite is currently
undergoing field trials. Although most of the key functionalities of the Sunrise
Clinical Manager suite are currently available in heritage products, Eclipsys
expects modules of the integrated Sunrise Clinical Manager suite to be generally
available at various times throughout 1999. Eclipsys may not be successful in
completing the integration of these functionalities on a timely basis. In
addition, the field trials may not be successful and the Sunrise Clinical
Manager suite, if and when generally available, may not meet the needs of the
marketplace or achieve market acceptance.
 
     Competition.  The Company operates in a market that is intensely
competitive. The principal competitors of the Company include Cerner Corp.,
McKesson HBOC, Inc., IDX Systems Corp. and SMS. The Company will also face
competition from providers of practice management systems, general decision
support and database systems and other segment-specific applications, as well as
from healthcare technology consultants. A number of existing and potential
competitors are more established and have greater name recognition and
financial, technical and marketing resources than the Company. Eclipsys expects
that competition will continue to increase as a result of consolidation in both
the information technology and healthcare industries.
 
     Dependence on Relationship with Partners and Other Third Parties.  Eclipsys
has an exclusive license granted by Partners to develop, commercialize,
distribute and support certain intellectual property relating to clinical
information systems software developed at Brigham. If the Company breaches
certain terms of the license, Partners has the option to convert the license to
a non-exclusive license. Such conversion by Partners could cause the
intellectual property and the ability to develop and commercialize such
intellectual property to
 
                                       14
<PAGE>   15
 
become more widely available to competitors of the Company. Eclipsys also works
closely with physicians and research and development personnel at Brigham and
its affiliate, MGH, to develop and commercialize new information technology
solutions for the healthcare industry and to test and demonstrate new and
existing products. If the Company breaches the Partners license, the cooperative
working relationship with Brigham and MGH, including future access to products
developed by personnel at Brigham granted under the Partners license, could
become strained or cease altogether. The loss of good relations with Brigham or
MGH could hurt the ability of the Company to develop new solutions and could
cause delays in bringing new products to the market. In addition, the reputation
and status of the Company in the industry could be hurt.
 
     Additionally, the Company depends upon licenses for certain technology used
in its products from a number of third-party vendors, including Computer
Corporation of America, Oracle Corporation and Sterling Software (United States
of America), Inc. The Company also has licenses from HCIA Inc. and Premier, Inc.
for certain database management systems and other software components and
clinical benchmarking data. Most of these licenses expire within one to four
years, can be renewed only by mutual consent and may be terminated if the
Company breaches the terms of the license and fails to cure the breach within a
specified period of time. The Company may not be able to continue using the
technology licensed under these licenses on commercially reasonable terms or at
all. As a result, the Company may have to discontinue, delay or reduce product
shipments until equivalent technology is obtained, which could hurt the Company.
Transition's license from New England Medical Center, Inc. for the original
version of the Transition I software is non-exclusive. The competitors of the
Company may obtain the right to use any of the technology covered by the
licenses and use the technology to directly compete with the Company. In
addition, if the Company's vendors choose to discontinue to support the licensed
technology, the Company may not be able to modify or adapt its own products
going forward.
 
     Uncertainty in the Healthcare Industry.  The Company operates in an
industry subject to changing political, economic and regulatory influences. The
potential impact of these industry changes include:
 
     --   During the past several years, the U.S. healthcare industry has been
          subject to an increase in governmental regulation and reform
          proposals. These reforms may increase governmental involvement in
          healthcare, continue to reduce reimbursement rates and otherwise
          change the operating environment for customers of the Company.
          Customers may react to these proposals and the uncertainty surrounding
          the proposals by curtailing or deferring investments, including those
          for the products and services of the Company.
 
     --   Many healthcare providers are consolidating to create larger
          healthcare delivery enterprises with greater market power. This
          consolidation could erode the customer base of the Company and could
          reduce the size of its target market. In addition, the resulting
          enterprises could have greater bargaining power, which may lead to
          price erosion.
 
     Potential FDA Regulation.  The U.S. Food and Drug Administration (the
"FDA") is likely to become increasingly active in regulating computer software
intended for use in the healthcare setting. The FDA has recently issued a draft
guidance document addressing the regulation of certain computer products and
computer-assisted products as medical devices under the Federal Food, Drug, and
Cosmetic Act (the"FDC Act") and has recently indicated it may modify such draft
policy or create a new policy. If the FDA chooses to regulate any of the
products of the Company as medical devices, it can impose extensive requirements
upon the Company, including:
 
     --   the Company would be required to seek either FDA clearance of a
          pre-market notification submission demonstrating that the product is
          substantially equivalent to a device already legally marketed or
          obtain FDA approval of a pre-market approval application establishing
          the safety and effectiveness of the product;
 
     --   the Company would be required to comply with rigorous regulations
          governing the pre clinical and clinical testing, manufacture,
          distribution, labeling and promotion of medical devices; and
 
                                       15
<PAGE>   16
 
     --   the Company would be required to comply with the FDC Act's general
          controls, including establishment registration, device listing,
          compliance with good manufacturing practices, reporting of certain
          device malfunctions and adverse device events.
 
     If the Company failed to comply with applicable requirements, the FDA could
respond by imposing fines, injunctions or civil penalties, requiring recalls or
product corrections, suspending production, refusing to grant pre market
clearance or approval of products, withdrawing clearances and approvals, and
initiating criminal prosecution. Any final FDA policy governing computer
products, once issued, may increase the cost and time to market of new or
existing products.
 
     New Regulations Relating to Patient Confidentiality.  State and federal
laws regulate the confidentiality of patient records and the circumstances under
which such records may be released. These regulations govern both the disclosure
and use of confidential patient medical record information. Regulations
governing electronic health data transmissions are evolving rapidly and are
often unclear and difficult to apply. On August 22, 1996, President Clinton
signed the Health Insurance Portability and Accountability Act of 1996
("HIPAA"). This legislation requires the Secretary of Health and Human Services
(the "Secretary") to adopt national standards for certain types of electronic
health information transactions and the data elements used in such transactions
and to adopt standards to ensure the integrity and confidentiality of health
information. The Secretary has recently issued proposed standards regarding four
of the five sets of standards that are ultimately expected. Eclipsys believes
that the proposed standards issued to date would not materially affect the
business of the Company if adopted as proposed. Eclipsys cannot predict the
potential impact of the standards that have not yet been proposed or any other
standards that might be finally adopted instead of the proposed standards. The
HIPAA legislation also required the Secretary to submit recommendations to
Congress for legislation to protect privacy and confidentiality of personal
health information. If Congress fails to enact such legislation by August 21,
1999, HIPAA requires the Secretary to promulgate such protections by regulation.
Legislation governing the dissemination of medical record information is also
frequently proposed and debated at the state level. Such legislation, if
enacted, could require patient consent before even non-individually-identifiable
(e.g., coded or anonymous) patient information may be shared with third parties
and could also require that holders or users of such information implement
specified security measures. These laws or regulations, when adopted, could
restrict the ability of customers to obtain, use or disseminate patient
information. This could adversely affect demand for the products of the Company.
 
     Year 2000 Issue.  Eclipsys has a Year 2000 Committee whose task is
evaluating the Company's Year 2000 readiness for both internal and external
management information systems, recommend a plan of action to minimize
disruption and execute the Company's Year 2000 plan. The Committee has developed
a comprehensive checklist or Year 2000 Plan. The Year 2000 Plan covers all major
and minor internal and external management information systems.
 
     Eclipsys believes that all of its internal management information systems
are currently Year 2000 compliant and, accordingly, does not anticipate any
significant expenditures to remediate or replace existing internal-use systems.
 
     With the exception of the Transition for Quality product (for which the
Company expects to release a fully Year 2000 compliant version in early 1999),
all of the products currently offered by Eclipsys are Year 2000 compliant. Some
of the products previously sold by Alltel and Emtek and installed in Eclipsys'
customer base are not Year 2000 compliant. Eclipsys has developed and tested
solutions for these non-compliant installed products. Eclipsys currently
estimates that the total cost of bringing these installed products into Year
2000 compliance, in those cases in which Eclipsys is required to do so at its
own expense, will be approximately $430,000. Eclipsys expects that all of this
expense will be incurred by mid-1999.
 
     In addition, because Eclipsys' products are often interfaced with a
customer's existing third-party applications and certain Eclipsys' products
include software licensed from third-party vendors, Eclipsys' products may
experience difficulties interfacing with third-party non-compliant applications.
Based on currently available information, Eclipsys does not expect the cost of
compliance related to interactions with non-compliant third-party systems to be
material.
 
                                       16
<PAGE>   17
 
     Unexpected difficulties in implementing Year 2000 solutions for the
installed Alltel or Emtek products or difficulties in interfacing with
third-party products could adversely effect the Company.
 
     Apprehension in the marketplace over Year 2000 compliance issues may lead
businesses, including customers of the Company, to defer significant capital
investments in information technology programs and software. They could elect to
defer those investments either because they decide to focus their capital
budgets on the expenditures necessary to bring their own existing systems into
compliance or because they wish to purchase only software with a proven ability
to process data after 1999. If these deferrals are significant, the Company may
not achieve expected revenue or earnings levels.
 
     Potential for Product Liability; Security Issues.  Eclipsys provides
products with applications that relate to patient medical histories and
treatment plans. If these products fail to provide accurate and timely
information, customers could assert liability claims against the Company. The
Company attempts to contractually limit its liability for damages arising from
negligence, errors or mistakes. Despite this precaution, the limitations of
liability set forth in these contracts may not be enforceable or may not
otherwise protect the Company from liability for damages. The Company will
maintain general liability insurance coverage, including coverage for errors or
omissions. However, such coverage may not continue to be available on acceptable
terms or may not be available in sufficient amounts to cover one or more large
claims. In addition, the insurer might disclaim coverage as to any future claim.
One or more large claims could exceed available insurance coverage. Litigation
with respect to liability claims, regardless of its outcome, could result in
substantial cost to the Company, could divert management's attention from
operations and could decrease market acceptance of the Company's products. The
Company has included security features in its products that are intended to
protect the privacy and integrity of customer data. Despite the existence of
these security features, these products may be vulnerable to break-ins and
similar disruptive problems. Break-ins and other disruptions could jeopardize
the security of information stored in and transmitted through the computer
systems of customers. Eclipsys may need to expend significant capital and other
resources to address evolving security issues.
 
     Ability to Attract and Retain Key Personnel.  The Company's success
depends, in significant part, upon the continued services of its key technical,
marketing, sales and management personnel and on its ability to continue to
attract, motivate and retain highly qualified employees. Competition for
technical, marketing, sales and management employees is intense and the process
of recruiting personnel with the combination of skills and attributes required
to execute the Company's strategy can be difficult, time-consuming and
expensive. There can be no assurance that the Company will be successful in
attracting or retaining highly skilled technical, management, sales and
marketing personnel. The failure to attract, hire, assimilate or retain such
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     The Company believes that its ability to implement its strategic goals
depends to a considerable degree on its senior management team. The loss of any
member of that team or, in particular, the loss of Harvey J. Wilson, the
Company's founder, Chairman of the Board and Chief Executive Officer, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
     Rapid Technological Change and Evolving Market.  The market for the
Company's products and services is characterized by rapidly changing
technologies, evolving industry standards and new product introductions and
enhancements that may render existing products obsolete or less competitive. As
a result, the Company's position in the healthcare information technology market
could erode rapidly due to unforeseen changes in the features and functions of
competing products, as well as the pricing models for such products. The
Company's future success will depend in part upon the Company's ability to
enhance its existing products and services and to develop and introduce new
products and services to meet changing customer requirements. The process of
developing products and services such as those offered by the Company is
extremely complex and is expected to become increasingly complex and expensive
in the future as new technologies are introduced. The Company recently announced
the development of, and has commenced migrating its products to, SOLA . There
can be no assurance that the development of SOLA or the migration of products to
SOLA will be successful, that such products will meet their scheduled release
dates, that the
 
                                       17
<PAGE>   18
 
Company will successfully complete the development and release of other new
products or the migration of new or existing products to specific platforms or
configurations in a timely fashion or that the Company's current or future
products will satisfy the needs of potential customers or gain general market
acceptance.
 
     Limited Protection of Proprietary Rights.  The Company is dependent upon
its proprietary information and technology. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate to prevent
misappropriation. The laws of some foreign countries may not protect the
Company's proprietary rights as fully or in the same manner as do the laws of
the United States. Also, despite the steps taken by the Company to protect its
proprietary rights, it may be possible for unauthorized third parties to copy
aspects of the Company's products, reverse engineer such products or otherwise
obtain and use information that the Company regards as proprietary. In certain
limited instances, customers can access source code versions of the Company's
software, subject to contractual limitations on the permitted use of such source
code. Although the Company's license agreements with such customers attempt to
prevent misuse of the source code, the possession of the Company's source code
by third parties increases the ease and likelihood of potential misappropriation
of such software. Furthermore, there can be no assurance that others will not
independently develop technologies similar or superior to the Company's
technology or design around the proprietary rights owned by the Company. In
addition, although the Company does not believe that its products infringe the
proprietary rights of third parties, there can be no assurance that infringement
or invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted or prosecuted against the Company or that any such
assertions or prosecutions will not materially adversely affect the Company's
business, financial condition and results of operations. Regardless of the
validity of such claims, defending against such claims could result in
significant costs and diversion of Company resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
 
     Product Errors.  Highly complex software products, such as those offered by
the Company, often contain undetected errors or failures when first introduced
or as new versions are released. Testing of the Company's products is
particularly challenging because it is difficult to simulate the wide variety of
computing environments in which the Company's customers may deploy these
products. Despite extensive testing, the Company from time to time has
discovered defects or errors in its products. Accordingly, there can be no
assurance that such defects, errors or difficulties will not cause delays in
product introductions and shipments, result in increased costs and diversion of
development resources, require design modifications or decrease market
acceptance or customer satisfaction with the Company's products. In addition,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found after commencement of
commercial shipments, resulting in loss of or delay in market acceptance, which
could have a material adverse effect upon the Company's business, financial
condition and results of operations.
 
ITEM 2. PROPERTIES
 
     Eclipsys is headquartered in Delray Beach, Florida, where it leases office
space under three separate leases expiring in March 2000, December 2001 and July
2002. In addition, Eclipsys maintains leased office space in Tempe, Arizona;
Tucson, Arizona; Little Rock, Arkansas; Newport Beach, California; Sacramento,
California; San Jose, California; Santa Clara, California; Santa Rosa,
California; Englewood, Colorado; Alpharetta, Georgia; Atlanta, Georgia; Chicago,
Illinois; Oak Brook, Illinois; Boston, Massachusetts; Mountain Lakes, New
Jersey; Albany, New York; Saratoga Springs, New York; Malvern, Pennsylvania;
Pittsburgh, Pennsylvania; Carrolton, Texas; New Perth, Washington; within the
United States and Brussels, Belgium; Paris, France; and London, United Kingdom.
These leases expire at various times ranging from June 1998 to June 2009.
Aggregate rental payments under all of Eclipsys' leases were $8.5 million in
1998.
 
                                       18
<PAGE>   19
 
ITEM 3. LEGAL PROCEEDINGS
 
     Eclipsys is involved from time to time in routine litigation that arises in
the ordinary course of its business, but is not currently involved in any
litigation that Eclipsys believes could reasonably be expected to have a
material adverse effect on Eclipsys.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     During the quarter ended December 31, 1998, the Company submitted to a vote
of its stockholders through a special meeting of the stockholders held on
December 30, 1998, the proposal to merge with Transition. A total of 13,628,706
votes (out of 19,461,642 shares eligible to vote on the matter) were cast in
favor of the proposal, 8,102 voted against the proposal and 5,439 abstained.
 
                                       19
<PAGE>   20
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
PRICE RANGE OF COMMON STOCK
 
     Since August 6, 1998, the Company's Common Stock has been publicly traded
on the Nasdaq National Market under the symbol "ECLP." The following table sets
forth for the periods indicated the high and low sales prices of the Common
Stock since commencement of trading:
 
<TABLE>
<CAPTION>
1998                                                      HIGH      LOW
----                                                     ------    ------
<S>                                                      <C>       <C>
Third quarter (from August 6, 1998)..................    $23.38    $11.88
Fourth quarter.......................................    $29.50    $18.38
</TABLE>
 
HOLDERS OF RECORD
 
     As of March 10, 1999, there were 162 holders of record of the Common Stock
and 2 holders of record of the Non-voting Common Stock. The number of holders of
record of the Common Stock is not representative of the number of beneficial
holders because many shares are held by depositories, brokers or other nominees.
 
DIVIDENDS
 
     The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. In addition, there are certain restrictions on the Company's ability to
declare and pay dividends under the terms of the Company's credit facility and
under applicable state law.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
     In January 1998, the Company issued to Motorola, Inc., as consideration in
connection with the Emtek acquisition, 1,000,000 shares of Common Stock.
 
     In January 1998, the Company sold 900,000 shares of Series G Convertible
Preferred Stock to private investors for an aggregate purchase price of $9.0
million.
 
     At the closing of the Company's initial public offering in August 1998,
each share of Series D and Series F Convertible Preferred Stock was
automatically converted into one shares of Common Stock (an aggregate of
8,536,883 shares of Common Stock), each share of Series G Convertible Preferred
Stock was automatically converted into two-thirds of a share of Common Stock (an
aggregate of 599,999 shares of Common Stock) and each share of Series E
Convertible Preferred Stock was automatically converted into one share of
Non-Voting Common Stock (an aggregate of 896,431 shares of Non-Voting Common
Stock).
 
     During 1998, the Company issued stock options to purchase an aggregate of
1,052,870 shares of Common Stock and issued 465,008 shares of Common Stock upon
the exercise of stock options.
 
     The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of Common Stock and
shares of Common Stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The selected consolidated financial data of the Company set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this document. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998 and the balance sheet
data at December 31, 1996,
 
                                       20
<PAGE>   21
 
1997 and 1998, under the heading "Company" set forth below, are derived from,
and are qualified by reference to, Eclipsys' audited consolidated financial
statements, which appear elsewhere in this document and are retroactively
restated to give effect to the pooling of Transition. The statement of
operations data for the years ended December 31, 1994, 1995 and 1996, under the
heading "Predecessor," are derived from, and are qualified by reference to, the
audited financial statements of Alltel, which are not included in this document
and are retroactively restated to give effect to the pooling of Transition.
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                ---------------------------------------------------------------------
                                         PREDECESSOR                           COMPANY
                                ------------------------------   ------------------------------------
                                  1994       1995       1996        1996         1997         1998
                                --------   --------   --------   ----------   ----------   ----------
                                           (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                             <C>        <C>        <C>        <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................  $105,745   $129,003   $144,997   $   36,197   $  141,071   $  170,689
Costs and expenses:
  Cost of revenues............    55,909     69,686     81,141        9,658       92,530       98,087
  Marketing and sales.........    15,926     15,071     15,989        5,668       20,911       28,846
  Research and development....    12,293     11,186     13,529        4,962       19,873       34,131
  General and
     administrative...........    11,507     11,834      9,847        3,349        9,391        9,823
  Depreciation and
     amortization.............     3,788      6,735      9,643        1,540       11,364       13,501
  Compensation charge.........        --         --      3,024        3,024           --           --
  Write-off of in-process
     research and
     development..............        --         --         --           --      105,481        2,392
  Write-down of investment....        --         --         --           --           --        4,778
  Pooling costs...............        --         --         --           --           --        5,033
  Write-off of MSA............        --         --         --           --           --        7,193
                                --------   --------   --------   ----------   ----------   ----------
     Total costs and
       expenses...............    99,423    114,512    133,173       28,201      259,550      203,784
                                --------   --------   --------   ----------   ----------   ----------
Income (loss) from
  operations..................     6,322     14,491     11,824        7,996     (118,479)     (33,095)
Interest expense (income),
  net.........................     1,215      2,187      3,286         (628)      (1,535)      (2,669)
                                --------   --------   --------   ----------   ----------   ----------
Income (loss) before income
  taxes and extraordinary
  item........................     5,107     12,304      8,538        8,624     (116,944)     (30,426)
Income tax provision..........    (1,949)    (6,185)    (3,847)      (4,690)      (8,096)      (4,252)
                                --------   --------   --------   ----------   ----------   ----------
Income (loss) before
  extraordinary item..........     3,158      6,119      4,691        3,934     (125,040)     (34,678)
Loss on early extinguishment
  of debt (net of taxes
  $1,492).....................        --         --      2,149        2,149           --           --
                                --------   --------   --------   ----------   ----------   ----------
Net income (loss).............     3,158      6,119      2,542        1,785     (125,040)     (34,678)
Dividends and accretion on
  mandatorily redeemable
  preferred stock.............        --         --         --         (593)      (5,850)     (10,928)
Preferred stock conversion....        --         --         --           --       (3,105)          --
                                --------   --------   --------   ----------   ----------   ----------
Net loss available to common
  shareholders................  $  3,158   $  6,119   $  2,542   $    1,192   $ (133,995)  $  (45,606)
                                ========   ========   ========   ==========   ==========   ==========
Basic net income (loss) per
  common share................                                   $     0.11   $   (10.46)  $    (2.20)
Diluted net income (loss) per
  common share................                                   $     0.10   $   (10.46)  $    (2.20)
</TABLE>
 
                                       21
<PAGE>   22
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                ---------------------------------------------------------------------
                                         PREDECESSOR                           COMPANY
                                ------------------------------   ------------------------------------
                                  1994       1995       1996        1996         1997         1998
                                --------   --------   --------   ----------   ----------   ----------
                                           (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                             <C>        <C>        <C>        <C>          <C>          <C>
Basic weighted average common
  shares outstanding..........                                   10,876,239   12,806,828   20,697,797
Diluted weighted average
  common shares outstanding...                                   12,445,647   12,806,828   20,697,797
</TABLE>
 
<TABLE>
<CAPTION>
                                                         AS OF DECEMBER 31,
                                ---------------------------------------------------------------------
                                         PREDECESSOR                           COMPANY
                                ------------------------------   ------------------------------------
                                  1994       1995       1996        1996         1997         1998
                                --------   --------   --------   ----------   ----------   ----------
                                                           (IN THOUSANDS)
<S>                             <C>        <C>        <C>        <C>          <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents.....  $  8,807   $ 14,541   $ 55,858   $   58,425   $   63,295   $   54,238
Working capital (deficit).....     1,060     11,487     49,357       62,871       34,734       27,177
Total assets..................    90,741    116,550    176,789       82,086      197,741      217,308
Debt, including current
  portion.....................       810        250        105           19       16,588           --
Mandatorily redeemable
  preferred stock.............        --         --         --           --       35,607           --
Stockholders' equity
  (deficit)(1)................   (11,758)    (5,640)    38,609       68,797       58,015       98,619
</TABLE>
 
------------------------
(1) The Company has never declared or paid cash dividends on the Common Stock.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
     Eclipsys Corporation is a healthcare information technology company
delivering solutions that enable healthcare providers to achieve improved
clinical, financial and administrative outcomes. The Company offers an
integrated suite of core products in five critical areas -- clinical management,
access management, patient financial management, strategic decision support and
integration. These products can be purchased in combination to provide an
enterprise-wide solution or individually to address specific needs. These
solutions take many forms and can include a combination of software, hardware,
maintenance, consulting services, remote processing services, network services
and information technology outsourcing.
 
     Founded in 1995, the Company has grown to its current position primarily
through a series of strategic acquisitions completed since January 1997. In May
1996, the Company entered into the Partners license for the development,
commercialization, distribution and support of certain intellectual property
relating to the BICS clinical information systems software developed by
Partners. In connection with this license, the Company issued to Partners
988,290 shares of Common Stock.
 
     In January 1997, the Company purchased Alltel from Alltel Information
Services, Inc. ("AIS") for a total purchase price of $201.5 million, after
giving effect to certain purchase price adjustments. The Alltel acquisition was
paid for with cash, the issuance of Series C Redeemable Preferred Stock and
Series D Convertible Preferred Stock and the assumption of certain liabilities.
The acquisition was accounted for as a purchase, and the Company recorded total
intangible assets of $163.8 million, consisting of $92.2 million of acquired
in-process research and development, $42.3 million of acquired technology, $10.8
million to reflect the value of ongoing customer relationships, $9.5 million
related to a management services agreement ("MSA")with AIS and $9.0 million of
goodwill. The Company wrote off the acquired in-process research and development
as of the date of the acquisition, and is amortizing the acquired technology
over three years on an accelerated basis. The value of the ongoing customer
relationships and the goodwill are being amortized over five years and twelve
years, respectively.
 
     In June 1997, the Company acquired SDK for a total purchase price of $16.5
million. The SDK acquisition was paid for with cash as well as the issuance of
promissory notes and Common Stock. The
 
                                       22
<PAGE>   23
 
acquisition was accounted for as a purchase, and the Company recorded total
intangible assets of $14.8 million, consisting of $7.0 million of acquired
in-process research and development, $3.2 million of acquired technology and
$4.6 million of goodwill. The Company wrote off the acquired in-process research
and development as of the date of the acquisition, and is amortizing both the
acquired technology and the goodwill over five years.
 
     In January 1998, the Company acquired Emtek from Motorola for a total
purchase price of $11.7 million, net of a $9.6 million receivable from Motorola.
The Emtek acquisition was paid for with the issuance of Common Stock and the
assumption of certain liabilities. The acquisition was accounted for as a
purchase, and the Company recorded total intangible assets of $4.1 million,
consisting of acquired technology which is being amortized over five years.
 
     On December 31, 1998, the Company acquired Transition. The acquisition was
paid for entirely with the issuance of Common Stock. The acquisition was
accounted for as a pooling of interests, and accordingly the financial
statements have been retroactively restated to give effect to the acquisition as
if it had occurred as of the earliest period presented. On December 3, 1998,
Transition had acquired HealthVISION for a total purchase price of $25.6 million
plus an earnout of up to $10.8 million if specified financial milestones are
met. The acquisition was accounted for as a purchase, and Transition recorded
intangible assets of $40.6 million, consisting of $2.4 million of acquired
in-process research and development, $27.3 million of acquired technology and
$10.9 million of goodwill. Transition wrote off the acquired in-process research
and development as of the date of the acquisition, and is amortizing both the
acquired technology and the goodwill over 3 years.
 
     On July 22, 1996, Transition acquired substantially all of the outstanding
stock and a note held by a selling principal of Enterprising HealthCare, Inc.
("EHI"), based in Tucson, Arizona, for a total purchase price of approximately
$1.8 million in cash. The acquisition was accounted for under the purchase
method and accordingly the results of operations of EHI are included from the
date of the acquisition. Acquired technology costs of $1.6 million are being
amortized on a straight-line basis over 7 years.
 
     On September 19, 1997, Transition acquired all outstanding shares of Vital
Software Inc. ("Vital"). The purchase price was approximately $6.3 million,
which consisted of $2.7 million in cash and shares of Transition's common stock
with a value of $3.6 million. The acquisition was accounted for under the
purchase method of accounting and accordingly the results of operations of Vital
are included from the date of the acquisition. The amount allocated to acquired
in-process research and development was based on the results of an independent
appraisal. Acquired in-process research and development represented development
projects in areas that had not reached technological feasibility and which had
no alternative future use. Accordingly, the amount was charged to operations at
the date of the acquisition. The write-off of acquired in-process research and
development of $92.2 million and $7.0 million associated with the Alltel
Acquisition and the SDK acquisition, respectively, together with the
amortization of acquisition-related intangible assets of $25.3 million,
accounted for $124.5 million of the Company's $125.0 million net loss in 1997.
The write-off of acquired in-process research and development of $2.4 million
associated with Transition's HealthVISION acquisition together with the
amortization of acquisition-related intangible assets of $21.1 million and a
charge of $7.2 million related to the write-off of acquisition related
intangibles accounted for $30.7 million of the Company's $34.7 million net loss
in 1998. See " -- Acquired In-Process Research and Development."
 
  REVENUES
 
     Revenues are derived from sales of systems and services, which include the
licensing of software, software and hardware maintenance, remote processing,
outsourcing, implementation, training and consulting, and from the sale of
computer hardware. The Company's products and services are generally sold to
customers pursuant to contracts that range in duration from five to seven years.
 
     For contracts in which the Company is required to make significant
production, modification or customization changes, revenues from systems and
services are recognized using the straight-line method over the implementation
period of the contracts. Other systems and services revenues are generally
recognized on a straight-line basis over the term of licensing and maintenance
agreements. Remote processing and outsourcing services are marketed under
long-term agreements and revenues are recognized monthly as the work is
 
                                       23
<PAGE>   24
 
performed. Revenues related to other support services, such as training,
consulting, and implementation, are recognized when the services are performed.
Revenues from the sale of hardware are recognized upon shipment of the product
to the customer. The Company's revenues can vary from quarter to quarter due to
a number of factors. See Item 1 "Business -- Certain Factors that May Effect
Operating Results/Risk Factors -- Potential Fluctuations in Quarterly
Performance."
 
  COSTS OF REVENUES
 
     The principal costs of systems and services revenues are salaries, benefits
and related overhead costs for implementation, remote processing, outsourcing
and field operations personnel. As the Company implements its growth strategy,
it is expected that additional operating personnel will be required, which would
lead to an increase in cost of revenues on an absolute basis. Other significant
costs of systems and services revenues are the amortization of acquired
technology and capitalized software development costs. Acquired technology is
amortized over three to five years based upon the estimated economic life of the
underlying asset, and capitalized software development costs are amortized over
three years on a straight-line basis commencing upon general release of the
related product. The Company recorded amortization expenses related to acquired
technology from the Alltel and SDK acquisitions of $19.7 million and $14.8
million in 1997 and 1998, respectively, and expects to record additional
acquired technology amortization from the acquisitions of approximately $10.2
million, $2.1 million and $1.5 million in 1999, 2000 and 2001, respectively.
Amortization of capitalized software development costs were $700,000 and
$778,000 in 1997 and 1998, respectively. Cost of revenues related to hardware
sales include only the Company's cost to acquire the hardware from the
manufacturer.
 
  MARKETING AND SALES
 
     Marketing and sales expenses consist primarily of salaries, benefits,
commissions and related overhead costs. Other costs include expenditures for
marketing programs, public relations, trade shows, advertising and related
communications. As the Company continues to implement its growth strategy,
marketing and sales expenses are expected to continue to increase on an absolute
basis.
 
  RESEARCH AND DEVELOPMENT
 
     Research and development expenses consist primarily of salaries, benefits
and related overhead associated with the design, development and testing of new
products by the Company. The Company capitalizes internal software development
costs subsequent to attaining technological feasibility. Such costs are
amortized as an element of cost of revenues annually over three to five years
either on a straight line basis or, if greater, based on the ratio that current
revenues bear to total anticipated revenues for the applicable product. The
Company expects to continue to increase research and development spending on an
absolute basis as it migrates its products to SOLA.
 
  GENERAL AND ADMINISTRATIVE
 
     General and administrative expenses consist primarily of salaries, benefits
and related overhead costs for administration, executive, finance, legal, human
resources, purchasing and internal systems personnel, as well as accounting and
legal fees and expenses. As the Company implements its business plan, general
and administrative expenses are expected to continue to increase on an absolute
basis.
 
  DEPRECIATION AND AMORTIZATION
 
     The Company depreciates the costs of its tangible capital assets on a
straight-line basis over the estimated economic life of the asset, which is
generally not longer than five years. Acquisition-related intangible assets,
which include the value of ongoing customer relationships and goodwill, are
amortized based upon the estimated economic life of the asset at the time of the
acquisition, and will therefore vary among acquisitions. The Company recorded
amortization expenses for acquisition-related intangible assets of $5.7 million
and $4.8 million in 1997 and 1998, respectively.
 
                                       24
<PAGE>   25
 
  TAXES
 
     As of December 31, 1998, the Company had operating loss carryforwards for
federal income tax purposes of $55.0 million. The carryforwards expire in
varying amounts through 2018 and are subject to certain restrictions. Based on
evidence then available, the Company did not record any benefit for income taxes
at December 31, 1997 and 1998, because management believes it is more likely
then not that the Company would not realize its net deferred tax assets.
Accordingly, the Company has recorded a valuation allowance against its total
net deferred tax assets.
 
RESULTS OF OPERATIONS
 
  1998 COMPARED TO 1997
 
     In the period-to-period comparison below, both the 1998 and 1997 results
reflect the operations of Eclipsys retroactively restated for the pooling of
interests with Transition.
 
     Total revenues increased by $29.6 million, or 21.0%, from $141.1 million in
1997 to $170.7 million in 1998. This increase was caused primarily by the
inclusion in 1998 of twelve full months of the operations of Alltel and SDK, as
well as the inclusion of eleven months of operations of operations of Emtek.
Also contributing to the increase was new business contracted in 1998, which was
the result of an increase in marketing efforts related to the regional
realignment of Eclipsys' operations completed in 1997 and the successful
integration of acquisitions completed in 1997 and 1998.
 
     Total cost of revenues increased by $5.6 million, or 6.0%, from $92.5
million, or 65.6% of total revenues, in 1997 to $98.1 million, or 57.5% of total
revenues, in 1998. The increase in cost was due primarily to the increase in
business activity, offset in part by a reduction in certain expenses related to
integrating the acquisitions.
 
     Marketing and sales expenses increased by $7.9 million, or 37.9%, from
$20.9 million, or 14.8% of total revenues, in 1997 to $28.8 million, or 16.9% of
total revenues, in 1998. The increase was due primarily to the addition of
marketing and direct sales personnel following the acquisitions and the regional
realignment of Eclipsys' sales operations.
 
     Total expenditures for research and development, including both capitalized
and non-capitalized portions, increased by $16.3 million, or 73.4%, from $22.1
million, or 15.7% of total revenues, in 1997 to $38.5 million, or 22.5% of total
revenues, in 1998. These amounts exclude amortization of previously capitalized
expenditures, which are recorded as cost of revenues. The increase was due
primarily to the inclusion in 1998 of twelve full months of the operations of
Alltel and SDK as well as eleven months of Emtek operations, as well as the
continued development of an enterprise-wide, client server platform solution.
The portion of research and development expenditures that were capitalized
increased by $2.0 million, from $2.3 million in 1997 to $4.3 million in 1998.
The increase in capitalized software development costs was due primarily to the
Acquisitions. As a result of this activity, research and development expense
increased $14.3 million, or 71.7%, from $19.9 million in 1997 to $34.1 million
in 1998.
 
     General and administrative expenses increased by $400,000, or 4.6%, from
$9.4 million, or 6.7% of total revenues, in 1997 to $9.8 million, or 5.8% of
total revenues, in 1998. The increase was due primarily to the timing of the
acquisitions, partially offset by the savings generated by the integration of
Eclipsys' administrative, financial and legal organizations.
 
     Depreciation and amortization expense increased by $2.1 million, or 18.8%,
from $11.4 million, or 8.1% of total revenues, in 1997 to $13.5 million, or 7.9%
of total revenues, in 1998. The increase was due primarily to the amortization
of the value of ongoing customer relationships and goodwill related to the
acquisitions. Partially offsetting this increase was a reduction in goodwill
amortization as a result of the renegotiation of certain matters relating to the
Alltel acquisition.
 
     Write-offs of acquired in-process research and development of $105.5
million were recorded in 1997, of which $92.2 million was attributable to the
Alltel acquisition, $7.0 million was attributable to the SDK
 
                                       25
<PAGE>   26
 
acquisition and $6.3 million was attributable to Transition's acquisition of
Vital. A write-off of $2.4 million was recorded in 1998 related to Transition's
acquisition of HealthVISION.
 
     Eclipsys recorded a $7.2 million charge during 1998 related to the buyout
of the MSA. Additionally, the Company recorded a charge of $4.8 million related
to the write down of an investment and recognized $5.0 million of costs related
to the merger with Transition.
 
     As a result of the foregoing factors, net loss decreased from $125.0
million in 1997 to $34.7 million in 1998.
 
  1997 COMPARED TO 1996
 
     In the period-to-period comparison below, the 1997 results reflect the
operations of Eclipsys and the 1996 results reflect the operations of its
predecessor, Alltel, retroactively restated for the pooling of interests with
Transition.
 
     Following the Alltel and SDK acquisitions in 1997, Eclipsys' efforts and
resources were focused on integrating the acquisitions into its operations.
Particular emphasis was placed on retaining customers and integrating the
acquired products into Eclipsys' systems and services offerings in order to
position Eclipsys for future business opportunities. These efforts included
refocusing Eclipsys' research and development operations, realigning the sales
departments and reducing general and administrative overhead. As a result,
Eclipsys did not actively seek to exploit new business opportunities during
1997. Eclipsys believes that the investment of time and resources in improving
the internal structure of Eclipsys and the integration of its acquisitions have
positioned Eclipsys to capitalize on business opportunities in the future.
 
     Total revenues decreased by $3.9 million, or 2.7%, from $145.0 million in
1996 to $141.1 million in 1997. This decrease was caused primarily by the
inclusion in 1997 of only eleven full months of the operations of Alltel, as
well as a reduction in revenues from hardware sales of $5.2 million, offset in
part by the inclusion of $3.5 million in revenues attributable to SDK.
Additionally, the decrease was partially offset by an increase in software and
implementation revenue due to sales to new and existing Transition customers due
to additional site licenses and the expansion of Transition's product line. In
addition, in accounting for the Alltel acquisition, Eclipsys reduced deferred
revenue by $7.3 million to reflect the estimated fair value of certain
contractual obligations. This accounting adjustment had the effect of reducing
revenues by $4.5 million in 1997 compared to 1996 revenues. Eclipsys does not
expect the deferred revenue adjustment to materially impact future periods.
 
     Total cost of revenues increased by $11.4 million, or 14.0%, from $81.1
million, or 56.0% of total revenues, in 1996 to $92.5 million, or 65.6% of total
revenues, in 1997. The increase was due primarily to a $19.7 million increase in
amortization of acquired technology and $2.2 million of amortization of the
value of the MSA. This increase was offset, in part, by a $7.2 million decrease
in amortization of capitalized software costs, as no software costs were
amortized in 1997. Further offsetting the increase was the timing of the Alltel
acquisition and the reduction in hardware sales.
 
     Marketing and sales expenses increased by $4.9 million, or 30.8%, from
$16.0 million, or 11.0% of total revenues, in 1996 to $20.9 million, or 14.8% of
total revenues, in 1997. The increase was due primarily to the addition of
marketing and direct sales personnel as part of Eclipsys' investment in its
marketing and sales operations following the Alltel and SDK acquisitions. This
increase was offset in part by the timing of the Alltel acquisition.
 
     Total expenditures for research and development, including both capitalized
and non-capitalized portions, decreased by $4.2 million, or 16.0%, from $26.4
million, or 18.2% of total revenues in 1996 to $22.1 million, or 15.7% of total
revenues, in 1997. These amounts exclude amortization of previously capitalized
expenditures, which are recorded as cost of revenues. The decrease was due
primarily to the refocusing of Eclipsys' research and development organization,
and, to a lesser extent, the timing of the Alltel acquisition. The portion of
research and development expenditures that were capitalized decreased by $10.6
million, from $12.9 million in 1996 to $2.3 million in 1997. The reduction in
capitalized software development costs was due primarily to Eclipsys' emphasis
on enhancing existing technology acquired in the Alltel and SDK acquisitions,
the costs of
                                       26
<PAGE>   27
 
which were expensed as incurred. As a result of this emphasis, research and
development expense increased $6.3 million, or 46.9%, from $13.5 million in 1996
to $19.9 million in 1997.
 
     General and administrative expenses decreased by $500,000, or 4.6%, from
$9.8 million, or 6.7% of total revenues, in 1996 to $9.4 million, or 6.7% of
total revenues, in 1997. The decrease was due primarily to the timing of the
Alltel acquisition, as well as savings generated by the rationalization of
Eclipsys' administrative, financial and legal organizations.
 
     Depreciation and amortization expense increased by $1.7 million, or 17.8%,
from $9.6 million, or 6.7% of total revenues, in 1996 to $11.4 million, or 8.1%
of total revenues, in 1997. The increase was due primarily to the amortization
of the value of ongoing customer relationships and goodwill related to the
Alltel and SDK acquisitions.
 
     Write-offs of acquired in-process research and development of $105.5
million were recorded in 1997, of which $92.2 million was attributable to the
Alltel acquisition, $7.0 million was attributable to the SDK acquisition and
$6.3 million was attributable to Transition's acquisition of Vital. There were
no write-offs recorded in 1996.
 
     Compensation charge of $3.0 million was incurred in 1996 related to
Transition's recapitalization, specifically the purchase of common stock issued
to certain executive officers pursuant to the exercise of options.
 
     Extraordinary item charged in 1996 of $2.1 million was related to the early
extinguishment of debt. There were no extraordinary items recorded in 1997.
 
     As a result of the foregoing factors, net income decreased from $1.8
million in 1996 to a loss of $125.0 million in 1997.
 
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
 
     In connection with the Alltel and SDK acquisitions, the Company wrote off
in-process research and development totaling $92.2 million and $7.0 million,
respectively. These amounts were expensed as non-recurring charges on the
respective acquisition dates. These write-offs were necessary because the
acquired technology had not yet reached technological feasibility and had no
future alternative uses. The Company is using the acquired in-process research
and development to create new clinical management, access management, patient
financial management and data warehousing products which will become part of the
Sunrise product suite over the next several years. Certain products using the
acquired in-process technology were generally released during 1998, with
additional product releases in subsequent periods through 2001. The Company
expects that the acquired in-process research and development will be
successfully developed, but there can be no assurance that commercial viability
of these products will be achieved.
 
     The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.
 
     The value of the purchased in-process technology was determined by
estimating the projected net cash flows related to such products, including
costs to complete the development of the technology and the future revenues to
be earned upon commercialization of the products. These cash flows were
discounted back to their net present value. The resulting projected net cash
flows from such projects were based on management's estimates of revenues and
operating profits related to such projects. These estimates were based on
several assumptions, including those summarized below for each of the respective
acquisitions.
 
     If these projects to develop commercial products based on the acquired
in-process technology are not successfully completed, the sales and
profitability of the Company may be adversely affected in future periods.
Additionally, the value of other intangible assets may become impaired.
 
                                       27
<PAGE>   28
 
  ALLTEL
 
     The primary purchased in-process technology acquired in the Alltel
acquisition was the client-server based core application modules of the TDS 7000
product. This project represented an integrated clinical software product whose
functionality included order management, health information management,
physician applications, nursing applications, pharmacy, laboratory and radiology
applications and ancillary support. Additionally, the product included
functionality facilitating the gathering and analysis of data throughout a
healthcare organization, a data integration engine and various other
functionality.
 
     Revenue attributable to the in-process technology was assumed to increase
over the twelve-year projection period at annual rates ranging from 234% to 5%,
resulting in annual revenues of approximately $27 million to $640 million. Such
projections were based on assumed penetration of the existing customer base, new
customer transactions, historical retention rates and experiences of prior
product releases. The projections reflect accelerated revenue growth in the
first five years (1997 to 2001) as the products derived from the in-process
technology are generally released. In addition, the projections were based on
annual revenue to be derived from long-term contractual arrangements ranging
from seven to ten years. New customer contracts for products developed from the
in-process technology were assumed to peak in 2001, with rapidly declining sales
volume in the years 2002 to 2003 as other new products are expected to enter the
market. The projections assumed no new customer contracts after 2003. Projected
revenue in years after 2003 was determined using a 5% annual growth rate, which
reflects contractual increases.
 
     Operating profit was projected to grow over the projection period at rates
ranging from 1238% to 5%, resulting in incremental annual operating profit
(loss) of approximately $(5) million to $111 million. The operating profit
projections during the years 1997 to 2001 assumed a growth rate slightly higher
than the revenue projections. The higher growth rate is attributable to the
increase in revenues discussed above, together with research and development
costs expected to remain constant at approximately $15 million annually. The
operating profit projections include a 5% annual growth rate for the years after
2003 consistent with the revenue projections.
 
     Through December 31, 1998, revenues and operating profit attributable to
in-process technology have been adversely impacted by the deferral of one
outsourcing contract that had been approved but not finalized at the time the
projections were completed. Although it was successful in contracting
outsourcing business in 1997, the Company decided in late March 1997 to focus
its efforts on integrating the products acquired in the acquisitions and lower
its sales efforts in the outsourcing arena. In late 1997, the Company
reorganized the outsourcing operations and began to refocus on selling such
services in the first quarter of 1998. Revenue attributable to the deferred
contract is expected to be realized in 1999. Management continues to believe the
projections used reasonably estimate the future benefits attributable to the
in-process technology. However, no assurance can be given that deviations from
these projections will not occur.
 
     The projected net cash flows were discounted to their present value using
the weighted average cost of capital (the "WACC"). The WACC calculation produces
the average required rate of return of an investment in an operating enterprise,
based on required rates of return from investments in various areas of the
enterprise. The WACC used in the projections was 21%. This rate was determined
by applying the capital asset pricing model. This method yielded an estimated
average WACC of approximately 16.5%. A risk premium was added to reflect the
business risks associated with the stage of development of the Company, as well
as the technology risk associated with the in-process software, resulting in a
WACC of 21%. In addition, the value of customer relationships was calculated
using a discount rate of 21% and a return to net tangible assets was estimated
using a rate of return of 11.25%. The value of the goodwill was calculated as
the remaining intangible value not otherwise allocated to identifiable
intangible assets (resulting in an implied discount rate on the goodwill of
approximately 28%).
 
     The Company used a 21% discount rate for valuing existing technology
because it faces substantially the same risks as the business as a whole.
Accordingly, a rate equal to the WACC of 21% was used. The Company used a 28%
discount rate for valuing in-process technology. The spread over the existing
technology discount rate reflects the inherently greater risk of the research
and development efforts. The spread reflected the
 
                                       28
<PAGE>   29
 
nature of the development efforts relative to the existing base of technology
and the potential market for the in-process technology once the products were
released.
 
     The Company estimates that the costs to develop the purchased in-process
technology acquired in the Alltel acquisition into commercially viable products
will be approximately $75 million in the aggregate through 2001 ($15 million per
year from 1997 to 2001).
 
  SDK
 
     The purchased in-process technology acquired in the SDK acquisition
comprised three major enterprise-wide modules in the areas of physician billing,
home health care billing and long-term care billing; a graphical user interface;
a corporate master patient index; and a standard query language module.
 
     Revenue attributable to the in-process technology was assumed to increase
in the first three years of the ten-year projection period at annual rates
ranging from 497% to 83% decreasing over the remaining years at annual rates
ranging from 73% to 14% as other products are released in the market place.
Projected annual revenue ranged from approximately $5 million to $56 million
over the term of the projections. These projections were based on assumed
penetration of the existing customer base, synergies as a result of the SDK
acquisition, new customer transactions and historical retention rates. Projected
revenues from the in-process technology were assumed to peak in 2000 and decline
from 2000 to 2007 as other new products are expected to enter the market.
 
     Operating profit was projected to grow over the projection period at annual
rates ranging from 1497% to 94% during the first three years, decreasing during
the remaining years of the projection period similar to the revenue growth
projections described above. Projected annual operating profit ranged from
approximately $250,000 to $8 million over the term of the projections.
 
     Through December 31, 1998, revenues and operating profit attributable to
in-process technology have been consistent with the projections. However, no
assurance can be given that deviations from these projections will not occur in
the future.
 
     The WACC used in the analysis was 20%. This rate was determined by applying
the capital asset pricing model and a review of venture capital rates of return
for companies in a similar life cycle stage.
 
     The Company used a 20% discount rate for valuing existing and in-process
technology because both technologies face substantially the same risks as the
business as a whole. Accordingly, a rate equal to the WACC of 20% was used.
 
     The Company estimates that the costs to develop the in-process technology
acquired in the SDK acquisition will be approximately $1.7 million in the
aggregate through the year 2000 ($500,000 in 1998, $600,000 in 1999 and $600,000
in 2000).
 
SUBSEQUENT EVENTS
 
     Effective February 17, 1999, the Company completed a merger with PCS for
total consideration of approximately $35 million. The acquisition will be
accounted for as a pooling of interests.
 
     During March 1999, the Company signed a definitive agreement to acquire
Intelus Corporation and Med Data Systems, Inc., two wholly owned subsidiaries of
Sungard Data Systems Inc., for $25 million in cash. The transaction will be
accounted for as a purchase and is expected to close in March 1999.
 
BALANCE SHEET
 
  1998 COMPARED TO 1997
 
     OTHER CURRENT ASSETS
 
     Other current assets increased during the twelve months ended December 31,
1998 primarily due to the acquisition of Emtek and an increase in prepaid
royalties and software maintenance.
 
                                       29
<PAGE>   30
 
     ACQUIRED TECHNOLOGY
 
     Acquired technology increased during the twelve months ended December 31,
1998 due to the acquisitions of Emtek and HealthVISION.
 
     LONG-TERM DEBT AND MANDATORILY REDEEMABLE PREFERRED STOCK
 
     Long-term debt decreased during the twelve months ended December 31, 1998
due to repayment by the Company with proceeds from the Company's initial public
offering in August 1998.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During the twelve months ended December 31, 1998, the Company generated
$31.2 million in cash flow from operations. The Company used $77.8 million in
investing activities, which was primarily the result of the acquisition of
HealthVISION, payment related to the settlement of the Alltel purchase and an
investment in Simione Central Holdings, Inc. Financing activities provided $20.5
million, primarily due to the receipt of the net proceeds from the initial
public offering, partially offset by the use of a portion of those proceeds to
effect the redemption of the Mandatorily Redeemable Preferred Stock and the
repayment of long-term debt.
 
     During the twelve months ended December 31, 1997, the Company generated
$15.1 million in cash flow from operations. The Company used $124.2 million in
investing activities, which was primarily the result of the acquisitions of
Alltel, SDK and Vital. Financing activities provided $114.0 million, primarily
due to the sale of Preferred Stock and Mandatorily Redeemable Preferred Stock.
 
     The Company has a revolving credit facility with available borrowings up to
$50.0 million. As of December 31, 1998, there were no amounts outstanding under
the revolving credit facility.
 
     As of December 31, 1998, the Company had $54.2 million in cash and
short-term investments.
 
     Management believes that its available cash and short-term investments,
anticipated cash generated from its future operations and amounts available
under the existing revolving credit facility will be sufficient to meet the
Company's operating requirements for at least the next twelve months.
 
YEAR 2000 ISSUES
 
     Eclipsys has a Year 2000 Committee whose task is evaluating the Company's
Year 2000 readiness for both internal and external management information
systems, recommend a plan of action to minimize disruption and execute the
Company's Year 2000 plan. The Committee has developed a comprehensive checklist
or Year 2000 Plan. The Year 2000 Plan covers all major and minor internal and
external management information systems.
 
     Eclipsys believes that all of its internal management information systems
are currently Year 2000 compliant and, accordingly, does not anticipate any
significant expenditures to remediate or replace existing internal-use systems.
 
     With the exception of the Transition for Quality product (for which the
Company expects to release a fully Year 2000 compliant version in early 1999),
all of the products currently offered by Eclipsys are Year 2000 compliant. Some
of the products previously sold by Alltel and Emtek and installed in Eclipsys'
customer base are not Year 2000 compliant. Eclipsys has developed and tested
solutions for these non-compliant installed products. Eclipsys currently
estimates that the total cost of bringing these installed products into Year
2000 compliance, in those cases in which Eclipsys is required to do so at its
own expense, will be approximately $430,000. Eclipsys expects that all of this
expense will be incurred by mid-1999.
 
     In addition, because Eclipsys' products are often interfaced with a
customer's existing third-party applications and certain Eclipsys' products
include software licensed from third-party vendors, Eclipsys' products may
experience difficulties interfacing with third-party non-compliant applications.
Based on currently available information, Eclipsys does not expect the cost of
compliance related to interactions with non-compliant third-party systems to be
material.
 
                                       30
<PAGE>   31
 
     Unexpected difficulties in implementing Year 2000 solutions for the
installed Alltel or Emtek products or difficulties in interfacing with
third-party products could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
 
     Financial Statements:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
     Report of Independent Public Accountants...............   32
     Consolidated Balance Sheets as of December 31, 1997 and
      1998..................................................   33
     Consolidated Statements of Operations for the years
      ended December 31, 1996, 1997 and 1998................   34
     Consolidated Statements of Cash Flows for the years
      ended December 31, 1996, 1997 and 1998................   35
     Consolidated Statement of Stockholders' Equity for the
      years ended December 31, 1996, 1997 and 1998..........   37
     Notes to the Consolidated Financial Statements for the
      years ended December 31, 1996, 1997 and 1998..........   39
 
     Financial Statement Schedules:
 
     Schedule II -- Valuation of Qualifying Accounts for
      each of the three years in the period ended December 
      31, 1998..............................................   59
</TABLE>
 
     All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
 
                                       31
<PAGE>   32
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors
and Stockholders of Eclipsys Corporation
 
     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Eclipsys Corporation and its subsidiaries at December 31, 1997 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards 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 the opinion expressed above.
 
PRICEWATERHOUSECOOPERS LLP
 
Atlanta, Georgia
February 19, 1999
 
                                       32
<PAGE>   33
 
                              ECLIPSYS CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                               -----------------------
                                                                  1997         1998
                                                               ----------   ----------
<S>                                                            <C>          <C>
                           Assets
Current Assets:
  Cash and cash equivalents.................................   $   63,295   $   37,235
  Investments...............................................           --       17,003
  Accounts receivable, net of allowance for doubtful
     accounts of $1,914 and $3,155..........................       50,853       57,519
  Inventory.................................................          866          517
  Other current assets......................................        2,607       11,513
                                                               ----------   ----------
     Total current assets...................................      117,621      123,787
Property and equipment, net.................................       11,073       12,215
Capitalized software development costs, net.................        3,002        5,248
Acquired technology, net....................................       27,138       43,318
Intangible assets, net......................................       28,579       25,928
Other assets................................................        9,832        6,060
                                                               ----------   ----------
     Total assets...........................................   $  197,245   $  216,556
                                                               ==========   ==========
            Liabilities and Stockholders' Equity
Current Liabilities:
  Deferred revenue..........................................   $   32,615   $   50,741
  Current portion of long-term debt.........................       12,794           --
  Other current liabilities.................................       37,974       46,785
                                                               ----------   ----------
     Total current liabilities..............................       83,383       97,526
Deferred revenue............................................        6,966       16,700
Long-term debt..............................................        3,794           --
Other long-term liabilities.................................        9,480        3,711
Mandatorily redeemable preferred stock......................       35,607           --
Commitments and contingencies
Stockholders' equity
Preferred stock:
  Series D, $.01 par value, 7,200,000 shares authorized;
     issued and outstanding 7,058,786, $12.55 per share
     liquidation preference.................................           71           --
  Series E, $.01 par value, 920,000 shares authorized;
     issued and outstanding 896,431, $12.55 per share
     liquidation preference.................................            9           --
  Series F, $.01 par value, 1,530,000 shares authorized;
     issued and outstanding 1,478,097, $6 per share
     liquidation preference.................................           15           --
Common stock:
  Voting, $.01 par value, 30,000,000 and 200,000,000
     authorized; issued and outstanding 13,712,997 and
     29,165,687.............................................          137          291
  Non-voting, $.01 par value, 5,000,000 shares authorized;
     issued and outstanding 0 and 896,431...................           --            9
Common stock warrant........................................          395          395
Unearned stock compensation.................................         (250)        (178)
Additional paid-in capital..................................      162,323      237,449
Accumulated deficit.........................................     (104,713)    (139,391)
Accumulated other comprehensive income......................           28           44
                                                               ----------   ----------
     Total stockholders' equity.............................       58,015       98,619
                                                               ----------   ----------
     Total liabilities and stockholders' equity.............   $  197,245   $  216,556
                                                               ==========   ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                   statements
 
                                       33
<PAGE>   34
 
                              ECLIPSYS CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1996           1997           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Systems and services............................    $    36,197    $   136,716    $   156,490
  Hardware........................................             --          4,355         14,199
                                                      -----------    -----------    -----------
     Total revenues...............................         36,197        141,071        170,689
                                                      -----------    -----------    -----------
Costs and expenses:
  Cost of systems and services....................          9,658         89,577         86,121
  Cost of hardware sales..........................             --          2,953         11,966
  Sales and marketing.............................          5,668         20,911         28,846
  Research and development........................          4,962         19,873         34,131
  General and administration......................          3,349          9,391          9,823
  Depreciation and amortization...................          1,540         11,364         13,501
  Write-down of investment........................             --             --          4,778
  Write-off of in-process research and
     development..................................             --        105,481          2,392
  Write-off of MSA................................             --             --          7,193
  Pooling costs...................................             --             --          5,033
  Compensation charge in connection with the
     recapitalization.............................          3,024             --             --
                                                      -----------    -----------    -----------
     Total costs and expenses.....................         28,201        259,550        203,784
                                                      -----------    -----------    -----------
Income (loss) from operations.....................          7,996       (118,479)       (33,095)
Interest income, net..............................            628          1,535          2,669
                                                      -----------    -----------    -----------
Income (loss) before taxes and extraordinary
  item............................................          8,624       (116,944)       (30,426)
Provision for income taxes........................          4,690          8,096          4,252
                                                      -----------    -----------    -----------
Income (loss) before extraordinary item...........          3,934       (125,040)       (34,678)
Loss on early extinguishment of debt (net of taxes
  of $1,492)......................................          2,149             --             --
                                                      -----------    -----------    -----------
Net income (loss).................................          1,785       (125,040)       (34,678)
Dividends and accretion on mandatorily redeemable
  preferred stock.................................           (593)        (5,850)       (10,928)
Preferred stock conversion........................             --         (3,105)            --
                                                      -----------    -----------    -----------
Net income (loss) available to common
  stockholders....................................    $     1,192    $  (133,995)   $   (45,606)
                                                      ===========    ===========    ===========
Income (loss) per share:
Basic net income (loss) per common share..........    $      0.11    $    (10.46)   $     (2.20)
                                                      ===========    ===========    ===========
Basic weighted average common shares
  outstanding.....................................     10,876,239     12,806,828     20,697,797
                                                      ===========    ===========    ===========
Diluted net income (loss) per common share........    $      0.10    $    (10.46)   $     (2.20)
                                                      ===========    ===========    ===========
Diluted weighted average common shares
  outstanding.....................................     12,495,980     12,806,828     20,697,797
                                                      ===========    ===========    ===========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                   statements
 
                                       34
<PAGE>   35
 
                              ECLIPSYS CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              1996        1997         1998
                                                            --------    ---------    --------
<S>                                                         <C>         <C>          <C>
Operating activities:
  Net income (loss).....................................    $  1,785    $(125,040)   $(34,678)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Extraordinary item, gross..........................       3,641           --          --
     Depreciation and amortization......................       1,540       33,276      29,740
     Tax benefit of stock option exercises..............       1,201        1,626       1,171
     Provision for bad debts............................          --          600         950
     Loss on disposal of property and equipment.........          --          557           8
     Write-off of in-process research and development...          --      105,481       2,392
     Write-off of MSA intangible asset..................          --           --       7,193
     Write-off of contributed technology................       1,482           --          --
     Write-down of investment...........................          --           --       4,778
     Write-off of capitalized software..................          --           --       1,306
     Compensation charge in connection with the
       recapitalization.................................       3,024           --          --
     Stock compensation expense.........................         152           38          72
  Changes in operating assets and liabilities, net of
     acquisitions:
     Accounts receivable................................      (1,728)      (7,842)        428
     Inventory..........................................          --          655         349
     Other current assets...............................      (1,099)         235       1,483
     Other assets.......................................         (34)         (71)     (1,567)
     Deferred taxes.....................................      (1,747)       3,301         (--)
     Deferred revenue...................................         835         (939)     17,027
     Other current liabilities..........................       1,583        3,390       1,496
     Other long-term liabilities........................          57         (148)       (921)
                                                            --------    ---------    --------
          Total adjustments.............................       8,907      140,159      65,905
                                                            --------    ---------    --------
  Net cash provided by operating activities.............      10,692       15,119      31,227
Investing activities:
  Purchase of investments...............................          --         (250)    (33,591)
  Maturities of investments.............................          --          250      16,338
  Sale of investments...................................          --           --         250
  Purchase of property and equipment, net of
     acquisitions.......................................      (1,009)      (4,182)     (5,679)
  Capitalized software development costs................        (704)      (2,303)     (4,329)
  Acquisitions, net of cash acquired....................      (1,728)    (111,650)    (29,259)
  Payments under MSA....................................          --           --     (16,000)
  Changes in other assets...............................        (792)      (6,094)     (5,565)
                                                            --------    ---------    --------
     Net cash used by investing activities..............      (4,233)    (124,229)    (77,835)
Financing activities
  Borrowings............................................      49,605       10,000      18,500
  Payments on borrowings................................          (2)      (1,018)    (35,088)
  Early extinguishment of debt..........................     (50,000)          --          --
  Sale of common stock..................................     114,621           --      65,399
  Sale of preferred stock...............................       6,001       73,764       9,000
  Sale of mandatorily redeemable preferred stock........          --       30,000          --
  Redemption of mandatorily redeemable preferred
     stock..............................................          --           --     (38,771)
</TABLE>
 
                                       35
<PAGE>   36
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              1996        1997         1998
                                                            --------    ---------    --------
<S>                                                         <C>         <C>          <C>
  Purchase of common stock related to
     recapitalization...................................     (80,618)          --          --
  Exercise of options...................................         367        1,132       1,205
  Employee stock purchase plan..........................          --           74         287
                                                            --------    ---------    --------
     Net cash provided by financing activities..........      39,974      113,952      20,532
Effect of translation adjustment........................                       28          16
Net increase (decrease) in cash and cash equivalents....      46,433        4,870     (26,060)
Cash and cash equivalents -- beginning of year..........      11,992       58,425      63,295
                                                            --------    ---------    --------
Cash and cash equivalents -- end of year................    $ 58,425    $  63,295    $ 37,235
                                                            ========    =========    ========
Cash paid for interest..................................    $  1,119    $     978    $    612
                                                            ========    =========    ========
Cash paid for income taxes..............................    $  2,835    $   2,944    $  4,364
                                                            ========    =========    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       36
<PAGE>   37
 
                              ECLIPSYS CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                    VOTING AND
 
                                                                                                       PREFERRED STOCK
                                    NON-VOTING                                            -----------------------------------------
                                   COMMON STOCK       COMMON        TREASURY STOCK             SERIES A              SERIES D
                               --------------------    STOCK    -----------------------   -------------------   -------------------
                                 SHARES      AMOUNT   WARRANT     SHARES       AMOUNT       SHARES     AMOUNT     SHARES     AMOUNT
                               -----------   ------   -------   -----------   ---------   ----------   ------   ----------   ------
<S>                            <C>           <C>      <C>       <C>           <C>         <C>          <C>      <C>          <C>
BALANCE AT DECEMBER 31,
 1995........................   16,301,500    $163       --        (876,750)  $  (1,471)          --      --            --      --
Capital contribution.........    2,008,373      20
Net effect of Transition
 recapitalization and
 preferred stock issuance,
 retirement and conversion...    5,402,340      54      395     (15,011,012)   (108,386)
Sale of common stock --
 Transition initial public
 offering....................    3,622,500      36
Retirement of treasury
 stock.......................  (15,887,762)   (159)              15,887,762     109,857
Stock grants.................      109,999       1
Issuance of Series A
 Preferred stock.............                                                              1,000,000   $  10
Issuance of common stock.....      988,290      10
Stock option exercises.......      160,435       2
Income tax benefit from stock
 options exercised...........
Issuance of stock options....
Compensation expense
 recognized..................
Net Income...................
                               -----------    ----     ----     -----------   ---------   ----------   -----    ----------   -----
BALANCE AT DECEMBER 31,
 1996........................   12,705,675     127      395              --          --    1,000,000      10
Issuance of Series D
 Preferred stock.............                                                                                    4,981,289      50
Acquisition of Alltel........                                                                                    2,077,497      21
Issuance of Series E
 Preferred stock.............
Issuance of common stock
 warrants....................
Exchange of Series A for
 Series F....................                                                             (1,000,000)    (10)
Acquisition of SDK...........      499,997       5
Acquisition of Vital.........      132,302       1
Employee stock purchase --
 Transition..................        3,921
Stock option exercises.......      356,102       4
Income tax benefit from stock
 options exercised...........
Stock grants.................       15,000
Dividends and accretion on
 mandatorily.................
redeemable preferred stock...
Issuance of stock options....
Compensation expense
 recognized..................
Comprehensive income
 (loss):.....................
Net loss.....................
Foreign currency translation
 adjustment..................
Other comprehensive income...
Comprehensive loss...........
                               -----------    ----     ----     -----------   ---------   ----------   -----    ----------   -----
 
<CAPTION>
 
                                                     PREFERRED STOCK
                               -----------------------------------------------------------
                                   SERIES E             SERIES F             SERIES G        ADDITIONAL
                               -----------------   -------------------   -----------------    PAID-IN       UNEARNED
                                SHARES    AMOUNT     SHARES     AMOUNT    SHARES    AMOUNT    CAPITAL     COMPENSATION
                               --------   ------   ----------   ------   --------   ------   ----------   ------------
<S>                            <C>        <C>      <C>          <C>      <C>        <C>      <C>          <C>
BALANCE AT DECEMBER 31,
 1995........................        --      --            --      --          --      --     $    187          --
Capital contribution.........                                                                      178
Net effect of Transition
 recapitalization and
 preferred stock issuance,
 retirement and conversion...                                                                   33,703
Sale of common stock --
 Transition initial public
 offering....................                                                                  114,387
Retirement of treasury
 stock.......................                                                                 (109,698)
Stock grants.................
Issuance of Series A
 Preferred stock.............                                                                    5,991
Issuance of common stock.....                                                                    1,472
Stock option exercises.......                                                                      365
Income tax benefit from stock
 options exercised...........                                                                    1,201
Issuance of stock options....                                                                      288       $(288)
Compensation expense
 recognized..................                                                                                  152
Net Income...................
                               --------   -----    ----------    ----    --------    ----     --------       -----
BALANCE AT DECEMBER 31,
 1996........................                                                                   48,074        (136)
Issuance of Series D
 Preferred stock.............                                                                   62,464
Acquisition of Alltel........                                                                   26,051
Issuance of Series E
 Preferred stock.............   896,431   $   9                                                 11,241
Issuance of common stock
 warrants....................                                                                   10,501
Exchange of Series A for
 Series F....................                       1,478,097    $ 15                               (5)
Acquisition of SDK...........                                                                    3,243
Acquisition of Vital.........                                                                    3,624
Employee stock purchase --
 Transition..................                                                                       74
Stock option exercises.......                                                                    1,128
Income tax benefit from stock
 options exercised...........                                                                    1,626
Stock grants.................                                                                       97
Dividends and accretion on
 mandatorily.................
redeemable preferred stock...                                                                   (5,850)
Issuance of stock options....                                                                       55         (55)
Compensation expense
 recognized..................                                                                                  (59)
Comprehensive income
 (loss):.....................
Net loss.....................
Foreign currency translation
 adjustment..................
 
Other comprehensive income...
 
Comprehensive loss...........
                               --------   -----    ----------    ----    --------    ----     --------       -----
 
<CAPTION>
 
                                                              ACCUMULATED
 
                               ACCUMULATED                       OTHER
                                EARNINGS     COMPREHENSIVE   COMPREHENSIVE
                                (DEFICIT)    INCOME (LOSS)   INCOME (LOSS)     TOTAL
                               -----------   -------------   -------------   ---------
<S>                            <C>           <C>             <C>             <C>
BALANCE AT DECEMBER 31,
 1995........................   $  18,542                                    $  17,421
Capital contribution.........                                                      198
Net effect of Transition
 recapitalization and
 preferred stock issuance,
 retirement and conversion...                                                  (74,234)
Sale of common stock --
 Transition initial public
 offering....................                                                  114,423
Retirement of treasury
 stock.......................                                                       --
Stock grants.................                                                        1
Issuance of Series A
 Preferred stock.............                                                    6,001
Issuance of common stock.....                                                    1,482
Stock option exercises.......                                                      367
Income tax benefit from stock
 options exercised...........                                                    1,201
Issuance of stock options....                                                       --
Compensation expense
 recognized..................                                                      152
Net Income...................       1,785                                        1,785
                                ---------      ---------         -----       ---------
BALANCE AT DECEMBER 31,
 1996........................      20,327                                       68,797
Issuance of Series D
 Preferred stock.............                                                   62,514
Acquisition of Alltel........                                                   26,072
Issuance of Series E
 Preferred stock.............                                                   11,250
Issuance of common stock
 warrants....................                                                   10,501
Exchange of Series A for
 Series F....................                                                       --
Acquisition of SDK...........                                                    3,248
Acquisition of Vital.........                                                    3,625
Employee stock purchase --
 Transition..................                                                       74
Stock option exercises.......                                                    1,132
Income tax benefit from stock
 options exercised...........                                                    1,626
Stock grants.................                                                       97
Dividends and accretion on
 mandatorily.................                                                       --
redeemable preferred stock...                                                   (5,850)
Issuance of stock options....                                                       --
Compensation expense
 recognized..................                                                      (59)
Comprehensive income
 (loss):.....................                                                       --
Net loss.....................    (125,040)     $(125,040)                     (125,040)
Foreign currency translation
 adjustment..................                         28         $  28              28
                                               ---------
Other comprehensive income...                         28                            --
                                               ---------
Comprehensive loss...........                   (125,012)                           --
                                ---------      ---------         -----       ---------
</TABLE>
 
                                       37
<PAGE>   38
<TABLE>
<CAPTION>
                                    VOTING AND
 
                                                                                                       PREFERRED STOCK
                                    NON-VOTING                                            -----------------------------------------
                                   COMMON STOCK       COMMON        TREASURY STOCK             SERIES A              SERIES D
                               --------------------    STOCK    -----------------------   -------------------   -------------------
                                 SHARES      AMOUNT   WARRANT     SHARES       AMOUNT       SHARES     AMOUNT     SHARES     AMOUNT
                               -----------   ------   -------   -----------   ---------   ----------   ------   ----------   ------
<S>                            <C>           <C>      <C>       <C>           <C>         <C>          <C>      <C>          <C>
BALANCE AT DECEMBER 31,
 1997........................   13,712,997     137      395              --          --           --      --     7,058,786      71
Emtek Acquisition............    1,000,000      10
Sale of common stock --
 Eclipsys initial public
 offering....................    4,830,000      48
Conversion of preferred
 stock.......................   10,033,313     100                                                              (7,058,786)    (71)
Issuance of Series G
 Preferred Stock.............
Stock option exercises.......      465,008       5
Employee stock purchase......       20,800
Income tax benefit from stock
 options exercised...........
Dividends and accretion on
 mandatorily.................
redeemable preferred stock...
Compensation expense
 recognized..................
Comprehensive income
 (loss):.....................
Net loss.....................
Foreign currency translation
 adjustment..................
Other comprehensive income...
Comprehensive loss...........
                               -----------    ----     ----     -----------   ---------   ----------   -----    ----------   -----
BALANCE AT DECEMBER 31,
 1998........................   30,062,118    $300     $395              --          --           --      --            --      --
                               ===========    ====     ====     ===========   =========   ==========   =====    ==========   =====
 
<CAPTION>
 
                                                     PREFERRED STOCK
                               -----------------------------------------------------------
                                   SERIES E             SERIES F             SERIES G        ADDITIONAL
                               -----------------   -------------------   -----------------    PAID-IN       UNEARNED
                                SHARES    AMOUNT     SHARES     AMOUNT    SHARES    AMOUNT    CAPITAL     COMPENSATION
                               --------   ------   ----------   ------   --------   ------   ----------   ------------
<S>                            <C>        <C>      <C>          <C>      <C>        <C>      <C>          <C>
BALANCE AT DECEMBER 31,
 1997........................   896,431       9     1,478,097      15          --      --      162,323        (250)
Emtek Acquisition............                                                                    9,050
Sale of common stock --
 Eclipsys initial public
 offering....................                                                                   65,351
Conversion of preferred
 stock.......................  (896,431)     (9)   (1,478,097)    (15)   (900,000)   $ (9)           4
Issuance of Series G
 Preferred Stock.............                         900,000                   9   8,991
Stock option exercises.......                                                                    1,200
Employee stock purchase......                                                                      287
Income tax benefit from stock
 options exercised...........                                                                    1,171
Dividends and accretion on
 mandatorily.................                                                                  (10,928)
redeemable preferred stock...
Compensation expense
 recognized..................                                                                                   72
Comprehensive income
 (loss):.....................
Net loss.....................
Foreign currency translation
 adjustment..................
Other comprehensive income...
Comprehensive loss...........
                               --------   -----    ----------    ----    --------    ----     --------       -----
BALANCE AT DECEMBER 31,
 1998........................        --      --            --      --          --             $237,449       $(178)
                               ========   =====    ==========    ====    ========    ====     ========       =====
 
<CAPTION>
 
                                                              ACCUMULATED
 
                               ACCUMULATED                       OTHER
                                EARNINGS     COMPREHENSIVE   COMPREHENSIVE
                                (DEFICIT)    INCOME (LOSS)   INCOME (LOSS)     TOTAL
                               -----------   -------------   -------------   ---------
<S>                            <C>           <C>             <C>             <C>
BALANCE AT DECEMBER 31,
 1997........................    (104,713)                          28          58,015
Emtek Acquisition............                                                    9,060
Sale of common stock --
 Eclipsys initial public
 offering....................                                                   65,399
Conversion of preferred
 stock.......................                                                       --
Issuance of Series G
 Preferred Stock.............                                                    9,000
Stock option exercises.......                                                    1,205
Employee stock purchase......                                                      287
Income tax benefit from stock
 options exercised...........                                                    1,171
Dividends and accretion on
 mandatorily.................                                                  (10,928)
redeemable preferred stock...                                                       --
Compensation expense
 recognized..................                                                       72
Comprehensive income
 (loss):.....................                                                       --
Net loss.....................     (34,678)       (34,678)                      (34,678)
Foreign currency translation
 adjustment..................                         16            16              16
                                               ---------
Other comprehensive income...                         16
                                               ---------
Comprehensive loss...........                    (34,662)
                                ---------      ---------         -----       ---------
BALANCE AT DECEMBER 31,
 1998........................   $(139,391)                       $  44       $  98,619
                                =========      =========         =====       =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                   statements
 
                                       38
<PAGE>   39
 
                              ECLIPSYS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
1.   ORGANIZATION AND DESCRIPTION OF BUSINESS
 
     Eclipsys Corporation ("Eclipsys") and its subsidiaries (collectively, the
"Company") is a healthcare information technology solutions provider which was
formed in December 1995 and commenced operations in January 1996. The Company
provides, on an integrated basis, enterprise-wide, clinical patient care,
financial, management decision support and resource-management software
solutions to healthcare organizations. Additionally, Eclipsys provides other
information technology solutions including outsourcing, remote processing,
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 significant intercompany transactions have been
eliminated in consolidation.
 
FINANCIAL STATEMENT PRESENTATION
 
     On December 31, 1998, Eclipsys completed a merger (the "Transition Merger")
with Transition Systems, Inc. ("Transition"). The merger is being accounted for
as a pooling of interests, and accordingly the financial statements have been
retroactively restated as if the Transition Merger had occurred as of the
beginning of the earliest period presented. Transition had a September 30 fiscal
year end. In connection with the retroactive restatement, the financial
statements of Transition were recast to a calendar year end to conform to
Eclipsys' presentation.
 
     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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.
 
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.
 
INVESTMENTS
 
     As of December 31, 1998, the Company has classified all investments as held
to maturity. The securities totaled $17.0 million as of December 31, 1998 and
consist of federal agency obligations. The estimated fair value of each
investment approximates the amortized cost plus accrued interest. Unrealized
gains at December 31, 1998 were $18,000.
 
REVENUE RECOGNITION
 
     The Company's products are sold to customers based on long-term contractual
agreements. Revenues are derived from the licensing of computer software,
software and hardware maintenance, remote processing and outsourcing, training,
implementation assistance, consulting, and the sale of computer hardware.
 
                                       39
<PAGE>   40
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SYSTEMS AND SERVICES
 
     The Company generally markets its products under multi-year agreements that
range from five to seven years. Software license fees to new customers are
generally recognized on a straight-line basis over the implementation period
which generally ranges from 12 to 24 months. This method of recognizing software
license fee revenue corresponds with the timing of the related implementation
efforts which are jointly performed by the Company and its customers. Other
software license fees which are bundled with long term maintenance agreements
are recognized on a straight-line basis over the term of the licensing and
maintenance agreements. Remote processing and outsourcing services are marketed
under long-term agreements generally over periods from five to seven years and
revenues are recognized monthly as the work is performed. Software maintenance
fees are marketed under annual and multi-year agreements and are recognized
ratably over the term of the agreements. Implementation revenues are recognized
as the services are performed. Hardware maintenance revenues are billed and
recognized monthly over the term of agreements. Revenues related to other
support services, such as training, consulting, and implementation, are
recognized when the services are performed.
 
     The Company warrants its products will perform in accordance with
specifications as outlined in the respective customer contracts. The Company
records a reserve for warranty costs at the time it recognizes revenue.
Historically, warranty costs have been minimal.
 
     The Company accrues for product returns at the time it recognizes revenue,
based on actual experience. Historically, product return costs have been
minimal.
 
HARDWARE SALES
 
     Hardware sales are generally recognized upon shipment of the product to the
customer.
 
UNBILLED ACCOUNTS RECEIVABLE
 
     Unbilled accounts receivable represent amounts owed to the Company under
noncancelable agreements for software license fees with extended payment terms
and computer hardware purchases which have been financed over extended payment
terms. The current portion of unbilled accounts receivable of $13.5 million and
$10.3 million as of December 31, 1997 and 1998, respectively, is included in
accounts receivable in the accompanying financial statements. The non-current
portion of unbilled accounts receivable of $1.8 million and $1.5 million as of
December 31, 1997 and 1998, respectively, is included in other assets in the
accompanying financial statements. The non-current portion of unbilled accounts
receivable provides for payment terms that generally range from three to five
years and carry annual interest rates ranging from 7% to 10%. The Company
recognizes revenue in advance of billings under certain of its non-cancelable
long-term contracts that contain extended payment terms. The Company does not
have any obligation to refund any portion of its fees and has a history of
enforcement and collection of amounts due under such arrangements. Payments owed
under contracts with extended payment terms are due in accordance with the terms
of the respective contract. Historically, the Company has had minimal write-offs
of amounts due under such arrangements.
 
INVENTORY
 
     Inventory consists of computer parts and peripherals and is stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
 
                                       40
<PAGE>   41
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
 
     Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which range from two to ten years. Computer equipment is depreciated over two to
five years. Office equipment is depreciated over two to ten years. Purchased
software for internal use is amortized over three to five 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 substantially lengthen the property and
equipment lives are charged to expense as incurred.
 
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
 
     The Company capitalizes a portion of its internal computer software
development costs incurred subsequent to establishing technological feasibility,
including salaries, benefits, 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 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 $704,000, $2.3
million and $4.3 million for the years ended December 31, 1996, 1997 and 1998,
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 to five years.
Amortization of capitalized software development costs, which is included in
cost of systems and services revenues, were approximately $750,000, $700,000 and
$777,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Accumulated amortization of capitalized software development costs were $4.9
million and $5.8 million as of December 31, 1997 and 1998, respectively.
 
     In December 1998, based on a review of products acquired in conjunction
with the Transition Merger and other related activities, the Company recorded a
write-off of approximately $1.3 million of capitalized software development
costs related to duplicate products that did not have any alternative future
use.
 
ACQUIRED TECHNOLOGY AND INTANGIBLE ASSETS
 
     The intangible assets from the Company's acquisitions (Note 8) consist of
the following as of December 31, 1997 and 1998 (in thousands):
 
<TABLE>
<CAPTION>
                                                     DECEMBER 31,                  USEFUL LIFE
                                       -----------------------------------------   -----------
                                              1997                  1998
                                       -------------------   -------------------
                                        GROSS       NET       GROSS       NET
                                       --------   --------   --------   --------
<S>                                    <C>        <C>        <C>        <C>        <C>
Acquired technology..................  $ 47,168   $ 27,138   $ 79,118   $ 43,318   3 - 5 Years
Ongoing customer relationships.......    10,846      8,858     10,846      6,690   5 Years
Management and services agreement....     9,543      7,346      9,543         --   4 Years
Network services.....................        --         --      5,764      4,324   3 Years
Goodwill.............................    13,550     12,084     17,537     14,779   3 - 12 Years
Other................................       378        291        863        135   3 - 5 Years
                                       --------   --------   --------   --------
                                       $ 81,485   $ 55,717   $123,671   $ 69,246
                                       ========   ========   ========   ========
</TABLE>
 
     The carrying value of intangible assets are reviewed if the facts and
circumstances suggest that it may be impaired. This review indicates if the
assets will not be recoverable based on future expected cash flows. Based
 
                                       41
<PAGE>   42
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
on its review, the Company does not believe that an impairment of its excess of
cost over fair value of net assets acquired has occurred.
 
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. The recorded amount of long-term debt approximates fair
value as the debt bears interest at a floating market rate.
 
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 carryforwards given the provisions of the enacted tax
laws.
 
STOCK-BASED COMPENSATION
 
     The Company has chosen to continue to account 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 and to elect the disclosure option of Statement of Financial
Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based Compensation".
Accordingly, 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.
 
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
 
     For all periods presented, basic net income (loss) per common share is
presented in accordance with FAS 128, "Earnings per Share", which provides for
new accounting principles used in the calculation of earnings per share and was
effective for financial statements for both interim and annual periods ended
after December 15, 1997. Basic net income (loss) per common share is based on
the weighted average number of shares of common stock outstanding during the
period. Diluted earnings (loss) per share reflect the potential dilution from
assumed conversion of all dilutive securities such as stock options. Stock
options to acquire 2,670,176, 3,831,517 and 4,174,266 shares of common stock in
1996, 1997 and 1998, respectively, and warrants to acquire up to 156,412,
1,119,245 and 1,119,245 shares of common stock in 1996, 1997 and 1998, were the
only securities issued which would be included in the diluted earnings per share
calculation if dilutive.
 
     In 1996, dilutive stock options of 1,492,326 and warrants of 127,415, after
the application of the treasury stock method, were included in the calculation
of diluted weighted average common stock outstanding. In 1997 and 1998, the
inclusion of stock options and warrants would have been antidilutive due to the
net loss reported by the Company. The Company has excluded 370,609 contingently
returnable shares of common stock from basic and diluted earnings per share
computations (Notes 4).
 
     For the year ended December 31, 1996, basic and diluted earnings per share
for income before extraordinary item were $0.31 and $0.27, respectively, and the
impact to basic and diluted earnings per share of the extraordinary item was a
reduction of $0.20 and $0.17, respectively.
 
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. Manage-
 
                                       42
<PAGE>   43
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ment 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 TRANSLATION
 
     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, 1998.
 
COMPREHENSIVE INCOME
 
     Effective January 1, 1998, the Company implemented Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This standard
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 that are comprised solely of foreign
currency translation adjustments are included in other comprehensive income in
the consolidated statement of stockholders' equity.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the Financial Accounting Standards Board issued FAS 131,
"Disclosure about Segments of an Enterprise and Related Information". In October
1997, the American Institute of Certified Public Accountants issued Statement of
Position 97-2 ("SOP 97-2"), "Software Revenue Recognition". Effective January 1,
1998, the Company adopted FAS 131 and SOP 97-2. The adoption of FAS 131 has not
had a material impact on the Company's financial statement disclosures. In
connection with the adoption of SOP 97-2, the Company deferred approximately
$9.1 million of revenue under certain Transition contracts that were entered
into after December 31, 1997.
 
3.   PROPERTY AND EQUIPMENT
 
     Property and equipment as of December 31, 1997 and 1998 is summarized as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 1997       1998
                                                                -------    -------
<S>                                                             <C>        <C>
Computer equipment..........................................    $12,341    $14,386
Office equipment and other..................................      2,952      4,164
Purchased software..........................................      3,382      5,048
Leasehold improvements......................................      2,478      3,349
                                                                -------    -------
                                                                 21,153     26,947
Less: Accumulated depreciation and amortization.............    (10,080)   (14,732)
                                                                -------    -------
                                                                $11,073    $12,215
                                                                =======    =======
</TABLE>
 
     Depreciation of property and equipment totaled approximately $561,000, $7.0
million and $7.5 million in 1996, 1997 and 1998, respectively.
 
                                       43
<PAGE>   44
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
4.   LICENSING ARRANGEMENT
 
     In May 1996, the Company entered into an exclusive licensing arrangement
with Partners HealthCare System, Inc. ("Partners") to further develop,
commercialize, distribute and support certain intellectual property which was
being developed at Partners. In consideration for the license, the Company
issued 988,290 shares of Common Stock of the Company and agreed to pay royalties
to Partners on sales of the developed product until the Company completes an
initial public offering of common stock with a per share offering price of
$10.00 or higher. There was no revenue recognized by the Company or royalties
paid to Partners under the arrangement in 1996, 1997 or 1998. Under the terms of
the license, the Company may further develop, market, distribute and support the
original technology and license it, as well as market related services, to other
healthcare providers and hospitals throughout the world (other than in the
Boston, Massachusetts metropolitan area). The Company is obligated to offer to
Partners and certain of their affiliates an internal use license, granted on
most favored customer terms, to any new software applications developed by the
Company, whether or not derived from the licensed technology, and major
architectural changes to the licensed software. After May 3, 1998, Partners and
certain of their affiliates are entitled to receive internal use licenses for
any changes to any modules or applications included in the licensed technology,
as defined. The Company has an exclusive right of first offer to commercialize
new information technologies developed in connection with Partners. If the
Company fails to pay the required royalties, breaches any material term under
the licensing arrangement or if the current Chairman of the Board and Chief
Executive Officer of the Company voluntarily terminates his employment with the
Company prior to May 1999, the license may become non-exclusive, at the option
of Partners. If Partners elects to convert the license to non-exclusive, it must
return 370,609 shares of Common Stock to the Company.
 
     At the time the license arrangement was consummated, the licensed
technology had not reached technological feasibility and had no alternative
future use. The licensed technology being developed consisted of
enterprise-wide, clinical information software. The Company released certain
commercial products derived from the licensed technology in late 1998. The
Company accounted for the license arrangement with Partners by recording a
credit to additional paid-in capital of $1.5 million (representing the estimated
fair value of the licensed technology) and a corresponding charge to its
statement of operations for the year ended December 31, 1996. The charge was
taken because the technology had not reached technological feasibility and had
no alternative future use.
 
     As part of the agreement, the Company has provided development services to
Partners related to commercializing the intellectual property; fees for these
development services totaled $2.0 million, $2.5 million, and $1.2 million for
the years ended December 31, 1996, 1997 and 1998 respectively, and are included
as a reduction in research and development expenses in the accompanying
consolidated statements of operations.
 
5.   SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK
 
STOCK SPLIT
 
     In May 1997, the Company declared a three-for-two split for all Voting
Common Stock and Non-Voting Common Stock issued and outstanding. In addition,
the shareholders approved an increase in the number of authorized shares of
Voting Common Stock from 30,000,000 to 50,000,000. In June 1998, the Company
effected a two-for-three reverse stock split of all Voting Common Stock and
Non-Voting Common Stock outstanding. The accompanying consolidated financial
statements give retroactive effect to the May 1997 and June 1998 stock splits as
if they had occurred at the beginning of the earliest period presented.
 
MANDATORILY REDEEMABLE PREFERRED STOCK
 
     In connection with its acquisition of Alltel Healthcare Information
Systems, Inc. ("Alltel" Note 7), the Company sold 30,000 shares of Series B 8.5%
Cumulative Redeemable Preferred Stock ("Series B") and
 
                                       44
<PAGE>   45
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
5.   SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK --
(CONTINUED)
warrants to purchase up to 1,799,715 shares of Non-Voting Common Stock at $.01
per share for total consideration of $30.0 million. The number of warrants to be
issued was subject to adjustment in the event the Company redeemed all or a
portion of the Series B prior to its mandatory redemption date. The Series B was
non-voting and was entitled to a liquidation preference of $1,000 per share plus
any unpaid dividends. Dividends were cumulative and accrue at an annual rate of
8.5%.
 
     The Series B was redeemable by the Company at its redemption price at any
time on or before the mandatory redemption date of December 31, 2001. The
redemption price, as defined, equaled the liquidation preference amount plus all
accrued and unpaid dividends. With respect to liquidation preferences, the
Series B ranked equal to the Series C 8.5% Cumulative Redeemable Preferred Stock
("Series C") and senior to all other equity instruments.
 
     In January 1997, 20,000 shares of the Series C were issued to Alltel
Information Services, Inc. ("AIS") as part of the consideration paid for Alltel
(Note 6). The Series C contained substantially the same terms, including voting
rights, ability to redeem and liquidation preferences as the Series B. The
Series B has preferential rights in the event of a change of ownership
percentages of certain of the Company's stockholders; the Series C did not have
these preferential rights. The Series C redemption price was determined the same
as Series B and had to be redeemed on or before December 31, 2001.
 
     The Company has accounted for the Series B and C as mandatorily redeemable
preferred stock. Accordingly, the Company accrued dividends and amortized any
discount over the redemption period with a charge to additional paid-in capital
("APIC"). The Company recorded a discount on the Series B at the time of its
issuance for the estimated fair value of the warrants ($10.5 million). The
Company valued the maximum amount of warrants that would be issued up to the
mandatory redemption date of the Series B as of the acquisition date, December
31, 1997 and the date redeemed. The Company recorded the Series C on the date of
acquisition of Alltel at $10.3 million (after adjustment for the 4,500 shares
returned by AIS (Note 7), which included a discount from its face amount of $5.2
million.
 
     Dividends and accretion on the Series B was $4.1 million and $10.7 million
for the years ended December 31, 1997 and 1998, respectively. During the years
ended December 31, 1997 and 1998, dividends and accretion on the Series C was
$1.8 million and $200,000, respectively. The Series B and C were redeemed in
August 1998 for $38.8 million with proceeds from the Company's IPO. In
connection with this early redemption, the Company recorded a one time charge to
APIC of $10.9 million which represented the difference between the carrying
value of the Series B and C and the redemption value. This amount is included in
dividends and accretion in the accompanying financial statements.
 
SERIES A CONVERTIBLE PREFERRED STOCK
 
     In May 1996, concurrent with entering into the Partners' licensing
arrangement, the Company sold 1,000,000 shares of Series A Convertible Preferred
Stock ("Series A") for $6.0 million to outside investors. The Series A was
convertible on a one-to-one basis to shares of Common Stock of the Company at
the discretion of the outside investors. The Series A had voting rights
equivalent to Common Stock on an as converted basis and a liquidation preference
of $6 per share. The Company did not declare or pay any dividends on Series A.
In January 1997, the Company issued 1,478,097 shares of Series F Convertible
Preferred Stock ("Series F") in exchange for the cancellation of Series A. The
Company accounted for the transaction analogously to an extinguishment of debt
with a related party and, accordingly, recorded a charge of $3.1 million to
additional paid-in capital at the date of this transaction. In addition, the
charge is recorded as an increase to net loss available to common shareholders
in the accompanying statement of operations.
 
                                       45
<PAGE>   46
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
5.   SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK --
(CONTINUED)
SERIES D CONVERTIBLE PREFERRED STOCK
 
     In January 1997, the Company sold 4,981,289 shares of the Series D
Convertible Preferred Stock ("Series D") for $62.5 million to private investors
and issued 2,077,497 shares to AIS in connection with the acquisition of Alltel.
Each share of Series D was convertible into one share of Common Stock. The
Series D contained voting rights as if it were converted into Common Stock and
had a liquidation preference of $12.55 per share plus any declared but unpaid
dividends. The Series D was equivalent to Series E Convertible Preferred Stock
("Series E") with respect to liquidation preference and rank.
 
     Both the Series D and E ranked junior to the Series B and C and senior to
Series F. The Company has not declared or paid any dividends on the Series D.
 
     Concurrent with the Company's initial public offering, the Series D were
converted into 7,058,786 shares of Common Stock.
 
SERIES E CONVERTIBLE PREFERRED STOCK
 
     In January 1997, the Company sold 896,431 shares of Series E for $11.3
million. The Series E was non-voting and was identical to the Series D with
respect to liquidation preference and rank. Each share of Series E was
convertible into one share of Non-Voting Common Stock. To date, the Company has
not declared or paid any dividends on the Series E.
 
     Concurrent with the Company's initial public offering, the Series E were
converted into 896,431 shares of Non-Voting Common Stock.
 
SERIES F CONVERTIBLE PREFERRED STOCK
 
     As described above, in January 1997, 1,478,097 shares of Series F were
issued in exchange for the cancellation of the outstanding shares of Series A.
The Series F contained a liquidation preference of $6 per share. The Series F
ranked junior to the Company's other classes of preferred stock with respect to
liquidation preferences. Each share of Series F was convertible into one share
of Common Stock. The Company has not declared or paid any dividends on the
Series F.
 
     Concurrent with the Company's initial public offering, the Series F were
converted into 1,478,097 shares of Common Stock.
 
SERIES G CONVERTIBLE PREFERRED STOCK
 
     In February 1998, the Company sold 900,000 shares of Series G Convertible
Preferred Stock ("Series G") to outside investors for total consideration of
$9.0 million. The proceeds were utilized to repay the outstanding Term Loan
balance. Each share of the Series G was convertible on a two-for-three basis to
shares of Common Stock. The conversion rate was subject to adjustment in certain
circumstances. The Series G had a liquidation preference of $10 per share. In
the event of an involuntary liquidation of the Company, the Series G would have
participated on a pro rata basis with the Series D and E.
 
     Concurrent with the Company's initial public offering, the Series G was
converted into 600,000 shares of Common Stock.
 
VOTING AND NON-VOTING COMMON STOCK
 
     Holders of Voting Common Stock are entitled to one vote per share. Holders
of Non-Voting Common Stock do not have voting rights other than as provided by
statute.
 
                                       46
<PAGE>   47
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
5.   SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK --
(CONTINUED)
UNDESIGNATED PREFERRED STOCK
 
     The Company has available for issuance, at December 31, 1998, 5.0 million
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 at the time of issuance. Currently,
there are no outstanding shares.
 
INITIAL PUBLIC OFFERING
 
     Effective August 6, 1998, the Company completed an initial public offering.
Net proceeds from the offering were $65.4 million, including proceeds from the
exercise of the underwriters' overallotment option. The Company used the net
proceeds from the offering to redeem the outstanding shares of the Company's
Mandatorily Redeemable Preferred Stock, repay the principal balance and accrued
interest on acquisition related debt and to repay amounts outstanding under the
Company's revolving credit facility. In connection with the redemption of the
Mandatorily Redeemable Preferred Stock, the Company recorded an increase to net
loss available to common shareholders of $10.9 million reflecting the difference
between the carrying value and redemption value of the stock.
 
     Concurrent with the initial public offering, all Series of Convertible
Preferred Stock were automatically converted into Voting or Non-Voting Common
Stock and all Mandatorily Redeemable Preferred Stock was redeemed.
 
6.   TRANSITION MERGER
 
     As discussed in Note 2, on December 31, 1998, the Company completed a
merger with Transition, a publicly traded provider of integrated clinical and
financial decision support systems for hospitals, integrated health networks,
physician groups and other healthcare organizations. Transition stockholders
received .525 shares of common stock of Eclipsys for each share of Transition
common stock, or an aggregate of 11.1 million shares. The transaction was
accounted for as a pooling of interests, and accordingly, all prior periods have
been restated to give effect to this transaction. The Company incurred
transaction costs of approximately $5.0 million directly related to the merger.
 
     The Transition acquisition was accounted for as a pooling of interests,
accordingly, all prior period amounts have been restated. A reconciliation
between revenue and net income (loss) as previously reported and as restated
follow:
 
<TABLE>
<CAPTION>
                                                                 1996        1997
                                                                -------    ---------
<S>                                                             <C>        <C>
Revenue:
  As previously reported....................................    $    --    $  94,077
  Transition................................................     36,197       46,994
                                                                -------    ---------
  As restated...............................................    $36,197    $ 141,071
Net income (loss):
  As previously reported....................................    $(2,953)   $(131,060)
  Transition................................................      4,738        6,020
                                                                -------    ---------
  As restated...............................................    $ 1,785    $(125,040)
                                                                =======    =========
</TABLE>
 
                                       47
<PAGE>   48
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
6.   TRANSITION MERGER (CONTINUED)
     Significant transactions of Transition during the restatement period, after
giving effect to the .525 conversion ratio were as follows:
 
     1996 RECAPITALIZATION
 
    In January 1996, prior to its contemplation of an initial public offering,
    Transition effected a leveraged recapitalization transaction (the
    "Recapitalization"), in which Transition repurchased 15,011,012 shares of
    Common Stock then issued and outstanding from New England Medical Center,
    Inc. ("NEMC") and other stockholders of Transition for an aggregate of
    approximately $111.4 million. Additionally, Transition incurred
    approximately $4.8 million in costs related to the Recapitalization
    (approximately $3.4 million is included in the statement of operations). Up
    until the Recapitalization, Transition was a majority-owned subsidiary of
    NEMC. In addition, Warburg, Pincus Ventures, L.P. ("WP Ventures") purchased
    from certain executive officers of Transition shares of Common Stock,
    including shares of Common Stock acquired by such executive officers
    pursuant to their exercise of stock options, for an aggregate of $9.0
    million. WP Ventures then contributed such shares of Common Stock to
    Transition. The principal purpose of the Recapitalization was to provide
    liquidity to Transition's existing stockholders while permitting them to
    retain an ownership interest in Transition. Transition accounted for this
    transaction as a leveraged recapitalization. To finance the repurchase of
    these shares, Transition issued to certain institutional investors shares of
    Series A non-voting preferred stock for an aggregate of $20.0 million,
    shares of Series B convertible preferred stock (convertible into 4,529,338
    shares of Common Stock) for an aggregate of $33.6 million and shares of
    Series C non-voting convertible preferred stock (convertible into 187,038
    shares of Common Stock) for an aggregate of $1.4 million. In addition,
    Transition entered into a secured term loan in the amount of $35.0 million
    and received an advance of $5.0 million under a secured revolving credit
    facility in the maximum principal amount of $15.0 million, and issued Senior
    Subordinated Notes, due 2003, in the aggregate principal amount of $10.0
    million (the "Senior Subordinated Notes"). The holder of the Senior
    Subordinated Notes also received a warrant to acquire an aggregate of
    156,412 shares of non-voting common stock at an initial exercise price of
    $7.43 per share, subject to adjustment in certain circumstances. Transition
    recorded a discount on the Senior Subordinated Notes for the estimated fair
    value of the warrants ($395,000). In addition, in the first quarter of 1996,
    Transition incurred a non-cash compensation charge of $3.0 million. This
    compensation charge arose from the purchase by Transition (both directly and
    indirectly, through WP Ventures) from certain of its executive officers
    shares of Common Stock that had been acquired by such officers immediately
    prior to the Recapitalization through the exercise of employee stock
    options. The amount of the compensation charge was equal to the difference
    between the approximately $766,000 exercise price paid by such officers upon
    such exercise and the proceeds received by the officers from the purchase by
    Transition of such shares.
 
     TRANSITION INITIAL PUBLIC OFFERING
 
    On April 18, 1996, Transition completed an initial public offering of
    3,622,500 shares of its common stock that generated net proceeds of $114.4
    million. A substantial part of the proceeds were used to redeem $20.6
    million of Series A preferred stock and accrued dividends (included as part
    of the recapitalization on the statement of changes in stockholders'
    equity), to repay the $34.7 million outstanding principal amount and accrued
    interest under a secured term loan facility, to repay the $10.3 million
    outstanding principal amount and accrued interest under certain senior
    subordinated notes and to repay the $5.1 million outstanding principal
    amount and accrued interest under a revolving credit facility.
 
                                       48
<PAGE>   49
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
6.   TRANSITION MERGER (CONTINUED)
     ACQUISITIONS
 
    On July 22, 1996, Transition acquired substantially all of the outstanding
    stock and a note held by a selling principal of Enterprising HealthCare,
    Inc. ("EHI"), based in Tucson, Arizona, for a total purchase price of
    approximately $1.8 million in cash. EHI provides system integration products
    and services for the health care market. The acquisition was accounted for
    under the purchase method and accordingly the results of operations of EHI
    are included from the date of the acquisition. Acquired technology costs of
    $1.6 million are being amortized on a straight-line basis over 7 years.
 
    On September 19, 1997, Transition acquired all outstanding shares of Vital
    Software Inc. ("Vital"), a privately held developer of products that
    automate the clinical processes unique to medical oncology. The purchase
    price was approximately $6.3 million, which was comprised of $2.7 million in
    cash and 132,302 shares of the Company's common stock with a value of $3.6
    million. The acquisition was accounted for under the purchase method of
    accounting and accordingly the results of operations of Vital are included
    from the date of the acquisition. The amount allocated to acquired
    in-process research and development was based on the results of an
    independent appraisal. Acquired in-process research and development
    represented development projects in areas that had not reached technological
    feasibility and which had no alternative future use. Accordingly, the amount
    was charged to operations at the date of the acquisition.
 
    On December 3, 1998, Transition acquired substantially all of the
    outstanding stock of HealthVISION, Inc. ("HealthVISION"), a provider of
    electronic medical record software. The purchase price was approximately
    $41.1 million, which was comprised of approximately $31.6 million in cash
    (of which $6.0 million was invested in 1997) and the assumption of
    approximately $9.5 million in liabilities, plus an earn-out of up to $10.8
    million if specified financial milestones are met. The acquisition was
    accounted for under the purchase method and accordingly the results of
    operations of HealthVISION are included from the date of the acquisition.
    The amount allocated to acquired in-process research and development ($2.4
    million) was based on the results of an independent appraisal. Acquired
    in-process research and development represented development projects in
    areas that had not reached technological feasibility and which had no
    alternative future use. Accordingly, the amount was charged to operations at
    the date of the acquisition.
 
    Unaudited pro forma results of operations have not been presented for EHI
    and Vital, as the effects of these acquisitions on the financial statements
    are not material. For unaudited pro forma results of operations for the
    years ended December 31, 1997 and 1998, as if the HealthVISION acquisition
    had occurred on January 1, 1997 see Note 7.
 
     EXTRAORDINARY ITEM
 
    During 1996, Transition incurred an extraordinary loss of approximately $2.1
    million (after taxes) for the write-off of approximately $3.6 million of
    unamortized capitalized financing costs. These costs were attributable to
    indebtedness incurred in the Recapitalization that was repaid out of the
    proceeds of Transition's initial public offering as more fully discussed
    above.
 
                                       49
<PAGE>   50
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
7.   ACQUISITIONS
 
     Effective January 24, 1997, Eclipsys completed the acquisition of Alltel.
As consideration for this transaction, Eclipsys paid AIS $104.8 million cash,
issued 15,500 (after consideration of the return of 4,500 shares by AIS in
October 1997) shares of Series C valued at approximately $10.3 million and
2,077,497 shares of Series D valued at approximately $26.1 million. Concurrent
with the acquisition, the Company and Alltel entered into the Management and
Services Agreement ("MSA") whereby Alltel agreed to provide certain services to
the Company and its customers together with certain non-compete provisions. In
exchange, the Company agreed to pay Alltel $11.0 million in varying installments
through December 2000. The obligation and equivalent corresponding asset were
recorded at its net present value of $9.5 million at the date of signing. To
finance the transaction, the Company sold, for $30.0 million, 30,000 shares of
Series B and warrants to purchase up to 1,799,715 shares of Non-Voting Common
Stock to private investors. Additionally, the Company sold 4,981,289 shares of
Series D and 896,431 shares of Series E for total proceeds of $73.8 million.
 
     The transaction was accounted for as a purchase and accordingly, the
purchase price was allocated based on the fair value of the net assets acquired.
The purchase price is composed of and allocated as follows (in thousands):
 
<TABLE>
<S>                                                             <C>
Cash, net of cash acquired..................................    $104,814
Issuance of Series D........................................      26,072
Issuance of Series C........................................      10,258
Transaction costs...........................................       2,008
Liabilities assumed.........................................      58,397
                                                                --------
                                                                 201,549
                                                                --------
Current assets..............................................      31,803
Property and equipment......................................      12,242
Other assets................................................       3,148
Identifiable intangible assets:
  In-process research and development.......................      92,201
  Acquired technology.......................................      42,312
  Ongoing customer relationships............................      10,846
                                                                --------
                                                                 192,552
                                                                --------
Goodwill....................................................    $  8,997
                                                                ========
</TABLE>
 
     The acquisition agreement contains certain provisions whereby the purchase
price could be adjusted within twelve months from the acquisition date based on
certain criteria defined in the agreement. Based on these provisions, in October
1997, AIS returned 4,500 shares of Series C to Eclipsys. In December 1997, the
Company presented its final analysis to AIS of items for which, under the
agreement, the Company believed it was entitled to consideration. In the first
quarter of 1998, the Company and AIS renegotiated, in two separate transactions,
certain matters relating to the acquisition of Alltel. In one transaction, AIS
returned to the Company, for cancellation, 11,000 shares of Series C in exchange
for resolving certain open issues in connection with the Alltel acquisition, and
the Company agreed, at AIS' option, to redeem the remaining 4,500 shares of
Series C held by AIS for an aggregate price of $4.5 million at the time of the
IPO and for a period of 30 days thereafter. These shares were redeemed with the
proceeds from the Company's IPO (Note 5). In the second transaction, the Company
paid AIS an aggregate of $14.0 million in exchange for terminating all of the
rights and obligations of both parties under the MSA. The Company recorded a
charge of approximately $7.2 million related to the write-off of the MSA
intangible asset. In addition, the Company recorded a reduction to goodwill of
approximately $7.8 million related to the final settlement of certain issues
related to the Alltel acquisition resulting in the return of the 11,000 shares
of Series C. Additionally, the
 
                                       50
<PAGE>   51
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
7.   ACQUISITIONS (CONTINUED)
Company recorded a Network Services intangible asset related to the Company's
ability to provide services in this area as a result of the settlement. This
asset is being amortized over thirty-six months. After accounting for these
adjustments, the Company's total consideration paid for this acquisition was
$201.5 million, including liabilities assumed, net of cash acquired.
 
     In connection with the recording of the acquisition of Alltel, the Company
reduced the predecessor's reported deferred revenue by $7.3 million to the
amount that reflects the estimated fair value of the contractual obligations
assumed. This adjustment results from the Company's requirement, in accordance
with generally accepted accounting principles, to record the fair value of the
obligation assumed with respect to arrangements for which the related revenue
was previously collected by the predecessor company. The Company's liability at
acquisition includes its estimated costs in fulfilling those contract
obligations.
 
     Effective June 26, 1997, the Company acquired all of the common stock of
SDK Healthcare Information Systems, Inc. ("SDK") in exchange for 499,997 shares
of Common Stock valued at approximately $3.2 million, $2.2 million in cash and
acquisition debt due to SDK shareholders totaling $7.6 million. The transaction
was accounted for as a purchase and, accordingly, the purchase price was
allocated based on the estimated fair value of the net assets acquired.
 
     The purchase price is composed of and allocated as follows (in thousands):
 
<TABLE>
<S>                                                             <C>
Cash, net of cash acquired..................................    $ 2,161
Issuance of Common Stock....................................      3,248
SDK acquisition debt........................................      7,588
Liabilities assumed.........................................      3,514
                                                                -------
                                                                 16,511
                                                                -------
Current assets..............................................      1,061
Property and equipment......................................        671
Other assets................................................         33
Identifiable intangible assets:
  In-process research and development.......................      6,988
  Acquired technology.......................................      3,205
                                                                -------
                                                                 11,958
                                                                -------
Goodwill....................................................    $ 4,553
                                                                =======
</TABLE>
 
     The Company is using the acquired in-process research and development to
create new clinical, patient financial, access management and data warehousing
products which will become part of its product suite over the next several
years. The Company anticipates that certain products will be generally released
through 2001. It is management's expectation that the acquired in-process
research and development will be successfully developed, however there can be no
assurance that commercial viability of these products will be achieved. In the
event that these products are not generally released in a timely manner, the
Company may experience fluctuations in future earnings as a result of such
delays.
 
     In connection with the Alltel and SDK acquisitions, the Company wrote off
in-process research and development charges of $92.2 million and $7.0 million,
respectively, related to the appraised values of certain in-process research and
development acquired in these acquisitions.
 
     Effective January 30, 1998, the Company acquired the net assets of the
Emtek Healthcare Division of Motorola, Inc., ("Emtek") for an aggregate purchase
price of approximately $11.7 million, including 1,000,000 shares of Common Stock
valued at $9.1 million and liabilities assumed of approximately
 
                                       51
<PAGE>   52
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
7.   ACQUISITIONS (CONTINUED)
$12.3 million. In addition, Motorola agreed to pay the Company $9.6 million in
cash due within one year for working capital purposes.
 
     The purchase price is composed of and allocated as follows (in thousands):
 
<TABLE>
<S>                                                             <C>
Issuance of Common Stock....................................    $ 9,060
Receivable from Motorola....................................     (9,600)
Liabilities assumed.........................................     12,275
                                                                -------
                                                                 11,735
                                                                -------
Current assets..............................................      5,033
Property and equipment......................................      2,629
                                                                -------
                                                                  7,662
                                                                -------
Identifiable intangible assets (acquired technology)........    $ 4,073
                                                                =======
</TABLE>
 
     Unaudited pro forma results of operations for the years ended December 31,
1997 and 1998, as if the aforementioned acquisitions (including HealthVISION)
had occurred on January 1, 1997, are as follows (in thousands, except per share
data):
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                                         DECEMBER 31,
                                                     --------------------
                                                       1997        1998
                                                     --------    --------
<S>                                                  <C>         <C>
Revenues.........................................    $182,672    $183,260
Net loss.........................................    (150,954)    (56,676)
Basic and diluted loss per share.................    $ (11.58)   $  (3.25)
</TABLE>
 
8.   LONG-TERM DEBT
 
     Long-term debt consists of the following as of December 31, 1997 (in
thousands):
 
<TABLE>
<S>                                                             <C>
Term Loan...................................................    $  9,000
SDK acquisition debt, interest payable quarterly at 9.5%,
  principal due in two annual installments of $3,794,
  commencing April 1998.....................................       7,588
                                                                --------
                                                                  16,588
Less current portion........................................     (12,794)
                                                                --------
Long-term debt..............................................    $  3,794
                                                                ========
</TABLE>
 
     In connection with the Alltel acquisition, the Company entered into a $30
million credit facility (the "Facility"). The Facility included a $10 million
term loan (the "Term Loan") and a $20 million revolving credit facility (the
"Revolver"). Borrowings under the Facility are secured by substantially all of
the assets of the Company. The Term Loan was payable in varying quarterly
installments through January 2000. As more fully discussed in Note 5, the Term
Loan was repaid in full with the proceeds of the sale of Series G Convertible
Preferred Stock in February 1998. As such, the entire balance of the Term Loan
as of December 31, 1997 was classified as current in the accompanying financial
statements. On May 29, 1998, the Company entered into an agreement to increase
the available borrowings under the Facility from $20 million to $50 million. In
August 1998, the long-term debt balance and accrued interest were repaid in full
with proceeds from the Company's IPO.
 
                                       52
<PAGE>   53
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
8.   LONG-TERM DEBT (CONTINUED)
     Borrowings under the Facility bear interest, at the Company's option, at
(i) LIBOR plus 1% to 3% or (ii) the higher of a) the banks prime lending rate or
b) the Federal Funds Rate plus 0.5%; plus 0% to 1.75%. The interest rates vary
based on the Company's ratio of earnings to consolidated debt, as defined. At
December 31, 1998, the Company's borrowing rate under the Facility was 6.85%.
Under the terms of the Facility, the Company is required to maintain certain
financial covenants related to consolidated debt to earnings, consolidated
earnings to interest expense and consolidated debt to capital. In addition, the
Company has limitations on the amounts of certain types of expenditures and is
required to obtain certain approvals related to mergers and acquisitions, as
defined. The Company was in compliance with all provisions of the Facility as of
December 31, 1998.
 
     As of December 31, 1998, the Company has $50 million available for future
borrowings under the Revolver. The Revolver expires in August, 2001. Under the
terms of the Revolver, the Company pays an annual commitment fee of .375% for
any unused balance, as defined. Additionally, the Company pays a fee of .125%
for any Letters of Credit issued under the agreement. As of December 31, 1998,
unused Letters of Credit totaling approximately $4.5 million were outstanding
against the Revolver.
 
9.   OTHER CURRENT LIABILITIES
 
     Other current liabilities consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 1997       1998
                                                                -------    -------
<S>                                                             <C>        <C>
Accounts payable............................................    $ 5,228    $ 7,282
Accrued compensation and incentives.........................     10,440     15,121
Customer deposits...........................................      7,959      9,576
Payment due to AIS under MSA................................      2,000         --
Accrued royalties...........................................      1,024      6,586
Accrued interest............................................        672         --
Other.......................................................     10,651      8,224
                                                                -------    -------
                                                                $37,974    $46,789
                                                                =======    =======
</TABLE>
 
10. INCOME TAXES
 
     A reconciliation of the effect of applying the federal statutory rate and
the effective income tax rate on the Company's income tax provision (benefit) is
as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                               ------------------------------
                                                                1996       1997        1998
                                                               ------    --------    --------
<S>                                                            <C>       <C>         <C>
Statutory federal income tax rate (34%)....................    $2,932    $(39,761)   $(10,683)
In-process research and development........................        --       4,418         813
Other......................................................       124         232         237
State income taxes.........................................       580      (4,516)       (872)
Non-deductible transaction costs...........................        --          --       1,546
Non-deductible amortization................................        --         747         927
Valuation allowance........................................     1,054      46,976      12,284
                                                               ------    --------    --------
Provision for income taxes.................................    $4,690    $  8,096    $  4,252
                                                               ======    ========    ========
</TABLE>
 
                                       53
<PAGE>   54
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
10. INCOME TAXES (CONTINUED)
     The significant components of the Company's net deferred tax asset were as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 1997       1998
                                                                -------    -------
<S>                                                             <C>        <C>
Deferred tax assets:
Alltel in-process research and development..................    $34,969    $32,471
Intangible assets...........................................      5,353     12,940
Deferred revenue............................................      4,642      5,307
Allowance for doubtful accounts.............................        760      1,097
Accrued expenses............................................      4,123      2,448
Depreciation and amortization...............................      1,381      1,111
Other.......................................................        259      2,481
Net operating loss carryforwards............................      5,220     23,084
                                                                -------    -------
                                                                $56,707    $80,939
                                                                -------    -------
Deferred tax liabilities:
Capitalization of software development costs................      1,140     11,857
                                                                -------    -------
Net deferred tax asset......................................     55,567     69,082
                                                                -------    -------
Valuation allowance.........................................    (55,567)   (69,082)
                                                                -------    -------
                                                                $    --    $    --
                                                                =======    =======
</TABLE>
 
     At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $55.0 million. The carryforwards
expire in varying amounts through 2018. Additionally, the Company has Canadian
net operating loss carryovers of approximately $5.5 million that expire in
varying amounts through 2004.
 
     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 January 1997 and December 1998. As a
result of the ownership changes, net operating loss carryforwards of
approximately $1.5 million at January 1997 and $55 million at December 1998,
which were incurred prior to the date of change, are subject to annual
limitation on their future use. As of December 31, 1998, a valuation allowance
has been established against the deferred tax assets that the Company does not
believe are more likely than not to be realized. The future reduction of the
valuation allowance, up to $7.2 million, will be reflected as a reduction of
goodwill.
 
11. 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,
provides 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 allows 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 is authorized to grant awards
to employees and non employees and establish vesting terms. The options expire
ten years from the date of grant.
 
                                       54
<PAGE>   55
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
1998 STOCK INCENTIVE PLAN
 
     In January 1998, the Board adopted the 1998 Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan provides for the granting of stock
options, stock appreciation rights, restricted stock awards or unrestricted
stock awards. Under the provisions of the Incentive Plan, no options or other
awards may be granted after April 2008. There are currently 4,333,333 shares of
common stock reserved under the Incentive Plan, together with the 1996 Stock
Plan and the 1998 Employee Stock Purchase Plan. Options granted under the
Incentive Plan will be granted at the fair market value of the stock as of the
date of grant.
 
     The following table summarizes activity under the plans:
 
<TABLE>
<CAPTION>
                                  1996                      1997                      1998
                         ----------------------    ----------------------    ----------------------
                                       WEIGHTED                  WEIGHTED                  WEIGHTED
                                       AVERAGE                   AVERAGE                   AVERAGE
                                       EXERCISE                  EXERCISE                  EXERCISE
                          OPTIONS       PRICE       OPTIONS       PRICE       OPTIONS       PRICE
                         ----------    --------    ----------    --------    ----------    --------
<S>                      <C>           <C>         <C>           <C>         <C>           <C>
Outstanding at
  beginning of
  year...............     1,588,134     $2.29       2,675,176     $ 3.75      3,829,466     $ 7.80
  Granted............     1,366,712      4.97       1,823,559      14.27      1,052,870      21.65
  Exercised..........      (270,409)     1.36        (356,102)      3.05       (465,008)      2.61
  Forfeited..........       (14,261)     2.29        (311,116)     17.04       (243,062)     21.06
                         ----------                ----------                ----------
Outstanding at end of
  year...............     2,670,176      3.76       3,831,517       7.80      4,174,266      11.09
  Exercisable at end
     of year.........     1,029,720                 1,271,432                 1,597,478
</TABLE>
 
<TABLE>
<CAPTION>
                                         1996                       1997                       1998
                                -----------------------    -----------------------    -----------------------
                                WEIGHTED                   WEIGHTED                   WEIGHTED
                                AVERAGE      WEIGHTED      AVERAGE      WEIGHTED      AVERAGE      WEIGHTED
                                EXERCISE    FAIR MARKET    EXERCISE    FAIR MARKET    EXERCISE    FAIR MARKET
OPTION GRANTED DURING THE YEAR   PRICE         VALUE        PRICE         VALUE        PRICE         VALUE
------------------------------  --------    -----------    --------    -----------    --------    -----------
<S>                             <C>         <C>            <C>         <C>            <C>         <C>
Option price > fair market
  value....................      $11.44                     $34.56                     $24.49
Option price = fair market
  value....................        0.20                       6.54                      21.31
Option price < fair market
  value....................        0.08                         --                         --
Weighted Fair Market Value of
  Options Granted..........                      4.34                      12.49                      18.43
</TABLE>
 
     During 1996 and 1997, pursuant to the 1996 Stock Plan, the Board issued
109,999 and 15,000 shares of Common Stock, respectively, to employees and
nonemployees for services. Compensation expense of approximately $1,000 and
$97,000 was recorded in 1996 and 1997, respectively, related to these
transactions.
 
                                       55
<PAGE>   56
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
     The Company has adopted the disclosure only provision of FAS 123. 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 1996, 1997
and 1998 consistent with the provisions of FAS 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below (in thousands, except share data):
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                               1996       1997         1998
                                                              ------    ---------    --------
<S>                                                           <C>       <C>          <C>
Net income (loss):
  As reported.............................................    $1,785    $(125,040)   $(34,678)
  Pro forma...............................................      (434)    (130,518)    (47,182)
Basic and Diluted net income (loss) per share:
  As reported.............................................    $ 0.10    $  (10.46)   $  (2.20)
  Pro forma...............................................    $(0.09)   $  (10.89)   $  (2.81)
</TABLE>
 
     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 1996, 1997 and 1998: dividend yield of 0% for all
years, risk-free interest rate of 5.55% for all years, expected life of 7.85,
9.98 and 8.35 based on the plan and volatility of 103%.
 
     The following table summarizes information about stock options outstanding
at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                         ------------------------------------   ----------------------
                                                        WEIGHTED
                                                         AVERAGE     WEIGHTED                 WEIGHTED
                                           NUMBER       REMAINING    AVERAGE      NUMBER      AVERAGE
                                         OUTSTANDING   CONTRACTUAL   EXERCISE   EXERCISABLE   EXERCISE
RANGE OF EXERCISE PRICE                  AT 12/31/98      LIFE        PRICE     AT 12/31/98    PRICE
-----------------------                  -----------   -----------   --------   -----------   --------
<S>                                      <C>           <C>           <C>        <C>           <C>
$0.01-$6.00............................   1,415,601        6.7        $ 1.68     1,113,494     $ 2.10
$6.01-$12.00...........................   1,795,661        8.3          7.58       434,423       7.08
$12.01-$18.00..........................     291,472        9.8         14.17            --         --
$18.01-$24.00..........................      53,444        9.1         20.07         4,620      20.95
$24.01-$30.00..........................     141,948        8.5         27.72        43,679      25.71
$30.01-$36.00..........................     146,996        8.6         35.45            --         --
$36.01-$42.00..........................      26,248        9.2         37.38         1,262      37.38
$42.01-$48.00..........................     202,896        9.1         44.29            --         --
$48.01-$54.00..........................          --         --            --            --         --
$54.01-$60.00..........................     100,000        9.3         60.00            --         --
</TABLE>
 
     In connection with the Transition Merger, options held by employees of
Transition were converted into options to purchase 1,792,854 shares of Voting
Common Stock based on the .525 conversion ratio. All option disclosures reflect
the impact of Transition options after retroactive restatement for the impact of
the Transition Merger. As of December 31, 1996, 1997 and 1998, respectively,
there were 2,000,175, 1,999,867 and 1,792,854 options outstanding related to
Transition's stock option plans.
 
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 year ended
 
                                       56
<PAGE>   57
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
December 31, 1997 and 1998, the Board authorized matching contributions totaling
$780,000 and $1,400,000, respectively.
 
     Transition maintained a savings plan pursuant to Section 401(k) of the
Code. In connection with this plan, employer contributions totaling $263,000,
$306,000 and $376,000 were made in 1996, 1997 and 1998, respectively. In
connection with the Transition Merger, employees of Transition became eligible
to enroll in the Plan.
 
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.
 
12. 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 $457,000, $6.8 million and $8.5 million for the years ended
December 31, 1996, 1997 and 1998, respectively. Future minimum rental payments
for noncancelable operating leases as of December 31, 1998 are as follows (in
thousands):
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                             <C>
1999........................................................    $ 7,302
2000........................................................      3,689
2001........................................................      2,527
2002........................................................      2,349
2003........................................................      2,339
Thereafter..................................................      5,500
                                                                -------
                                                                $23,706
                                                                =======
</TABLE>
 
LITIGATION
 
     The Company is involved in litigation incidental to its business. 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.
 
13. RELATED PARTY TRANSACTIONS
 
     During 1997, the Company paid AIS $1.7 million for certain transition
services provided by AIS related to accounting services, computer processing and
other various activities.
 
     During 1997, Eclipsys paid a total of $348,000 to certain subsidiaries of
AIS and Alltel Corporation related to the purchase of various goods and
services.
 
     The Company leases office space from the former owner of SDK. During the
year ended December 31, 1997 and 1998 the Company paid $178,000 and $330,000,
respectively, under this lease. The lease is noncancelable and expires in 2009.
 
     In 1997 and 1998, the Company paid $336,000 and $446,000, respectively, to
a charter company for the use of an aircraft for corporate purposes. The
aircraft provided for the Company's use was leased by the
 
                                       57
<PAGE>   58
                              ECLIPSYS CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1998
 
13. RELATED PARTY TRANSACTIONS (CONTINUED)
charter company from a company owned by the Chairman of the Board, President and
Chief Executive Officer of the Company (the "Chairman"). The Chairman's company
received $219,000 and $310,000, during 1997 and 1998, respectively, for these
transactions. The Chairman has no interest in the charter company.
 
     The Company has an employment agreement with the Chairman through May 1,
1999. Under the provisions of the agreement, the Chairman earns an annual salary
of $150,000, subject to adjustment from time to time. The payment of amounts
earned under the agreement were to be deferred until certain earnings were
attained by the Company. During 1997 and 1998, $66,000 and $185,000,
respectively, was paid under the agreement. Effective January 1, 1998, the
Chairman's annual salary was increased to $200,000.
 
14. INVESTMENT WRITE-DOWN
 
     In April 1998, the Company made a strategic investment in Simione Central
Holdings, Inc. ("Simione") a publicly traded company, purchasing 420,000 shares
of restricted common stock from certain stockholders of Simione for $5.6
million. At the time of the transaction, the common stock represented 4.9% of
Simione's outstanding common stock. The Company accounts for its investment in
these shares using the cost method.
 
     Concurrent with the investment, the Company and Simione entered into a
remarketing agreement pursuant to which the Company has certain rights to
distribute Simione software products.
 
     At December 31, 1998, the Company determined that an other than temporary
impairment of its investment occurred. Accordingly, the investment was written
down to its estimated fair value of $787,000 and the Company recorded a charge
of $4.8 million in the accompanying statement of operations.
 
15. SUBSEQUENT EVENTS
 
     POWERCENTER SYSTEMS, INC ACQUISITION
 
     Effective February 17, 1999, the Company completed a merger with
PowerCenter Systems, Inc. ("PCS") for total consideration of approximately $35
million. PCS provides enterprise resource planning software throughout the
healthcare industry. The acquisition will be accounted for as a pooling of
interests.
 
     Unaudited pro forma results of operations for the years ended December 31,
1996, 1997 and 1998, as if the PCS acquisition had occurred on January 1, 1996
is as follows (in thousands, except share data):
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                              1996        1997         1998
                                                             -------    ---------    --------
<S>                                                          <C>        <C>          <C>
Revenues.................................................    $36,585    $ 141,730    $172,679
Net income (loss)........................................        168     (127,124)    (36,740)
Basic and diluted net income (loss) per share............    $  0.04    $  (10.06)   $  (2.18)
</TABLE>
 
     INTELUS CORPORATION AND MED DATA SYSTEMS, INC. ACQUISITIONS (UNAUDITED)
 
     During March 1999, the Company signed a definitive agreement to acquire
Intelus Corporation and Med Data Systems, Inc., both wholly owned subsidiaries
of Sungard Data Systems Inc. The acquired entities both provide document imaging
technology and workflow solutions to entities throughout the healthcare
industry. The purchase price will consist of $25 million in cash. It is expected
that the transaction will close during March 1999.
 
                                       58
<PAGE>   59
 
                              ECLIPSYS CORPORATION
                  SCHEDULE II-VALUATION OF QUALIFYING ACCOUNTS
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
 
--------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                BALANCE AT                                       BALANCE AT
                                               BEGINNING OF               ACQUIRED                 END OF
                                                  PERIOD      ADDITIONS   RESERVES   WRITEOFFS     PERIOD
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>         <C>        <C>         <C>
DECEMBER 31, 1996
  Allowance for Doubtful Accounts............     $  150       $   48      $--         $ (73)      $  125
 
DECEMBER 31, 1997
  Allowance for Doubtful Accounts............        125          752       1,473       (436)       1,914
 
DECEMBER 31, 1998
  Allowance for Doubtful Accounts............      1,914        1,280         763       (802)       3,155
-----------------------------------------------------------------------------------------------------------
</TABLE>
 
                                       59
<PAGE>   60
 
QUARTERLY RESULTS (UNAUDITED)
 
     The following table presents quarterly statement of operations data for
each of the eight quarters in the period ended December 31, 1998. 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 and are retroactively restated to give effect to the pooling of
Transition. The statement of operations data under the heading "Transition"
reflects the reclassification of certain costs and expenses to conform to the
presentation of Eclipsys' consolidated statement of operations. The statement of
operations data under the heading "Transition" reflects the adoption of AICPA
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition,"
effective January 1, 1998.
 
                                       60
<PAGE>   61
 
                              ECLIPSYS CORPORATION
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                     FIRST QUARTER                        SECOND QUARTER                 THIRD QUARTER
                           ----------------------------------   ----------------------------------   ----------------------
                           ECLIPSYS    TRANSITION    POOLED     ECLIPSYS    TRANSITION    POOLED     ECLIPSYS    TRANSITION
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
<S>                        <C>         <C>          <C>         <C>         <C>          <C>         <C>         <C>
REVENUES:
Systems and services.....  $  27,005   $    7,730   $  34,735   $  29,125   $    7,215   $  36,340   $  32,452   $    7,650
Hardware.................      2,290                    2,290       3,164                    3,164       3,708
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
                              29,295        7,730      37,025      32,289        7,215      39,504      36,160        7,650
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
COSTS AND EXPENSES:
Cost of systems and
 services revenue........     16,842        3,549      20,391      17,761        3,588      21,349      18,792        3,626
Cost of hardware sales...      1,977           --       1,977       2,718           --       2,718       3,130           --
Sales and marketing......      4,211        2,079       6,290       4,693        2,036       6,729       5,041        1,845
Research and
 development.............      6,112        1,487       7,599       6,311        1,496       7,807       6,844        1,432
General and
 administration..........      1,616          949       2,565       1,276          691       1,967       1,689          666
Depreciation and
 amortization............      2,669          451       3,120       2,523          472       2,995       2,546          476
Write-down of
 investments.............                                  --
Write-off of in-process
 research and
 development.............                                  --
Write-off of MSA.........      7,193                    7,193
Pooling costs............                                  --
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
                              40,620        8,515      49,135      35,282        8,283      43,565      38,042        8,045
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
OPERATING INCOME
 (LOSS)..................    (11,325)        (785)    (12,110)     (2,993)      (1,068)     (4,061)     (1,882)        (395)
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
Interest expense, net....        285         (742)       (457)        219         (790)       (571)        124         (906)
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
INCOME (LOSS) BEFORE
 TAXES...................    (11,610)         (43)    (11,653)     (3,212)        (278)     (3,490)     (2,006)         511
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
PROVISION FOR INCOME
 TAXES...................         --        1,921       1,921          --        1,185       1,185          --        1,146
                           ---------   ----------   ---------   ---------   ----------   ---------   ---------   ----------
NET LOSS.................  $ (11,610)  $   (1,964)  $ (13,574)  $  (3,212)  $   (1,463)  $  (4,675)  $  (2,006)  $     (635)
                           =========   ==========   =========   =========   ==========   =========   =========   ==========
 
<CAPTION>
                              THIRD QUARTER                 FOURTH QUARTER
                              -----------   -----------------------------------------------
                                 POOLED     ECLIPSYS    TRANSITION/HEALTHVISION    POOLED
                                ---------   ---------   -----------------------   ---------
<S>                             <C>         <C>         <C>                       <C>
REVENUES:
Systems and services.....       $  40,102   $  35,421   $                 9,892   $  45,313
Hardware.................           3,708       5,037                        --       5,037
                                ---------   ---------   -----------------------   ---------
                                   43,810      40,458                     9,892      50,350
                                ---------   ---------   -----------------------   ---------
COSTS AND EXPENSES:
Cost of systems and
 services revenue........          22,418      18,998                     2,965      21,963
Cost of hardware sales...           3,130       4,141                        --       4,141
Sales and marketing......           6,886       6,609                     2,332       8,941
Research and
 development.............           8,276       8,534                     1,915      10,449
General and
 administration..........           2,355       1,661                     1,275       2,936
Depreciation and
 amortization............           3,022       2,888                     1,476       4,364
Write-down of
 investments.............                       4,778                        --       4,778
Write-off of in-process
 research and
 development.............                          --                     2,392       2,392
Write-off of MSA.........                          --                                    --
Pooling costs............                       1,368                     3,665       5,033
                                ---------   ---------   -----------------------   ---------
                                   46,087      48,977                    16,020      64,997
                                ---------   ---------   -----------------------   ---------
OPERATING INCOME
 (LOSS)..................          (2,277)     (8,519)                   (6,128)    (14,647)
                                ---------   ---------   -----------------------   ---------
Interest expense, net....            (782)       (157)                     (702)       (859)
                                ---------   ---------   -----------------------   ---------
INCOME (LOSS) BEFORE
 TAXES...................          (1,495)     (8,362)                   (5,426)    (13,788)
                                ---------   ---------   -----------------------   ---------
PROVISION FOR INCOME
 TAXES...................           1,146          --                        --          --
                                ---------   ---------   -----------------------   ---------
NET LOSS.................       $  (2,641)  $  (8,362)  $                (5,426)  $ (13,788)
                                =========   =========   =======================   =========
 
<CAPTION>
                                                YEAR
                           -----------------------------------------------
                           ECLIPSYS    TRANSITION/HEALTHVISION    POOLED
                           ---------   -----------------------   ---------
<S>                        <C>         <C>                       <C>
REVENUES:
Systems and services.....  $ 124,003   $                32,487   $ 156,490
Hardware.................     14,199                        --      14,199
                           ---------   -----------------------   ---------
                             138,202                    32,487     170,689
                           ---------   -----------------------   ---------
COSTS AND EXPENSES:
Cost of systems and
 services revenue........     72,393                    13,728      86,121
Cost of hardware sales...     11,966                        --      11,966
Sales and marketing......     20,554                     8,292      28,846
Research and
 development.............     27,801                     6,330      34,131
General and
 administration..........      6,242                     3,581       9,823
Depreciation and
 amortization............     10,626                     2,875      13,501
Write-down of
 investments.............      4,778                        --       4,778
Write-off of in-process
 research and
 development.............         --                     2,392       2,392
Write-off of MSA.........      7,193                        --       7,193
Pooling costs............      1,368                     3,665       5,033
                           ---------   -----------------------   ---------
                             162,921                    40,863     203,784
                           ---------   -----------------------   ---------
OPERATING INCOME
 (LOSS)..................    (24,719)                   (8,376)    (33,095)
                           ---------   -----------------------   ---------
Interest expense, net....        471                    (3,140)     (2,669)
                           ---------   -----------------------   ---------
INCOME (LOSS) BEFORE
 TAXES...................    (25,190)                   (5,236)    (30,426)
                           ---------   -----------------------   ---------
PROVISION FOR INCOME
 TAXES...................         --                     4,252       4,252
                           ---------   -----------------------   ---------
NET LOSS.................  $ (25,190)  $                (9,488)  $ (34,678)
                           =========   =======================   =========
</TABLE>
 
                                       61
<PAGE>   62
 
                              ECLIPSYS CORPORATION
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                  FIRST QUARTER                       SECOND QUARTER                     THIRD QUARTER
                        ----------------------------------   --------------------------------   -------------------------------
                        ECLIPSYS    TRANSITION    POOLED     ECLIPSYS   TRANSITION    POOLED    ECLIPSYS   TRANSITION   POOLED
                        ---------   ----------   ---------   --------   ----------   --------   --------   ----------   -------
<S>                     <C>         <C>          <C>         <C>        <C>          <C>        <C>        <C>          <C>
REVENUES:
Systems and
  services............  $  17,023   $    9,819   $  26,842   $ 23,523   $   12,570   $ 36,093   $23,924    $   13,690   $37,614
Hardware..............        622           --         622        744           --        744     1,643            --     1,643
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
                           17,645        9,819      27,464     24,267       12,570     36,837    25,567        13,690    39,257
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
COSTS AND EXPENSES:
Cost of systems and
  services............     16,864        2,836      19,700     19,970        3,027     22,997    19,334         3,444    22,778
Cost of hardware
  sales...............        502           --         502        491           --        491     1,062            --     1,062
Sales and marketing...      3,128        1,645       4,773      3,204        1,991      5,195     3,549         1,822     5,371
Research and
  development.........      4,698          839       5,537      3,329          908      4,237     3,964         1,123     5,087
General and
  administration......        784        1,033       1,817      1,413          950      2,363     1,946           873     2,819
Depreciation and
  amortization........      2,288          402       2,690      2,420          409      2,829     2,584           437     3,021
Write-off of
  in-process research
  and development.....     92,201           --      92,201      6,988           --      6,988        --         6,292     6,292
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
                          120,465        6,755     127,220     37,815        7,285     45,100    32,439        13,991    46,430
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
OPERATING INCOME
  (LOSS)..............   (102,820)       3,064     (99,756)   (13,548)       5,285     (8,263)   (6,872)         (301)   (7,173)
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
Interest expense,
  net.................        111         (581)       (470)       222         (651)      (429)      394          (703)     (309)
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
INCOME (LOSS) BEFORE
  TAXES...............   (102,931)       3,645     (99,286)   (13,770)       5,936     (7,834)   (7,266)          402    (6,864)
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
PROVISION FOR INCOME
  TAXES...............         --        1,458       1,458         --        2,374      2,374        --         2,611     2,611
                        ---------   ----------   ---------   --------   ----------   --------   -------    ----------   -------
NET LOSS..............  $(102,931)  $    2,187   $(100,744)  $(13,770)  $    3,562   $(10,208)  $(7,266)   $   (2,209)  $(9,475)
                        =========   ==========   =========   ========   ==========   ========   =======    ==========   =======
 
<CAPTION>
                                FOURTH QUARTER                           YEAR
                        -------------------------------   ----------------------------------
                        ECLIPSYS   TRANSITION   POOLED    ECLIPSYS    TRANSITION    POOLED
                        --------   ----------   -------   ---------   ----------   ---------
<S>                     <C>        <C>          <C>       <C>         <C>          <C>
REVENUES:
Systems and
  services............  $25,252    $   10,915   $36,167   $  89,722   $   46,994   $ 136,716
Hardware..............    1,346            --     1,346       4,355           --       4,355
                        -------    ----------   -------   ---------   ----------   ---------
                         26,598        10,915    37,513      94,077       46,994     141,071
                        -------    ----------   -------   ---------   ----------   ---------
COSTS AND EXPENSES:
Cost of systems and
  services............   20,915         3,187    24,102      77,083       12,494      89,577
Cost of hardware
  sales...............      898            --       898       2,953           --       2,953
Sales and marketing...    3,781         1,791     5,572      13,662        7,249      20,911
Research and
  development.........    3,723         1,289     5,012      15,714        4,159      19,873
General and
  administration......    1,529           863     2,392       5,672        3,719       9,391
Depreciation and
  amortization........    2,418           406     2,824       9,710        1,654      11,364
Write-off of
  in-process research
  and development.....                                       99,189        6,292     105,481
                        -------    ----------   -------   ---------   ----------   ---------
                         33,264         7,536    40,800     223,983       35,567     259,550
                        -------    ----------   -------   ---------   ----------   ---------
OPERATING INCOME
  (LOSS)..............   (6,666)        3,379    (3,287)   (129,906)      11,427    (118,479)
                        -------    ----------   -------   ---------   ----------   ---------
Interest expense,
  net.................      427          (754)     (327)      1,154       (2,689)     (1,535)
                        -------    ----------   -------   ---------   ----------   ---------
INCOME (LOSS) BEFORE
  TAXES...............   (7,093)        4,133    (2,960)   (131,060)      14,116    (116,944)
                        -------    ----------   -------   ---------   ----------   ---------
PROVISION FOR INCOME
  TAXES...............                1,653.0     1,653          --        8,096       8,096
                        -------    ----------   -------   ---------   ----------   ---------
NET LOSS..............  $(7,093)   $    2,480   $(4,613)  $(131,060)  $    6,020   $(125,040)
                        =======    ==========   =======   =========   ==========   =========
</TABLE>
 
                                       62
<PAGE>   63
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    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 to this Form 10-K Annual Report:
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information regarding directors will be set forth in the proxy statement
for the annual meeting of stockholders to be held on April 21, 1999 and is
incorporated herein by reference. Set forth below is certain information
regarding the Company's executive officers:
 
<TABLE>
<CAPTION>
                NAME                   AGE                            TITLE
                ----                   ---   --------------------------------------------------------
<S>                                    <C>   <C>
Harvey J. Wilson.....................  60    Chief Executive Officer and Chairman of the Board of
                                             Directors
James E. Hall........................  65    President and Chief Operating Officer
Robert J. Vanaria....................  53    Senior Vice President, Administration, Chief Financial
                                             Officer and Treasurer
T. Jack Risenhoover, II..............  33    Vice President, General Counsel and Secretary
</TABLE>
 
     HARVEY J. WILSON, Eclipsys' founder, has served as President, Chief
Executive Officer and Chairman of the Eclipsys Board since Eclipsys was formed
in December 1995. From January 1984 to December 1995, Mr. Wilson invested
privately in software and technology companies. Mr. Wilson was a co-founder of
SMS, a healthcare information systems provider. Mr. Wilson is a director of
Philadelphia Suburban Corporation, a water utility company.
 
     JAMES E. HALL has served as Chief Operating Officer since January 1997 and
became President in February 1999. From August 1995 to January 1997, Mr. Hall
was Senior Vice President of Sales and Marketing for Multimedia Medical Systems,
Inc., a clinical information systems company ("MMS"). From January 1989 to
August 1995, Mr. Hall was President of Asia Pacific Partners Ltd., a consulting
firm. During 1987 and 1988, Mr. Hall held several positions at Rabbit Software
Corporation, including Chief Operating Officer (1987) and Chief Executive
Officer (1988). In 1985 and 1986, Mr. Hall was self-employed as a business
consultant focussing primarily in the technology area. From 1974 to 1984, Mr.
Hall held various positions at SMS, including Senior Vice President of Marketing
and Sales.
 
     ROBERT J. VANARIA has served as Senior Vice President, Administration,
Chief Financial Officer and Treasurer since December 1997. From March 1995 to
December 1997, Mr. Vanaria was Senior Vice President and Chief Financial Officer
of Greenwich Air Services, Inc., an aviation services subsidiary of General
Electric Company. From September 1994 to February 1995, Mr. Vanaria was a
self-employed business consultant. From March 1982 to August 1994, Mr. Vanaria
was Senior Vice President and Chief Financial Officer of Foamex International,
Inc., a manufacturing company.
 
     T. JACK RISENHOOVER, II has served as Vice President and General Counsel
since February 1997. From May 1994 to January 1997, Mr. Risenhoover was general
counsel for The Right Angle, Inc., a marketing firm. Mr. Risenhoover was awarded
his J.D. from Vanderbilt University School of Law in April 1994.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information regarding executive compensation will be set forth in the proxy
statement for the annual meeting of stockholders to be held on April 21, 1999
and is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information regarding security ownership of certain beneficial owners and
management will be set forth in the proxy statement for the annual meeting of
stockholders to be held on April 21, 1999 and is incorporated herein by
reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information regarding certain relationships and related transactions will
be set forth in the proxy statement for the annual meeting of stockholders to be
held on April 21, 1999 and is incorporated herein by reference.
 
                                       63
<PAGE>   64
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
 
     1.    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:
 
<TABLE>
         <C>         <S>
             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
             3.1***  Third Amended and Restated Certificate of Incorporation of
                     the Registrant
             3.2**   Third Amended and Restated Bylaws of the Registrant
             4.1**   Specimen certificate for shares of Common Stock
            10.1**   Second Amended and Restated Registration Rights Agreement
            10.2**   Second Amended and Restated Stockholders Agreement
            10.3**   Warrant to Purchase Non-Voting Common Stock, dated January
                     24, 1997, granted to First Union Corporation
            10.4**   Warrant to Purchase Non-Voting Common Stock, dated January
                     24, 1997, granted to BT Investment Partners, Inc.
            10.5**+  Information Systems Technology License Agreement, dated as
                     of May 3, 1996, by and among Partners Healthcare System,
                     Inc., Brigham and Women's Hospital, 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**   1998 Stock Incentive Plan
            10.9***  Amended and Restated 1998 Employee Stock Purchase Plan
            10.10**  Employment Letter, dated as of May 1, 1996, to Harvey J.
                     Wilson from Integrated Healthcare Solutions, Inc.
            10.11**  First Amended and Restated Credit Agreement dated May 229,
                     1998, by and among Eclipsys Corporation, First Union
                     National Bank, f/k/a First Union National Bank of North
                     Carolina as Agent and BankBoston, N.A. as Co-agent
            10.12**  Letter agreement amending First Amended and Restated Credit
                     Agreement dated May 29, 1998, by and among Eclipsys
                     Corporation, First Union National Bank f/k/a First Union
                     National Bank of North Carolina as Agent and BankBoston as
                     Co-agent.
            10.13**  Settlement of Claims Agreement, dated as of March 13, 1998,
                     between ALLTEL Information Services, Inc. and Eclipsys
                     Corporation
            21       Subsidiaries of the Registrant
            23       Consent of PricewaterhouseCoopers LLP
            27       Financial Data Schedule (for SEC use only)
</TABLE>
 
---------------
 
   +  Confidential treatment granted on August 6, 1998 in connection with the
      Registrants IPO
 
  *  Incorporated by reference to the Joint Proxy Statement/Prospectus included
     in the Registrants 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)
 
                                       64
<PAGE>   65
 
                                   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.
 
<TABLE>
<CAPTION>
                  SIGNATURE                                      TITLE                       DATE
                  ---------                                      -----                       ----
<C>                                                 <S>                               <C>
            /s/ HARVEY J. WILSON                    Chief Executive Officer           March 25, 1999
---------------------------------------------       (Principal Executive Officer),
              Harvey J. Wilson                      Director
 
            /s/ ROBERT J. VANARIA                   Senior Vice President,            March 25, 1999
---------------------------------------------       Administration and Chief
              Robert J. Vanaria                     Financial Officer (Principal
                                                    Financial and Accounting
                                                    Officer)
 
                                                    Director
---------------------------------------------
              Steven A. Denning
 
                                                    Director
---------------------------------------------
               G. Fred DiBona
 
             /s/ EUGENE V. FIFE                     Director                          March 25, 1999
---------------------------------------------
               Eugene V. Fife
 
                                                    Director
---------------------------------------------
               William E. Ford
 
           /s/ PATRICK T. HACKETT                   Director                          March 25, 1999
---------------------------------------------
             Patrick T. Hackett
 
                                                    Director
---------------------------------------------
                 Robert Kell
 
              /s/ JAY B. PIEPER                     Director                          March 25, 1999
---------------------------------------------
                Jay B. Pieper
 
             /s/ ROBERT F. RACO                     Director                          March 25, 1999
---------------------------------------------
               Robert F. Raco
</TABLE>
 
                                       65
<PAGE>   66
 
                                                                        SKU#1759