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 September 30, 1995
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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
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(Exact name of registrant as specified in its charter)
Delaware 43-1196944
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2800 Rockcreek Parkway
Kansas City, Missouri 64117
(816) 221-1024
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(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 32,237,371 shares of Common Stock, $.01 par
value, outstanding at September 30, 1995.
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CERNER CORPORATION AND SUBSIDIARIES
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I N D E X
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 (unaudited)
Consolidated Statements of Earnings for the
three months and nine months ended September 30, 1995
and September 30, 1994 (unaudited)
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995
and September 30, 1994 (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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
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<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1995 1994
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<S> <C> <C>
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 8,170 $ 5,984
Short-term investments 109,930 9,321
Receivables 77,645 65,148
Inventory 2,048 2,218
Prepaid expenses and other 2,203 979
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Total current assets 199,996 83,650
Property and equipment, net 50,168 41,129
Software development costs, net 21,799 18,784
Intangible assets, net 5,860 6,390
Noncurrent receivables 5,057 4,508
Other assets 1,943 1,949
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$ 284,823 $ 156,410
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 12,024 $ 13,485
Current installments of long-term debt 128 160
Advanced billings 4,265 3,737
Accrued income taxes 10,336 6,652
Accrued payroll and tax withholdings 4,823 4,689
Other accrued expenses 2,495 2,557
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Total Current Liabilities 34,071 31,280
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Long-term debt, net 30,137 30,235
Deferred income taxes 10,782 9,118
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
32,750,389 shares issued in 1995
and 28,508,614 issued in 1994 328 285
Additional paid-in capital 140,590 30,807
Retained earnings 74,570 60,353
Treasury stock, at cost (513,018 shares
in 1995 and 1994) (5,693) (5,693)
Foreign currency translation adjustment 38 25
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Total stockholders' equity 209,833 85,777
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$ 284,823 $ 156,410
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See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
(In thousands, except per
share data)
Revenues:
System sales $ 27,243 $ 28,900 $ 92,565 $ 77,277
Support and maintenance 12,747 10,560 36,059 30,325
Other 1,734 1,473 5,259 3,641
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Total revenues 41,724 40,933 133,883 111,243
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Costs and expenses:
Cost of revenues 11,724 12,955 38,011 34,555
Sales and client service 12,657 9,907 36,648 28,980
Software development 7,429 5,862 22,482 16,339
General and administrative 4,390 3,413 12,171 9,178
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Total costs and expenses 36,200 32,137 109,312 89,052
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Operating earnings 5,524 8,796 24,571 22,191
Interest income (interest), net 251 (409) (710) (827)
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Earnings before income taxes 5,775 8,387 23,861 21,364
Income Taxes 2,284 3,318 9,646 8,390
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Net earnings $ 3,491 $ 5,069 $ 14,215 $ 12,974
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Earnings per share $ .11 $ .17 $ .46 $ .44
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Weighted average shares
outstanding 32,226 29,714 30,677 29,707
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See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, 1995 September 30, 1994
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<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net earnings $ 14,215 $ 12,974
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 9,474 7,245
Issuance of stock as compensation 5 25
Provision for deferred income taxes 3,346 29
Loss on disposal of capital equipment 10 --
Changes in assets and liabilities:
Receivables (13,046) (14,131)
Inventory 170 (312)
Prepaid expenses and other (1,636) 1,456
Accounts payable (1,462) 1,164
Accrued income taxes 2,000 4,948
Other accrued liabilities 600 (446)
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Total adjustments (539) (22)
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Net cash provided by operating activities 13,676 12,952
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Cash flows from investing activities:
Purchase of capital equipment (7,847) (7,134)
Purchase of land, building and improvements (5,840) (20,278)
Capitalized software development costs (6,899) (6,053)
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Net cash used in investing activities (20,586) (33,465)
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Cash flows from financing activities:
Net payments under short-term notes payable -- (487)
Proceeds from issuance of long-term debt 6,060 49,845
Repayment of long-term debt (6,190) (30,485)
Proceeds from public offering, net of expenses 108,727 --
Proceeds from exercise of options 1,094 851
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Net cash provided by financing activities 109,691 19,724
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Foreign currency translation adjustment 14 (12)
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Net increase (decrease) in cash and cash equivalents
and short-term investments 102,795 (801)
Cash and cash equivalents and short-term investments
at beginning of period 15,305 16,784
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Cash and cash equivalents and short-term investments
at end of period $ 118,100 $ 15,983
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See notes to consolidated financial statements.
</TABLE>
<PAGE>
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
September 30, 1995 and December 31, 1994 and the results of operations and
cash flows for the periods presented. The results of the three-month and
nine-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 nine months ended
September 30, 1995 and September 30, 1994 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
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Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994
Revenues for the three months ended September 30, 1995 increased 2%
over the same prior year period from $40,933,000 in 1994 to $41,724,000 in
1995. Net earnings for the three months ended September 30, 1995 decreased
31% from $5,069,000 in 1994 to $3,491,000 in 1995. This decrease is due
primarily to a 13% increase in costs and expenses while revenues increased
only 2%.
System sales revenue for the three months ended September 30, 1995
decreased 6% from $28,900,000 in 1994 to $27,243,000 in 1995. This decrease
is due primarily to a $562,000 decrease in international system sales revenue
for the three month period ended September 30, 1995 compared to the prior year
period.
At September 30, 1995, the Company had $67,096,000 in contract backlog
and $88,065,000 in support and maintenance backlog, compared to $48,239,000
in contract backlog and $72,268,000 in support and maintenance backlog on
September 30, 1994.
Support and maintenance revenues increased 21% from $10,560,000 in the
third quarter of 1994 to $12,747,000 in the third quarter of 1995. This
increase was due primarily to the increase in the Company's installed and
converted client base.
Other revenues increased 18% from $1,473,000 in the third quarter of
1994 to $1,734,000 in the third quarter of 1995. This increase was due
primarily to an increase in services performed above the contracted
requirements for existing clients.
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 28% of total revenues in the third quarter of 1995 compared to
32% of total revenues for the same period in 1994. Such costs, as a percent
of revenue, typically have varied as the mix of revenue (software, hardware,
and support) components carrying different margin rates changes from period
to period. The decrease in the cost of revenue as a percent of total
revenues resulted principally from an increase in multi-product projects
which carry a lower cost of revenue percentage.
Sales and client service expenses include salaries of client service
personnel, communication expenses, and travel expenses. Also included are
sales and marketing salaries, trade show costs and advertising costs. These
expenses as a percent of revenue were 30% and 24% in the third quarter of
1995 and 1994, respectively. The increase in total sales and client service
expenses from $9,907,000 in 1994 to $12,657,000 in 1995 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 products development, as well as amortization of
software development costs previously capitalized. Total expenditures for
software development, including both capitalized and non-capitalized
portions for the third quarter of 1995 and 1994 were $7,429,000 and
$5,862,000 respectively. The increase in expenditures for software
development in 1995 was due to development of clinical information system
products to complement the Company's existing product line.
General and administrative expenses include salaries for corporate,
financial and administrative staffs, utilities, communications expenses and
professional fees. These expenses as a percentage of revenues were 11% in
the third quarter of 1995 and 8% for the same period in 1994. The increase
in general and administrative expenses in 1995 was due primarily to an increase
in personnel and training costs.
Net interest expense decreased 161% in the third quarter of 1995
over the same period in 1994. This decrease is due primarily to interest
income from investment of the proceeds from the sale by the Company of
3,716,000 new shares of stock in August 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September
30, 1994.
Revenues for the nine months ended September 30, 1995 increased 20%
over the same prior year period from $111,243,000 in 1994 to $133,883,000
in 1995. Net earnings increased 10% from $12,974,000 in the 1994 period
to $14,215,000 in the 1995 period.
In the 1995 period, revenues increased due to an increase in system
sales and support of installed systems. System sales increased 20% from
$77,277,000 in the nine months ended September 30, 1994 to $92,565,000 in 1995.
The increase in system sales result principally from an increase in HNA-type
agreements and additional hardware and software sales to the existing
client base. HNA contracts were 41% of total system sales for the first
nine months of 1995 compared to 35% in the first nine months of 1994. An HNA
contract is an initial contract that includes the Company's ProNet Order
Management product and at least two other clinical systems, or a contract
that brings an existing client to this level. ProNet Order Management gives
the clients the ability to access the full "intrarelationship" of the
Company's HNA products. The sale of additional hardware and software
products to the installed client base increased 45% in the first nine months
of 1995 over the same period in 1994.
At September 30, 1995, the Company had $67,096,000 in contract backlog
and $88,065,000 in support and maintenance backlog, compared to $48,239,000
in contract backlog and $72,268,000 in support and maintenance backlog on
September 30, 1994.
Support and maintenance revenues increased 19% from $30,325,000 in the
first nine months of 1994 to $36,059,000 in the first nine months of 1995.
This increase was due primarily to the increase in the Company's installed
and converted client base.
Other revenues increased 44% from $3,641,000 in the first nine months
of 1994 to $5,259,000 in the first nine months of 1995. This increase was
due primarily to real estate lease revenues from the rental to outside
tenants of space in the Company's headquarters complex not currently being
utilized by the Company.
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 28% of total revenues in the first nine months of 1995 compared
to 31% of total revenues for the same period in 1994. Such costs, as a
percent of revenue, typically have varied as the mix of revenue (software,
hardware, and support) components carrying different margin rates changes
from period to period. The decrease in the cost of revenue as a percent of
total revenues resulted principally from an increase in multi-product
projects which carry a lower cost of revenue percentage.
Sales and client service expenses include salaries of client service
personnel, communication expenses, and travel expenses. Also included are
sales and marketing salaries, trade show costs and advertising costs. These
expenses as a percent of revenue were 27% and 26% in the first nine months
of 1995 and 1994, respectively. The increase in total sales and client
service expense from $28,980,000 in 1994 to $36,648,000 in 1995 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 products development, as well as amortization of
software development costs previously capitalized. Total expenditures for
software development, including both capitalized and non-capitalized
portions for the first nine months of 1995 and 1994 were $22,482,000 and
$16,339,000, respectively. The increase in expenditures for software
development in 1995 was due to development of clinical information system
products to complement the Company's existing product line.
General and administrative expenses include salaries for corporate,
financial and administrative staffs, utilities, communications expenses and
professional fees. These expenses as a percentage of revenues were 9% in
the first nine months of 1995 and 8% for the same period in 1994. The increase
in general and administratvie expenses in 1995 was due primarily to an increase
in personnel and training costs.
Net interest expense decreased 14% in the first nine months of 1995
over the same period in 1994. This decrease is due primarily to interest
income from investment of the proceeds from the sale by the Company of
3,716,000 new shares of stock in August 1995.
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 financial results to continue.
Capital Resources and Liquidity
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The Company's liquidity position remains strong with total cash and
cash equivalents of $8,170,000 and short-term investments of $109,930,000 at
September 30, 1995 and working capital of $165,925,000. The Company
generated net cash from operations of $13,676,000 and $12,952,000 during the
nine months ended September 30, 1995 and 1994, respectively. During August
1995, the Company sold 3,716,000 shares of common stock in a public offering.
The proceeds of this sale net of underwriting discounts and commissions and
expenses were $108,727,000. Prior to the public offering the Company
financed its operations, capital expenditures (other than the purchase of
the Kansas City headquarters complex and its anticipated capital
improvements), and working capital from the internally generated funds and
bank borrowings. The Company has $18,000,000 of long-term, revolving credit
from banks, all of which was available as of September 30, 1995.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. The Company's revenue backlog of
$155,161,000 at September 30, 1995 included $88,065,000 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.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on July 14, 1995,
reporting a 100% stock dividend of the Company's common stock.
A Form 8-K was filed by the Company on July 18, 1995,
reporting the Company's intent to make an underwritten public
offering of the Company's common stock in the amount of $100
million.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CERNER CORPORATION
Registrant
November 13, 1995 By: /S/Marc G. Naughton
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Date Marc G. Naughton
Chief Financial Officer
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<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Nine Months
Ended Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net earnings: $ 3,491,000 $ 5,069,000 $ 14,215,000 $ 12,974,000
Weighted average number of common and
common stock equivalent shares:
Weighted average number of
outstanding common shares 30,555,747 27,774,268 29,007,578 27,555,594
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) 1,670,004 1,939,322 1,669,734 2,151,318
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32,225,751 29,713,590 30,677,312 29,706,912
Earnings per common and common stock
equivalent shares: $ .11 $ .17 $ .46 $ .44
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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) 41,760 33,506 109,617 20,112
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32,267,511 29,747,096 30,786,929 29,727,024
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Earnings per common and common stock
equivalent shares assuming full
dilution: $ .11 $ .17 $ .46 $ .44
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