UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
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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
May 9, 1997 was 21,029,620.
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[Exhibit index begins on Page 16]
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IDX SYSTEMS CORPORATION
FORM 10-Q
For the quarterly Period Ended March 31, 1997
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Interim Financial Statements:
a) Condensed consolidated balance sheets as of
March 31, 1997 and December 31, 1996 (unaudited)...................3
b) Condensed consolidated statements of income for the three
months ended March 31, 1997 and 1996 (unaudited)...................4
c) Condensed consolidated statements of cash flows
for the three months ended March 31, 1997 and 1996
(unaudited)........................................................5
d) Notes to condensed consolidated financial statements...............6
ITEM 2. Management's discussion and analysis of financial
condition and results of operations ..................................7
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings....................................................14
ITEM 2. Changes in securities................................................14
ITEM 3. Defaults upon senior securities......................................14
ITEM 4. Submission of matters to a vote of security holders..................14
ITEM 5. Other information....................................................14
ITEM 6. Exhibits and reports on Form 8-K.....................................14
SIGNATURES....................................................................15
EXHIBIT INDEX.................................................................16
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<PAGE>
PART I...FINANCIAL INFORMATION
Item 1...Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(unaudited)
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March 31 December 31
1997 1996
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ASSETS
Cash and securities $ 90,848 $ 94,554
Accounts receivable, net 42,982 39,092
Other current assets 6,424 5,221
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Total current assets 140,254 138,867
Property and equipment, net 19,064 17,188
Other assets 2,473 2,520
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Total assets $161,791 $158,575
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 16,838 $ 17,555
Deferred revenue 9,120 8,951
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Total current liabilities 25,958 26,506
Long term debt 2,600 2,600
Minority interest 2,207 2,079
Stockholders' equity 131,026 127,390
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Total liabilities and
stockholders' equity $161,791 $158,575
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See Notes to the Condensed Consolidated Financial Statements
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
<PAGE>
Item 1. Interim Financial Statements.
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
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Three Months Ended
March 31
1997 1996
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REVENUES
Software license fees $17,060 $ 12,428
Maintenance and service fees 20,713 16,780
Hardware sales 7,285 8,137
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Total revenues 45,058 37,345
OPERATING EXPENSES
Cost of license, maintenance
and service fees 15,933 12,779
Cost of hardware sales 5,563 6,612
Selling, general and administrative 9,547 7,491
Research and development 7,039 5,786
Write-off of acquired in-process
research and development costs 2,290
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40,372 32,668
Operating income 4,686 4,677
Interest and other income, net (980) (910)
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Income before income taxes 5,666 5,587
Income tax provision 2,266 2,234
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Net income $ 3,400 $ 3,353
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Net income per share $ 0.16 $ 0.16
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Average shares outstanding 21,539 21,282
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See Notes to the Condensed Consolidated Financial Statements
<PAGE>
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
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Three Months Ended
March 31
1997 1996
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OPERATING ACTIVITIES
Net income $ 3,400 $ 3,353
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization. 1,539 1,123
Increase in allowance for doubtful
accounts 165 29
Minority interest 128 112
Write-off of acquired in-process
research & development costs 2,290
Changes in operating assets and
liabilities, net of effects of
acquired business
Accounts receivable (3,117) (5,602)
Prepaid expenses (1,106) (327)
Accounts payable (4,978) (508)
Accrued expenses 2,611 (1,681)
Federal and state taxes payable 1,349 3
Deferred revenue 169 211
Other, net (477) 123
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Net cash provided by (used in) operating activities 1,973 (3,164)
INVESTING ACTIVITIES
Purchase of property and equipment, net (3,415) (1,182)
Purchase of securities available-for-sale, net (9,090) (20,989)
Sale of securities available-for-sale 7,893 10,443
Purchase of certain net assets (2,500)
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Net cash used in investing activities (7,112) (11,728)
FINANCING ACTIVITIES
Proceeds from sale of common stock 220 1,032
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Net cash provided by financing activities 220 1,032
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Decrease in cash and cash equivalents (4,919) (13,860)
Cash and cash equivalents at beginning of period 12,327 33,262
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Cash and cash equivalents at end of period $ 7,408 $19,402
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</TABLE>
See Notes to the Condensed Consolidated Financial Statements
<PAGE>
PART I. FINANCIAL INFORMATION
Notes to Condensed Consolidated Financial Statements
Note 1 - Interim Statement Presentation
The unaudited consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed. In the opinion of
management, all necessary adjustments have been made to provide a fair
presentation. The operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes included in the Company's latest annual
report on Form 10-K.
Note 2 - Business Acquisitions
On February 26, 1997, the Company recorded nonrecurring charges of $2.3 million
related to the acquisition of certain data model technology from Medaphis
HealthcareInformation Technology Company for cash of $2.5 million.
The acquisition was accounted for under the purchase method. The charges were
expensed as in-process research and development in connection with the
Company's development of a healthcare data model.
On March 25, 1997, the Company entered into an Agreement and Plan of Merger
("Agreement") with PHAMIS, Inc. ("PHAMIS"), a provider of acute care clinical
and hospital-based information solutions. The merger, which has been approved by
the Boards of Directors of each company , is subject to regulatory and
shareholder approval. The Agreement provides for the stockholders of PHAMIS to
receive .73 shares of the Company's Common Stock for each share of PHAMIS Common
Stock, subject to adjustment within a range of .68 to .80 shares of IDX Common
Stock, based on an average market price per share of IDX. Approximately 6.1
million shares of Common Stock of PHAMIS are outstanding and subject to the
exchange. Management expects that the merger, if consummated, will be accounted
for under the pooling of interests method.
Note 3 - Earnings Per Share Information
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share for these quarters is not
expected to be material.
Note 4 - Reclassifications
Certain prior period amounts have been reclassified to conform with current
period presentations.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. The Company has
identified by italics, various sentences within this Quarterly Report which
contain such forward-looking statements, and words such as "believes," "may,"
"plans," "anticipates," "expects," "intends," and similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. In addition, the disclosures on page 10 under
the caption "Factors Affecting Future Results," which is not italicized for
improved readability, consists principally of a discussion of risks which may
affect future results and, are thus, in their entirety forward-looking in
nature. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
reports filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996.
REVENUES
The Company's total revenues increased to $45.1 million in the first three
months ended March 31, 1997 from $37.3 million in the corresponding period in
1996, an increase of $7.8 million or 20.6%. Revenues from software license fees
increased to $17.1 million during the three months ended March 31, 1997 (37.8%
of total revenues) from $12.4 million (33.3% of total revenues) in the
corresponding period in 1996, an increase of $4.7 million or 37.2%. The increase
was primarily due to an increase in installations of certain of the Company's
software products from its Ambulatory Suite. Revenues from maintenance and
service fees increased to $20.7 million during the three months ended March 31,
1997 (46.0% of total revenues) from $16.8 million (44.9% of total revenues) in
the corresponding period in 1996, an increase of $3.9 million or 23.4%. The
increase in revenues from maintenance and service fees was due principally to
additional maintenance revenues resulting from the continued growth in the
Company's installed client base. Hardware revenues decreased to $7.3 million
during the three months ended March 31, 1997 (16.2% of total revenues) from $8.1
million (21.8% of total revenues) in the corresponding period in 1996, a
decrease of $.8 million or 10.5%. The decrease in hardware revenues was
principally due to a decline in customer hardware upgrades in 1997 compared to
1996. The Company anticipates the level of hardware sales will vary considerably
from period to period and not necessarily in a consistent relationship with
other revenue.
COST OF LICENSE, MAINTENANCE AND SERVICE FEES
The cost of license, maintenance and service fees increased to $15.9 million
during the three months ended March 31, 1997 from $12.8 million in the
corresponding period in 1996, an
<PAGE>
PART I. FINANCIAL INFORMATION
increase of $3.1 million or 24.7%. The gross profit margin on license,
maintenance and service fees increased to 57.8% during the three months ended
March 31, 1997 from 56.2% in the corresponding period in 1996. The increase
in gross profit was due primarily to the increase in software
license fees as a percentage to total revenue.
COST OF HARDWARE SALES
The cost of hardware sales decreased to $5.6 million during the three months
ended March 31, 1997 from $6.6 million in the corresponding period in 1996, a
decrease of $1.0 million or 15.9%. The gross profit margin on hardware sales
increased to 23.6% of hardware revenues during the three months ended March 31,
1997, from 18.7% in the corresponding period in 1996. The increase was
principally due to the sale of higher margin hardware configurations and
hardware operating systems during the quarter ended March 31, 1997. THIS GROSS
PROFIT MARGIN TREND IS NOT ANTICIPATED TO CONTINUE IN THE FUTURE.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $9.6 million during
the three months ended March 31, 1997 from $7.5 million in the corresponding
period in 1996, an increase of $2.1 million or 27.4%. As a percentage of total
revenues, selling, general and administrative expenses increased to 21.2% during
the three months ended March 31, 1997 from 20.1% in the corresponding period in
1996. The increase in selling, general and administrative expenses during the
three months ended March 31, 1997 was principally due to an increase in the
Company's sales and marketing staff.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $7.0 million during the three
months ended March 31, 1997 from $5.8 million in the corresponding period in
1996, an increase of $1.2 million or 21.7%. The increase was due to an increase
of staff and outside consultants to support the development of additional
products for the Company. As a percentage of total revenues, research and
development expenses increased slightly to 15.6% during the three months ended
March 31, 1997 compared to 15.5% in the corresponding period in 1996.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS
On February 26, 1997, the Company recorded nonrecurring charges of $2.3 million
related to the acquisition of certain data model technology from Medaphis
Healthcare Information Technology Company for cash of $2.5 million. The
acquisition was accounted for under the purchase method. The charges were
expensed as in-process research and development in connection with the Company's
development of a healthcare data model.
SIGNIFICANT AGREEMENTS
On March 25, 1997, the Company entered into an Agreement and Plan of Merger
("Agreement") with PHAMIS, Inc. ("PHAMIS"), a provider of acute care clinical
and hospital-based information solutions. The merger, which has been approved by
the Boards of Directors of each company , is subject to regulatory and
shareholder approval. The Agreement provides for the stockholders of PHAMIS to
receive .73 shares of the Company's Common Stock for each share
of PHAMIS Common Stock, subject to adjustment within a range of .68 to .80
shares of IDX Common Stock, based on an average market price per share of
IDX. Approximately 6.1 million shares of Common Stock of PHAMIS are
outstanding and subject to the exchange. Management expects that the merger,
if consummated, will be accounted for under the pooling of interests method.
<PAGE>
PART I. FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1969, the Company has funded its operations, working
capital needs and capital expenditures primarily from operations, except for
real estate owned by certain partnerships and trusts financed through industrial
development bonds.
Cash flows from operations are principally comprised of net income and
depreciation and are primarily affected by the net effect of the change in
accounts payable and accrued expenses. Due to the seasonality of the Company's
business, accounts receivable, deferred revenue and accounts payable fluctuate
considerably but almost completely due to the volume of business and timing of
the recognition of revenue. Accounts receivable from customers have been
collected consistently within 90 days.
Cash flows related to investing activities have principally been related to the
purchase of computer and office equipment, leasehold improvements, and the
purchase and sale of investment grade marketable securities. MANAGEMENT EXPECTS
THESE ACTIVITIES TO CONTINUE. INVESTING ACTIVITIES MAY ALSO INCLUDE ACQUISITIONS
OF COMPLEMENTARY PRODUCTS, TECHNOLOGIES AND BUSINESSES.
Cash and cash equivalents at March 31, 1997 were $7.4 million, a decrease of
$4.9 million from December 31, 1996. The majority of the decrease was due to the
purchase of investment grade marketable securities. The Company has a revolving
line of credit with a bank allowing the Company to borrow up to $2.0 million
bearing interest at the prime rate. There were no borrowings as of March 31,
1997 or 1996.
THE COMPANY EXPECTS THAT ITS REQUIREMENTS FOR OFFICE FACILITIES AND OTHER OFFICE
EQUIPMENT WILL GROW AS STAFFING REQUIREMENTS DICTATE. The Company's operating
lease commitments consist primarily of office leasing for the Company's
operating facilities. THE COMPANY PLANS TO CONTINUE INCREASING THE NUMBER OF ITS
PROFESSIONAL STAFF DURING 1997 TO MEET ANTICIPATED SALES VOLUME AND TO SUPPORT
RESEARCH AND DEVELOPMENT EFFORTS. TO THE EXTENT NECESSARY TO SUPPORT INCREASES
IN STAFFING, IDX INTENDS TO OBTAIN ADDITIONAL OFFICE SPACE.
THE COMPANY BELIEVES THAT CURRENT OPERATING FUNDS WILL BE SUFFICIENT TO FINANCE
ITS OPERATING REQUIREMENTS AT LEAST THROUGH DECEMBER 1997. To date, inflation
has not had a material impact on the Company's revenues or income.
INCOME TAXES
FOR THE FORESEEABLE FUTURE, THE COMPANY ANTICIPATES AN EXPECTED TAX RATE OF
APPROXIMATELY 40% OF PRE-TAX INCOME.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. THE IMPACT OF STATEMENT 128 ON THE CALCULATION
OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THESE QUARTERS IS NOT
EXPECTED TO BE MATERIAL.
<PAGE>
PART I. FINANCIAL INFORMATION
During 1997, the American Institute of Certified Public Accountants is expected
to issue a Standard Operating Procedure ("SOP") revising certain aspects of SOP
91-1. BASED UPON THE CURRENT VERSION OF THE PROPOSED SOP, THE COMPANY DOES NOT
EXPECT ADOPTION WILL MATERIALLY AFFECT ITS REVENUE RECOGNITION POLICIES WITH
RESPECT TO SOFTWARE LICENSE FEES WHICH ARE PRINCIPALLY RECOGNIZED IN CONNECTION
WITH THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS BASED UPON ACHIEVEMENTS OF
MILESTONES. THE EXPECTED ISSUE DATE IS CURRENTLY NOT KNOWN.
FACTORS AFFECTING FUTURE RESULTS
As announced on March 25, 1997, the Company and PHAMIS, Inc. ("PHAMIS") have
agreed to merge in the third quarter of 1997 (the "Merger"). IDX and PHAMIS each
have similar operations involving the creation, sale and support of computer
systems for healthcare clients. Such operations differ primarily with respect to
the nature of each of IDX's and PHAMIS's clientele and product technologies.
Integrating the operations (including product development, installation of
information and software systems, client services, marketing plans and
activities, employee hiring and training, and expansion strategy) and management
of the two companies will be a time-consuming process, and there can be no
assurance that this integration will result in the achievement of any of the
anticipated synergies and other benefits expected to be realized from the
Merger. In addition, any required divestitures of assets or other commitments
required by the Federal Trade Commission could limit the synergies and other
benefits expected. Moreover, the integration of these organizations will require
the dedication of management resources, which may temporarily distract attention
from the day-to-day business of the Company. The inability of management to
successfully integrate the operations of the two companies could have a material
adverse effect on the business and operating results of the operations of IDX
and PHAMIS after the Merger (the "Combined Company"). The Company expects to
incur Merger related pre-tax charges covering the costs of the Merger, the costs
of restructuring the combined operations, and for other related costs
principally in the quarter in which the Merger is consummated. Additional
unanticipated expenses may be incurred in connection with the integration of the
business of the Company and PHAMIS.
The Company's revenues and operating results can vary significantly from quarter
to quarter as a result of a number of factors, including the volume and timing
of systems sales and installations, and length of sales cycles and installation
efforts. The timing of revenues from systems sales is difficult to forecast
because the Company's sales cycle can vary depending upon factors such as the
size of the transaction, the changing business plans of the customer, the
effectiveness of customer's management, and general economic conditions. In
addition, because revenue is recognized at various points during the
installation process, the timing of revenue recognition varies considerably
based on a number of factors, including availability of personnel, availability
of the customer's resources and complexity of the needs of the customer's
organization. The Company's initial contact with a potential customer depends in
significant part on the customer's decision to replace, expand, or substantially
modify its existing information systems, or modify or add business processes or
lines of business. How and when to implement, replace, expand or substantially
modify an information system or modify or add business processes or lines of
business, are major decisions for health care organizations. Accordingly, the
sales cycle for the Company's systems is typically three to 18 months or more
from contract execution to completion of installation. During the sales cycle
and the installation cycle, the Company expends substantial time, effort and
funds preparing contract proposals, negotiating the contract and implementing
the system. Because a significant percentage of the Company's expenses are
relatively fixed, a variation in the timing of systems sales and installation
can cause significant
<PAGE>
PART I. FINANCIAL INFORMATION
variations in operating results from quarter to quarter. The Company's future
operating results may fluctuate as a result of these and other factors,
such as customer purchasing patterns, and the timing of new product and
service introductions and product upgrade releases.
The Company's revenues have historically followed seasonal patterns with a lower
level of sales and installations occurring in the fiscal quarter ending
September 30 and a greater level of sales and installations occurring in the
fiscal quarter ending June 30 (formerly the fiscal year end of the Company). The
Company believes that such seasonal fluctuation is attributable to a number of
factors, including the vacation schedules of its clients. The Company is not
able to predict what impact, if any, the change will have on the seasonality of
the Company's business. The Company believes that quarterly results of
operations will continue to be subject to significant fluctuations and that its
results of operations for any particular quarter or fiscal year may not be
indicative of results of operations for future periods. There can be no
assurance that future seasonal and quarterly fluctuations will continue and will
not have a material adverse effect on the Company's results of operations,
financial condition or business.
The stock market has, from time to time, experienced extreme price and volume
fluctuations, particularly in the high technology and health care information
technology sectors, which have often been unrelated to the operating performance
of particular companies. The Company experiences fluctuations in its stock price
related to these general market swings as well as announcements of technological
innovations, new product introductions by the Company or its competitors, market
conditions in the computer software or hardware industries and healthcare reform
measures. These fluctuations could have a significant impact on the future
market price of the Company's Common Stock.
As a developer of information systems, the Company must anticipate and adapt to
evolving industry standards and new technological developments. The market for
the Company's products is characterized by continued and rapid technological
advances in both hardware and software development, requiring ongoing
expenditures for research and development and the timely introduction of new
products and enhancements to existing products. The establishment of standards
is largely a function of user acceptance. Therefore, such standards are subject
to change. The Company's future success will depend in part upon its ability to
enhance its existing products, to respond effectively to technology changes, to
migrate its clients to new technologies, to sell additional products to its
existing client base and to introduce new products and technologies to meet the
evolving needs of its clients in the health care information systems market. The
Company is currently devoting significant resources toward the development of
enhancements to its existing products and the migration of existing products to
new hardware and software platforms. There can be no assurance that the Company
will successfully complete the development of these products or this migration
in a timely fashion or that the Company's current or future products will
satisfy the needs of the health care information systems market. Further, there
can be no assurance that products or technologies developed by others will not
adversely affect the Company's competitive position or render its products or
technologies noncompetitive or obsolete.
The Company currently derives a significant percentage of its revenues from
sales of financial and administrative information systems and related services.
As a result, any factor adversely affecting sales of these products and services
could have a material adverse effect on the Company's results of operations,
financial condition or business. Although the Company has
<PAGE>
PART I. FINANCIAL INFORMATION
experienced increasing annual sales, revenues associated with existing products
may decline as a result of several factors, including price competition.
There can be no assurance that the Company will continue to be successful in
marketing its current products or any new or enhanced products or maintaining
the current pricing for its existing products.
Certain of the Company's products provide applications that relate to patient
medical histories and treatment plans. Any failure by the Company's products to
provide accurate, secure and timely information could result in product
liability claims against the Company by its clients or their affiliates or
patients. The Company maintains insurance that it believes is adequate to
protect against claims associated with the use of its products, but there can be
no assurance that its insurance coverage would adequately cover any claim
asserted against the Company. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's results of operations, financial condition or business. Even
unsuccessful claims could result in the expenditure of funds in litigation, as
well as diversion of management time and resources. There can be no assurance
that the Company will not be subject to product liability claims, that such
claims will not result in liability in excess of its insurance coverage or that
the Company's insurance will cover such claims or that appropriate insurance
will continue to be available to the Company in the future at commercially
reasonable rates.
The success of the Company is dependent to a significant degree on its key
management, sales and marketing, and technical personnel. The Company believes
that its continued future success will also depend upon its ability to attract,
motivate and retain highly skilled, managerial, sales and marketing, and
technical personnel, including software programmers and systems architects
skilled in the computer languages in which the Company's products operate.
Competition for such personnel in the software and information services
industries is intense. The loss of key personnel, or the inability to hire or
retain qualified personnel, could have a material adverse effect on the
Company's results of operations, financial condition or business. Although the
Company has been successful to date in attracting and retaining skilled
personnel, there can be no assurance that the Company will continue to be
successful in attracting and retaining the personnel it requires to successfully
develop new and enhanced products and to continue to grow and operate
profitably.
The health care industry in the United States is subject to changing political,
economic and regulatory influences that may affect the procurement practices and
operations of health care organizations. The Company's products are designed to
function within the structure of the health care financing and reimbursement
system currently being used in the United States. During the past several years,
the health care industry has been subject to increasing levels of governmental
regulation of, among other things, reimbursement rates and certain capital
expenditures. From time to time, certain proposals to reform the health care
system have been considered by Congress. These proposals, if enacted, may
increase government involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's clients. Health
care organizations may react to these proposals and the uncertainty surrounding
such proposals by curtailing or deferring investments, including those for the
Company's products and services. The Company cannot predict with any certainty
what impact, if any, such proposals or health care reforms might have on its
results of operations, financial condition or business.
<PAGE>
PART I. FINANCIAL INFORMATION
The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under the policy, the manufacturers of such products could be required,
depending on the product, to (i) register and list their products with the FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products on
the market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product. In addition,
such products would be subject to FDC Acts general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA's policy
with regard to computer software, the Company expects that, whether or not the
draft is finalized or changed, the FDA is likely to become increasingly active
in regulating computer software that is intended for use in health care
settings. The FDA can impose extensive requirements governing pre- and
post-market conditions such as device investigation, approval, labeling and
manufacturing. In addition, the FDA can impose extensive requirements governing
development controls and quality assurance processes. There can be no assurance
that actions taken by the FDA to regulate computer software products will not
have a material adverse effect on the Company's results of operations, financial
condition or business.
The Company intends to continue to grow in part through acquisitions of
complementary products, technologies and businesses or alliances with
complementary businesses. The Company's ability to expand successfully through
acquisitions or alliances depends on many factors, including the successful
identification and acquisition of products, technologies or businesses and
management's ability to effectively integrate and operate the acquired or
aligned products, technologies or businesses. There is significant competition
for acquisition and alliance opportunities in the health care information
systems industry, which may intensify due to consolidation in the industry,
thereby increasing the costs of capitalizing on such opportunities. The Company
competes for acquisition and alliance opportunities with other companies that
have significantly greater financial and management resources. There can be no
assurance that the Company will be successful in acquiring or aligning with any
complementary products, technologies or businesses; or, if acquired or aligned
with, that the Company will be able to successfully integrate any such products,
technologies or businesses into its current business and operations. The failure
to successfully integrate any significant products, technologies or businesses
could have a material adverse effect on the Company's results of operations,
financial condition or business.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, & REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Form 10-Q are listed on
the Exhibit Index immediately preceding such exhibits, which Exhibit Index is
incorporated herein by reference.
(b) No Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report; however, the
Company filed a Reporton Form 8-K on April 3, 1997 in connection with an
Agreement and Plan of Merger with PHAMIS, Inc. No financial statements were
filed with such report.
<PAGE>
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IDX SYSTEMS CORPORATION
Date: May 13, 1997 By:/s/ JOHN A. KANE
_______________________________
John A. Kane,
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Index
-------------
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
11 Statement regarding computation of per share earnings. 17
</TABLE>
<PAGE>
EXHIBIT 11
IDX SYSTEMS CORPORATION
SCHEDULES OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Primary Fully Diluted
------------------------ -----------------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
------------------------ -----------------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 21,002 20,409 21,002 20,409
Netdilutive effect of stock
options-based on the
treasury stock method
using the average price
for primary and ending
price, if higher,for
fully diluted 537 873 537 873
-------------------------- ----------------------
Total shares 21,539 21,282 21,539 21,282
======================== =======================
Net income $3,400 $3,353 $3,400 $3,353
===== ===== ===== =====
Net income per share $ 0.16 $ 0.16 $ 0.16 $ 0.16
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 7,408 19,402
<SECURITIES> 83,441 56,927
<RECEIVABLES> 41,619 34,140
<ALLOWANCES> (850) (554)
<INVENTORY> 0 0
<CURRENT-ASSETS> 140,254 113,746
<PP&E> 38,437 31,991
<DEPRECIATION> 19,373 15,724
<TOTAL-ASSETS> 161,791 130,809
<CURRENT-LIABILITIES> 25,958 19,911
<BONDS> 2,600 2,907
0 0
0 0
<COMMON> 210 205
<OTHER-SE> 130,816 106,491
<TOTAL-LIABILITY-AND-EQUITY> 161,791 130,809
<SALES> 7,285 8,137
<TOTAL-REVENUES> 45,058 37,345
<CGS> 5,563 6,612
<TOTAL-COSTS> 40,372 32,668
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 165 25
<INTEREST-EXPENSE> 17 34
<INCOME-PRETAX> 5,666 5,587
<INCOME-TAX> 2,266 2,234
<INCOME-CONTINUING> 3,400 3,353
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,400 3,353
<EPS-PRIMARY> .16 .16
<EPS-DILUTED> .16 .16
</TABLE>
