Exhibit 99.1
------- ----
[Financial Statements of PHAMIS]
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Directors and Shareholders
PHAMIS, Inc.:
We have audited the accompanying consolidated balance sheets of PHAMIS, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PHAMIS, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
January 31, 1997, except for note 14,
which is as of March 25, 1997
20
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except per share amounts)
====================================================================================================
Assets 1996 1995
- ----------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ - 4,488
Investments available for sale, at fair value (note 2) 18,838 19,890
Accounts receivable, net of allowance of $102 in 1996
and $67 in 1995 8,417 6,153
Accrued revenue receivable (note 3) 2,073 1,143
Refundable income taxes (note 11) 316 777
Deferred income taxes (note 11) 323 557
Prepaid expenses and other assets (note 4) 857 651
--------------------------
Total current assets 30,824 33,659
--------------------------
Furniture, equipment and leasehold improvements (notes 7 and 8):
Furniture 2,074 1,127
Equipment 6,349 4,673
Leasehold improvements 366 596
--------------------------
8,789 6,396
Less accumulated depreciation and amortization 4,023 3,458
--------------------------
Net furniture, equipment and leasehold improvements 4,766 2,938
--------------------------
Other investments and advances, at cost (note 4) 2,560 1,082
Capitalized software costs, net of accumulated
amortization of $4,137 in 1996 and $2,800 in 1995 5,120 3,060
Other 477 367
- ----------------------------------------------------------------------------------------------------
Total assets $ 43,747 41,106
====================================================================================================
See accompanying notes to consolidated financial statements.
21
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except per share amounts)
====================================================================================================
Liabilities and Shareholder's Equity 1996 1995
- ----------------------------------------------------------------------------------------------------
Current liabilities:
Note payable to bank (note 6) $ - 209
Current installments of long-term obligations (note 7) 102 265
Accounts payable 1,739 2,531
Accrued compensation expense 985 1,657
Other accrued expenses 929 310
Deferred revenue (note 3) 7,590 7,236
--------------------------
Total current liabilities 11,345 12,208
--------------------------
Long-term obligations, excluding current installments (note 7) 51 152
Deferred income taxes (note 11) 1,191 666
Shareholders' equity (note 9):
Preferred stock, $.0025 par value. Authorized 4,000 shares;
no shares outstanding - -
Common stock, $.0025 par value. Authorized 25,000 shares;
issued and outstanding 6,127 shares in 1996 and
5,968 shares in 1995 15 15
Additional paid-in capital 27,240 25,921
Unrealized gains on investments (note 2) 15 32
Retained earnings 3,890 2,112
--------------------------
Total shareholders' equity 31,160 28,080
Commitments and contingencies (notes 8, 9, 12 and 13)
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 43,747 41,106
====================================================================================================
See accompanying notes to consolidated financial statements.
22
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
==============================================================================================================
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Net revenues (note 10):
Systems, licenses and service $ 35,128 35,660 28,597
Support and maintenance 8,033 6,001 4,994
Additional hardware 6,139 5,504 5,510
--------------------------------------
Total net revenues 49,300 47,165 39,101
--------------------------------------
Costs of revenues:
Systems, licenses and service 19,665 20,058 17,247
Support and maintenance 5,061 4,091 3,547
Additional hardware 3,992 3,851 4,130
--------------------------------------
Total cost of revenues 28,718 28,000 24,924
--------------------------------------
Gross margin 20,582 19,165 14,177
--------------------------------------
Operating expenses:
Sales and marketing 7,510 5,579 4,657
Research and development 5,793 3,896 2,957
General and administrative 3,885 4,954 4,143
Merger and acquisition costs (note 5) 292 - -
Corporate headquarters relocation (note 8) 304 - -
International market entry costs (note 13) 810 - -
--------------------------------------
Total operating expenses 18,594 14,429 11,757
--------------------------------------
Operating income 1,988 4,736 2,420
--------------------------------------
Other income (expense):
Interest income 780 1,096 81
Interest expense (31) (65) (123)
Other, net (32) 29 (109)
--------------------------------------
Other income (expense), net 717 1,060 (151)
--------------------------------------
Income before income taxes and extraordinary item 2,705 5,796 2,269
Provision for income taxes (note 11) 927 1,488 30
-------------------------------------
Income before extraordinary item 1,778 4,308 2,239
Extraordinary item--gain from forgiveness of debt (note 5) - - 298
--------------------------------------
Net income $ 1,778 4,308 2,537
--------------------------------------
Net income per common share - primary $ .28 .68 .61
Net income per common share - fully diluted $ .28 .68 .57
Weighted average number of common shares outstanding -
primary 6,361 6,320 4,165
Weighted average number of common shares outstanding -
fully diluted 6,361 6,353 4,443
==============================================================================================================
See accompanying notes to consolidated financial statements.
23
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
(In thousands)
======================================================================================================================
Unrealized
Common stock Additional gains on
-------------------------- paid-in invest-
Shares Amount capital ments
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 3,803 $ 9 $ 4,129 $ -
Stock issued in connection with initial public
offering 1,400 4 14,750 -
Stock options exercised 44 - 115 -
Stock issued pursuant to employee stock purchase plan 7 - 33 -
Stock issued to 401(k) plan 21 - 103 -
Net income - - - -
---------------------------------------------------------------
Balances at December 31, 1994 5,275 13 19,130 -
Stock issued in connection with initial public
offering (underwriters' overallotment) 385 1 4,176 -
Stock options exercised 276 1 1,177 -
Tax benefit related to stock options - - 769 -
Stock issued pursuant to employee stock purchase plan 7 - 149 -
Stock issued to 401(k) plan 25 - 520 -
Unrealized gains on investments - - - 32
Net income - - - -
---------------------------------------------------------------
Balances at December 31, 1995 5,968 15 25,921 32
Stock options exercised 117 - 509 -
Tax benefit related to stock options - - 164 -
Stock issued pursuant to employee stock purchase plan 14 - 182 -
Stock issued to 401(k) plan 28 - 464 -
Unrealized gains (losses) on investments - - - (17)
Net income - - - -
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 6,127 $ 15 $ 27,240 $ 15
- ----------------------------------------------------------------------------------------------------------------------
========================================================================================
Total
share-
Retained holders'
earnings equity
(deficit) (deficit)
- ----------------------------------------------------------------------------------------
Balances at December 31, 1993 $ (4,733) $ (595)
Stock issued in connection with initial public
offering - 14,754
Stock options exercised - 115
Stock issued pursuant to employee stock purchase plan - 33
Stock issued to 401(k) plan - 103
Net income 2,537 2,537
---------------------------------
Balances at December 31, 1994 (2,196) 16,947
Stock issued in connection with initial public
offering (underwriters' overallotment) - 4,177
Stock options exercised - 1,178
Tax benefit related to stock options - 769
Stock issued pursuant to employee stock purchase plan - 149
Stock issued to 401(k) plan - 520
Unrealized gains on investments - 32
Net income 4,308 4,308
---------------------------------
Balances at December 31, 1995 2,112 28,080
Stock options exercised - 509
Tax benefit related to stock options - 164
Stock issued pursuant to employee stock purchase plan - 182
Stock issued to 401(k) plan - 464
Unrealized gains (losses) on investments - (17)
Net income 1,778 1,778
- ----------------------------------------------------------------------------------------
Balances at December 31, 1996 $ 3,890 $ 31,160
- ----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In thousands)
=========================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,778 4,308 2,537
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,640 1,955 1,498
Deferred income taxes 768 357 (265)
International market entry costs 810 - -
Other 106 21 (151)
Change in certain assets and liabilities:
Accounts receivable (2,264) (934) (1,709)
Accrued revenue receivable (930) (647) 104
Refundable income taxes 625 (8) -
Prepaid expenses and other current assets (206) (291) 42
Accounts payable (792) 939 (280)
Accrued compensation expense and other accrued expenses (53) 362 710
Income taxes payable - (255) 255
Deferred revenue 354 (536) 2,520
------------------------------------
Net cash provided by operating activities 2,836 5,271 5,261
------------------------------------
Cash flows from investing activities:
Purchases of investments (18,459) (60,908) (14,964)
Maturities and sales of investments 19,485 56,030 -
Purchases of furniture, equipment and leasehold improvements (3,237) (1,792) (807)
Capitalized software development costs (3,397) (1,853) (526)
Other investments and advances (1,478) (1,082) -
International contract development costs (824) - -
Decrease (increase) in other assets and other (96) (137) 84
------------------------------------
Net cash used in investing activities (8,006) (9,742) (16,213)
------------------------------------
Cash flows from financing activities:
Net proceeds from initial public offering - 4,177 14,754
Proceeds from issuance of common stock under stock option and employee
benefit plans 1,155 1,847 251
Principal repayments of long-term obligations (264) (480) (370)
Net change in note payable to bank (209) 109 (782)
------------------------------------
Net cash provided by financing activities 682 5,653 13,853
------------------------------------
Net increase (decrease) in cash and cash equivalents (4,488) 1,182 2,901
Cash and cash equivalents at beginning of year 4,488 3,306 405
====================================
Cash and cash equivalents at end of year $ - 4,488 3,306
====================================
Supplemental disclosures of cash flow information - cash paid during the year
for:
Interest $ 31 65 122
Income taxes 84 1,395 43
====================================
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital lease agreements $ - - 355
Tax benefit from stock options exercised 164 769 -
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
PHAMIS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
===============================================================================
(1) Significant Accounting Policies
(a) Nature of Operations
PHAMIS, Inc. (Company) develops, markets, installs and services,
enterprise-wide, patient-centered health care information systems for use by
large- and medium-sized health care providers. The PHAMIS-LASTWORD system is an
integrated hardware and software solution that constructs an on-line lifetime
medical record that is accessible simultaneously throughout the health care
delivery enterprise. The LASTWORD system collects, stores and organizes
patient-centered health care information as a single relational database that
enables immediate on-line access to current and prior episodes of patient care.
The majority of the Company's revenues (in excess of 90%) are generated from
sales of the LASTWORD system, and its remaining revenues are generated from its
recently acquired Data Breeze, Inc. practice management solution. The principal
market for the Company's products and technologies are hospitals and medical
group practices with revenues in excess of $100 million located throughout the
United States, and targeted international markets.
The LASTWORD system operates on the fault-tolerant computing platform provided
by Tandem Computers, Inc. (Tandem). The Company has derived a significant amount
of its net revenues from the resale of this platform. The Company has operated
for a number of years under various distribution agreements with Tandem, and the
current agreement expires in January 2002. Any significant failure by Tandem to
meet the Company's hardware requirements would require the Company to make
substantial investments to convert its products to operate on a computing
platform provided by another supplier.
In March 1996, the Company acquired Data Breeze, Inc. (DataBreeze), a
Florida-based provider of information systems for the physician practice
management marketplace through a pooling-of-interests. The DataBreeze practice
management and managed care information system is designed for medium- to
large-sized management service organizations (MSOs), and multi-specialty,
multi-site physician group practices. The consolidated financial statements for
all periods prior to the acquisition have been restated to include the accounts
and results of operations of DataBreeze.
In December 1994, the Company completed an initial public offering (IPO) of
1,400,000 shares of common stock at an offering price of $12 per share. The
proceeds to the Company from the IPO, after deducting commissions and offering
expenses, were approximately $14,754,000.
In January 1995, an additional 385,200 shares of common stock were offered at
the offering price, and at the same terms of the IPO shares, to cover
underwriters' overallotments made in connection with the IPO. The proceeds to
the Company, after deducting commissions and offering expenses, were
approximately $4,177,000.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
26
Notes to Consolidated Financial Statements
==============================================================================
(c) Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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 period.
Actual results could differ from those estimates.
(d) Revenue Recognition
Systems revenues are typically generated from long-term contracts to deliver and
install an integrated systems solution. Systems revenues include software
license fees, service fees, and revenues from the resale of third-party
hardware. Such revenues and the related costs, including the cost of contract
hardware, are recognized using the percentage-of-completion method as the work
progresses. These revenues and costs are measured primarily based on the ratio
of labor hours incurred to total estimated labor hours for the particular
contract, as prescribed by generally accepted accounting principles for
long-term, fixed-price contracts. Should the total estimated cost of a contract
be expected to exceed the contract price, the total estimated loss is recorded
in the period in which such loss is determined. The Company also licenses
additional software and provides additional services to its customers outside
the scope of its original system contract. Such revenues are recognized either
by the percentage-of-completion method or as the services are provided.
Support and maintenance fees are generally billed monthly and are recognized
ratably over the contract period with the related costs expensed as incurred.
Revenues for hardware sales not included in a systems contract, ("additional
hardware"), are recognized upon shipment.
Customer payment terms vary. Amounts billed in advance of satisfying revenue
recognition criteria are classified in current liabilities as "deferred revenue"
in the accompanying consolidated balance sheets. Costs and earnings recognized
in advance of billing are classified in current assets as "accrued revenue
receivable." The Company charged $27,000, $33,000 and $38,000, net of
recoveries, in 1996, 1995 and 1994, respectively, to the consolidated statements
of income related to allowances for doubtful accounts receivable.
(e) Software Development Costs
Software development costs incurred in conjunction with product development are
charged to research and development expense until technological feasibility has
been established. Thereafter, all software development costs for qualified
projects are capitalized and are stated at the lower of unamortized cost or net
realizable value. Net realizable value for a particular software product is
assessed based on anticipated gross margins applicable to sales 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 each product based on the greater of the amount computed using (i)
the ratio of current gross revenues to total current and anticipated future
gross revenues for the related software or (ii) the straight-line method over a
three-year life or the product's estimated economic life, if shorter.
Amortization expense related to capitalized software costs amounted to
$1,338,000, $943,000 and $722,000 in the years ended December 31, 1996, 1995 and
1994, respectively. These amounts are included in costs of systems, licenses and
service.
27
Notes to Consolidated Financial Statements
===============================================================================
(f) Research and Development
Research and development costs, other than software development costs, are
charged to expense as incurred.
(g) Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(h) Earnings Per Common Share
Primary and fully diluted net income per common share are computed using the
weighted average number of common and common-equivalent shares outstanding,
including shares issuable upon exercise of stock options. The computation, using
the treasury stock method, assumes that the proceeds from the exercise of stock
options, including tax benefits, are used to repurchase common shares at the
average market price of the Company's common stock during each period for
primary net income per common share, and at the greater of the average market
price during each period or the market price at the end of each period for fully
diluted net income per common share. Pursuant to the rules of the Securities and
Exchange Commission, common and common-equivalent shares issued during the 12
months immediately preceding the date of the Company's IPO in 1994 have been
included in the calculation of common and common-equivalent shares as if they
were outstanding for all periods presented through the date of the Company's IPO
using the IPO price of $12.00 per share.
(i) Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with commercial banks and
certain money market mutual funds used for temporary cash management purposes.
Net overdrafts with commercial banks of $49,000 at December 31, 1996 are
classified in current liabilities as "other accrued expenses."
(j) Investments Available-For-Sale
Investments in short-term investment-grade, interest-bearing debt securities are
classified as available-for-sale, and are carried at fair value. The Company
records unrealized holding gains and losses, net of income taxes, as a separate
component of shareholders' equity. The Company's policy is to classify
investments, some of which may have maturities of three months or less at the
time of purchase, as investments available-for-sale rather than cash equivalents
if they are acquired and disposed of through its available-for-sale investment
portfolio.
28
Notes to Consolidated Financial Statements
===============================================================================
(k) Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments available-for-sale and other investments, accounts receivable and
payable, and long- and short-term borrowings. The fair value of these
instruments approximates their recorded value. The Company periodically enters
into forward exchange contracts to hedge certain recorded or anticipated
transactions denominated in foreign currencies. The objective of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual equivalent dollar cash flows resulting from transactions
denominated in foreign currencies will be adversely affected by changes in
exchange rates. Gains and losses are deferred and included as a component of the
related transaction. The Company did not have any outstanding financial
instruments with off-balance sheet risk at December 31, 1996.
The Company's customers are substantially all large integrated health care
delivery enterprises located in the United States, United Kingdom and Canada.
Since a substantial portion of the Company's business is related to large dollar
value contracts, these receivables may be concentrated in relatively few
accounts. Three customer accounts at December 31, 1996 represented 34% of the
total accounts receivable balance while at December 31, 1995, the three largest
accounts represented 38% of the total balance. The Company does not have a
general policy of requiring collateral for its receivables, but it generally
requires down payments to be received in advance of performing significant
services.
(l) Furniture, Equipment and Leasehold Improvements
Furniture, leasehold improvements and owned equipment are stated at cost.
Equipment under capital leases is stated at the lower of the present value of
minimum lease payments discounted at the Company's incremental borrowing rate at
the beginning of the lease term or fair value at the inception of the lease.
Depreciation and amortization of furniture, equipment and leasehold improvements
are provided using the straight-line method over the following estimated useful
lives:
Furniture 7 years
Equipment 4 to 5 years
Leasehold improvements Lesser of lease term or
estimated useful life
(m) Stock Based Compensation
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company has elected to continue to apply the
provisions of Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense for options granted with an exercise price
equal to or in excess of fair value at the date of grant. Note 9 to the
consolidated financial statements contains a summary of pro forma net income and
earnings per share for 1996 and 1995 as if the Company had recognized
compensation expense based on the fair value of the options granted at grant
date as prescribed by SFAS No. 123.
(n) Reclassifications
Certain prior period balances have been reclassified to conform to the 1996
presentation.
(2) Investments Available-For-Sale
29
Notes to Consolidated Financial Statements
===============================================================================
Investments available-for-sale at December 31, 1996 and 1995 consist principally
of tax-exempt, investment-grade, interest-bearing securities diversified among
security types and users. Investments available-for-sale consisted of the
following at December 31, 1996:
Unrealized Fair
Cost gains (losses) value
---------------------------------------------
(In thousands)
State and municipal bonds and notes $ 9,087 24 9,111
Tax-exempt municipal preferreds 9,728 (1) 9,727
---------------------------------------------
$ 18,815 23 18,838
=============================================
Investments available-for-sale consisted of the following at December 31, 1995:
Unrealized Fair
Cost gains value
---------------------------------------------
(In thousands)
Money market funds $ 622 - 622
State and municipal bonds and notes 8,899 49 8,948
Tax-exempt municipal preferreds 10,320 - 10,320
---------------------------------------------
$ 19,841 49 19,890
=============================================
At December 31, 1996 and 1995, approximately $15,000 and $32,000, net of income
taxes, of unrealized holding gains were recorded in shareholders' equity,
respectively. The cost and fair value of available-for-sale securities as of
December 31, 1996, by contractual maturity, consisted of the following:
Fair
Cost value
----------------------------
(In thousands)
Due in one year or less $ 15,497 15,504
Due in one to two years 3,318 3,334
----------------------------
$ 18,815 18,838
============================
30
Notes to Consolidated Financial Statements
===============================================================================
(3) Uncompleted Contracts
Costs, estimated earnings and billings to date on uncompleted contracts were as
follows at December 31:
1996 1995
---------------------------------
(In thousands)
Costs incurred on uncompleted contracts $ 49,770 55,641
Estimated earnings 33,618 33,322
---------------------------------
83,388 88,963
Less billings to date 88,905 95,056
---------------------------------
$ (5,517) (6,093)
=================================
Included in accompanying balance sheets under the
following captions:
Accrued revenue receivable 2,073 1,143
Deferred revenue (7,590) (7,236)
---------------------------------
$ (5,517) (6,093)
=================================
(4) Other Investments and Advances
In February 1996, the Company signed a Distribution Agreement with a
California-based software developer of mobile computing solutions for the home
healthcare marketplace. The Agreement allows the Company to distribute the home
healthcare solutions throughout its direct sales network. In addition to the
Agreement, the Company purchased a minority equity interest in the developer for
approximately $950,000 in cash. The equity interest is accounted for under the
cost method of accounting. Subsequent to the initial investment, the Company
advanced $295,000 to the developer which was repaid in 1997.
In December 1995, the Company purchased an equity interest in a critical care
information systems developer based in Europe, for approximately $1,082,000 in
cash. The equity interest is accounted for under the cost method of accounting.
In addition to the equity interest, the Company entered into an OEM Distribution
Agreement to distribute the critical care system throughout the Company's
customer base. To consummate the Agreement the Company paid certain costs for
advance license fees, which are recorded as prepaid expenses. During 1996 the
Company was a participant in an additional round of equity financing of the
developer, as a result of which the Company invested an additional $225,000.
(5) Acquisition
In March 1996, the Company completed the acquisition of DataBreeze which became
a wholly-owned subsidiary of the Company and continues to operate from its
Florida headquarters. The transaction was accounted for as a
pooling-of-interests, and was effected through the exchange of 153,609 shares of
common stock of the Company for all the issued and outstanding shares of
DataBreeze. In connection with the merger, the Company incurred approximately
$292,000 of one-time merger costs consisting principally of transaction fees for
investment bankers, attorneys, and other related charges necessary to consummate
the transaction.
The results of operations previously reported by the separate enterprises and
the consolidated amounts for the years ended December 31, 1995 and 1994 are
summarized below.
31
Notes to Consolidated Financial Statements
===============================================================================
Year ended December 31,
1995 1994
---------------------------------
(In thousands)
Net revenues:
PHAMIS Inc. $ 44,003 34,442
DataBreeze 3,162 4,659
---------------------------------
Consolidated $ 47,165 39,101
---------------------------------
Extraordinary item:
PHAMIS Inc. - -
DataBreeze - 298
---------------------------------
Consolidated $ - 298
---------------------------------
Net income (loss):
PHAMIS Inc. 4,546 2,401
DataBreeze (238) 136
---------------------------------
Consolidated $ 4,308 2,537
=================================
In 1994, DataBreeze negotiated a settlement on a note payable resulting in a
forgiveness of debt of $298,000 which is recorded as an extraordinary item in
the 1994 consolidated statement of income.
(6) Note Payable to Bank
As of December 31, 1996, the Company has an unsecured $5,000,000 revolving line
of credit agreement with a bank which expires on June 1, 1998. The agreement
imposes certain financial covenants requiring the Company to maintain certain
levels of net worth, debt to net worth ratios, and current ratios. In addition,
the agreement contains an option to convert up to $5,000,000 of the revolving
line of credit to a two-year term loan with a maturity no later than June 1,
2000. Borrowings under this line bear interest at the bank's prime rate. There
were no amounts outstanding at December 31, 1996 or 1995.
Prior to the acquisition of DataBreeze by the Company (Note 5), DataBreeze had a
$250,000 line of credit agreement with a bank. Borrowings under the line carried
interest at rates above the bank's prime rate, were subject to certain
restrictive financial covenants, and were collateralized by substantially all of
DataBreeze's assets. Borrowings of $209,000 were outstanding under this line at
December 31, 1995. The line of credit agreement was subsequently canceled in
connection with the acquisition of DataBreeze by the Company.
32
Notes to Consolidated Financial Statements
===============================================================================
(7) Long-Term Obligations
Long-term obligations consist of the following at December 31:
1996 1995
--------------------
(In thousands)
Unsecured notes payable due in monthly installments, including interest at rates
ranging from 10% to 12%, final payment due January 1997 $ 2 133
Capital lease obligations payable, including imputed interest at rates ranging from
9.25% to 11.0%, final payments due 1998 to 2000 151 284
--------------------
Total long-term obligations 153 417
Less current installments 102 265
--------------------
Total long-term obligations, excluding current installments $ 51 152
====================
The principal maturities of total long-term obligations, excluding current
installments, at December 31, 1996 are currently scheduled to mature during 1998
through 2000.
Capitalized equipment leases included in equipment at December 31 are as
follows:
1996 1995
-----------------------
(In thousands)
Equipment $ 1,056 1,147
Less accumulated amortization 776 678
-----------------------
$ 280 469
=======================
(8) Operating Leases
The Company occupies its office space and uses certain of its equipment under
terms of noncancelable operating leases expiring at various dates through 2005.
Future minimum lease payments under noncancelable operating leases are as
follows at December 31, 1996:
(In thousands)
Years ending December 31:
1997 $ 1,589
1998 1,728
1999 1,780
2000 1,782
2001 1,784
Thereafter 8,403
=========
$ 17,066
---------
Rent expense under noncancelable operating leases amounted to $1,417,000,
$976,000 and $821,000 in the years ended December 31, 1996, 1995 and 1994,
respectively.
33
Notes to Consolidated Financial Statements
===============================================================================
In 1996, the Company relocated to its new corporate headquarters
in Seattle, Washington. In connection with the relocation, the Company incurred
approximately $304,000 of one-time, nonrecurring administrative expenses.
(9) Shareholders' Equity
(a) Shareholder Rights Plan
In July 1996, the Board of Directors of the Company adopted a shareholder rights
plan (the "Rights Plan") and declared a dividend of one preferred share purchase
right (a "Right") on each outstanding share of common stock. Under certain
circumstances, following a merger or other business combination transaction of
15% or more of the Company's outstanding common stock by an acquiring person or
group, each Right (other than Rights held by an acquiring group or person) may
be exercised to purchase one one-thousandth of a share of the Company's Series A
Junior Participating Preferred Stock for $105. The Rights, which are redeemable
by the Company at $0.01 per Right, expire in July 2006. The Rights have certain
antitakeover effects and will cause substantial dilution to a person or group
that attempts to acquire the Company on terms not approved by the Board of
Directors.
(b) Stock Compensation Plans
At December 31, 1996, the Company has three fixed stock option plans and an
employee stock purchase plan, which are described below. The Company applies APB
Opinion No. 25 and related interpretations in accounting for its plans under
which no compensation expense has been recognized for its four stock-based
compensation plans. Had compensation expense for the Company's plans been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated in the
table below:
1996 1995
------------------------
(In thousands)
Net income - as reported $ 1,778 4,308
Net income - pro forma 913 3,837
Primary net income per common
share - as reported .28 .68
Primary net income per common
share - pro forma .15 .61
Fully diluted net income per
common share - as reported .28 .68
Fully diluted net income per
common share - pro forma .15 .60
The effects of applying SFAS No. 123 in the pro forma disclosures are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
Fixed Stock Option Plans
Options granted under the PHAMIS, Inc. Amended and Restated 1983 Combined
Nonqualified and Incentive Stock Option Plan (1983 Plan) and the PHAMIS, Inc.
1993 Combined Incentive and Nonqualified Stock Option Plan (1993 Plan), are
exercisable at the fair market value of the stock at the date of grant. Options
granted under both plans, prior to May 1996, are generally exercisable in
cumulative increments of 1.667% per month over a five-year period and expire ten
years from the date of grant. In April 1996, the Company's Compensation
Committee amended the 1993 Plan's vesting policy for option grants from 1.667%
per month over a five-year period to 25%
34
Notes to Consolidated Financial Statements
===============================================================================
per year over a four-year period. In addition, the Board of Directors amended
the 1993 Plan in May 1996 and October 1994, authorizing the increase in the
number of shares available for issuance from 400,000 to 900,000 and 200,000 to
400,000, respectively.
In October of 1994, the Board of Directors authorized 25,000 shares of common
stock to be reserved for grant pursuant to the Nonemployee Director Stock Option
Plan (1994 Plan). The options become fully vested and exercisable one year from
the date of grant provided the director attends the requisite number of Board of
Directors meetings. Options expire upon the earlier of 10 years from the date of
grant or one year after a director's termination of service as a director.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
1996 1995
---------------------------
Expected dividend yield 0% 0%
Expected stock price volatility 62.50% 62.50%
Risk-free interest rate 6.14% 7.16%
Expected life of options 3.8 years 4.4 years
The weighted average fair value of options granted during 1996 and 1995 was
$10.10 and $11.28, respectively.
35
Notes to Consolidated Financial Statements
===============================================================================
A summary of the status of the Company's fixed stock option plans as of December
31, 1996, 1995, and 1994, and changes during the years ended on those dates is
presented below:
Outstanding
--------------------
options
Shares -------------------- Weighted Options Exercisable
available 1983 1993 1994 average exercisable price per
for grant plan plan plan exercise price at year-end share
---------------------------------------------------------------------------------
(In thousands) (In thousands)
Balances at December 31, 1993 152 650 48 - $ 4.21 414 .50-4.80
Options set aside 225 - - -
Options granted (140) - 137 3 5.53
Options exercised - (42) (2) - 2.56
Options relinquished 6 (14) (6) - 4.62
----------------------------------
Balances at December 31, 1994 243 594 177 3 4.53 486 .50-12.00
Options granted (116) - 113 3 19.11
Options exercised - (269) (7) - 4.27
Options relinquished 4 (2) (4) - 6.33
----------------------------------
Balances at December 31, 1995 131 323 279 6 7.43 347 1.45-28.38
Options set aside 500 - - -
Options granted (221) - 218 3 19.97
Options exercised - (100) (17) - 4.35
Options relinquished 14 (2) (14) (1) 15.69
----------------------------------
Balances at December 31, 1996 424 221 466 8 $ 11.74 329 3.85-28.55
==================================
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------------ ----------------------------------
Shares Weighted average Shares
Range of outstanding remaining Weighted average exercisable Weighted average
exercise prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
----------------------------------------------------------------------------- ----------------------------------
$3.85 - 6.04 364 5.39 $4.66 272 $4.50
9.00 - 12.88 17 9.04 11.64 4 10.43
14.50 - 16.93 86 8.11 16.86 31 16.93
18.63 - 21.11 147 9.48 19.03 5 19.37
23.76 - 28.55 81 7.73 24.80 17 25.01
------ ------
$3.85 - 28.55 695 6.96 $11.74 329 $7.05
------ ------
36
Notes to Consolidated Financial Statements
===============================================================================
Employee Stock Purchase Plan
The Company has an employee stock purchase plan whereby eligible employees may
purchase the Company's common stock at 85% of the lower of the fair market value
on the first or the last day of each three-month exercise period. The Company
has reserved 200,000 shares of common stock for issuance under the plan. The
number of shares available for purchase during the year is determined at the
discretion of the Board of Directors. At December 31, 1996, 179,000 shares were
reserved for future issuance. During 1996, 14,000 shares were purchased under
the plan at an average price of $12.53 per share. During 1995, 7,000 shares were
purchased at an average price of $22.00 per share. During 1994, 7,000 shares
were purchased at an average price of $5.16 per share. Employees are also
allowed to direct portions of their investments in the 401(k) Retirement Savings
Plan (Note 12) to acquire Company common stock.
Under SFAS No. 123, compensation expense is recognized for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1996 and 1995, respectively: dividend yield
of 0% for both years; an expected life of 90 days for both years; expected
volatility of 62.5% for both years; and risk-free interest rates of 5.14% and
5.69%. The weighted average fair value of those purchase rights granted in 1996
and 1995 was $5.44 and $7.25, respectively.
(10) Sales Information
The Company currently derives a significant amount of its annual net revenues
from a relatively small number of large long-term fixed-price contracts,
relating to sales of its health care information system and related installation
services. During 1996 and 1994 there were no individual customers that accounted
for more than 10% of total net revenues. One customer represented 11% of the
Company's total net revenues for the year ended December 31, 1995.
Under the percentage-of-completion method, a significant increase in the hours
required for a system installation could have an adverse effect on a contract's
profitability. In addition, the Company's installation contracts generally
provide for payments upon the achievement of certain milestones. Therefore, any
significant delay in the achievement of milestones on one or more contracts
could have an adverse effect on cash flows.
(11) Income Taxes
The components of the provision for income taxes for the years ended December 31
are as follows:
1996 1995 1994
-----------------------------
(In thousands)
Federal:
Current $ 175 941 265
Deferred 647 357 (265)
-----------------------------
822 1,298 -
-----------------------------
State:
Current (16) 190 30
Deferred 121 - -
-----------------------------
105 190 30
-----------------------------
$ 927 1,488 30
=============================
Provision for income taxes differs from "expected" income tax expense (computed
by applying the U.S. Federal income tax rate of 34%) as follows for the years
ended December 31:
37
Notes to Consolidated Financial Statements
===============================================================================
1996 1995 1994
-------------------------------
Computed "expected" tax expense 34 % 34 % 34 %
State income taxes, net of Federal benefit 2 2 1
Tax-exempt interest and dividends (8) (4) -
Nondeductible merger costs 4 - -
Change in valuation allowance for net deferred tax - (9) (35)
assets
Other 2 3 1
-------------------------------
34 % 26 % 1 %
===============================
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets (liabilities) are comprised of the following for the
years ended December 31:
1996 1995
----------------------
(In thousands)
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 38 23
Compensated absences, principally due to accrual for
financial reporting purposes 294 241
Contracts in progress - 302
Research and development tax credit 244 222
Loss carryforwards and other tax credits 521 157
Other 68 21
----------------------
Total deferred tax assets 1,165 966
----------------------
Deferred tax liabilities:
Capitalized software costs, net of accumulated amortization 1,888 1,040
Other 145 35
----------------------
Total deferred tax liabilities 2,033 1,075
----------------------
Net deferred tax liabilities $ 868 109
======================
Included in accompanying balance sheets under the following
captions:
Current assets - deferred income taxes 323 557
Noncurrent liabilities - deferred income taxes 1,191 666
----------------------
$ 868 109
======================
As of December 31, 1996, the Company had net operating loss carryforwards of
$1,054,000 and minimum tax credit carryforwards of $156,000 for Federal and
state income tax reporting purposes. In addition, at December 31, 1996, the
Company had research and development tax credit carryforwards for Federal income
tax purposes, of approximately $244,000. These net operating losses and research
and development tax credit carryforwards expire in various periods from 2007 to
2011 and are available to reduce future Federal and state income taxes. The
minimum tax credit carryforwards have no expiration date and are available to
reduce future Federal income taxes. The Company believes that it is more likely
than not that the deferred tax assets will be realized prior to their
expiration. This belief is based on recent and anticipated future earnings, as
such, no valuation allowance was recorded at December 31, 1996 or 1995.
38
Notes to Consolidated Financial Statements
===============================================================================
(12) 401(k) Retirement Savings Plan
The Company has a 401(k) Retirement Savings Plan in which all full-time
employees of the Company are eligible to participate. Participants become
eligible for the employer-matching contribution on the first day of the calendar
quarter immediately following the completion of one year of service. The Company
matches 50% of participant contributions up to a maximum Company contribution of
$1,500 per employee in the Company's stock. Matching contributions to the plan
were $320,000, $165,000 and $97,000 in the years ended December 31, 1996, 1995
and 1994, respectively.
(13) International Market Entry Costs
In December 1996, the Company signed an agreement to install its LASTWORD system
at a United Kingdom-based health care provider, to provide facilities management
services and assist in the development process of modifying the Company's system
to reflect U.K. market requirements. The agreement will be accounted for as a
development contract with an estimated term of eight years. The contract payment
terms and conditions were negotiated in accordance with the provisions of the
Private Finance Initiative. A portion of the contract value is subject to
certain variable pricing requirements which are determined in accordance with
certain performance indicators. The variable portion of the contract is not
considered material to the total contract value. During 1996, the Company
recorded approximately $810,000 of non-recurring charges representing the excess
of estimated costs over estimated recoveries related to the contract. Future
expenditures to be incurred over the term of the contract are expected to be
approximately $15 million, including costs to be incurred by a third party
subcontractor, which amounts the Company expects to recover over the term of the
contract.
(14) Subsequent Event
On March 25, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among PHAMIS, Inc. and IDX Systems Corporation, a
Vermont-based corporation ("IDX"). Pursuant to the Merger Agreement, each
outstanding share of PHAMIS, Inc. common stock will be canceled and converted
automatically into the right to receive .73 shares of IDX common stock, subject
to adjustment within a range of .6811 to .80 shares of IDX common stock, based
on the average market price per share of IDX's common stock. In addition, the
Company agreed to pay IDX a $6 million fee plus expenses not to exceed $1.5
million if the Merger Agreement is terminated under certain circumstances. The
Merger is expected to be accounted for as a pooling-of-interests and to qualify
as a tax-free reorganization.
The Merger is subject to the customary closing conditions, including shareholder
approval by both companies, to be considered at separate meetings anticipated to
occur in July 1997, and legal and regulatory approvals. The Merger will be
effective promptly following shareholder approval, assuming satisfaction of the
other conditions of the Merger.
(15) Quarterly Results of Operations (Unaudited)
The following tables (presented in thousands, except per share amounts) set
forth certain unaudited quarterly supplementary data for each of the years in
the two-year period ended December 31, 1996:
Three months ended
------------------------------------------------------ Year ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1996 1996 1996 1996 1996
----------------------------------------------------------------------
Net revenues $ 12,115 12,160 12,814 12,211 49,300
Gross margin 5,115 5,295 5,002 5,170 20,582
39
Notes to Consolidated Financial Statements
================================================================================================================
Net income 356 467 671 284 1,778
Net income per common
share - primary .06 .07 .11 .04 .28
Net income per common
share - fully diluted .06 .07 .11 .04 .28
Three months ended
------------------------------------------------------ Year ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1995 1995 1995 1995 1995
----------------------------------------------------------------------
Net revenues $ 11,663 12,026 11,173 12,303 47,165
Gross margin 4,574 4,855 4,759 4,977 19,165
Net income 1,162 1,102 1,073 971 4,308
Net income per common
share - primary .18 .17 .17 .16 .68
Net income per common
share - fully diluted .18 .17 .17 .16 .68
40
PHAMIS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
=============================================================================================================
March 31, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,085 $ -
Investments available for sale, at fair value 19,101 18,838
Accounts receivable, net 13,526 8,417
Accrued revenue receivable 1,498 2,073
Refundable income taxes 294 316
Deferred income taxes 369 323
Prepaid expenses and other assets 1,405 857
-------------------------------
Total current assets 40,278 30,824
-------------------------------
Furniture, equipment and leasehold improvements, at cost 9,106 8,789
Less accumulated depreciation and amortization 4,360 4,023
-------------------------------
4,746 4,766
-------------------------------
Other investments and advances, at cost 2,265 2,560
Capitalized software costs, net 5,645 5,120
Other assets 994 477
===============================
Total assets $ 53,928 $ 43,747
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations $ 100 $ 102
Accounts payable and accrued liabilities 9,475 3,653
Deferred revenue 9,959 7,590
-------------------------------
Total current liabilities 19,534 11,345
-------------------------------
Long-term obligations, excluding current installments 28 51
Deferred income taxes 1,702 1,191
Shareholders' equity:
Preferred stock - -
Common stock 15 15
Additional paid-in capital 27,650 27,240
Unrealized gains on investments 11 15
Retained earnings 4,988 3,890
-------------------------------
Total shareholders' equity 32,664 31,160
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 53,928 $ 43,747
=============================================================================================================
See accompanying notes to condensed consolidated financial statements.
3
PHAMIS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Quarters ended March 31, 1997 and 1996
(In thousands, except per share amounts)
================================================================================
1997 1996
- -------------------------------------------------------------------------------
Net revenues $ 14,602 $ 12,115
Cost of revenues 8,679 7,000
-----------------------
Gross margin 5,923 5,115
-----------------------
Operating expenses:
Sales and marketing 2,188 1,867
Research and development 1,329 1,473
General and administrative 995 1,002
Merger and acquisition costs - 292
-----------------------
Total operating expenses 4,512 4,634
-----------------------
Operating income 1,411 481
-----------------------
Other income (expense):
Interest income 222 194
Interest expense (3) (12)
Other, net (4) (2)
-----------------------
Other income (expense), net 215 180
-----------------------
Income before income taxes 1,626 661
Provision for income taxes 528 306
=======================
Net income $ 1,098 $ 355
=======================
Net income per common share $ .17 $ .06
Weighted average number of common shares outstanding 6,420 6,389
===============================================================================
See accompanying notes to condensed consolidated financial statements.
4
PHAMIS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Quarters ended March 31, 1997 and 1996
(In thousands, except per share amounts)
==============================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,098 $ 355
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 668 546
Deferred income taxes 468 175
Change in certain assets and liabilities:
Accounts receivable and accrued revenue receivable (4,534) (4,033)
Prepaid expenses and other current assets (548) (58)
Refundable income taxes 59 17
Accounts payable and accrued liabilities 5,822 2,163
Income taxes payable - 102
Deferred revenue 2,369 694
-----------------------
Net cash provided (used) by operating activities 5,402 (39)
-----------------------
Cash flows from investing activities:
Purchases of investments (2,346) (10,227)
Maturities and sales of investments 2,076 11,604
Purchases of furniture, equipment and leasehold improvements (316) (1,232)
Other investments and advances 295 (961)
Capitalized software development costs (857) (799)
International contract development costs (456) -
Increase in other assets (61) (23)
-----------------------
Net cash used in investing activities (1,665) (1,638)
-----------------------
Cash flows from financing activities:
Net change in note payable to bank - (209)
Principal repayments of long-term obligations (25) (62)
Proceeds from issuance of common stock under stock option and employee benefit
plans 373 413
-----------------------
Net cash provided by financing activities 348 142
-----------------------
Net increase (decrease) in cash and cash equivalents 4,085 (1,535)
Cash and cash equivalents at beginning of period - 4,488
-----------------------
Cash and cash equivalents at end of period $ 4,085 $ 2,953
==============================================================================================================
See accompanying notes to condensed consolidated financial statements.
5
PHAMIS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheets, statements of
income and statements of cash flows reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the condensed
consolidated financial position at March 31, 1997, and the condensed
consolidated statements of operations and cash flows for the interim periods
ended March 31, 1997 and 1996.
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes necessary for a complete presentation of the
financial position, results of operations, and cash flows, in conformity with
generally accepted accounting principles. The Company filed audited financial
statements which included all information and footnotes necessary for such a
presentation of the financial position, results of operations, and cash flows
for the years ended December 31, 1996, 1995 and 1994, in the Company's 1996 Form
10-K.
The results of operations for the interim period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. MERGER WITH IDX SYSTEMS CORPORATION
On March 25, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among PHAMIS, Inc. and IDX Systems Corporation, a
Vermont-based corporation ("IDX"). Pursuant to the Merger Agreement, each
outstanding share of PHAMIS, Inc. common stock will be canceled and converted
automatically into the right to receive .73 shares of IDX common stock, subject
to adjustment within a range of .6811 to .80 shares of IDX common stock, based
on the average market price per share of IDX's common stock. The Merger is
expected to be accounted for as a pooling-of-interests and to qualify as a
tax-free reorganization.
The Merger is subject to the customary closing conditions, including shareholder
approval by both companies, to be considered at separate meetings anticipated to
occur in July 1997, and legal and regulatory approvals. The Merger will be
effective promptly following shareholder approval, assuming satisfaction of the
other conditions of the Merger.
6
PHAMIS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 3. INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale at March 31, 1997 and December 31, 1996 consist
principally of tax-exempt, investment-grade, interest-bearing securities
diversified among security types and users. Investments available-for-sale
consisted of the following at March 31, 1997:
Unrealized Fair
Cost gains (losses) value
---------------------------------------
(In thousands)
Money market funds $ 439 - 439
State and municipal bonds and notes 8,011 17 8,028
Tax-exempt municipal preferreds 10,635 (1) 10,634
---------------------------------------
$ 19,085 16 19,101
=======================================
At March 31, 1997, approximately $11,000, net of income taxes, of unrealized
holding gains were recorded in shareholders' equity. The cost and fair value of
available-for-sale securities as of March 31, 1997, by contractual maturity,
consisted of the following:
Fair
Cost value
------------------------
(In thousands)
Due in one year or less $ 17,075 17,084
Due in one to two years 2,010 2,017
------------------------
$ 19,085 19,101
========================
NOTE 4. UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings to date on uncompleted contracts were as
follows:
Mar. 31, Dec. 31,
1997 1996
-------------------------
(In thousands)
Costs incurred on uncompleted contracts $ 52,212 $ 49,770
Estimated earnings 34,137 33,618
-------------------------
86,349 83,388
Less billings to date 94,810 88,905
-------------------------
$ (8,461) $ (5,517)
=========================
Included in accompanying balance sheets under the following captions:
Accrued revenue receivable $ 1,498 $ 2,073
Deferred revenue (9,959) (7,590)
-------------------------
$ (8,461) $ (5,517)
=========================
7