10-Q 1 w42237e10-q.txt FORM 10-Q 1 ================================================================================ 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, 2000 COMMISSION FILE NUMBER: 000-24539 ECLIPSYS CORPORATION (Exact name of registrant as specified in its charter)
DELAWARE 65-0632092 (State of Incorporation) (IRS Employer Identification Number)
777 East Atlantic Avenue Suite 200 Delray Beach, Florida 33483 (Address of principal executive offices) (561)-243-1440 (Telephone number of registrant) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
CLASS SHARES OUTSTANDING AS OF OCTOBER 27, 2000 ----- ----------------------------------------- Common Stock, $.01 par value 36,999,537 ----------
================================================================================ 2 ECLIPSYS CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 INDEX PART I. Financial Information Item 1. Condensed Consolidated Balance Sheets (unaudited) - As of September 30, 2000 and December 31, 1999 Condensed Consolidated Statements of Operations (unaudited) - For the Three and Nine Months ended September 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows (unaudited) - For the Nine Months ended September 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements (unaudited) - For the Three and Nine Months ended September 30, 2000 and 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. Other Information Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K
2 3 PART I. ITEM 1. ECLIPSYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS)
SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 17,900 $ 33,956 Accounts receivable, net 63,739 77,254 Inventory 437 660 Other current assets 10,096 11,800 ----------- ----------- Total current assets 92,172 123,670 Fixed assets, net 15,697 14,522 Capitalized software development costs, net 10,836 7,944 Acquired technology, net 23,993 33,161 Intangible assets, net 10,077 16,858 Other assets 8,286 6,780 ------------ ------------ TOTAL ASSETS $ 161,061 $ 202,935 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Deferred revenue $ 45,294 $ 49,279 Current portion of long-term debt 551 - Other current liabilities 30,865 41,288 ----------- ----------- Total current liabilities 76,710 90,567 Deferred revenue 5,083 8,803 Long-term debt 1,177 - Other long-term liabilities 1,870 2,264 STOCKHOLDERS' EQUITY Common stock 368 363 Unearned stock compensation (212) (320) Additional paid-in capital 257,336 254,085 Accumulated other comprehensive loss (243) (327) Accumulated deficit (181,028) (152,500) ------------ ------------ Total stockholders' equity 76,221 101,301 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 161,061 $ 202,935 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 4 ECLIPSYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES Systems and services $ 47,882 $ 58,361 $ 153,697 $168,097 Hardware 2,731 6,469 8,736 15,937 ---------- ----------- ----------- -------- TOTAL REVENUES 50,613 64,830 162,433 184,034 COSTS AND EXPENSES Cost of systems and services revenues 40,707 32,168 108,799 93,375 Cost of hardware revenues 2,167 5,408 6,968 13,421 Marketing and sales 9,947 9,587 29,143 26,150 Research and development 9,208 10,055 28,102 34,149 General and administrative 3,316 2,929 8,231 9,033 Depreciation and amortization 3,781 4,063 11,107 11,734 Stock compensation charge - 982 - 1,987 Restructuring charge 1,198 1,774 1,198 5,133 Pooling and transaction costs (1,200) - 1,900 1,648 ---------- ----------- ----------- -------- TOTAL COSTS AND EXPENSES 69,124 66,966 195,448 196,630 ---------- ----------- ----------- -------- LOSS FROM OPERATIONS (18,511) (2,136) (33,015) (12,596) Interest income, net 223 337 891 945 Other income, net - - 3,596 - NET LOSS $ (18,288) $ (1,799) $(28,528) $(11,651) ========== =========== =========== ======== BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.50) $ (0.05) $ (0.78) $ (0.34) ========== =========== =========== ======== BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 36,829 35,479 36,672 34,575 ---------- ----------- ----------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 5 ECLIPSYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 ---------- ---------- OPERATING ACTIVITIES Net Loss $ (28,528) $ (11,651) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 27,019 31,747 Provision for bad debts 2,705 1,576 Write down of accounts receivable 9,400 - Gain on sale of investment (4,462) - Write down of investments 802 - Write off of capitalized software development costs - 2,790 Stock compensation expense 108 2,250 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 262 (6,231) Inventory (102) 91 Other current assets 2,900 (1,447) Other assets (2,444) 289 Deferred revenue (8,762) (8,406) Other current liabilities (13,679) (6,340) Other liabilities (394) (5) ---------- ---------- Total adjustments to reconcile net loss to net cash (used in) provided by operating activities 13,353 16,314 ---------- ---------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (15,175) 4,663 ---------- ---------- INVESTING ACTIVITIES Purchase of fixed assets (5,571) (5,698) Purchase of investments (7,905) - Sale or maturity of investments 12,432 17,003 Capitalized software development costs (4,905) (4,847) Acquisitions, net of cash acquired - (25,000) Proceeds from sale of business - 5,000 ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (5,949) (13,542) ---------- ---------- FINANCING ACTIVITIES Borrowings 2,012 20,000 Payments on borrowings (284) (20,000) Exercise of stock options 1,760 5,905 Employee stock purchase plan 1,492 1,893 Distributions - (377) Exercise of warrants 4 - ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,984 7,421 ---------- ---------- EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 84 20 ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (16,056) (1,438) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,956 37,983 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,900 $ 36,545 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 6 ECLIPSYS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed March 29, 2000 and as amended April 28, 2000. 2. ACQUISITIONS Effective March 31, 1999, the Company acquired the common stock of Intelus Corporation ("Intelus") and Med Data Systems, Inc. ("Med Data"), both wholly owned subsidiaries of Sungard Data Systems, Inc. for total consideration of $25.0 million in cash. The acquired entities both provide document imaging technology and workflow solutions to entities throughout the healthcare industry. The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated based on the fair value of the net assets acquired. The purchase price was composed of and allocated as follows (in thousands): Cash $25,000 Liabilities assumed 4,306 ------- 29,306 Current assets 9,830 Fixed assets 778 ------- 10,608 ------- Identifiable intangible assets $ 18,698 (acquired technology) ========
As of March 31, 1999 the Company intended to dispose of Med Data. Effective July 1, 1999, the Company sold Med Data for $5.0 million in cash. In connection with the transaction, the Company reduced the acquired technology (disclosed in the table above) by $4.4 million, which represented the difference between the sales price and the tangible net assets sold. No gain or loss was recorded. During the quarter ended March 31, 2000, the Company finalized the purchase price allocation related to the Intelus acquisition. As a result, the Company recorded an increase of $3.3 million to acquired technology (disclosed in the table above). Unaudited pro forma results of operations as if the aforementioned acquisitions had occurred on January 1, 1999 is as follows (in thousands except per share data):
NINE MONTHS ENDED SEPT 30, 1999 ---------------- Revenues $ 187,525 Net loss $ (12,090) Basic and diluted net loss per share $ (0.35)
3. ACCOUNTS RECEIVABLE The current portion of unbilled accounts receivable was $13.5 million and $15.3 million as of September 30, 2000 and December 31, 1999, respectively, and is included in accounts receivable in the accompanying condensed consolidated balance sheets. The non-current portion of unbilled accounts receivable was $4.7 million and $1.4 million as of September 30, 2000 and December 31, 1999, respectively, and is included in other assets in the accompanying condensed consolidated balance sheets. 6 7 During the quarter ended September 30, 2000, the Company recorded a charge totaling $9.4 million in connection with the write down of certain receivables related to contracts assumed in acquisitions. 4. INVESTMENTS During the quarter ended March 31, 2000, the Company recorded a gain on its investment in Shared Medical Systems Corp. ("SMS") of approximately $4.5 million. The investment was made in connection with a proposed merger with SMS that was not consummated. In connection with the proposed merger, the Company recorded transaction costs of approximately $50,000. Additionally, during first quarter 2000, the Company recorded a charge of approximately $802,000 to write down certain equity securities to their net realizable value. 5. TERMINATION OF MERGER On March 30, 2000, the Company signed an agreement to merge with Neoforma.com, Inc. ("Neoforma"), a California-based, business-to-business e-commerce services provider in the medical products, supplies and equipment industry. The merger was subject to the approval of stockholders of both the Company and Neoforma and certain other conditions. During the quarter ended June 30, 2000, the Company and Neoforma agreed to terminate the Merger Agreement without the payment of a termination fee. Transaction costs incurred in connection with the proposed merger were approximately $1.9 million. 6. CHANGES IN SECURITIES On July 26, 2000, the Board of Directors of the Company declared a dividend of one Right for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on August 9, 2000. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value per share, at a Purchase Price of $65.00 in cash, subject to adjustment. The Rights will initially trade together with the Eclipsys Common Stock and will not be exercisable. If a person or group (other than an exempt person) acquires 15% or more of the outstanding shares of Eclipsys Common Stock, the Rights generally will become exercisable and allow the holder (other than the 15% purchaser) to purchase shares of Eclipsys Common Stock at a 50% discount to the market price. The effect will be to discourage acquisitions of 15% or more of Eclipsys Common Stock without negotiations with the Board. The terms of the Rights are set forth in a Rights Agreement dated as of July 26, 2000 (the "Rights Agreement") between the Company and Fleet National Bank, as Rights Agent. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to the Company's Current Report on Form 8-K dated August 8, 2000. 7. NEW ACCOUNTING PRONOUNCEMENTS In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). The interpretation provides guidance for certain issues relating to stock compensation involving employees that arose in applying APB Opinion No. 25. The provisions of FIN 44 were effective July 1, 2000. The adoption of FIN 44 has had no effect on the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101 summarizes certain of the SEC staff's view in applying generally accepted accounting principles to revenue recognition in financial statements. On June 26, 2000, the SEC staff issued SAB No. 101-B to provide registrants with additional time to implement guidance contained in SAB No. 101. SAB 101-B delays the implementation date of SAB No. 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company believes its revenue recognition policies are compliant with the Staff Accounting Bulletin. 7 8 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption "Certain Factors that May Affect Future Operating Results/Risk Factors," presented from time to time in the Company's filings with the Securities and Exchange Commission, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. OVERVIEW Eclipsys Corporation ("Eclipsys" or the "Company") is a healthcare information technology company delivering solutions that enable healthcare providers to achieve improved clinical, financial and administrative outcomes. The Company offers an integrated suite of core products in seven functional areas - clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration. These products can be purchased in combination to provide an enterprise-wide solution or individually to address specific needs. Eclipsys' products have been designed specifically to deliver a measurable impact on outcomes, enabling Eclipsys' customers to quantify clinical benefits and return on investment in a precise and timely manner. Eclipsys' products can be integrated with a customer's existing information systems, which Eclipsys believes reduces overall cost of ownership and increases the attractiveness of its products. Eclipsys also provides outsourcing, remote hosting and networking services to assist customers in meeting their healthcare information technology requirements. Eclipsys markets its products primarily to large hospitals, academic medical centers and integrated health networks. To provide direct and sustained customer contact, Eclipsys maintains decentralized sales, implementation and customer support teams in each of its five North American regions. The Company was formed in December 1995 and has grown primarily through a series of strategic acquisitions as follows:
METHOD OF TRANSACTION DATE ACCOUNTING ----------- --------- -------------- ALLTEL Healthcare Information Services, Inc. 1/24/97 Purchase ("Alltel") SDK Medical Computer Services Corporation 6/26/97 Purchase ("SDK") Emtek Healthcare Systems 1/30/98 Purchase ("Emtek") a division of Motorola, Inc. HealthVISION, Inc. (acquired by Transition) 12/1/98 Purchase ("HealthVISION") Transition Systems, Inc. 12/31/98 Pooling ("Transition") PowerCenter Systems, Inc. 2/17/99 Pooling ("PCS") Intelus Corporation and Med Data Systems, Inc. 3/31/99 Purchase ("Intelus" and "Med Data") wholly owned subsidiaries of Sungard Data Systems, Inc. MSI Solutions, Inc. and MSI Integrated 6/17/99 Pooling Services, Inc. (collectively, "MSI")
For any acquisitions accounted for using the purchase method of accounting, the condensed consolidated financial statements of the Company reflect the financial results of the purchased entities from the respective dates of the purchase. For all transactions accounted for using the pooling of interests method, the Company's condensed consolidated financial statements have been retroactively restated as if the transactions had occurred as of the beginning of the earliest period presented. 8 9 RESULTS OF OPERATIONS SUMMARY Total revenues for the quarter ended September 30, 2000 decreased 21.9% to $50.6 million compared with $64.8 million for the third quarter 1999. For the nine months ended September 30, 2000, total revenues decreased 11.7% to $162.4 million compared to $184.0 million for the same period in 1999. Total costs and expenses for the quarter ended September 30, 2000 increased 3.2% compared to the same period in 1999. For the nine months ended September 30, 2000, total costs and expenses decreased 0.6% compared to the same period in 1999. These changes in revenues and expenses combined to increase the net loss for the quarter ended September 30, 2000 by 916.6% to ($18.3) million, compared to the same period in 1999. Included in the reported quarterly results were certain acquisition related and non-recurring charges of $16.6 million and $11.1 million for the quarter ended September 30, 2000 and 1999, respectively. Year to date changes in revenues and expenses combined to increase net loss for the nine months ended September 30, 2000 by 144.9% to ($28.5) million compared to the same period in 1999. Included in the reported nine month net losses were certain acquisition related and non-recurring charges of $28.6 million and $36.2 million for the nine months ended September 30, 2000 and 1999, respectively. REVENUES Systems and services revenues decreased 18.0% to $47.9 million for the third quarter of 2000 compared to the same period in 1999 and 8.6% to $153.7 million for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease was due to the factors discussed below. Prior to 2000, the Company primarily entered into multi-element licensing arrangements which were accounted for under the percentage-of-completion basis in which revenues were recognized over the implementation period which typically ranged from 12 to 24 months where payments for a majority of these contracts were based on contractual milestones over the term of the implementation. In 2000, the Company began to enter into contracts under multi-element bundled arrangements that provide for payment terms on a monthly or annual basis over the term of the contracts which range from 5 to 10 years. Revenue under these arrangements is generally recognized on a monthly basis over the term of the agreements. As a result of the change in the Company's business model related to the new contracting method, the Company experienced a decrease in its revenue in 2000. In connection with its prior acquisitions, the Company inherited certain contracts that were below the Company's normal margins with respect to the cost of the required implementation services. As a result, revenues were adversely impacted as the Company continued to honor its commitments under these contracts which negatively impacted its operating results. To address this problem, the Company is attempting to increase billings on future work for these customers and has consolidated its research and development and implementation functions to reduce costs and enhance the product delivery process. In addition, the Company's proposed transactions with SMS and Neoforma.com resulted in a significant diversion of management's time and attention which adversely affected revenues. The Company's change in its business model and issues associated with contracts assumed in acquisitions have negatively impacted operating results to date. The Company expects to improve its operating results as it completes its obligations under contracts assumed in prior acquisitions or increases billings under these contracts. Additionally, the Company expects future operating results will improve as it gains market acceptance of its new business model with respect to new contracts and obtains cost reductions as a result of the restructure of its implementation and research and development functions. Hardware revenues decreased 57.8% to $2.7 million for the third quarter of 2000 compared to the same period in 1999 and 45.2% to $8.7 million for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease was primarily due to decreased volume of hardware sales as a result of less hardware-intensive transactions. EXPENSES Total cost of revenues increased 14.1% to $42.9 million, or 84.7% of total revenues, for the third quarter of 2000 compared to the same period in 1999 and 8.4% to $115.8 million, or 71.3% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. Increased costs of system and services revenues were partially offset by a decrease in costs of hardware revenues. Systems and services costs increased as a result of higher royalty related expenses associated with revenue recognized during the period, an increased level of outsourcing revenue and associated expenses, and a charge of $8.7 million during the quarter ended September 30, 2000, to write-down certain receivables related to contracts assumed in acquisitions. Furthermore, the Company recorded a charge of $.7 million for other costs related to finalizing its acquisition integrations. These amounts were offset by decreased amortization of acquired technology in connection with certain acquisitions done in prior years. 9 10 Marketing and sales expenses increased 3.8% to $9.9 million, or 19.7% of total revenues, for the third quarter of 2000 compared to the same period in 1999 and 11.4% to $29.1 million, or 17.9% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. The increase was primarily due to an increase in commissions as the result of an increase in new contracted business for the quarter and the nine months ended September 30, 2000. Total expenditures for research and development, including both capitalized and non-capitalized expenses decreased 4.0% to $11.4 million, or 22.5% of total revenues, for the third quarter 2000 compared to the same period in 1999 and 10.0% to $35.0 million, or 21.6% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease was due primarily to a write-off of $2.8 million of capitalized software development costs related to duplicate products with no alternative future use due to the acquisition of MSI in 1999 and the realization of integration synergies. Research and development expenses capitalized for the third quarter of 2000 decreased $.3 million compared to the same period in 1999 and were relatively level for the nine months ended September 30, 2000 as compared to the same period in 1999. The decrease in capitalized research and development expenses for the quarter ended September 30, 2000 was primarily the result of the completion of development and release of its Sunrise Clinical Manager product and certain other products at the end of the first quarter of 2000. General and administrative expenses increased 13.2% to $3.3 million, or 6.6% of total revenues, for the third quarter of 2000 compared to the same period in 1999 and decreased by 8.9% to $8.2 million, or 5.1% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease for the nine months was primarily due to the Company's restructuring plans that were completed in late 1999 and 2000. This was partially offset by a $.7 million write-down of receivables during the three months ended September 30, 2000. Depreciation and amortization decreased 6.9% to $3.8 million, or 7.5% of total revenues, for the third quarter of 2000 compared to the same period in 1999 and 5.3% to $11.1, or 6.8% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease is primarily the result of certain fixed assets becoming fully depreciated, partially offset by depreciation related to purchases of fixed assets during the quarter and nine months ended September 30, 2000. During the quarter ended June 30, 1999, the Company initiated a restructuring of its operations. The restructuring was completed during the quarter ended September 30, 1999 and resulted in a charge totaling $5.1 million related to the closing of duplicate facilities and the termination of certian employees. During the quarter ended September 30, 2000, the Company initiated and completed a restructure of its operations. The restructure rationalized employee headcount following the finalization of its integration of its acquisitions. Additionally, the Company consolidated its research and development and implementation functions. Charges in connection with this restructuring plan totaled $1.2 million. Pooling and transaction costs for the third quarter of 2000 reflected a benefit of ($1.2) million, or (2.4%) of total revenues, compared to $0 for the same period in 1999 and increased 15.3% to $1.9 million, or 1.7% of total revenues, for the nine months ended September 30, 2000 compared to the same period in 1999. The ($1.2) million benefit in pooling and transaction costs was the result of the Company's ability to negotiate favorable reductions in certain costs recorded in the quarter ended March 31, 2000. Pooling and transaction costs incurred during the quarter and nine months ended September 30, 1999 were related to the poolings of PowerCenter and MSI. The transaction costs during the three and nine months ended September 30, 2000, are primarily the result of costs associated with proposed transactions with Shared Medical Systems Corp. (SMS) and Neoforma.com, Inc. (Neoforma). Other income recorded during the nine months ended September 30, 2000 related to a gain on the Company's investment in SMS during the first quarter of 2000. (See notes to the unaudited condensed consolidated financial statements.) ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT In connection with the Alltel, SDK and HealthVISION acquisitions, the Company wrote off acquired in-process research and development totaling $92.2 million and $7.0 million in 1997 and $2.4 million in 1998, respectively. These amounts were expensed as non-recurring charges on the respective acquisition dates. The Company continues to believe that the acquired in-process research and development will be successfully developed, but there can be no assurance that commercial viability of these products will be achieved. 10 11 The value of the acquired in-process research and development was determined by estimating the projected net cash flows related to such products, including costs to complete the development of the technology and the future revenues to be earned upon commercialization of the products. These cash flows were discounted back to their net present value. The resulting projected net cash flows from such projects were based on management's estimates of revenues and operating profits related to such projects. Through September 30, 2000, revenues and operating profit attributable to the acquired in-process technology have not materially differed from the projections used in determining its value. Throughout 1999 and during the first nine months of 2000, the Company has continued the development of the in-process technology that was acquired in the transactions. To date, the Company is installing modules derived from the acquired in-process technology in various field trial sites and activated certain sites by the end of 1999. Additionally, the Company has begun to successfully market certain aspects of the technology to new and existing customers. The Company expects to continue releasing products derived from the technology through 2001. Management continues to believe the projections used reasonably estimate the future benefits attributable to the in-process technology. However, no assurance can be given that deviations from these projections will not occur. If these projects to develop commercial products based on the acquired in-process technology are not successfully completed, the sales and profitability of the Company may be adversely affected in future periods. Additionally, the value of other intangible assets may become impaired. BALANCE SHEET ACCOUNTS RECEIVABLE Accounts receivable decreased primarily as a result of a charge recorded in the quarter ended September 30, 2000 related to the write-down of certain receivables associated with contracts assumed in acquisitions. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Capitalized software development costs increased during the nine months ended September 30, 2000 primarily due to the continued development of an enterprise-wide, web-enabled, client server platform solution that had reached technological feasibility. ACQUIRED TECHNOLOGY Acquired technology decreased during the nine months ended September 30, 2000 primarily due to amortization partially offset by the final purchase price adjustment for Intelus. INTANGIBLE ASSETS Intangible assets decreased during the nine months ended September 30, 2000 due to amortization. OTHER ASSETS Other assets increased during the nine months ended September 30, 2000 primarily due to higher unbilled revenue under long-term contracts partially offset by a write-down of its investment in certain equity securities to their net realizable value. DEFERRED REVENUE Deferred revenue decreased during the nine months ended September 30, 2000 primarily due to revenues earned under certain contractual arrangements. OTHER CURRENT LIABILITIES Other current liabilities decreased during the nine months ended September 30, 2000 primarily due to the timing of certain employee compensation related expenses. 11 12 LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 2000, the Company used $15.2 million in operations. Included in operations is approximately $10.5 million of annual employee compensation related liabilities paid during the first quarter. Investing activities used $5.9 million for the purchase of fixed assets and the funding of development costs partially offset by the sale of investments. Financing activities provided $5.0 million, due to borrowings under an equipment financing arrangement, exercise of stock options and the employee stock purchase plan. During October 2000, the Company amended its revolving credit facility. The amendment extended the agreement through May 2002, changed the maximum borrowings to $30.0 million and revised certain other provisions of the facility. Under the amended facility, available borrowings are based on accounts receivable, as defined and certain other criteria. As of September 30, 2000, the Company's available borrowings under the facility were approximately $16.4 million. There were no outstanding borrowings under the facility as of September 30, 2000. As of September 30, 2000, the Company had $17.9 million in cash and cash equivalents. Management believes that its available cash and cash equivalents, anticipated cash generated from its future operations and amounts available under the existing revolving credit facility will be sufficient to meet the Company's operating requirements for at least the next twelve months. 12 13 PART II. ITEM 2. CHANGES IN SECURITIES On July 26, 2000, the Board of Directors of the Company declared a dividend of one Right for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on August 9, 2000. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value per share, at a Purchase Price of $65.00 in cash, subject to adjustment. The Rights will initially trade together with the Eclipsys Common Stock and will not be exercisable. If a person or group (other than an exempt person) acquires 15% or more of the outstanding shares of Eclipsys Common Stock, the Rights generally will become exercisable and allow the holder (other than the 15% purchaser) to purchase shares of Eclipsys Common Stock at a 50% discount to the market price. The effect will be to discourage acquisitions of 15% or more of Eclipsys Common Stock without negotiations with the Board. The terms of the Rights are set forth in a Rights Agreement dated as of July 26, 2000 (the "Rights Agreement") between the Company and Fleet National Bank, as Rights Agent. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to the Company's Current Report on Form 8-K dated August 8, 2000. This summary does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Index to exhibits. (b) Reports on Form 8-K: (1) The Company filed a Current Report on Form 8-K, with the Securities and Exchange Commission on August 8, 2000, relating to the Rights Agreement dated July 26, 2000 by and between Eclipsys Corporation and Fleet National Bank, as Rights Agent. 14 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.
ECLIPSYS CORPORATION Date: November 14, 2000 /s/ GREGORY L. WILSON -------------------------------------------------------- Gregory L. Wilson Senior Vice President, Chief Financial Officer and Treasurer
13 15 ECLIPSYS CORPORATION EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION -------- ----------- 3.1 Certificate of Incorporation, as amended by the Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of the State of Delaware on August 8, 2000. 27 Financial Data Schedule (for SEC use only)
14