-----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, INq+BHL1kh4O6QXuYYUuMNOK38PCnMnaZJaoj/r26WGKbVg/CdKkjq170lQxju1D bsGk5A6CmoAYnq/8oiKwNQ== 0001001185-01-500032.txt : 20010516 0001001185-01-500032.hdr.sgml : 20010516 ACCESSION NUMBER: 0001001185-01-500032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: SEC FILE NUMBER: 000-26816 FILM NUMBER: 1636938 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 idx10q1q.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM_________TO__________ ------------------------------- 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 (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 ------ The number of shares outstanding of the registrant's common stock as of May 10, 2001 was 28,465,596. ================================================================================ IDX SYSTEMS CORPORATION FORM 10-Q For the Period Ended March 31, 2001 TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited) Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . .. . 3 Condensed Consolidated Statements of Operations . . .. . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows . . . . . . . . . . .. 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . .. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . .. . . . . . 22 Item 2. Changes In Securities . . . . . . . . . . . . . . . . . . . 23 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 23 Item 4. Submission of Matters to a Vote of Security Holders . . . . . 23 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 23 Item 6. Exhibits And Reports On Form 8-K . . . . . . . . .. . . . . .. 23 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . 24 Page 2 of 24 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2001 2000 (unaudited) (audited) ---------------- ---------------- ASSETS Cash and marketable securities $ 64,603 $70,683 Accounts receivable, net 106,394 110,360 Refundable income taxes 1,785 13,699 Prepaid and other current assets 7,686 6,927 Deferred tax asset 12,234 9,021 ----------------- ---------------- Total current assets 192,702 210,690 Property and equipment, net 72,083 71,590 Other assets 7,375 7,483 Investment in unconsolidated affiliate 11,544 - Deferred tax asset 4,828 7,728 ---------------- ----------------- Total assets $ 288,532 $ 297,491 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $52,439 $56,646 Deferred tax liability 4,629 - Deferred revenue 19,752 19,913 ----------------- ----------------- Total current liabilities 76,820 76,559 Redeemable convertible preferred stock of subsidiary - 33,140 Minority interest 8,927 8,682 Stockholders' equity 202,785 179,110 ----------------- ---------------- Total liabilities and stockholders' equity $ 288,532 $ 297,491 ================= ================
See Notes to the Condensed Consolidated Financial Statements Page 3 of 24 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2001 2000 --------------------------------- REVENUES Systems sales $ 26,162 $ 21,650 Maintenance and service fees 65,647 55,072 --------------------------------- TOTAL REVENUES 91,809 76,722 OPERATING EXPENSES Cost of sales 63,348 55,160 Selling, general and administrative 18,951 18,345 Research and development 10,501 12,186 Loss on impairment of goodwill - 5,810 --------------------------------- TOTAL OPERATING EXPENSES 92,800 91,501 --------------------------------- OPERATING LOSS (991) (14,779) OTHER INCOME Other income 684 1,123 Gain on sale of investment in subsidiary 35,546 - Realized gain on investment 5,849 - --------------------------------- TOTAL OTHER INCOME 42,079 1,123 --------------------------------- Income (loss) before taxes and equity in loss of unconsolidated affiliate 41,088 (13,656) Equity in loss of unconsolidated affiliate (6,051) - Income tax (provision) benefit (15,277) 3,157 --------------------------------- NET INCOME (LOSS) $ 19,760 $ (10,499) ================================= BASIC EARNINGS (LOSS) PER SHARE $ 0.69 $ (0.38) ================================= Basic weighted average shares outstanding 28,434 27,957 ================================= ================================= DILUTED EARNINGS (LOSS) PER SHARE $ 0.68 $ (0.38) ================================= Diluted weighted average shares outstanding 28,871 27,957 =================================
See Notes to the Condensed Consolidated Financial Statements Page 4 of 24 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED March 31, 2001 2000 ----------- ------------ OPERATING ACTIVITIES Net income (loss) $ 19,760 $(10,499) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation 3,751 3,734 Amortization 83 137 Deferred income tax benefit (provision) 4,316 (77) Increase in allowance for doubtful accounts 578 328 Minority interest 245 246 Equity in loss of unconsolidated affiliate 6,051 - Gain on sale of investment in subsidiary (35,546) - Realized gain on investment (5,849) - Loss on disposition of assets 404 - Write-off of goodwill - 5,810 Changes in operating assets and liabilities, net of effects of sale of subsidiary: Accounts receivable 2,109 9,471 Prepaid expenses and other assets (2,390) (2,143) Accounts payable and accrued expenses (6,730) (6,075) Federal and state income taxes 11,914 (3,411) Deferred revenue (133) 306 --------------- --------------- Net cash used in operating activities (1,437) (2,173) INVESTING ACTIVITIES Purchase of property and equipment, net (5,638) (6,440) Proceeds from sale of property and equipment 264 - Purchase of securities available-for-sale (22,231) (5,095) Sale of securities available-for-sale 15,922 6,668 Proceeds from sale of investment 11,282 - Other assets 3 (916) --------------- --------------- Net cash used in investing activities (398) (5,783) FINANCING ACTIVITIES Proceeds from sale of common stock 747 3,616 Contributions to affiliates, net - (400) Proceeds from sale of redeemable convertible preferred stock of subsidiary - 33,140 --------------- --------------- Net cash provided by financing activities 747 36,356 --------------- --------------- (Decrease) increase in cash and cash equivalents (1,088) 28,400 Cash and cash equivalents at beginning of period 16,357 18,487 --------------- --------------- Cash and cash equivalents at end of period 15,269 46,887 Marketable securities 49,334 48,329 --------------- --------------- Total cash and marketable securities $ 64,603 $ 95,216 =============== =============== Non-cash investing activities: Fair value of stock received from sale of subsidiary $17,624 - =============== ===============
See Notes to the Condensed Consolidated Financial Statements Page 5 of 24 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The interim 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 accounting principles generally accepted in the United States. 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 (consisting of normal recurring accruals and adjustments) have been made to provide a fair presentation. The operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes included in the Company's latest annual report on Form 10-K filed with the Securities and Exchange Commission. Note 2 - New Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), as amended by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. The Company adopted SFAS No. 133 in the first quarter of 2001 and has determined that it had no significant impact on its financial condition or results of operations. Note 3 - Restructuring Charge On June 21, 2000 the Company announced the implementation of a product discontinuance and restructuring program. The Company halted development and discontinued sales efforts on certain product lines that have failed to achieve business targets or were deemed non-strategic to the business going forward. As a result, the Company implemented a workforce reduction of approximately five percent. The restructuring program resulted in a charge to earnings of approximately $21.0 million in the second quarter of 2000, in connection with costs associated with product discontinuations, principally settlements with existing users, of approximately $16.0 million and employee severance arrangements of approximately $5.0 million. Workforce related accruals, consisting principally of employee severance costs, were established based on specific identification of employees to be terminated, along with their job classification or functions, and their location. Substantially all workforce related actions were completed during the third quarter of 2000, with the exception of product related "sunset" support teams. As of March 31, 2001 the Company had a balance of $10.2 million related to accrued restructuring costs. Cash expenditures related to these accruals are estimated to be approximately $7.8 million. The remaining balance of approximately $2.4 million represents a provision for the estimated write-off of accounts receivable that will not affect cash. These accounts receivable write-offs are expected to be finalized by September 30, 2001. Page 6 of 24 Note 4 - Sale of Investment in Subsidiary and Other Related Matters On January 8, 2001, the Company sold certain operations of Channelhealth Incorporated (ChannelHealth) to Allscripts, Inc., a leading provider of point-of-care e-prescribing and productivity solutions for physicians. ChannelHealth provides a set of Internet-based clinical and productivity solutions for physicians that brings the power of the Internet to the practice of medicine. IDX retained the Patient and e-Commerce Channels, which were previously part of ChannelHealth, enabling IDX to integrate an Internet solution that leverages its core competencies in physician practice management systems. In addition to the sale, the Company has entered into a 10-year strategic alliance whereby Allscripts will become the exclusive provider of point-of-care clinical applications sold by IDX to physician practices. As a result of the transaction, the Company is entitled to representation on Allscripts Board of Directors. On January 8, 2001 Allscripts acquired ChannelHealth in exchange for 8.6 million shares, or 21.3% of Allscripts common stock. IDX received approximately 7.5 million shares of Allscripts common stock (the Allscripts shares) on the close of this transaction. The Allscripts shares received are subject to restrictions on any transfer of the securities for a period of one year from the date of the transaction and, after one year, on the transfer of more than 25% of the Allscripts shares in any one year, and 16.67% in any one month. IDX recorded the Allscripts shares at fair value of $29.5 million, which included a discount from market value due to restrictions on transfer, resulting in a $35.5 million gain on the transaction. The reported gain is greater than the fair value of the stock received due to the negative carrying value of the underlying investment in ChannelHealth. IDX accounts for its investment in Allscripts under the equity method of accounting. Summary financial information for Allscripts as of and for the three months ended March 31, 2001 is as follows: Revenue $16,599 Gross profit 1,011 Net loss (30,801) In the first quarter of 2000, the Company determined that an asset impairment existed related to goodwill acquired in the purchase of ChannelHealth, Inc., a Massachusetts corporation acquired in April 1999. In January 2000, the Company made the decision to seek a primary provider of content and transactions for Channelhealth Incorporated, and decided to no longer utilize certain assets acquired in connection with the purchase of ChannelHealth, Inc. The Company recognizes impairment losses on long-lived assets when indicators of impairment are present and future undiscounted cash flows are insufficient to support the assets' recovery. The amount of the impairment loss is recognized based on an analysis of discounted cash flows estimated to be derived from the impaired asset. This asset impairment has been recognized during the first quarter of 2000 and is reflected as a pre-tax loss on impairment of goodwill of approximately $5.8 million. Page 7 of 24 Note 5 - Income Taxes The 2001 effective tax rate is higher than the statutory rate principally due to the non-deductible nature of certain costs related to the sale of ChannelHealth. The effective tax rate for the remainder of 2001 is expected to be lower due to the absence of nondeductible transaction costs in subsequent interim reporting periods. The 2000 tax benefit is lower than the statutory rate due to the non-deductible loss on impairment of goodwill related to ChannelHealth, Inc. for which no tax benefit was recognized. Note 6 - Segment Information SFAS No. 131 requires the reporting of information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also requires related disclosures about major customers, products and services, and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding how to allocate resources and assess performance. Up to and including the first quarter of 1999, the Company viewed its operations and managed its business as one segment, healthcare information solutions that include software, hardware and related services. During the second quarter of 1999, the Company acquired two companies that have separate and distinct financial information and operating characteristics. As discussed in Note 4 above, the Company sold certain operations of ChannelHealth, specifically its Internet Services and Content segment on January 8, 2001. Accordingly, this segment is not reported in 2001. The Company's operating segments have separate management teams and infrastructures that offer different products and services. Accordingly, these operating segments have been classified as reportable segments (information systems and services, medical transcription services and in 2000 Internet services and content). Information Systems and Services: This segment contains IDX Systems Corporation's healthcare information solutions that include software, hardware and related services. IDX solutions enable healthcare organizations to redesign patient care and other workflow processes in order to improve efficiency and quality. The principal markets for this segment include physician groups, management service organizations, hospitals, and integrated delivery networks primarily located in the United States. Internet Services and Content: This segment is not reported in 2001 as a separate business segment due to the acquisition of the Internet Services and Content operations of ChannelHealth by Allscripts on January 8, 2001. Medical Dictation and Transcription Services: This segment contains EDiX, a provider of medical transcription outsourcing services. EDiX's principal markets include hospitals and large physician group practices primarily located in the United States. Page 8 of 24 The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenues are immaterial. No one customer accounts for greater than 10% of revenue for any reportable segment for the three month period ended March 31, 2001. EDiX's revenues from one major customer amounted to 10.0% of EDiX's total revenue during the three months ended March 31, 2000. Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):
Information Internet Medical Dictation Total Systems and Services And Transcription Services and Content Services ----------------------------------------------------- For the three months ended March 31, 2001 Net operating revenues $ 69,786 $ - $ 22,023 $ 91,809 Operating income (loss) (1,864) 873 (991) Identifiable operating assets 258,058 - 30,474 288,532 For the three months ended March 31, 2000 Net operating revenues $ 58,825 $ 1,219 $ 16,678 $ 76,722 Operating income (loss) (4,836) (10,793) 850 (14,779) Identifiable operating assets 234,200 37,374 20,173 291,747
Corporate headquarters assets are included in the Information Systems and Services segment. Substantially all of the Company's operations are in the United States. The financial information disclosed herein represents all of the material financial information related to the Company's principal operating segments. Note 7 - Comprehensive Income Total comprehensive income for the quarter ended March 31, 2001 amounted to $19.7 million compared to a comprehensive loss of $10.4 million for the same period in 2000. Comprehensive income includes unrealized gains or losses on the Company's available-for-sale securities that are included as a component of stockholders' equity. Note 8 - Earnings Per Share Information The following sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED MARCH 31, 2001 2000 ---- ---- Numerator: Net income (loss) $ 19,760 $(10,499) ---------------------------- Numerator for basic and diluted income (loss) per share $ 19,760 $(10,499) ============================ Denominator: Basic weighted-average shares outstanding 28,434 27,957 Effect of employee stock options 437 - ---------------------------- Denominator for diluted income (loss) per share 28,871 27,957 ---------------------------- Basic income (loss) per share $ 0.69 $ (0.38) ---------------------------- Diluted income (loss) per share $ 0.68 $ (0.38) ----------------------------
Page 9 of 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company reported net income of $19.8 million, or $0.68 per diluted share, for the first quarter of 2001 as compared to a net loss of $10.5 million or $0.38 per diluted share for the first quarter of 2000. Excluding the effects of the gain on sale of an investment in ChannelHealth of $35.5 million, a realized gain on investment in an unrelated entity of $5.8 million and the equity in loss of an unconsolidated affiliate of $6.1 million, the net loss for the three months ended March 31, 2001 was $172,000 or $0.01 per share. Excluding the effect of charges related to the loss on impairment of goodwill associated with ChannelHealth, Inc., the net loss for the three months ended March 31, 2000 was $4.9 million or $0.17 per share. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 REVENUES The Company's total revenues increased to $91.8 million during the three months ended March 31, 2001 from $76.7 million in the corresponding period in 2000, an increase of $15.1 million or 19.7%. Revenues from systems sales increased to $26.2 million during the three months ended March 31, 2001 (28.5% of total revenues) compared to $21.7 million (28.2% of total revenues) in the corresponding period in 2000, an increase of $4.5 million or 20.8%. This increase was primarily due to an increase in hardware sales. Revenues from maintenance and service fees increased to $65.6 million during the three months ended March 31, 2001 (71.5% of total revenues) from $55.1 million (71.8% of total revenues) in the corresponding period in 2000, an increase of $10.6 million or 19.2%. The increase in revenues from maintenance and service fees is primarily due to increased medical transcription service fee revenue from EDiX combined with an increase in consulting services provided by IDX's core business. During 2000 and continuing into the first quarter of 2001, certain of the Company's customers delayed making purchasing decisions with respect to certain of the Company's software systems resulting in longer sales cycles for such systems. Management believes such delays are due to a number of factors, including customer organization changes, government approvals, pressures to reduce expenses, product complexity, competition, and customer preoccupation with internal Year 2000 issues. While the Company believes these factors are temporary, they may continue to cause reductions or delays in spending for new systems and services in the future. COST OF SALES AND SERVICES The cost of sales and services increased to $63.3 million during the three months ended March 31, 2001 from $55.2 million in the corresponding period in 2000, an increase of $8.2 million or 14.8%. The increase in cost of sales and services as compared to the prior year resulted from growth in client services expenses, primarily related to medical transcription costs combined with an increase in cost of hardware offset by a decrease in outside contract services. The gross profit margin on systems sales and services increased to 31.0% in the first quarter of 2001 from 28.1% for the same period in 2000. The increase in gross profit margin as a percentage of sales is due to the sale of ChannelHealth which experienced a negative gross margin of 31.7% during the first quarter of Page 10 of 24 2000 primarily due to high fixed costs relative to its low sales volume due to the early stage of this business' development combined with an increase in maintenance and service revenue. IDX's core business, information systems and services, gross profit margin as a percentage of sales increased to 35.4% during the first quarter of 2001 from 32.2% for the same period in 2000 due to the an increase in maintenance and service revenue. The gross profit margin for the Company's medical dictation and transcription business segment (EDiX) decreased as a percentage of sales to 17.0% in 2001 from 17.9% in 2000 due to costs related to relocation of EDiX's data center. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $19.0 million during the three months ended March 31, 2001 from $18.4 million during the corresponding period in 2000, an increase of $606,000 or 3.3%. As a percentage of total revenues, selling, general and administrative expenses decreased to 20.6% during the three months ended March 31, 2001 from 23.9% for the same period in 2000. IDX's core business selling, general and administrative expenses increased $3.1 million primarily due to a decrease in corporate overhead absorbtion related to the sale of ChannelHealth combined with an increase in general administrative costs. EDiX's selling, general and administrative expenses increased $582,000 or 31.2% during the first quarter of 2001 as compared to the same period in the prior year primarily due to increased costs to support sales growth. In the prior year ChannelHealth's selling, general and administrative expenses were $3.1 million during the first quarter of 2000 which includes sales and marketing expenses and administrative start up expenses. RESEARCH AND DEVELOPMENT Research and development expenses decreased to $10.5 million during the three months ended March 31, 2001 from $12.2 million in the corresponding period in 2000, a decrease of $1.7 million or 13.8%. The decrease is primarily due to the sale of ChannelHealth on January 8, 2001. ChannelHealth incurred approximately $1.5 million in research and development costs in the prior year. As a percentage of total revenues, research and development expenses decreased to 11.4% of revenue for the first quarter of 2001 from 15.9% for the corresponding period in 2000. IDX's core business research and development expenses decreased $302,000 primarily due to the capitalization of $291,000 of software development costs during the three months ended March 31, 2001. Research and development costs in the medical dictation and transcription business segment (EDiX) increased from $277,000 in 2000 to $415,000 in 2001. LOSS ON IMPAIRMENT OF GOODWILL During the first quarter of 2000, the Company determined that an asset impairment existed related to goodwill acquired in the 1999 purchase of the Company's initial investment in an Internet services and content provider. In January 2000, the Company made the decision to use an external provider of content and transactions for ChannelHealth and discontinued the use of certain assets. This goodwill impairment was recognized during the first quarter of 2000 and is reflected as a pre-tax loss on impairment of goodwill of approximately $5.8 million. OTHER (INCOME) EXPENSE, NET Interest income was approximately $929,000 during the first quarter of 2001 as compared to $1.4 million for the same period in 2000. The decrease in interest income is primarily due to a lower average invested balance in 2001 as compared to 2000. GAIN ON SALE OF INVESTMENT IN SUBSIDIARY On January 8, 2001, Allscripts acquired IDX's holdings in ChannelHealth in exchange for approximately 7.5 million shares of Allscripts common stock Page 11 of 24 (Allscripts shares). The Allscripts shares received are subject to restrictions on any transfer of the securities for a period of one year from the date of the transaction and after one year, on the transfer of more than 25% of the Allscripts shares in any one year, and 16.67% in any one month. IDX recorded the Allscripts shares at fair value of $29.5 million, which included a discount from market value due to the four year restrictions on transfer, resulting in a $35.5 million gain on the transaction. IDX accounts for its investment in Allscripts under the equity method of accounting. As a result of the transaction, the Company is entitled to representation on Allscripts Board of Directors. REALIZED GAIN ON INVESTMENT Other income in 2001 includes a $5.8 million realized gain on an investment in an unrelated investment partnership. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE IDX currently owns approximately 20% of the outstanding common stock of Allscripts and records its investment under the equity method of accounting. IDX records its interest in the losses of Allscripts as a reduction to its investment account. The equity loss during the first quarter of 2001 was $6.1 million on a pre-tax basis. INCOME TAXES Income taxes for the quarter ended March 31, 2001 were provided for at 43.6% which reflects a higher rate than the Company's historical effective rate and the statutory rate of 40.0%. The higher rate in 2001 is principally due to transaction costs related to the sale of ChannelHealth that are non-deductible for income tax purposes. Income taxes for the quarter ended March 31, 2000 were benefited at 23.1%. The lower rate in 2000 was principally due to a lower state effective tax rate combined with the non-deductible nature of the loss on goodwill impairment related to ChannelHealth Inc. in January of 2000. Excluding the impact of transaction costs related to the sale of ChannelHealth that are non-deductible for income tax purposes, the Company anticipates an incremental effective tax rate of approximately 40.0% for the remainder of the year ending December 31, 2001 which may result in an overall lower effective tax rate in subsequent interim reporting periods. The ultimate effective tax rate depends on the extent of pre-tax earnings subject to the incremental tax rate of 40.0%. The net deferred tax assets of approximately $12.4 million are expected to be realized by reducing future taxable income. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1969, the Company principally has funded its operations, working capital needs and capital expenditures primarily from operations, excluding the net cash used in operations of ChannelHealth in 1999 and 2000. Net cash (used in) provided by operations is principally comprised of net income (loss) and depreciation and is primarily affected by the net effect of the change in accounts receivable, accounts payable and accrued expenses. Due to the nature of the Company's business, accounts receivable, deferred revenue and accounts payable fluctuate due to, among other things, the length of installation efforts which are dependent upon the size of the transaction, the changing business plans of the customer, the effectiveness of customers' management and general economic conditions. In the first quarter of 2001, accounts receivable from customers have been collected on average within 104 days which represents a decrease of 14 days in terms of average days to collect receivables from customers as compared to the annual average in 2000 of 118 days. Page 12 of 24 Cash flows related to investing activities have historically been related to the purchase of computer and office equipment, leasehold improvements, and the purchase and sale of investment grade marketable securities. Through March 31, 2001 the Company has spent approximately $10.9 million on construction-in-progress related to a $16.0 million expansion of its Corporate Headquarters facility. Investing activities may also include purchases of interests in, loans to and acquisitions of businesses for access to complementary products and technologies. The Company expects these activities to continue. There can be no assurance that the Company will be able to successfully complete any such purchases or acquisitions in the future. Cash flows from financing activities historically relate to the issuance of common stock through the exercise of employee stock options and in connection with the employee stock purchase plan. In addition during the first quarter of 2000, an unrelated party invested approximately $30.0 million, and related parties invested approximately $3.1 million in Channelhealth Incorporated, at the time a majority owned subsidiary, by purchasing redeemable preferred stock. Cash, cash equivalents and marketable securities available-for-sale at March 31, 2001 were $64.6 million, a decrease of $6.1 million from December 31, 2000. The Company has a revolving line of credit with a bank allowing the Company to borrow up to $5.0 million bearing interest at the prime rate that will expire on December 31, 2001. IDX has received a commitment from the bank to increase this line to $15.0 million subsequent to March 31, 2001. There were no borrowings as of March 31, 2001 or 2000. The Company expects that its requirements for office facilities and other office equipment will grow as staffing requirements dictate. The Company's operating lease commitments consist primarily of office leasing for the Company's operating facilities. In April 2000, the Company entered into a new 12-year term operating lease for office space in Seattle, Washington, commencing in 2003. The Company plans to increase the number of its professional staff during 2001 to meet anticipated sales volume and to support research and development efforts. To the extent necessary to support increases in staffing, the Company may obtain additional office space. The Company purchased its headquarters in South Burlington, Vermont on April 19, 2001 for approximately $15 million from BDP Realty; a related entity that is included in the Company's consolidated financial statements as of March 31, 2001. The Company is nearing completion on construction on an expansion of its corporate headquarters facility in South Burlington, Vermont, which began in November 1999, and is considering various options for financing including a construction loan, sale lease-back arrangement or funding from operations. The Company anticipates that it will spend approximately $16 million on construction to expand its Corporate Headquarters facility. Through March 31, 2001, the Company has spent approximately $10.9 million on construction-in-progress. From time to time, based on the Company's requirements, the Company may consider other purchases of land or the construction of additional office space. Currently, the Company has made no material lease or purchase commitments other than the purchase of the Company's headquarters mentioned above. The Company believes that currently available funds will be sufficient to finance its operating requirements at least through the next twelve months. To date, inflation has not had a material impact on the Company's revenues or income. Page 13 of 24 FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined in Section 21E of the Securities and Exchange Commission Act of 1934. For this purpose, any statements contained in this Quarterly Report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as "believes," "anticipates," "plans," "expects," "will" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause results to differ materially from those indicated by these forward-looking statements, including among others, the factors set forth below. If any risk or uncertainty identified in the following factors actually occurs, IDX's business, financial condition and operating results would likely suffer. In that event, the market price of IDX's common stock could decline and you could lose all or part of the money you paid to buy IDX's common stock. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time. 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. The following important factors affect IDX's business and operations generally or affect more than one segment of our business and operations: QUARTERLY OPERATING RESULTS MAY VARY. The Company's quarterly operating results have varied in the past and may vary in the future. IDX expects its quarterly results of operations to continue to fluctuate. Because a significant percentage of IDX's expenses are relatively fixed, the following factors could cause these fluctuations: o delays in customers purchasing decisions due to a variety of factors such as consideration and management changes; o long sales cycles; o long installation and implementation cycles for the larger, more complex and costlier systems; o recognizing revenue at various points during the installation process; o timing of new product and service introductions and product upgrade releases; and o long sales and implementation cycles of IDX's customers. In light of the above, IDX believes that its results of operations for any particular quarter or fiscal year are not necessarily meaningful or reliable indicators of future performance. VOLATILITY OF STOCK PRICE. IDX has experienced, and expects to continue to experience fluctuations in its stock price due to a variety of factors including: o actual or anticipated quarterly variations in operating results; o changes in expectations of future financial performance; o changes in estimates of securities analysts; o market conditions particularly in the computer software and Internet industries; Page 14 of 24 o announcements of technological innovations, including Internet delivery of information and use of application service provider technology; o new product introductions by IDX or its competitors; o delay in customers purchasing decisions due to a variety of factors; o market prices of competitors; and o healthcare reform measures and healthcare regulation. These fluctuations have had a significant impact on the market price of our common stock, and may have a significant impact on the future market price of our common stock. These fluctuations may affect operating results as follows: o ability to transact stock acquisitions ; and o ability to retain and incent key employees. FINANCIAL TRENDS. Year over year net income and cash from operations have generally declined since 1998. In 2000, IDX generated a net loss of approximately $36 million. If these negative trends continue, IDX may have difficulty financing future growth and funding operating initiatives, including future acquisitions. NEW PRODUCT DEVELOPMENT AND RAPIDLY CHANGING TECHNOLOGY. To be successful, IDX must enhance its existing products, respond effectively to technology changes and help its clients adopt new technologies. In addition, IDX must introduce new products and technologies to meet the evolving needs of its clients in the healthcare information systems market. IDX may have difficulty in accomplishing this because of: o the continuing evolution of industry standards, for example, transaction standards pursuant to the Health Insurance Portability and Accountability Act of 1996; and o the creation of new technological developments, for example, Internet and application service provider technology. IDX is currently devoting significant resources toward the development of enhancements to its existing products, particularly in the area of Internet-based functionality and the migration of existing products to new hardware and software platforms, including relational database technology, object-oriented programming and application service provider technology. However, IDX may not successfully complete these product developments or the adaptation in a timely fashion, and IDX's current or future products may not satisfy the needs of the healthcare information systems market. Any of these developments may adversely affect IDX's competitive position or render its products or technologies noncompetitive or obsolete. CHANGES AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY. IDX currently derives substantially all of its revenues from sales of financial, administrative and clinical healthcare information systems and related services within the healthcare industry. As a result, the success of IDX is dependent in part on the political and economic conditions in the healthcare industry. Virtually all of IDX's customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation, including Medicare and Medicaid regulation. Accordingly, IDX's customers and the other entities with which IDX has a business relationship are affected by changes in such regulations and limitations in governmental spending for Medicare and Medicaid programs. Recent Page 15 of 24 actions by Congress have limited governmental spending for the Medicare and Medicaid programs, limited payments to hospitals and other providers under such programs, and increased emphasis on competition and other programs that potentially could have an adverse effect on IDX's customers and the other entities with which IDX has a business relationship. In addition, Federal and state legislatures have considered proposals to reform the U.S. healthcare system at both the federal and state level. If enacted, these proposals could increase government involvement in healthcare, lower reimbursement rates and otherwise change the business environment of IDX's customers and the other entities with which IDX has a business relationship. IDX's customers and the other entities with which IDX has a business relationship could react to these proposals and the uncertainty surrounding these proposals by curtailing or deferring investments, including those for IDX's products and services. In addition, many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for IDX's products and services. If IDX is forced to reduce its prices, its operating margins would decrease. As the healthcare industry consolidates, competition for customers will become more intense and the importance of acquiring each customer will become greater. COMPETITION FOR HEALTHCARE INFORMATION SYSTEMS. The market for healthcare information systems is intensely competitive, rapidly evolving and subject to rapid technological change. IDX believes that the principal competitive factors in this market include the breadth and quality of system and product offerings, the features and capabilities of the systems, the price of system and product offerings, the ongoing support for the systems, and the potential for enhancements and future compatible products. Some of the IDX's competitors have greater financial, technical, product development, marketing and other resources than IDX, and some of its competitors offer products that it does not offer. The Company's principal existing competitors include Cerner Corporation, Eclipsys Corporation, McKesson HBOC, Inc. and Shared Medical Systems Corporation, which was acquired by Siemans AG in 2000, each of which offers a suite of products that compete with many of IDX's products. There are other competitors that offer a more limited number of competing products. Many of IDX's competitors have also announced or introduced Internet strategies that will compete with IDX's Internet applications and services. IDX may be unable to compete successfully against these organizations. In addition, IDX expects that major software information systems companies, large information technology consulting service providers and system integrators, Internet-based start-up companies and others specializing in the healthcare industry may offer competitive products or services. PRODUCT LIABILITY CLAIMS. Any failure by IDX's products that provide applications relating to patient medical histories and treatment plans could expose IDX to product liability claims. These potential claims may exceed IDX's current insurance coverage. Unsuccessful claims could be costly to defend and divert management time and resources. In addition, IDX cannot make assurances that it will continue to have appropriate insurance available to it in the future at commercially reasonable rates. KEY PERSONNEL. The success of IDX is dependent to a significant degree on its key management, sales, marketing, and technical personnel. To be successful IDX, must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including programmers, consultants, systems architects skilled in the technical environments in which IDX's products operate. Competition for such personnel in the software and information services Page 16 of 24 industries is intense. IDX does not maintain "key man" life insurance policies on any of its executives. Not all IDX personnel have executed noncompetition agreements. GOVERNMENT REGULATION. Virtually all of IDX's customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation. Because IDX's products and services are designed to function within the structure of the healthcare financing and reimbursement systems currently in place in the United States, and because IDX is pursuing a strategy of developing and marketing products and services that support its customers' regulatory and compliance efforts, IDX may become subject to the reach of, and liability under, these regulations. The Federal Anti-Kickback Law, among other things, prohibits the direct or indirect payment or receipt of any remuneration for Medicare, Medicaid and certain other Federal or state healthcare program patient referrals, or arranging for or recommending referrals or other business paid for in whole or in part by the federal health care programs. Violations of the Federal Anti-Kickback Law may result in civil and criminal sanction and liability, including the temporary or permanent exclusion of the violator from government health programs, treble damages and imprisonment for up to five years for each violation. If the activities of a customer of IDX or other entity with which IDX has a business relationship were found to constitute a violation of the Federal Anti-Kickback Law and IDX, as a result of the provision of products or services to such customer or entity, was found to have knowingly participated in such activities, IDX could be subject to sanction or liability under such laws, including the exclusion of IDX from government health programs. As a result of exclusion from government health programs, IDX customers would not be permitted to make any payments to IDX. The Federal Civil False Claims Act and the Medicare/Medicaid Civil Money Penalties regulations prohibit, among other things, the filing of claims for services that were not provided as claimed, which were for services that were not medically necessary, or which were otherwise false or fraudulent. Violations of these laws may result in civil damages, including treble and civil penalties. In addition the Medicare/Medicaid and other Federal statutes provide for criminal penalties for such false claims. If, as a result of the provision by IDX of products or services to its customers or other entities with which IDX has a business relationship, IDX provides assistance with the provision of inaccurate financial reports to the government under these regulations, or IDX is found to have knowingly recorded or reported data relating to inappropriate payments made to a healthcare provider, IDX could be subject to liability under these laws. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains provisions regarding standardization, privacy, security, and administrative simplification in healthcare. As a result of regulations now proposed under HIPAA, IDX will make investments to support customer operations in areas, such as: o electronic data transactions; o computer system security; and o patient privacy. Although it is not possible to anticipate the final form of all regulations under HIPAA, IDX has made and expects to continue to make investments in product enhancements to support customer operations that are regulated by HIPAA. Responding to HIPAA's impact may require IDX to make investments in new products or charge higher prices. It may be expensive to implement security or other measures designed to comply with any new legislation or regulation. Page 17 of 24 The United States Food and Drug Administration has promulgated a draft policy for the regulation of computer software products as medical devices under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To the extent that computer software is a medical device under the policy, IDX, as a manufacturer of such products, could be required, depending on the product, to: o register and list its products with the FDA; o notify the FDA and demonstrate substantial equivalence to other products on o the market before marketing such products; or obtain FDA approval by demonstrating safety and effectiveness before marketing a product. Depending on the intended use of a device, the FDA could require IDX to obtain extensive data from clinical studies to demonstrate safety or effectiveness, or substantial equivalence. If the FDA requires this data, IDX would be required to obtain approval of an investigational device exemption before undertaking clinical trials. Clinical trials can take extended periods of time to complete. IDX cannot provide assurances that the FDA will approve or clear a device after the completion of such trials. In addition, these products would be subject to the Federal Food, Drug and Cosmetic 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, IDX expects that the FDA is likely to become increasingly active in regulating computer software intended for use in healthcare settings regardless of whether the draft is finalized or changed. The FDA can impose extensive requirements governing pre- and post-market conditions like service investigation, approval, labeling and manufacturing. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes. SYSTEM ERRORS AND WARRANTIES. IDX's healthcare information systems are very complex. As with complex systems offered by others, IDX's healthcare information systems may contain errors, especially when first introduced. IDX's healthcare information systems are intended to provide information to healthcare providers for use in the diagnosis and treatment of patients. Therefore, users of IDX's products may have a greater sensitivity to system errors than the market for software products generally. Failure of an IDX customer's system to perform in accordance with its documentation could constitute a breach of warranty and require IDX to incur additional expense in order to make the system comply with the documentation. If such failure is not timely remedied, it could constitute a material breach under a contract allowing the client to cancel the contract and subject IDX to liability. POTENTIAL INFRINGEMENT OF PROPRIETARY RIGHTS OF OTHERS. If any of IDX's products violate third party proprietary rights, IDX may be required to reengineer its products or seek to obtain licenses from third parties to continue offering its products without substantial reengineering. Any efforts to reengineer IDX's products or obtain licenses from third parties may not be successful, in which case IDX may be forced to stop selling the infringing product or remove the infringing functionality or feature. IDX may also become subject to damage awards as a result of infringing the proprietary rights of others, which could cause IDX to incur additional losses and have an adverse impact on its financial position. IDX does not conduct comprehensive patent searches to determine whether the technologies used in its products infringe patents held by others. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. Page 18 of 24 LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. IDX's success and competitiveness are dependent to a significant degree on the protection of its proprietary technology. IDX relies primarily on a combination of copyrights, trade secret laws and restrictions on disclosure to protect its proprietary technology. Despite these precautions, others may be able to copy or reverse engineer aspects of IDX's products, to obtain and use information that IDX regards as proprietary or to independently develop similar technology. Litigation may be necessary in the future to enforce or defend IDX's proprietary technology or to determine the validity and scope of the proprietary rights of others. This litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management and technical resources. CONFLICTS OF INTERESTS. Richard E. Tarrant, Chief Executive Officer and Director, and Robert H. Hoehl, Chairman of the Board of Directors, indirectly own, through various entities, real estate which IDX leases in connection with its operations. During 2000, IDX paid an aggregate of approximately $1.8 million in connection with these leases including the Company's headquarters facilities in South Burlington, Vermont that IDX purchased from a real estate entity owned by Richard E. Tarrant and Robert H. Hoehl for a purchase price of approximately $15.0 million on April 19, 2001. In connection with the remaining related entity arrangements, the economic interests of these executives and directors and IDX may diverge. RISKS ASSOCIATED WITH ACQUISITION STRATEGY. IDX may continue to grow in part through either acquisitions of complementary products, technologies and businesses or alliances with complementary businesses. IDX may not be successful in these acquisitions or alliances, or in integrating any such acquired or aligned products, technologies or businesses into its current business and operations. Factors which may affect IDX's ability to expand successfully include: o the generation of sufficient financing to fund potential acquisitions and alliances; o the successful identification and acquisition of products, technologies or businesses; o effective integration and operation of the acquired or aligned products, technologies or businesses despite technical difficulties, geographic limitations and personnel issues; and o overcoming significant competition for acquisition and alliance opportunities from companies that have significantly greater financial and management resources. STRATEGIC ALLIANCE WITH ALLSCRIPTS HEALTHCARE SOLUTIONS. In January 2001, IDX entered into a ten-year strategic alliance with Allscripts Healthcare Solutions to cooperatively develop, market and sell integrated clinical and practice management products. During the term of the alliance, IDX is prohibited from cooperating with direct competitors of Allscripts to develop or provide any products similar to or in competition with Allscripts products in the practice management systems market. Also, pursuant to the strategic alliance agreement, IDX has guaranteed that Allscripts will have gross revenues resulting from the alliance (less any commissions paid to IDX) of at least $4.5 million for fiscal year 2001, and IDX will have to pay Allscripts the excess, if any, of $4.5 million over Allscripts' actual gross revenues for fiscal year 2001. If the strategic alliance is not successful, Allscripts' gross revenues for fiscal year 2001 are less than $4.5 million, or the restrictions placed on IDX during the term of the strategic alliance prohibit IDX from successfully marketing and selling certain products and services, IDX's operating results may suffer. Page 19 of 24 RESTRICTIONS ON LIQUIDATION OF INVESTMENT IN ALLSCRIPTS HEALTHCARE SOLUTIONS. In January 2001 IDX received approximately 7.5 million shares of common stock of Allscripts Healthcare Solutions in connection with the acquisition by Allscripts of IDX's majority owned subsidiary, ChannelHealth Incorporated. IDX entered into a stock rights and restrictions agreement with Allscripts, pursuant to which, among other things, IDX agreed to restrictions on the sale of its shares of Allscripts common stock. In general, IDX is prohibited from selling any shares for one year after the date of Allscripts' acquisition of ChannelHealth, and after one year, IDX is prohibited from selling more than 25% of it shares of Allscripts common stock in any one-year, and 16.67% in any one month. The restrictions on IDX's ability to sell shares of Allscripts common stock will make it difficult for IDX to liquidate its investment in Allscripts and may adversely affect the value of such investment. ANTI-TAKEOVER DEFENSES. IDX's Second Amended and Restated Articles of Incorporation and Second Amended and Restated Bylaws contain certain anti-takeover provisions, which could deter an unsolicited offer to acquire IDX. For example, IDX's board of directors is divided into three classes, only one of which will be elected at each annual meeting. These provisions may delay or prevent a change in control of IDX. Page 20 of 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK IDX does not currently use derivative financial instruments. The Company generally places its securities available-for-sale investments in high credit quality instruments primarily U.S. Government and Federal Agency obligations, tax-exempt municipal obligations and corporate obligations with contractual maturities of a year or less. We do not expect any material loss from our marketable security investments. Internationally, IDX invoices customers in United States currency. The Company is not currently exposed to foreign exchange rate fluctuations and does not enter into foreign currency hedge transactions. Through December 31, 2000, foreign currency fluctuations have not had a material impact on our financial position or results of operations. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that may experience a decline in market value due to changes in interest rates. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our financial condition. Interest income on the Company's investments is included in "Other Income." The Company accounts for cash equivalents and securities available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Cash equivalents are short-term highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value. The Company's investments are classified as securities available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders' equity. Page 21 of 24 PART II. OTHER INFORMATION Item 1. Legal Proceedings On January 18, 2001, the Company commenced a lawsuit against Epic Systems Corporation, a competitor of the Company, the University of Wisconsin Medical Foundation (the Foundation), and two individuals claiming, among other things, that trade secrets of the Company involving its IDXtend medical group practice system were wrongfully disclosed to, and misappropriated by, Epic in a series of meetings that took place in 1998 and 1999. All of the defendants deny the Company's claims. The Company's lawsuit seeks damages and injunctive relief and was brought in the United States District Court for the Western District of Wisconsin and is entitled, IDX Systems Corporation v. Epic Systems Corporation, et al., No. 01C-0037-S. The Foundation has brought a counterclaim against the Company claiming that its lawsuit interferes with a contract between the Foundation and Epic, and that the confidentiality provisions in IDX's contracts with the Foundation are invalid. The counterclaim seeks damages and declaratory judgment. The Company denies the counterclaim. On April 2, 2001, Epic Systems filed an Answer denying the essential elements of the Company's claims, and asserted counterclaims against the Company. Epic alleges that the Company's claims asserting its trade secret rights were brought in bad faith, with an intent to injure Epic competitively, and thereby violated Sections 1 and 2 of the Sherman Act because the company allegedly possesses monopoly power in the U.S. market for medical practice information systems. Epic also claims that this same alleged conduct constitutes intentional interference with its contract with the Foundation. The counterclaim seeks treble damages. The Company dies the counterclaims. The lawsuit is in the discovery stage. The Company is from time to time involved in routine litigation incidental to the conduct of its business. The Company believes that no such currently pending routine litigation to which it is party will have a material adverse effect on its financial condition or results of operations. Page 22 of 24 Item 2. Changes In Securities and Use of Proceeds 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 And Reports On Form 8-K (a) There are no exhibits filed as part of this Form 10-Q. (b) On January 10, 2001, the Company filed a report on Form 8-K, announcing that Allscipts, Inc. has completed its acquisition of Channelhealth Incorporated from the Company. Page 23 of 24 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: May 15, 2001 By: /S/ JOHN A. KANE ____________________________ John A. Kane, Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Page 24 of 24 -----END PRIVACY-ENHANCED MESSAGE-----