-----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, QTRnNimpGwPV2REBIqK+Ut8FPdz2S3jtWu5duz0A4fHOhd72UQT7p1ykIYGvmxRO KmoGt58bHiYrap1SMCMyTA== 0001001185-97-000015.txt : 19970814 0001001185-97-000015.hdr.sgml : 19970814 ACCESSION NUMBER: 0001001185-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659314 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 JUNE 30, 1997 ------------------------------- 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 as of August 11, 1997 was 25,738,751. ================================================================================ [Exhibit index begins on Page 20] -- IDX SYSTEMS CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE ---- ITEM 1. Interim Financial Statements: a) Condensed consolidated balance sheets as of June 30, 1997 and December 31, 1996 (unaudited).............3 b) Condensed consolidated statements of income for the six months ended June 30, 1997 and 1996 (unaudited).............4 c) Condensed consolidated statements of cash flows for the six months ended June 30, 1997 and 1996 (unaudited).................................................5 d) Notes to condensed consolidated financial statements........6 ITEM 2. Management's discussion and analysis of financial condition and results of operations...................................8 PART II. OTHER INFORMATION ITEM 1. Legal proceedings...................................................17 ITEM 2. Changes in securities...............................................17 ITEM 3. Defaults upon senior securities.....................................17 ITEM 4. Submission of matters to a vote of security holders.................17 ITEM 5. Other information...................................................18 ITEM 6. Exhibits and reports on Form 8-K....................................18 SIGNATURES...................................................................19 EXHIBIT INDEX................................................................20 Page 2 of 22
PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) ---------
JUNE 30 DECEMBER 31 1997 1996 ---- ---- ASSETS Cash and securities $ 96,502 $ 94,554 Accounts receivable, net 46,041 39,092 Other current assets 6,679 5,221 -------- -------- Total current assets 149,222 138,867 Property and equipment, net 20,722 17,188 Other assets 2,499 2,520 -------- -------- Total assets $172,443 $158,575 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 20,857 $ 17,555 Deferred revenue 9,342 8,951 --------- -------- Total current liabilities 30,199 26,506 Long term debt 2,500 2,600 Minority interest 1,909 2,079 Stockholders' equity 137,835 127,390 --------- -------- Total liabilities and stockholders' equity $172,443 $158,575 ======= =======
See Notes to the Condensed Consolidated Financial Statements NOTE: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date. Page 3 of 22 PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements. IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) ---------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1997 1996 1997 1996 ---- ---- ---- ---- REVENUES Software license fees $14,724 $ 13,810 $31,784 $26,238 Maintenance and service fees 22,736 17,734 43,449 34,514 Hardware sales 10,088 7,538 17,373 15,675 ------- -------- ------- ------- Total revenues 47,548 39,082 92,606 76,427 OPERATING EXPENSES Cost of license, maintenance and service fees 16,665 13,205 32,598 25,984 Cost of hardware sales 7,727 6,145 13,290 12,757 Selling, general and administrative 9,259 8,337 18,806 15,828 Research and development 6,722 5,912 13,761 11,698 Write-off of acquired in-process research and development costs 2,290 -------- -------- -------- -------- 40,373 33,599 80,745 66,267 Operating income 7,175 5,483 11,861 10,160 Interest and other income, net (1,187) (939) (2,167) (1,849) -------- -------- -------- -------- Income before income taxes 8,362 6,422 14,028 12,009 Income tax provision 3,345 2,566 5,611 4,800 -------- -------- -------- -------- Net income $ 5,017 $ 3,856 $ 8,417 $ 7,209 ======== ======== ======== ======== Net income per share $ 0.23 $ 0.18 $ 0.39 $ 0.34 ======== ======== ======== ======== Average shares outstanding $ 21,639 $ 21,420 $ 21,589 $ 21,351 ======== ======== ======== ========
See Notes to the Condensed Consolidated Financial Statements Page 4 of 22 PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) ---------
SIX MONTHS ENDED JUNE 30 1997 1996 ---- ---- OPERATING ACTIVITIES Net income $ 8,417 $ 7,209 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. 3,126 2,306 Increase in allowance for doubtful accounts 205 54 Minority interest (170) 332 Write-off of acquired in-process research & development costs 2,290 Changes in operating assets and liabilities, net of effects of acquired business Accounts receivable (6,708) (6,904) Prepaid expenses (1,363) 149 Accounts payable (3,252) (55) Accrued expenses 2,651 (160) Federal and state taxes payable 2,528 2,331 Deferred revenue 391 (179) Short-term debt 1,375 (3) Other, net (310) 374 ----- --- Net cash provided by operating activities 9,180 5,454 INVESTING ACTIVITIES Purchase of property and equipment, net (6,660) (3,177) Purchase of securities available-for-sale, net (28,887) (80,032) Sale of securities available-for-sale 26,675 56,466 Purchase of certain net assets (2,500) ------ ------ Net cash used in investing activities (11,372) (26,743) FINANCING ACTIVITIES Proceeds from sale of common stock 2,005 3,851 Payments on long-term debt related to real estate (100) (207) ------ ------ Net cash provided by financing activities 1,905 3,644 ------ ------ Decrease in cash and cash equivalents (287) (17,645) Cash and cash equivalents at beginning of period 12,326 33,262 ------ ------ Cash and cash equivalents at end of period $12,039 $15,617 ======= =======
See Notes to the Condensed Consolidated Financial Statements Page 5 of 22 PART I. FINANCIAL INFORMATION Notes to Condensed Consolidated Financial Statements Note 1 - Interim Statement Presentation The unaudited 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 six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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 - Business Acquisitions On July 10, 1997 (the "Closing Date"), pursuant to an Agreement and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement") by and among IDX Systems Corporation, a Vermont corporation ("IDX"), Penguin Acquisition Corporation, a Washington corporation and wholly-owned subsidiary of IDX ("Penguin") and PHAMIS, Inc., a Washington corporation ("PHAMIS"), IDX acquired PHAMIS by means of a merger (the "Merger") of Penguin with and into PHAMIS, with PHAMIS remaining as the surviving corporation in the Merger. As a result of the Merger, PHAMIS became a wholly-owned subsidiary of IDX. PHAMIS offers healthcare information solutions that are part of a complete software and hardware system strategy design for integrated healthcare delivery enterprises. Penguin was formed solely for the purpose of effecting the Merger. Pursuant to the Merger Agreement, each outstanding share of PHAMIS Common Stock was converted into .73 of a share of IDX Common Stock. Based upon the capitalization of PHAMIS as of the Closing Date, IDX issued approximately 4.6 million shares of IDX Common Stock to former PHAMIS stockholders in the Merger. No fractional shares were issued in the Merger. PHAMIS stockholders otherwise entitled to receive a fraction of a share of IDX Common Stock in the Merger instead received an amount of cash equal to such fraction multiplied by the price per share of IDX Common Stock on the Nasdaq National Market, as reported by Nasdaq, on the business day immediately preceding the Closing Date. MANAGEMENT EXPECTS THAT THE MERGER WILL BE ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD COMMENCING WITH THE QUARTER ENDING SEPTEMBER 30, 1997. ALL PREVIOUSLY REPORTED OPERATING RESULTS WILL BE RESTATED TO REFLECT THE COMBINED OPERATIONS OF IDX AND PHAMIS. All options to purchase PHAMIS Common Stock outstanding immediately prior to the Merger were effectively assumed by IDX pursuant to the Merger Agreement. IDX registered on a Registration Agreement on Form S-8 approximately 865,568 shares of IDX Common Stock for issuance upon the exercise of stock options formerly exercisable for shares of PHAMIS Common Stock and in connection with the PHAMIS Salary Savings and Deferral Plan. Page 6 of 22 PART I. FINANCIAL INFORMATION Note 3 - Earnings Per Share Information In February 1997, the Financial Accounting Standards Board issued Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. Earnings per share as calculated under Statement 128 is not materially different from the primary and fully diluted earnings per share amounts contained herein. Note 4 - Reclassifications Certain prior period amounts have been reclassified to conform with current period presentations. Page 7 of 22 PART I. FINANCIAL INFORMATION 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 GENERAL - ------- This Management's Discussion and Analysis of Financial Conditions and Results of Operations includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties including those discussed below that could cause actual results to differ materially from historical results or those anticipated. The Company has identified by italics or all capital letters, various sentences within this Quarterly Report which contain such forward-looking statements, and words such as "believes," "may," "plans," "anticipates," "expects," "intends," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In addition, the disclosures in the section on page 10 under the caption "Factors Affecting Future Results," which is not italicized for improved readability, consists principally of a discussion of risks which may affect future results and, are thus, in their entirety forward-looking in nature. Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business. RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996. REVENUES The Company's total revenues increased to $47.5 million during the three months ended June 30, 1997 from $39.1 million in the corresponding period in 1996, an increase of $8.4 million or 21.7%. Revenues from software license fees increased to $14.7 million during the three months ended June 30, 1997 (31.0% of total revenues) from $13.8 million (35.3% of total revenues) in the corresponding period in 1996, an increase of $.9 million or 6.6%. 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 $22.7 million during the three months ended June 30, 1997 (47.8% of total revenues) from $17.7 million (45.4% of total revenues) in the corresponding period in 1996, an increase of $5.0 million or 28.2%. 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 $10.1 million during the three months ended June 30, 1997 (21.2% of total revenues) from $7.6 million (19.3% of total revenues) in the corresponding period in 1996, an increase of $2.5 million or 33.8%. 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. Page 8 of 22 PART I. FINANCIAL INFORMATION COST OF LICENSE, MAINTENANCE AND SERVICE FEES The cost of license, maintenance and service fees increased to $16.7 million during the three months ended June 30, 1997 from $13.2 million in the corresponding period in 1996, an increase of $3.5 million or 26.2%. The gross profit margin on license, maintenance and service fees decreased to 55.5% during the three months ended June 30, 1997 from 58.1% in the corresponding period in 1996. The decrease in gross profit was due primarily to the decrease in software license fees as a percentage to total revenue. COST OF HARDWARE SALES The cost of hardware sales increased to $7.7 million during the three months ended June 30, 1997 from $6.1 million in the corresponding period in 1996, an increase of $1.6 million or 25.7%. The gross profit margin on hardware sales increased to 23.4% of hardware revenues during the three months ended June 30, 1997, from 18.5% in the corresponding period in 1996. The increase was principally due to the sale of higher margin hardware configurations and hardware operating systems during the quarter ended June 30, 1997. 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 $9.3 million during the three months ended June 30, 1997 from $8.4 million in the corresponding period in 1996, an increase of $.9 million or 11.1%. As a percentage of total revenues, selling, general and administrative expenses decreased to 19.5% during the three months ended June 30, 1997 from 21.3% in the corresponding period in 1996. The increase in selling, general and administrative expenses during the three months ended June 30, 1997 was principally due to an increase in the Company's sales and marketing staff. RESEARCH AND DEVELOPMENT Research and development expenses increased to $6.7 million during the three months ended June 30, 1997 from $5.9 million in the corresponding period in 1996, an increase of $.8 million or 13.7%. The increase was due to an increase of staff and outside consultants to support the development of additional products for the Company. As a percentage of total revenues, research and development expenses decreased to 14.1% during the three months ended June 30, 1997 compared to 15.1% in the corresponding period in 1996. SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 REVENUES The Company's total revenues increased to $92.6 million during the six months ended June 30, 1997 from $76.4 million in the corresponding period in 1996, an increase of $16.2 million or 21.2%. Revenues from software license fees increased to $31.8 million during the six months ended June 30, 1997 (34.3% of total revenues) from $26.2 million (34.3% of total revenues) in the corresponding period in 1996, an increase of $5.6 million or 21.1%. 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 $43.4 million during the six months ended June 30, 1997 (46.9% of total revenues) from $34.5 million (45.2% Page 9 of 22 PART I. FINANCIAL INFORMATION of total revenues) in the corresponding period in 1996, an increase of $8.9 million or 25.9%. 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 $17.4 million during the six months ended June 30, 1997 (18.8% of total revenues) from $15.7 million (20.5% of total revenues) in the corresponding period in 1996, an increase of $1.7 million or 10.8%. The increase in hardware revenues was principally due to shipments for new customer contracts and customers upgrading their hardware systems. COST OF LICENSE, MAINTENANCE AND SERVICE FEES The cost of license, maintenance and service fees increased to $32.6 million during the six months ended June 30, 1997 from $26.0 million in the corresponding period in 1996, an increase of $6.6 million or 25.5%. The gross profit margin on license, maintenance and service fees decreased to 56.7% during the six months ended June 30, 1997 from 57.2% in the corresponding period in 1996. The slight decrease in gross profit was due primarily to the unchanged percentage to total revenue of software license fees during the six months ended June 30, 1997 compared to the corresponding period in 1996. COST OF HARDWARE SALES The cost of hardware sales increased to $13.3 million during the six months ended June 30, 1997 from $12.8 million in the corresponding period in 1996, an increase of $.5 million or 4.2%. The gross profit margin on hardware sales increased to 23.5% of hardware revenues during the six months ended June 30, 1997, from 18.6% in the corresponding period in 1996. The increase was principally due to the sale of higher margin hardware configurations and hardware operating systems during the six months ended June 30, 1997. 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 $18.8 million during the six months ended June 30, 1997 from $15.8 million in the corresponding period in 1996, an increase of $3.0 million or 18.8%. As a percentage of total revenues, selling, general and administrative expenses decreased slightly to 20.3% during the six months ended June 30, 1997 from 20.7% in the corresponding period in 1996. The increase in selling, general and administrative expenses during the six months ended June 30, 1997 was principally due to an increase in the Company's sales and marketing staff. RESEARCH AND DEVELOPMENT Research and development expenses increased to $13.8 million during the six months ended June 30, 1997 from $11.7 million in the corresponding period in 1996, an increase of $2.1 million or 17.6%. The increase was due to an increase in staff and outside consultants to support the development of additional products for the Company. As a percentage of total revenues, research and development expenses decreased slightly to 14.9% during the six months ended June 30, 1997 from 15.3% in the corresponding period in 1996. Page 10 of 22 PART I. FINANCIAL INFORMATION SIGNIFICANT AGREEMENTS On July 10, 1997 (the "Closing Date"), pursuant to an Agreement and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement") by and among IDX Systems Corporation, a Vermont corporation ("IDX"), Penguin Acquisition Corporation, a Washington corporation and wholly-owned subsidiary of IDX ("Penguin") and PHAMIS, Inc., a Washington corporation ("PHAMIS"), IDX acquired PHAMIS by means of a merger (the "Merger") of Penguin with and into PHAMIS, with PHAMIS remaining as the surviving corporation in the Merger. As a result of the Merger, PHAMIS became a wholly-owned subsidiary of IDX. PHAMIS offers healthcare information solutions that are part of a complete software and hardware system strategy design for integrated healthcare delivery enterprises. Penguin was formed solely for the purpose of effecting the Merger. Pursuant to the Merger Agreement, each outstanding share of PHAMIS Common Stock was converted into .73 of a share of IDX Common Stock. Based upon the capitalization of PHAMIS as of the Closing Date, IDX issued approximately 4.6 million shares of IDX Common Stock to former PHAMIS stockholders in the Merger. No fractional shares were issued in the Merger. PHAMIS stockholders otherwise entitled to receive a fraction of a share of IDX Common Stock in the Merger instead received an amount of cash equal to such fraction multiplied by the price per share of IDX Common Stock on the Nasdaq National Market, as reported by Nasdaq, on the business day immediately preceding the Closing Date. MANAGEMENT EXPECTS THAT THE MERGER WILL BE ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD COMMENCING WITH THE QUARTER ENDING SEPTEMBER 30, 1997. ALL PREVIOUSLY REPORTED OPERATING RESULTS WILL BE RESTATED TO REFLECT THE COMBINED OPERATIONS OF IDX AND PHAMIS. All options to purchase PHAMIS Common Stock outstanding immediately prior to the Merger were effectively assumed by IDX pursuant to the Merger Agreement. IDX registered on a Registration Agreement on Form S-8 approximately 865,568 shares of IDX Common Stock for issuance upon the exercise of stock options formerly exercisable for shares of PHAMIS Common Stock and in connection with the PHAMIS Salary Savings and Deferral Plan. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1969, the Company has funded its operations, working capital needs and capital expenditures primarily from operations, except for real estate owned by certain partnerships and trusts financed through industrial development bonds. 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 payable and accrued expenses. Due to the seasonality of the Company's business, accounts receivable, deferred revenue and accounts payable fluctuate considerably but almost completely due to the volume of business and timing of the recognition of revenue. In general, accounts receivable from customers have been collected consistently within 90 days. Cash flows related to investing activities have principally been related to the purchase of computer and office equipment, leasehold improvements, and the purchase and sale of investment grade marketable securities. MANAGEMENT EXPECTS THESE ACTIVITIES TO CONTINUE. INVESTING ACTIVITIES MAY ALSO INCLUDE PURCHASES OF INTERESTS IN AND ACQUISITIONS OF COMPANIES WITH COMPLEMENTARY PRODUCTS, TECHNOLOGIES AND BUSINESSES. Page 11 of 22 PART I. FINANCIAL INFORMATION Cash and cash equivalents at June 30, 1997 were $12.0 million, a decrease of $3.6 million from December 31, 1996. The majority of the decrease was due to the purchase of investment grade marketable securities. 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 June 30, 1997 or 1996. The Company's operating lease commitments consist primarily of office leasing for the Company's operating facilities. THE COMPANY EXPECTS THAT ITS REQUIREMENTS FOR OFFICE FACILITIES AND OTHER OFFICE EQUIPMENT WILL GROW AS STAFFING REQUIREMENTS DICTATE. THE COMPANY PLANS TO CONTINUE INCREASING THE NUMBER OF ITS PROFESSIONAL STAFF DURING 1997 TO MEET ANTICIPATED SALES VOLUME AND TO SUPPORT RESEARCH AND DEVELOPMENT EFFORTS. TO THE EXTENT NECESSARY TO SUPPORT INCREASES IN STAFFING, THE COMPANY ANTICIPATES OBTAINING ADDITIONAL OFFICE SPACE. THE COMPANY BELIEVES THAT CURRENT OPERATING FUNDS WILL BE SUFFICIENT TO FINANCE ITS OPERATING REQUIREMENTS AT LEAST THROUGH DECEMBER 1997. To date, inflation has not had a material impact on the Company's revenues or income. INCOME TAXES FOR THE FORESEEABLE FUTURE, THE COMPANY ANTICIPATES AN EXPECTED TAX RATE OF APPROXIMATELY 40% OF PRE-TAX INCOME. NEW ACCOUNTING STANDARDS At its August 6, 1997 meeting, the American Institute of Certified Public Accountants cleared a Standard Operating Procedure ("SOP") revising certain aspects of SOP91-1. The SOP will be effective for transactions occurring in years beginning after December 15, 1997. THE COMPANY DOES NOT EXPECT THE SOP WILL MATERIALLY AFFECT ITS REVENUE RECOGNITION POLICIES WITH RESPECT TO SOFTWARE LICENSE FEES WHICH ARE PRINCIPALLY RECOGNIZED IN CONNECTION WITH THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS BASED UPON ACHIEVEMENTS OF MILESTONES. FACTORS AFFECTING FUTURE RESULTS As announced on July 10, 1997, the Company completed its acquisition of PHAMIS, Inc. ("PHAMIS"). The operations of IDX and PHAMIS involve the creation, sale and support of computer systems for healthcare clients. Such operations differ primarily with respect to the nature of each of IDX's and PHAMIS's clientele and product technologies. Integrating the operations (including product development, installation of information and software systems, client services, marketing plans and activities, employee hiring and training, and expansion strategy) and management of the two companies will be a time-consuming process, and there can be no assurance that this integration will result in the achievement of any of the anticipated synergies and other benefits expected to be realized from the Merger. Moreover, the integration of these organizations will require the dedication of management resources, which may temporarily distract attention from the day-to-day business of the Company. The inability of management to successfully integrate the operations of the two companies could have a material adverse effect on the business and operating results of the operations of IDX and PHAMIS after the Merger. The Company expects to incur Merger related pre-tax charges covering the costs of the Merger, the costs of restructuring the combined operations, and for other related costs principally in the quarter in which the Merger is consummated. Additional unanticipated Page 12 of 22 PART I. FINANCIAL INFORMATION expenses may be incurred in connection with the integration of the business of the Company and PHAMIS. 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 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 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 installation 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 vacation schedules of its clients. 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. The stock market has, from time to time, experienced extreme price and volume fluctuations, particularly in the high technology and health care information technology sectors, which have often been unrelated to the operating performance of particular companies. The Company experiences fluctuations in its stock price related to these general market swings as well as announcements of technological innovations, new product introductions by the Company or its competitors, market conditions in the computer software or hardware industries and healthcare reform measures. These fluctuations could have a significant impact on the future market price of the Company's Common Stock. Page 13 of 22 PART I. FINANCIAL INFORMATION 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 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, secure 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 Page 14 of 22 PART I. FINANCIAL INFORMATION 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. 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 the 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 FDC Acts 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 Page 15 of 22 PART I. FINANCIAL INFORMATION 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 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. Page 16 of 22 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 The Company held its Annual Meeting of Shareholders on May 19, 1997. Of the 21,017,420 shares of common stock outstanding and entitled to vote at this meeting, 18,100,982 shares were represented at the meeting, in person or by proxy. The following matters were voted upon at the Annual Meeting: 1. Steven M. Lash and Henry M. Tufo, M.D. were elected to serve for a term of three years as Class II Directors. The remaining terms of Richard E. Tarrant, Paul L. Egerman, Stuart H. Altman, Ph.D. and Robert H. Hoehl continued after the meeting. The result of the vote with respect to each nominee for office was as follows: Votes "Against" Broker Nominee Votes "For" or "Withheld" Abstained Non-Votes - ------- ----------- ------------- --------- --------- Steven M. Lash 18,054,993 0 45,674 315 Henry M.Tufo, M.D. 18,052,925 0 47,742 315 2. Holders of 17,286,619 shares of Common Stock of the Company voted to approve amendments to the Company's 1995 Director Stock Option Plan ("Plan"). Holder of 808,269 shares voted against such approval and 5,779 shares abstained from voting, with 315 broker non-votes. 3. Holders of 18,098,095 shares of the Common Stock of the Company voted to ratify the selection of Ernst & Young LLP as the Company's independent auditors for the current fiscal year. Holders of 1,448 shares voted against ratifying such selection and 1,124 shares abstained from voting, with 315 broker non-votes. Page 17 of 22 PART II. OTHER INFORMATION Item 5. OTHER INFORMATION None. Item 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, & 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) On April 3, 1997, the Company filed a report on Form 8-K, reporting an Agreement and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement") with Penguin Acquisition Corporation, a Washington corporation and wholly-owned subsidiary of the Company ("Sub") and PHAMIS, Inc., a Washington corporation ("PHAMIS") whereby the Sub would be merged with and into PHAMIS, with PHAMIS being the surviving corporation and becoming a wholly-owned subsidiary of the Company. No financial statements were filed with such report. Page 18 of 22 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: August 13, 1997 By:/s/ JOHN A. KANE ---------------------------- John A. Kane, Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Page 19 of 22 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 21 for three months ended June 30, 1997. 12 Statement regarding computation of per share earnings 22 for six months ended June 30, 1997.
Page 20 of 22 EXHIBIT 11 IDX SYSTEMS CORPORATION SCHEDULES OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
PRIMARY FULLY DILUTED --------------------------- ---------------------------- THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30, 1997 1996 1997 1996 ---------------------------- --------------------------- Weighted average shares outstanding 21,043 20,683 21,043 20,683 Net dilutive effect of stockoptions-based on the treasury stock method using the average price for primary and ending price, if higher, for fully diluted 596 737 489 737 ---------------------------- --------------------------- Total shares 21,639 21,420 21,532 21,420 ============================ =========================== Net income $5,017 $3,856 $5,017 $3,856 ===== ===== ===== ===== Net income per share $ 0.23 $ 0.18 $ 0.23 $ 0.18 ====== ====== ====== ======
Page 21 of 22 EXHIBIT 12 IDX SYSTEMS CORPORATION SCHEDULES OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
PRIMARY FULLY DILUTED --------------------------- ---------------------------- SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1997 1996 1997 1996 ---------------------------- --------------------------- Weighted average shares outstanding 21,023 20,546 21,023 20,546 Net dilutive effect of stockoptions-based on the treasury stock method using the average price for primary and ending price, if higher, for fully diluted 566 805 513 805 ----------------------------- --------------------------- Total shares 21,589 21,351 21,536 21,351 ============================ =========================== Net income $8,417 $7,209 $8,417 $7,209 ===== ===== ===== ===== Net income per share $ 0.39 $ 0.34 $ 0.39 $ 0.34 ====== ====== ====== ======
Page 22 of 22 EX-27 2 ARTICLE 5 FDS FOR 2ND QUARTER 1997 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME TAXES QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 0001001185 IDX Systems Corporation 1,000 U.S. Dollars 6-MOS 6-MOS DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 JUN-30-1997 JUN-30-1996 1 1 12,039 15,617 84,463 69,899 46,930 35,477 (889) (579) 0 0 149,222 123,468 41,574 33,970 20,852 16,877 172,443 141,358 30,199 20,124 2,500 2,700 0 0 0 0 212 209 137,623 116,810 172,443 141,358 17,373 15,675 92,606 76,427 13,290 12,757 80,745 66,267 0 0 205 51 57 67 14,028 12,009 5,611 4,800 8,417 7,209 0 0 0 0 0 0 8,417 7,209 .39 .34 .39 .34
-----END PRIVACY-ENHANCED MESSAGE-----