________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2000, or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from__________ to __________
Commission File No. 000-26816
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IDX SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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VERMONT 03-0222230
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
40 IDX DRIVE, P.O. BOX 1070, SOUTH BURLINGTON, VERMONT 05403
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (802) 862-1022
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [_]
The aggregate market value of voting Common Stock held by nonaffiliates of
the registrant was $364,836,958 based on the last reported sale price of the
Common Stock on the Nasdaq consolidated transaction reporting system on March
19, 2001.
Number of shares outstanding of the registrant's class of Common Stock as
of March 19, 2001: 28,464,096
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders for the year ended December 31, 2000, which will be
filed with the Securities and Exchange Commission within 120 days after the end
of the registrant's fiscal year, are incorporated by reference into Part III
hereof.
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1
PART I
ITEM 1. BUSINESS
OVERVIEW
IDX Systems Corporation (IDX or the Company) is a leading provider of
information technology for physician groups, hospitals and integrated delivery
networks (IDNs). The Company's mission is to use information technology to
maximize value in the delivery of healthcare--by improving the quality of
patient service, enhancing medical outcomes, and reducing the cost of care. IDX
believes there will be a transformation in healthcare driven by information
technology, and the Company envisions itself as a key driver of the
transformation with software solutions that enable clinicians to access accurate
information at all appropriate times and locations in the continuum of
healthcare delivery.
IDX products make healthcare administration and clinical practices better
through reliable contributions to clinical knowledge and administrative
efficiency. IDX strives to provide innovative offerings that will unite
providers of healthcare with patients, payors and other partners in the
healthcare community. In addition, IDX products promote high-trust relations
between healthcare providers and healthcare consumers by empowering providers to
make better, more informed decisions using information technology. IDX solutions
are designed to enable healthcare providers to save money, time and lives.
As of December 31, 2000, IDX systems were deployed to serve approximately
120,000 physicians and were installed at over 2,600 client sites, including over
260 large group practices with greater than 100 physicians, over 500 small and
mid-sized group practices with less than 100 physicians, and more than 300 IDNs
representing more than 500 hospitals.
The Company's core business segment, providing information systems and services
for group physician practices, hospitals and IDNs, operates under the IDX(R)
brand name and consists of hardware sales, software licensing and related
services. In April 1999, IDX purchased EDiX Corporation, which IDX operates as
another business segment providing medical dictation and transcription services.
In October 1999, IDX announced the organization of its Internet applications and
content business segment, formerly referred to as IDX.com, under the name of
ChannelHealth. ChannelHealth used Internet technology to integrate content,
transactions, and information systems through three product lines, called
"channels." In January 2001, IDX sold ChannelHealth and its "Physician Channel"
business, which delivers clinical solutions to physician practices, to
Allscripts Healthcare Solutions, Inc. (Allscripts), a leading provider of
clinical hand-held technology in a merger transaction pursuant to which a wholly
owned subsidiary of Allscripts merged with and into ChannelHealth, making
ChannelHealth a wholly owned subsidiary of Allscripts. As a result, IDX will no
longer report as a separate business segment the Internet services and content
business of ChannelHealth.
IDX retained ChannelHealth's "eCommerce Channel" service, now called "IDX
eCommerce Services(SM)," which provides applications for processing financial
electronic data interchange transactions (EDI), such as claims submission and
payment, and ChannelHealth's "Patient Channel" service, now called "Patient
Online(R)", which provides Internet connectivity between healthcare consumers
and providers. The eCommerce service business and the Patient Online service
business will be reported under IDX Information Systems and Services business
segment. Also, IDX has a ten-year strategic alliance with Allscripts, whereby
IDX markets ChannelHealth's Physician Channel service, now called "Touchworks
Enterprise(TM)," and other Physician Productivity Tools offered by Allscripts,
to the IDX physician practice management systems customers on an exclusive
basis.
IDX financial, administration, and patient access solutions are generally
packaged as IDXtend(R) or Group Practice Management System(TM) (GPMS(TM)).
Clinical solutions are generally packaged as the LastWord(R) System.
IDX's radiology and imaging products are marketed as IDXrad(TM) and Imaging
Suite(TM). Through a five-year strategic alliance agreement with Stentor, Inc.,
the Company markets iSite Enterprise(TM), iSite Radiology(TM) and iVault(TM)
IDX sells the EDiX(TM) line of medical dictation and transcription services to
IDNs, hospitals, and physician groups.
Through the Company's strategic alliance with Allscripts, IDX markets
Allscripts' ChannelHealth clinical products and other physician productivity
tools to IDX's practice management systems customers.
IDX was incorporated in Vermont on June 2, 1969. The Company's executive offices
are located at 40 IDX Drive, South Burlington, Vermont 05403-1070 and its
telephone number is (802) 862-1022.
2
INDUSTRY BACKGROUND
Healthcare costs in the United States have risen over the past two decades
relative to the overall rate of inflation. While reimbursement for healthcare
has historically been based on a fee-for-service model of payment, managed care
organizations and other payors utilize alternative reimbursement models that
shift the financial risk of delivering healthcare from payors to both physicians
and institutional providers. The Company believes that pressures to control
costs have contributed to the movement of care from more expensive inpatient
settings, such as hospitals, to ambulatory settings. Further, IDX believes that
ambulatory care providers, particularly physician groups, continue to deliver
the majority of healthcare services, bear an increasing share of financial risk
and control a substantial portion of total healthcare resources.
Over the past decade, individual physicians, physician groups and other
ambulatory care providers joined and affiliated with other physicians, managed
care organizations, hospitals and other enterprises to form larger healthcare
organizations known as IDNs. These organizations have been formed to manage the
continuum of healthcare services for population groups across both inpatient and
ambulatory settings to improve quality and reduce costs for patients and
members.
IDX believes smaller physician groups will continue to form relationships to
consolidate information technology and practice management functions. The
Company also believes many existing large physician groups are growing and their
information technology needs are becoming increasingly complex. The Company
expects the total number of IDNs to remain stable, but the Company expects
existing IDNs to continue to grow by expanding their market coverage through the
acquisition of hospitals, with a resulting increase in their needs for
information technology integration. The Company believes a key operational
principle for healthcare organizations will be to control and influence the
complete treatment of a patient during an episode (or entire lifetime) of care,
regardless of the organization's legal structure or sources of payment for care.
IDX expects that continued growth in Internet usage will have a profound impact
on healthcare for both patients and providers. While commercial health websites
offer consumers valuable insights and increased involvement in their own health
issues, the Company believes healthcare organizations will be concerned that
patients may rush to clinical judgment based on incomplete, incorrectly
interpreted, or even inaccurate information. In addition, the Company believes
healthcare organizations will be concerned that use of commercial health
websites by patients will undermine the personal and local relationship between
patients and physicians. The Company expects these organizations will need to
use the Internet to establish and cultivate online relationships with patients
that will improve the effectiveness of healthcare delivery and enhance
physician-patient relationships.
IDX believes broad use of Web technology presents an opportunity to benefit all
constituencies in healthcare, strengthening the relationship between patients
and physicians, enabling physicians to improve the coordination and quality of
care and connecting healthcare organizations with trading partners to increase
efficiency and save money.
IDX believes increased consumer, government, employer and payor awareness of the
high incidence and resulting cost of medical errors will result in increased
interest in clinical information systems. According to the report published by
the Institute of Medicine (IOM) of the National Academies, between 44,000 and
98,000 unnecessary deaths result in the United States each year from errors in
medical treatment, making medical errors the eighth leading cause of death,
ahead of automobile accidents, breast cancer, and AIDS. Aside from human costs,
the total financial cost of medical errors has been estimated at up to $8
billion per year. A significant portion of medical errors result from incorrect
administration of medications - the wrong drug (often stemming from
misinterpreted handwriting or medications with similar sounding names), the
wrong dosage, or unanticipated interactions with other drugs or patient
conditions that were not noted. The Company believes online information
processing, specifically computerized physician ordering of medications, can
decrease the incidence of adverse drug events resulting from medication errors.
In a follow-up report issued by the IOM in March 2001, the IOM reiterated the
urgency of reducing medical errors, but stated that the United States healthcare
system is plagued with even deeper quality problems, which together detract from
the "health, functioning, dignity, comfort, satisfaction and resources of
Americans." The use of information technology to support clinical and
administrative processes is prominent in the report's recommended strategies to
improve the overall quality of healthcare within the next ten years. The Company
anticipates that increased use of information technology will be a significant
factor in driving industry practices to higher quality standards.
Healthcare organizations face increasing regulation and scrutiny by federal,
regional and local authorities. Compliance with regulations governing healthcare
cost reimbursement, insurance and administration impose financial burdens on
healthcare organizations. Managed care and payor rules continue to grow in
number and complexity. Recently, proposed and final regulations published under
the Health Insurance Portability and Accountability Act of 1996 (HIPAA) have
created significant operational challenges to healthcare providers and payors.
IDX believes well designed, up-to-date information solutions can play
significant roles in complementing the implementation of healthcare
organizations' internal compliance policies.
3
STRATEGY
To accomplish its mission, IDX has positioned itself to make a contribution to
the transformation of healthcare with software solutions that connect clinicians
to accurate information at appropriate times and locations in the continuum of
healthcare delivery. IDX develops software that is intended to save money, time
and lives by making healthcare administration and clinical practices better
through smart, efficient, and reliable products. IDX strives to provide
innovative offerings that will unite providers of healthcare with patients,
payors, and other partners in the healthcare community. In addition, IDX
products are intended to promote high-trust relations between healthcare
providers and healthcare consumers by empowering providers to make better, more
informed decisions using information technology.
The IDX strategy includes building on its success as a leading vendor of
comprehensive administrative and financial information systems and leveraging
the reputation of its LastWord clinical system product to create increased
opportunities for a wide range of information systems solutions. IDX believes
that information systems can play a significant role in supporting regulatory
compliance efforts of healthcare organizations and IDX offers products and
services to address these efforts.
IDX will seek to position EDiX as a vendor of comprehensive medical dictation
and transcription services, on an outsourcing basis, to take advantage of
opportunities where customers seek to reduce costs in non-core areas.
IDX believes that the combined strengths of IDX clinical, financial and
administrative products and EDiX medical dictation and transcription services
position IDX to provide high-value, comprehensive technologies to healthcare
organizations, with an emphasis on clinical excellence, Internet connectivity,
and support of compliance efforts.
KEY ELEMENTS OF IDX'S STRATEGY ARE:
MARKET CLINICAL PRODUCTS AS COMPREHENSIVE CLINICAL SOLUTIONS. The Company offers
a broad range of clinical products, including the LastWord clinical system,
IDXtend patient service applications, EDiX medical dictation and transcription
services, and IDXrad radiology information system. The Company will continue to
invest in the LastWord system product improvements to include enhancements to
ambulatory clinical workflow, nursing workflow, physician order entry, expert
systems for decision support, structured text capabilities and pharmacy and
medication management workflow. The Company seeks to differentiate its clinical
solutions by emphasizing the broad range of clinical functions available from
the combination of its diverse offerings.
PROVIDE PRODUCTS THAT SUPPORT REGULATORY AND COMPLIANCE EFFORTS. IDX believes
information tools supporting regulated customer business practices will be
beneficial to customers seeking greater reliability and predictability of their
business practices. The Company has invested in automated work flows, primarily
in its financial and clinical products, that can be tailored by healthcare
organizations to complement their internal regulatory compliance policies and
efforts. The Company will market this complementary functionality as tools to
assist healthcare organizations in implementing their own regulatory compliance
policies.
PROVIDE ROBUST SOLUTIONS TO MEET THE NEEDS OF IDNS. The Company will continue
investments in the integration of the ambulatory and acute care components of
IDXtend and the LastWord clinical system to meet IDN enterprise requirements for
clinical and administrative processes that span complex healthcare enterprises.
The Company believes market acceptance of the LastWord clinical system will
provide opportunities to expand its market position in the IDN market. The
Company expects its relationships with prestigious medical groups and academic
medical practices that are affiliated with hospitals will enhance opportunities
to cross sell the LastWord clinical system enterprise functionality.
PROVIDE PRODUCTS AND SERVICES TO IMPROVE FINANCIAL AND OPERATIONAL PERFORMANCE.
Many large healthcare organizations continue to experience significant financial
and regulatory pressures, yet must stay very focused on improving their
patients' experience. The company will continue to invest in its IDXtend product
line to provide integrated enterprise-wide financial and patient management
solutions that can significantly improve the operational and financial
performance of the large complex healthcare organization.
EXPAND MEDICAL GROUP PRACTICE MARKET SHARE. The Company seeks to expand its
group practice market leadership by increasing sales efforts in the smaller and
mid-sized group practice market. In addition, the Company expects to market a
combination of group practice products and consulting services as combined
solutions or "programs" to address the needs of the group practice market to
continue to achieve efficiency and reduce costs. IDX expects to design programs
to deliver solutions to administrative problems involving patient flow,
financial flow, and decision support. IDX plans to incorporate consulting
services to measure organizational and solution performance against industry
best practices into these programs. IDX Patient Online and eCommerce services as
well as Allscripts' TouchWorks suite of solutions will incorporate physician and
business services into the core practice management
4
offerings. By emphasizing integration among the LastWord clinical system,
IDXtend, and IDXrad, the Company expects to target independent imaging centers
and group practices with large radiology components.
ACCELERATE DELIVERY OF PRODUCTS AND SERVICES. Increasingly competitive pressures
on healthcare organizations are creating a need for a faster return on
investment in information solutions. At the same time, customers are responding
to the increasing complexity of information technology with requests for more
consultative assistance in the area of systems implementations. To address these
needs, the Company has developed an improved implementation process called
"IDXpedite," which uses a consultative process to align prioritized business
objectives directly to system functionality. Through detailed project scoping,
consultation, and the use of prototypes in the design phase, IDXpedite will
allow customers to go-live on key functionality more quickly and reduce overall
implementation time.
MARKET A COMPREHENSIVE EHEALTH SOLUTION. IDX believes that to take advantage of
Internet capability, a comprehensive healthcare information system must access
the essential financial, clinical, and administrative data residing in practice
management and clinical systems. Through enabling technologies, IDX will provide
the essential "backbone" to bring data from both IDX and non-IDX systems to a
single, integrated Web desktop. The Company will market its systems such as
Patient Online, the LastWord system and IDXtend, as a physician desktop that
integrates essential medical workflow and a broad range of content and
transactions. IDX's core financial, administrative, and clinical solutions,
combined with the Ambulatory Clinical Solutions from Allscripts TouchWorks
suite, and EDiX's transcription services will deliver a broad information system
solution to physician group practices, management service organizations,
academic medical centers, hospitals, and IDNs.
PRODUCTS AND SERVICES
IDX offers a comprehensive suite of information technology solutions to help
healthcare organizations improve the quality and reduce the cost of care
delivery.
IDX products provide a wide range of offerings for healthcare organizations,
including electronic medical records, practice management systems, acute care
systems, imaging, transcription, and connectivity services. Key healthcare
processes automated by IDX solutions include:
. financial and managed care functions such as billing, collections, benefit
management, contract management, and data analysis
. administrative functions such as scheduling, registration, and visit
management
. clinical functions such as medical records, transcription, laboratory,
pharmacy, and radiology information management.
Below is a description of IDX and EDiX products and services as of February 28,
2001.
Products and Services of Information Systems and Services Business Segment
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Please see Note 4 to the Consolidated Financial Statements for the revenues,
profits and losses for the Information Systems and Services business segment for
each of the last three fiscal years.
IDXtend(R) is a comprehensive, integrated software suite that includes
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enterprise solutions (Visit Management(TM), Enterprise-wide Scheduling(TM),
Patient Accounting, Anesthesia & Radiology Billing, Transaction Editing, Claims
Management and Charge Routing, and e-Commerce/EDI) and practice management
solutions (Scheduling, Ambulatory Visit Management(TM), Transaction Editing,
Physician Billing and Accounts Receivable, and Managed Care).
The IDXtend product line provides "new and proven" solutions for financial and
patient management across the delivery network. IDXtend is unique in its ability
to integrate the financial and patient management operations of today's complex
healthcare organizations, including hospitals, physician practices and managed
care operations. IDXtend's entire focus is the improvement of operational
performance, conformance with regulatory requirements and maximization of
patient access and satisfaction.
IDXtend for the Web leverages the robust functionality of the IDXtend product
line, while providing the benefits of advanced Web technology. The IDXtend
product includes integrated support for a Service Oriented Architecture --an
Internet standard XML-based approach to access IDXtend information and services.
The Service Oriented Architecture is vital to the complex information processing
requirements of large physician practices and integrated delivery networks that
increasingly rely on e-business and other requirements for cross-platform
interoperability. IDXtend's implementation of a Service Oriented Architecture is
Healthcare Objects(TM). Healthcare Objects provides PDA (personal data
assistant) support for clinician schedules, resources for opening IDX data and
services for external use, and tools for accessing IDXtend information in new
ways.
5
IDX is committed to InterSystems' new Cache platform, which is designed to meet
the most demanding healthcare enterprise needs for high-availability and
scalability.
Other IDXtend products include Image Xchange(TM) (IMX(TM)) and Enterprise Index
(EI) for IDXtend(TM). Image Xchange is a vertically integrated, electronic
document capture and storage solution designed to provide customers with the
financial and efficiency benefits of a paperless work environment. EI for
IDXtend checks for duplicate patient records during the registration process.
Identifying and preventing duplicate patient records saves money and improves
care. EI for IDXtend enables IDXtend to serve as the registration engine and
Master Person Index (MPI) for the enterprise, eliminating the need for costly
hardware and duplicated interfaces associated with a separate MPI product. The
Analyzer(TM) decision-support product provides an enterprise-wide relational
data warehouse for IDXtend.
The LastWord(R) Enterprise System provides comprehensive and integrated
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clinical, administrative and financial applications to hospitals and IDNs ,
offering clinicians an interdisciplinary approach to care management with a
cross-continuum patient record and access to a structured medical knowledge
database.
The LastWord system is powered by a patient-centered database, providing the
tools, utilities and applications to build a true electronic medical record. The
LastWord system runs on Tandem, a Compaq NonStop(TM) server platform that offers
industry-proven reliability, scalability and fault-tolerance that supports
around-the-clock operations.
Enterprise View data repository adds decision support capabilities to the
LastWord system by performing retrospective analyses on medical outcomes, cost
outcomes, patient satisfaction and quality of life issues. The Picis(R) Critical
Care system "bridges the gap" by providing complete documentation tools for
patients in a critical and monitored care setting.
The LastWord system Web Framework facilitates information flow into and out of
patient records using a Windows-style user interface. The LastWord system's
design and Web-based architecture help reduce training time and enhance user
interaction with the system. Clinical Information Management applications in
LastWord serve clinicians in a variety of inpatient and outpatient settings.
Automated workflow tools support caregiver activities such as assessments,
charting, and patient classification while protocols and outcomes management is
supported through access to a structured medical knowledge database. Additional
applications support population health management and provide comprehensive
order management and results reporting, supporting Physician Order Entry. Other
applications include Scheduling (to balance patient needs and clinical
workflow), Pharmacy (to increase efficiency while decreasing medical errors),
Emergency Department (to improve patient flow management and integrate care
activities with the patient's long-term record) and Image Access (which provides
access to notes, diagnostic reports and images).
Administrative and Financial Information Management applications work to impart
a complete financial and administrative solution. Patient Accounting captures
billing details in the patient record and produces claim forms and reports,
while supporting compliance with regulatory requirements. Management Reporter
creates queries and retrieves data needed for departmental management and
tactical analysis. Intercept detects payer underpayments, assists in evaluating
future contract profitability and focuses on collection activities. Interactive
Eligibility Interface increases cash flow, reduces administrative costs and
enhances patient satisfaction by automating insurance verification. Medical
Records automates activities related to releasing patient record information to
external requesters, including tracking, billing and collection.
Group Practice Management System(TM) (GPMS(TM)) provides a comprehensive
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solution to address sound financial management, administrative efficiency,
clinical excellence, and patient satisfaction for the small to mid-size group
practice and Management Service Organization marketplace of up to 100
physicians. GPMS helps group practices and MSOs streamline patient flow and
business processes at every step in the delivery of care such as scheduling,
registration, billing, collections, referrals, and reporting. Relational
reporting using Microsoft(R) SQL Server and Cognos(R) tools turn data into
meaningful information for decision makers, and built-in integration with the
ChannelHealth(R) Ambulatory Clinical solutions provides seamless access to the
full range of clinical information.
GPMS is deployed in a Web-based format designed to meet customers' growing
information needs. Key components of the technology foundation include an
advanced Web-based architecture, the UNIX operating system, and a relational
database reporting platform.
Complementary GPMS products include Image Xchange (IMX), IDX eCommerce Services,
and Ingenix ClaimsManager(TM). IMX, an electronic document capture solution,
creates images and collects data from those images for direct filing into GPMS,
effectively replacing manual data entry. Through IDX eCommerce Services, IDX
offers a HIPAA-ready EDI solution to handle customer claims, remittances,
statements, claims status, and eligibility requirements. Through its
relationship with Ingenix, The Company
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provides full integration of the GPMS billing application with the Ingenix
ClaimsManager(TM) system. This combination offers the sophisticated claims
analysis and correction capability required for timely reimbursement in today's
regulatory environment.
In addition to the traditional turnkey model, GPMS is available in the
application service provider (ASP) model. This application hosting arrangement
enables customers to purchase GPMS software applications on a subscription basis
that are deployed over the Internet and/or a private network. Users access the
applications through a standard Web browser interface.
IDXrad(TM) automates and manages a radiology department's clinical, demographic,
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administrative, billing, scheduling, and image management information. Built on
Web architecture, IDXrad is a relational, scaleable, N-tiered solution designed
to streamline workflow and improve operational efficiency. Its Web architecture
is designed for economy, accessibility, flexibility of implementation, and easy
expansion within and among facilities.
The IDXrad Paperless Worklist Module provides centralized, electronic access to
all worklists and tools, facilitating unified information across the enterprise
in a Web-based environment.
The IDXrad Master Patient Index (MPI) links a patient's multiple medical records
across multiple organizations to present a complete clinical patient history.
With comprehensive image management, IDXrad users can readily identify locations
of a patient's images - whether film-based or digital - without accessing a
separate database.
IDXrad includes a Mammography Administration Module that provides quality
assurance data to help users meet the Mammography Quality Standards Act (MQSA)
requirements.
The Imaging Suite(TM) integrates patient and clinical information with third-
party modality and archiving functions. It enables bi-directional communication
among Radiology Information Systems (RIS), Picture Archiving Communication
Systems (PACS), and modalities to facilitate the transition from a film-based
department to a digital imaging environment.
IDX has an alliance with Stentor, Inc. to jointly develop a Medical Image and
Information Management System (MIMS) combining the advanced intelligence of the
Imaging Suite with the innovative image distribution technology of Stentor's
iSite(TM) solution. This one database solution is expected to significantly
improve the accessibility and timeliness of radiology imaging studies while
reducing the high capital expenditures associated with PACS or traditional
film-based systems.
Patient Online(R) (formerly The Patient Channel) includes Web-based tools that
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enhance the relationship between the physician and the patient by providing
patient access to physicians' websites for online appointment scheduling, secure
messaging, prescription renewal processing, referral requests, account balance
inquiry and payment, and online test results. These tools are branded under the
customer's own Web site presence to allow them to produce well-rounded valuable
internet services for their patients to increase patient retention and
satisfaction with the provider or hospital organization.
IDX eCommerce Services(SM) provides Internet applications and services to help
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manage the financial and administrative aspects of care delivery enabling
healthcare organizations to interact electronically with payers. By establishing
a single connection through IDX eCommerce Services, customers will be linked
electronically to over 800 payers for the processing of transactions. Available
transactions are claims, remittance advice, and eligibility. Customers no longer
need to expend their own resources to connect directly with numerous individual
payers. This "one-stop-shopping" approach for connectivity will simplify the
process of exchanging information and reduce the technological barriers that
customers often face when implementing an EDI solution.
Medical Dictation and Transcription Services Business Segment
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Please see Note 4 to the Consolidated Financial Statements for the revenues,
profits and losses for the Medical Dictation and Transcription Services business
segment for each of the last three fiscal years.
MEDICAL DICTATION AND TRANSCRIPTION SERVICES FROM EDIX
The EDiX services employ innovative technology and an advanced digital voice-
capture system to automate the medical transcription process and deliver fast,
accurate electronic medical records. EDiX's network is a secure, private
national network connecting clients with a national pool of highly trained
medical transcriptionists (MTs) located throughout the continental United
States.
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EDiX is one of the nation's largest transcription services companies, with more
than 2,000 MTs producing and securely delivering over 40 million lines of
medical transcription every month. EDiX serves over 100,000 physicians at more
than 200 health systems and physician groups throughout the United States.
EDiX's network is at the service of healthcare clients 24 hours a day, 7 days a
week. Transcribed reports can be immediately integrated with a facility's
electronic patient record system.
Health systems and physician practices look to EDiX's full outsourcing solution
to help reduce costs and report turnaround time, increase quality, and improve
physician satisfaction. EDiX provides, installs, supports and maintains its
state-of-the-art digital dictation system and management reporting equipment on-
site at each facility, eliminating the facility's own capital equipment and
maintenance costs. EDiX's network is designed to increase workflow efficiencies,
enabling clients to monitor and control costs via real-time tracking of every
job. By using EDiX as an outsourcing solution, our customers can eliminate their
in-house MT staffing and benefit costs.
To achieve one of the highest quality and accuracy levels in the industry, EDiX
uses a system of internal quality checks, both systematic and managerial, along
with automatic monitoring of regulatory changes. Performance is documented and
measured via monthly quality and accuracy reports to the client.
EDiX provides round-the-clock, toll-free telephone support for both operational
and technical issues. The EDiX technical support team performs remote
diagnostics and maintenance on a daily basis to proactively identify potential
problems at each of our customer sites of service. Committed to complete
customer service, EDiX assigns each client a local account manager, with the
ability to respond to any call. The account manager understands each facility's
needs, provides on-site training and technical support as needed during
implementation, then continues to provide these services on an ongoing basis,
including ongoing dictation training for physicians and staff.
BUSINESS RELATIONSHIPS
Allscripts Healthcare Solutions, Inc.
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In January 2001, IDX entered into a ten-year strategic alliance with Allscripts
to cooperatively develop, market, and sell integrated clinical and practice
management products. The agreement between IDX and Allscripts prohibits IDX from
formally collaborating with another partner to integrate GPMS or IDXtend
products with products that would compete with the Allscripts products.
Allscripts may not develop any practice management products or enter into a
similar collaborative relationship with certain IDX competitors. The alliance
will enable IDX and Allscripts to offer a hand-held solution that logically fits
into the physician workflow.
Stentor, Inc.
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In November 2000, IDX formed a five-year alliance with Stentor to jointly
develop a medical image and information management system (MIMS) combining the
advanced intelligence of the Imaging Suite with the innovative image
distribution technology of Stentor's iSiteTM solution. This single database
solution is designed to improve the accessibility and timeliness of radiology
imaging studies while significantly reducing the high capital expenditures
associated with PACS or traditional film-based systems. The overall solution
includes the following components:
iSite Enterprise. A Web-based enterprise-wide medical image and information
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system that enables clinicians and referring providers access to full-
fidelity images anytime, anyplace, on-demand across existing networks.
iSite Radiology. A specialized workstation designed for radiologists that
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includes a revolutionary navigation control panel where all user interface
control is managed on a separate monitor, dedicating the diagnostic monitor
space for image display.
iVault. A long-term medical image storage device designed to also accommodate
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immediate accessibility of images for users.
Picis
- -----
Picis is a provider of documentation tools for use in patient care in critical
and monitored care settings. Through a reseller agreement, the Company has been
distributing the Critical Care system from Picis since 1995.
Compaq
- ------
Compaq is a leading provider of hardware and operating system software used by a
majority of the applications offered by IDX. The IDXtend suite of applications
operates on Compaq's Alpha platform using the OpenVMS operating system. The
LastWord suite of applications is powered by Compaq's NonStop Himalaya (Tandem)
platform. A number of other IDX applications, including Healthcare Objects,
Analyzer (TM), IDXRad v10, and Imaging Suite operating on Microsoft NT and SQL
Server, are powered by Compaq's Proliant platform.
8
IBM
- ---
IBM is a leading provider of hardware and operating systems software used by
many of the applications offered by IDX. The IDXtend and GPMS suite of
applications operates on the RISC System/6000 platform using the AIX operating
system. A number of other IDX applications, including Healthcare Objects,
Analyzer, IDXRad v10, and Imaging Suite, are powered by IBM's Netfinity servers
using Microsoft NT and SQL Server.
Intersystems
- ------------
IDX uses Intersystems' database offerings exclusively for its IDXtend suite of
products. These database systems include OpenM and Cache.
Microsoft
- ---------
The Microsoft product suite is used in many different areas of IDX. Internally,
Windows NT, SQL Server, Internet Explorer and Office Professional are the
standards. IDXrad uses NT, SQL Server and Internet Explorer as the platform for
its flagship products. IDXtend offers a number of applications that are
available on the Microsoft platform.
Healtheon/WebMD
- ---------------
On June 8, 2000, the Company entered into an agreement with WebMD Corporation
pursuant to which WebMD agreed to provide electronic transaction services to the
Company. Simultaneously, WebMD and ChannelHealth (formerly a subsidiary of the
Company and now a subsidiary of Allscripts Healthcare Solutions, Inc.) entered
into an agreement pursuant to which WebMD agreed to provide electronic
transaction services and content to ChannelHealth. Pursuant to the agreement
with ChannelHealth, WebMD's content is to be integrated into ChannelHealth's
Physician Channel and Patient Channel Internet services. The Patient Channel,
together with ChannelHealth's eCommerce Channel, were transferred to the
Company in connection with its strategic alliance with Allscripts. WebMD further
committed to a multi-million dollar campaign promoting the Company and
ChannelHealth products and services that incorporate WebMD content and
transactions. WebMD has recently informed the Company that it believes
ChannelHealth and the Company will be not be able to perform their obligations
to WebMD in light of the Company's strategic alliance with Allscripts. WebMD
also stated that it would seek to terminate its agreement with ChannelHealth and
propose a "restructured" relationship with the Company. The Company,
ChannelHealth and Allscripts are discussing such proposal and are negotiating at
this time. The Company believes that the performance of its agreement with WebMD
will not be impaired by the strategic alliance with Allscripts and that WebMD
does not have a basis for unilateral termination of the ChannelHealth agreement
or restructuring the Company agreement. If the WebMD agreement with the Company
is restructured, it is possible that the benefit of a strategic relationship
with WebMD might be less than anticipated or not realized at all.
SERVICES
IDX maintains a Client Services organization to install its products and to
support and provide professional, technical and other consulting services to its
client base. IDX has the consulting expertise desired by the growing number of
larger and more sophisticated healthcare enterprises as they reengineer
healthcare delivery processes and deploy information systems to support these
processes. The service organization is experienced at installing and supporting
systems in very large organizations with thousands of computer users across
multiple departments.
Installation Services. IDX installation representatives work with clients
- ---------------------
to optimize the use of IDX products to meet specific business needs. Services
include project management, train-the-trainer programs, best practices
comparison to other IDX clients, and systems conversion and implementation
assistance.
Maintenance Services. IDX provides ongoing software support to substantially all
- --------------------
of its clients of IDXtend and the LastWord system products under contracts that
are typically for a term of one or more years. These contracts generally renew
automatically unless terminated at the option of either the client or IDX.
Software maintenance services consist of providing the client with certain new
software releases, on an "if and when available" basis, and general support,
including error corrections and telephone consultation. Software maintenance
services are generally available either on a 24-hour-a-day basis or during
normal business hours.
Professional and Technical Services. IDX offers professional and technical
- -----------------------------------
services to assist clients in building an information infrastructure to operate
in a complex and changing healthcare environment. The work performed by IDX
includes information systems planning, process redesign, project management,
contract programming, network design, education and training. These value-added
services, combined with IDX systems expertise, enable IDX to support its
clients' efforts to develop consistent enterprise-wide systems and processes.
Through these services, IDX believes it strengthens its relationship with
clients, builds a knowledge base of best practices in the use of IDX systems,
and gains information regarding future client needs.
9
The following sets forth a description of the services provided by the IDX
consulting organization:
Professional Services of Information Systems and Services Business Segment
- --------------------------------------------------------------------------
The Laureate Group
------------------
Consulting services for all the LastWord system applications, implementation
process, project management, technical (systems and report writing), expert
rules, upgrades, release migration, programming and best practices.
The Huntington Group
--------------------
Consulting Services in the areas of application consulting, contract
programming, process redesign, organization change management, outsourcing and
systems integration across the enterprise. Diagnostic assessments to improve
operational and financial performance and ensure adherence to HIPAA regulatory
requirements have resulted in significant returns on investment for IDX
clients.
Radiology Consulting Services
-----------------------------
System analysis and process redesign for radiology groups.
SALES AND MARKETING
IDX sells its products and the services of EDiX exclusively through a direct
sales force. The majority of IDX's sales calls are in response to requests for
proposals. IDX generates these requests and other sales primarily through
referrals from clients and consultants. IDX also seeks to enhance market
recognition through participation in industry seminars and tradeshows, its Web
site, direct mail campaigns, telemarketing and advertisements in trade journals.
IDX products typically have a 3-to-18 month sales cycle for new client sales.
No single customer accounted for more than 10% of IDX's annual revenues in
fiscal 1998, 1999 or 2000.
At December 31, 2000, the Company had total backlog of $399.9 million, including
$129.8 million attributable to systems sales and $270.1 million attributable to
services. Systems sales backlog consists of fees due under signed contracts
that have not yet been recognized as revenues. Service backlog represents
contracted software maintenance services, consulting services, remote computing
service fees and medical transcription service fees for a period of 12 months.
At December 31, 1999, the Company had total backlog of $340.6 million including
$110.2 million attributable to systems sales and $230.4 million attributable to
services. Of the total 2000 backlog of $399.9 million, the Company expects that
$45.1 million will not be fulfilled in 2001.
PRODUCT DEVELOPMENT
To ensure that its products continue to meet the evolving needs of the
healthcare industry, IDX allocates a significant portion of annual revenues to
research and development. IDX's research and development expenses for the fiscal
years 1998, 1999 and 2000 were $47.3 million, $53.2 million, and $49.4 million
respectively.
IDX's product development activities include enhancement of existing products
and the development of new products, as well as the implementation of new
technologies. IDX is devoting significant resources to integrating the LastWord
system and IDX products and expanding its Web-based architecture. IDX is also
currently migrating its products to the Web-based thin-client architecture.
IDX's development process is focused on building components for its integrated
product rather than on stand-alone products. These components can be integrated
and configured to address specific client needs.
IDX utilizes client focus groups, user groups and industry experts, including
physicians, nurses, healthcare administrators and consultants, for advice in
developing and enhancing its products.
COMPETITION
The market for healthcare information systems is highly competitive. IDX
believes that the principal competitive factors in this market are the ability
to effectively market, install, support and integrate systems, the resources to
support ongoing research and
10
development, financial stability and perceived value relative to price. IDX
believes it competes favorably with respect to these factors. Competitors vary
in size, and in the scope and breadth of the products and services offered.
IDX experiences competition from companies with strengths in various segments of
the healthcare information systems market, such as physician group practice
systems, hospital information systems, clinical information systems, ancillary
departmental systems and systems integration. In addition, other entities not
currently offering products and services similar to those offered by IDX,
including claims processing organizations, hospitals, third-party
administrators, insurers, healthcare organizations and others, may enter certain
markets in which IDX competes.
Information Systems and Services Business Segment
- -------------------------------------------------
Certain of IDX's competitors have greater financial, development, technical,
marketing and sales resources than IDX and have a greater penetration into
segments of the market in which IDX competes. In addition, as the markets for
IDX's products and services develop, additional competitors may enter those
markets and competition may intensify.
Medical Dictation and Transcription Services Business Segment
- -------------------------------------------------------------
For EDiX's dictation and transcription services, competition consists of several
national competitors and an estimated 1,000 to 1,500 local and regional
competitors. In addition, EDiX must compete against in-house transcription
departments for those healthcare providers who do not currently outsource
transcription.
PROPRIETARY RIGHTS AND LICENSES
IDX depends upon a combination of trade secrets, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions, and
technical measures to protect its proprietary rights in its products. IDX
distributes its products under software license agreements that grant clients a
nonexclusive, nontransferable license to use IDX's products and contain terms
and conditions prohibiting the unauthorized reproduction or transfer of IDX's
products. IDX utilizes a variety of intellectual property rights that are
licensed from third parties.
EMPLOYEES
At December 31, 2000, IDX and its subsidiaries employed 3,790 full-time
employees, of which 1,735 were employed in its EDiX business segment, and we
believe our relations with employees are good. No employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's principal corporate offices are located at 40 IDX Drive, South
Burlington, Vermont 05403. The Company maintains sales, research and support
facilities in South Burlington, Vermont; Boston, Massachusetts; and Seattle,
Washington. The Company maintains regional sales and support offices in the
greater metropolitan areas of Arlington, Virginia; Chicago, Illinois; Dallas,
Texas; San Francisco, California; Deerfield Beach, Florida; Atlanta, Georgia;
San Diego, California; Louisville, Kentucky and Hammersmith, London, United
Kingdom. The Company owns two office buildings in South Burlington, Vermont,
consisting of approximately 69,500 square feet of office space. The Company
leases all of its other facilities which, in the aggregate, constitute
approximately 746,000 square feet of office space. The Company's leases expire
between March 31, 2001 and December 31, 2014. The Company believes that its
facilities are adequate for its current needs and that suitable additional space
will be available as required. The Company is currently negotiating to acquire
the Company's headquarters land and buildings, consisting of approximately
112,000 square feet (currently leased) of office space in South Burlington,
Vermont for approximately $15 million from BDP Realty, a related entity that is
included in the Company's consolidated financial statements. The Company is
nearing completion on construction of a 90,000 square foot expansion of its
corporate headquarters facility in South Burlington, Vermont, for a total
project cost of approximately $16 million.
11
ITEM 3. LEGAL PROCEEDINGS
On January 18, 2001, the Company commenced a lawsuit against Epic Systems
Corporation, a competitor of the Company, the University of Wisconsin Medical
Foundation (the Foundation), and two individuals claiming, among other things,
that trade secrets of the Company involving its IDXtend medical group practice
system were wrongfully disclosed to, and misappropriated by, Epic in a series of
meetings that took place in 1998 and 1999. All of the defendants deny the
Company's claims. The Company's lawsuit seeks damages and injunctive relief and
was brought in the United States District Court for the Western District of
Wisconsin and is entitled, IDX Systems Corporation v. Epic Systems Corporation,
et al., No. 01C-0037-S. The Foundation has brought a counterclaim against the
Company claiming that its lawsuit interferes with a contract between the
Foundation and Epic, and that the confidentiality provisions in IDX's contracts
with the Foundation are invalid. The counterclaim seeks damages and declaratory
judgment. The Company denies the counterclaim. The lawsuit is in the preliminary
stages of discovery.
The Company is from time to time involved in routine litigation incidental to
the conduct of its business. The Company believes that no such currently pending
routine litigation to which it is party will have a material adverse effect on
its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth: (i) the name and age of each current executive officer
of the Company; (ii) the position(s) currently held by each named person; and
(iii) the principal occupations held by each person named for at least the past
five years.
Executive Officer Age Position
---------------- --- --------
Richard E. Tarrant 58 Chief Executive Officer and Director
James H. Crook, Jr. 44 President and Chief Operating Officer
Robert W. Baker, Jr., Esq. 52 Vice President, General Counsel, and Corporate Secretary
Gene H. Barduson 62 Vice President, EDiX Business Unit
Vicki S. Blanchard 47 Vice President, Integrated Solutions Division
Robert F. Galin 56 Senior Vice President, Sales
Stephen C. Gorman 35 Vice President, Systems Division
John A. Kane 48 Vice President, Finance and Administration,
Chief Financial Officer, and Treasurer
Walt N. Marti 45 Vice President, Radiology and Imaging Solutions Division
Mr. Tarrant co-founded the Company in 1969 and served as the President from June
1969 to February 1999. He has served as Chief Executive Officer of the Company
and as a Director since 1969. Mr. Tarrant served as a member of the Board of
Trustees for the University Health Center (Vermont), an academic medical center,
from July 1988 to December 1994 and as Chairman of the Board of Trustees for the
University Health Center (Vermont) from 1992 to 1994. Mr. Tarrant is also
a member of the Board of Directors of Allscripts Healthcare Solutions, Inc.
Mr. Crook, who joined the Company in April 1981, served as Vice President of the
Company from June 1984 to February 1999. He served as a Director of the Company
from July 1984 to June 1995. He has served as President and Chief Operating
Officer since February 1999.
Mr. Baker joined the Company as General Counsel and Secretary in July 1989. He
has served as Vice President since April 1996.
Mr. Barduson has served as Vice President of the Company since December 1999.
Prior to the acquisition of EDiX Corporation by the Company in April 1999, Mr.
Barduson served as President and Chief Executive Officer of EDiX. Since the
acquisition of EDiX, Mr. Barduson has served as Vice President of EDiX. Prior to
joining EDiX, Mr. Barduson served as Vice President of Western Operations and
National Health Services for Shared Medical Systems Corporation.
Ms. Blanchard, who joined the Company as a customer support representative in
April 1983, has served as Vice President since December 1999. Prior to that
time, Ms. Blanchard served the Company in various capacities, including Manager
of Development, Manager of Product Implementation, Manager of Customer Support,
Director of Merger Integration, National Manager of Installations and Eastern
Regional Manager of Customer Support.
Mr. Galin has served as Senior Vice President, Sales since June 2000 and served
as Vice President, Sales since August 1992. He served as Director of Sales from
April 1982 to August 1992.
Mr. Gorman, who joined the Company as a sales representative in June 1991, has
served as Vice President since December 1999. Prior to that time, Mr. Gorman
served the Company in various capacities, including Southeast Region Operations
Manager from 1995 to 1997, and National Operations Manager from 1997 to 1999.
Mr. Kane has served as the Vice President, Finance and Administration, Chief
Financial Officer and Treasurer since joining the Company in October 1984. Mr.
Kane is a C.P.A.
13
Mr. Marti, who joined the Company as a sales representative in March 1989, has
served as Vice President since December 1999. Prior to that time, Mr. Marti
served the Company in various capacities, including Sales Manager of Systems
Division, Regional Manager of Systems Division and Directors of Sales of
Radiology Imaging Solutions Division.
Each officer serves at the discretion of the Company's Board of Directors. There
are no family relationships among the named officers.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Price of and Dividends on Common Stock and Related Matters. The
Common Stock of IDX is traded on the Nasdaq National Market under the symbol
"IDXC." The following table sets forth for the periods indicated the high and
low sales prices per share of the Common Stock as reported by the Nasdaq
National Market.
Quarter/Year High Low
- -------------------------------------------------------------------------------
1999
----
First Quarter 1999 $46.63 $13.75
Second Quarter 1999 $28.13 $12.44
Third Quarter 1999 $24.44 $18.13
Fourth Quarter 1999 $32.75 $15.63
2000
----
First Quarter 2000 $49.13 $26.56
Second Quarter 2000 $28.00 $10.38
Third Quarter 2000 $19.38 $12.63
Fourth Quarter 2000 $33.75 $15.88
On March 19, 2001, the Company had approximately 583 stockholders of record.
(This number does not include stockholders for whom shares are held in a
"nominee" or "street" name.) On March 19, 2001, the closing price of the
Company's Common Stock on the Nasdaq National Market was $18.1875.
The Company has never declared or paid a dividend and the Company anticipates
that all future earnings will be retained for development of its business and
will not be distributed to stockholders as dividends. Restrictions or
limitations on the payment of dividends may be imposed in the future under the
terms of credit agreements or under other contractual provisions. In the absence
of such restrictions or limitations, the payment of any dividends will be at the
discretion of the Company's Board of Directors.
(b) Recent Sales of Unregistered Securities. On May 15, 2000, the Company issued
a total of 2,576 shares of Common Stock to the four outside directors of the
Company in consideration of one year's service as a director of the Company. The
shares of Common Stock issued in these transactions were offered and sold in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), relating to sales by
an issuer not involving any public offering. All such securities are deemed
restricted securities for purposes of the Securities Act. There were no
underwriters involved in such transactions.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights
Summary of Consolidated Financial Data
Year Ended December 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
---------------------------------------------------------
(in thousands, except per share data)
Statements of Operations Data:
Revenues $215,116 $272,007 $350,187 $340,999 $341,893
Operating income (loss) 14,863 (4,890) 34,994 (12,649) (66,065)
Net income (loss) 8,210 (7,982) 16,834 (7,944) (35,968)
Diluted net income (loss) per share $ 0.64 $ (0.30) $ 0.60 $ (0.29) $ (1.28)
Balance Sheet Data:
Cash and investments $113,885 $116,567 $125,132 $ 68,359 $ 70,683
Working capital 130,116 140,015 169,671 136,732 134,131
Total assets 208,145 245,459 289,223 271,147 297,491
Long-term debt, less current portion 4,266 4,876 2,261 - -
Redeemable convertible preferred stock of
subsidiary - - - - 33,140
Total stockholders' equity $159,171 $177,855 $210,211 $206,514 $179,110
15
The consolidated financial data set forth above has been restated to include the
results of operations and accounts of PHAMIS, Inc. for all periods prior to its
acquisition by IDX on July 10, 1997, and for EDiX for all periods prior to its
acquisition by IDX on April 23, 1999. Both of these acquisitions have been
accounted for as pooling-of-interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Revenues increased to $341.9 million in 2000 from 1999 revenues of $341.0
million. Systems sales declined 12.0% in 2000, while maintenance and service
fees grew 7.3% as compared to the prior year. Operating loss increased from
$12.6 million in 1999 to $66.1 million in 2000, an increase of $53.4 million.
The Company reported a net loss of $36.0 million, or $1.28 loss per share, for
2000 as compared to net loss of $7.9 million or $0.29 loss per share, for 1999.
Excluding the effect of charges of $21.0 million related to a product
discontinuance and restructuring program announced on June 21, 2000 and the $5.8
million loss on impairment of goodwill associated with ChannelHealth, Inc., the
net loss for the year ended December 31, 2000 was $17.3 million or $0.62 loss
per share. Excluding the effect of the charge for the merger and related costs
associated with the acquisition of EDiX Corporation of $4.0 million and the loss
on investment impairment of $1.6 million, the net loss for the year ended
December 31, 1999 was $3.9 million or $0.14 loss per share.
During 1999 and continuing into 2000, certain of the Company's customers delayed
making purchasing decisions with respect to certain of the Company's software
systems resulting in longer sales cycles for such systems. Management believes
such delays are due to a number of factors, including customer organization
changes, government approvals, pressures to reduce expenses, product complexity,
competition, and customer preoccupation with internal Year 2000 issues. While
the Company believes these factors are temporary, they may continue to cause
reductions or delays in spending for new systems and services in the future.
On January 8, 2001, the Company sold ChannelHealth including certain product
lines to Allscripts Healthcare Solutions, Inc. (Allscripts), a leading provider
of point-of-care e-prescribing and productivity solutions for physicians.
ChannelHealth, incorporated in September 1999, was a majority owned subsidiary
of IDX. IDX retained the Patient and eCommerce Channels, which were previously
part of Channelhealth Incorporated, enabling IDX to integrate an Internet
solution that leverages its core competencies in physician practice management
systems. In addition to the sale, the Company has entered into a 10-year
strategic alliance whereby Allscripts will become the exclusive provider of
point-of-care clinical applications sold by IDX to physician practices.
Allscripts acquired Channelhealth Incorporated in exchange for 8.6 million
shares, or 21.3% of Allscripts stock on a pro-forma fully diluted basis, of
which IDX received 7.5 million shares (approximately 90%). This investment in
Allscripts stock will be accounted for under the equity method in 2001.
Accordingly, IDX will recognize a pro-rata share of Allscripts net income or
loss after elimination of certain related entity transactions and will recognize
any goodwill amortization expense based on the excess of the carrying value of
its investment over its share of the underlying net assets of Allscripts.
Allscripts has reported losses since 1995 and may report losses in the future.
On April 23, 1999, the Company acquired EDiX Corporation (EDiX), a provider of
medical transcription services which was accounted for as a pooling-of-
interests. In accordance with the merger agreement, the Company issued
approximately one million shares of its common stock, which amounted to an
acquisition value of $16.7 million based on the closing stock price on the date
of the merger and assumed EDiX debt of approximately $14.0 million that
subsequently has been paid.
YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues.
- --------
The Company's total revenues increased to $341.9 million in 2000 from $341.0
million in 1999, an increase of approximately $900,000 or 0.3%. Revenues from
systems sales decreased to $109.6 million in 2000 (32.1% of total revenues) from
$124.6 million in 1999 (36.5% of total revenues), a decrease of $15.0 million or
12.0%. This decrease was primarily due to a decrease in new sales and
installations of certain IDX systems during the first six months of 2000 due to
certain of the Company's customers delay making purchasing decisions with
respect to certain of the Company's software systems comprised of multiple
products resulting in longer sales cycles for such systems.
Revenues from maintenance and service fees increased to $232.3 million in 2000
(67.9% of total revenues) from $216.4 million in 1999 (63.5% of total revenues),
an increase of $15.9 million or 7.3%. The increase was due to a $25.3 million
increase in EDiX's
16
medical transcription service fee revenue combined with a $9.8 million increase
in maintenance revenue resulting from price increases offset by a decrease in
consulting services provided by IDX's core business of $7.5 million and a
decrease of software installation services of $5.9 million. Professional and
technical services revenues decreased to $23.8 million in 2000 (7.0% of total
revenues) from $31.3 million in 1999 (9.2% of total revenues), a decrease of
$7.5 million, or 24.0%. The Company's Internet services and content business
segment, operated by ChannelHealth, contributed approximately $5.7
million in service revenue during 2000. Due to the sale of ChannelHealth in
early 2001 revenues from Internet services and content will be eliminated.
Cost of Sales.
- -------------
The cost of sales and services increased to $244.1 million in 2000 from $216.6
million in 1999, an increase of $27.5 million or 12.7%. The increase in cost of
sales and services resulted from growth in client services expenses, including
medical transcription staff, as well as maintenance, installation, and
consulting staff. The gross margin on systems sales and services decreased to
28.6% in 2000 from 36.5% in 1999. The decrease in gross profit margin as a
percentage of sales was due to the decrease in software license revenues, which
provide a higher gross profit margin, offset by an increase in maintenance and
service revenue which provide a lower gross profit margin. The gross profit
margin of IDX's core business, information systems and services, declined from
40.0% in 1999 to 33.3% in 2000 due to the effect of the revenue mix described
above. The gross profit margin for the Company's medical dictation and
transcription business segment (EDiX) increased as a percentage of sales from
14.4% in 1999 to 17.5% in 2000 due to increased utilization of a new, more
efficient transcription processing system as compared to the prior year,
combined with other efficiencies in editing and telecommunications. The gross
margin for the Company's Internet services and content business segment,
operated by ChannelHealth declined from 40.6% in 1999 to a negative
42.9% primarily due to high fixed costs relative to sales volume due to the
early stage of this business' development.
Selling, General and Administrative Expenses.
- --------------------------------------------
Selling, general and administrative expenses increased to $87.6 million in 2000
from $79.9 million in 1999, an increase of $7.8 million or 9.7%. As a percentage
of total revenues, selling, general and administrative expenses increased to
25.6% in 2000 from 23.4% in 1999. The increase resulted from a $9.3 million
increase in selling, general and administrative expense related to the Internet
business segment (ChannelHealth) combined with a $2.0 million increase in EDiX,
offset by a $3.5 million decrease in IDX's core business expenses due to
reductions in variable expenses combined with cost savings related to the
restructuring program announced in June 2000.
Research and Development.
- ------------------------
Research and development expenses decreased to $49.4 million in 2000 from $53.2
million in 1999, a decrease of $3.8 million or 7.1%. As a percentage of total
revenues, research and development expenses decreased to 14.4% in 2000 from
15.6% in 1999. The decrease is primarily due to a reduction in costs to address
Year 2000 issues, combined with the cost savings related to the restructuring
program announced in June 2000 in IDX's core business of $6.6 million, offset by
an increase of $2.5 million related to research and development costs in the
Internet applications and content business segment (ChannelHealth). Research
and development costs in the medical dictation and transcription business
segment (EDiX) increased from $1.0 million in 1999 to $1.3 million in 2000.
As described in Note 1 to the Notes to Consolidated Financial Statements,
software development costs incurred subsequent to the establishment of
technological feasibility until general release of the related products are
capitalized. 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
operate 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.
Merger and Related Costs.
- ------------------------
During the second quarter of 1999, the Company recorded a charge of $4.0 million
related to the acquisition of EDiX Corporation. The charge was comprised of
transaction costs of $2.4 million, write-offs and adjustments for long-lived
assets, principally noncompatible computer equipment of $1.4 million and other
merger related costs of $0.2 million, principally related to integration costs
incurred during the period and the termination of leases and other contractual
obligations.
Restructuring Charge.
- --------------------
On June 21, 2000 the Company announced the implementation of a product
discontinuance and restructuring program. The Company halted development and
discontinued sales efforts on certain product lines that have failed to achieve
business targets or were deemed non-strategic to the business going forward. As
a result, the Company implemented a workforce reduction of approximately five
percent. The restructuring program resulted in a charge to earnings of
approximately $21.0 million in the second quarter, in connection with costs
associated with product discontinuations, principally settlements with existing
users, of approximately $16.0
17
million and employee severance arrangements of approximately $5.0 million.
Workforce related accruals, consisting principally of employee severance costs,
were established based on specific identification of employees to be terminated,
along with their job classification or functions, and their location.
Substantially all workforce related actions were completed during the third
quarter of 2000, with the exception of product related "sunset" support teams.
As of December 31, 2000 the Company had a balance of $11.5 million related to
accrued restructuring costs. Cash expenditures related to these accruals are
estimated to be $8.9 million. The remaining balance of approximately $2.6
million represents a provision for the estimated write-off of accounts
receivable that will not affect cash. These accounts receivable write-offs are
expected to be finalized by June 30, 2001.
Loss on Impairment of Goodwill.
- ------------------------------
During the first quarter of 2000, the Company determined that an asset
impairment existed related to goodwill acquired in the 1999 purchase of the
Company's initial investment in an Internet services and content provider. In
January 2000, the Company made the decision to use an external provider of
content and transactions for ChannelHealth and discontinued the use of certain
assets. This goodwill impairment was recognized during the first quarter of 2000
and is reflected as a pre-tax loss on impairment of goodwill of approximately
$5.8 million.
Interest (Income) Expense.
- -------------------------
Interest income increased to approximately $4.8 million during 2000 compared to
$4.1 million for the same period in 1999 due to an increase in the average
interest rates earned during 2000. Interest expense decreased from approximately
$900,000 during 1999 to $6,000 in 2000. The decrease in interest expense is due
to the payment of all outstanding EDiX debt after the acquisition during the
second quarter of 1999.
Loss on Investment Impairment.
- -----------------------------
This loss is the write-off of an investment of $1.6 million in the quarter ended
March 31, 1999, due to the investees' inability to raise additional equity and a
decision to dissolve the business.
Minority Interest
- -----------------
The Company's consolidated financial statements include the accounts of the
Company and BDP Realty Associates (BDP), whose real estate is leased exclusively
by the Company and for which the Company is subject to substantially all the
risks of ownership. All transactions between the Company and BDP are eliminated.
Minority interest represents net income and equity of BDP.
Realized Gain on Investment.
- ---------------------------
Other income in 2000 includes a $7.3 million realized gain on an investment in
an unrelated investment partnership.
Income Taxes.
- ------------
The Company's pre-tax loss for the year ended December 31, 2000 was benefited at
approximately 34.5%, which reflects a lower rate than the Company's historical
effective rate and the statutory rate of 40%. The lower rate in 2000 is
principally due to a lower state effective tax rate. Pre-tax losses for the year
ended December 31, 1999 were benefited at approximately 35%. The lower rate in
1999 is due to a portion of the charges incurred in the second quarter ended
June 30, 1999 related to the acquisition of EDiX Corporation, which were non-
deductible for income tax purposes. The Company anticipates a consolidated
effective tax rate of approximately 40% for the year ending December 31, 2001.
The Company anticipates that EDiX's effective tax rate in 2001 will be less than
the statutory rate due to the use of operating loss carry forwards, subject to
annual limitations. This favorable rate will be offset, however, by the effect
of certain non-deductible costs. The net deferred tax assets of approximately
$16.7 million are expected to be realized by generating future taxable income.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues.
- --------
The Company's total revenues decreased to $341.0 million in 1999 from $350.2
million in 1998, a decrease of $9.2 million or 2.6%. Revenues from systems sales
decreased to $124.6 million in 1999 (36.5% of total revenues) from $178.6
million in 1998 (51.0% of total revenues), a decrease of $53.9 million or 30.2%.
This decrease was primarily due to a decrease in new sales and installations of
certain IDX systems.
Revenues from maintenance and service fees increased to $216.4 million in 1999
(63.5% of total revenues) from $171.6 million in 1998 (49.0% of total revenues),
an increase of $44.8 million or 26.1%. Approximately $18.4 million of the
increase was due to an increase in EDiX's medical transcription service fee
revenue combined with a $14.3 million increase due to maintenance revenue
resulting from price increases and annualization of 1998 growth in the Company's
IDX systems installed client base. Professional and
18
technical services revenues increased to $31.3 million in 1999 (9.2% of total
revenues) from $28.8 million in 1998 (8.2% of total revenues), an increase of
$2.5 million, or 8.7%. The Company's Internet services and content business
segment, operated by Channelhealth Incorporated, a majority owned subsidiary of
the Company incorporated in September 1999, contributed approximately $1.5
million in service revenue, primarily from backlog revenue from IDX contracts
transferred to Channelhealth Incorporated.
Cost of Sales.
- -------------
The cost of sales and services increased to $216.6 million in 1999 from $196.5
million in 1998, an increase of $20.1 million or 10.2%. The increase in cost of
sales and services resulted from growth in client services expenses, including
maintenance, installation, and consulting staff. The gross profit margin on
systems sales and services decreased to 36.5% in 1999 from 43.9% in 1998. The
decrease in gross profit margin as a percentage of sales was due to the decrease
in software license revenues, which provide a higher gross profit margin, offset
by an increase in maintenance and service revenue which provide a lower gross
profit margin. IDX's core business, information systems and services, gross
profit margin declined from 49.3% in 1998 to 40% in 1999 due to the effect of
the revenue mix described above. The gross profit margin for the Company's
medical dictation and transcription business segment (EDiX) increased as a
percentage of sales from 17.2% in 1998 to 14.4% in 1999 due to an increase in
utilization of a new higher margin transcription processing system as compared
to the prior year, combined with other efficiencies in editing and
telecommunications.
Selling, General and Administrative Expenses.
- --------------------------------------------
Selling, general and administrative expenses increased to $79.9 million in 1999
from $68.2 million in 1998, an increase of $11.6 million or 17.1%. As a
percentage of total revenues, selling, general and administrative expenses
increased to 23.4% in 1999 from 19.5% in 1998. Approximately $5 million of this
increase is related to the Internet business segment (ChannelHealth). The
remaining increase resulted primarily from IDX's investment in internet
strategies of $1.4 million, the absorption of certain administrative functions
provided by IDX for EDiX and an increase in the Company's sales, marketing and
administrative staff. EDiX's selling, general and administrative expenses
decreased $0.6 million during the year ended December 31, 1999 as compared to
the same period in 1998. This decrease is a result of the merger due to the
elimination of overlapping services in EDiX.
Research and Development.
- ------------------------
Research and development expenses increased to $53.2 million in 1999 from $47.3
million in 1998, an increase of $5.9 million or 12.5%. As a percentage of total
revenues, research and development expenses increased to 15.6% in 1999 from
13.5% in 1998. The increase was due to the hiring of additional staff to support
the development of additional products including IDXsite and Web technology
applications, and for the costs of efforts to address Year 2000 issues. Of this
increase, approximately $3.7 million is related to research and development
costs in the Internet services and content business segment (ChannelHealth).
Research and development costs in the medical dictation and transcription
business segment (EDiX) increased from $700 thousand in 1998 to $1.0 million in
1999.
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 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.
Merger and Related Costs.
- ------------------------
During the second quarter of 1999, the Company recorded charges of $4.0 million
related to the acquisition of EDiX Corporation. The charges were comprised of
transaction costs of $2.4 million, write-offs and adjustments for long-lived
assets, principally noncompatible computer equipment, of $1.4 million and other
merger related costs of $0.2 million, principally related to integration costs
incurred during the period and the termination of leases and other contractual
obligations. At December 31, 1999, accounts payable and accrued expenses
included $1.3 million related to terminations of lease and other contractual
obligations.
Interest and Other (Income) Expense.
- -----------------------------------
Interest income decreased to approximately $4.1 million during 1999 compared to
$6.4 million for the same period in 1998 due to a decrease in average invested
balances during 1999. Interest expense decreased to approximately $900,000
during 1999 compared to $1.3 million for the same period in the prior year. The
decrease in interest expense is due to the payment of all outstanding EDiX debt
after the merger during the second quarter of 1999.
19
Minority Interest.
- -----------------
The Company's consolidated financial statements include the accounts of the
Company and BDP Realty Associates (BDP), whose real estate is leased exclusively
by the Company and for which the Company is subject to substantially all the
risks of ownership. All transactions between the Company and BDP are eliminated.
Minority interest represents net income and equity of BDP.
Income Taxes.
- ------------
Income taxes for the year ended December 31, 1999 were benefited at
approximately 35%, which reflects a lower rate than the Company's historical
statutory rate of 40%. This rate is due to a portion of the charges incurred
in the second quarter ended June 30, 1999 related to the acquisition of EDiX
Corporation, which are non-deductible for income tax purposes. Income taxes in
1998 were provided at 56.8%. The higher rate in 1998 is due to the inclusion in
the financial statements, of the net loss of EDiX Corporation, for which no tax
benefit was recognized. In addition, a portion of the charges incurred in the
first quarter ended March 31, 1998 related to the acquisition of Trego Systems,
Inc. were non-deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1969, the Company principally has funded its operations,
working capital needs and capital expenditures primarily from operations,
excluding the net cash used in operations of ChannelHealth in 1999 and 2000.
Net cash (used in) provided by operations is principally comprised of net
income (loss) and depreciation and is 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 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 2000, accounts receivable from
customers have been collected on average within 118 days which represents a
decrease of one day in terms of average days to collect receivables from
customers as compared to 1999. Though the annual decrease in average days to
collect receivables was not material, the Company experienced a 15 day decrease
to 103 days for the average collection period for the second half of 2000.
Cash flows related to investing activities have historically been related to the
purchase of computer and office equipment, leasehold improvements, and the
purchase and sale of investment grade marketable securities and, in 1999,
include the purchase of two buildings located in South Burlington, Vermont for
additional office space. Through December 31, 2000 the Company has spent
approximately $9.6 million on construction-in-progress related to a $16.0
million expansion of its Corporate Headquarters facility. Investing activities
may also include purchases of interests in, loans to and acquisitions of
businesses for access to complementary products and technologies. The Company
expects these activities to continue. There can be no assurance that the
Company will be able to successfully complete any such purchases or acquisitions
in the future.
Cash flows from financing activities historically relate to the issuance of
common stock through the exercise of employee stock options and in connection
with the employee stock purchase plan. In addition during the first quarter of
2000, an unrelated party invested approximately $30.0 million, and related
parties invested approximately $3.1 million in Channelhealth Incorporated, at
the time a majority owned subsidiary, by purchasing redeemable preferred stock.
During 1999, all outstanding debt of EDiX Corporation of approximately $14
million was paid. During 1998 other financing activities related to the
recapitalization of the real estate affiliate from debt to equity.
Cash, cash equivalents and securities available-for-sale at December 31, 2000
were $70.7 million, an increase of $2.3 million from December 31, 1999. The
Company has a revolving line of credit with a bank allowing the Company to
borrow up to $5.0 million bearing interest at the prime rate which will expire
on December 31 , 2001. There were no borrowings as of December 31, 2000 or
1999.
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. In April 2000, the Company entered into a new operating
lease for office space in Seattle, Washington, commencing in 2003, for a period
of 12 years. The Company plans to increase the number of its professional staff
during 2001 to meet anticipated sales volume and to support research and
development efforts. To the extent necessary to support increases in staffing,
the Company may obtain additional office space.
The Company is currently negotiating to acquire the Company's headquarters in
South Burlington, Vermont for approximately $15 million from BDP Realty, a
related entity which is included in the Company's consolidated financial
statements. The Company is nearing completion on construction on an expansion of
its corporate headquarters facility in South Burlington, Vermont, which began in
November 1999, and is considering various options for financing including a
construction loan, sale lease-back arrangement or funding from operations. The
20
Company anticipates that it will spend approximately $16 million on construction
to expand its Corporate Headquarters facility. Through December 31, 2000, the
Company has spent approximately $9.6 million on construction-in-progress. From
time to time, based on the Company's requirements, the Company may consider
other purchases of land or the construction of additional office space.
Currently, the Company has made no material lease or purchase commitments other
than the purchase of the Company's headquarters mentioned above.
The Company believes that currently available 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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" (SFAS No. 133), as amended
by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. The Company is required to implement SFAS No. 133 in the first
quarter of 2001. The Company believes that the adoption of SFAS No. 133 will not
have a material effect on its financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements" (SAB 101).
The SAB formalizes positions the staff has expressed in speeches and comment
letters. SAB 101 became effective for IDX during the fourth quarter of 2000. The
Company has adopted SAB 101 and has determined that it had no significant impact
on its financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25," (the Interpretation or
FIN 44). The Interpretation, which has been adopted prospectively as of July 1,
2000, requires, among other things, that stock options that have been modified
be accounted for as variable. The Company has adopted FIN 44 and has determined
that it had no significant impact on its financial condition or results of
operations.
BACKLOG
At December 31, 2000, the Company had total backlog of $399.9 million, including
$129.8 million attributable to systems sales and $270.1 million attributable to
services. Systems sales backlog consists of fees due under signed contracts
that have not yet been recognized as revenues. Service backlog represents
contracted software maintenance services, consulting services, remote computing
service fees and medical transcription service fees for a period of 12 months.
At December 31, 1999, the Company had total backlog of $340.6 million, including
$110.2 million attributable to systems sales and $230.4 million attributable to
services. Of the total 2000 backlog of $399.9 million, the Company expects that
$45.1 million will not be fulfilled in the current fiscal year.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of its internal use systems (both information technology related and
non-information technology related) and its products (including third party
products included in its products) and also completed and implemented
contingency planning. As a result of those efforts, the Company experienced no
significant disruptions in its products (including third party products included
in its products), internal use information technology systems, and internal use
non-information technology systems, and the Company believes all of those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
During 2000, the Company expensed all of its remaining project costs in the
amount of approximately $1.2 million, which related primarily to contingency
plans and remediation efforts for internal systems. The Company monitored its
products (including third party products included in its products), mission
critical computer applications, and those of its suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters were
addressed promptly.
21
FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE
This Annual Report on Form 10-K contains "forward-looking statements" as defined
in Section 21E of the Securities and Exchange Commission Act of 1934. For this
purpose, any statements contained in this Annual Report that are not statements
of historical fact may be deemed to be forward-looking statements. Words such as
"believes," "anticipates," "plans," "expects," "will" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause results to differ materially from those
indicated by these forward-looking statements, including among others, the
factors set forth below. If any risk or uncertainty identified in the following
factors actually occurs, IDX's business, financial condition and operating
results would likely suffer. In that event, the market price of IDX's common
stock could decline.
The Company undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes in future operating results, financial condition or business
over time.
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.
The following important factors affect IDX's business and operations generally
or affect more than one segment of our business and operations:
QUARTERLY OPERATING RESULTS MAY VARY. The Company's quarterly operating results
have varied in the past and may vary in the future. 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:
. delays in customers purchasing decisions due to a variety of factors such as
consideration and management changes;
. long sales cycles;
. long installation and implementation cycles for the larger, more complex and
costlier systems;
. recognizing revenue at various points during the installation process;
. timing of new product and service introductions and product upgrade releases;
and
. long sales and implementation cycles of IDX's customers.
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.
VOLATILITY OF STOCK PRICE. IDX has experienced, and expects to continue to
experience fluctuations in its stock price due to a variety of factors
including:
. actual or anticipated quarterly variations in operating results;
. changes in expectations of future financial performance;
. changes in estimates of securities analysts;
. market conditions particularly in the computer software and Internet
industries;
. announcements of technological innovations, including Internet delivery of
information and use of application service provider technology;
. new product introductions by IDX or its competitors;
. delay in customers purchasing decisions due to a variety of factors;
. market prices of competitors; and
. healthcare reform measures and healthcare regulation.
These fluctuations have had a significant impact on the market price of our
common stock, and may have a significant impact on the future market price of
our common stock.
These fluctuations may affect operating results as follows:
. ability to transact stock acquisitions ; and
. ability to retain and incent key employees.
FINANCIAL TRENDS. Year over year net income and cash from operations have
generally declined since 1998. In 2000, IDX generated a net loss of
approximately $36 million. If these negative trends continue, IDX may have
difficulty financing future growth and funding operating initiatives, including
future acquisitions.
22
NEW PRODUCT DEVELOPMENT AND 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 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:
. the continuing evolution of industry standards, for example, transaction
standards pursuant to the Health Insurance Portability and Accountability Act
of 1996; and
. the creation of new technological developments, for example, Internet and
application service provider technology.
IDX is currently devoting significant resources toward the development of
enhancements to its existing products, particularly in the area of Internet-
based functionality and the migration of existing products to new hardware and
software platforms, including relational database technology, object-oriented
programming and application service provider technology. 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.
CHANGES AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY. 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, the success of IDX is dependent in part on the
political and economic conditions in the healthcare industry.
Virtually all of IDX's customers and the other entities with which IDX has a
business relationship operate in the healthcare industry and, as a result, are
subject to governmental regulation, including Medicare and Medicaid regulation.
Accordingly, IDX's customers and the other entities with which IDX has a
business relationship are affected by changes in such regulations and
limitations in governmental spending for Medicare and Medicaid programs. Recent
actions by Congress have limited governmental spending for the Medicare and
Medicaid programs, limited payments to hospitals and other providers under such
programs, and increased emphasis on competition and other programs that
potentially could have an adverse effect on IDX's customers and the other
entities with which IDX has a business relationship. In addition, Federal and
state legislatures have considered proposals to reform the U.S. healthcare
system at both the federal and state level. If enacted, these proposals could
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the business environment of IDX's customers and the other
entities with which IDX has a business relationship. IDX's customers and the
other entities with which IDX has a business relationship could react to these
proposals and the uncertainty surrounding these proposals by curtailing or
deferring investments, including those for IDX's products and services.
In addition, many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater market power. These providers may try
to use their market power to negotiate price reductions for IDX's products and
services. If IDX is forced to reduce its prices, its operating margins would
decrease. As the healthcare industry consolidates, competition for customers
will become more intense and the importance of acquiring each customer will
become greater.
COMPETITION FOR HEALTHCARE INFORMATION SYSTEMS. The market for healthcare
information systems is intensely competitive, rapidly evolving and subject to
rapid technological change. IDX believes that the principal competitive factors
in this market include the breadth and quality of system and product offerings,
the features and capabilities of the systems, the price of system and product
offerings, the ongoing support for the systems, and the potential for
enhancements and future compatible products.
Some of the IDX's competitors have greater financial, technical, product
development, marketing and other resources than IDX, and some of its competitors
offer products that it does not offer. The Company's principal existing
competitors include Cerner Corporation, Eclipsys Corporation, McKesson HBOC,
Inc. and Shared Medical Systems Corporation, which was acquired by Siemans AG in
2000, each of which offers a suite of products that compete with many of IDX's
products. There are other competitors that offer a more limited number of
competing products. Many of IDX's competitors have also announced or introduced
Internet strategies that will compete with IDX's Internet applications and
services. IDX may be unable to compete successfully against these organizations.
In addition, IDX expects that major software information systems companies,
large information technology consulting service providers and system
integrators, Internet-based start-up companies and others specializing in the
healthcare industry may offer competitive products or services.
PRODUCT LIABILITY CLAIMS. 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. Unsuccessful claims could be costly to defend and
divert management time and resources. In addition, IDX cannot make assurances
that it will continue to have appropriate insurance available to it in the
future at commercially reasonable rates.
23
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, 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. IDX does not maintain "key man" life insurance policies
on any of its executives. Not all IDX personnel have executed noncompetition
agreements.
GOVERNMENT REGULATION. Virtually all of IDX's customers and the other entities
with which IDX has a business relationship operate in the healthcare industry
and, as a result, are subject to governmental regulation. Because IDX's products
and services are designed to function within the structure of the healthcare
financing and reimbursement systems currently in place in the United States, and
because IDX is pursuing a strategy of developing and marketing products and
services that support its customers' regulatory and compliance efforts, IDX may
become subject to the reach of, and liability under, these regulations.
The Federal Anti-Kickback Law, among other things, prohibits the direct or
indirect payment or receipt of any remuneration for Medicare, Medicaid and
certain other Federal or state healthcare program patient referrals, or
arranging for or recommending referrals or other business paid for in whole or
in part by the federal health care programs. Violations of the Federal Anti-
Kickback Law may result in civil and criminal sanction and liability, including
the temporary or permanent exclusion of the violator from government health
programs, treble damages and imprisonment for up to five years for each
violation. If the activities of a customer of IDX or other entity with which IDX
has a business relationship were found to constitute a violation of the Federal
Anti-Kickback Law and IDX, as a result of the provision of products or services
to such customer or entity, was found to have knowingly participated in such
activities, IDX could be subject to sanction or liability under such laws,
including the exclusion of IDX from government health programs. As a result of
exclusion from government health programs, IDX customers would not be permitted
to make any payments to IDX.
The Federal Civil False Claims Act and the Medicare/Medicaid Civil Money
Penalties regulations prohibit, among other things, the filing of claims for
services that were not provided as claimed, which were for services that were
not medically necessary, or which were otherwise false or fraudulent. Violations
of these laws may result in civil damages, including treble and civil penalties.
In addition the Medicare/Medicaid and other Federal statutes provide for
criminal penalties for such false claims. If, as a result of the provision by
IDX of products or services to its customers or other entities with which IDX
has a business relationship, IDX provides assistance with the provision of
inaccurate financial reports to the government under these regulations, or IDX
is found to have knowingly recorded or reported data relating to inappropriate
payments made to a healthcare provider, IDX could be subject to liability under
these laws.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains
provisions regarding standardization, privacy, security, and administrative
simplification in healthcare. As a result of regulations now proposed under
HIPAA, IDX will make investments to support customer operations in areas, such
as:
. electronic data transactions;
. computer system security; and
. patient privacy.
Although it is not possible to anticipate the final form of all regulations
under HIPAA, IDX has made and expects to continue to make investments in product
enhancements to support customer operations that are regulated by HIPAA.
Responding to HIPAA's impact may require IDX to make investments in new products
or charge higher prices. It may be expensive to implement security or other
measures designed to comply with any new legislation or regulation.
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
24
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 Federal Food,
Drug and Cosmetic 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.
SYSTEM ERRORS AND WARRANTIES. IDX's healthcare information systems are very
complex. As with complex systems offered by others, IDX's healthcare information
systems may contain errors, especially when first introduced. IDX's healthcare
information systems are intended to provide information to healthcare providers
for use in the diagnosis and treatment of patients. Therefore, users of IDX's
products may have a greater sensitivity to system errors than the market for
software products generally. Failure of an IDX customer's system to perform in
accordance with its documentation could constitute a breach of warranty and
require IDX to incur additional expense in order to make the system comply with
the documentation. If such failure is not timely remedied, it could constitute a
material breach under a contract allowing the client to cancel the contract and
subject IDX to liability.
POTENTIAL INFRINGEMENT OF PROPRIETARY RIGHTS OF OTHERS. If any of IDX's products
violate third party proprietary rights, IDX may be required to reengineer its
products or seek to obtain licenses from third parties to continue offering its
products without substantial reengineering. Any efforts to reengineer IDX's
products or obtain licenses from third parties may not be successful, in which
case IDX may be forced to stop selling the infringing product or remove the
infringing functionality or feature. IDX may also become subject to damage
awards as a result of infringing the proprietary rights of others, which could
cause IDX to incur additional losses and have an adverse impact on its financial
position. IDX does not conduct comprehensive patent searches to determine
whether the technologies used in its products infringe patents held by others.
In addition, product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications
pending, many of which are confidential when filed, with regard to similar
technologies.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. IDX's success and competitiveness
are dependent to a significant degree on the protection of its proprietary
technology. IDX relies primarily on a combination of copyrights, trade secret
laws and restrictions on disclosure to protect its proprietary technology.
Despite these precautions, others may be able to copy or reverse engineer
aspects of IDX's products, to obtain and use information that IDX regards as
proprietary or to independently develop similar technology. Litigation may be
necessary in the future to enforce or defend IDX's proprietary technology or to
determine the validity and scope of the proprietary rights of others. This
litigation, whether successful or unsuccessful, could result in substantial
costs and diversion of management and technical resources.
CONFLICTS OF INTERESTS. Richard E. Tarrant, Chief Executive Officer and
Director, and Robert H. Hoehl, Chairman of the Board of Directors, indirectly
own, through various entities, real estate which IDX leases in connection with
its operations. During 2000, IDX paid an aggregate of approximately $1.8 million
in connection with these leases. IDX is currently negotiating to contract to
purchase its headquarters facilities in South Burlington, Vermont from a real
estate entity owned by Richard E. Tarrant and Robert H. Hoehl for a purchase
price of approximately $15.0 million. IDX has commenced a $16 million
construction project to expand its office facilities at that location. In
connection with these arrangements, the economic interests of these executives
and directors and IDX may diverge.
RISKS ASSOCIATED WITH 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 generation of sufficient financing to fund potential acquisitions and
alliances;
. 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.
STRATEGIC ALLIANCE WITH ALLSCRIPTS HEALTHCARE SOLUTIONS. In January 2001, IDX
entered into a ten-year strategic alliance with Allscripts Healthcare Solutions
to cooperatively develop, market and sell integrated clinical and practice
management products.
25
During the term of the alliance, IDX is prohibited from cooperating with direct
competitors of Allscripts to develop or provide any products similar to or in
competition with Allscripts products in the practice management systems market.
Also, pursuant to the strategic alliance agreement, IDX has guaranteed that
Allscripts will have gross revenues resulting from the alliance (less any
commissions paid to IDX) of at least $4.5 million for fiscal year 2001, and IDX
will have to pay Allscripts the excess, if any, of $4.5 million over Allscripts'
actual gross revenues for fiscal year 2001. If the strategic alliance is not
successful, Allscripts' gross revenues for fiscal year 2001 are less than $4.5
million, or the restrictions placed on IDX during the term of the strategic
alliance prohibit IDX from successfully marketing and selling certain products
and services, IDX's operating results may suffer.
RELATIONSHIP WITH WEBMD CORPORATION. On June 8, 2000, IDX entered into an
agreement with WebMD Corporation pursuant to which WebMD agreed to provide
electronic transaction services to IDX. WebMD also entered into an agreement
with ChannelHealth Incorporated, which at such time was a majority owned
subsidiary of IDX, pursuant to which WebMD agreed to provide electronic
transaction services and content to ChannelHealth. WebMD has informed IDX that
it believes neither IDX nor ChannelHealth will be able to perform their
obligations to WebMD as a result of the acquisition of ChannelHealth by
Allscripts and IDX's resulting ten-year strategic alliance with Allscripts.
WebMD also indicated that it will seek to restructure its relationship with IDX.
IDX and WebMD are currently discussing such proposal. There can be no assurance
that IDX and WebMD will reach an agreement relating to restructuring their
relationship. If they do not reach an agreement, WebMD may claim that IDX is in
breach of the June 2000 agreement. If IDX and WebMD agree to restructure their
relationship, the restructured relationship with WebMD may be less beneficial to
IDX, which could cause IDX's operating results to suffer.
RESTRICTIONS ON LIQUIDATION OF INVESTMENT IN ALLSCRIPTS HEALTHCARE SOLUTIONS.
In January 2001 IDX received approximately 7.5 million shares of common stock of
Allscripts Healthcare Solutions in connection with the acquisition by Allscripts
of IDX's majority owned subsidiary, ChannelHealth Incorporated. IDX entered into
a stock rights and restrictions agreement with Allscripts, pursuant to which,
among other things, IDX agreed to restrictions on the sale of its shares of
Allscripts common stock. In general, IDX is prohibited from selling any shares
for one year after the date of Allscripts' acquisition of ChannelHealth, and
after one year, IDX is prohibited from selling more than 25% of it shares of
Allscripts common stock in any one year, and 16.67% in any one month. The
restrictions on IDX's ability to sell shares of Allscripts common stock will
make it difficult for IDX to liquidate its investment in Allscripts and may
adversely affect the value of such investment.
ANTI-TAKEOVER DEFENSES. IDX's Second Amended and Restated Articles of
Incorporation and Second Amended and Restated Bylaws contain certain anti-
takeover provisions, which could deter an unsolicited offer to acquire IDX. For
example, IDX's board of directors is divided into three classes, only one of
which will be elected at each annual meeting. These provisions may delay or
prevent a change in control of IDX.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IDX does not currently use derivative financial instruments. The Company
generally places its securities available-for-sale investments in high credit
quality instruments primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of a year or less. We do not expect any material loss from our
marketable security investments.
Internationally, IDX invoices customers in United States currency. The Company
is not currently exposed to foreign exchange rate fluctuations and does not
enter into foreign currency hedge transactions. Through December 31, 2000,
foreign currency fluctuations have not had a material impact on our financial
position or results of operations.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities that may experience a decline in market
value due to changes in interest rates. A hypothetical 10% increase or decrease
in interest rates, however, would not have a material adverse effect on our
financial condition.
Interest income on the Company's investments is included in "Other Income." The
Company accounts for cash equivalents and securities available-for-sale in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities." Cash
equivalents are short-term highly liquid investments with original maturity
dates of three months or less. Cash equivalents are carried at cost, which
approximates fair market value. The Company's investments are classified as
securities available-for-sale and are recorded at fair value with any unrealized
gain or loss recorded as an element of stockholders' equity.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per share data)
December 31,
2000 1999
-----------------------
Assets
Current assets:
Cash and cash equivalents $ 16,357 $ 18,487
Securities available-for-sale 54,326 49,872
Accounts receivable, less allowance of $4,297
in 2000 and $3,300 in 1999 for doubtful accounts 110,360 110,759
Refundable income taxes 13,699 199
Prepaid and other current assets 6,927 5,153
Deferred tax asset 9,021 7,691
-----------------------
Total current assets 210,690 192,161
Property and equipment:
Equipment and leasehold improvements, net of accumulated depreciation and
amortization 53,479 39,877
Real estate, net of accumulated depreciation 18,111 18,388
-----------------------
71,590 58,265
Other:
Other assets 7,483 17,521
Deferred tax asset 7,728 3,200
-----------------------
Total assets $297,491 $271,147
=======================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 18,040 $ 12,969
Accrued expenses 38,606 25,001
Deferred revenue 19,913 17,459
-----------------------
Total current liabilities 76,559 55,429
Commitments and contingencies - -
Redeemable convertible preferred stock of subsidiary 33,140 -
Minority interest 8,682 9,204
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized; none issued - -
Common stock, par value $0.01 per share, 100,000 shares authorized;
issued and outstanding 28,399 shares and 27,813 shares in 2000 and 1999,
respectively 284 278
Additional paid-in capital 187,896 179,640
Retained earnings (deficit) (9,156) 26,812
Cumulative unrealized gains (losses) on securities available-for-sale 86 (216)
-----------------------
Total stockholders' equity 179,110 206,514
-----------------------
Total liabilities and stockholders' equity $297,491 $271,147
=======================
See accompanying notes.
Reclassified for comparative purposes.
27
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Revenues:
Systems sales $109,621 $124,609 $178,555
Maintenance and service fees 232,272 216,390 171,632
----------------------------------------------
Total revenues 341,893 340,999 350,187
Operating expenses:
Cost of sales 244,084 216,554 196,480
Selling, general and administrative 87,641 79,873 68,234
Research and development 49,394 53,176 47,278
Write-off of acquired research and development costs - - 3,201
Merger and related costs - 4,045 -
Restructuring charge 21,029 - -
Loss on impairment of goodwill 5,810 - -
----------------------------------------------
Total operating expenses 407,958 353,648 315,193
----------------------------------------------
Operating income (loss) (66,065) (12,649) 34,994
Other (income) expense:
Interest income (4,834) (4,113) (6,382)
Interest expense 6 866 1,312
Loss on investment impairment - 1,642 -
Minority interest 978 1,129 1,070
Realized gain on investment (7,318) - -
----------------------------------------------
Total other (income) (11,168) (476) (4,000)
----------------------------------------------
Income (loss) before income taxes (54,897) (12,173) 38,994
Income tax (benefit) provision (18,929) (4,229) 22,160
----------------------------------------------
Net income (loss) $(35,968) $ (7,944) $ 16,834
==============================================
Basic net income (loss) per share $ (1.28) $ (0.29) $ 0.62
==============================================
Basic weighted average shares outstanding 28,090 27,723 27,345
==============================================
Diluted net income (loss) per share $ (1.28) $ (0.29) $ 0.60
==============================================
Diluted weighted average shares outstanding 28,090 27,723 28,170
==============================================
See accompanying notes.
Reclassified for comparative purposes.
28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME (LOSS)
(in thousands, except for share data)
Cumulative
Unrealized
Common Stock Additional Retained Gain (Loss) on Total
------------------- Paid-in Earnings Securities Stockholders'
Shares Par Value Capital (Deficit) Available-for-Sale Equity
-------------------------------------------------------------------------
Balances at December 31, 1997 26,774 $268 $159,529 $ 17,922 $ 136 $ 177,855
Comprehensive income:
Net income - - - 16,834 - 16,834
Unrealized gains on securities
available-for-sale - - - - 10 10
---------
Comprehensive income - - - - - 16,844
Stock issued upon exercise
of nonqualified stock options 137 1 3,971 - - 3,972
Tax benefit related to
exercise of nonqualified stock
options - - 2,335 - - 2,335
Stock issued upon exercise of
incentive stock options 293 3 4,277 - - 4,280
Stock issued pursuant to
employee stock purchase plan 96 1 2,878 - - 2,879
Stock issued to 401(k) plan 5 198 - - 198
Issuance of stock 88 1 1,847 - - 1,848
------------------------------------------------------------------------
Balances at December 31, 1998 27,393 274 175,035 34,756 146 210,211
Comprehensive loss:
Net loss - - - (7,944) - (7,944)
Unrealized losses on securities
available-for-sale - - - - (362) (362)
---------
Comprehensive loss - - - - - (8,306)
Stock issued upon exercise
of nonqualified stock options 38 - 145 - - 145
Tax benefit related to
exercise of nonqualified stock
options - - 428 - - 428
Stock issued upon exercise of
incentive stock options 87 1 777 - - 778
Stock issued pursuant to
employee stock purchase plan 125 1 3,206 - - 3,207
Stock issued under IDX director
stock option plan 2 - 33 - - 33
Stock issued to 401(k) plan 1 - 16 - - 16
Issuance of stock 167 2 - - - 2
------------------------------------------------------------------------
Balances at December 31, 1999 27,813 278 179,640 26,812 (216) 206,514
Comprehensive loss:
Net loss - - - (35,968) - (35,968)
Unrealized gains on securities
available-for-sale - - - - 302 302
---------
Comprehensive loss - - - - - (35,666)
Stock issued upon exercise
of nonqualified stock options 140 1 156 - - 157
Tax benefit related to
exercise of nonqualified stock
options - - 2,136 - - 2,136
Stock issued upon exercise of
incentive stock options 65 1 820 - - 821
Stock issued pursuant to
employee stock purchase plan 378 4 5,098 - - 5,102
Stock issued under IDX director
stock option plan 3 - 46 - - 46
------------------------------------------------------------------------
Balances at December 31, 2000 28,399 $284 $187,896 $ (9,156) $ 86 $ 179,110
========================================================================
See accompanying notes.
Reclassified for comparative purposes.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (35,968) $ (7,944) $ 16,834
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation 15,013 13,965 13,733
Amortization 633 1,407 209
Deferred tax (benefit) provision (5,858) (3,864) 2,937
Increase in allowance for doubtful accounts 997 685 1,512
Minority interest 978 1,129 1,070
Realized gain on investment (7,318) - -
Write-off of goodwill 5,810 - -
Loss on investment impairment - 1,642 -
Restructuring charge 21,029 - -
Write-off of acquired in-process research and development costs - - 3,201
Changes in operating assets and liabilities:
Accounts receivable (4,103) (9,279) (34,283)
Prepaid expenses and other assets (1,405) 3,011 2,062
Accounts payable and accrued expenses 990 (514) 2,535
Refundable federal and state taxes payable (13,500) (5,628) 5,429
Deferred revenue 2,454 (780) (3,299)
---------------------------------
Net cash (used in) provided by operating activities (20,248) (6,170) 11,940
INVESTING ACTIVITIES
Purchase of property and equipment, net (28,387) (35,519) (16,962)
Purchase of securities available-for-sale (22,260) (194,027) 250,035)
Proceeds from sale of securities available-for-sale 25,426 257,366 238,297
Business acquisitions - (6,500) (5,293)
Other assets 3,434 (4,058) (5,316)
---------------------------------
Net cash (used in) provided by investing activities (21,787) 17,262 (39,309)
FINANCING ACTIVITIES
Proceeds from sale of common stock 6,126 4,181 13,178
Tax benefit related to exercise of nonqualified stock options 2,139 428 2,335
Proceeds from debt issuances - 3,501 12,332
Contributions to (distributions from) affiliates, net (1,500) (900) 6,000
Proceeds from sale of redeemable convertible preferred stock 33,140 - -
Principal repayments of long-term debt - (11,373) (9,659)
---------------------------------
Net cash provided by (used in) financing activities 39,905 (4,163) 24,186
---------------------------------
Increase (decrease) in cash and cash equivalents (2,130) 6,929 (3,183)
Cash and cash equivalents at beginning of year 18,487 11,558 14,741
---------------------------------
Cash and cash equivalents at end of year $ 16,357 $ 18,487 $ 11,558
=================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 1 $ 764 $ 1,274
=================================
Cash paid for income taxes $ 479 $ 5,266 $ 5,362
=================================
See accompanying notes.
Reclassified for comparative purposes.
30
IDX SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
IDX Systems Corporation (IDX or the Company) provides healthcare information
systems and services to large integrated healthcare delivery enterprises
principally located in the United States. Revenues are derived from the
licensing of software, the provision of maintenance and services related to
systems sales, the provision of medical transcription services and Internet
based services and content.
In April 1999, IDX completed its merger (EDiX Merger) with EDiX Corporation
(EDiX) in a stock for stock transaction. The transaction, which was accounted
for as a pooling-of-interests, was effected through the exchange of .084 shares
of IDX common stock in exchange for each EDiX share outstanding. Approximately
1.0 million shares of IDX common stock were issued in connection with the EDiX
Merger. EDiX is a provider of medical transcription services.
The consolidated financial statements for all periods prior to the EDiX Merger
have been restated to include the accounts and results of operations of EDiX. No
adjustments were required to conform the financial reporting policies of IDX and
EDiX for the periods presented.
On January 8, 2001, the Company sold Channelhealth Incorporated (ChannelHealth),
including certain product lines to Allscripts Healthcare Solutions, Inc.
(Allscripts). ChannelHealth, incorporated in September 1999, was a majority
owned subsidiary of IDX. Allscripts acquired ChannelHealth in exchange for 8.6
million shares, or 21.3% of Allscripts stock on a pro-forma fully diluted basis,
of which IDX received 7.5 million shares (approximately 90%). This investment in
Allscripts stock will be accounted for under the equity method in 2001.
Accordingly, IDX will recognize a pro-rata share of Allscripts net income(loss),
after elimination of certain related entity transactions and will recognize any
goodwill amortization expense based on the excess of the carrying value of its
investment over its share of the underlying net assets of Allscripts.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
subsidiaries and a real estate trust. Investments in entities, representing an
ownership interest of less than 20%, are accounted for under the cost method.
The Company leases a substantial portion of its space, including its corporate
headquarters and certain sales and support offices, from real estate
partnerships and trusts owned by stockholders and certain key employees of the
Company. These real estate partnerships and trusts include 116 Huntington Avenue
Limited Partnership (HLP), BDP Realty Associates (BDP) and other real estate
partnerships and trusts (REPs). The Company's consolidated financial statements
include the accounts of the Company and BDP, whose real estate is leased
exclusively by the Company and for which the Company is subject to substantially
all the risks of ownership. Real estate owned by HLP and REPs is leased to the
Company under operating leases. All transactions between the Company and BDP are
eliminated. Minority interest represents net income and equity of BDP.
This investment in Allscripts stock will be accounted for under the equity
method in 2001. Accordingly, IDX will recognize a pro-rata share of Allscripts
net income (loss), after elimination of certain related entity transactions and
will recognize any goodwill amortization expense based on the excess of the
carrying value of its investment over its share of the underlying net assets of
Allscripts.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition," as amended by SOP
No. 98-4, and SOP 98-9. SOP No. 97-2, as amended, generally requires revenue
earned on software arrangements involving multiple elements to be allocated to
each element based on the relative fair values of those elements. The fair value
of an element must be based on objective evidence that is specific to the
vendor. If the vendor does not have evidence of the fair value for all the
elements in a multiple-element arrangement, all revenue from the arrangement is
deferred until such
31
evidence exists or until all elements are delivered. Additionally, the Company
periodically enters into certain long term contracts to which SOP No. 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts," is applied. For these agreements, revenue is recognized on a
percentage of completion basis as appropriate measures of completion for each
contract are achieved. In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements." The SAB formalizes positions the staff has expressed in speeches
and comment letters. The Company has adopted SAB 101 and has determined that it
had no significant impact on its revenue recognition policy, financial condition
or results of operations.
The Company also generates service revenues from the sale of product maintenance
contracts, consulting contracts and transcription service arrangements. Revenue
from software licensing arrangements is principally recognized upon delivery
subject to specified milestones and dates. Revenues from consulting and
transcription services are recognized in the period in which services are
performed. Revenue from hardware sales is recognized upon delivery. Revenue from
maintenance contracts is recognized ratably over the term of the support period,
which is typically one year.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Software development
costs incurred after the establishment of technological feasibility and until
the product is available for general release are capitalized, provided
recoverability is reasonably assured. Technological feasibility is established
upon the completion of a working model. Software development costs, when
material, are stated at the lower of unamortized cost or net realizable value.
Net realizable value for each software product is assessed based on anticipated
profitability applicable to revenues of the related product in future periods.
Amortization of capitalized software costs begins when the related product is
available for general release to customers and is provided for using the
straight-line method over a one to two year life or the product's estimated
economic life, if shorter. Capitalized software development costs are $191,000
and $414,000 at December 31, 2000 and 1999, respectively, net of accumulated
amortization, and are included in other assets in the accompanying balance
sheets. Amortization of capitalized software amounted to $223,000, $251,000 and
$203,000 in 2000, 1999 and 1998, respectively.
CASH EQUIVALENTS
The Company considers highly liquid investments generally with a maturity of
three months or less when purchased, to be cash equivalents.
RISKS AND UNCERTAINTIES
Concentration of Credit Risk
- ----------------------------
Financial instruments which potentially subject the Company to a concentration
of credit risk principally consist of cash and cash equivalents, securities
available-for-sale and trade receivables. The carrying value of these financial
instruments approximates fair value.
The Company generally places its securities available for sale in high credit
quality instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of a year or less.
Substantially all of the Company's customers are large integrated healthcare
delivery enterprises principally located in the United States. The Company
performs ongoing credit evaluations of the financial condition of its customers
and generally does not require collateral. Although the Company is directly
affected by the overall financial condition of the healthcare industry,
management does not believe significant credit risk exists at December 31, 2000.
The Company's losses related to collection of trade accounts receivables have
consistently been within management's expectations.
Significant Estimates and Assumptions
- -------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates and assumptions by
management affect the Company's allowance for doubtful accounts,
32
revenue recognition and certain accrued expenses, amortization periods,
capitalized software and restructuring charge. Actual results could differ from
those estimates.
SECURITIES AVAILABLE-FOR-SALE
The Company accounts for investment securities based on Statement of Financial
Accounting Standard (SFAS) No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 provides the accounting and reporting
requirements for investments in securities that have readily determinable fair
values and for all investments in debt securities. All of the Company's
investments have been classified as available-for-sale securities at December
31, 2000 and 1999. Securities available-for-sale are carried at fair value with
unrealized gains and losses reported as a separate component of stockholders'
equity.
PROPERTY AND EQUIPMENT
Real estate, which includes land, buildings and related improvements owned
directly by the Company and BDP, is stated at cost. Buildings and related
improvements are depreciated using the straight-line method over their estimated
useful lives of 30 to 40 years.
Equipment is stated at cost and is depreciated over its estimated useful life
using the straight-line method. Depreciation is generally computed based on
useful lives of two to five years for computer equipment and software and five
to ten years for furniture and fixtures. Leasehold improvements are amortized
using the straight-line method over the lesser of the term of the respective
lease or the estimated useful life of the asset.
The Company includes costs of developing and obtaining software for internal
use, accounted for under the provisions of SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed for Internal Use," in Property and
Equipment.
LONG-LIVED ASSET IMPAIRMENT
In accordance with SFAS No. 121 "Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of," the Company recognizes impairment losses on long-
lived assets when indicators of impairment are present and future undiscounted
cash flows are insufficient to support the assets' recovery. The amount of the
impairment loss is recognized based on an analysis of discounted cash flows
estimated to be derived from the impaired asset.
INCOME TAXES
The Company accounts for income taxes using the liability method as required by
SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income
taxes are recognized for the future tax consequences of differences between the
tax and financial accounting of assets and liabilities at each year end.
Deferred income taxes are based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. A valuation allowance is established when necessary to reduce
deferred tax assets to the amounts expected to be realized. Income tax expense
is the tax payable for the period and the change during the period in deferred
tax assets and liabilities.
STOCK-BASED COMPENSATION
The Company grants stock options to employees for a fixed number of shares with
an exercise price equal to the fair value of the shares at the date of the
grant. The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS" No. 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Stock options and other stock-
based awards to non-employees are accounted for based on the provisions of SFAS
No. 123.
33
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" (SFAS No. 133) as amended by
SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. The Company is required to implement SFAS No. 133 in the first
quarter of 2001. The Company believes that the adoption of SFAS No. 133 will not
have a material effect on its financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements." The SAB
formalizes positions the staff has expressed in speeches and comment letters.
SAB 101 became effective for IDX during the fourth quarter of 2000. The Company
has adopted SAB 101 and has determined that it had no significant impact on its
financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25," (the Interpretation or
FIN 44). The Interpretation, which has been adopted prospectively as of July 1,
2000, requires, among other things, that stock options that have been modified
be accounted for as variable. The Company has adopted FIN 44 and has determined
that it had no significant impact on its financial condition or results of
operations.
2. BUSINESS COMBINATIONS/ DIVESTITURES
On July 13, 2000, the Company announced an agreement to sell certain operations
of ChannelHealth to Allscripts, a leading provider of point-of-care e-
prescribing and productivity solutions for physicians. ChannelHealth provides a
set of Internet-based clinical and productivity solutions for physicians that
brings the power of the Internet to the practice of medicine. IDX will retain
the operations of the Patient and e-Commerce Channels, which were previously
part of Channelhealth Incorporated. In addition to the sale, the Company has
entered into a 10-year strategic alliance whereby Allscripts will become the
exclusive provider of point-of-care clinical applications sold by IDX to
physician practices.
Allscripts acquired ChannelHealth on January 8, 2001 in exchange
for 8.6 million shares, or 21.3% of Allscripts stock on a pro-forma fully
diluted basis, of which IDX will receive approximately 90%.
ChannelHealth's revenues, net losses and total assets included in the Company's
consolidated financial statements were as follows:
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
--------------------------------------------------------------------
Revenues $ 6,098 $ 1,865
Net loss ($19,660) ($ 5,479)
Total assets $21,641 $11,744
In April 1999, the Company completed its merger with EDiX, a provider of
medical transcription services, which became a wholly-owned subsidiary of the
Company. The transaction was accounted for as a pooling-of-interests and,
accordingly, the accompanying consolidated financial statements include the
accounts of EDiX for all periods presented. In connection with the merger, the
Company incurred approximately $4.0 million of merger and related costs
consisting principally of transaction costs of $2.4 million, write-offs and
adjustments of long-lived assets, principally incompatible computer equipment of
$1.4 million and other merger related costs of $0.2 million, principally related
to integration costs incurred during the period and the termination of leases
and other contractual obligations.
On April 1, 1999, the Company acquired an 80% interest in ChannelHealth, Inc., a
Massachusetts corporation, for $6.5 million. The acquisition was accounted for
under the purchase method. In November 1999, ChannelHealth, Inc. was merged into
Channelhealth Incorporated, a Delaware corporation formed by the Company in
September 1999, which at that time was wholly-owned by the Company, with the
result that the Company then owned 98.3% of Channelhealth Incorporated.
On June 23, 1999, the Company acquired all of the assets of DietSite.com, Inc.
for $1.5 million. DietSite.com is a website which includes disease-oriented
dietary information with extensive proprietary content on diets, vitamins,
herbals and nutritionals. The acquisition was accounted for under the purchase
method.
On May 5, 1998, the Company acquired the net assets of Laureate Enterprises Inc.
a provider of project and process consulting services for cash of $1.3 million.
The acquisition was accounted for under the purchase method.
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.
34
Had these acquisitions occurred as of the beginning of the year in which they
occurred, the pro forma operating results would not be materially different than
as reported in the accompanying consolidated financial statements.
3. RESTRUCTURING CHARGE
On June 21, 2000 the Company announced the implementation of a restructuring
program. The Company halted development and discontinued sales efforts on
certain products that had failed to achieve business targets or were deemed
non-strategic to the business going forward. As a result, the Company
implemented a workforce reduction of approximately five percent. The
restructuring program resulted in a charge to earnings of approximately $21.0
million in the second quarter of 2000, in connection with costs associated with
product discontinuations, principally settlements with existing users, of
approximately $16.0 million and employee severance arrangements of approximately
$5.0 million. Workforce related accruals, consisting principally of employee
severance costs, were established based on specific identification of employees
to be terminated, along with their job classification or functions, and their
location. Substantially all work-force related actions were completed during the
third quarter of 2000, with the exception of product related "sunset" support
teams. As of December 31, 2000, the Company had a balance of $11.5 million
related to accrued restructuring costs. Cash expenditures related to these
accruals are estimated to be $8.9 million. The remaining balance of
approximately $2.6 million represents a provision for the estimated write-off of
accounts receivable that will not affect cash. These write-offs are expected to
be finalized by June 30, 2001.
4. SEGMENT INFORMATION
The Company is required to disclose segment information in accordance with the
provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." 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. Up to and
including the first quarter of 1999, the Company has viewed its operations and
managed its business as principally one segment, healthcare information
solutions that include software, hardware and related services. During the
second quarter of 1999, the Company acquired two companies that have separate
and distinct financial information and operating characteristics. When
applicable, the information for the reportable segments has been restated for
1999 in order to conform to the 2000 presentation.
The Company's three business units have separate management teams and
infrastructures that offer different products and services. Accordingly, these
business units have been classified as three reportable segments (information
systems and services, Internet services and content, and medical transcription
services).
Information Systems and Services: This reportable segment consists of IDX
Systems Corporation's healthcare information solutions that includes software,
hardware and related services. IDX solutions enable healthcare organizations to
redesign patient care and other workflow processes in order to improve
efficiency and quality. The principal markets for this segment include physician
groups, management service organizations, hospitals, and integrated delivery
networks primarily located in the United States.
Internet Services and Content: ChannelHealth, a majority owned subsidiary,
offers three Internet channels that integrate IDX's core practice management
systems with extensive Internet-based services and clinically valid content.
ChannelHealth services are available to physicians through group practices,
hospitals, integrated delivery networks and managed care organizations. This
segment will no longer be reported in 2001 as a separate business segment due to
the acquisition of ChannelHealth by Allscripts on January 8, 2001.
Medical Transcription Services: This reportable segment consists of EDiX, a
provider of medical transcription outsourcing services. The principal markets
for this segment include hospitals and large physician group practices primarily
located in the United States.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements. The
Company evaluates the performance of its operating segments based on revenue and
operating income. Intersegment revenues are immaterial. No one customer accounts
for greater than 10% of revenue for any reportable segment, with the exception
of EDiX. EDiX's revenues from one major customer amounted to 10.3% and 11.0% of
EDiX's total revenue during the years ended December 31, 2000 and December 31,
1999, respectively. During the year ended December 31, 1998, no single customer
represented more than 10% of total revenues.
35
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands):
IDX Healthcare
Information Channelhealth
Systems and Services Incorporated EDIX Total
- -----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000
Net operating revenues $263,620 $ 6,098 $ 72,175 $341,893
Operating income (loss) (40,572) (28,880) 3,387 (66,065)
Identifiable operating assets 249,441 21,641 26,409 297,491
For the year ended December 31, 1999
Net operating revenues $292,261 $ 1,865 $ 46,873 $340,999
Operating loss (542) (7,930) (4,177) (12,649)
Identifiable operating assets 242,773 11,744 16,630 271,147
For the year ended December 31, 1998
Net operating revenues $321,676 - $ 28,511 $350,187
Operating income (loss) 47,144 - (12,150) 34,994
Identifiable operating assets 281,324 - 7,899 289,223
Corporate headquarter assets and related operating costs are included in IDX
Healthcare Information Systems and Services segment information. Substantially
all of the Company's operations are in the United States. The financial
information disclosed above represents all of the material financial information
related to the Company's principal operating segments.
5. SECURITIES AVAILABLE-FOR-SALE
The following is a summary of securities available-for-sale at December 31, 2000
and 1999:
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains (Losses) Value
- -------------------------------------------------------------- ---------------- ---------------- --------------
December 31, 2000
U.S. government securities................ $ 11,554 $ 10 - $ 11,564
Other debt securities..................... 4,047 55 - 4,102
------------ ---------------- ---------------- --------------
Total debt securities................... 15,601 65 - 15,666
Tax-deferred municipal funds.............. 23,728 - (66) 23,662
Equity securities......................... 5,570 87 - 5,657
Money-market funds........................ 9,341 - - 9,341
------------ ---------------- ---------------- --------------
$ 54,240 $ 152 $ (66) 54,326
============ ================ ================ ==============
December 31, 1999
U.S. government securities................ $ 8,914 - $ (79) $ 8,835
Other debt securities..................... 2,520 - (22) 2,498
------------ ---------------- ---------------- --------------
Total debt securities................... 11,434 - (101) 11,333
Tax-deferred municipal funds.............. 22,640 - (115) 22,525
Money-market funds........................ 16,014 - - 16,014
------------ ---------------- ---------------- --------------
$ 50,088 - $ (216) $ 49,872
============ ================ ================ ==============
The net unrealized gain and net unrealized (loss) on securities available-for-
sale included as a separate component of stockholders' equity totaled $86,000
and $(216,000) at December 31, 2000 and 1999, respectively. In 2000, a portion
of the Company's investment in a venture capital fund was converted to
marketable equity securities and resulted in the realization of a $7.3 million
gain.
36
The amortized cost and estimated fair value of securities available-for-sale at
December 31, 2000 by contractual maturity are shown below.
Estimated Fair
(in thousands) Cost Value
- ------------------------------------------------------------------------------------------------ ---------------------
Due in one year or less............................... $ 49,412 $ 49,434
Due after one year through three years................ 3,274 3,308
Due after three years................................. 1,554 1,584
---------------------- ---------------------
$ 54,240 $ 54,326
====================== =====================
6. PROPERTY AND EQUIPMENT
Equipment and leasehold improvements consist of the following:
December 31,
2000 1999
------------ ----------
(in thousands)
Computer equipment and software....................... $ 57,502 $ 66,727
Furniture and fixtures................................ 8,663 9,406
Leasehold improvements................................ 23,415 12,219
------------ ----------
89,580 88,352
Less accumulated depreciation and amortization........ 36,101 48,475
------------ ----------
$ 53,479 $ 39,877
============ ============
Real estate consists of the following:
December 31,
2000 1999
------------ ----------
(in thousands)
Corporate headquarters................................ $ 20,477 $ 20,301
Less accumulated depreciation......................... 2,366 1,913
------------ ----------
$ 18,111 $ 18,388
============ ==========
7. OTHER ASSETS
In February 1996, the Company signed a Distribution Agreement (the Agreement)
with Point-of-Care Systems Inc., a software developer of mobile computing
solutions for the home healthcare marketplace. In addition, the Company
purchased a minority equity interest in the developer for approximately
$957,000. During 1997 and 1998, an additional $685,000 was invested by the
Company. During 1999, the Company was informed that the legal entity, Point-of-
Care Systems Inc., would be dissolved. Accordingly, the total investment of
$1,642,000 was written off in the first quarter of 1999 and charged to the IDX
healthcare information segment as a loss on investment impairment.
In 2000 a portion of the Company's investment in a venture capital fund was
converted to marketable equity securities.
8. ACCRUED EXPENSES
Accrued expenses consist of the following: December 31,
2000 1999
-----------------------------------
(in thousands)
Employee compensation and benefits $ 14,195 $ 8,188
Restructuring charges 8,905 -
Accrued expenses 8,196 9,863
Other 7,310 6,950
-----------------------------------
$ 38,606 $ 25,001
====================================
37
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK OF SUBSIDIARY
In January 2000, ChannelHealth sold 2,719,429 shares of Series A Preferred Stock
(3,000,000 total authorized shares), to Pequot Private Equity Fund II, L.P.
(Pequot) and other investors for a purchase price of $33.1 million. Pequot's
ownership interest represents approximately 9.0% of the outstanding shares of
stock, on an as converted basis, of ChannelHealth. Under certain circumstances,
the Series A Preferred Stock is convertible into common stock of ChannelHealth.
The Series A Preferred Stock is subject to mandatory conversion in the event of
an initial public offering resulting in at least $35 million of net proceeds to
ChannelHealth and a market capitalization of at least $500 million. The Series A
Preferred Stock is also redeemable at the option of the holder commencing on the
fifth anniversary of the date of issuance. The redemption price is equal to
$11.80 per share plus any declared but unpaid dividends, payable in three equal
installments over three years.
The Series A Preferred Stock will be settled in 2001 in connection with the sale
of ChannelHealth described in Note 2.
10. FINANCING ARRANGEMENTS
Under an unsecured line of credit arrangement with a bank, the Company may
borrow up to $5,000,000 on a demand basis subject to terms and conditions upon
which the Company and the bank may mutually agree. The line of credit
arrangement expires on December 31, 2001. At December 31, 2000 and 1999, there
were no borrowings under this arrangement.
Operating Leases
- ----------------
At December 31, 2000, future obligations due under the operating lease with
REPs and unrelated parties for sales and support offices are as follows:
Unrelated
Year ending December 31: REPs Third Total
Parties
---------------------------------------------------------------------
(in thousands)
2001 $ 557 $ 11,253 $ 11,810
2002 279 10,833 11,112
2003 - 13,617 13,617
2004 - 13,934 13,934
2005 - 14,114 14,114
Thereafter - 112,476 112,476
---------------------------------------------------------------------
$ 836 $176,227 $177,063
=====================================================================
The Company leased approximately 47% of the office space in a commercial office
building owned by HLP (owned and controlled by stockholders and certain key
employees of the Company) until July 1999 when the building was sold to an
unrelated party. The building lease was assumed by the new owner of the building
and is disclosed above as a lease obligation with an unrelated third party.
Total rent expense amounted to $11,117,000, $9,708,000 and
$7,971,000, during 2000, 1999 and 1998, respectively. Total rent expense
includes $0, $1,564,000 and $2,898,000 in 2000, 1999 and 1998, respectively,
related to the lease with HLP. Total rent expense includes $619,000, $546,000
and $525,000 in 2000, 1999 and 1998, respectively, related to the leases with
REPs.
11. INCOME TAXES
The provision for income taxes consists of the following:
Currently payable (refundable): 2000 1999 1998
-----------------------------------------------------------
(in thousands)
Federal $(13,500) $ 100 $ 15,918
State 429 (486) 3,805
-----------------------------------------------------------
(13,071) (386) 19,723
Deferred (benefit), principally federal (5,858) (3,843) 2,437
-----------------------------------------------------------
$(18,929) $ (4,229) $ 22,160
===========================================================
38
A reconciliation of the federal statutory rate to the effective income tax rate
during 2000, 1999 and 1998 is as follows:
2000 1999 1998
-----------------------------------------------------------
Tax at federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.0 5.4 5.4
Non-deductible costs of acquisitions - (8.0) -
Change in valuation allowance - - 13.7
Other, net (3.5) 2.3 2.7
-----------------------------------------------------------
34.5% 34.7% 56.8%
===========================================================
Significant components of the Company's deferred tax assets (liabilities) are as
follows:
2000 1999
-------------------------------------------
(in thousands)
Deferred tax assets:
Net operating loss carry forwards $ 14,502 $ 14,502
Allowances and accruals 9,060 5,178
Depreciation 3,291 3,200
Goodwill 2,208 -
Unrealized gain on securities 770 -
Deferred revenue 1,603 2,513
-------------------------------------------
Total deferred tax assets 31,434 25,393
Valuation allowance (14,685) (14,502)
-------------------------------------------
Net deferred tax assets 16,749 10,891
Less current portion 9,021 7,691
-------------------------------------------
$ 7,728 $ 3,200
===========================================
At December 31, 2000, the Company had net operating loss carry forwards (NOLs)
of approximately $36.3 million generated by EDiX and available to offset the
Company's future taxable income subject to an annual limitation of $900,000.
These NOLs will expire, if not used, during the years 2009 through 2018.
The Company believes that, based upon a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
certain deferred tax assets, principally NOL's, such that a partial valuation
allowance has been recorded. The Company will continue to assess the
realization of the deferred tax assets based on actual and forecasted operating
results.
39
12. NET INCOME (LOSS) PER SHARE
The following sets forth the computation of basic and diluted earnings per
share:
(in thousands, except per share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------
Numerator:
Net income (loss) $(35,968) $(7,944) $16,834
---------------------------------
Numerator for basic and diluted earnings per share $(35,968) $(7,944) $16,834
=================================
Denominator:
Denominator for basic earnings per share
weighted-average shares 28,090 27,723 27,345
Effect of employee stock options - - 825
---------------------------------
Denominator for diluted earnings per share 28,090 27,723 28,170
=================================
Basic net income (loss) per share $ (1.28) $ (0.29) $ 0.62
=================================
Diluted net income (loss) per share $ (1.28) $ (0.29) $ 0.60
=================================
13. BENEFIT PLANS
RETIREMENT PLANS:
PROFIT SHARING RETIREMENT PLAN
The Company maintains a profit sharing retirement plan for all IDX employees
meeting age and service requirements. In 1998, employees of PHAMIS, Inc. a
subsidiary acquired in 1997, were not eligible for the profit sharing retirement
plan due to their eligibility in the PHAMIS 401(k) plan described below.
Effective January 1, 1999, PHAMIS employees became eligible for profit sharing
contributions when the former PHAMIS 401(k) plan was merged into the new IDX
Systems Corporation Retirement Income Plan. Contributions to the plan are
discretionary, as determined by the Board of Directors. The Company expects to
continue the plan indefinitely; however, IDX has reserved the right to modify,
amend or terminate the plan. For the years ended December 31, 2000, 1999 and
1998, the Company has expensed $3,572,000, $0, and $4,184,000, respectively.
401(k) RETIREMENT SAVINGS PLAN
Effective January 1, 1999, the Company merged the PHAMIS 401(k) retirement
savings plan into the IDX Systems Corporation Retirement Income Plan which
covers all full-time employees eligible to participate. Under the IDX plan,
employees are eligible to participate in the plan on the first day of the month
following the date of employment. The Company matches participant contributions
up to 3%. Matching contributions to the IDX plan were $3,265,000 and $3,271,000
for the year ended December 31, 2000 and 1999.
During 1998, the Company maintained two 401(k) retirement savings plans which
covered all eligible employees. One plan, which covered former PHAMIS
employees, matched 50% of participant contributions up to a maximum contribution
of $1,500 per employee in company stock. The second plan, covering IDX
employees had no matching provision. Matching contributions to the plan were
$413,000 in the year ended December 31, 1998. A total of 240,000 shares of
Common Stock have been reserved for issuance under the 401(k) retirement
savings.
STOCK PURCHASE PLAN
In September 1995, IDX's Board of Directors and stockholders approved the 1995
Employee Stock Purchase Plan, as amended in July 1997, (the "ESPP") under which
eligible employees may purchase Common Stock at a price per share equal to 85%
of the lower of the fair market value of the Common Stock at the beginning or
end of each offering period. Participation in the offering is limited to 10% of
an employee's compensation (not to exceed amounts allowed under Section 423 of
the Internal Revenue Code), may be terminated at any time by the employee and
automatically ends on termination of employment with the Company. A total of
1,400,000 shares of Common Stock have been reserved for issuance under the ESPP.
During the years ended December 31, 2000, 1999 and 1998, an aggregate of
approximately 378,000, 125,000, and 96,000, respectively, were purchased under
the ESPP. No additional shares of stock were issued under the ESPP subsequent to
the end of the year. The Company has approximately 588,000 additional shares of
common stock available for issuance pursuant to the ESPP.
40
STOCK OPTION PLANS:
IDX OPTION PLANS
During 1985 and 1994, the Company established incentive stock option plans
providing for the grant of options for the issuance of 959,540 and 183,200
shares, respectively, of Common Stock. Options were granted at fair market value
at the time of grant and became immediately exercisable at the time of the
initial public offering. The options expire on the tenth anniversary of the date
of the grant or upon termination of employment. The 1994 Plan was terminated
upon the completion of the initial public offering. The 1985 Plan was terminated
for purposes of prospective eligibility in March 1995. At December 31, 2000,
options to purchase 49,350 and 54,396 shares of Common Stock were outstanding
and exercisable under the 1994 Plan and the 1985 Plan, respectively.
In September 1995, the Company's stockholders approved the 1995 Stock Option
Plan as amended in July 1997, (the "1995 Option Plan"). The 1995 Option Plan
provides for the grant of stock options to employees, officers and directors of,
and consultants or advisors to, the Company. Under the 1995 Option Plan, the
Company may grant options that are intended to qualify as incentive stock
options under provisions of the Internal Revenue Code or options not intended to
qualify as incentive stock options. The option grants, exercise price, vesting
and expiration are authorized by a compensation committee comprised of certain
of the Company's directors. A total of 4,500,000 shares of Common Stock may be
issued upon the exercise of options granted under the 1995 Option Plan. At
December 31, 2000, options to purchase 3,142,796 shares of Common Stock were
outstanding under the 1995 Option Plan, of which 1,143,243 were exercisable.
In September 1995, IDX's Board of Directors approved the 1995 Director Stock
Option Plan, as amended, in May and July 1997, (the "IDX Director Plan"), which
provides that each non-employee director of the Company be granted an option to
acquire 2,000 shares of Common Stock on the date that person becomes a director
but, in any event, not earlier than the effective date of the IDX Director Plan.
Options are granted at a price equal to the fair market value on the date of
grant. The option becomes exercisable on the first anniversary of the date of
grant, and the term of the option is ten years from the date of grant. The
Company has reserved 80,000 shares of Common Stock for issuance under the IDX
Director Plan. At December 31, 2000, options to purchase 50,824 shares of Common
Stock were outstanding under the IDX Director Plan, of which 27,576 were
exercisable.
PHAMIS STOCK OPTION PLANS
Options to purchase shares of PHAMIS Common Stock under the PHAMIS, Inc.
Amended and Restated 1983 Combined Nonqualified and Incentive Stock Option Plan
(the "1983 Option Plan"), the PHAMIS, Inc. 1993 Combined Incentive and
Nonqualified Stock Option Plan (the "1993 Option Plan") and the PHAMIS, Inc.
1994 Non-employee Director Stock Option Plan (the "PHAMIS Director Plan") which
were outstanding at the effective date of the acquisition of PHAMIS by IDX were
effectively assumed by IDX based on the exchange ratio of .73 shares of IDX
Common Stock for each share of PHAMIS Common Stock. Pursuant to the terms of the
aforementioned plans, all unvested and unexercisable option grants were fully
vested and became exercisable immediately prior to the acquisition. The
aforementioned PHAMIS plans were terminated for purposes of prospective
eligibility at the effective time of the acquisition. At December 31, 2000,
options to purchase 4,767, 65,117 and 3,650 shares of IDX Common Stock were
outstanding and exercisable under the 1983 Option Plan, the 1993 Option Plan and
the PHAMIS Director Plan, respectively.
EDiX STOCK OPTION PLANS
Options to purchase shares of EDiX Common Stock under the EDiX 1994 Combined
Incentive and Nonqualified Stock Option Plan (the "1994 Plan"), the EDiX 1996
Combined Incentive and Nonqualified Stock Option Plan (the "1996 Plan") and the
EDiX 1997 Stock Incentive Plan (the "1997 Plan") which were outstanding at the
effective date of the Merger were exchanged for IDX shares of common stock based
on the fair value of each option at the exchange ratio of .08 shares of IDX
Common Stock for each share of EDiX Common Stock. Pursuant to the terms of the
aforementioned plans, all unvested and unexercisable option grants were fully
vested and became exercisable immediately prior to the Merger. The
aforementioned EDiX plans were terminated for purposes of eligibility at the
effective time of the Merger.
41
STOCK BASED COMPENSATION
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options and shares issued pursuant to the ESPP
under the fair value method of that Statement. The fair value for these options
and shares issued pursuant to the ESPP were estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
Options ESPP
2000 1999 1998 2000 1999 1998
-------------------------------------------
Expected life (years) 4.0 4.0 6.4 0.5 0.5 0.5
Interest rate 5.8% 5.9% 5.7% 4.8% 5.7% 5.5%
Volatility 77.6% 74.6% 41.4% 77.6% 74.6% 41.4%
Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for net income (loss) per share
information):
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $(41,946) $(13,136) $12,296
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma diluted net income (loss) per share $ (1.49) $ (0.47) $ 0.46
- -----------------------------------------------------------------------------------------------------------------------------------
The effects on 2000, 1999 and 1998 pro-forma net income (loss) and net income
(loss) per share of expensing the estimated fair value of stock options and
shares issued pursuant to the ESPP are not necessarily representative of the
effects on reporting the results of operations for future years as the periods
presented include only stock options granted under the Company's plans
subsequent to the adoption of SFAS No. 123 in 1996.
A summary of the Company's stock option activity, and related information for
the three years ended December 31 follows:
2000 1999 1998
---------- ---------- ----------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------------------------------------------------
Outstanding at beginning of year 2,605,886 $22.77 1,889,019 $26.36 2,085,729 $24.95
Granted 1,508,060 $18.45 1,098,009 $14.33 289,710 $26.35
Exercised (206,120) $15.17 (234,642) $ 5.75 (424,051) $19.03
Forfeited (536,926) $25.89 (146,500) $33.12 (62,369) $29.00
---------------------------------------------------------------------
Outstanding at end of year 3,370,900 $20.60 2,605,886 $22.77 1,889,019 $26.37
=====================================================================
Exercisable at end of year 1,346,099 $23.74 1,155,276 $23.00 743,697 $21.23
=====================================================================
Weighted-average fair value of
options granted during the year $11.29 $ 8.53 $17.67
Available for future grants 506,319 1,477,453 2,435,276
=====================================================================
42
The following table presents weighted-average price and life information about
significant option groups outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4.32 - $ 4.32 60,850 3.88 years $ 4.32 60,850 $ 4.32
$ 5.14 - $13.63 735,886 7.88 years $13.06 342,469 $12.42
$14.22 - $16.59 1,061,659 9.52 years $15.74 17,012 $16.44
$16.69 - $30.63 891,113 7.04 years $24.14 510,616 $26.30
$31.19 - $51.19 621,392 7.29 years $33.46 415,152 $33.08
----------- -----------
3,370,900 1,346,099
=========== ===========
14. COMMITMENTS AND CONTINGENCIES
On January 18, 2001, the Company commenced a lawsuit against Epic Systems
Corporation, a competitor of the Company, the University of Wisconsin Medical
Foundation, and two individuals claiming, among other things, that trade secrets
of the Company involving its IDXtend medical group practice system were
wrongfully disclosed to, and misappropriated by, Epic in a series of meetings
that took place in 1998 and 1999. All of the defendants deny the Company's
claims. The Company's lawsuit seeks damages and injunctive relief and was
brought in the United States District Court for the Western District of
Wisconsin and is entitled, IDX Systems Corporation v. Epic Systems Corporation,
et al., No. 01C-0037-S. The Foundation has brought a counterclaim against the
Company claiming that its lawsuit interferes with a contract between the
Foundation and Epic, and that the confidentiality provisions in IDX's contracts
with the Foundation are invalid. The counterclaim seeks damages and declaratory
judgment. The Company denies the counterclaim and intends to vigorously contest
the matter. The lawsuit is in the preliminary stages of discovery. The Company
is unable to determine the outcome of this matter at this time.
The Company is from time to time involved in routine litigation incidental to
the conduct of its business. The Company believes that no such currently pending
routine litigation to which it is party will have a material adverse effect on
its financial condition or results of operations.
15. SUBSEQUENT EVENT
On January 8, 2001, the Company sold ChannelHealth including certain product
lines to Allscripts. ChannelHealth, which was incorporated in September 1999,
was a majority owned subsidiary of IDX. Allscripts acquired ChannelHealth in
exchange for 8.6 million shares, or 21.3% of Allscripts stock on a pro-forma
fully diluted basis, of which IDX received 7.5 million shares (approximately
90%). This investment in Allscripts stock will be accounted for under the equity
method in 2001. Accordingly, IDX will recognize a pro-rata share of Allscripts
net income(loss), after elimination of certain related entity transactions and
will recognize any goodwill amortization expense based on the excess of the
carrying value of its investment over its share of the underlying net assets of
Allscripts.
43
16. QUARTERLY INFORMATION (UNAUDITED)
A summary of operating results for the quarterly periods in the two years ended
December 31, 2000 is set forth below:
Quarter Ended
-------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------
(in thousands, except per share amounts)
Year ended December 31, 2000
Total revenues $ 76,722 $ 79,596 $87,578 $97,997 $341,893
Gross profit 21,562 18,936 26,896 30,415 97,809
Net income (loss) (10,499) (22,023) (4,777) 1,331 (35,968)
Net income (loss) per share - basic $ (0.38) $ (0.79) $ (0.17) $ 0.05 $ (1.28)
Net income (loss) per share - diluted $ (0.38) $ (0.79) $ (0.17) $ 0.05 $ (1.28)
Year ended December 31, 1999
Total revenues $ 69,650 $ 91,255 $92,218 $87,876 $340,999
Gross profit 20,847 34,960 35,776 32,862 124,445
Net income (loss) (8,578) (2,250) 1,178 1,706 (7,944)
Net income (loss) per share - basic $ (0.31) $ (0.08) $ 0.04 $ 0.06 $ (0.29)
Net income (loss) per share - diluted $ (0.31) $ (0.08) $ 0.04 $ 0.06 $ (0.29)
44
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IDX Systems Corporation
We have audited the accompanying consolidated balance sheets of IDX Systems
Corporation, its subsidiaries and affiliate as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDX Systems
Corporation, its subsidiaries and affiliate at December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 29, 2001
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III of this Form 10-K is omitted because
the Company will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Form 10-K, and certain information to be included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I hereof, and the remainder is contained in
the Proxy Statement under the caption "Election of Directors" and is
incorporated herein by reference. Information relating to delinquent filings of
Forms 3, 4 and 5 of the Company is contained in the Proxy Statement under the
caption "Compliance with Section 16 Reporting Requirements" and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Proxy Statement under the captions
"Board of Directors Compensation" and "Compensation of Executive Officers" and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Proxy Statement under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of IDX Systems Corporation
are included in Item 8.
1. Consolidated Balance Sheets at December 31, 2000 and 1999.
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss) for the Years Ended December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. The consolidated financial statement Schedule II is as follows:
All other schedules are omitted, as the information required is
inapplicable.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Bad Debts
Beginning of Costs and Charged to Written-Off Net Balance at End
Description Period Expenses Other Accounts of Collections of Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Allowance for doubtful accounts $3,300,000 $2,918,000 - $1,921,000 $4,297,000
Year ended December 31, 1999
Allowance for doubtful accounts $2,615,000 $ 685,000 - - $3,300,000
Year ended December 31, 1998
Allowance for doubtful accounts $1,664,000 $1,512,000 - $ 561,000 $2,615,000
3. The Exhibits listed in the Exhibit Index immediately preceding the Exhibits
are filed as a part of this Annual Report on Form 10-K.
(b) On November 16, 2000, the Company filed a report on Form 8-K, reporting an
agreement with Stentor,Inc.
46
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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 on the 30th day of
March, 2001.
IDX SYSTEMS CORPORATION
By: /s/ Richard E. Tarrant
----------------------------------
Richard E. Tarrant,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard E. Tarrant Chief Executive March 30, 2001
- ----------------------- Officer and Director
Richard E. Tarrant (Principal Executive Officer)
/s/ John A. Kane Vice President, Finance March 30, 2001
- ----------------------- and Administration, Chief
John A. Kane Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Henry M. Tufo Director March 30, 2001
- -----------------------
Henry M. Tufo, M.D.
/s/ Robert H. Hoehl Director March 30, 2001
- -----------------------
Robert H. Hoehl
/s/ Stuart H. Altman Director March 30, 2001
- -----------------------
Stuart H. Altman, Ph.D.
/s/ Steven M. Lash Director March 30, 2001
- -----------------------
Steven M. Lash
47
/s/ Frank T. Sample Director March 30, 2001
- -----------------------
Frank T. Sample
/s/ Mark F. Wheeler Director March 30, 2001
- -----------------------
Mark F. Wheeler, M.D.
/s/ Allen Martin Director March 30, 2001
- -----------------------
Allen Martin, Esq.
/s/ Peter VanEtten Director March 30, 2001
- -----------------------
Peter VanEtten
48
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit No. Description
- ----------- -----------
3.1* Second Amended and Restated Articles of Incorporation.
3.2* Second Amended and Restated Bylaws.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value,
of the Registrant.
10.1#* 1985 Incentive Stock Option Plan.
10.2#* 1994 Incentive Stock Option Plan.
10.3#* 1995 Stock Option Plan.
10.4#* 1995 Director Stock Option Plan.
10.5#* 1995 Employee Stock Purchase Plan.
10.6#* Description of Registrant's Executive Bonus Plan.
10.10* Employment, Noncompetition and Nondisclosure Agreement between
the Registrant and Richard E. Tarrant.
10.13* Employment, Noncompetition and Nondisclosure Agreement between
the Registrant and James H. Crook, Jr. dated September 19, 1995.
10.14* Agreement between the Registrant and Robert F. Galin dated
April 5, 1982.
10.15* Employment Agreement between the Registrant and John A. Kane
dated October 15, 1984.
10.16* Redemption Agreement between the Registrant, Richard E. Tarrant
and Robert H. Hoehl dated as of April 1, 1993.
10.17* First Amendment to Redemption Agreement between the Registrant,
Richard E. Tarrant and Robert H. Hoehl.
10.18* Amended and Restated Certificate and Agreement of Limited
Partnership of 4901 LBJ Limited Partnership between the
Registrant and Richard E. Tarrant, Robert H. Hoehl, Paul L.
Egerman, John A. Kane, Robert F. Galin and certain of the
Registrant's employees dated as of April 1, 1992, as amended on
July 1, 1993.
10.19* Lease Agreement between the Registrant and 4901 LBJ Limited
Partnership dated as of April 7, 1992.
10.20* Indenture of Lease between the Registrant and IDS Realty Trust
dated as of December 1, 1981, as amended on June 29, 1995.
10.21* Lease Agreement between the Registrant and BDP Realty Associates
relating to 1500 Shelburne Road dated July 6, 1979.
49
Exhibit No. Description
- ----------- -----------
10.24* Reimbursement Agreement among the Registrant, BDP Realty
Associates and State Street Bank and Trust Company dated as of
January 25, 1993.
10.25* Agreement of Lease between the Registrant and Huntington Avenue
Limited Partnership dated as of April 13, 1994, as amended
through January 1, 1995.
10.26* Guaranty Release Agreement relating to 116 Huntington Avenue.
10.27* Option Agreement between the Registrant and BDP Realty
Associates.
10.28* Tax Indemnification Agreement between the Registrant and the
stockholders listed on Schedule A thereto.
10.36+ Agreement and Plan of Merger dated as of March 25, 1997 by and
among the Registrant, Penguin Acquisition Corporation and
PHAMIS, Inc.
10.37#@ PHAMIS, Inc. Amended and Restated 1983 Combined Nonqualified and
Incentive Stock Option Plan
10.38#@ PHAMIS, Inc. 1993 Combined Incentive and Nonqualified Stock
Option Plan as amended through May 14, 1996
10.39#@ PHAMIS, Inc. 1994 Non-employee Director Stock Option Plan as
amended through January 1, 1996
10.40#@ PHAMIS, Inc. Salary Savings and Deferral Plan and Trust as
amended through February 22, 1996
10.42# Amended and Restated Lease Agreement between BDP Realty
Associates and IDX Systems Corporation relating to 1400
Shelburne Road (now known as 40 IDX Drive) dated as of
November 1, 1997
10.44! Specimens of Stock Option Agreements under the 1995 Stock Option
Plan
10.45! Third Addendum to Lease Agreement between 4901 LBJ Limited
Partnership and IDX Systems Corporation dated as of February 1,
1998.
10.46& Second Addendum to Lease Agreement between 4901 LBJ Limited
Partnership and IDX Systems Corporation dated April 21, 1997.
10.47& Third Amendment to Lease between Huntington Avenue Limited
Partnership and IDX Systems Corporation.
10.48& Fourth Amendment to Lease between Huntington Avenue Limited
Partnership and IDX Systems Corporation.
10.49$ Agreement and Plan of Merger among IDX Systems and Underwood
Acquisition Corporation and EDiX Corporation dated September 11,
1998.
10.50( Letter Agreement between BDP Realty Associates and IDX Systems
Corporation dated as of March 23, 1999.
10.51( Lease Extension between IDS Realty Trust and IDX Systems
Corporation dated as of June 15, 1998 and executed April 12,
1999.
10.52) Sample Indemnification Agreement signed by all Directors and
Officers as of September 13, 1999.
50
Exhibit No Description
- ---------- -----------
10.53= Series A Convertible Preferred Stock Purchase Agreement by and
between Channelhealth Incorporated, IDX Systems Corporation and
Purchasers named on Schedule I dated as of January 10, 2000.
10.54[ Stock Restriction and Voting Agreement by and among Richard E.
Tarrant and Amy E. Tarrant effective April 29, 1999 and executed
June 8, 2000.
10.55 Stock Rights and Restriction Agreement by and between Allscripts
Healthcare Solutions, Inc. and IDX Systems Corporation dated as
of January 8, 2001.
10.56 Strategic Alliance Agreement by and between Allscripts
Healthcare Solutions, Inc. and IDX Systems Corporation dated as
of January 8, 2001.
10.57 Stock Option Agreement by and between IDX Systems Corporation
and James H. Crook, Jr. dated as of October 16, 2000.
21.1 Subsidiaries
23.1 Consent of Ernst & Young LLP
# Management contract or compensatory plan or arrangement filed as an exhibit
to or incorporated by reference into this Form pursuant to Items 14(a) and
14(c) of Form 10-K.
* Incorporated herein by reference from the Company's Registration Statement on
Form S-1, as amended (File No. 33-97104).
+ Incorporated herein by reference from the Company's Registration Statement on
Form S-4, as amended (File No. 333-2891).
@ Incorporated herein by reference from the Company's Registration Statement on
Form S-8, as amended (File No. 333-31045).
! Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
{ Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
& Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998.
$ Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998.
( Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1999.
) Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1999.
= Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2000.
[ Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2000.
51