-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HhCkEA8aolR+uf7SOAD3BgOXnpfw4gQuF696Lk2qyJw+ME3oYN8/dGYYM1X/DQXc X8JSJgw2YHKAdML5W+h+2g== 0000927016-96-001709.txt : 19961115 0000927016-96-001709.hdr.sgml : 19961115 ACCESSION NUMBER: 0000927016-96-001709 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDX SYSTEMS CORP CENTRAL INDEX KEY: 0001001185 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 030222230 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26816 FILM NUMBER: 96660943 BUSINESS ADDRESS: STREET 1: 1400 SHELBURNE RD STREET 2: PO BOX 1070 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 BUSINESS PHONE: 8028621022 MAIL ADDRESS: STREET 1: 1400 SHELBURNE RD STREET 2: PO BOX 1070 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 -------------------------------------------------- Commission File Number 0-26816 IDX SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) VERMONT 03-0222230 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 SHELBURNE ROAD SOUTH BURLINGTON, VT 05403 (Address of principal executive offices) Registrant's telephone number, including area code: (802-862-1022) Indicate by check mark whether the registrant 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). Yes X No ------- ------- Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- The number of shares outstanding of the registrant's Common Stock, $.01 par value per share, as of November 7, 1996 was 20,924,747. ================================================================================ [Exhibit index begins on Page 17] IDX SYSTEMS CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Interim Financial Statements: a) Condensed consolidated balance sheets as of September 30, 1996 and December 31, 1995 (unaudited) 3 b) Condensed consolidated statements of income for the three and nine months ended September 30, 1996 and 1995 (unaudited) 4 c) Condensed consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995 (unaudited) 5 d) Notes to condensed consolidated financial statements 6 ITEM 2. Management's discussion and analysis of financial condition and results of operations 7 PART II. OTHER INFORMATION ITEM 1. Legal proceedings 15 ITEM 2. Changes in securities 15 ITEM 3. Defaults upon senior securities 15 ITEM 4. Submission of matters to a vote of security holders 15 ITEM 5. Other information 15 ITEM 6. Exhibits and reports on Form 8-K 15 SIGNATURES 16 EXHIBIT INDEX 17
2 Item 1. Interim Financial Statements IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) ASSETS - ------ CASH AND SECURITIES $ 93,898 $ 79,776 ACCOUNTS RECEIVABLE, NET 36,840 28,013 OTHER CURRENT ASSETS 3,140 3,616 -------- -------- TOTAL CURRENT ASSETS 133,878 111,405 PROPERTY AND EQUIPMENT, NET 16,562 16,221 OTHER ASSETS 798 785 -------- -------- TOTAL ASSETS $151,238 $128,411 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 16,074 $ 14,124 DEFERRED REVENUE 10,088 7,766 -------- -------- TOTAL CURRENT LIABILITIES 26,162 21,890 LONG-TERM DEBT 2,700 2,907 MINORITY INTEREST 1,622 1,182 STOCKHOLDERS' EQUITY 120,754 102,432 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $151,238 $128,411 ======== ========
See accompanying notes. NOTE: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. 3 Item 1. Interim Financial Statement IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1996 1995 1996 1995 ---------- --------- --------- --------- (UNAUDITED) (UNAUDITED) REVENUES - -------- SOFTWARE LICENSE FEES $11,888 $ 9,253 $ 38,126 $30,219 MAINTENANCE AND SERVICE FEES 19,411 15,842 53,925 45,791 HARDWARE SALES 7,289 7,009 22,964 18,783 ------- ------- -------- ------- TOTAL REVENUES 38,588 32,104 115,015 94,793 OPERATING EXPENSES - ------------------ COST OF LICENSE, MAINTENANCE AND SERVICE FEES 14,044 12,155 40,028 36,938 COST OF HARDWARE SALES 5,306 5,459 18,063 14,546 SELLING, GENERAL, AND ADMIN 8,552 6,216 24,380 18,204 RESEARCH AND DEVELOPMENT 6,039 5,197 17,737 14,544 ------- ------- -------- ------- 33,941 29,027 100,208 84,232 OPERATING INCOME 4,647 3,077 14,807 10,561 INTEREST AND OTHER (INCOME) EXPENSE (1,074) (450) (2,923) (938) INCOME BEFORE INCOME TAXES 5,721 3,527 17,730 11,499 INCOME TAX PROVISION 2,292 180 7,092 605 ------- ------- -------- ------- NET INCOME $ 3,429 $ 3,347 $ 10,638 $10,894 ======= ======= ======== ======= NET INCOME PER SHARE $0.16 $0.50 ======= ======= HISTORICAL INCOME BEFORE INCOME TAXES $ 3,527 $11,499 PRO FORMA INCOME TAXES 1,411 4,600 ------- ------- PRO FORMA NET INCOME $ 2,116 $ 6,899 ======= ======= PRO FORMA NET INCOME PER SHARE $0.12 $0.40 ======= ======= AVERAGE SHARES OUTSTANDING 21,460 17,905 21,387 17,440
See accompanying notes. 4 Item 1. Interim Financial Statement IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 1996 1995 --------- --------- (UNAUDITED) Operating Activities Net income $ 10,638 $ 10,894 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,519 2,157 Increase in allowance for doubtful accounts 125 310 Minority interest 440 273 Changes in operating assets and liabilities: Accounts receivable (7,601) (10,440) Prepaid expenses 144 (352) Accounts payable 1,283 34 Accrued expenses 4,150 240 Deferred revenue 2,322 1,190 Other, net (896) 168 -------- -------- Net cash provided by operating activities 14,124 4,474 Investing Activities Purchase of property and equipment, net (3,860) (2,707) Purchase of securities available-for-sale, net (98,579) (362) Sale of securities available-for-sale 64,084 250 -------- -------- Net cash used in investing activities (38,355) (2,819) Financing Activities Proceeds from sale of common stock 4,066 4,037 S Corporation distribution (1,979) Distributions from affiliates (225) Repayment of notes receivable to related parties (249) Proceeds from related parties 637 Payments on long-term debt related to real estate (207) (386) -------- -------- Net cash provided by financing activities 3,859 1,835 -------- -------- Increase (decrease) in cash and cash equivalents (20,372) 3,490 Cash and cash equivalents at beginning of period 33,262 6,830 -------- -------- Cash and cash equivalents at end of period $ 12,890 $ 10,320 ======== ========
See accompanying notes. 5 Notes to Condensed Consolidated Financial Statements Note 1 - Interim Statement Presentation The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with generally accepted accounting principles. Accordingly, certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed. In the opinion of management, all necessary adjustments have been made to provide a fair presentation. The operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes included in the Company's latest annual report on Form 10-K. Note 2 - Pro Forma Net Income and Net Income Per Share Information Pro forma net income represents actual historical pre-tax earnings in 1995 less the tax provision which the Company would have recognized had it been taxed as a "C" Corporation in 1995. Prior to October 1, 1995, the Company was taxed as an "S" Corporation. Pro forma net income per share is computed using pro forma net income and the weighted average number of Common and dilutive Common Stock equivalent shares. Common Stock equivalents are attributable to stock options using the treasury stock method and, for the three-month and nine-month periods ended September 30, 1995, include the weighted average estimated number of shares which was necessary to fund the payment of undistributed S Corporation earnings in excess of the previous twelve months net income. Common Stock and Common Stock equivalent shares issued during the twelve-month period prior to the effective date of the Company's initial public offering consummated on November 22, 1995 have been included in the calculation as if they were outstanding for the three-month and nine-month periods ended September 30, 1995 using the treasury stock method. The initial public offering price was used in the determination of Common Stock equivalents for all periods presented up to the effective date of the initial public offering. After that date, the market prices of Common Stock were used for computing Common Stock equivalents. Primary and fully diluted pro forma net income per share are the same for the three-month and nine-month periods ended September 30, 1995 and primary and fully diluted net income per share are the same for the three-month and nine- month periods ended September 30, 1996. Note 3 - Reclassifications Certain amounts in 1995 have been reclassified to conform with current period presentations. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES The Company's total revenues increased to $38.6 million during the three months ended September 30, 1996 from $32.1 million in the corresponding period in 1995, an increase of $6.5 million or 20.2%. Revenues from software license fees increased to $11.9 million during the three months ended September 30, 1996 (30.8% of total revenues) from $9.3 million (28.9% of total revenues) in the corresponding period in 1995, an increase of $2.6 million or 28.5%. The increase was primarily due to an increase in installations of certain of the Company's software products from its Ambulatory Suite. Revenues from maintenance and service fees increased to $19.4 million during the three months ended September 30, 1996 (50.3% of total revenues) from $15.8 million (49.3% of total revenues) in the corresponding period in 1995, an increase of $3.6 million or 22.5%. The increase in revenues from maintenance and service fees was due principally to additional maintenance revenues resulting from the continued growth in the Company's installed client base. Hardware revenues increased to $7.3 million during the three months ended September 30, 1996 (18.9% of total revenues) from $7.0 million (21.8% of total revenues) in the corresponding period in 1995, an increase of $.3 million or 4.0%. The increase in hardware revenues was principally due to shipments for new customer contracts and customers upgrading their hardware systems. The Company anticipates the level of hardware sales will vary considerably from period to period and not necessarily in a consistent relationship with other revenue. COST OF LICENSE, MAINTENANCE AND SERVICE FEES The cost of license, maintenance and service fees increased to $14.0 million during the three months ended September 30, 1996 from $12.1 million in the corresponding period in 1995, an increase of $1.9 million or 15.5%. The gross profit margin on license, maintenance and service fees increased to 27.7% during the three months ended September 30, 1996 from 23.3% in the corresponding period in 1995. The increase in profit margin was principally due to the continued growth in maintenance and installation revenue without a corresponding increase in associated service expenses. COST OF HARDWARE SALES The cost of hardware sales decreased to $5.3 million during the three months ended September 30, 1996 from $5.5 million in the corresponding period in 1995, a decrease of $.2 million or 2.8%. The gross profit margin on hardware sales increased to 27.2% of hardware revenues during the three months ended September 30, 1996, from 22.1% in the corresponding period in 1995. 7 The increase was principally due to the sale of higher margin hardware configurations and hardware operating systems during the quarter ended September 30, 1996. This gross profit margin trend is not anticipated to continue in the future. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $8.5 million during the three months ended September 30, 1996 from $6.2 million in the corresponding period in 1995, an increase of $2.3 million or 37.6%. As a percentage of total revenues, selling, general and administrative expenses increased to 22.2% during the three months ended September 30, 1996 from 19.4% in the corresponding period in 1995. The increase in selling, general and administrative expenses during the three months ended September 30, 1996 was principally due to an increase in the Company's sales and marketing staff. RESEARCH AND DEVELOPMENT Research and development expenses increased to $6.0 million during the three months ended September 30, 1996 from $5.2 million in the corresponding period in 1995, an increase of $0.8 million or 16.2%. The increase was due to an increase in staff to support the development of additional products for the Company. As a percentage of total revenues, research and development expenses decreased to 15.6% during the three months ended September 30, 1996 compared to 16.2% in the corresponding period in 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES The Company's total revenues increased to $115.0 million during the nine months ended September 30, 1996 from $94.8 million in the corresponding period in 1995, an increase of $20.2 million or 21.3%. Revenues from software license fees increased to $38.1 million during the nine months ended September 30, 1996 (33.1% of total revenues) from $30.2 million (31.9% of total revenues) in the corresponding period in 1995, an increase of $7.9 million or 26.2%. The increase was primarily due to an increase in installations of certain of the Company's software products from its Ambulatory Suite. Revenues from maintenance and service fees increased to $53.9 million during the nine months ended September 30, 1996 (46.9% of total revenues) from $45.8 million (48.3% of total revenues) in the corresponding period in 1995, an increase of $8.1 million or 17.8%. The increase in revenues from maintenance and service fees was due principally to additional maintenance revenues resulting from the continued growth in the Company's installed client base. Hardware revenues increased to $23.0 million during the nine months ended September 30, 1996 (20.0% of total revenues) from $18.8 million (19.8% of total revenues) in the corresponding period in 1995, an increase of $4.2 million or 22.3%. The increase in hardware revenues was principally due to new contracts and customers upgrading their hardware systems. COST OF LICENSE, MAINTENANCE AND SERVICE FEES The cost of license, maintenance and service fees increased to $40.0 million during the nine months ended September 30, 1996 from $36.9 million in the corresponding period in 1995, an 8 PART I. FINANCIAL INFORMATION increase of $3.1 million or 8.4%. The gross profit margin on license, maintenance and service fees increased to 25.8% during the nine months ended September 30, 1996 from 19.3% in the corresponding period in 1995. The increase in profit margin was principally due to the continued growth in maintenance and installation revenue without a corresponding increase in associated services expenses. COST OF HARDWARE SALES The cost of hardware sales increased to $18.1 million during the nine months ended September 30, 1996 from $14.6 million in the corresponding period in 1995, an increase of $3.5 million or 24.2% The gross profit margin on hardware sales decreased to 21.3% of hardware revenues during the nine months ended September 30, 1996, from 22.6% in the corresponding period in 1995. The decrease was principally due to pricing pressure on hardware in the marketplace. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $24.4 million during the nine months ended September 30, 1996 from $18.2 million in the corresponding period in 1995, an increase of $6.2 million or 33.9%. As a percentage of total revenues, selling, general and administrative expenses increased to 21.2% during the nine months ended September 30, 1996 from 19.2% in the corresponding period in 1995. The majority of these additional expenses during the nine months ended September 30, 1996 were due to an increase in the Company's sales and marketing staff over the same period in 1995. RESEARCH AND DEVELOPMENT Research and development expenses increased to $17.7 million during the nine months ended September 30, 1996 from $14.5 million in the corresponding period in 1995, an increase of $3.2 million or 22.0%. The increase was due to an increase of staff to support the development of additional products. As a percentage of total revenues, research and development expenses increased to 15.4% during the nine months ended September 30, 1996 from 15.3% in the corresponding period in 1995. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1969, the Company has funded its operations, working capital needs and capital expenditures primarily from operations. Cash flows from operations are principally comprised of net income and depreciation and are primarily affected by the net effect of the change in accounts receivable, deferred revenue, accounts payable and accrued expenses. Accounts receivable from customers have been collected consistently in the 65 to 87 day range. Cash and cash equivalents at September 30, 1996 were $12.9 million, a decrease of $20.3 million from December 31, 1995. The majority of this decrease was due to the investment of excess funds along with the proceeds from the Company's initial public offering of common stock, which was consummated on November 22, 1995 in investment grade securities. 9 PART I. FINANCIAL INFORMATION The Company has a revolving line of credit with a bank allowing the Company to borrow up to $2.0 million bearing interest at the prime rate. There were no borrowings as of September 30, 1996. The Company has no significant commitments for capital expenditures at this time. INCOME TAXES From July 1, 1987 to November 1, 1995, the Company was treated for federal and certain state income tax purposes as an S Corporation under the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Company's stockholders, rather than the Company, were required to pay federal and certain state income taxes based upon the Company's earnings whether or not the earnings were distributed to such stockholders. On November 1, 1995, the Company terminated its S corporation status and, accordingly, has become subject to federal and state income taxes. For purposes of financial statement presentations, the Company's financial statements reflect pro forma financial information for 1995 as if the Company had been taxed as a C corporation. For the quarter ended September 30, 1996, the Company provided for taxes at a rate of approximately 40% of pre-tax income. FACTORS AFFECTING FUTURE RESULTS Statements in this report, and other reports, proxy statements and other communications to stockholders, as well as oral statements made by the Company's officers or its agents which express "belief," "anticipation," "intention," or "expectation," as well as other statements which are not historical fact, and statements as to the Company's future revenues, operating income, earnings per share, or plans and objectives of management, including plans or objectives relating to products or services of the Company, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties described below. There are a number of factors of which the Company is aware that may cause the Company's actual results to vary materially from those forecast or projected in any such forward-looking statement. The following are certain, but not necessarily all, of the factors which the management of the Company presently believes could cause the Company's actual operating results to be materially less than forecast or projected in any forward-looking statement. The Company's revenues and operating results can vary significantly from quarter to quarter as a result of a number of factors, including the volume and timing of systems sales and installations, and length of sales cycles and installation efforts. The timing of revenues from systems sales is difficult to forecast because the Company's sales cycle can vary depending upon factors such as the size of the transaction, the changing business plans of the customer, the effectiveness of customer's management, and general economic conditions. In addition, because revenue is recognized at various points during the installation process, the timing of revenue recognition varies considerably based on a number of factors, including availability of personnel, availability of the customer's resources and complexity of the needs of the customer's organization. The Company's initial contact with a potential customer depends in significant part on the customer's 10 PART I. FINANCIAL INFORMATION decision to replace, expand or substantially modify its existing information systems, or modify or add business processes or lines of business. 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 health care organizations. Accordingly, the sales cycle for the Company's systems is typically three to 18 months or more from initial contact to contract execution, and the installation cycle is typically three to 18 months or more from contract execution to completion of installation. During the sales cycle and the installation cycle, the Company expends substantial time, effort and funds preparing contract proposals, negotiating the contract and implementing the system. Because a significant percentage of the Company's expenses are relatively fixed, a variation in the timing of systems sales and installations can cause significant variations in operating results from quarter to quarter. The Company's future operating results may fluctuate as a result of these and other factors, such as customer purchasing patterns, and the timing of new product and service introductions and product upgrade releases. The Company's revenues have historically followed seasonal patterns with a lower level of sales and installations occurring in the fiscal quarter ending September 30 and a greater level of sales and installations occurring in the fiscal quarter ending June 30 (formerly the fiscal year end of the Company). The Company believes that such seasonal fluctuation is attributable to a number of factors, including the Company's former sales and installation compensation program, which was formerly based significantly on fiscal year sales and installation goals, and the vacation schedules of its clients. In 1995, the Company changed its fiscal year end from June 30 to December 31. The Company is not able to predict what impact, if any, the change will have on the seasonality of the Company's business. The Company believes that quarterly results of operations will continue to be subject to significant fluctuations and that its results of operations for any particular quarter or fiscal year may not be indicative of results of operations for future periods. There can be no assurance that future seasonal and quarterly fluctuations will continue and will not have a material adverse effect on the Company's results of operations, financial condition or business. Market prices for securities of companies such as the Company are highly volatile. Factors such as announcements of technological innovations or new products or services by the Company or its competitors, proprietary rights developments, and market conditions for health care or technology stocks in general, could have a significant impact on the future market price of the Company's Common Stock. As a developer of information systems, the Company must anticipate and adapt to evolving industry standards and new technological developments. The market for the Company's products is characterized by continued and rapid technological advances in both hardware and software development, requiring ongoing expenditures for research and development and the timely introduction of new products and enhancements to existing products. The establishment of standards is largely a function of user acceptance. Therefore, such standards are subject to change. The Company's future success will depend in part upon its ability to enhance its existing products, to respond effectively to technology changes, to migrate its clients to new technologies, to sell additional products to its existing client base and to introduce new products and technologies to meet the evolving needs of its clients in the health care information systems 11 PART I. FINANCIAL INFORMATION market. The Company is currently devoting significant resources toward the development of enhancements to its existing products and the migration of existing products to new hardware and software platforms. There can be no assurance that the Company will successfully complete the development of these products or this migration in a timely fashion or that the Company's current or future products will satisfy the needs of the health care information systems market. Further, there can be no assurance that products or technologies developed by others will not adversely affect the Company's competitive position or render its products or technologies noncompetitive or obsolete. The Company currently derives a significant percentage of its revenues from sales of financial and administrative information systems and related services. As a result, any factor adversely affecting sales of these products and services could have a material adverse effect on the Company's results of operations, financial condition or business. Although the Company has experienced increasing annual sales, revenues associated with existing products may decline as a result of several factors, including price competition. There can be no assurance that the Company will continue to be successful in marketing its current products or any new or enhanced products or maintaining the current pricing for its existing products. Certain of the Company's products provide applications that relate to patient medical histories and treatment plans. Any failure by the Company's products to provide accurate and timely information could result in product liability claims against the Company by its clients or their affiliates or patients. The Company maintains insurance that it believes is adequate to protect against claims associated with the use of its products, but there can be no assurance that its insurance coverage would adequately cover any claim asserted against the Company. A successful claim brought against the Company in excess of its insurance coverage could have a material adverse effect on the Company's results of operations, financial condition or business. Even unsuccessful claims could result in the expenditure of funds in litigation, as well as diversion of management time and resources. There can be no assurance that the Company will not be subject to product liability claims, that such claims will not result in liability in excess of its insurance coverage or that the Company's insurance will cover such claims or that appropriate insurance will continue to be available to the Company in the future at commercially reasonable rates. The success of the Company is dependent to a significant degree on its key management, sales and marketing, and technical personnel. The Company believes that its continued future success will also depend upon its ability to attract, motivate and retain highly skilled, managerial, sales and marketing, and technical personnel, including software programmers and systems architects skilled in the computer languages in which the Company's products operate. Competition for such personnel in the software and information services industries is intense. The loss of key personnel, or the inability to hire or retain qualified personnel, could have a material adverse effect on the Company's results of operations, financial condition or business. Although the Company has been successful to date in attracting and retaining skilled personnel, there can be no assurance that the Company will continue to be successful in attracting and retaining the personnel it requires to successfully develop new and enhanced products and to continue to grow and operate profitably. 12 PART I. FINANCIAL INFORMATION The health care industry in the United States is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of health care organizations. The Company's products are designed to function within the structure of the health care financing and reimbursement system currently being used in the United States. During the past several years, the health care industry has been subject to increasing levels of governmental regulation of, among other things, reimbursement rates and certain capital expenditures. From time to time, certain proposals to reform the health care system have been considered by Congress. These proposals, if enacted, may increase government involvement in health care, lower reimbursement rates and otherwise change the operating environment for the Company's clients. Health care organizations may react to these proposals and the uncertainty surrounding such proposals by curtailing or deferring investments, including those for the Company's products and services. The Company cannot predict with any certainty what impact, if any, such proposals or health care reforms might have on its results of operations, financial condition or business. The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy for the regulation of certain computer software products as medical devices under the 1976 Medical Device Amendments to 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. To the extent that computer software is a medical device under the policy, the manufacturers of such products could be required, depending on the product, to (i) register and list their products with FDA, (ii) notify the FDA and demonstrate substantial equivalence to other products on the market before marketing such products, or (iii) obtain FDA approval by demonstrating safety and effectiveness before marketing a product. In addition, such products would be subject to the FDC Act's general controls, including those relating to good manufacturing practices and adverse experience reporting. Although it is not possible to anticipate the final form of the FDA's policy with regard to computer software, the Company expects that, whether or not the draft is finalized or changed, the FDA is likely to become increasingly active in regulating computer software that is intended for use in health care settings. The FDA can impose extensive requirements governing pre- and post- market conditions such as device investigation, approval, labeling and manufacturing. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes. There can be no assurance that actions taken by the FDA to regulate computer software products will not have a material adverse effect on the Company's results of operations, financial condition or business. The Company intends to continue to grow in part through acquisitions of complementary products, technologies and businesses or alliances with complementary businesses. The Company's ability to expand successfully through acquisitions or alliances depends on many factors, including the successful identification and acquisition of products, technologies or businesses and management's ability to effectively integrate and operate the acquired or aligned products, technologies or businesses. There is significant competition for acquisition and alliance opportunities in the health care information systems industry, which may intensify due to consolidation in the industry, thereby increasing the costs of capitalizing on such opportunities. The Company competes for acquisition and alliance opportunities with other 13 PART I. FINANCIAL INFORMATION companies that have significantly greater financial and management resources. There can be no assurance that the Company will be successful in acquiring or aligning with any complementary products, technologies or businesses; or, if acquired or aligned with, that the Company will be able to successfully integrate any such products, technologies or businesses into its current business and operations. The failure to successfully integrate any significant products, technologies or businesses could have a material adverse effect on the Company's results of operations, financial condition or business. Because of these and other factors, past financial performance should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results. 14 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 2. CHANGES IN SECURITIES None. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION None. Item 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The exhibits filed as part of this Form 10-Q are listed on the Exhibit Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference. (b) No Current Reports on Form 8-K were filed by the Company during the last quarter of the period by this report. 15 SIGNATURES Signatures Pursuant to the requirements 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. IDX SYSTEMS CORPORATION Date: November 13, 1996 By: /s/ John A. Kane ------------------------------- John A. Kane, Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 16 EXHIBIT INDEX Exhibit Index The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. Description Page - ------------- ----------- ---- 11 Statement regarding computation of per share earnings for 18 the three months ended September 30, 1996. 12 Statement regarding computation of per share earnings for 19 the nine months ended September 30, 1996. 27 Financial Data Schedule
17 EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (3 MO.) EXHIBIT 11 IDX SYSTEMS CORPORATION SCHEDULES OF NET INCOME PER SHARE AND PRO FORMA NET INCOME PER SHARE (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
PRIMARY FULLY DILUTED THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 -------- -------- ------- -------- Weighted average shares 20,890 14,997 20,890 14,997 outstanding Net dilutive effect of stock options- based on the treasury stock method using the IPO price until the effective date and average price thereafter for primary and ending price, if higher, for fully diluted 570 927 570 927 Effect of final S corporation distribution 1,789 1,789 Effect of common and common stock equivalent shares issued by the Company during the twelve month period immediately preceding the Company's initial public offering in November 1995, as if they were outstanding for all periods presented prior to the initial public offering, using the treasury stock method, as described above 192 192 ------- ------- ------- ------ Total shares 21,460 17,905 21,460 17,905 ======= ======= ======= ====== Net income $ 3,429 $ 3,429 ======= ======= Net income per share $ 0.16 $0.16 ======= ======= Pro forma net income $ 2,116 $ 2,116 ======= ======= Pro forma net income per share $ 0.12 $0.12 ======= =======
EX-12 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (9 MO.) EXHIBIT 12 IDX SYSTEMS CORPORATION SCHEDULES OF NET INCOME PER SHARE AND PRO FORMA NET INCOME PER SHARE (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
PRIMARY FULLY DILUTED NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 -------- ------ -------- ------- Weighted average shares 20,661 14,170 20,661 14,170 outstanding Net dilutive effect of stock options- based on the treasury stock method using the IPO price until the effective date and average price thereafter for primary and ending price, if higher, for fully diluted 726 1,289 726 1,289 Effect of final S corporation distribution 1,789 1,789 Effect of common and common stock equivalent shares issued by the Company during the twelve month period immediately preceding the Company's initial public offering in November 1995, as if they were outstanding for all periods presented prior to the initial public offering, using the treasury stock method, as described above 192 192 ------ ------- ------- ------- Total shares 21,387 17,440 21,387 17,440 ======= ======= ======== ======= Net income $10,638 $10,638 ======= ======== Net income per share $ 0.50 $0.50 ======= ======== Pro forma net income $ 6,899 $ 6,899 ======= ======== Pro forma net income per share $ 0.40 $0.40 ======= ========
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME TAXES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 SEP-30-1996 SEP-30-1995 12,890 10,320 81,008 6,035 37,490 30,713 (650) (513) 0 0 133,878 48,580 30,813 28,981 14,621 13,612 151,238 76,649 26,162 15,521 2,700 2,900 0 0 0 0 209 157 120,545 56,984 151,238 76,649 22,964 18,783 115,015 94,793 18,063 14,546 100,208 84,232 0 0 90 265 109 188 17,730 11,499 7,092 605 10,638 10,894 0 0 0 0 0 0 10,638 10,894 .50 .40 .50 .40
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