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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, 1999
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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 11, 1999 was 27,680,111.
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[Exhibit index begins on Page 19]
<PAGE>
IDX SYSTEMS CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION ----
<S> <C> <C>
ITEM 1. Interim Financial Statements:
a) Condensed consolidated balance sheets as of
March 31, 1999 (unaudited)and December 31, 1998 ............3
b) Condensed consolidated statements of operations for
the three months ended March 31, 1999 and 1998 (unaudited)..4
c) Condensed consolidated statements of cash flows for the
three months ended March 31, 1999 and 1998 (unaudited)......5
d) Notes to condensed consolidated financial statements........6
ITEM 2. Management's discussion and analysis of financial
condition and results of operations...........................8
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings.............................................19
ITEM 2. Changes in securities.........................................19
ITEM 3. Defaults upon senior securities...............................19
ITEM 4. Submission of matters to a vote of security holders...........19
ITEM 5. Other information.............................................19
ITEM 6. Exhibits and reports on Form 8-K..............................19
SIGNATURES.............................................................20
EXHIBIT INDEX..........................................................21
</TABLE>
Page 2 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 DECEMBER 31
1999 1998
(UNAUDITED)
---------- -----------
<S> <C> <C>
ASSETS
Cash and marketable securities $ 113,845 $ 124,517
Accounts receivable, net 85,580 99,345
Other current assets 9,789 4,997
Deferred tax asset 4,720 4,720
--------- ---------
Total current assets 213,934 233,579
Property and equipment, net 35,342 31,905
Capitalized software costs, net 591 665
Other assets 18,426 15,868
Deferred tax asset 2,307 2,307
--------- ---------
56,666 50,745
--------- ---------
Total assets $ 270,600 $ 284,324
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities $ 29,535 $ 31,162
Income taxes - 5,429
Deferred revenue 15,931 18,239
--------- ---------
Total current liabilities 45,466 54,830
Minority interest 9,259 8,988
Stockholders' equity 215,875 220,506
--------- ---------
225,134 229,494
--------- ---------
Total liabilities and stockholders'
equity $ 270,600 $ 284,324
========= =========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
NOTE: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
Page 3 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
---- ----
<S> <C> <C>
REVENUES
Systems sales $22,851 $38,966
Maintenance and service fees 37,330 33,771
------- -------
Total revenues 60,181 72,737
OPERATING EXPENSES
Cost of sales 39,961 37,248
Selling, general and
administrative 18,538 13,752
Research and development 13,548 10,316
Merger and related charges - 3,201
------- -------
Total operating expenses 72,047 64,517
-------- -------
Operating income (loss) (11,866) 8,220
Interest and other income (expense), net (534) 1,122
------- -------
Income (loss) before income taxes (12,400) 9,342
Income tax provision (benefit) (5,500) 4,940
------- -------
Net income (loss) $(6,900) $4,402
======= =======
Basic earnings (loss) per share $ (0.26) $ 0.17
======= =======
Basic weighted average shares
outstanding 26,654 26,155
======= =======
Diluted earnings (loss) per
share $ (0.26) $ 0.16
======= =======
Diluted weighted average shares
outstanding 26,654 27,007
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
Page 4 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(6,900) $4,402
Adjustments to reconcile net income(loss) to net
cash provided by (used in ) operating activities:
Depreciation and amortization 3,065 2,490
Deferred tax benefit, net of acquisitions - (517)
Increase in allowance for doubtful accounts 356 31
Minority interest 271 741
Loss on investment 1,642 -
Write-off of acquired in-process
research & development costs - 3,201
Changes in operating assets and liabilities,
net of business acquisitions:
Accounts receivable 13,409 (4,522)
Other current assets (4,792) 1,688
Accounts payable, accrued liabilities
and other liabilities (1,618) (3,860)
Income taxes payable (5,429) -
Deferred revenue (2,308) (2,008)
------- -------
Net cash provided by (used in) operating activities (2,304) 1,646
INVESTING ACTIVITIES
Purchase of property and equipment, net (6,428) (4,156)
Purchase of securities available-for-sale, net (59,179) (36,076)
Sale of securities available-for-sale 78,659 33,178
Business acquisitions - (4,000)
Other assets, net (4,200) -
------- -------
Net cash provided by (used in) investing activities 8,852 (11,054)
FINANCING ACTIVITIES
Proceeds from sale of common stock 2,327 6,060
Contributions to affiliates, net - 6,000
Principal repayments of debt (9) (6,066)
------- -------
Net cash provided by financing activities 2,318 5,994
------- -------
Increase (decrease) in cash and cash equivalents 8,866 (3,414)
Cash and cash equivalents at beginning of period 10,953 14,061
------- -------
Cash and cash equivalents at end of period $19,819 $10,647
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
Page 5 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Notes to Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
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, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes included in the Company's latest annual
report on Form 10-K.
Note 2 - New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which the Company adopted as of
December 31, 1998. SOP 98-1 requires capitalization of certain costs incurred in
connection with developing or obtaining internal use software. In the prior
year, the Company expensed such costs as incurred. The effect of this accounting
change was to reduce the net loss for the three months ended March 31, 1999 by
$95,000 and had no impact on the loss per share. There was no effect on net
income for the quarter ended March 31, 1998 for this accounting change.
Note 3 - Business Acquisitions
On February 23, 1998, the Company recorded charges of $3.2 million related to
the acquisition of contract management system technology from Trego Systems,
Inc. for cash of $4.0 million. The acquisition was accounted for under the
purchase method. The charges were expensed as in-process research and
development in connection with the Company's development of a healthcare
contract management system.
On April 23, 1999, the Company acquired EDiX Corporation ("EDiX"), a provider of
medical transcription outsourcing services to hospitals and large physician
group practices. The terms of the agreement provide for the shareholders and
optionholders of EDiX to receive approximately 1,000,000 shares of IDX common
stock. Based on the closing price of the IDX common stock on April 23, 1999, the
transaction is valued at approximately $16.7 million, plus the assumption of
EDiX debt of approximately $14.0 million. In addition, IDX loaned EDiX
approximately $5.0 million, subject to certain conditions, to provide working
capital to EDiX prior to the closing. This transaction is not expected to dilute
earnings per share in 1999 compared to 1998. The EDiX organization will operate
as EDiX, a division of IDX Systems Corporation. The acquisition will be
accounted for as a pooling of interest for the quarter ended June 30, 1999 and
all historical information of the Company will be restated to include EDiX's
operating results in future reporting periods.
Additionally, the Company acquired an 80% interest in ChannelHealth, Inc. on
April 1, 1999 for $6.5 million and may pay an additional $3.0 million,
contingent upon certain performance goals. ChannelHealth will be combined with
other web technology initiatives in a separate tracking division. It is
anticipated that this division will lose approximately $10.0 million pretax
during 1999. The acquisition will be accounted for under the purchase method.
Page 6 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Note 4 - Comprehensive Income
As of January 1, 1998 the Company adopted Statement No. 130, Reporting
Comprehensive Income (FAS 130). FAS 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Total
comprehensive income (loss) for the quarter ended March 31, 1999 amounted to
($7.0) million compared to $4.4 million in the same period in 1998.
Note 5- Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 131 effective
with the fiscal year ended December 31, 1998. SFAS No. 131 establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about major customers, products
and services, and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The Company views its operations and manages its business to date
as principally one segment, healthcare information solutions that include
software, hardware and related services.
Substantially all of the Company's operations are in the United States. No one
customer accounted for 10% or more of the Company's revenues in 1999 or 1998. As
a result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment.
Note 6 - 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 basic
earnings per share, the dilutive effect of stock options is excluded. The
following sets forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
<S> <C> <C>
Numerator:
Net income (loss) $(6,900) $ 4,402
------- -------
Numerator for basic and diluted
earnings (loss) per share $(6,900) $ 4,402
Denominator:
Denominator for basic earnings
(loss) per share--
weighted-average shares 26,654 26,155
Effect of employee stock options - 852
------ -------
Denominator for diluted earnings
(loss) per share 26,654 27,007
Basic earnings (loss) per share $(0.26) $ 0.17
====== =======
Diluted earnings (loss) per share $(0.26) $ 0.16
====== =======
</TABLE>
Page 7 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Note 6 - Reclassifications
Certain prior period amounts have been reclassified to conform with current
period presentations.
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. 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 14 under the caption "Factors Affecting Future Results"
consists principally of a discussion of risks which may affect future results
and are thus, in their entirety, forward-looking in nature. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
The Company reported a net loss of ($6.9) million, or ($0.26) per share, for the
first quarter of 1999 as compared to net income of $4.4 million or $0.16 per
share, for the first quarter of 1998. Excluding the nonrecurring write-off of an
investment of $1.6 million, the net loss for the quarter ended March 31, 1999
was ($6.0) million or ($0.22) per share. Excluding nonrecurring expenses in the
prior year 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES
The Company's total revenues decreased to $60.2 million during the three months
ended March 31, 1999 from $72.7 million in the corresponding period in 1998, a
decrease of ($12.5) million or (17.3%). Revenues from systems sales decreased to
$22.9 million during the three months ended March 31, 1999 (38.0% of total
revenues) compared to $39.0 million (53.6% of total revenues) in the
corresponding period in 1998, a decrease of ($16.1) million or (41.4%). The
decrease was primarily due to a delay in current and potential customers
purchasing decisions combined with a decrease in installations of certain of the
Company's LastWord and IDXtend systems. Revenues from maintenance and service
fees increased to $37.3 million during the three months ended March 31, 1999
(62.0% of total revenues) from $33.7 million (46.4% of total revenues) in the
corresponding period in 1998, an increase of $3.6 million or 10.5%. 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.
During the quarter ended March 31, 1999, certain of the Company's large
customers delayed making purchasing decisions with respect to certain of the
large software systems comprised of multiple products, resulting in longer sales
cycles for such systems. Management believes such delays are due to a number of
factors, including customer organizational changes, governmental approvals,
product complexity, competition and customer preoccupation with internal Year
2000 issues. The Company is unable to determine and is therefore uncertain
whether such factors constitute a trend or will continue into future periods.
Page 8 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
COST OF SALES
The cost of sales and services increased to $40.0 million during the three
months ended March 31, 1999 from $37.2 million in the corresponding period in
1998, an increase of $2.8 million or 7.3%. The gross profit margin on systems
sales and services decreased to 33.6% during the three months ended March 31,
1999 from 48.8% in the corresponding period in 1998. The decrease in gross
profit was primarily due to fixed costs and overhead expenses in relation to
decreased revenue from installations of the Company's LastWord and IDXtend
systems which typically include a greater percentage of software and less
services than installations of the Company's earlier systems sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $18.6 million during
the three months ended March 31, 1999 from $13.8 million in the corresponding
period in 1998, an increase of $4.8 million or 34.8%. As a percentage of total
revenues, selling, general and administrative expenses increased to 30.8% during
the three months ended March 31, 1999 from 18.9% in 1998 due to the increase in
expense combined with the lower revenue base for the period. The increase in
total selling, general and administrative expenses during the three months ended
March 31, 1999 was principally due to an increase in the Company's sales,
marketing and administrative staff which management believes is necessary to
support the continued growth of the Company.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $13.5 million during the three
months ended March 31, 1999 from $10.3 million in the corresponding period in
1998, an increase of $3.2 million or 31.3%. The increase is primarily due to
hiring additional staff and outside consultants to support the development of
additional products including IDXsiteand web technology aplications, and for the
costs of efforts to address Year 2000 issues. As a percentage of total revenues,
research and development expenses increased to 22.5% during the three months
ended March 31, 1999 from 14.2% for the three months ended March 31, 1998. The
increase as a percentage of sales for the three months ended March 31, 1999 as
compared to the prior year, is due to the additional personnel and consulting
expenses combined with the lower revenue base for the period.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
On February 23, 1998, the Company recorded 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.
OTHER INCOME (EXPENSE)
Interest income remained comparable at approximately $1.4 million during the
first quarters of 1999 and 1998. There was no interest expense in the first
quarter of 1999 compared to $43,000 for the same period in the prior year. Other
expense included the write off of an investment of $1.6 million in the quarter
ended March 31, 1999.
INCOME TAXES
Income taxes for the quarter ended March 31, 1999 were provided at 44% which is
higher than the Company's historical statutory rate of 40% due to the effect of
certain tax credits. The provision for income taxes for the three months ended
March 31, 1998 was provided at approximately 53%. The higher rate in the prior
year is due to a portion of the charges incurred in the first quarter ended
March 31, 1998 related to the acquisition of Trego Systems, Inc. which were
non-deductible for income tax purposes. The Company anticipates an effective tax
rate of approximately 40% for the year ending December 31, 1999.
SUBSEQUENT EVENTS
On April 23, 1999, the Company acquired EDiX Corporation ("EDiX"), a provider of
medical transcription outsourcing services to hospitals and large physician
group practices. The terms of the agreement provide for the shareholders and
optionholders of EDiX to receive approximately 1,000,000 shares of IDX common
stock. Based on the closing price of the IDX common stock on April 23, 1999, the
transaction is valued at approximately $16.7 million, plus the assumption of
EDiX debt of approximately $14.0 million. In addition, IDX loaned EDiX
approximately $5.0 million, subject to certain conditions, to provide working
capital to EDiX prior to the closing. This transaction is not expected to dilute
earnings per share in 1999 compared to 1998. The EDiX organization will operate
as EDiX, a division of IDX Systems Corporation.
Page 9 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Additionally, the Company acquired an 80% interest in ChannelHealth, Inc. on
April 1, 1999 for $6.5 million and may pay an additional $3.0 million,
contingent upon certain performance goals. ChannelHealth will be combined with
other web technology initiatives in a separate tracking division. It is
anticipated that this division will lose approximately $9.0 million pretax
during 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1969, the Company has funded its operations, working
capital needs and capital expenditures primarily from operations. The remainder
of the proceeds from its initial public offering in 1995 were used for general
corporate purposes.
Cash flows from operations are principally comprised of net income (loss),
depreciation and amortization, and are primarily affected by the net effect of
the change in accounts receivable, accounts payable and accrued expenses. Due to
the nature of the Company's business, accounts receivable, deferred revenue and
accounts payable fluctuate considerably due to, among other things, the length
of the installation efforts which are dependent upon the size of the
transaction, the changing business plans of the customer, the effectiveness of
customers' management and general economic conditions. In general, accounts
receivable from customers have been collected within 85 to 105 days.
Cash flows related to investing activities have principally been related to the
purchase of computer and office equipment, leasehold improvements, the
acquisition of complementary products, businesses, technology and the purchase
and sale of investment grade marketable securities. The Company expects these
activities to continue. During the quarter ended March 31, 1999, the Company
also acquired a building in South Burlington, Vermont with 15,000 square feet
for approximately $1.1 million which will be used for additional office space.
Subsequent to March 31, 1999, the Company acquired an additional building in
South Burlington Vermont with 51,210 square feet for approximately $6.4 million.
Also subsequent to the balance sheet date of March 31, 1999, the Company
acquired EDiX Corporation ("EDiX"). The terms of the agreement provide for the
shareholders and optionholders of EDiX to receive approximately 1,000,000 shares
of IDX common stock. Based on the closing price of the IDX common stock on April
23, 1999, the transaction is valued at approximately $16.7 million, plus the
assumption of EDiX debt of approximately $14.0 million. Additionally, the
Company acquired an 80% interest in ChannelHealth, Inc. on April 1, 1999 for
$6.5 million and may pay an additional $3.0 million, contingent upon certain
performance goals. There can be no assurance that the Company will be able to
successfully complete other purchases or acquisitions in the future.
Cash flows from financing activities historically relate to the sale of common
stock through the exercise of employee stock options and in connection with the
employee stock purchase plan. During 1998 other financing activities related to
the recapitalization of the real estate affiliate from debt to equity.
Cash, cash equivalents and marketable securities at March 31, 1999 were $113.8
million, a decrease from the December 31, 1998 balance of $124.5 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, 1999 or 1998.
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 1999 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 the next twelve months. To date,
inflation has not had a material impact on the Company's revenues or income.
The Company has announced plans to expand its facilities at Shelburne Road in
South Burlington, Vermont and is considering various options, including the
purchase of additional land and the construction of additional office space. To
date, the Company has made no lease or purchase commitments other than the two
building purchases mentioned above.
Page 10 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
YEAR 2000
INTRODUCTION
Software applications that use only two digits to identify a year in the date
field may fail or create errors in the year 2000 ("Year 2000 Issues"). The
Company has taken significant steps to address Year 2000 Issues.
The Company's internally-used computer equipment, software and devices with
embedded technology--including both information systems and non-information
systems (together, "Internal Use Systems")--may fail to operate properly or as
expected due to Year 2000 Issues. This could result in a system failure or
miscalculations causing disruption of the Company's operations, including among
other things, a temporary inability to process transactions, send invoices,
conduct communications, or engage in similar normal business activities. In
addition, computer software products sold, marketed, and supported by the
Company ("Company Software Products") and the products of third parties that are
distributed by the Company or others or may be necessary for operation of
Company Software Products ("Third Party Products"), may fail to operate properly
or as expected due to Year 2000 Issues. Such failures could result in system
failures or miscalculations causing disruption of customers' operations,
including among other things, a temporary inability to process transactions,
send invoices, conduct communications, treat patients, or engage in similar
normal business activities. Further, products and services used by the Company's
customers, but not supplied by the Company, could fail to operate properly or as
expected due to Year 2000 Issues. Customers' efforts to plan for such events
could result in the deferral, delay or cancellation by customers of current
installations of and plans to purchase Company Software Products.
STATE OF READINESS
The Company has undertaken various initiatives intended to address Year 2000
Issues with respect to Internal Use Systems, Company Software Products, and
Third Party Products. The Company has established working groups whose primary
functions are to (i) develop and implement the Company's definition of Year 2000
readiness, (ii) assess Internal Use Systems, Third Party Products and Company
Software Products for Year 2000 Issues, (iii) monitor development, testing and
remediation efforts with respect to Company Software Products, (iv) monitor
testing of Company Software Products and Third Party Products, (v) review
customer preparations to implement Year 2000 releases of Company Software
Products, (vi) monitor and coordinate the Company's deployment plans and results
with respect to Year 2000 releases of Company Software Products, (vii) monitor
and coordinate contingency plans with respect to Internal Use Systems, Company
Software Products and Third Party Products, and (viii) provide centralization,
accuracy and consistency of the Company's communications regarding Year 2000
Issues.
The Company has engaged independent experts to assist in its efforts with
respect to Year 2000 Issues. The Company has employed such experts to
independently evaluate and verify its methodologies and state of readiness. In
addition, the Company has employed experts to independently evaluate certain
critical Internal Use Systems.
Although the Company's efforts to address Year 2000 issues do not fall precisely
into sequential phases, generally these efforts are comprised of an assessment
phase, a development phase (only with respect to Company Software Products), a
deployment or remediation phase, a preliminary contingency planning phase, and a
final stage contingency planning phase.
Internal Use Systems. Based upon the Company's assessment efforts to date, the
Company believes that certain Internal Use Systems will require replacement or
modification, and to date the Company has replaced or modified some Internal Use
Systems. In addition, in the ordinary course of replacing and upgrading Internal
Use Systems, the Company attempts to obtain replacements that it believes will
not fail as a result of Year 2000 Issues. The Company has substantially
completed its assessment efforts with respect to Internal Use Systems and
expects that its remediation efforts will be
Page 11 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
completed by the fourth quarter of 1999. The Company is currently engaged in but
has not completed contingency planning to address personnel, resource and
technical Year 2000 Issues relating to foreseeable scenarios that may develop
despite its current and planned remediation efforts. The Company estimates that
as of March 31, 1999 it had completed approximately 63% of its efforts in
connection with Year 2000 Issues relating to its Internal Use Systems. The
projects comprising the remaining 37% of such efforts are in process and are
expected to be substantially completed on or about the fourth quarter of 1999.
The majority of the remaining work is associated with finalizing the Company's
contingency plan, analyzing landlord's responses for facilities leased by IDX,
and completing the desktop touch project which evaluates the possible need for
upgrades on non-IDX desktop applications.
The Company has mailed letters or otherwise communicated with many of its
significant vendors of Internal Use Systems and related service providers to
determine the extent to which Year 2000 Issues affect products and services of
such vendors and providers. As of March 31, 1999, the Company had received
responses from approximately 85% of such third parties, and 78% of these
companies have provided written assurances that they expect to successfully
address their significant Year 2000 Issues on a timely basis. The Company is
engaged in but has not completed efforts to communicate with other vendors and
service providers involved in its Internal Use Systems to request more responses
to its communications and to verify the responses received. Due to uncertainties
associated with vendors and service providers, the Company is unable to predict
whether Year 2000 Issues involved in its Internal Use Systems will have a
material adverse effect on the Company's business, results of operations, or
financial condition, despite the Company's current assessment to the contrary.
Third Party Products. The Company works closely with vendors of significant
Third Party Products and has communicated with them to determine the extent to
which their products and services are or will be Year 2000 compliant. In
addition, the Company is testing or plans to test Year 2000 releases of certain
Third Party Products. Based upon its current assessment, the Company believes it
has received adequate assurances that significant Third Party Product vendors
expect to successfully address their significant Year 2000 Issues on a timely
basis. Due to uncertainties associated with Third Party Product vendors, the
Company is unable to predict whether a material adverse effect on business,
results of operations, or financial condition may result from Year 2000 Issues
related to Third Party Products, despite the Company's current assessment to the
contrary.
Company Software Products. The Company began development of Year 2000 versions
of some Company Software Products in 1997 and continues to progress through
development cycles with respect to some Company Software Products. The Company
began deploying Year 2000 releases of Company Software Products in 1998 and
expects to complete deployment of such releases during the second half of 1999.
The Company continues to test and monitor performance of Year 2000 releases of
Company Software Products in customer environments. The Company expects to
deliver and deploy maintenance releases of Company Software Products in the
ordinary course of business to remediate any Year 2000 Issues as identified
during and after deployment of Year 2000 releases of Company Software Products.
Based on the Company's assessment, the Company believes continuing efforts will
be required to assist customers in deploying and testing Year 2000 releases of
Company Software Products in their unique environments. The Company expects an
increase in service and support effort levels as the year 2000 approaches and
into the early months of the year 2000.
The Company develops, markets and supports many different products, and the
amount of effort applied with respect to individual products varies from product
to product. The Company estimates that as of March 31, 1999 it had completed
approximately 87% of the development efforts relating to Year 2000 versions of
all of the Company Software Products. The projects comprising the remaining 13%
of these efforts are in process and expected to be substantially completed in
the third quarter of 1999. The Company estimates that as of March 31, 1999, it
had completed approximately 58% of the deployment efforts relating to Year 2000
versions of all Company Software Products. The projects comprising the remaining
42% of these efforts are in process and are expected to be substantially
completed in the third quarter of 1999, but the Company expects to continue
efforts to remediate and maintain Year 2000 versions of Company Software
Products in customer environments and to support customers' efforts relating to
Year 2000 Issues through the early part of 2000.
Page 12 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
The Company is currently engaged in but has not completed contingency planning
to address company-wide personnel, resource, technical and communication issues
relating to its service and remediation efforts. The Company expects that its
development, remediation, testing, deployment and contingency planning efforts
with respect to Company Software Products will continue up to and beyond
December 31, 1999, but expects the level of development and deployment will
decrease in the second half of 1999.
Contingency Plans and Risks. The Company has begun, but not yet completed, a
comprehensive analysis of the company-wide operational, business and financial
problems (including possible loss of revenue), if any, that would be reasonably
likely to result from the impact of unresolved Year 2000 Issues, including
possible (i) failure by the Company and vendors of Third Party Products to
complete efforts to avoid or minimize Year 2000 Issues on a timely basis,
including failure of Internal Use Systems, Company Software Products and Third
Party Products to be Year 2000 ready, (ii) failure of Customers to be ready to
or cooperate in the deployment of Year 2000 ready versions of Company Software
Products and Third Party Products on a timely basis, and (iii) delay, deferral
or cancellation by customers of current installations and prospective purchase
decisions with respect to Company Software Products. The Company has not yet
completed its contingency plans relating to Year 2000 scenarios it deems
sufficiently probable to merit contingency planning, but it has substantially
completed its preliminary phase of contingency planning and expects to
substantially complete its contingency planning by the third quarter of 1999.
Such contingency final stage planning will encompass "worst case" scenarios that
assume the failure of significant communications and computing infrastructures
of the Company, its customers and suppliers, together with failures of
governmental and utility infrastructures, including those related to
transportation and energy.
COSTS
The Company estimates that the cost of its efforts to successfully address Year
2000 Issues will be approximately $18.3 million, of which approximately $5.6
million relates to Internal Use Systems and $12.7 million relates to Company
Software Products. Because the Company develops, markets, and supports many
different products, the amount of effort applied with respect to individual
products varies from product to product. All expenditures to fund Year 2000
Issue efforts have been and will continue to be funded from operating
expenditures for fiscal years 1997 through early 2000, except for $.8 million,
which is expected to be incurred and capitalized in 1999. As of March 31, 1999,
the Company had incurred approximately $10.4 million related to its Year 2000
Issue assessment, remediation, testing, and contingency planning efforts
identification, which is approximately 57% of the total projected costs of such
efforts. Of the amount of costs incurred to date, approximately $2.1 million
relates to Internal Use Systems, which is approximately 38% of the total of
estimated costs for such efforts, and $8.3 million relates to Company Software
Products, which is approximately 65% of the total of estimated costs for such
efforts.
Unless all material Year 2000 Issues are timely and properly identified,
assessed, and remediated, and unless adequate contingency plans are properly
formulated, Year 2000 Issues may materially adversely impact the Company's
business, financial condition and results of operations, or adversely affect the
Company's relationships with customers, suppliers or others. The Company
believes that Year 2000 Issues could cause failures in important elements of the
computing and communications infrastructures of the Company, its customers and
suppliers and also Company Software Products and Third Party Products. Further,
the Company expects that it and its customers and suppliers may experience
failures of such systems the causes of which will be difficult to determine,
requiring the application of resources for diagnostic purposes. If the Company
has not developed adequate contingency plans and means to address such
contingencies, Year 2000 Issues could materially adversely impact the Company's
business, financial condition and results of operations, or adversely affect the
Company's relationships with customers, suppliers or others.
The costs, timing and scheduling of deployment and installation of Year 2000
versions of Company Software Products and Third Party Products, as well as the
ability of the Company to assist customers in the installation of Company
Software Products, will depend in part on the readiness, ability and cooperation
of customers and their suppliers. Due to uncertainties associated with
customers' readiness, cooperation and sources of products and services, there
can be no assurance that Year 2000 Issues will not materially adversely affect
the Company's business, results of operations, or financial condition, or
adversely affect the Company's relationships with customers, vendors or others.
Page 13 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
Some customers and prospects of the Company operate in complex computing
environments that include products and services not supplied by the Company. The
costs, timing and scheduling by customers of work related to Year 2000 Issues
involving such products and services may cause some customers and prospects to
defer current projects or prospective purchase decisions regarding Company
Software Products. If Year 2000 Issues cause customers and prospects to defer
current projects or prospective purchase decisions, the Company's financial,
business and operational goals may be deferred or may not be realized at all,
with the result that the Company's business, results of operations, or financial
condition could be materially adversely affected. Due to uncertainties
associated with customers and prospects, there can be no assurance that Year
2000 Issues will not materially adversely affect the Company's business, results
of operations, or financial condition or adversely affect the Company's
relationships with customers, vendors or others.
The costs of the Company's Year 2000 identification, assessment, remediation,
testing, deployment and contingency planning efforts, and the dates on which the
Company believes it will complete such efforts, are based upon management's
current best estimates, which were derived using numerous assumptions regarding
future events, including the continued availability of certain resources,
third-party remediation plans, and other factors. There can be no assurance that
these estimates will prove to be accurate, and actual results could differ
materially from those currently anticipated. Specific factors that could cause
such material differences include, but are not limited to, the availability of
and cost of personnel trained in Year 2000 Issues, the ability to correctly and
effectively identify, assess, remediate, and test all relevant computer codes,
equipment, and embedded technology, and similar uncertainties, the ability of
the Company to timely install and deploy Year 2000 releases of Company Software
Products, a failure of the Company to provide, obtain or make available adequate
resources to assist customers in installing Year 2000 releases of Company
Software Products and Third Party Products. As a result of any of such factors
alone or in combination, the Company may experience an increase in warranty and
other claims. In addition, since there is no uniform definition of "compliance
with Year 2000," and since the Company sells a myriad of different combinations
of products and services under varying contractual terms, the Company is not
able to assess or estimate the possible impact of such possible claims. No
assurance can be given that the aggregate cost of defending and resolving such
claims, if any, will not materially adversely affect the Company's results of
operations. Although some of the Company's agreements with manufacturers and
others from whom it purchases products for resale contain provisions requiring
such parties to indemnify the Company under some circumstances, there can be no
assurance that such indemnification arrangements will cover all of the Company's
liabilities and costs related to claims by third parties related to Year
2000 Issues.
FACTORS AFFECTING FUTURE RESULTS
IDX Stock Prices May Continue to be Volatile. IDX has experienced, and expects
to continue to experience fluctuations in its stock price due to a variety of
factors including:
. delay in customers purchasing decisions due to a variety of factors
such as consolidation, management changes and year 2000 problems;
. market prices of competitors such as McKesson HBOC, Inc.;
. announcements of technological innovations, including Internet
delivery of information and use of relational database technology;
. new product introductions by IDX or its competitors;
. market conditions particularly in the computer software and hardware
industries; and
. healthcare reform measures.
Page 14 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
These fluctuations could have a significant impact on future market prices of
IDX's common stock. On March 5, 1999 IDX announced that it expected a loss of
($0.22) - ($0.28) per share in the quarter ending March 31, 1999. Following this
announcement, the IDX share price declined. On April 30, 1999, the last reported
sale price of IDX common stock on the Nasdaq National Market was $16.25 per
share. On December 31, 1998, the last reported sale price of IDX common stock on
the Nasdaq National Market was $44.00. This represents a 63% decline in the
value of IDX stock since December 31, 1998.
Variation in Financial Trends in Net Income and Cash from Operations May
Continue. Year over year net income and cash from operations have fluctuated
since 1995. IDX's net income was $20.6 million in 1995. Net income fell to $16.7
million in 1996 and $8.0 million in 1997. Net income increased to $30.2 million
in 1998. Cash from operations was $21.7 million in 1995, $10.4 million in 1996,
$9.8 million in 1997, and $23.4 million in 1998. On March 5, 1999 IDX
announced that based on currently available information, the after tax loss for
the first quarter ending March 31, 1999 was expected to be ($5.0) to ($7.0)
million. If these negative trends were to continue, IDX could have difficulty in
financing future growth and funding its operating initiatives including future
acquisitions.
IDX Expects its Quarterly Operating Results to Fluctuate and its Customer Sales
and Installation Requirements to Change. IDX expects its quarterly results of
operations to continue to fluctuate. Because a significant percentage of IDX's
expenses are relatively fixed, the following factors could cause these
fluctuations:
. delay in customers purchasing decisions due to a variety of factors
such as consolidation, management changes and year 2000 problems;
. the volume and timing of systems sales and installations;
. recognizing revenue at various points during the installation
process; and
. the sales and implementation cycles of IDX's customers.
In addition, the timing of new product and service introductions and product
upgrade releases and general economic conditions can impact IDX's quarterly
operating results.
In light of the above, IDX believes that its results of operations for any
particular quarter or fiscal year are not necessarily meaningful or reliable
indicators of future performance. Future period-to-period fluctuations may have
a material adverse effect on IDX's results of operations, financial condition or
business.
IDX May Experience Challenges and Incur Substantial Costs in Integrating the
Operations of EDiX.
EDiX may present IDX operational challenges, and IDX expects to incur
significant pre-tax charges in association with the merger. If IDX fails to
successfully integrate the operations or management of the two companies, it
could have a material adverse effect on the combined entity's results of
operations, financial condition or business.
Page 15 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
IDX May Not be Successful in Implementing its Acquisition Strategy. IDX intends
to continue to grow in part through either acquisitions of complementary
products, technologies and businesses or alliances with complementary
businesses. IDX may not be successful in these acquisitions or alliances, or in
integrating any such acquired or aligned products, technologies or businesses
into its current business and operations. Factors which may affect IDX's ability
to expand successfully include:
. the successful identification and acquisition of products,
technologies or businesses;
. effective integration and operation of the acquired or aligned
products, technologies or businesses despite technical
difficulties, geographic limitations and personnel issues; and
. overcoming significant competition for acquisition and alliance
opportunities from companies that have significantly greater
financial and management resources, such as McKesson HBOC, Inc.
and Shared Medical Systems Corporation.
The failure to successfully integrate any significant products, technologies or
businesses could have a material adverse effect on IDX's results of operations,
financial condition or business.
IDX's Success Depends on New Product Development and Its Ability to Respond to
Rapidly Changing Technology. To be successful, IDX must enhance its existing
products, respond effectively to technology changes and help its clients adopt
new technologies. In addition, IDX must sell additional products to its existing
client base and introduce new products and technologies to meet the evolving
needs of its clients in the healthcare information systems market. IDX may have
difficulty in accomplishing this because of factors including:
. evolving industry standards, for example, Health Level Seven;
. new technological developments, for example, the web technology.
IDX is currently devoting significant resources toward the development of
enhancements to its existing products, particularly in the announced area of
web-based functionality and the migration of existing products to new hardware
and software platforms including relational database technology and object-
oriented programming. However, IDX may not successfully complete these product
developments or the adaptation in a timely fashion, and IDX's current or future
products may not satisfy the needs of the healthcare information systems market.
Any of these developments may adversely affect IDX's competitive position or
render its products or technologies noncompetitive or obsolete.
IDX May Be Adversely Affected by Year 2000 Problems. In the year 2000 software
applications that use only two digits to identify a year in the date field may
fail or create errors. IDX uses computer equipment, software and devices with
embedded technology, including both information systems and non-information
systems, that may not be year 2000 compliant despite IDX's continuing efforts to
assess, remediate, and test such equipment, software and devices. This could
result in a system failure or miscalculations causing disruption of IDX's
operations, including among other things, a temporary inability to:
. process transactions;
. send invoices;
. conduct communications; or
. engage in similar normal business activities.
Page 16 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
In addition, IDX sells computer software products and distributes the products
of third parties that may not be year 2000 compliant despite IDX's continuing
efforts to assess and test these products. This could result in system failures
or miscalculations causing disruption of customers' operations, including, in
addition to the types of disruptions described above, a temporary disruption in
their ability to treat patients. Further, products and services used by IDX's
customers, but not supplied by IDX, may not be year 2000 compliant. Customers
may defer current installations of and plans to purchase IDX products until they
have completed their own year 2000 assessment. Any of these problems could have
a material adverse effect on IDX's results of operations, financial condition or
business.
IDX does not believe that the year 2000 issues will pose significant operational
problems for IDX. However, if year 2000 issues are not properly identified,
assessed and resolved, it could have a material adverse effect on the results of
operations, financial condition or business of IDX. In addition if actual year
2000 remediation costs are higher than IDX estimated costs, it could materially
adversely affect IDX's results of operations, financial condition or business.
The nature of IDX's business and its relationships with its customers make it
difficult to assess the magnitude of IDX's potential exposure as a result of
year 2000 issues. IDX is engaged in the business of developing, marketing and
supporting computer software. IDX's software is often used by its customers in
conjunction with other vendors' products and services. The ability of IDX to
assist its customers in the development and installation of year 2000 compliant
versions of IDX software products will depend in part on the readiness, ability
and cooperation of its customers and their suppliers. In addition, the
purchasing patterns of IDX customers and potential customers may be affected by
year 2000 issues. The cost, timing and scheduling by customers of work related
to year 2000 issues involving IDX's products and services may cause some
customers to defer or forego projects or purchase decisions. IDX sells a number
of different combinations of products and services under varying contractual
terms. There is no widely accepted definition of year 2000 compliance. Certain
of IDX's customers may assert breach of warranty or other claims against IDX
relating to year 2000 compliance. Any of these factors may adversely affect the
results of operations.
Product Sales Within the Healthcare Industry May Decline Causing IDX to Suffer
Financially. IDX currently derives substantially all of its revenues from sales
of financial, administrative and clinical healthcare information systems and
related services within the healthcare industry. As a result, any factor
adversely affecting this industry and these sales could have a material adverse
effect on IDX. In addition, even though IDX's annual sales have increased,
future revenues associated with existing products may decline as a result of
factors like price competition. IDX may not be able to continue its success in
marketing its current, new or enhanced products. Moreover, IDX may be unable to
maintain its current pricing for existing products.
IDX May Be Faced With Product Liability Claims Exceeding Its Insurance Coverage.
Any failure by IDX's products that provide applications relating to patient
medical histories and treatment plans could expose IDX to product liability
claims. These potential claims may exceed IDX's current insurance coverage. A
successful claim brought against IDX in excess of its insurance coverage could
have a material adverse effect on IDX's results of operations. Even unsuccessful
claims could be costly to defend and divert management time and resources. In
addition, IDX cannot assure you that it will continue to have appropriate
insurance available to it in the future at commercially reasonable rates.
IDX's Success is Significantly Dependent on Key Personnel. The success of IDX is
dependent to a significant degree on its key management, sales, marketing, and
technical personnel. To be successful IDX must attract, motivate and retain
highly skilled managerial, sales, marketing, consulting and technical personnel,
including programmers, consultants, and systems architects skilled in the
technical environments in which IDX's products operate. Competition for such
personnel in the software and information services industries is intense. The
loss of key personnel, or the inability to hire or retain qualified personnel,
could have a material adverse effect on IDX's results of operations. IDX does
not maintain "key man" life insurance policies on its executives. Not all
IDX personnel have executed noncompetition agreements.
IDX May Be Adversely Affected By Changes in the Healthcare Industry and by
Government Healthcare Reform Proposals. IDX's products are designed to
function within the structure of the healthcare financing and reimbursement
Page 17 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
system currently being used in the United States. During the past several years,
the healthcare industry has been subject to increasing levels of governmental
regulation of, among other things, reimbursement rates and capital expenditures.
From time to time, Congress has considered proposals to reform the healthcare
system. If enacted, these proposals may increase government involvement in
healthcare, lower reimbursement rates and otherwise change the operating
environment for IDX's clients. Healthcare organizations may react to these
proposals and the uncertainty surrounding these proposals by curtailing or
deferring investments, including those for IDX's products and services. IDX
cannot predict with any certainty what impact these proposals or healthcare
reforms might have on its results of operations, financial condition or
business.
Governmental Regulation May Impose New Burdens and Costs on IDX's Operations.
The United States Food and Drug Administration has promulgated a draft policy
for the regulation of computer software products as medical devices under the
1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To
the extent that computer software is a medical device under the policy, IDX, as
a manufacturer of such products, could be required, depending on the product,
to:
. register and list its products with the FDA;
. notify the FDA and demonstrate substantial equivalence to other
products on the market before marketing such products;or
. obtain FDA approval by demonstrating safety and effectiveness
before marketing a product.
Depending on the intended use of a device, the FDA could require IDX to obtain
extensive data from clinical studies to demonstrate safety or effectiveness, or
substantial equivalence. If the FDA requires this data, IDX would be required to
obtain approval of an investigational device exemption before undertaking
clinical trials. Clinical trials can take extended periods of time to complete.
IDX cannot provide assurances that the FDA will approve or clear a device
after the completion of such trials. In addition, these products would be
subject to the FDC Act's general controls, including those relating to good
manufacturing practices and adverse experience reporting. Although it is not
possible to anticipate the final form of the FDA's policy with regard to
computer software, IDX expects that the FDA is likely to become increasingly
active in regulating computer software intended for use in healthcare settings
regardless of whether the draft is finalized or changed. The FDA can impose
extensive requirements governing pre-and post-market conditions like service
investigation, approval, labeling and manufacturing. In addition, the FDA can
impose extensive requirements governing development controls and quality
assurance processes.
In order to ensure continued compliance with changing government standards and
regulations, IDX monitors regulations affecting its business including those
mandated by the Health Insurance Portability and Accountability Act of 1996.
IDX May Have Conflicts of Interests With Some of its Executives Which May
Adversely Affect IDX. Richard E. Tarrant, President, Chief Executive Officer and
Director, and Robert H. Hoehl, Chairman of the Board of Directors, indirectly
own, through various entities, real estate which IDX leases in connection with
its operations. During 1998, IDX paid an aggregate of approximately $4.2
million in connection with these leases. In November 1998, IDX announced
tentative plans to expand one of its facilities located on land owned by these
executives, however the Company has not yet made any commitments to finalize
those plans.
In connection with these arrangements, the economic interests of these
executives and directors and IDX may diverge. In response, IDX has created the
Committee on Independent Director Transactions to review and approve
transactions of this nature. IDX believes that these arrangements were entered
into on an arm's length basis on terms that were no less favorable to IDX than
could have been obtained from unaffiliated third parties.
Because of these and other factors, past financial performance should not
be considered an indicator of future performance. Investors should not use
historical trends to anticipate future results.
Page 18 of 26
<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) On March 8, 1999, the Company filed a report on Form 8-K, reporting the IDX
News Release dated March 5, 1999 concerning the expected loss in the first
quarter of 1999. No financial statement was filed with such report.
(c) On April 22, 1999, the Company filed a report on Form 8-K, reporting two IDX
News Releases dated April 21, 1999 concerning the results of operations for the
first quarter of 1999 and the purchase of 80% of the stock of ChannelHealth,
Inc.
Page 19 of 26
<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, 1999 By: /s/ John A. Kane
--------------------
John A. Kane,
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 20 of 26
<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>
99A Letter Agreement between BDP Realty Associates and
IDX Systems Corporation dated as of March 23, 1999. 22
99B Lease Extension between IDS Realty Trust and IDX
Systems Corporation dated as of June 15, 1998 and
executed April 12 1999. 25
27 Financial Data Schedule 27
</TABLE>
Page 21 of 26
<PAGE>
EXHIBIT 99A
March 23, 1999
Mr. Ronald L. Roberts
BDP Realty Associates
1400 Shelburne Road
Burlington, VT 05402
Re: 1500 Shelburne Road
Dear Ron:
This letter constitutes our request to enter into a letter agreement extending
the 1500 Shelburne Road Lease on a month-to-month basis. IDX proposes continuing
the same terms as agreed to in the letter agreement of August 16, 1995, a copy
of which is attached.
Sincerely,
/s/ MICHELLE A. RUSSO
Michelle A. Russo
Mgr., Administration
cc: Robert W. Baker, Jr., Esq.
AGREED AND ACCEPTED:
IDX SYSTEMS CORPORATION BDP REALTY ASSOCIATES
By:/s/ MICHELLE A. RUSSO By:/s/ RONALD L. ROBERTS
--------------------- ---------------------
Michelle A. Russo Ronald L. Roberts
Dated: March 23, 1999 Dated: March 23, 1999
Page 22 of 26
<PAGE>
BDP REALTY ASSOCIATES
1400 SHELBURNE ROAD
BURLINGTON, VT 05402
as of August 16, 1995
IDX Systems Corporation
Attention: John A. Kane
1400 Shelburne Road
Burlington, VT 05402
Re: 1500 Shelburne Road
Dear Jack:
As general partners of BDP Realty Associates ("BDP"), we agree to
revive, renew and amend the Lease Agreement dated July 6, 1979 and Notice to
Extend Lease Term dated August 1, 1987 ("Lease") between BDP Realty Associates,
as lessor, and IDX Systems Corporation, formerly known as Burlington Data
Processing, Inc., as lessee, under the following terms:
1. Lessor: BDP Realty Associates
2. Lessee: IDX Systems Corporation
3. Date of Lease Renewal: As of December 9, 1993
4. Lease Renewal Term: From December 9, 1993
through December 31, 1998
5. Leased Premises: Building and land located
at 1500 Shelburne Road
6. Basic Annual Rent: $154,800 [$12,900 per month]
7. Option to Renew: Additional two (2) years,
with the ability to
increase the rental
rate to the current
fair market value, per
appraisal or valuation by
qualified person selected
by the parties.
8. Triple Net Lease: Tenant is responsible for
all operating expenses,
taxes, maintenance,
repairs, (structural and
otherwise).
Page 23 of 26
<PAGE>
Page 2
as of August 16, 1995
BDP Realty Associates to
IDX Systems Corporation
BDP and IDX agree and accept the above terms. IDX acknowledges
its approval and acceptance of the above terms by executing below.
Very truly yours,
BDP REALTY ASSOCIATES
/s/ RICHARD E. TARRANT
Richard E. Tarrant, General Partner
/s/ ROBERT H. HOEHL
Robert H. Hoehl, General Partner
AGREED AND ACCEPTED:
IDX Systems Corporation
By: /s/ JOHN A. KANE
John A. Kane, Vice President
Date: August 21, 1995
Page 24 of 26
<PAGE>
EXHIBIT 99B
LEASE EXTENSION
This Lease Extension is made effective as of the 15th day of June, 1998
by and between Richard E. Tarrant, Trustee of IDS Realty Trust, a trust created
under Declaration of Trust dated October 1, 1981, and recorded in the Norfolk,
Massachusetts County Registry of Deeds in Book 5947, Page 335, as lessor (the
"Lessor") and IDX Systems Corporation, a Vermont corporation, as lessee (the
"Lessee").
WHEREAS, the Lessor and the Lessee are parties to that certain
Indenture of Lease dated as of December 1,1981, as revived, renewed and amended
by letter agreement dated June 29, 1995 (the "Lease"), whereby the Lessor leases
to the Lessee and the Lessee leases from the Lessor certain land and remises
commonly known as 882-888 Commonwealth Avenue in Brookline, Norfolk County,
Massachusetts (the "Leased Premises");
WHEREAS, the term of the Lease expired on June 15, 1998;
WHEREAS, the Lessee has an option to renew the term of the Lease for an
additional two (2) years, and the Lessee desires to exercise that option to
renew;
NOW THEREFORE, in consideration of the terms, conditions and covenants
contained herein and in the Lease, the parties hereby agree as follows:
1. Extension of Lease. The Lessee hereby exercises its option to renew
the term of the Lease for an additional two (2) years such that the term of the
Lease will expire on June 15, 2000.
2. Terms and Conditions of Renewal Term. During the renewal term, all of the
terms and conditions of the Lease shall apply with the exception of the option
to renew; the Lessee shall not have any further option to renew the term of the
Lease.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed on the dates set forth below, but this instrument shall be effective,
and the parties hereto shall be bound by the terms hereof, as of June 15, 1998.
/s/ NANETTE W. O'LEARY /s/ RICHARD E. TARRANT
- ------------------------ ------------------------------
Witness Richard E. Tarrant, Trustee of IDS Realty
Trust, a trust created under Declaration of
Trust dated October 1, 1981
/s/ ROBERT W. BAKER, JR.
- ------------------------ IDX Systems Corporation, a Vermont corporation
Witness
By: /s/ JOHN A. KANE
--------------------------
Its CFO and duly
authorized agent
Page 25 of 26
<PAGE>
STATE OF VERMONT
COUNTY OF CHITTENDEN
On this 6th day of April, 1999, before me appeared Richard E.
Tarrant, who, being by me duly sworn, did say that he is the sole trustee of IDS
Realty Trust, and he acknowledged the foregoing instrument to be his free act
and deed and his free act and deed in his capacity as trustee.
/s/ DIANE L. BROWN
---------------------------------
Notary Public
My Commission Expires: 2/10/2003
STATE OF VERMONT
COUNTY OF CHITTENDEN
On this 12th day of April, 1999, before me appeared John A.
Kane, who, being by me duly sworn, did say that he is the CFO and duly
authorized agent of IDX Systems Corporation, and he acknowledged the foregoing
instrument to be his free act and deed and his free act and deed of IDX Systems
Corporation.
/s/ DIANE L. BROWN
---------------------------------
Notary Public
My Commission Expires: 2/10/2003
Page 26 of 26
<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 COPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 19,819 10,647
<SECURITIES> 94,026 104,721
<RECEIVABLES> 87,136 72,376
<ALLOWANCES> (1,556) (1,298)
<INVENTORY> 0 0
<CURRENT-ASSETS> 213,934 200,294
<PP&E> 73,865 57,998
<DEPRECIATION> 38,523 28,026
<TOTAL-ASSETS> 270,600 242,586
<CURRENT-LIABILITIES> 45,466 46,861
<BONDS> 0 0
0 0
0 0
<COMMON> 267 263
<OTHER-SE> 215,608 186,803
<TOTAL-LIABILITY-AND-EQUITY> 270,600 242,586
<SALES> 60,181 72,737
<TOTAL-REVENUES> 60,181 72,737
<CGS> 39,961 37,248
<TOTAL-COSTS> 32,086 27,269
<OTHER-EXPENSES> 1,642 0
<LOSS-PROVISION> 356 31
<INTEREST-EXPENSE> 0 43
<INCOME-PRETAX> (12,400) 9,342
<INCOME-TAX> (5,500) 4,940
<INCOME-CONTINUING> (6,900) 4,402
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,900) 4,402
<EPS-PRIMARY> (0.26) 0.17
<EPS-DILUTED> (0.26) 0.16
</TABLE>
