-----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, PJl4UyRRBgt5VFrmWwodDgnzx8C2QHQCoduf6McxzrvhzfLFQOIO067uFEHUDKvm AL8S14/4wIJrzMJ6T3oFDg== 0001001185-99-000059.txt : 19991115 0001001185-99-000059.hdr.sgml : 19991115 ACCESSION NUMBER: 0001001185-99-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99750123 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 10Q FOR THIRD QUARTER OF 1999 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 ------------------------------- 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 November 11, 1999 was 27,779,914. ================================================================================ [Exhibit index begins on Page 24] IDX SYSTEMS CORPORATION FORM 10-Q For the Quarterly Period Ended September 30, 1999 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE ---- ITEM 1. INTERIM FINANCIAL STATEMENTS..................................3 Condensed Consolidated Balance Sheets.........................3 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 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.............................................22 ITEM 2. CHANGES IN SECURITIES.........................................22 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........22 ITEM 5. OTHER INFORMATION.............................................22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................22 SIGNATURES................................................................23 EXHIBIT INDEX.............................................................24
Page 2 of 24 PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements IDX Systems Corporation Condensed Consolidated Balance Sheets (in thousands) (Unaudited)
September 30, December 31, 1999 1998 ----------------- ---------------- ASSETS Cash and marketable securities $ 73,896 $ 125,132 Accounts receivable, net 111,374 102,179 Income taxes receivable 4,720 - Other current assets 6,644 5,403 Deferred tax asset 4,720 4,720 ----------------- ---------------- Total current assets 201,354 237,434 Property and equipment, net 54,545 35,949 Capitalized software costs, net 470 665 Other assets 16,938 12,868 Deferred tax asset 2,307 2,307 ----------------- ---------------- Total assets $ 275,614 $ 289,223 ================= ================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 44,322 $ 38,484 Short-term debt - 5,611 Income taxes - 5,429 Deferred revenue 17,801 18,239 ----------------- ---------------- Total current liabilities 62,123 67,763 Long-term debt - 2,261 Minority interest 9,100 8,988 Stockholders' equity 204,391 210,211 ----------------- ---------------- Total liabilities and stockholders' equity $ 275,614 $ 289,223 ================= ================
See Notes to the Condensed Consolidated Financial Statements Restated for Comparison Purposes - See Note 1 Page 3 of 24 IDX Systems Corporation Consolidated Statements of Operations (in thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------ ------ ------ ------ REVENUES Systems sales $ 34,365 $ 46,678 $ 94,944 $129,363 Maintenance and service fees 57,853 44,259 158,179 126,545 -------- -------- -------- -------- TOTAL REVENUES 92,218 90,937 253,123 255,908 OPERATING EXPENSES Cost of sales 56,442 50,362 161,540 142,823 Selling, general and administrative 21,616 17,385 62,815 48,548 Research and development 12,733 12,587 39,921 35,025 Nonrecurring charge - - 4,045 3,201 -------- -------- -------- ------- TOTAL OPERATING EXPENSES 90,791 80,334 268,321 229,597 OPERATING INCOME (LOSS) 1,427 10,603 (15,198) 26,311 Other (income) expense (537) (1,246) (1,796) (3,242) Loss on impairment of asset - - 1,642 - -------- ------- -------- --------- Income (loss) before taxes 1,964 11,849 (15,044) 29,553 Income tax provision (benefit) 786 5,650 (5,394) 15,990 -------- ------- -------- -------- NET INCOME (LOSS) $ 1,178 $ 6,199 $ (9,650) $ 13,563 ======== ======== ======== ======== BASIC EARNINGS (LOSS) PER SHARE $ 0.04 $ 0.23 $ (0.35) $ 0.50 ======== ======== ======== ======== Basic weighted average shares outstanding 27,767 27,427 27,701 27,292 ======== ======== ======== ======== Diluted earnings (loss) per share $ 0.04 $ 0.22 $ (0.35) $ 0.48 ======== ======== ======== ======== Diluted weighted average shares outstanding 28,271 28,279 27,701 28,156 ======== ======== ======== ========
See Notes to the Condensed Consolidated Financial Statements Restated for Comparison Purposes - See Note 1 Page 4 of 24 IDX Systems Corporation Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)
Nine Months Ended September 30, 1999 1998 --------- -------- Operating Activities Net income (loss) $ (9,650) $13,564 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 11,222 9,398 Deferred tax benefit, net of business acquisitions - (517) Increase in allowance for doubtful accounts 585 118 Minority interest 112 301 Loss on investment 1,642 - Write-off of acquired in-process research and development costs - 3,201 Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable (9,780) (15,168) Prepaid expenses and other assets 1,179 2,644 Accounts payable and accrued expenses 5,839 (3,102) Federal and state taxes payable (10,149) 6,339 Deferred revenue (438) (3,654) ------------- ------------ Net cash (used in) provided by operating activities (9,438) 13,124 Investing Activities Purchase of property and equipment, net (28,177) (11,545) Purchase of securities available-for-sale (178,246) (83,216) Sale of securities available-for-sale 246,753 75,133 Business acquisitions (6,500) - Other assets (3,077) (7,545) -------------- ------------ Net cash provided by (used in) investing activities 30,753 (27,173) Financing Activities Proceeds from sale of common stock 4,063 11,728 Proceeds from debt issuances 3,501 8,935 Contributions to affiliates, net - 6,500 Principal repayments of debt (11,373) (9,324) -------------- ------------- Net cash (used in) provided by financing activities (3,809) 17,839 -------------- ------------- Increase in cash and cash equivalents 17,506 3,790 Cash and cash equivalents at beginning of period 11,558 14,741 -------------- ------------- Cash and cash equivalents at end of period $ 29,064 $ 18,531 ============== =============
See Notes to the Condensed Consolidated Financial Statements Restated for Comparison Purposes - See Note 1 Page 5 of 24 Notes to Condensed Consolidated Financial Statements Note 1 - Basis of Presentation All financial information for previously reported periods included in the accompanying interim unaudited condensed consolidated financial statements of IDX Systems Corporation ("Company" or "IDX") has been restated to reflect the combined operations of IDX and EDiX Corporation ("EDiX") as a result of the merger, more fully described in Note 3, which was accounted for as a pooling of interests during the quarter ended June 30, 1999. No adjustments were required to conform the financial reporting policies of IDX and EDiX for periods presented. The interim 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 nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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 - New Accounting Standards In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which the Company adopted as of December 31, 1998. SOP 98-1 requires capitalization of certain costs incurred in connection with developing or obtaining internal use software. In the prior year, the Company expensed such costs as incurred. This accounting change had no effect on net income (loss) for the three month period ended September 30, 1999 and increased net income per diluted share by $0.01 for the same period in 1998. For the nine month period ended September 30, 1999 this accounting change decreased the net loss per share by $0.01, and increased earnings per diluted share by $0.01 for the comparable period in 1998. Note 3 - Business Acquisitions On February 23, 1998, the Company recorded charges of $3.2 million related to the acquisition of contract management system technology from Trego Systems, Inc. for cash of $4.0 million. The acquisition was accounted for under the purchase method. The charges were expensed as in-process research and development costs in connection with the Company's development of a healthcare contract management system. On April 23, 1999, the Company acquired EDiX, a provider of medical transcription outsourcing services to hospitals and large physician group practices. The terms of the agreement provided for the shareholders and optionholders of EDiX to receive approximately 1,000,000 shares of IDX common stock. Based on the closing price of the IDX common stock on April 23, 1999, the transaction is valued at approximately $16.7 million, plus the assumption of EDiX debt of approximately $14.0 million. This transaction has not had a dilutive effect on dilute earnings per share in 1999 compared to 1998. The EDiX organization will operate as EDiX, a division of IDX Systems Corporation. The acquisition was accounted for as a pooling of interests during the quarter ended June 30, 1999 and all historical information of the Company for all periods presented has been restated to include EDiX's operating results. During the second quarter ended June 30, 1999, the Company recorded charges of $4.0 million related to the acquisition of EDiX. The charges were comprised of transaction costs of $2.4 million, write-offs and adjustments for long-lived assets, principally computer equipment, of $1.4 million and other merger related costs of $200,000, principally noncompatible related to integration costs incurred during the period and the termination of leases and other contractual obligations. On April 1, 1999, the Company acquired an 80% interest in Channelhealth, Inc. for $6.5 million and may pay an additional $3.0 million, contingent upon certain performance goals. The acquisition will be accounted for under the purchase method. Page 6 of 24 On June 23, 1999, the Company acquired all of the assets of DietSite.com, Inc. for $1.5 million. DietSite.com is a website which includes disease-oriented dietary information with extensive proprietary content on diets, vitamins, herbals and nutritionals. Channelhealth, Inc. and DietSite.com will be managed and operated with the Company's other web technology initiatives in a separate, majority-owned subsidiary. Channelhealth will offer three Internet channels that integrate the core practice management systems with extensive Internet-based services and clinically valid content. Note 4 - Income Taxes The tax benefit in 1999 is lower than that expected based on the statutory rate principally due to the non-deductible nature of certain transaction costs related to business acquisitions. The 1998 tax provision is higher than that expected based on the statutory rate principally due to losses of EDiX for which no tax benefit has been recognized. Note 5 - Comprehensive Income As of January 1, 1998, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income". SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Total comprehensive income (loss) for the quarter ended September 30, 1999 amounted to $1.2 million compared to $6.2 million in the same period in 1998. Total comprehensive income (loss) for the nine months ended September 30, 1999 amounted to ($9.8) million compared to $13.6 million in the same period in 1998. Note 6- Segment Information In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company adopted SFAS No. 131 effective with the fiscal year ended December 31, 1998. SFAS No. 131 establishes standards for reporting 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 establishes standards for 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 resource allocation and performance assessment. Up to and including the first quarter of 1999, the Company has viewed its operations and managed its business as principally one segment, healthcare information solutions that include software, hardware and related services. During the second quarter of 1999, the Company acquired two companies which have separate and distinct financial and operating characteristics. When applicable, the information for the reportable segments has been restated for the prior year in order to conform to the 1999 presentation. The Company's three business units have separate management teams and infrastructures that offer different products and services, and as such, have been classified as three reportable segments (information systems and services, internet initiatives, and medical transcription services). Information Systems and Services: This reportable segment consists of 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. Channelhealth, Inc. - Internet Initiatives: This reportable segment consists of an 80% interest in Channelhealth, an internet web-portal for physicians combined with a marketing site for pharmaceutical products, including the website DietSite.com which provides nutritional analysis and information, and various other web enabled products. Page 7 of 24 Channelhealth will offer three Internet channels that integrate the core practice management systems with extensive Internet-based services and clinically valid content. Channelhealth services are available to physicians through group practices, hospitals, integrated delivery networks and managed care organizations. The Physician Channel(TM) The Physician Channel includes a workflow-driven portal called the Physician Homebase with rich medical content and continuing medical education material, and web-based electronic medical record modules. The Homebase(TM) will incorporate the physician's schedule and other practice-specific data that helps improve office management and patient care processes. The Physician Channel will provide online medication orders, results review and interactive transcription management, which will ultimately create secure, Internet-based electronic medical records. The Patient Channel(TM) The Patient Channel is being designed to create a meaningful, personally relevant online connection between the patient and his/her personal physician. Using the Patient Channel, a patient will be able to access a "Virtual Office(TM)" --to schedule and confirm appointments, renew medications, refill prescriptions and review test results after they have been acknowledged and released by the physician. The Patient Channel will also provide the ability for individuals to review their personal medical records starting with data that may be automatically transferred from the physician's record. The E-commerce Channel(TM) The E-commerce Channel will feature an integrated single-source solution for processing claims, referrals, eligibility and clinical transactions by providing connectivity to payers, pharmacies, laboratories and pharmacy benefit managers. For example, when performing online eligibility verification, the patient registration and health plan information is extracted automatically from the practice management system, eliminating redundant data entry and improving the efficiency of payer communication. In addition, the E-commerce Channel will allow physicians and provider organizations group purchasing for medical/ office equipment and supplies. Medical Transcription Services: This reportable segment represents EDiX, a provider of medical transcription outsourcing services. The principal markets for this segment include hospitals and large physician group practices primarily located in the United States. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements filed in the 1998 Form 10-K. 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, with the exception of EDiX. During the quarter ended September 30, 1999 and September 30, 1998, EDiX's sales to one major customer amounted to 12.9% and 0.0% of total revenue respectively. During the nine months ended September 30, 1999 and September 30, 1998, EDiX's sales to the same customers amounted to 10.3% and 0.0% of total revenue respectively. Page 8 of 24 Summarized financial information concerning the Company's reportable segments is shown in the following table (in millions):
IDX Healthcare Information Channelhealth- Systems and Internet Services Initiatives EDiX Total -------------- -------------- -------- ------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 Net operating revenues $ 78,894 $ 1,127 $ 12,197 $ 92,218 Operating income (loss) 6,198 (4,882) 111 1,427 Identifiable operating assets 254,774 8,042 12,798 275,614 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 Net operating revenues $ 216,589 $ 3,688 $ 32,846 $ 253,123 Operating loss (2,612) (7,621) (4,965) (15,198) Identifiable operating assets 254,774 8,042 12,798 275,614 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 Net operating revenues $ 83,358 - $ 7,579 $ 90,937 Operating income (loss) 12,496 - (1,893) 10,603 Identifiable operating assets 266,357 - 8,420 274,777 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Net operating revenues $ 235,459 - $ 20,449 $ 255,908 Operating income (loss) 32,963 - (6,652) 26,311 Identifiable operating assets 266,357 - 8,420 274,777
Substantially all of the Company's operations are in the United States. As a result, the financial information disclosed herein represents all of the material financial information related to the Company's principal operating segments. Note 6 - Earnings Per Share Information The following sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------------------- -------------------- Numerator: Net income (loss) $ 1,178 $ 6,199 $(9,650) $13,563 ------------------- -------------------- Numerator for basic and diluted earnings (loss) per share $ 1,178 $ 6,199 $(9,650) $13,563 Denominator: Denominator for basic earnings (loss) per share Weighted-average shares 27,767 27,427 27,701 27,292 Effect of employee stock options 504 852 864 ------------------- -------------------- Denominator for diluted earnings (loss) per share 28,271 28,279 27,701 28,156 ------------------- -------------------- Basic earnings (loss) per share $ 0.04 $ 0.23 $ (0.35) $ 0.50 =================== ==================== Diluted earnings (loss) per share $ 0.04 $ 0.22 $ (0.35) $ 0.48 =================== ====================
Page 9 of 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL This Management's Discussion and Analysis of Financial Condition 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. 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 16 under the caption "Factors Affecting Future Results" 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. The Company reported net income of $1.2 million, or $0.04 per diluted share, for the third quarter of 1999 as compared to net income of $6.2 million or $0.22 per diluted share, for the third quarter of 1998. The Company reported a net loss of ($9.6) million, or ($0.35) per diluted share, for the first nine months of 1999 as compared to net income of $13.6 million or $0.48 per diluted share, for the first nine months of 1998. Excluding the effect of nonrecurring charges for the acquisition of EDiX Corporation of $4.0 million and the write-off of an investment of $1.6 million, the net loss for the nine months ended September 30, 1999 was ($5.6) million or ($0.20) per diluted share. Excluding nonrecurring expenses in the prior year for costs associated with the acquisition of Trego Systems, Inc., the Company reported net income of $15.1 million, or $0.54 per share, for the first nine months of 1998. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES The Company's total revenues increased to $92.2 million during the three months ended September 30, 1999 from $90.9 million in the corresponding period in 1998, an increase of $1.3 million or 1.4%. Revenues from systems sales decreased to $34.4 million during the three months ended September 30, 1999 (37.3% of total revenues) compared to $46.7 million (51.3% of total revenues) in the corresponding period in 1998, a decrease of $12.3 million or (26.4%). The decrease was primarily due to a reduction in hardware sales of $9.7 million. Revenues from maintenance and service fees increased to $57.9 million during the three months ended September 30, 1999 (62.7% of total revenues) from $44.3 million (48.7% of total revenues) in the corresponding period in 1998, an increase of $13.6 million or 30.7%. The increase in revenues from maintenance and service fees was due to additional maintenance revenues resulting from the continued growth in the Company's installed client base and increased transcription service fee revenue from EDiX. During 1999, certain of the Company's large customers delayed making purchasing decisions with respect to certain large software systems comprised of multiple products, resulting in longer sales cycles for such systems. Management believes such delays are due to a number of factors, including customer organizational changes, governmental approvals, product complexity, competition and customer preoccupation with internal Year 2000 issues. The Company is unable to determine whether such factors constitute a trend and will continue into future periods. Page 10 of 24 COST OF SALES The cost of sales and services increased to $56.4 million during the three months ended September 30, 1999 from $50.4 million in the corresponding period in 1998, an increase of $6.1 million or 12.1%. The gross profit margin on systems sales and services decreased to 38.8% during the three months ended September 30, 1999 from 44.6% in the corresponding period in 1998. The decrease in gross profit was primarily due to fixed costs and overhead expenses in relation to decreased revenue from installations of the Company's systems which typically include a greater percentage of software than services. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $21.6 million during the three months ended September 30, 1999 from $17.4 million in the corresponding period in 1998, an increase of $4.2 million or 24.3%. As a percentage of total revenues, selling, general and administrative expenses increased to 23.4% during the three months ended September 30, 1999 from 19.1% in 1998. The increase in total selling, general and administrative expenses during the three months ended September 30, 1999 was primarily due to an increase in the Company's sales, marketing and administrative staff infrastructure which management believes is necessary to support the long-term growth of the Company. RESEARCH AND DEVELOPMENT Research and development expenses increased to $12.7 million during the three months ended September 30, 1999 from $12.6 million in the corresponding period in 1998, an increase of $100,000 or 1.2%. The slight increase is due to the hiring of additional staff and outside consultants to support the development of additional products including IDXsite and web technology applications, and for the costs of efforts to address Year 2000 issues. As a percentage of total revenues, research and development expenses remained comparable at 13.8% of revenue for the third quarters of 1999 and 1998. Interest and OTHER INCOME Interest income decreased to approximately $768,000 during the third quarter of 1999 compared to $1.9 million for the comparable period in 1998. Interest expense decreased approximately $375,000 during the third quarter of 1999 as compared to the same period in the prior year. INCOME TAXES Income taxes for the quarter ended September 30, 1999 were provided at 40.0 % which approximates the Company's historical statutory rate. The provision for income taxes for the three months ended September 30, 1998 was provided for at approximately 47.7 %. The higher rate in the prior year is due to the effect of the restatement of the Company's financial statements, for the pooling of interests accounting for the acquisition of EDiX which includes a net loss for EDiX for which no tax benefit was recognized. The Company anticipates an effective tax rate of approximately 40.0% for the remainder of the year ending December 31, 1999. NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES The Company's total revenues decreased to $253.1 million during the nine months ended September 30, 1999 compared to $255.9 million in the corresponding period in 1998, a decrease of $2.8 million or (1.1%). Revenues from systems sales decreased to $94.9 million during the nine months ended September 30, 1999 (37.5% of total revenues) compared to $129.4 million (50.6% of total revenues) in the corresponding period in 1998, a decrease of $34.4 million or (26.6%). The decrease was primarily due to a delay in current and potential customers' purchasing decisions combined with a decrease in hardware sales. Revenues from maintenance and service fees increased to $158.2 million during the nine months ended September 30, 1999 (62.5% of total revenues) from $126.5 million (49.4% of total revenues) in the corresponding period in 1998, an increase of $31.6 million or 25.0%. The increase in revenues from maintenance and service fees was due to additional maintenance revenues resulting from the continued growth in the Company's installed client base and increased transcription service fee revenue from EDiX. Page 11 of 24 During 1999, certain of the Company's large customers delayed making purchasing decisions with respect to certain large software systems comprised of multiple products, resulting in longer sales cycles for such systems. Management believes such delays are due to a number of factors, including customer organizational changes, governmental approvals, product complexity, competition and customer preoccupation with internal Year 2000 issues. The Company is unable to determine whether such factors constitute a trend and will continue into future periods. COST OF SALES The cost of sales and services increased to $161.5 million during the nine months ended September 30, 1999 from $142.8 million in the corresponding period in 1998, an increase of $18.7 million or 13.1%. The gross profit margin on systems sales and services decreased to 36.2% during the nine months ended September 30, 1999 from 44.2% in the corresponding period in 1998. The decrease in gross profit was primarily due to fixed costs and overhead expenses in relation to decreased revenue from installations of the Company's LastWord and IDXtend systems which typically include a greater percentage of software than of services. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $62.8 million during the nine months ended September 30, 1999 from $48.5 million in the corresponding period in 1998, an increase of $14.3 million or 29.4%. As a percentage of total revenues, selling, general and administrative expenses increased to 24.8% during the nine months ended September 30, 1999 from 19.0% in 1998. The increase in total selling, general and administrative expenses during the nine months ended September 30, 1999 was principally due to an increase in the Company's sales, marketing and administrative staff infrastructure which management believes is necessary to support the long-term growth of the Company. RESEARCH AND DEVELOPMENT Research and development expenses increased to $39.9 million during the nine months ended September 30, 1999 from $35.0 million in the corresponding period in 1998, an increase of $4.9 million or 14.0%. The increase is primarily due to the hiring of additional staff and outside consultants to support the development of additional products including IDXsite and web technology applications, and for the costs of efforts to address Year 2000 issues. As a percentage of total revenues, research and development expenses increased to 15.8% during the nine months ended September 30, 1999 from 13.7% for the nine months ended September 30, 1998. The increase as a percentage of sales for the nine months ended September 30, 1999 as compared to the prior year, is due to the additional personnel and consulting expenses. NONRECURRING CHARGE - MERGER AND RELATED COSTS During the nine months ended September 30, 1999, the Company recorded charges of $4.0 million related to the acquisition of EDiX. The charges were comprised of transaction costs of $2.4 million, write-offs and adjustments for long-lived assets, principally noncompatible computer equipment, of $1.4 million and other merger related costs of $200,000, principally related to integration costs incurred during the period and the termination of leases and other contractual obligations. NONRECURRING CHARGE - WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT On February 23, 1998, the Company recorded nonrecurring charges of $3.2 million related to the acquisition of contract management technology from Trego Systems, Inc. for cash of $4.0 million. The acquisition was accounted for under the purchase method. The charges were expensed as in-process research and development costs in connection with the Company's development of a healthcare contract management system. INTEREST AND OTHER INCOME (EXPENSE) Interest income decreased to approximately $3.4 million during the first nine months of 1999 compared to $4.9 million for the same period in 1998. Interest expense increased to $900,000 during the first three quarters of 1999 compared to $800,000 for the same period in the prior year. The increase in interest expense is primarily due to interest expense incurred by EDiX Corporation. Page 12 of 24 LOSS ON IMPAIRMENT OF ASSET Other expense included the write-off of an investment of $1.6 million in the quarter ended March 31, 1999. INCOME TAXES Income taxes for the nine months ended September 30, 1999 were benefited at 35.9% which is lower than the Company's historical statutory rate of 40.0% primarily due to certain charges related to the acquisition of EDiX which are non-deductible for income tax purposes. Income taxes for the nine months ended September 30, 1998 were provided for at approximately 54.1%. The higher rate in the prior year is due to the effect of the restatement of the Company's financial statements for the pooling of interests accounting for the acquisition of EDiX, which includes the net loss for EDiX for which no tax benefit was recognized. In addition, a portion of the charges incurred in the first quarter ended March 31, 1998 related to the acquisition of Trego Systems, Inc. were non-deductible for income tax purposes. The Company anticipates an effective tax rate of approximately 40% for the remainder of the year ending December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1969, the Company has funded its operations, working capital needs and capital expenditures primarily from operations. The proceeds from its initial public offering in 1995 have been used for general corporate purposes. Cash flows from operations are principally comprised of net income (loss), depreciation and amortization, and are 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 considerably due to, among other things, the length of the installation efforts which are dependent upon, among other things, the size of the transaction, the changing business plans of the customer, the effectiveness of customers' management and general economic conditions. In general, accounts receivable from customers have been collected within the range of 111 to 128 days. Cash flows related to investing activities have principally been related to the purchase of computer and office equipment, leasehold improvements, the acquisition of complementary products, businesses, technology and the purchase and sale of investment grade marketable securities. The Company expects these activities to continue. During the nine months ended September 30, 1999, the Company acquired two buildings in South Burlington, Vermont for approximately $7.5 million with approximately 66,000 square feet that will be used for additional office space. On April 23, 1999 the Company acquired EDiX. The terms of the agreement provided for the shareholders and optionholders of EDiX to receive approximately 1,000,000 shares of IDX common stock. Based on the closing price of the IDX common stock on April 23, 1999, the transaction is valued at approximately $16.7 million, plus the assumption of EDiX debt of approximately $14.0 million that was paid off during the nine months ended September 30, 1999. Additionally, the Company acquired an 80% interest in Channelhealth, Inc. on April 1, 1999 for $6.5 million. On June 23, 1999, the Company acquired all of the assets of DietSite.com, Inc. for $1.5 million. Channelhealth, Inc. and DietSite.com will be managed and operated with the Company's other web technology initiatives in a separate, majority-owned subsidiary. It is anticipated that this company will lose approximately $13.0 million pretax during 1999. There can be no assurance that the Company will be able to successfully complete other purchases or acquisitions in the future. Cash flows from financing activities historically relate to the sale of common stock through the exercise of employee stock options and in connection with the employee stock purchase plan. During 1998 other financing activities related to the recapitalization of the real estate affiliate, which is included in the consolidated financial statements, from debt to equity. Cash, cash equivalents and marketable securities at September 30, 1999 were $73.9 million, a decrease from the December 31, 1998 balance of $125.1 million. This decrease is primarily due to the investing activities referred to above combined with a use of cash for operations due to the operating loss of $9.6 million for the nine months ended September 30, 1999. 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. There were no borrowings as of September 30, 1999 or 1998. Page 13 of 24 The Company expects that its requirements for office facilities will grow as staffing requirements dictate. The Company's operating lease commitments consist primarily of office leasing for the Company's operating facilities. The Company plans to continue increasing the number of its professional staff during the remainder of 1999 and throughout 2000 to meet anticipated sales volume and to support research and development efforts. To the extent necessary to support increases in staffing, the Company intends to obtain additional office space. The Company is currently evaluating a plan to acquire the Company's headquarters in South Burlington, Vermont from BDP Realty, a related entity which is included in the Company's consolidated financial statements. As a result of this potential acquisition, the Company may choose to obtain financing in the form of a mortgage backed financing instrument. The Company started construction on an expansion of its Corporate Headquarters facility in South Burlington, Vermont, in November 1999, and is considering various options for financing including a construction loan, sale lease-back arrangement or funding from operations. From time to time, based on the Company's requirements, the Company may consider other purchases of additional land or the construction of additional office space. Currently, the Company has made no material lease or purchase commitments other than the two building purchases mentioned above. The Company believes that current operating 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. YEAR 2000 INTRODUCTION Software applications that use only two digits to identify a year in the date field may fail or create errors in the year 2000 ("Year 2000 Issues"). The Company has taken significant steps to address Year 2000 Issues. The Company's internally used computer equipment, software and devices with embedded technology--including both information systems and non-information systems (together, "Internal Use Systems")--may fail to operate properly or as expected due to Year 2000 Issues. This could result in a system failure or miscalculations causing disruption of the Company's operations, including among other things, a temporary inability to process transactions, send invoices, conduct communications, or engage in similar normal business activities. In addition, computer software products sold, marketed, and supported by the Company ("Company Software Products") and the products of third parties that are distributed by the Company or others or may be necessary for operation of Company Software Products ("Third Party Products"), may fail to operate properly or as expected due to Year 2000 Issues. Such failures could result in system failures or miscalculations causing disruption of customers' operations, including among other things, a temporary inability to process transactions, send invoices, conduct communications, treat patients, or engage in similar normal business activities. Further, products and services used by the Company's customers, but not supplied by the Company, could fail to operate properly or as expected due to Year 2000 Issues. Customers' efforts to plan for such events could result in the deferral, delay or cancellation by customers of current installations of and plans to purchase Company Software Products. STATE OF READINESS The Company has undertaken various initiatives intended to address Year 2000 Issues with respect to Internal Use Systems, Company Software Products, and Third Party Products. The Company has established working groups whose primary functions are to: (i) develop and implement the Company's definition of Year 2000 readiness; (ii) assess Internal Use Systems, Third Party Products and Company Software Products for Year 2000 Issues; (iii) monitor development, testing and remediation efforts with respect to Company Software Products; (iv) monitor testing of Company Software Products and Third Party Products, (v) review customer preparations to implement Year 2000 releases of Company Software Products; (vi) monitor and coordinate the Company's deployment plans and results with respect to Year 2000 releases of Company Software Products; (vii) monitor and coordinate contingency plans with respect to Internal Use Systems, Company Software Products and Third Party Products; and (viii) provide centralization, accuracy and consistency of the Company's communications regarding Year 2000 Issues. Page 14 of 24 The Company has engaged independent experts to assist in its efforts with respect to Year 2000 Issues. The Company has employed such experts to independently evaluate and verify its methodologies and state of readiness. In addition, the Company has employed experts to independently evaluate certain critical Internal Use Systems. Although the Company's efforts to address Year 2000 issues do not fall precisely into sequential phases, generally these efforts are comprised of an assessment phase, a development phase (only with respect to Company Software Products), a deployment or remediation phase, a preliminary contingency planning phase, and a final stage contingency planning phase. INTERNAL USE SYSTEMS. Certain Internal Use Systems require replacement or modification, and to date the Company has replaced or modified most Internal Use Systems. In addition, in the ordinary course of replacing and upgrading Internal Use Systems, the Company attempts to obtain replacements that it believes will not fail as a result of Year 2000 Issues. The Company has completed its assessment efforts with respect to Internal Use Systems and expects that its remediation efforts will be completed by the fourth quarter of 1999. The Company is currently engaged in ongoing contingency planning to address personnel, resource and technical Year 2000 Issues relating to foreseeable scenarios that may develop despite its remediation efforts. The Company estimates that as of September 30, 1999 it had completed approximately 97% of its efforts in connection with Year 2000 Issues relating to its Internal Use Systems. The projects comprising the remaining 3% of such efforts are in process and are expected to be substantially completed on or about the fourth quarter of 1999. The majority of the remaining work is associated with finalizing the Company's contingency plan, analyzing landlord's responses for facilities leased by IDX, completing evaluation of the possible need for upgrades on non-IDX desktop applications and plan validation. The Company has mailed letters or otherwise communicated with many of its significant vendors of Internal Use Systems and related service providers to determine the extent to which Year 2000 Issues affect products and services of such vendors and providers. As of Sepember 30, 1999, the Company had received responses from approximately 97% of such third parties, and 97% of these companies have provided written assurances that they expect to successfully address their significant Year 2000 Issues on a timely basis. The Company is engaged in but has not completed efforts to communicate with other vendors and service providers involved in its Internal Use Systems to request more responses to its communications and to verify the responses received. Due to uncertainties associated with vendors and service providers, the Company is unable to predict whether Year 2000 Issues involved in its Internal Use Systems will have a material adverse effect on the Company's business, results of operations, or financial condition, despite the Company's current assessment to the contrary. THIRD PARTY PRODUCTS. The Company works closely with vendors of significant Third Party Products and has communicated with them to determine the extent to which their products and services are or will be Year 2000 compliant. In addition, the Company is testing or plans to test Year 2000 releases of certain Third Party Products. Based upon its current assessment, the Company believes it has received adequate assurances that significant Third Party Product vendors expect to successfully address their significant Year 2000 Issues on a timely basis. Due to uncertainties associated with Third Party Product vendors, the Company is unable to predict whether a material adverse effect on business, results of operations, or financial condition may result from Year 2000 Issues related to Third Party Products, despite the Company's current assessment to the contrary. COMPANY SOFTWARE PRODUCTS. The Company began development of Year 2000 versions of some Company Software Products in 1997 and continues to progress through development and maintenance cycles with respect to some Company Software Products. The Company began deploying Year 2000 releases of Company Software Products in 1998 and expects to complete deployment of such releases during the fourth quarter of 1999. The Company continues to test and monitor performance of Year 2000 releases of Company Software Products in customer environments. The Company expects to deliver and deploy maintenance releases of Company Software Products in the ordinary course of business to remediate any Year 2000 Issues identified during and after deployment of Year 2000 releases of Company Software Products. Based on the Company's assessment, the Company believes continuing efforts will be required to assist customers in deploying and testing Year 2000 releases of Company Software Products in their unique environments. The Company expects an increase in service and support effort levels as the year 2000 approaches and into the early months of the year 2000. Page 15 of 24 The Company develops, markets and supports many different products, and the amount of effort applied with respect to individual products varies from product to product. The Company estimates that as of September 30, 1999 it had completed more than 99% of the development efforts relating to Year 2000 versions of all of the Company Software Products, including 100% of such efforts related to EDiX. The projects comprising the remaining less than 1% of these efforts are in process and expected to be substantially completed in the fourth quarter of 1999. The Company estimates that as of September 30, 1999, it had completed approximately 94% of the deployment efforts relating to Year 2000 versions of all Company Software Products, including 81% of deployment efforts related to EDiX's products. The projects comprising the remaining 6% of these efforts are in process and are expected to be substantially completed in the fourth quarter of 1999, but the Company expects to continue efforts to remediate and maintain Year 2000 versions of Company Software Products in customer environments and to support customers' efforts relating to Year 2000 Issues through the early part of 2000. The Company is currently engaged in ongoing contingency planning to address company-wide personnel, resource, technical and communication issues relating to its service and remediation efforts. The Company expects that its development, remediation, testing, deployment and contingency planning efforts with respect to Company Software Products will continue up to and beyond December 31, 1999, but expects the level of development and deployment will decrease in the fourth quarter of 1999. CONTINGENCY PLANS AND RISKS. The Company will continue its ongoing efforts to comprehensively analyze company-wide operational, business and financial problems (including possible loss of revenue), if any, that would be reasonably likely to result from the impact of unresolved Year 2000 Issues, including possible: (i) failure by the Company and vendors of Third Party Products to complete efforts to avoid or minimize Year 2000 Issues on a timely basis, including failure of Internal Use Systems, Company Software Products and Third Party Products to be Year 2000 ready; (ii) failure of Customers to be ready to or cooperate in the deployment of Year 2000 ready versions of Company Software Products and Third Party Products on a timely basis; (iii) delay, deferral or cancellation by customers of current installations and prospective purchase decisions with respect to Company Software Products; and (iv) failure of communicating infrastructures, including communications and transportation. The Company's contingency plans relating to Year 2000 scenarios encompass "worst case" scenarios that assume the failure of some but not all significant communications and computing infrastructures of the Company, its customers and suppliers, together with failures of governmental and utility infrastructures, including those related to transportation and energy. COSTS The Company estimates that the cost of its efforts to successfully address Year 2000 Issues will be approximately $17.7 million, of which approximately $5.4 million relates to Internal Use Systems, $0.6 million relates to EDiX, and $12.3 million relates to Company Software Products. Because the Company develops, markets, and supports many different products, the amount of effort applied with respect to individual products varies from product to product. All expenditures to fund Year 2000 Issue efforts have been and will continue to be recognized as operating expenses for fiscal years 1997 through early 2000, except for $0.7 million, which is expected to be incurred and capitalized in 1999. As of September 30, 1999, the Company had incurred approximately $15.3 million related to its Year 2000 Issue assessment, remediation, testing, and contingency planning efforts identification, which is approximately 86% of the total projected costs of such efforts. Of the amount of costs incurred as of September 30, 1999, approximately $4.3 million relates to Internal Use Systems, which is approximately 81% of the total of estimated costs for such efforts, and $10.0 million relates to Company Software Products, which is approximately 89% of the total of estimated costs for such efforts. Unless all material Year 2000 Issues are timely and properly identified, assessed, and remediated, and unless adequate contingency plans are properly formulated and executed, Year 2000 Issues may materially adversely impact the Company's business, financial condition and results of operations, or adversely affect the Company's relationships with customers, suppliers or others. The Company believes that Year 2000 Issues could cause failures in important elements of the computing and communications infrastructures of the Company, its customers and suppliers and also Company Software Products and Third Party Products. Further, the Company expects that it and its customers and suppliers may experience failures of such systems the causes of which will be difficult to determine, requiring the application of resources for diagnostic purposes. If the Company has not developed adequate contingency plans and means to address such contingencies, Year 2000 Issues could materially adversely impact the Company's business, financial condition and results of operations, or adversely affect the Company's relationships with customers, suppliers or others. Page 16 of 24 The costs, timing and scheduling of deployment and installation of Year 2000 versions of Company Software Products and Third Party Products, as well as the ability of the Company to assist customers in the installation of Company Software Products, will depend in part on the readiness, ability and cooperation of customers and their suppliers. Due to uncertainties associated with customers' readiness, cooperation and sources of products and services, there can be no assurance that Year 2000 Issues will not materially adversely affect the Company's business, results of operations, or financial condition, or adversely affect the Company's relationships with customers, vendors or others. Some customers and prospects of the Company operate in complex computing environments that include products and services not supplied by the Company. The costs, timing and scheduling by customers of work related to Year 2000 Issues involving such products and services may cause some customers and prospects to defer current projects or prospective purchase decisions regarding Company Software Products. If Year 2000 Issues cause customers and prospects to defer current projects or prospective purchase decisions, the Company's financial, business and operational goals may be deferred or may not be realized at all, with the result that the Company's business, results of operations, or financial condition could be materially adversely affected. Due to uncertainties associated with customers and prospects, there can be no assurance that Year 2000 Issues will not materially adversely affect the Company's business, results of operations, or financial condition or adversely affect the Company's relationships with customers, vendors or others. The costs of the Company's Year 2000 identification, assessment, remediation, testing, deployment and contingency planning efforts, and the dates on which the Company believes it will complete such efforts, are based upon management's current best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans, and other factors. There can be no assurance that these estimates will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability of and cost of personnel trained in Year 2000 Issues, the ability to correctly and effectively identify, assess, remediate, and test all relevant computer codes, equipment, and embedded technology, and similar uncertainties, the ability of the Company to timely install and deploy Year 2000 releases of Company Software Products, a failure of the Company to provide, obtain or make available adequate resources to assist customers in installing Year 2000 releases of Company Software Products and Third Party Products. As a result of any of such factors alone or in combination, the Company may experience an increase in warranty and other claims. In addition, since there is no uniform definition of "compliance with Year 2000," and since the Company sells a myriad of different combinations of products and services under varying contractual terms, the Company is not able to assess or estimate the possible impact of such possible claims. No assurance can be given that the aggregate cost of defending and resolving such claims, if any, will not materially adversely affect the Company's results of operations. Although some of the Company's agreements with manufacturers and others from whom it purchases products for resale contain provisions requiring such parties to indemnify the Company under some circumstances, there can be no assurance that such indemnification arrangements will cover all of the Company's liabilities and costs related to claims by third parties related to Year 2000 Issues. FACTORS AFFECTING FUTURE RESULTS IDX Stock Prices May Continue to be Volatile. IDX has experienced, and expects to continue to experience fluctuations in its stock price due to a variety of factors including: . delay in customers purchasing decisions due to a variety of factors such as consolidation, management changes and year 2000 problems; . market prices of competitors such as McKesson HBOC, Inc.; . announcements of technological innovations, including Internet delivery of information and use of relational database technology; . new product introductions by IDX or its competitors; . market conditions particularly in the computer software and hardware industries; and . healthcare reform measures, such as those contemplated by the Balanced Budget Act of 1997. Page 17 of 24 These fluctuations could have a significant impact on future market prices of IDX's common stock. On March 5, 1999 IDX announced that it expected a loss of ($0.22) - ($0.28) per share in the quarter ending March 31, 1999. Following this announcement, the IDX share price declined. On April 30, 1999, the last reported sale price of IDX common stock on the Nasdaq National Market was $16.25 per share and on June 30, 1999, such price was $22.5625. On December 31, 1998, the last reported sale price of IDX common stock on the Nasdaq National Market was $44.00. These prices represent declines of 63% and 49%, respectively, in the value of IDX stock since December 31, 1998. Variation in Financial Trends in Net Income and Cash from Operations May Continue. Year over year net income and cash from operations have fluctuated since 1995. IDX's net income was $20.6 million in 1995. Net income fell to $16.7 million in 1996 and $8.0 million in 1997. Net income increased to $30.2 million in 1998. Cash from operations was $21.7 million in 1995, $10.4 million in 1996, $9.8 million in 1997, and $23.4 million in 1998. On March 5, 1999 IDX announced that based on currently available information, the after tax loss for the first quarter ending March 31, 1999 was expected to be ($5.0) to ($7.0) million. If these negative trends were to continue, IDX may have difficulty in financing future growth and funding its operating initiatives including future acquisitions. IDX Expects its Quarterly Operating Results to Fluctuate and its Customer Sales and Installation Requirements to Change. 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: . delay in customers purchasing decisions due to a variety of factors such as consolidation, management changes and year 2000 problems; . the volume and timing of systems sales and installations; . recognizing revenue at various points during the installation process; . the sales and implementation cycles of IDX's customers; and . general reductions in spending by IDX's customers and healthcare reform measures. In addition, the timing of new product and service introductions and product upgrade releases and general economic conditions can impact IDX's quarterly operating results. 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. Future period-to-period fluctuations may have a material adverse effect on IDX's results of operations, financial condition or business. IDX May Experience Challenges and Incur Substantial Costs in Integrating the Operations of EDiX. EDiX may present IDX operational challenges, and IDX expects to incur significant pre-tax charges in association with the merger. If IDX fails to successfully integrate the operations or management of the two companies, it could have a material adverse effect on the combined entity's results of operations, financial condition or business. IDX May Not be Successful in Implementing its Acquisition Strategy. IDX intends to 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: . the successful identification and acquisition of products, technologies or businesses; Page 18 of 24 . effective integration and operation of the acquired or aligned products, technologies or businesses despite technical difficulties, geographic limitations and personnel issues; and . overcoming significant competition for acquisition and alliance opportunities from companies that have significantly greater financial and management resources, such as McKesson HBOC, Inc. and Shared Medical Systems Corporation. The failure to successfully integrate any significant products, technologies or businesses could have a material adverse effect on IDX's results of operations, financial condition or business. IDX's Success Depends on New Product Development and Its Ability to Respond to 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 sell additional products to its existing client base and 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 factors including: . evolving industry standards, for example, Health Level Seven; . new technological developments, for example, the web technology. IDX is currently devoting significant resources toward the development of enhancements to its existing products, particularly in the announced area of web-based functionality and the migration of existing products to new hardware and software platforms including relational database technology and object-oriented programming. 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. IDX May Be Adversely Affected by Year 2000 Problems. In the year 2000 software applications that use only two digits to identify a year in the date field may fail or create errors. IDX uses computer equipment, software and devices with embedded technology, including both information systems and non-information systems, that may not be year 2000 compliant despite IDX's continuing efforts to assess, remediate, and test such equipment, software and devices. This could result in a system failure or miscalculations causing disruption of IDX's operations, including among other things, a temporary inability to: . process transactions; . send invoices; . conduct communications; or . engage in similar normal business activities. In addition, IDX sells computer software products and distributes the products of third parties that may not be year 2000 compliant despite IDX's continuing efforts to assess and test these products. This could result in system failures or miscalculations causing disruption of customers' operations, including, in addition to the types of disruptions described above, a temporary disruption in their ability to treat patients. Further, products and services used by IDX's customers, but not supplied by IDX, may not be year 2000 compliant. Customers may defer current installations of and plans to purchase IDX products until they have completed their own year 2000 assessment. Any of these problems could have a material adverse effect on IDX's results of operations, financial condition or business. IDX does not believe that the year 2000 issues will pose significant operational problems for IDX. However, if year 2000 issues are not properly identified, assessed and resolved, it could have a material adverse effect on the results of operations, financial condition or business of IDX. In addition if actual year 2000 remediation costs are higher than IDX estimated costs, it could materially adversely affect IDX's results of operations, financial condition or business. Page 19 of 24 The nature of IDX's business and its relationships with its customers make it difficult to assess the magnitude of IDX's potential exposure as a result of year 2000 issues. IDX is engaged in the business of developing, marketing and supporting computer software. IDX's software is often used by its customers in conjunction with other vendors' products and services. The ability of IDX to assist its customers in the development and installation of year 2000 compliant versions of IDX software products will depend in part on the readiness, ability and cooperation of its customers and their suppliers. In addition, the purchasing patterns of IDX customers and potential customers may be affected by year 2000 issues. The cost, timing and scheduling by customers of work related to year 2000 issues involving IDX's products and services may cause some customers to defer or forego projects or purchase decisions. IDX sells a number of different combinations of products and services under varying contractual terms. There is no widely accepted definition of year 2000 compliance. Certain of IDX's customers may assert breach of warranty or other claims against IDX relating to year 2000 compliance. Any of these factors may adversely affect the results of operations. Product Sales Within the Healthcare Industry May Decline Causing IDX to Suffer Financially. 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, any factor adversely affecting this industry and these sales could have a material adverse effect on IDX. In addition, even though IDX's annual sales have increased, future revenues associated with existing products may decline as a result of factors like price competition. IDX may not be able to continue its success in marketing its current, new or enhanced products. Moreover, IDX may be unable to maintain its current pricing for existing products. IDX May Be Faced With Product Liability Claims Exceeding Its Insurance Coverage. 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. A successful claim brought against IDX in excess of its insurance coverage could have a material adverse effect on IDX's results of operations. Even unsuccessful claims could be costly to defend and divert management time and resources. In addition, IDX cannot assure you that it will continue to have appropriate insurance available to it in the future at commercially reasonable rates. IDX's Success is Significantly Dependent on 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, and systems architects skilled in the technical environments in which IDX'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 IDX's results of operations. IDX does not maintain "key man" life insurance policies on its executives. Not all IDX personnel have executed noncompetition agreements. IDX May Be Adversely Affected By Changes in the Healthcare Industry and by Government Healthcare Reform Proposals. IDX's products are designed to function within the structure of the healthcare financing and reimbursement system currently being used in the United States. During the past several years, the healthcare industry has been subject to increasing levels of governmental regulation of, among other things, reimbursement rates and capital expenditures. From time to time, Congress has considered and adopted proposals to reform the healthcare system. These proposals may increase government involvement in healthcare, lower reimbursement rates and otherwise change the operating environment for IDX's clients. Legislation such as the Balanced Budget Act of 1997 will lower reimbursement rates and may result in reduced spending by certain healthcare organizations. Healthcare organizations may react to these proposals and the uncertainty surrounding these proposals by curtailing or deferring investments, including those for IDX's products and services. IDX cannot predict with any certainty what impact these proposals or healthcare reforms, such as the Balanced Budget Act of 1997 might have on its results of operations, financial condition or business. Governmental Regulation May Impose New Burdens and Costs on IDX's Operations. 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: Page 20 of 24 . register and list its products with the FDA; . notify the FDA and demonstrate substantial equivalence to other products on 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 FDC Act's general controls, including those relating to good manufacturing practices and adverse experience reporting. Although it is not possible to anticipate the final form of the FDA's policy with regard to computer software, 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. In order to ensure continued compliance with changing government standards and regulations, IDX monitors regulations affecting its business including those mandated by the Health Insurance Portability and Accountability Act of 1996. IDX May Have Conflicts of Interests With Some of its Executives Which May Adversely Affect IDX. 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 1998, IDX paid an aggregate of approximately $4.2 million in connection with these leases. In November 1998, IDX announced tentative plans to expand one of its facilities located on land owned by these executives. The Company is in the final stages of such plans but has not yet made any commitments to execute such plans. In connection with these arrangements, the economic interests of these executives and directors and IDX may diverge. In response, IDX has created the Committee on Independent Director Transactions to review and approve transactions of this nature. IDX believes that these arrangements were entered into on an arm's length basis on terms that were no less favorable to IDX than could have been obtained from unaffiliated third parties. 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 21 of 24 PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 11, 1999, a lawsuit was served on the Company. Eleven other companies engaged in various aspects of the healthcare information systems business have also been sued in the same lawsuit. The lawsuit was brought in the United States District Court for the Northern District of Texas Fort Worth Division and is entitled Allcare Health Management System, Inc. v. Cerner Corporation, et al., and claims damages for patent infringement. The Company is investigating the claims made in the lawsuit and has responded accordingly. Based upon investigation to date, the Company believes the lawsuit is without merit and intends to vigorously defend against it. 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. Item 2. Changes In Securities None. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information None. Item 6. Exhibits And Reports On Form 8-K. (a) The exhibits filed as part of this Form 10-Q are listed on the Exhibit Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference. Page 22 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: November 12, 1999 By: /s/ John A. Kane ---------------------------------- John A. Kane, Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Page 23 of 24 EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description Page - ----------- ----------- ---- 99A Sample Indemnification Agreement signed 25 by all Directors and Officers as of September 13, 1999 99B Amendment to Amended and Restated Consulting/ 34 Employment Agreement dated as of February 16, 1999 99C Third Amendment to Amended and Restated Consulting/ 39 Employment Agreement dated as of August 1, 1999 27 Financial Data Schedule 41 Page 24 of 24 EXHIBIT 99A INDEMNIFICATION AGREEMENT This Agreement is made as of the 13th day of September 1999, by and between IDX Systems Corporation, a Vermont corporation (the "Corporation), and the individual who executes this Agreement as "Indemnitee" below (the "Indemnitee"), a director or officer of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors and officers so as to provide them with the maximum possible protection permitted by law; and WHEREAS, Indemnitee does not regard the protection available under the Corporation's Articles of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as a director or officer without adequate protection; and WHEREAS, the Corporation desires Indemnitee to serve as a director or officer of the Corporation. NOW THEREFORE, the Corporation and Indemnitee do hereby agree as follows: 1. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director or officer of the Corporation so long as he or she is duly elected or appointed or until such time as he or she tenders his or her resignation in writing or the Corporation terminates its relationship with him or her. 2. Definitions. As used in this Agreement: (a) The term "Proceeding" means any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, and shall include suits brought by or on behalf of the Corporation, derivatively or otherwise, and all appeals in connection with any action, suit or proceeding. (b) "Official Capacity" means: (i) with respect to a director of the Corporation, the office of director of the Corporation; (ii) with respect to an officer of the Corporation, the office held by the officer. (c) "Expenses" means the reasonable costs incurred in connection with a Proceeding, and shall include (without limitation) reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, fees of investigators, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and other disbursements or expenses of the types customarily incurred in connection with a Proceeding, but shall not include the amount of judgment or Fines incurred by Indemnitee or amounts paid to settle a proceeding. (d) "Other Capacity" means all employment of the director by (or agency relationship of the director with) the Corporation, and all actions taken or omitted and all services provided by the director to, for the benefit of, or on behalf of, the Corporation, including any directorship, office, employment, or agency relationship undertaken, or services provided, by Indemnitee in connection with a Nominee Entity, provided, however, that an Other Capacity shall not include an Official Capacity. (e) "Nominee Entity" means any entity other than the Corporation, including any foreign or domestic corporation, partnership, joint venture, trust, or employee benefit plan, for which the Indemnitee is or was serving at the Corporation's request. The Indemnitee is serving an employee benefit plan at the Corporation's request if the Indemnitee's duties to the Corporation also impose duties on, or otherwise involve services by, the Indemnitee to the plan or its participants or beneficiaries. (f) "Fines" means fines and penalties, and shall include any excise tax assessed with respect to any employee benefit plan. (g) "Special Legal Counsel" means counsel that has never been an employee of the Corporation and who has not, and whose firm has not, performed legal services for the Corporation pertaining to the matter for which indemnification is sought for a period of at least two years before retention as special counsel. 3. Indemnification in Third-Party Proceedings. (a) The Corporation shall indemnify and hold harmless Indemnitee in connection with any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) because of his or her Official Capacity or because of any action alleged to have been taken or omitted in connection therewith, against all Expenses, judgments, or Fines actually incurred by Indemnitee or on his or her behalf in connection with such Proceeding, if: (i) the Indemnitee acted in good faith; (ii) the Indemnitee reasonably believed his or her conduct was in the Corporation's best interest; and (iii) in the case of any Proceeding brought by a governmental entity, the Indemnitee had no reasonable cause to believe that his or her conduct was unlawful, and the Indemnitee is not finally found to have engaged in a reckless or intentional unlawful act. The Corporation shall not indemnify Indemnitee for Expenses, judgments, or Fines under this Paragraph 3(a) in connection with a Proceeding as to which Indemnitee is adjudged liable on the basis that a personal benefit was improperly received by the Indemnitee. (b) The Corporation shall indemnify and hold harmless the Indemnitee in connection with any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) because of his or her Other Capacity or any action or omission alleged to have been taken or omitted in connection therewith, against all Expenses, judgments or Fines incurred by or on behalf of Indemnitee, if: (i) the Indemnitee acted in good faith; (ii) the Indemnitee reasonably believed that his or her conduct was not opposed to the Corporation's best interest (Indemnitee's conduct with respect to an employee benefit plan for a purpose Indemnitee reasonably believed to be in the interests of the participants in and beneficiaries of the plan satisfies this requirement); and (iii) in the case of any Proceeding brought by a governmental entity, the Indemnitee had no reasonable cause to believe that his or her conduct was unlawful, and Indemnitee is not found to have engaged in a reckless or intentional unlawful act. The Corporation shall not indemnify Indemnitee for Expenses, judgments, or Fines under this Paragraph 3(b) in connection with a Proceeding as to which Indemnitee is adjudged liable on the basis that a personal benefit was improperly received by the Indemnitee. (c) The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere (or similar plea) shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in the best interests of the Corporation, or not opposed to the best interests of the Corporation, or that Indemnitee had reasonable cause to believe that his or her conduct was unlawful. (d) If Indemnitee is not otherwise entitled under this Paragraph 3 to indemnification of some or all Expenses incurred by or on behalf of Indemnitee in connection with a Proceeding (other than a Proceeding by or in the right of the Corporation for a judgment in its favor), the Corporation shall in any event indemnify and hold harmless Indemnitee for such Expenses if a court of competent jurisdiction determines that Indemnitee is, in view of all of the circumstances, fairly and reasonably entitled to indemnification. 4. Indemnification in Proceedings by or in the Right of the Corporation. (a) The Corporation shall indemnify and hold harmless Indemnitee in connection with any Proceeding by or in the right of the Corporation to procure a judgment in its favor because of his or her Official Capacity or because of any action alleged to have been taken or omitted in connection therewith, against all Expenses incurred by Indemnitee or on his or her behalf in connection with such Proceeding, if he or she acted in good faith and in a manner which he or she reasonably believed to be in the best interests of the Corporation, and if he or she is not adjudged in connection with such Proceeding to have improperly received a personal benefit. (b) The Corporation shall indemnify and hold harmless Indemnitee in connection with any Proceeding by or in the right of the Corporation to procure a judgment in its favor because of his or her Other Capacity or because of any action alleged to have been taken or omitted in connection therewith, against all Expenses incurred by Indemnitee or on his or her behalf in connection with such Proceeding, if he or she acted in good faith and in a manner in which he or she reasonably believed was not opposed to the best interests of the Corporation, and if he or she is not adjudged in connection with such Proceeding to have improperly received a personal benefit. (c) The Corporation shall not indemnify Indemnitee for any judgment against Indemnitee in a Proceeding by or in the right of the Corporation for a judgment in its favor. (d) If Indemnitee is not otherwise entitled under this Paragraph 4 to indemnification of some or all Expenses incurred by or on behalf of Indemnitee in connection with a Proceeding by or in the right of the Corporation for a judgment in its favor, the Corporation shall in any event indemnify and hold harmless Indemnitee for such Expenses if a court of competent jurisdiction determines that Indemnitee is, in view of all of the circumstances, fairly and reasonably entitled to indemnification. 5. Exceptions to Right of Indemnification. Notwithstanding anything to the contrary in this Agreement: (a) except as set forth in Paragraph 11, the Corporation shall not indemnify the Indemnitee in connection with a Proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation; and (b) the Corporation shall not indemnify the Indemnitee to the extent the Indemnitee has been reimbursed from the proceeds of insurance. In the event the Corporation makes any indemnification payments to the Indemnitee and the Indemnitee is subsequently reimbursed from the proceeds of insurance, the Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement. 6. Indemnification of Expenses of Successful Party. Notwithstanding anything to the contrary in this Agreement, to the extent that Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, made because of Indemnitee's Official Capacity or Other Capacity or any action or omission in connection herewith, Indemnitee shall be indemnified against all Expenses incurred by him or her on his or her behalf in connection therewith. Without limiting the foregoing, if any Proceeding or any claim, issue or matter therein is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his or her conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 7. Notification and Defense of Claim. (a) As a condition precedent to his or her right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as reasonably practicable of any Proceeding for which indemnity will or could be sought by him or her and provide the Corporation with a copy of any summons, request for information, notice of formal or informal investigation or inquiry, citation, subpoena, complaint, indictment, information or other document relating to such Proceeding with which he or she is served. (b) With respect to any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) of which the Corporation is so notified, the Corporation shall be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Paragraph 7. (c) The Indemnitee shall have the right to employ his or her own counsel in connection with a Proceeding as to which the Corporation has assumed the defense of Indemnitee, but the Expenses in connection with such counsel incurred after notice from the Corporation of its assumption of the defense shall not be at the expense of the Corporation, and shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) there is a material conflict of interest between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation does not in fact employ counsel to assume the defense of such action. 8. Advancement of Expenses. Subject to Paragraph 10, in the event that the Corporation does not assume the defense of a Proceeding pursuant to Paragraph 7 it shall advance all Expenses incurred by or on behalf of the Indemnitee in connection with a Proceeding as to which indemnification may be due pursuant to Paragraphs 3 or 4, prior to the final disposition of such matter, upon: (i) receipt of (a) a written affirmation of the Indemnitee's good faith belief that he or she met the standard of conduct required by Paragraph 3 or 4 hereof, and (b) an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation; and (ii) a determination pursuant to Paragraph 9 that the facts then known to those making the determination would not preclude indemnification under applicable law. The undertaking required by this paragraph shall be an unlimited general obligation of the Indemnitee, but need not be secured and shall be accepted without reference to Indemnitee's financial ability to make repayment. The Corporation shall in good faith seek to settle or otherwise compromise, on behalf of Indemnitee and at the Corporation's expense, all claims (other than claims by or in the right of the Corporation for a judgment in its favor) as to which advancement of Expenses is required under this Agreement. 9. Procedure for Indemnification. (a) In order to obtain indemnification or advancement of Expenses pursuant to Paragraphs 3, 4, 6 or 8 of this Agreement, Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification or advancement of Expenses. The Corporation shall make payment within 30 days after receipt by the Corporation of a written request for indemnification to which Indemnitee is entitled under Paragraph 6 of this Agreement. (b) The Corporation shall use its best efforts to make any determination referred to in Paragraphs 3, 4 or 8 within fifteen (15) days of receipt of any request for advancement of Expenses or indemnification pursuant to such Paragraphs. Any such indemnification or advancement shall be made promptly, and in any event within 30 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to such a request the Corporation determines within such 30 day period that it is unable to make a determination required by such Paragraphs as a condition to indemnification or advancement. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation consisting of persons who are not at that time parties to the Proceeding ("disinterested directors"), (b) if a quorum cannot be obtained under clause (a), a majority vote of a quorum of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors who are not parties to the Proceeding, (c) by written opinion of Special Legal Counsel selected by the board of directors or its committee in the manner prescribed in clauses (a) or (b), or if a quorum of the board of directors cannot be obtained as set forth in clause (a) and a committee cannot be designated as set forth in clause (b), selected by a majority vote of the full board of directors (in which selection directors who are parties may participate), or (d) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the Proceeding may not be voted on the determination. 10. Remedies. (a) The rights to indemnification or advancement provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies a request for indemnification or advancement, in whole or in part, or if no disposition of a request for indemnification or advancement is made within the 30-day period referred to above in Paragraph 9(b). (b) Unless otherwise required by law, the burden of proving that Indemnitee is not entitled to indemnification, advancement, or to be held harmless shall be on the Corporation. In the event that any action to enforce rights to advancement of Expenses is filed in a court, the parties shall stipulate: (i) that the question of Indemnitee's right to advancement of Expenses during the pendency of the action to enforce such rights to advancement is appropriate for resolution by preliminary injunction; (ii) that the question whether such a preliminary injunction should issue shall be made on the basis of Indemnitee's affirmation, and the facts then known to the parties without discovery except as to the basis for factual assertions of the Corporation; (iii) that Indemnitee shall be irreparably harmed if advancement is not promptly made; and (iv) that Indemnitee shall not be required to post any bond or other security in connection with such preliminary injunction. Neither the failure of the Corporation to have made a determination (nor an actual determination by the Corporation) pursuant to Paragraph 9 shall create a presumption or be admissible as evidence that Indemnitee is not entitled to advancement or indemnification. Indemnitee's Expenses in connection with successfully establishing his right to indemnification, advancement, or to be held harmless, in whole or in part, shall be paid by the Corporation. 11. Partial Indemnification and Contributions. (a) If Indemnitee is entitled under any provision of this Agreement to be indemnified or held harmless by the Corporation for some portion of Expenses, judgments, or Fines incurred by or on behalf of Indemnitee in connection with any Proceeding, but not for the total amount thereof, the Corporation shall nevertheless indemnify and hold harmless Indemnitee for the portion of such Expenses, judgments, or Fines to which Indemnitee is entitled. In making any allocation of Expenses, judgments or Fines between matters that are covered or not covered under any provision of this Agreement, the Corporation shall indemnify, advance or hold harmless Indemnitee for all Expenses, judgments, or Fines incurred by or on behalf of Indemnitee in connection with matters covered by this Agreement, and shall not indemnify, advance or hold harmless Indemnitee for Expenses, Judgments or Fines that would not have been incurred absent the pendency of uncovered matters. (b) In the event that Indemnitee and the Corporation are jointly liable for any judgment or Fines in connection with a Proceeding (or would be jointly liable if joined in the Proceeding), and Indemnitee is not entitled to be indemnified or held harmless pursuant to Paragraphs 3, 4 or 8, then the Corporation shall pay or contribute to, to the extent it is permitted by law to do so, all Expenses, judgments, Fines otherwise due from the Indemnitee in such proportion as is appropriate to reflect the greater of (i) the relative benefits received by the Corporation (on the one hand) and the Indemnitee (on the other hand) from the matters from which the Proceeding arose, or (ii) the relative fault of the Corporation in connection with matters from which the Proceeding arose. The relative fault of the Corporation on the (on the one hand) and of the Indemnitee (on the other hand) shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent the matters from with the Proceeding arose. The parties acknowledge and agree that it would not be just and equitable if contribution pursuant to this Paragraph 11 were determined by pro rata allocation or any other method of allocation that does not take account of the foregoing equitable considerations. 12. Subrogation. In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 13. Term of Agreement. This Agreement shall apply with respect to all Proceedings covered hereby regardless of whether the acts or omissions complained of in such a Proceeding occurred or allegedly occurred before or after the date of this Agreement. All agreements and obligations of the Corporation contained herein shall continue during the period the Indemnitee is a director, officer, employee, or agent of the Corporation (or is serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise) and shall continue thereafter for so long as the Indemnitee may be subject to any possible, contemplated, or actual Proceeding. 14. Indemnification Hereunder Not Exclusive. The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive or any other rights to which Indemnitee may be entitled under the Second Amended and Restated Articles of Incorporation, as may be amended from time to time, Articles of the Bylaws, any agreement, any vote of stockholders of disinterested directors, the Vermont Business Corporation Law, any other law (common or statutory), or otherwise, both as to action in his or her Official Capacity or Other Capacity. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of his or her status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided the Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 15. No Special Rights. Nothing herein shall confer upon Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation. 16. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments, and Fines paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have bee invalidated and to the fullest extent permitted by applicable law. 17. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 18. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefits of the estate, heirs, executors, administrators and personal representatives of Indemnitee. 19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 20. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Vermont law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 21. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed: To the Indemnitee addressed as follows: ==================================== ==================================== ==================================== ==================================== To the Corporation addressed as follows: IDX Systems Corporation 1400 Shelburne Road South Burlington, Vermont 05402-1022 Attention: President With a copy to: General Counsel IDX Systems Corporation 1400 Shelburne Road South Burlington, Vermont 05402-1022 or to such other address as may have been furnished in writing to Indemnitee by the Corporation or to the Corporation by Indemnitee. 22. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Vermont. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. IDX SYSTEMS CORPORATION Indemnitee: By:____________________________________ ____________________________________ [Signature of IDX authorized officer] [Signature of Indemnitee] Print Name: Print Name: Title: ------------------------- EXHIBIT 99B AMENDMENT TO AMENDED AND RESTATED CONSULTING/EMPLOYMENT AGREEMENT This amendment is entered into as of the 16th of February, 1999 (the "Effective Date"), by and between IDX Systems Corporation, a Vermont corporation with its principal place of business at 1400 Shelburne Road, Burlington, Vermont 05402-1070 (the "Corporation"), and Henry M. Tufo, M.D. of Hinesburg, Vermont (the "Employee). This amendment amends the Consulting/Employment Agreement originally entered into by and between the Corporation, the Employee, and the Majority Shareholders on February 1, 1995, and amended and restated on March 7, 1995 (the "Agreement"). In consideration of the covenants set forth herein, the parties, intending to be bound, agree as follows: 1. Paragraph 1 shall cease to be effective as of the Effective Date and from and after the Effective Date, the following shall apply: The Corporation agrees to employ the Employee as Executive Vice President from the Effective Date until June 30, 1999, and Employee agrees to serve as such, subject to the terms and conditions of the Agreement and this Amendment. As Executive Vice President, Employee will continue to work from his current office with his current staff to enable him to perform his duties. Thereafter, Employee agrees to serve as a consultant to the Corporation until June 30, 2000, subject to the terms and conditions of the Agreement and this Amendment. The Corporation will provide Employee with reasonable facilities and staff to enable him to provide consulting services to the Corporation, including reasonable office space, a computer, a secretary and electronic mail. 2. Paragraph 2 shall cease to be effective as of the Effective Date and from and after the Effective Date, the following shall apply: Employee's duties and responsibilities as an Executive Vice President shall be as described in Attachment A, and his duties as a consultant shall be in the areas of Internet activities related to medical and clinical practice, key customer issues, organizational design and measures, key strategies or other areas consistent with his fields of expertise and background, as assigned by the Chief Executive Officer of the Corporation. Employee shall be available for approximately one hundred twenty (120) hours of service per month. If the Corporation does not assign tasks sufficient to require one hundred twenty (120) hours of service per month, the Employee shall nevertheless be entitled to receive the compensation set forth in Paragraph 3 as if he had performed such services. 3. Paragraph 3 shall cease to be effective as of the Effective Date and from and after the Effective Date, the following shall apply: The Corporation shall compensate the Employee as set forth in Attachment A to this Amendment. 4. Paragraph 4 shall cease to be effective as of the Effective Date and from and after the Effective Date, the following shall apply: Employer shall furnish to Employee the benefits described in Attachment A from and after the Effective Date. 5. Paragraphs 5 and 6 shall cease to be effective as of the Effective Date and shall be replaced with the following: Either party may terminate this Agreement for any reason and at any time upon ten (10) days written notice. However, if the Corporation terminates this Agreement prior to June 30, 2000 for any reason other than (a) fraud committed by the Employee, (b) criminal conduct by the Employee, or (c) continued gross failure of Employee to perform adequately his duties under this Agreement when measured against mutually agreed on written performance goals and improvement plan (unless because of disability as defined in the IDX employee guide), the Employee and the Corporation agree that damages would be difficult to calculate and therefore the Corporation shall pay to Employee, as liquidated damages, and not as a penalty, the following: (x) the compensation due to Employee as if Employee's services had continued until June 30, 2000, plus (y) an amount equal to the difference between the market price of IDX Common Stock on the date of termination and the exercise price for all unexercised options granted to Employee that would have become exercisable on or before June 30, 2000. Upon payment of such liquidated damages, the Corporation shall have no further liability to Employee under this Agreement. A summary of all unexercised options granted to Employee as of the Effective Date that are scheduled to become exercisable before June 30, 2000 is set forth in Attachment A. 6. Paragraph 8 shall be amended by deleting "provided, however, that this Agreement shall thereafter be considered automatically renewed for successive one-year periods if not terminated by either party by giving at least twelve(12) months' advance written notice of the intent not to renew." The last sentence of Paragraph 8 shall cease to be effective from and after the Effective Date. 7. Paragraph 15 shall cease to be effective from and after July 1, 1999. 8. Paragraph 16 shall be amended by inserting the following after the first sentence: Notwithstanding anything to the contrary, the "Noncompetition Period" referred to in Section 5 ("Covenant Not to Compete") of Exhibit A of the Agreement shall begin on the date the Agreement terminates and continue for twelve (12) months thereafter. IN WITNESS WHEREOF the parties have set their hands as of the day and year first written above. IDX SYSTEMS CORPORATION By:/s/ Richard E. Tarrant ------------------------------- Its Duly Authorized Agent /s/ Henry M. Tufo ------------------------------ Henry M. Tufo, M.D. THE FOLLOWING PERSONS HAVE PERSONS HAVE SIGNED BELOW FOR THE SOLE PURPOSE OF INDICATING THEIR CONSENT TO THE TERMS OF THIS AMENDMENT. /s/ Richard E. Tarrant - ----------------------------------- Richard E. Tarrant /s/ Robert H. Hoehl - ----------------------------------- Robert H. Hoehl ATTACHMENT A EXECUTIVE VICE PRESIDENT DUTIES (AS ASSIGNED BY THE CHIEF EXECUTIVE OFFICERS) o Management transition issues o Internet activities related to medical and clinical practice o Key customer issues o Organizational design and measures o Key strategies and other areas consistent with Employee's field of expertise. COMPENSATION AS EXECUTIVE VICE PRESIDENT o Salary at the rate of $300,000.00 per annum, payable semi-monthly o Bonus similar to that of other senior management, payable for that portion of the year Employee serves as Executive Vice President o Standard company benefits. Stock options shall not be granted to Employee. AS CONSULTANT o $400,000.00 for services provided between 7/1/99 and 6/30/00, payable semi-monthly Options Summary as of the Effective Date - -------------- ------------------- -------------- ----------------- ------------ Option No. Grant Date Granted Full Vest Exercisable - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000566 5/1/97 1808 5/1/98 1808 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000566 5/1/97 1808 5/1/99 0 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000566 5/1/97 1808 5/1/00 0 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000567 5/1/97 1808 2/13/98 1808 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000567 5/1/97 1808 5/1/05* 0 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000567 5/1/97 1808 5/1/05* 0 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000810 11/24/97 3050 11/24/98 3050 - -------------- ------------------- -------------- ----------------- ------------ - -------------- ------------------- -------------- ----------------- ------------ 000810 11/24/97 3050 11/24/99 0 - -------------- ------------------- -------------- ----------------- ------------ - ------------------------ * While the exercise date for these options is beyond June 30, 2000, these options are included in the summary since Employee may become entitled to exercise these options in 1999 and 2000 if the Corporation meets certain goals for 1998 and 1999, respectively. If the Corporation does not meet such goals for those years, these options would not become exercisable until 5/1/05, and Employee would not receive the amount described in paragraph 5(y) for those options. EXHIBIT 99C THIRD AMENDMENT TO AMENDED AND RESTATED CONSULTING/EMPLOYMENT AGREEMENT This amendment is entered into as of the 1st of August, 1999 (the "Effective Date"), by and between IDX Systems Corporation, a Vermont corporation with its principal place of business at 1400 Shelburne Road, Burlington, Vermont 05402-1070 (the "Corporation"), and Henry M. Tufo, M.D. of Hinesburg, Vermont (the "Employee). This amendment amends the Consulting/Employment Agreement originally entered into by and between the Corporation, the Employee, and the Majority Shareholders on February 1, 1995, and amended and restated on March 7, 1995, and further amended on February 16, 1999 (the "Agreement"). In consideration of the covenants set forth herein, the parties, intending to be bound, agree as follows: 1. Paragraph 1 shall be amended by inserting after the sentence reading "As Executive Vice President, Employee will continue to work from his current office with his current staff to enable him to perform his duties." the following new language: Beginning July 1, 1999, Employee shall serve as Executive Vice President on a month-to-month basis. Either party may terminate Employee's employment as Executive Vice President by providing at least ten (10) days written notice to the other prior to the end of any calendar month. The giving of such notice terminates employment as Executive Vice President at the end of the month in which such proper notice is given. 2. Attachment A to the Amendment dated February 16, 1999 shall be amended by deleting the section "Compensation" and replacing with the following: COMPENSATION AS EXECUTIVE VICE PRESIDENT: o Until June 30, 1999, salary at the rate of $300,000.00 per annum, payable semi-monthly, and bonus similar to that of other senior management, payable for the 6-month period of the year Employee serves as Executive Vice President; o Beginning July 1, 1999, salary at the rate of $33,157.09 per month, payable semi-monthly. AS CONSULTANT: o Compensation at the rate of $400,000.00 per annum, payable semi-monthly. 3. Paragraph 4 shall be amended by adding the following new sentence: Effective July 1, 1999, Employer shall furnish to Employee the following benefits as long as Employee serves as Executive Vice President: basic life insurance/AD&D, Long Term Disability insurance, ShortTerm Disability insurance, and reimbursement for Employee's election to waive medical insurance. Employer shall also pay the appropriate payroll taxes for Medicare. IN WITNESS WHEREOF the parties have set their hands as of the day and year first written above. IDX SYSTEMS CORPORATION By: /s/ Robert W. Baker, Jr. ------------------------------- Its Duly Authorized Agent /s/ Henry M. Tufo ------------------------------ Henry M. Tufo, M.D. EX-27 2 FDS -- ARTICLE 5 FDS FOR 3RD QUARTER 99 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME TAXES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001001185 IDX SYSTEMS COPORATION 1,000 U.S. DOLLARS 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 SEP-30-1998 1 1 29,064 18,531 44,832 109,954 114,574 86,434 (3,200) (1,978) 0 0 201,354 225,696 101,713 72,298 47,168 37,294 275,614 274,777 62,123 60,590 0 0 0 0 0 0 358 265 204,033 213,922 275,614 274,777 253,123 255,908 253,123 255,908 161,540 142,823 106,781 86,774 1,642 0 1,256 432 862 822 (15,044) 29,553 (5,394) 15,990 (9,650) 13,563 0 0 0 0 0 0 (9,650) 13,563 (0.35) 0.50 (0.35) 0.48
EX-27 3 FDS -- ARTICLE 5 FDS FOR 3RD QUARTER 99 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME TAXES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001001185 IDX SYSTEMS COPORATION 1,000 U.S. DOLLARS 3-MOS 3-MOS DEC-31-1999 DEC-31-1998 JUL-01-1999 JUL-01-1998 SEP-30-1999 SEP-30-1998 1 1 29,064 18,531 44,832 109,954 114,574 86,434 (3,200) (1,978) 0 0 201,354 225,696 101,713 72,298 47,168 37,294 275,614 274,777 62,123 60,590 0 0 0 0 0 0 358 265 204,033 213,922 275,614 274,777 92,218 90,937 92,218 90,937 56,442 50,362 34,349 29,972 0 0 526 131 4 379 1,964 11,849 786 5,650 1,178 6,199 0 0 0 0 0 0 1,178 6,199 0.04 0.23 0.04 0.22
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