SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-15386
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CERNER CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1196944
- ---------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2800 Rockcreek Parkway
Kansas City, Missouri 64117
(816) 221-1024
------------------------------------------------------------
(Address of Principal Executive Offices, including zip code;
registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) with the Commission, and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
------- ------
There were 32,919,182 shares of Common Stock, $.01 par
value, outstanding at June 28, 1997.
CERNER CORPORATION AND SUBSIDIARIES
-----------------------------------
I N D E X
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 28, 1997
and December 28, 1996 (unaudited)
Consolidated Statements of Earnings for the
three months and six months ended June 28, 1997
and June 29, 1996 (unaudited)
Consolidated Statements of Cash Flows
for the six months ended June 28, 1997
and June 29, 1996 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 28, December 28,
1997 1996
---------- ------------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 6,045 $ 6,905
Short-term investments 94,443 103,997
Receivables 105,829 96,238
Inventory 1,795 1,616
Prepaid expenses and other 2,009 3,660
---------- ---------
Total current assets 210,121 212,416
Property and equipment, net 64,866 60,047
Software development costs, net 34,972 30,128
Intangible assets, net 3,708 3,973
Noncurrent receivables 2,796 3,637
Other assets 10,999 4,552
---------- ----------
$ 327,462 $ 314,753
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 15,575 $ 9,346
Current installments of long-term debt 36 104
Advanced billings 8,216 7,811
Accrued income taxes 16,998 13,654
Accrued payroll and tax withholdings 8,030 6,755
Other accrued expenses 2,351 3,542
---------- ----------
Total Current Liabilities 51,206 41,212
---------- ----------
Long-term debt, net 30,000 30,000
Deferred income taxes 12,806 12,806
Stockholders' Equity:
Common stock, $.01 par value, 150,000,000
shares authorized, 33,622,200 shares issued
in 1997 and 33,403,727 issued in 1996 336 334
Additional paid-in capital 145,403 144,941
Retained earnings 96,385 91,125
Treasury stock, at cost (703,018 shares
in 1997 and 513,018 in 1996) (8,593) (5,693)
Foreign currency translation adjustment (81) 28
---------- ---------
Total stockholders' equity 233,450 230,735
---------- ---------
$ 327,462 $ 314,753
========== ==========
See notes to consolidated financial statements.
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------- ------------- ------------- -------------
(In thousands, except per share data)
Revenues:
System sales $ 44,792 $ 29,841 $ 78,867 $ 67,008
Support and maintenance 16,999 14,142 32,724 27,721
Other 1,529 2,726 2,858 4,562
-------- -------- -------- --------
Total revenues 63,320 46,709 114,449 99,291
-------- -------- -------- --------
Costs and expenses:
Cost of revenues 21,879 13,879 37,026 31,164
Sales and client service 20,435 17,032 39,054 32,654
Software development 10,600 8,703 20,217 17,243
General and administrative 5,502 4,860 10,709 9,710
-------- -------- -------- --------
Total costs and expenses 58,416 44,474 107,006 90,771
-------- -------- -------- --------
Operating earnings 4,904 2,235 7,443 8,520
Interest income, net 574 593 1,158 1,263
-------- -------- -------- --------
Earnings before income taxes 5,478 2,828 8,601 9,783
Income Taxes 2,154 1,139 3,341 3,872
-------- -------- -------- --------
Net earnings $ 3,324 $ 1,689 $ 5,260 $ 5,911
======== ======== ======== ========
Earnings per share $ .10 $ .05 $ .16 $ .18
======== ======== ======== ========
Weighted average shares outstanding 33,497 33,684 33,546 33,700
-------- -------- -------- --------
See notes to consolidated financial statements.
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 28, 1997 June 29, 1996
------------- -------------
(In thousands)
Cash flows from operating activities:
Net earnings $ 5,260 $ 5,911
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 8,704 7,267
Issuance of stock as compensation 16 --
Provision for deferred income taxes -- 819
Loss on disposal of capital equipment -- 14
Provision for bad debt -- 20
Changes in assets and liabilities:
Receivables (8,750) (1,357)
Inventory (179) (1,471)
Prepaid expenses and other (4,957) 1,065
Accounts payable 6,229 (678)
Accrued income taxes 3,344 --
Other accrued liabilities 489 2,044
---------- ----------
Total adjustments 4,896 7,723
---------- ----------
Net cash provided by operating activities 10,156 13,634
---------- ----------
Cash flows from investing activities:
Purchase of capital equipment (9,121) (9,452)
Purchase of land, building and improvements (74) (280)
Capitalized software development costs (8,746) (6,286)
---------- ----------
Net cash used in investing activities (17,941) (16,018)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 5
Repayment of long-term debt (68) (69)
Proceeds from exercise of options 448 401
Purchase of treasury stock (2,900) --
---------- ----------
Net cash provided by financing activities (2,520) 337
---------- ----------
Foreign currency translation adjustment (109) 147
---------- ----------
Net decrease in cash, cash equivalents, and
short-term investments (10,414) (1,900)
Cash, cash equivalents, and short-term investments
at beginning of period 110,902 112,118
---------- ----------
Cash, cash equivalents, and short-term investments
at end of period $ 100,488 $ 110,218
========== ==========
See notes to consolidated financial statements.
CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Interim Statement Presentation
The consolidated financial statements included herein have
been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included
in the Company's latest annual report on Form 10-K.
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position at June 28, 1997 and
December 28, 1996 and the results of operations and cash flows
for the periods presented. The results of the three-month and
six-month periods are not necessarily indicative of the operating
results for the entire year.
(2) Earnings Per Share
Net earnings per share for the three months and six months
ended June 28, 1997 and June 29, 1996 is based on the weighted
average number of common shares and common share equivalents
outstanding during those periods. Common share equivalents
consist of shares issuable upon exercise of stock options using
the treasury stock method.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
Three Months Ended June 28, 1997 Compared to Three Months Ended June 29, 1996
The Company's revenues increased 36% from $46,709,000 for the
three-month period ended June 29, 1996 to $63,320,000 for the
three-month period ended June 28, 1997. Net earnings increased
97% from $1,689,000 in the1996 period to $3,324,000 for the 1997
period.
In the 1997 period, revenues increased due to an increase in
system sales and an increase in revenue recognized from existing
contracts. System sales revenues increased 50% from $29,841,000
for the three-month period ended June 29, 1996 to $44,792,000 for
the corresponding period in 1997. Total sales to the installed
base including new systems, incremental hardware and software,
support and maintenance services, and discrete services, were 73%
of total total revenues for the 1997 period compared to 80% in
1996. This lower percentage was primarily due to the increase in
system sales.
At June 28, 1997, the Company had $153,532,000 in contract
backlog and $122,353,000 in support and maintenance backlog,
compared to $96,702,000 in contract backlog and $101,379,000 in
support backlog at June 29,1996.
Support and maintenance revenues increased 20% from
$14,142,000 during the second quarter of 1996 to $16,999,000
during the same period in 1997. This increase was due primarily
to the increase in the Company's installed and converted client
base.
Other revenues decreased 44% from $2,726,000 in the second
quarter of 1996 to $1,529,000 in the same period of 1997. This
decrease is due primarily to a decrease in real estate lease
revenues from the rental to outside tenants, as the Company
utilizes more office space.
The cost of revenues includes the cost of computer hardware
and sublicensed software purchased from computer and software
manufacturers for delivery to clients. It also includes the cost
of hardware maintenance and sublicensed software support
subcontracted to manufacturers. The cost of revenue was 35% of
total revenues in the second quarter of 1997 and 30% of total
revenues in the comparable period in 1996. Such costs, as a
percent of revenues, typically have varied as the mix of revenue
(software, hardware, maintenance, and support) components
carrying different margin rates changes from period to period.
Sales and client service expenses include salaries of client
service personnel, communications expenses and travel expenses.
Also included are sales and marketing salaries, trade show costs
and advertising costs. These expenses as a percent of total
revenues were 32% and 36% in the second quarter of 1997 and 1996,
respectively. The increase in total sales and client service
expenses from $17,032,000 in 1996 to $20,435,000 in 1997 was
attributable to the cost of a larger regional sales and service
organization and marketing of new products.
Software development expenses include salaries, documentation
and other direct expenses incurred in product development, as
well as amortization of software development costs previously
capitalized. Total expenditures for software development,
including both capitalized and noncapitalized portions, for the
second quarter of 1997 and 1996 were $13,326,000 and $10,540,000,
respectively. These amounts exclude amortization of previously
capitalized expenditures. Capitalized software costs were
$4,712,000 and $3,320,000 for the second quarter of 1997 and
1996, respectively. The increase in aggregate expenditures for
software development in 1997 was due to HNA Millennium products
and development of community care products.
General and administrative expenses include salaries for
corporate, financial, and administrative staffs, utilities,
communications expenses, and professional fees. These expenses
as a percent of total revenues were 9% and 10% in the second
quarter of 1997 and 1996, respectively. Total general and
administrative expenses for the second quarter of 1997 and 1996
were $5,502,000 and $4,860,000, respectively.
Net interest income decreased 3% in the second quarter of
1997 than in the same period in 1996.
The Company's effective tax rates were 39% and 40% for the
second quarter of 1997 and 1996, respectively.
The Company's quarterly revenues and net earnings have
historically been variable and cyclical. The variability is
attributable primarily to the number and size of project
milestone events in any fiscal quarter. The Company expects
fluctuations in quarterly results to continue.
Six Months Ended June 28, 1997 Compared to Six Months Ended June 29, 1996
The Company's revenues increased 15% from $99,291,000 for the
six-month period ended June 29, 1996 to $114,449,000 for the six-
month period ended June 28, 1997. Net earnings decreased 11%
from $5,911,000 in the 1996 period to $5,260,000 for the 1997
period.
In the 1997 period, revenues increased due to an increase in
system sales and support of installed systems and an increase
in revenue recognized for existing contracts. System revenues
increased 18% from $67,008,000 for the six-month period ended
June 29, 1996 to $78,867,000 for the corresponding period in 1997.
Total sales to the installed base including new systems,
incremental hardware and software, support and maintenance
services, and discrete services, were 76% of total revenues for
the first six months of 1997 compared to 79% in 1996. This lower
percentage was primarily due to the increase in system sales.
At June 28, 1997, the Company had $153,532,000 in contract
backlog and $122,353,000 in support and maintenance backlog,
compared to $96,702,000 in contract backlog and $101,379,000 in
support backlog at June 29, 1996.
Support and maintenance revenues increased 18% from
$27,721,000 during the first six months of 1996 to $32,724,000
during the same period in 1997. This increase was due primarily
to the increase in the Company's installed and converted client
base.
Other revenues decreased 37% from $4,562,000 in the first
half of 1996 to $2,858,000 in the same period of 1997. This
decrease is due primarily to a decrease in real estate lease
revenues from the rental to outside tenants, as the Company
utilizes more office space.
The cost of revenues includes the cost of computer hardware
and sublicensed software purchased from computer and software
manufacturers for delivery to clients. It also includes the cost
of hardware maintenance and sublicensed software support
subcontracted to manufacturers. The cost of revenue was 32% of
total revenues in the first six months of 1997 and 31% of total
revenues in the comparable period in 1996. Such costs, as a
percent of revenues, typically have varied as the mix of revenue
(software, hardware, maintenance, and support) components
carrying different margin rates changes from period to period.
Sales and client service expenses include salaries of client
service personnel, communications expenses and travel expenses.
Also included are sales and marketing salaries, trade show costs
and advertising costs. These expenses as a percent of total
revenues were 34% and 33% in the first half of 1997 and 1996,
respectively. The increase in total sales and client service
expenses from $32,654,000 in 1996 to $39,054,000 in 1997 was
attributable to the cost of a larger field sales and service
organization and certain marketing of new products.
Software development expenses include salaries, documentation
and other direct expenses incurred in product development, as
well as amortization of software development costs previously
capitalized. Total expenditures for software development,
including both capitalized and noncapitalized portions, for the
first half of 1997 and 1996 were $25,035,000 and $20,590,000,
respectively. These amounts exclude amortization of previously
capitalized expenditures. Capitalized software costs were
$8,746,000 and $6,286,000 for the first six months of 1997 and
1996, respectively. The increase in aggregate expenditures for
software development in 1997 was due to HNA Millennium products
and development of community care products.
General and administrative expenses include salaries for
corporate, financial, and administrative staffs, utilities,
communications expenses, and professional fees. These expenses
as a percent of total revenues were 9% and 10% in the first six
months of 1997 and 1996, respectively. Total general and
administrative expenses for the first six months of 1997 and 1996
were $10,709,000 and $9,710,000, respectively.
Net interest income decreased 8% in the first half of 1997
than in the same period in 1996. This decrease is primarily due
to a decrease in cash and cash equivalents and a decrease in
interest rates.
The Company's effective tax rates were 39% and 40% for the
first six months of 1997 and 1996, respectively.
Capital Resources and Liquidity
- -------------------------------
The Company's liquidity position remains strong with total
cash and cash equivalents of $6,045,000 and short term
investments of $94,443,000 at June 28, 1997 and working capital
of $158,915,000. The Company generated net cash from operations
of $10,156,000 and $13,634,000 during the six month periods ended
June 28, 1997 and June 29, 1996, respectively. During the first
six months of 1997, the Company purchased 190,000 shares of
the Company's common stock with a total cost of $2,900,000. The
Company has $18,000,000 of long-term, revolving credit from
banks, all of which was available as of June 28, 1997.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. The Company's revenue
backlog at June 28, 1997 included $122,353,000 representing
twelve months of equipment maintenance and software support
associated with signed contracts.
The Company believes its present cash, cash equivalents and
short-term investment position, together with cash generated from
operations and available under its current bank borrowing
facility, will be sufficient to meet anticipated cash
requirements during the next twelve months.
Recent Accounting Pronouncement
- -------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share" (Statement 128)
which revises the calculation and presentation provisions of
Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the
Company's fiscal year ending January 3, 1998 and retroactive
application will be required. The Company believes the adoption
of Statement 128 will not have a significant effect on its
reported earnings per share.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At the Company's annual shareholders meeting held on May 20,
1997, Thomas C. Tinstman, M.D. and Clifford W. Illig were
reelected as Class II Directors, for a three year term expiring
at the 2000 annual meeting of shareholders. Neal L. Patterson,
Gerald E. Bisbee, Jr., John C. Danforth, Micheal E. Herman, and
Thomas A. McDonnell continued as directors after the meeting.
Abstention and
For Withheld Broker Non-Votes
---------- ---------- ------------------
Thomas C. Tinstman, M.D. 28,694,811 0 1,667,309
Clifford W. Illig 28,687,709 0 1,674,411
The shareholders also ratified the selection by the Board of
Directors of KPMG Peat Marwick LLP as the Company's independent
certified public accountants for the fiscal year ending January
3, 1998. Shares voted in favor were 28,688,746 shares against
181,235 and shares abstained or were broker non-votes 1,492,139.
Item 5. Other Information.
------------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended June 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CERNER CORPORATION
------------------
Registrant
August 11, 1997 By: /s/ Marc G. Naughton
- --------------- --------------------
Date Marc G. Naughton
Chief Financial Officer
Exhibit 11
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------- ------------- ------------- -------------
Net earnings: $ 3,324,000 $ 1,689,000 $ 5,260,000 $ 5,911,000
Weighted average number of common and
common stock equivalent shares:
Weighted average number of
outstanding common shares 32,907,692 32,644,112 32,911,709 32,596,248
Dilutive effect (excess of number of shares
issuable over number of shares
assumed to be repurchased with the
proceeds of exercised options based on
the average market price during the
period) 589,231 1,040,074 629,977 1,103,911
----------- ----------- ----------- -----------
33,496,923 33,684,186 33,546,045 33,700,159
Earnings pers common and common stock
equivalent shares: $ .10 $ .05 $ .16 $ .18
----------- ----------- ----------- -----------
Weighted average number of common and
common stock equivalent shares,
assuming full dilution:
Additional dilutive effect
(reduction in number of shares
assumed to be repurchased with
the proceeds of exercised stock
options and converted warrants
based on the end of the period
market price of the stock, if
higher than the average price) 963,707 -- 980,017 --
----------- ----------- ----------- -----------
33,871,399 33,684,186 33,891,726 33,700,159
----------- ----------- ----------- -----------
Earnings per common and common stock
equivalent shares assuming full
dilution: $ .10 $ .05 $ .16 .18
----------- ----------- ----------- -----------
5
6-MOS
JAN-03-1998
JUN-28-1997
6,045,000
94,443,000
106,949,000
1,121,000
1,795,000
210,121,000
98,567,000
33,701,000
327,462,000
51,206,000
0
0
0
336,000
0
327,462,000
114,449,000
114,449,000
37,026,000
69,980,000
0
0
(1,158,000)
8,601,000
3,341,000
5,260,000
0
0
0
5,260,000
.16
.16
