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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 March 31, 1998
-------------------------------
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 8, 1998 was 26,284,998.
[Exhibit index begins on Page 19]
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IDX SYSTEMS CORPORATION
FORM 10-Q
For the quarterly Period Ended March 31, 1998
TABLE OF CONTENTS
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Page
PART I. FINANCIAL INFORMATION ----
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ITEM 1. Interim Financial Statements:
a) Condensed consolidated balance sheets as of
March 31, 1998 and December 31, 1997 (unaudited)...............3
b) Condensed consolidated statements of income and
comprehensive income for the three months ended
March 31, 1998 and 1997(unaudited)............................4
c) Condensed consolidated statements of cash flows for
the three months ended March 31, 1998 and 1997
(unaudited)....................................................5
d) Notes to condensed consolidated financial statements...........6
ITEM 2. Management's discussion and analysis of financial
condition and results of operations...............................9
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings.................................................17
ITEM 2. Changes in securities.............................................17
ITEM 3. Defaults upon senior securities...................................17
ITEM 4. Submission of matters to a vote of security holders...............17
ITEM 5. Other information.................................................17
ITEM 6. Exhibits and reports on Form 8-K..................................17
SIGNATURES.................................................................18
EXHIBIT INDEX..............................................................19
Page 2 of 32
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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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<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
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ASSETS
Cash and securities $ 115,368 $ 115,887
Accounts receivable, net 71,078 66,587
Other current assets 13,848 14,718
--------- ---------
Total current assets 200,294 197,192
Property and equipment, net 29,972 28,277
Capitalized software costs, net 839 368
Other assets 11,481 11,480
--------- ---------
Total assets $ 242,586 $ 237,317
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities $ 27,331 $ 34,748
Deferred revenue 19,530 21,538
---------- ----------
Total current liabilities 46,861 56,286
Long term debt - 2,508
Minority interest 8,659 1,919
Stockholders' equity 187,066 176,604
---------- ----------
Total liabilities and stockholders' equity $ 242,586 $ 237,317
========== ==========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
Page 3 of 32
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PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31
1998 1997
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REVENUES
Systems sales $ 38,966 $ 33,440
Maintenance and service fees 33,771 26,119
--------- ---------
Total revenues 72,737 59,559
OPERATING EXPENSES
Cost of sales 37,248 29,964
Selling, general and administrative 13,752 12,731
Research and development 10,316 8,478
Write-off of acquired in-process research and
development costs 3,201 2,290
--------- --------
Total operating expenses 64,517 53,463
Operating income 8,220 6,096
Interest and other income, net 1,122 1,195
--------- --------
Income before income taxes 9,342 7,291
Income tax provision 4,940 2,794
--------- --------
Net income $ 4,402 $ 4,497
Unrealized gain (loss) on securities (3) 13
available-for-sale --------- ---------
Comprehensive income $ 4,399 $ 4,510
========== =========
Basic earnings per share $ 0.17 $ 0.18
========== =========
Basic weighted average shares outstanding 26,155 25,485
========== =========
Diluted earnings per share $ 0.16 $ 0.17
========== =========
Diluted weighted average shares outstanding 27,007 26,226
========== =========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
Page 4 of 32
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PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31
1998 1997
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OPERATING ACTIVITIES
Net Income $ 4,402 $ 4,497
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,490 2,207
Deferred tax benefit (517) 468
Increase in allowance for doubtful accounts 31 165
Minority interest 241 128
Write-off of acquired in-process research and
development costs 3,201 2,290
Changes in operating assets and liabilities:
Accounts receivable (4,522) (7,651)
Notes receivable (1,163) (36)
Prepaid expenses and other assets 2,851 (2,257)
Accounts payable 5,410 844
Accrued expenses (9,270) 2,611
Federal and state taxes payable 0 1,349
Deferred revenue (2,008) 2,538
------- -------
Net cash provided by operating activities 1,146 7,153
INVESTING ACTIVITIES
Purchase of property and equipment, net (4,156) (3,731)
Purchase of securities available-for-sale, net (36,076) (11,436)
Sale of securities available-for-sale 33,178 9,969
Purchase of certain net assets (3,500) (2,500)
Capitalized software developments costs (500) (857)
------- ------
Net cash used in investing activities (11,054) (8,555)
FINANCING ACTIVITIES
Proceeds from sale of common stock 6,060 593
Increase in minority interest 6,500 0
Principal repayments of long-term debt (6,066) (25)
-------- --------
Net cash provided by financing
activities 6,494 568
-------- -------
Decrease in cash and cash equivalents (3,414) (834)
Cash and cash equivalents at beginning of period 14,061 12,327
------- -------
Cash and cash equivalents at end of period $ 10,647 $ 11,493
========= =========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
Page 5 of 32
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PART I. FINANCIAL INFORMATION
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 PHAMIS, Inc. ("PHAMIS") as a result of the
merger, more fully described in Note 2, which has been accounted for as a
pooling of interests in the quarter ended September 30, 1997. No adjustments
were required to conform the financial reporting policies of IDX and PHAMIS for
the 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 three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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 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 in connection with the Company's development of a healthcare
contract management system.
In July 1997, the Company completed the Merger with PHAMIS which became a
wholly-owned subsidiary of the Company. The transaction was accounted for as a
pooling-of-interests and accordingly, the accompanying financial statements
include the accounts of PHAMIS for all periods presented.
Page 6 of 32
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PART I. FINANCIAL INFORMATION
Note 3 - Income Taxes
The provision for income taxes for the quarter ended March 31, 1998 was provided
for at the taxable income rate of approximately 50%, which is more than the
Company's historical rate of 40%. This higher rate is due to a portion of the
charges incurred in the acquisition of Trego Systems, Inc. being non-deductible
for income tax purposes.
Note 4 - Earnings Per Share Information
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which the Company adopted on December 31, 1997. At that
time, the Company changed the method used to compute earnings per share and
restated all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options is excluded. The
following sets forth the computation of basic and diluted earnings per share:
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THREE MONTHS ENDED
MARCH 31
1998 1997
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Numerator:
Net income $ 4,402 $ 4,497
-------- --------
Numerator for basic and
diluted earnings per share $ 4,402 $ 4,497
Denominator:
Denominator for basic earnings per share--
weighted-average shares 26,155 25,485
Effect of employee stock options 852 741
-------- ---------
Denominator for diluted earnings per share 27,007 26,226
======== ========
Basic earning per share $0.17 $0.18
===== =====
Diluted earnings per share $0.16 $0.17
===== ======
</TABLE>
Note 5 - Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the Company adopted on January 1,
1998. Comprehensive income is reported in the Company's Condensed Consolidated
Statements of Income and Comprehensive Income, and presents the effect of
unrealized gain (loss) on securities available for sale to net income.
Note 6 - Reclassifications
Certain prior period amounts have been reclassified to conform with current
period presentations.
Page 7 of 32
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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
The Company reported net income of $4.4 million, or $0.16 per share for the
three months ended March 31, 1998 as compared to $4.5 million , or $0.17 per
share for the three months ended March 31, 1997. Excluding nonrecurring expenses
for costs associated with the acquisition of Trego Systems, Inc., the Company
reported net income of $7.5 million, or $0.28 per share, for the first quarter
of 1998 as compared to net income of $5.7 million, or $0.22 per share, for the
first quarter of 1997.
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. The Company has
identified by italics or all capital letters, various, but not all, sentences
within this Quarterly Report which contain such forward-looking statements. In
addition, 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 12 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, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
REVENUES
The Company's total revenues increased to $72.7 million during the three months
ended March 31, 1998 from $59.6 million in the corresponding period in 1997, an
increase of $13.1 million or 22.0%. Revenues from systems sales increased to
$39.0 million during the three months ended March 31, 1998 (53.6% of total
revenues) from $33.4 million (56.1% of total revenues) in the corresponding
period in 1997, an increase of $5.6 million or 16.5%. The increase was primarily
due to an increase in installations of certain of the Company's IDXtend and
LastWord systems. Revenues from maintenance and service fees increased to $33.7
million during the three months ended March 31, 1998 (46.4% of total revenues)
from $26.2 million (43.9% of total revenues) in the corresponding period in
1997, an increase of $7.5 million or 29.3%. 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.
Page 8 of 32
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PART I. FINANCIAL INFORMATION
COST OF SALES
The cost of sales and services increased to $37.2 million during the three
months ended March 31, 1998 from $30.0 million in the corresponding period in
1997, an increase of $7.2 million or 24.3%. The gross profit margin on systems
sales and services decreased to 48.8% during the three months ended March 31,
1998 from 49.7% in the corresponding period in 1997. The decrease in gross
profit was due primarily to an increase in client service staff to install and
support the Company's products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $13.8 million during
the three months ended March 31, 1998 from $12.7 million in the corresponding
period in 1997, an increase of $1.1 million or 8.0%. As a percentage of total
revenues, selling, general and administrative expenses decreased to 18.9% during
the three months ended March 31, 1998 from 21.4% in the corresponding period in
1997. The increase in selling, general and administrative expenses during the
three months ended March 31, 1998 was principally due to an increase in the
Company's sales and marketing staff which will allow for the continued growth of
the Company.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $10.3 million during the three
months ended March 31, 1998 from $8.5 million in the corresponding period in
1997, an increase of $1.8 million or 21.7%. The increase is attributed to an
increase in personnel expenses and outside consultants to support the
development of additional products for the Company. As a percentage of total
revenues, research and development expenses remained constant at 14.2% during
the three months ended March 31, 1998 compared to March 31, 1997. Software
development costs incurred subsequent to the establishment of technological
feasibility until general release of the related products are capitalized. Prior
to the merger, technological feasibility was determined differently by IDX and
PHAMIS. Subsequent to the merger the Company's determination of technological
feasibility for all product development is based on the completion of a working
model which has been approved for beta site testing. Historically costs incurred
during beta site testing have not been material. Although the Company presently
expects costs to complete beta site testing in the future to be insignificant,
as the Company develops products to operating using other technologies as well
as more comprehensive clinical systems, the time and effort required to complete
beta site testing may be significantly more extensive. Consequently, capitalized
software development costs may become material in future reporting periods.
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 in connection with the Company's development of a healthcare
contract management system.
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. The proceeds from its initial public offering were (i)
distributed to stockholders of the Company in connection with the
Page 9 of 32
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PART I. FINANCIAL INFORMATION
Company's prior status as an S corporation under the Internal Revenue Code of
1986, as amended, and (ii) used for general corporate purposes, including
working capital purposes, payment of current expenses and strategic
transactions, including acquisitions of businesses, products and technologies.
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 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
sales cycle and installation efforts which are dependent upon the size of the
transaction, the changing business plans of the customer, the effectiveness of
customers' management and general economic conditions. In general accounts
receivable from customers have been collected consistently within 95 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. THE COMPANY EXPECTS
THESE ACTIVITIES TO CONTINUE. INVESTING ACTIVITIES MAY ALSO INCLUDE PURCHASES OF
INTERESTS IN AND ACQUISITIONS OF COMPLEMENTARY PRODUCTS, TECHNOLOGIES AND
BUSINESSES. There can be no assurance that the Company will be able to
successfully complete any such purchases or acquisitions in the future.
Cash, cash equivalents and marketable securities at March 31, 1998 were $115.4
million, a slight decrease from the March 31, 1997 balaqnce of $115.9 million.
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 March 31, 1998 or 1997.
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 1998 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 BELIEVES THAT CURRENT OPERATING FUNDS WILL BE SUFFICIENT TO FINANCE
ITS OPERATING REQUIREMENTS AT LEAST THROUGH DECEMBER 1998. To date, inflation
has not had a material impact on the Company's revenues or income.
INCOME TAXES
The provision for income taxes for the quarter ended March 31, 1998 was provided
for at the taxable income rate of approximately 50%, which is higher than the
historical rate of 40%. This higher rate is due to a portion of the charges
incurred in the acquisition of Trego Systems, Inc. which are non-deductible for
income tax purposes. FOR 1998, THE COMPANY
Page 10 of 32
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PART I. FINANCIAL INFORMATION
ANTICIPATES AN EFFECTIVE TAX RATE OF APPROXIMATELY 40% OF PRE-TAX INCOME.
NEW ACCOUNTING STANDARDS
In October, 1997, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 97-2, Software Revenue Recognition, revising
certain aspects of SOP 91-1, which the Company adopted on January 1, 1998. SOP
97-2 did not materially affect the Company's revenue recognition policies with
respect to software license fees which are based upon vendor-specific objective
information and relate principally to its proprietary systems software which
generally requires no significant production, modification or customization.
License revenue, accordingly, is deferred and recognized as customer payments
become due based upon specified milestones and due dates including delivery,
installation and final systems acceptance.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 and
No. 131, "Reporting Comprehensive Income" and "Disclosures About Segments of an
Enterprise and Related Information," which the Company adopted on Janaury 1,
1998. The adoption of these new accounting standards did not have a material
impact on the Company's financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share, which the Company adopted on December 31, 1997. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is not materially different
from the previously reported fully diluted earnings per share.
YEAR 2000
THE COMPANY HAS ASSESSED ITS INTERNAL USE SYSTEMS AND ITS CURRENTLY SUPPORTED
PRODUCTS, AND PRODUCTS SUPPLIED TO OR BY THE COMPANY BY THIRD PARTIES FOR USE IN
CONNECTION WITH THE COMPANY'S PRODUCTS, FOR POSSIBLE PROBLEMS IN PROCESSING,
REPORTING, DISPLAYING AND OTHERWISE HANDLING DATE DATA CONTAINING THE YEAR 2000
AND BEYOND. THE COMPANY BELIEVES IT HAS FORMULATED AND IS IN THE PROCESS OF
IMPLEMENTING OR HAS COMPLETED ALL PLANS TO MAKE YEAR 2000 READY ALL OF ITS
CRITICAL INTERNAL USE SYSTEMS AND ALL OF ITS CURRENTLY SUPPORTED PRODUCTS.
AT MARCH 31, 1998, ALL OF THE CORE DATA BASES AND DATA PROCESSING FUNCTIONS OF
THE COMPANY'S SIGNIFICANT PRODUCTS WERE YEAR 2000 READY. THE COMPANY EXPECTS
THAT ELEMENTS OF THE COMPANY'S PRODUCTS OTHER THAN CORE DATABASES AND DATA
PROCESSING FUNCTIONS, SUCH AS CERTAIN SCREENS AND REPORTS, WILL BE YEAR 2000
READY IN 1998. THE COMPANY HAS EXPENSED AMOUNTS INCURRED AS OF MARCH 31, 1998 TO
Page 11 of 32
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PART I. FINANCIAL INFORMATION
MAKE SUCH PRODUCTS YEAR 2000 READY, AND SUCH AMOUNTS HAVE NOT BEEN MATERIAL. THE
ADDITIONAL COSTS TO MAKE ALL SUCH REMAINING SYSTEMS YEAR 2000 READY BY THE END
OF 1998 WILL BE EXPENSED AS INCURRED, ARE EXPECTED TO BE INCURRED IN 1998 AND
ARE NOT EXPECTED TO BE MATERIAL.
THE COMPANY UNDER ITS MAINTENANCE AGREEMENTS EXPECTS TO COMMENCE DELIVERY TO ITS
INSTALLED CUSTOMERS OF YEAR 2000 READY VERSIONS OF ALL OF ITS SIGNIFICANT
PRODUCTS IN 1998 AND TO COMPLETE MOST INSTALLATIONS OF SUCH VERSIONS BY MID
1999. THE COSTS TO INSTALL YEAR 2000 READY VERSIONS OF THE COMPANY'S PRODUCTS AT
CUSTOMER SITES, AS WELL AS THE ABILITY OF THE COMPANY TO ASSIST CUSTOMERS IN THE
INSTALLATION OF YEAR 2000 READY VERSIONS OF ITS PRODUCTS, WILL DEPEND IN PART ON
THE READINESS, ABILITY AND COOPERATION OF CUSTOMERS TO INSTALL SUCH VERSIONS.
ANY OF THE COMPANY'S INTERNAL USE SYSTEMS AND ANY OF THE PRODUCTS SUPPLIED BY
THE COMPANY TO ITS CUSTOMERS, AND PRODUCTS SUPPLIED TO OR BY THE COMPANY BY
THIRD PARTIES FOR USE IN CONNECTION WITH THE COMPANY'S PRODUCTS, COULD FAIL TO
ADEQUATELY OR PROPERLY PROCESS, DISPLAY, REPORT, OR OTHERWISE HANDLE DATE DATA
CONTAINING THE YEAR 2000 AND BEYOND. ANY FAILURE OF A CUSTOMER TO BE READY OR
ABLE TO TIMELY INSTALL YEAR 2000 READY VERSIONS OF THE COMPANY'S PRODUCTS OR
PRODUCTS SUPPLIED TO OR BY THE COMPANY BY THIRD PARTIES FOR USE IN CONNECTION
WITH THE COMPANY'S PRODUCTS, COULD CAUSE SIGNIFICANT OPERATIONAL PROBLEMS FOR
THE CUSTOMER. FURTHER, A FAILURE OF THE COMPANY TO TIMELY MAKE AVAILABLE YEAR
2000 READY VERSIONS OF ITS PRODUCTS, OR A FAILURE OF THE COMPANY TO TIMELY
PROVIDE ADEQUATE RESOURCES TO ASSIST ITS CUSTOMERS IN INSTALLING YEAR 2000 READY
VERSIONS OF ITS PRODUCTS, COULD RESULT IN CLAIMS BY CUSTOMERS, WHICH MAY HAVE A
MATERIAL ADVERSE EFFECT ON THE BUSINESS, OPERATIONS, AND FUTURE FINANCIAL
RESULTS OF THE COMPANY.
FACTORS AFFECTING FUTURE RESULTS
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
Page 12 of 32
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PART I. FINANCIAL INFORMATION
business, are major decisions for healthcare organizations. Accordingly, the
sales cycle for the Company's systems is typically three to eighteen months or
more from contract execution to completion of installation. During the sales
cycle and the installation cycle, the Company expends substantial time, effort
and funds preparing contract proposals, negotiating the contract and
implementing the system. Because a significant percentage of the Company's
expenses are relatively fixed, a variation in the timing of systems sales and
installation can cause significant variations in operating results from quarter
to quarter. The Company's future operating results may fluctuate as a result of
these and other factors, such as customer purchasing patterns, and the timing of
new product and service introductions and product upgrade releases. The Company
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 period to period fluctuations
will continue and 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 healthcare 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.
Integrating the operations and management of the Company and PHAMIS has been and
will continue to be a time-consuming process, and will require the dedication of
management resources, which has and may continue to temporarily distract
attention from the day-to-day business of the combined Company. There can be no
assurance that this integration will be completed smoothly or successfully, and
the inability of management to successfully integrate the operations or
management of the two companies could have a material adverse effect on the
business, results of operations or financial condition of the combined Company.
As previously discussed in the section "Merger and Related Costs" the Company
has incurred significant merger and related costs. Additional unanticipated
expenses may be incurred in connection with the continued integration of the
business of the Company and PHAMIS.
The stock market has, from time to time, experienced extreme price and volume
fluctuations, particularly in the high technology and healthcare information
technology sectors, which have often been unrelated to the operating performance
of particular companies. The Company
Page 13 of 32
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PART I. FINANCIAL INFORMATION
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 healthcare 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 healthcare 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.
Any of the Company's internal use systems and any of the products supplied by
the Company to its customers could fail to adequately or properly process,
display, report, or otherwise handle date data containing the year 2000 and
beyond. Any failure of a customer to be ready or able to timely install year
2000 ready versions of the Company's products could cause significant
operational problems for the customer. Further, a failure of the Company to
timely make available year 2000 ready versions of its products, or a failure of
the Company to timely provide adequate resources to assist its customers in
installing year 2000 ready versions of its products, could result in claims by
customers, which may have a material adverse effect on the business, operations,
and future financial results of the Company.
The Company currently derives a significant percentage of its revenues from
sales of financial and administrative healthcare information systems and related
services. As a result, any factor adversely affecting sales of these products
and services could have a material adverse effect on the Company's results of
operations, financial condition or business. Although the Company has
experienced increasing annual sales, revenues associated with existing products
may decline as a result of several factors, including price competition. There
can be no assurance that the Company will continue to be successful in marketing
its current products or any new or enhanced products or maintaining the current
pricing for its existing products.
Certain of the Company's products provide applications that relate to patient
medical histories and treatment plans. Any failure by the Company's products to
provide accurate, secure and timely information could result in product
liability claims against the Company by its clients or
Page 14 of 32
<PAGE>
PART I. FINANCIAL INFORMATION
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 healthcare industry in the United States is subject to changing political,
economic and regulatory influences that may affect the procurement practices and
operations of healthcare organizations. The Company'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 certain capital
expenditures. From time to time, certain proposals to reform the healthcare
system have been considered by Congress. These proposals, if enacted, may
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's clients. Healthcare
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 healthcare reforms might have on its
results of operations, financial condition or business.
The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under the policy, the manufacturers of such products could be required,
depending on the product, to (i) register and list their products with the FDA,
Page 15 of 32
<PAGE>
PART I. FINANCIAL INFORMATION
(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. Depending
upon the intended use of a device, IDX could be required by the FDA to obtain
extensive data from clinical studies to demonstrate safety or effectiveness, or
substantial equivalence. If the FDA requires such 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
and there can be no assurance that the FDA will approve or clear a device after
the completion of such trials. In addition, such products would be subject to
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,
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 healthcare settings. The FDA can impose extensive
requirements governing pre- and post-market conditions such as service
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.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results.
Page 16 of 32
<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 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.
(b) No Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report.
Page 17 of 32
<PAGE>
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 14, 1998 By:/s/ John A. Kane
__________________________
John A. Kane,
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 18 of 32
<PAGE>
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>
10A Second Addendum to Lease Agreement between 4901 LBJ 20
Limited Partnership and IDX Systems Corporation
10B Third Amendment to Lease between Huntington Avenue 23
Limited Partnership and IDX Systems Corporation
10C Fourth Amendment to Lease between Huntington Avenue 28
Limited Partnership and IDX Systems Corporation
27 Financial Data Schedule 33
</TABLE>
Page 19 of 32
<PAGE>
EXHIBIT 10A
SECOND ADDENDUM TO LEASE AGREEMENT
THIS ADDENDUM is made as of the 21st day of April, 1997, by and between
4901 LBJ Limited Partnership ("Lessor") and IDX Systems Corporation ("Lessee").
IN CONSIDERATION of the premises, the covenants set forth herein, and
other consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. SCOPE AND EFFECT
This Addendum modifies, supplements and becomes a part of the
Lease and in the event of any express conflict or inconsistency between the
express terms hereof and the terms of the Lease, the terms of this Addendum
shall govern and control. In all other respects, the Lease shall be and remain
in full force and effect.
2. PREMISES
To the end of Section 1 of the Lease, entitled "Premises," add
the following clause:
From and after April 21, 1997, the premises leased to the
Lessee shall be described as follows: ten thousand eight
hundred eighty-five (10,885) rentable square feet of office
space, representing the entire fourth (4th) floor of the
office building at a rate of $11.23 per square foot. The third
(3rd) floor shall be divided as eight thousand seven hundred
ninty-three (8,793) rentable square feet at the rate of
$11.23 per square foot and a new additional two thousand
ninty-two (2,092) square feet at the rate of $14.50 per
square foot of office space for a total of ten thousand eight
hundred eighty-five (10,885) rentable square feet,
representing the entire (3rd) floor of the office building.
(See attached Exhibit "A" for Base Monthly Rent and additional
charges).
Page 20 of 32
<PAGE>
3. MISCELLANEOUS
Lessor will allow $10.00 per square foot tenant finish on the new
additional two thousand ninty-two square feet (2,092). Each party agrees to
execute and deliver all such additional documents and instruments and perform
such additional acts as may be necessary or appropriate to effectuate and
perform all of the terms, provisions and conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument on the date(s) indicated below.
WITNESS/ATTEST: 4901 LBJ LIMITED PARTNERSHIP
By: IDX Systems Corporation, General Partner
- ---------------------- By:/s/ John A. Kane
-----------------------------------------
Date: October 7, 1997
IDX SYSTEMS CORPORATION
- ---------------------- By:/s/ Michelle Russo
-----------------------------------------
Date: October 21, 1997
Page 21 of 32
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Suite Number Square Footage Base Rent CAM
- ------------ -------------- --------- ---
<S> <C> <C> <C>
300 2,092/$14.50 psf $2,527.83
350 8,793/$11.23 psf 8,228.19
400 10,885/$11.23 psf 10,185.81 1,934.99
--------- --------
TOTAL 20,941.83 1,934.99
</TABLE>
Parking Fee 420.00
GRAND TOTAL $23,296.82
-----------
Page 22 of 32
<PAGE>
EXHIBIT 10B
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease is entered into as of October 1, 1996 by
and between Huntington Avenue Limited Partnership, a Vermont limited partnership
("Landlord") and IDX Systems Corporation, a Vermont corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Lease dated as of
April 13, 1994, as amended by an Addendum to Office Lease Agreement dated as of
June 30, 1994 and by a Second Amendment to Lease dated as of January 1, 1995 (as
so amended, the "Lease"), with respect to certain space (the "Premises") located
in the building known and numbered as 116 Huntington Avenue, Boston,
Massachusetts, all as more particularly set forth therein.
B. Landlord and Tenant have agreed to expand the Premises leased to
Tenant pursuant to the Lease to include certain space located on the ninth floor
of the Building and formerly occupied by the American Association of Retired
Persons, which space includes approximately 11,670 rentable square feet and is
more fully shown on the floor plan attached hereto as EXHIBIT A and incorporated
herein (the "Ninth Floor Expansion Space"). Accordingly, the parties desire that
the Lease be appropriately amended, all on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration the receipt of
sufficiency of which are hereby acknowledged, the parties agree that the Lease
shall be amended as follows:
1. EXPANSION OF PREMISES. Effective as of the first day of October,
1996 (the "Expansion Commencement Date") and continuing for the Ninth Floor
Expansion Term (as defined below), the Ninth Floor Expansion Space shall be
added to and become a part of the Premises, subject to and with the benefit of
all of the terms and conditions of the Lease currently in effect, as the same
may be modified by the terms of this Third Amendment. From and after the
Expansion Commencement Date, and until the expiration of the Ninth Floor
Expansion Term, all references to the Premises contained in the Lease shall be
deemed to include the Ninth Floor Expansion Space. Landlord and Tenant hereby
acknowledge that, as a result of this Third Amendment, the Premises now contain
approximately 116,973 rentable square feet.
2. EXPANSION TERM; OPTIONS TO EXTEND. Landlord hereby leases such Ninth
Floor Expansion Space to Tenant pursuant to this Third Amendment for a term
commencing as of the Expansion Commencement Date and continuing through April
30,
Page 23 of 32
<PAGE>
2004, unless sooner terminated or hereafter extended, each as provided
herein (the "Ninth Floor Expansion Term"). In addition, Tenant shall have the
right to extend the Ninth Floor Expansion Term for one or both of two (2)
successive five (5) year option terms, such option rights to be exercised in the
case of the first such option term pursuant to written notice to Landlord given
not less than one (1) year prior to the expiration of the original Ninth Floor
Expansion Term and, in the case of the second such option term, pursuant to
written notice given to Landlord not less than one (1) year following the
expiration of the first option term. All references to the "Term" contained in
the Lease shall, with respect to the Ninth Floor Expansion Space, refer to the
Ninth Floor Expansion Terms, as the same may be extended to include one or both
of the foregoing option terms. Any such option term shall be on the same terms
and conditions set forth in the Lease, as herein modified, except that the Base
Rent shall be as provided in Paragraph 3 below and there shall be no further
right of Tenant to extend the Ninth Floor Expansion Term beyond the expiration
of the second such option term.
3. BASE RENT. The definition of Basic Rent set forth in Paragraph 3 of
the Lease is hereby amended by inserting the following paragraph at the end
thereof:
"Effective as of the Expansion Commencement Date and
continuing with respect to each lease year or portion thereof
contained in the Ninth Floor Expansion Term, Tenant shall pay
Base Rent with respect to the Ninth Floor Expansion Space (and
in addition to the Base Rent set forth above) as follows:
Lease Year Yearly Rent Monthly Rent
- ---------- ----------- ------------
October 1, 1996 - $247,404.00 $20,617.00
December 31, 1997
January 1, 1998-April 30, 2004 $270,744.00 $22,562.00
May 1, 2004 - April 2014 $315,090.00 $26,257.50"
(Extension Terms, if applicable)
4. OPERATING EXPENSES. Landlord and Tenant hereby agree that the
Operating Expenses (as defined in the Lease) incurred by Landlord with respect
to calendar year 1992 shall serve as the base for purposes of determining the
"Expense Adjustment Amount" (as defined in the Lease) payable by Tenant with
respect to the Ninth Floor Expansion Space. Accordingly, the definition of
Expense Adjustment Amount set forth in Paragraph 4.3 of the Lease is hereby
amended by inserting the following sentence immediately after the first sentence
of said Paragraph 4.3:
"Notwithstanding the foregoing, for purposes of determining
the Expense Adjustment Amount due and payable by Tenant with
respect to the Ninth Floor Expansion Space, such Expense
Adjustment Amount shall equal Tenant's Pro Rata Share of the
amount by which the Operating Expenses
Page 24 of 32
<PAGE>
(subject to adjustment pursuant to Section 4.4) incurred
with respect to each Calendar Year exceeds the Operating
Expenses incurred by Landlord with respect to Calendar Year
19962 as determined in accordance with the Lease."
5. TENANT'S PRO RATA SHARE. The definition of Tenant's Pro Rata Share
set forth in Paragraph 4.2.2 of the Lease is hereby amended to add the following
sentence immediately following the end thereof: "In addition, with respect to
the Ninth Floor Expansion Space the term "Tenant's Pro Rate Share" shall mean
4.95%."
6. TENANT ALLOWANCE. Landlord hereby agrees to provide to Tenant an
Allowance equal to $15,000 (the "Tenant Allowance") in connection with certain
fit up work being performed in the Ninth Floor Expansion Premises by or on
behalf of Tenant. The Tenant Allowance shall be paid by Landlord to Tenant upon
the completion of such work to Landlord's reasonable satisfaction.
7. POSSESSION. Tenant has inspected the Ninth Floor Expansion Space and
agrees to accept the same "as is" without any agreements, representations,
understandings or obligations on the part of Landlord to perform any
alterations, repairs or improvements.
8. BROKER. Tenant and Landlord each represent that it has not dealt
with any broker in connection with this Third Amendment to Lease and the Ninth
Floor Expansion Space and insofar as it knows, no broker negotiated this Third
Amendment or is entitled to any commission in connection therewith. Tenant and
Landlord each agree to indemnify, defend and hold the other party and its
beneficiaries, employees, agents, their officers and partners, harmless from and
against any claims made by any broker or finder for a commission or fee in
connection with this Third Amendment to Lease or the Ninth Floor Expansion
Space, as a result of the breach of the foregoing representation by such party.
9. WHOLE AGREEMENT. This Third Amendment to Lease sets forth the entire
agreement between the parties with respect to the matters set forth herein.There
have been no additional oral or written representations or agreements. As
amended herein, the Lease between the parties shall remain in full force and
effect and, as so amended, is hereby ratified and confirmed by both Landlord and
Tenant. In case of any inconsistency between the provisions of the Lease and
this Third Amendment, the provisions of this Third Amendment shall govern and
control.
Page 25 of 32
<PAGE>
10. DEFINED TERMS. All capitalized terms used herein and not otherwise
defined shall have the meaning ascribed to such term in the Lease.
EXECUTED under seal as of the day and year first above written.
LANDLORD:
HUNTINGTON AVENUE LIMITED PARTNERSHIP
By: Huntington Real Estate Inc.,
its general partner
By:/s/ John A. Kane
-----------------------------
Name:
Title: Treasurer
TENANT:
IDX SYSTEMS CORPORATION
By:/s/ John A. Kane
---------------------------------
Name:
Title: CFO
Page 26 of 32
<PAGE>
EXHIBIT A
[SKETCH]
Page 27 of 32
<PAGE>
EXHIBIT 10C
FOURTH AMENDMENT TO LEASE
This Fourth Amendment to Lease is entered into as of February 1, 1997
by and between Huntington Avenue Limited Partnership, a Vermont limited
partnership ("Landlord") and IDX Systems Corporation, a Vermont corporation
("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Lease dated as of
April 13, 1994, as amended by an Addendum to Office Lease Agreement dated as of
June 30, 1994, by a Second Amendment to Lease dated as of January 1, 1995 and by
a Third Amendment to Lease dated as of October 1, 1996 (as so amended, the
"Lease"), with respect to certain space (the "Premises") located in the building
known and numbered as 116 Huntington Avenue, Boston, Massachusetts, all as more
particularly set forth therein.
B. Landlord and Tenant have agreed to expand the Premises leased to
Tenant pursuant to the Lease to include certain space located on the eighth
floor of the Building containing approximately 3,412 rentable square feet and is
more fully shown on the floor plan attached hereto as EXHIBIT A and incorporated
herein (the "Eighth Floor Expansion Space"). Accordingly, the parties desire
that the Lease be appropriately amended, all on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration the receipt of
sufficiency of which are hereby acknowledged, the parties agree that the Lease
shall be amended as follows:
1. EXPANSION OF PREMISES. Effective as of the first day of February,
1997 (the "Eighth Floor Expansion Commencement Date") and continuing for the
Eighth Floor Expansion Term (as defined below), the Eighth Floor Expansion Space
shall be added to and become a part of the Premises, subject to and with the
benefit of all of the terms and conditions of the Lease currently in effect, as
the same may be modified by the terms of this Fourth Amendment. From and after
the Eighth Floor Expansion Commencement Date, and until the expiration of the
Eighth Floor Expansion Term, all references to the Premises contained in the
Lease shall be deemed to include the Eighth Floor Expansion Space. Landlord and
Tenant hereby acknowledge that, as a result of this Fourth Amendment, the
Premises now contain approximately 120,385 rentable square feet.
2. EXPANSION TERM. Options to Extend. Landlord hereby leases such
Eighth Floor Expansion Space to Tenant pursuant to this Fourth Amendment for a
term commencing as of the Eighth Floor Expansion Commencement Date and
continuing through April 30, 2004, unless sooner terminated or hereafter
extended, each as provided herein (the "Eighth Floor Expansion Term"). In
addition, Tenant shall have the right to
Page 28 of 32
<PAGE>
extend the Eighth Floor Expansion Term for one or both of two (2) successive
five (5) year option terms, such option rights to be exercised in the case of
the first such option term pursuant to written notice to Landlord given not less
than one (1) year prior to the expiration of the original Eighth Floor Expansion
Term and, in the case of the second such option term, pursuant to written notice
given to Landlord not less than one (1) year following the expiration of the
first option term. All references to the "Term" contained in the Lease shall,
with respect to the Eighth Floor Expansion Space, refer to the Eighth Floor
Expansion Term, as the same may be extended to include one or both of the
foregoing option terms. Any such option term shall be on the same terms and
conditions set forth in the Lease, as herein modified, except that the Base Rent
shall be as provided in Paragraph 3 below and there shall be no further right of
Tenant to extend the Eighth Floor Expansion Term beyond the expiration of the
second such option term.
3. BASE RENT. The definition of Basic Rent set forth in Paragraph 3 of
the Lease is hereby amended by inserting the following paragraph at the end
thereof:
"Effective as of the Eighth Floor Expansion Commencement Date
and continuing with respect to each lease year or portion
thereof contained in the Eighth Floor Expansion Term, Tenant
shall pay Base Rent with respect to the Eighth Floor Expansion
Space (and in addition to the Base Rent set forth above) as
follows:
Lease Year Yearly Rent Monthly Rent
- ---------- ----------- ------------
February 1, 1997 - April 30, 2004 $85,300.00 $7,108.33
May 1, 2004 - April 2014 $92,124.00 $7,677.00"
(Extension Terms, if applicable)
4. OPERATING EXPENSES. Landlord and Tenant hereby agree that the
Operating Expenses (as defined in the Lease) incurred by Landlord with respect
to calendar year 1997 shall serve as the base for purposes of determining the
"Expense Adjustment Amount" (as defined in the Lease) payable by Tenant with
respect to the Eighth Floor Expansion Space. Accordingly, the definition of
Expense Adjustment Amount set forth in Paragraph 4.3 of the Lease is hereby
amended by deleting the second sentence of said Paragraph 4.3 and inserting in
its place the following:
"Notwithstanding the foregoing, (i) for purposes of
determining the Expense Adjustment Amount due and payable by
Tenant with respect to the Ninth Floor Expansion Space, such
Expense Adjustment Amount shall equal Tenant's Pro Rata Share
of the amount by which the Operating Expenses (subject to
adjustment pursuant to Section 4.4) incurred with respect to
each Calendar Year exceeds the Operating Expenses incurred by
Landlord with respect to Calendar Year 1992, as determined in
accordance with the Lease and (ii) for purposes of determining
the Expense Adjustment Amount due and payable by Tenant with
respect to the Eighth Floor
Page 29 of 32
<PAGE>
Expansion Space, such Expense Adjustment Amount shall equal
Tenant's Pro Rata Share of the amount by which the Operating
Expenses (subject to adjustment pursuant to Section 4.4)
incurred with respect to each Calendar Year exceeds the
Operating Expenses incurred by Landlord with respect to
Calendar Year 1997, as determined in accordance with the Lease."
5. TENANT'S PRO RATA SHARE. The definition of Tenant's Pro Rata Share
set forth in Paragraph 4.2.2 of the Lease is hereby amended by deleting the last
sentence of said Paragraph 4.2.2 and inserting in its place the following: "In
addition, (i) with respect to the Ninth Floor Expansion Space the term "Tenant's
Pro Rata Share" shall mean 4.95%, and (ii) with respect to the Eighth Floor
Expansion Space the term "Tenant's Pro Rata Share" shall mean 1.44%."
6. TENANT ALLOWANCE. Landlord hereby agrees to provide to Tenant an
Allowance equal to $17,060.00 (the "Tenant Allowance") in connection with
certain fit up work being performed in the Eighth Floor Expansion Premises by or
on behalf of Tenant. The Tenant Allowance shall be paid by Landlord to Tenant
upon the completion of such work to Landlord's reasonable satisfaction.
7. POSSESSION. Tenant has inspected the Eighth Floor Expansion Space
and agrees to accept the same "as is" without any agreements, representatives,
understandings or obligations on the part of Landlord to perform any
alterations, repairs or improvements.
8. BROKER. Tenant and Landlord each represent that it has not dealt
with any broker in connection with this Fourth Amendment to Lease and the Eighth
Floor Expansion Space and insofar as it knows, no broker negotiated this Fourth
Amendment or is entitled to any commission in connection therewith. Tenant and
Landlord each agree to indemnify, defend and hold the other party and its
beneficiaries, employees, agents, their officers and partners, harmless from and
against any claims made by any broker or finder for a commission or fee in
connection with this Fourth Amendment to Lease or the Eighth Floor Expansion
Space, as a result of the breach of the foregoing representation by such party.
9. WHOLE AGREEMENT. This Fourth Amendment to Lease sets forth the
entire agreement between the parties with respect to the matters set forth
herein. There have been no additional oral or written representations or
agreements. As amended herein, the Lease between the parties shall remain in
full force and effect and, as so amended, is hereby ratified and confirmed by
both Landlord and Tenant. In case of any inconsistency between the provisions of
the Lease and this Fourth Amendment, the provisions of this Fourth Amendment
shall govern and control.
10. DEFINED TERMS. All capitalized terms used herein and not otherwise
defined shall have the meaning ascribed to such term in the Lease.
Page 30 of 32
<PAGE>
EXECUTED under seal as of the day and year first above written.
LANDLORD:
HUNTINGTON AVENUE LIMITED PARTNERSHIP
By: Huntington Real Estate Inc.,
its general partner
By:/s/ John A. Kane
------------------------------
Name:
Title: Treasurer
TENANT:
IDX SYSTEMS CORPORATION
By:/s/ John A. Kane
-----------------------------
Name
Title: CFO
Page 31 of 32
<PAGE>
EXHIBIT A
[SKETCH]
Page 32 of 32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0001001185
<NAME> IDX SYSTEMS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 10,647 11,493
<SECURITIES> 104,721 102,542
<RECEIVABLES> 72,376 55,244
<ALLOWANCES> (1,298) (949)
<INVENTORY> 0 0
<CURRENT-ASSETS> 200,294 180,532
<PP&E> 57,998 47,543
<DEPRECIATION> 28,026 23,733
<TOTAL-ASSETS> 242,586 215,719
<CURRENT-LIABILITIES> 46,861 45,492
<BONDS> 0 2,600
0 0
0 0
<COMMON> 263 221
<OTHER-SE> 186,803 163,465
<TOTAL-LIABILITY-AND-EQUITY> 242,586 215,719
<SALES> 17,581 21,887
<TOTAL-REVENUES> 72,737 59,559
<CGS> 37,248 29,964
<TOTAL-COSTS> 27,269 23,499
<OTHER-EXPENSES> 0 4,512
<LOSS-PROVISION> 31 165
<INTEREST-EXPENSE> 43 20
<INCOME-PRETAX> 9,342 7,291
<INCOME-TAX> 4,940 2,794
<INCOME-CONTINUING> 4,402 4,497
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,402 4,497
<EPS-PRIMARY> 0.17 0.18
<EPS-DILUTED> 0.16 0.17
</TABLE>
