SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 10, 1997 ------------- IDX Systems Corporation -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Vermont -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-26816 03-0222230 ------------------------ --------------------------------- (Commission File Number) (IRS Employer Identification No.) 1400 Shelburne Road, P.O. Box 1070, South Burlington, Vermont 05403 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (802) 862-1022 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report)

Item 2. Acquisition or Disposition of Assets. ------------------------------------ On July 10, 1997 (the "Closing Date"), pursuant to an Agreement and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement") by and among IDX Systems Corporation, a Vermont corporation ("IDX"), Penguin Acquisition Corporation, a Washington corporation and wholly-owned subsidiary of IDX ("Penguin") and PHAMIS, Inc., a Washington corporation ("PHAMIS"), IDX acquired PHAMIS by means of a merger (the "Merger") of Penguin with and into PHAMIS, with PHAMIS remaining as the surviving corporation in the Merger. As a result of the Merger, PHAMIS became a wholly-owned subsidiary of IDX. PHAMIS offers healthcare information solutions that are part of a complete software and hardware system strategy designed for integrated healthcare delivery enterprises. Penguin was formed solely for the purpose of effecting the Merger. Pursuant to the Merger Agreement, each outstanding share of PHAMIS Common Stock was converted into .73 of a share of IDX Common Stock. Based on the capitalization of PHAMIS as of the Closing Date, IDX issued approximately 4.6 million shares of IDX Common Stock to former PHAMIS stockholders in the Merger. No fractional shares were issued in the Merger. PHAMIS stockholders otherwise entitled to receive a fraction of a share of IDX Common Stock in the Merger instead received an amount of cash equal to such fraction multiplied by the price per share of IDX Common Stock on the Nasdaq National Market, as reported by Nasdaq, on the business day immediately preceding the Closing Date. All options to purchase PHAMIS Common Stock outstanding immediately prior to the Merger were effectively assumed by IDX pursuant to the Merger Agreement. IDX registered on a Registration Statement on Form S-8 approximately 865,568 shares of IDX Common Stock for issuance upon the exercise of stock options formerly exercisable for shares of PHAMIS Common Stock and in connection with the PHAMIS Salary Savings and Deferral Plan. Item 7. Financial Statement and Exhibits. -------------------------------- (a) Financial Statements of Businesses Acquired. ------------------------------------------- The financial statements of PHAMIS set forth at (i) pages 20 through 40 of PHAMIS' Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") on Form 10-K for the fiscal year ended December 31, 1996 filed with the Securities and Exchange Commission (the "Commission") on March 31, 1997, and (ii) pages 3 through 7 of PHAMIS' Quarterly Report Pursuant to Section 13 or 15(d) of the Exchange Act on Form 10-Q for the quarterly period ended March 31, 1997 filed with the Commission on May 14, 1997, are hereby incorporated by reference herein and filed as an exhibit hereto (Exhibit 99.1) pursuant to Rule 12b-23(a)(3) of the Exchange Act. -2-

(b) Pro Forma Financial Information. ------------------------------- The Unaudited Pro Forma Combined Condensed Financial Statements of IDX and PHAMIS set forth at pages 84 through 90 of the Joint Proxy Statement/Prospectus dated June 5, 1997 (the "Proxy Statement/Prospectus") filed as part of IDX's Registration Statement on Form S-4 (File No. 333-28391), which Proxy Statement/Prospectus was filed with the Commission on June 3, 1997, are hereby incorporated by reference herein and filed as an exhibit hereto (Exhibit 99.2) pursuant to Rule 12b-23(a)(3) of the Exchange Act. (c) Exhibits. -------- See Index to Exhibits attached hereto. -3-

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: July 24, 1997 IDX SYSTEMS CORPORATION By: /s/ Richard E. Tarrant -------------------------- President and Chief Executive Officer -4-

INDEX TO EXHIBITS <TABLE> <CAPTION> Exhibit Number Description ------- ----------- <S> <C> 2.1* Agreement and Plan of Merger dated as of March 25, 1997, by and among IDX, Penguin and PHAMIS. 23.1 Consent of KPMG Peat Marwick LLP. 99.1 Financial Statements of PHAMIS. 99.2 Unaudited Pro Forma Combined Condensed Financial Statements of IDX and PHAMIS. 99.3 Press Release dated July 10, 1997. </TABLE> ------------------ * Incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28319) of IDX.

EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors PHAMIS, Inc. We consent to incorporation by reference and inclusion as an exhibit of our report dated January 31, 1997, except for Note 14 which is as of March 25, 1997, relating to the 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, which report is incorporated by reference and included as an exhibit in the Form 8-K of IDX Systems Corporation dated July 10, 1997. /s/ KPMG Peat Marwick LLP Seattle, Washington July 23, 1997

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) <TABLE> <CAPTION> ==================================================================================================== Assets 1996 1995 ---------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ==================================================================================================== </TABLE> 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) <TABLE> <CAPTION> ==================================================================================================== Liabilities and Shareholder's Equity 1996 1995 ---------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ==================================================================================================== </TABLE> 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) <TABLE> <CAPTION> ============================================================================================================== 1996 1995 1994 -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> 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 ============================================================================================================== </TABLE> 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) <TABLE> <CAPTION> ====================================================================================================================== Unrealized Common stock Additional gains on -------------------------- paid-in invest- Shares Amount capital ments ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 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 ---------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> ======================================================================================== Total share- Retained holders' earnings equity (deficit) (deficit) ---------------------------------------------------------------------------------------- <S> <C> <C> 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 ---------------------------------------------------------------------------------------- </TABLE> 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) <TABLE> <CAPTION> ========================================================================================================================= 1996 1995 1994 ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> 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 - ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- </TABLE> 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: <TABLE> <CAPTION> Unrealized Fair Cost gains (losses) value --------------------------------------------- <S> <C> <C> <C> (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 ============================================= </TABLE> Investments available-for-sale consisted of the following at December 31, 1995: <TABLE> <CAPTION> Unrealized Fair Cost gains value --------------------------------------------- <S> <C> <C> <C> (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 ============================================= </TABLE> 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: <TABLE> <CAPTION> Fair Cost value ---------------------------- <S> <C> <C> (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 ============================ </TABLE> 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: <TABLE> <CAPTION> 1996 1995 --------------------------------- (In thousands) <S> <C> <C> 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) ================================= </TABLE> (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 =============================================================================== <TABLE> <CAPTION> Year ended December 31, 1995 1994 --------------------------------- <S> <C> <C> (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 ================================= </TABLE> 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: <TABLE> <CAPTION> 1996 1995 -------------------- <S> <C> <C> (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 ==================== </TABLE> 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: <TABLE> <CAPTION> 1996 1995 ----------------------- <S> <C> <C> (In thousands) Equipment $ 1,056 1,147 Less accumulated amortization 776 678 ----------------------- $ 280 469 ======================= </TABLE> (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: <TABLE> <CAPTION> (In thousands) Years ending December 31: <S> <C> 1997 $ 1,589 1998 1,728 1999 1,780 2000 1,782 2001 1,784 Thereafter 8,403 ========= $ 17,066 --------- </TABLE> 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: <TABLE> <CAPTION> 1996 1995 ------------------------ <S> <C> <C> (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 </TABLE> 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: <TABLE> <CAPTION> 1996 1995 --------------------------- <S> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> <C> <C> <C> 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 ================================== </TABLE> The following table summarizes information about fixed stock options outstanding at December 31, 1996: <TABLE> <CAPTION> 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 ----------------------------------------------------------------------------- ---------------------------------- <S> <C> <C> <C> <C> <C> $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 ------ ------ </TABLE> 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: <TABLE> <CAPTION> 1996 1995 1994 ----------------------------- (In thousands) <S> <C> <C> <C> 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 ============================= </TABLE> 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 =============================================================================== <TABLE> <CAPTION> 1996 1995 1994 ------------------------------- <S> <C> <C> <C> 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: <CAPTION> 1996 1995 ---------------------- (In thousands) <S> <C> <C> 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 ====================== </TABLE> 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: <TABLE> <CAPTION> Three months ended ------------------------------------------------------ Year ended March 31, June 30, Sept. 30, Dec. 31, Dec. 31, 1996 1996 1996 1996 1996 ---------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net revenues $ 12,115 12,160 12,814 12,211 49,300 Gross margin 5,115 5,295 5,002 5,170 20,582 </TABLE> 39

Notes to Consolidated Financial Statements <TABLE> <CAPTION> ================================================================================================================ <S> <C> <C> <C> <C> <C> 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 <CAPTION> Three months ended ------------------------------------------------------ Year ended March 31, June 30, Sept. 30, Dec. 31, Dec. 31, 1995 1995 1995 1995 1995 ---------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 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 </TABLE> 40

PHAMIS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share amounts) <TABLE> <CAPTION> ============================================================================================================= March 31, December 31, 1997 1996 ------------------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ============================================================================================================= </TABLE> 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) ================================================================================ <TABLE> <CAPTION> 1997 1996 ------------------------------------------------------------------------------- <S> <C> <C> 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 =============================================================================== </TABLE> 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) <TABLE> <CAPTION> ============================================================================================================== 1997 1996 -------------------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ============================================================================================================== </TABLE> 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: <TABLE> <CAPTION> Unrealized Fair Cost gains (losses) value --------------------------------------- (In thousands) <S> <C> <C> <C> 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 ======================================= </TABLE> 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: <TABLE> <CAPTION> Fair Cost value ------------------------ (In thousands) <S> <C> <C> Due in one year or less $ 17,075 17,084 Due in one to two years 2,010 2,017 ------------------------ $ 19,085 19,101 ======================== </TABLE> NOTE 4. UNCOMPLETED CONTRACTS Costs, estimated earnings and billings to date on uncompleted contracts were as follows: <TABLE> <CAPTION> Mar. 31, Dec. 31, 1997 1996 ------------------------- (In thousands) <S> <C> <C> 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) ========================= </TABLE> 7

Exhibit 99.2 ------- ---- [Pro Forma Financial Information]

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 1997 (IN THOUSANDS) <TABLE> <CAPTION> PRO FORMA -------------------------- IDX PHAMIS ADJUSTMENTS(1) COMBINED(3) -------- ------- -------------- ----------- <S> <C> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents....... $ 5,119 $ 4,085 0 $ 9,204 Securities available for sale... 83,441 19,101 0 102,542 Accounts receivable (net)....... 43,058 13,526 0 56,584 Other current assets............ 8,636 3,566 $1,520 13,722 -------- ------- ------ -------- Total current assets.......... 140,254 40,278 1,520 182,052 Property and equipment (net)...... 19,064 4,746 0 23,810 Other assets: Other assets.................... 238 8,904 0 9,142 Deferred tax asset.............. 2,235 0 (1,702) 533 -------- ------- ------ -------- Total other................... 2,473 8,904 (1,702) 9,675 -------- ------- ------ -------- Total assets...................... $161,791 $53,928 $ (182) $215,537 ======== ======= ====== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses....................... $ 14,254 $ 9,475 $8,300 $ 32,029 Taxes payable................... 2,084 0 0 2,084 Deferred revenue................ 9,120 9,959 0 19,079 Current portion of long-term obligations.................... 500 100 0 600 -------- ------- ------ -------- Total current liabilities..... 25,958 19,534 8,300 53,792 Long-term obligations (net)....... 2,600 28 0 2,628 Deferred income taxes............. 0 1,702 (1,702) 0 Minority interest................. 2,207 0 0 2,207 Shareholders' equity.............. 131,026 32,664 (6,780) 156,910 -------- ------- ------ -------- Total liabilities and shareholders' equity............. $161,791 $53,928 $ (182) $215,537 ======== ======= ====== ======== </TABLE> See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 2

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA IDX PHAMIS COMBINED(3) ------- ------- ----------- <S> <C> <C> <C> Net revenues...................................... $45,058 $14,602 $59,660 Cost of revenues.................................. 21,496 8,679 30,175 ------- ------- ------- Gross margin.................................. 23,562 5,923 29,485 Operating expenses: Selling, general and administrative............... 9,547 3,183 12,730 Research and development.......................... 7,039 1,329 8,368 Write-off of acquired in-process research and development...................................... 2,290 0 2,290 ------- ------- ------- Total operating expenses...................... 18,876 4,512 23,388 ------- ------- ------- Operating income.................................. 4,686 1,411 6,097 Other income, net................................. 980 215 1,195 ------- ------- ------- Income before income taxes........................ 5,666 1,626 7,292 Provision for income taxes........................ 2,266 528 2,794 ------- ------- ------- Net income.................................... $ 3,400 $ 1,098 $ 4,498 ======= ======= ======= Net income per share............................ $ 0.17 ------- Weighted average shares outstanding............. 26,226 ======= </TABLE> See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 3

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA IDX PHAMIS COMBINED(3) ------- ------- ----------- <S> <C> <C> <C> Net revenues........................................ $37,345 $12,115 $49,460 Cost of revenues.................................... 19,391 7,000 26,391 ------- ------- ------- Gross margin.................................... 17,954 5,115 23,069 Operating expenses: Selling, general and administrative................. 7,491 2,869 10,360 Research and development............................ 5,786 1,473 7,259 Merger and acquisition costs........................ 0 292 292 ------- ------- ------- Total operating expenses........................ 13,277 4,634 17,911 ------- ------- ------- Operating income.................................... 4,677 481 5,158 Other income, net................................... 910 180 1,090 ------- ------- ------- Income before income taxes.......................... 5,587 661 6,248 Provision for income taxes.......................... 2,234 306 2,540 ------- ------- ------- Net income...................................... $ 3,353 $ 355 $ 3,708 ======= ======= ======= Net income per share.............................. $ 0.14 ------- Weighted average shares outstanding............... 25,946 ------- </TABLE> See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 4

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA IDX PHAMIS COMBINED(3) -------- ------- ----------- <S> <C> <C> <C> Net revenues....................................... $157,579 $49,300 $206,879 Cost of revenues................................... 79,545 28,718 108,263 -------- ------- -------- Gross margin................................... 78,034 20,582 98,616 Operating expenses: Selling, general and administrative................ 33,422 11,395 44,817 Research and development........................... 23,974 5,793 29,767 Merger and acquisition costs....................... 0 292 292 Corporate headquarters relocation.................. 0 304 304 International market entry costs................... 0 810 810 -------- ------- -------- Total operating expenses....................... 57,396 18,594 75,990 -------- ------- -------- Operating income................................... 20,638 1,988 22,626 Other income....................................... 4,165 717 4,882 -------- ------- -------- Income before income taxes......................... 24,803 2,705 27,508 Provision for income taxes......................... 9,921 927 10,848 -------- ------- -------- Net income..................................... $ 14,882 $ 1,778 $ 16,660 ======== ======= ======== Net income per share.............................. $ 0.64 -------- Weighted average shares outstanding............... 26,047 -------- </TABLE> See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 5

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA IDX(2) PHAMIS COMBINED(3) -------- ------- ---------- <S> <C> <C> <C> Net revenues........................................ $128,120 $47,165 $175,285 Cost of revenues.................................... 68,750 28,000 96,750 -------- ------- -------- Gross margin.................................... 59,370 19,165 78,535 Operating expenses: Selling, general and administrative................. 25,539 10,533 36,072 Research and development............................ 19,529 3,896 23,425 -------- ------- -------- Total operating expenses........................ 45,068 14,429 59,497 -------- ------- -------- Operating income.................................... 14,302 4,736 19,038 Other income........................................ 1,805 1,060 2,865 -------- ------- -------- Income before income taxes.......................... 16,107 5,796 21,903 Provision for income taxes.......................... 6,500 1,488 7,988 -------- ------- -------- Net income...................................... $ 9,607 $ 4,308 $ 13,915 ======== ======= ======== Net income per share.............................. $ 0.63 -------- Weighted average shares outstanding............... 22,158 -------- </TABLE> See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 6

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA IDX(2) PHAMIS COMBINED(3) -------- ------- ----------- <S> <C> <C> <C> Net revenues................................... $104,706 $39,101 $143,807 Cost of revenues............................... 58,303 24,924 83,227 -------- ------- -------- Gross margin............................... 46,403 14,177 60,580 Operating expenses: Selling, general and administrative............ 21,859 8,800 30,659 Research and development....................... 17,616 2,957 20,573 -------- ------- -------- Total operating expenses................... 39,475 11,757 51,232 -------- ------- -------- Operating income............................... 6,928 2,420 9,348 Other (expenses), net.......................... (1,911) (151) (2,062) -------- ------- -------- Income before income taxes and extraordinary items......................................... 5,017 2,269 7,286 Provision for income taxes..................... 2,700 30 2,730 -------- ------- -------- Income before extraordinary items.............. 2,317 2,239 4,556 Extraordinary items............................ 0 298 298 -------- ------- -------- Net income................................. $ 2,317 $ 2,537 $ 4,854 ======== ======= ======== Income per share before extraordinary items.. $ 0.22 -------- Net income per share......................... $ 0.24 -------- Weighted average shares outstanding.......... 20,505 -------- </TABLE> See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 7

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS NOTE 1. The pro forma adjustment to accrued expenses represents certain Merger related charges expected by IDX. Included are transaction fees as well as employee termination benefits costs and lease termination costs. The tax benefit associated with the costs, exclusive of transaction fees which are not tax deductible, is also reflected. NOTE 2. The 1994 and 1995 IDX provision for income taxes is presented on a pro forma basis as if IDX, which was an S corporation, had been a C corporation for each of these years. NOTE 3. On March 25, 1997, IDX and PHAMIS jointly announced the signing of the Merger Agreement. Under its terms, each share of PHAMIS Common Stock issued and outstanding immediately prior to the Effective Time of the Merger will be converted to .73 shares of IDX Common Stock. The Merger is subject to regulatory approval as well as the approval of the shareholders of IDX and PHAMIS. The Merger is intended to be a tax-free stock-for-stock transaction valued at approximately $150 million. IDX's pro forma consolidated results were restated to reflect the Merger which is intended to be accounted for as a "pooling-of-interests." The terms of the Merger Agreement allow the .73 Conversion Ratio to "float" between .80 shares and .6811 shares based upon the market value of IDX shares as more fully described in the Merger Agreement. The per share values used in the pro forma combined condensed statement of income assumes a .73 Conversion Ratio. See "The Merger Agreement--Conversion of Shares." 8

Exhibit 99.3 ------- ---- Thursday July 10 8:33 AM EDT Company Press Release Source: IDX Systems Corporation IDX Systems Corporation Completes Merger of PHAMIS Inc. BURLINGTON, Vt., July 10 /PRNewswire/ -- IDX Systems Corporation (Nasdaq:IDXC) today announced it has completed the previously announced merger of PHAMIS Inc. (Nasdaq:PHAM). PHAMIS Inc. shareholders received .73 of a share of IDX common stock for each PHAMIS Inc. share. The transaction will be accounted for as a pooling of interests. The combined company will operate under the IDX name, with headquarters in Burlington, Vermont. "The merger is strategically important as it positions IDX to deliver a single information systems solution to healthcare delivery organizations," said Richard E. Tarrant, IDX chief executive officer. "Based on combined 1996 revenues of over $206 million, we believe this merger ranks IDX as the third largest pure play information systems vendor in the healthcare industry. We believe the complementary nature of the PHAMIS Inc. and IDX solutions will make the combined organization a stronger competitor in the integrated delivery network market." According to Frank T. Sample, PHAMIS Inc. president and CEO, "the management team of PHAMIS Inc. is confident about its ability to support the future plans of IDX." He added that, "based upon what we've learned in the merger process, our team is even more excited than when we first announced the merger." Mr. Tarrant will continue as president and CEO of IDX. Effective as of the merger, Mr. Sample will become an executive vice president of IDX in the office of the CEO. Dr. Henry Tufo will continue as executive vice president and chief operating officer of the combined organization. In addition, Dr. Malcolm Gleser, co-founder of PHAMIS Inc. and Mr. Sample will each join the IDX board of directors. Founded in 1981, PHAMIS Inc. is recognized for its LASTWORD system that provides the depth of function required to manage the complex acute care setting, with special emphasis on the clinical process. The LASTWORD product has been selected by approximately 40 health systems across the U.S., Canada, and the U.K. PHAMIS Inc. had 1996 revenues of $49.3 million and has more than 400 employees. Founded in 1969, IDX is a leading provider of healthcare information systems to integrated delivery networks, including group practices, MSOs, hospitals and health

plans. IDX systems meet the multi-site, multi-function needs of integrated delivery networks and have been selected by over 77,000 physicians. IDX products are installed at more than 1,000 client sites nationwide, including approximately 190 large physician group practices, over 110 hospitals and a growing number of integrated delivery networks. In 1996, IDX had revenues of $157.6 million. The combined organization will have over 1600 employees. This press release includes a number of forward-looking statements that reflect IDX's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties including those discussed below that could cause actual results to differ materially from historical results or those anticipated. Words such as "believes," "anticipates," "expects," "intends," "is confident that," and similar expressions are intended to identify forward-looking statements. IDX's actual operating results may fluctuate due to factors such as its success or lack of success in implementing the various operational and financial processes of IDX and PHAMIS Inc. in the merger, the volume and timing of systems sales and installations, the length of sales cycles and the installation process, seasonal patterns of sales and customer buying behavior, possible contract and implementation postponements, undetected errors or bugs in software, changes in product mix of revenues, changes in the level of operating expenses, delays in revenue contributions from additional product offerings, uncertainty of business development, the development by competitors of new or superior technologies, the possible regulation of IDX's software by the U.S. Food and Drug Administration, general political economic conditions, and the risk factors detailed from time to time in IDX's periodic reports and registration statements filed with the Securities and Exchange Commission. All of the above factors are difficult for IDX to forecast, and can materially adversely affect IDX's business and operating results for one quarter or a series of quarters. There can be no assurance that past performance will be repeated in future periods. This press release is also available on the world wide web at www.idx.com. SOURCE: IDX Systems Corporation Contact: Tracey Moran, 802-862-1022, or Cheryl Isen, 206-689-1306, public relations, or Debbie Drewniak, 802-862-1022, investor relations, all of IDX Systems Corporation