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 March 30, 1996
----------------------
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 32,548,382 shares of Common Stock, $.01 par value,
outstanding at March 30, 1996.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
I N D E X
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 30, 1996
and December 30, 1995 (unaudited)
Consolidated Statements of Earnings for the
three months ended March 30, 1996
and April 1, 1995 (unaudited)
Consolidated Statements of Cash Flows
for the three months ended March 30, 1996
and April 1, 1995 (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 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
---------- ------------
<S> <C> <C>
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 7,893 $ 8,640
Short-term investments 106,302 103,478
Receivables 101,327 98,154
Inventory 3,985 2,246
Prepaid expenses and other 5,011 4,393
--------- ---------
Total current assets 224,518 216,911
Property and equipment, net 57,254 53,693
Software development costs, net 24,383 22,885
Intangible assets, net 4,410 4,414
Noncurrent receivables 4,136 4,097
Other assets 2,112 1,945
--------- ---------
$ 316,813 $ 303,945
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 18,272 $ 14,932
Current installments of long-term debt 133 130
Advanced billings 7,209 6,162
Accrued income taxes 17,672 13,946
Accrued payroll and tax withholdings 5,952 5,112
Other accrued expenses 2,014 2,565
--------- ---------
Total Current Liabilities 51,252 42,847
--------- ---------
Long-term debt, net 30,070 30,104
Deferred income taxes 9,619 9,620
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
33,061,400 shares issued in 1996
and 33,001,973 issued in 1995 331 330
Additional paid-in capital 144,021 143,876
Retained earnings 87,100 82,874
Treasury stock, at cost
(513,018 shares in 1996 and 1995) (5,693) (5,693)
Foreign currency translation adjustment 113 (13)
--------- ---------
Total stockholders' equity 225,872 221,374
--------- ---------
$ 316,813 $ 303,945
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
--------------------------
<S> <C> <C>
(In thousands, except per share data)
1996 1995
---- ----
Revenues:
System sales $ 37,168 $ 29,988
Support and maintenance 13,579 11,647
Other 1,835 1,557
-------- --------
Total revenues 52,582 43,192
-------- --------
Costs and expenses:
Cost of revenues 17,284 12,068
Sales and client service 15,623 11,176
Software development 8,540 7,621
General and administrative 4,850 4,043
-------- --------
Total costs and expenses 46,297 34,908
-------- --------
Operating earnings 6,285 8,284
Interest income (expense), net 671 (468)
-------- --------
Earnings before income taxes 6,956 7,816
Income taxes 2,734 3,275
-------- --------
Net earnings $ 4,222 $ 4,541
======== ========
Earnings per share $ .13 $ .15
======== ========
Weighted average shares outstanding 33,701 29,893
-------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
--------- --------
<S> <C> <C>
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 4,222 $ 4,541
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,603 3,090
Issuance of stock as compensation -- 7
Provision for deferred income taxes 3,725 2,185
Loss on disposal of capital equipment 14 2
Changes in assets and liabilities:
Receivables (3,213) (4,288)
Inventory (1,739) 551
Prepaid expenses and other (1,074) (113)
Accounts payable 3,340 (2,183)
Accrued income taxes -- 1,000
Other accrued liabilities 1,336 717
--------- ---------
Total adjustments 5,992 968
--------- ---------
Net cash provided by operating activities 10,214 5,509
--------- ---------
Cash flows from investing activities:
Purchase of capital equipment (5,179) (2,246)
Purchase of land, building and improvements (219) (1,681)
Capitalized software development costs (2,981) (2,061)
--------- --------
Net cash used in investing activities (8,379) (5,988)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3 2,266
Repayment of long-term debt (34) (1,085)
Proceeds from exercise of options 147 523
--------- --------
Net cash provided by financing activities 116 1,704
--------- --------
Foreign currency translation adjustment 126 (85)
--------- --------
Net increase in cash, cash equivalents and
short-term investments 2,077 1,140
Cash, cash equivalents and short-term investments
at beginning of period 112,118 15,305
--------- --------
Cash, cash equivalents and short-term investments
at end of period $ 114,195 $ 16,445
========= ========
</TABLE>
See notes to consolidated financial statements.
<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
March 30, 1996 and December 30, 1995 and the results of operations and cash
flows for the periods presented. The results of the three-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 ended March 30, 1996 and
April 1, 1995 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 March 30, 1996 Compared to Three Months Ended April 1, 1995
Revenues for the three months ended March 30, 1996 increased 22% to
$52,582,000 from $43,192,000 for the three months ended April 1, 1995. Net
earnings for the three months ended March 30, 1996 decreased 7% to
$4,222,000 from $4,541,000 in the same prior year period.
In the 1996 period, revenues increased due to an increase in system
sales and support of installed systems. System sales in the first quarter
of 1996 increased 24% to $37,168,000 from $29,988,000 in the first quarter
of 1995. This increase in system sales resulted principally from an
increase in installations under HNA contracts and additional hardware and
software sales to the Company's existing client base. HNA contracts
comprised 50% of total system sales in the first three months of 1996
compared to 47% for the same period in 1995. The sale of additional
hardware and software products to the installed client base increased 50%
in the first three months of 1996 over the first three months of 1995.
At March 30, 1996, the Company had $89,406,000 in contract backlog and
$98,638,000 in support and maintenance backlog, compared to $54,726,000 in
contract backlog and $81,022,000 in support and maintenance backlog on
April 1, 1995.
<PAGE>
Support and maintenance revenues increased 17% to $13,579,000 in the
first quarter of 1996 from $11,647,000 in the first quarter of 1995. This
increase was due primarily to the increase in the Company's installed and
converted client base.
Other revenues increased 18% to $1,835,000 in the first quarter of
1996 from $1,557,000 in the same prior year period. 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 33% of total revenues in the first quarter of 1996 compared to
28% of total revenues for the same period in 1995. 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 margin is due to equipment being a
larger component of system sales in the first quarter of 1996 compared to the
first quarter of 1995.
Sales and client service expenses include salaries of client service
personnel, communication expenses, and travel expenses. Also included are
sales and marketing salaries, and trade show costs. These expenses as a
percent of revenue were 30% and 26% in the first quarter of 1996 and 1995,
respectively. The increase in total sales and client service expenses to
$15,623,000 in 1996 from $11,176,000 in 1995 was attributable to personnel
and operating expenses associated with the larger regional sales and
service organization and certain marketing initiatives.
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 quarter of 1996 and 1995 were
$10,049,000 and $8,344,000, respectively. These amounts exclude
amortization. Capitalized software costs for the first quarter of 1996 and
1995 were $2,981,000 and $2,061,000, respectively. The increase in
expenditures for software development in 1996 was due primarily to
increased investment in the development of version 500 of the Company's
existing clinical information systems and new clinical information system
products for automation of clinical processes.
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 quarter of 1996 and 9% for the same period in 1995. Total
general and administrative expenses for the first quarter of 1996 and 1995
were $4,850,000 and $4,043,000, respectively.
Net interest income increased 243% in the first three months of 1996
over the same period in 1995. This decrease was due primarily to interest
income from investment of the proceeds from the sale of 3,716,000 new
shares of common stock from the August 1995 public offering.
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
- -------------------------------
The Company's liquidity position remains strong with total cash and
cash equivalents of $7,893,000 and short term investments of $106,302,000
at March 30, 1996 and working capital of $173,266,000. The Company
generated net cash from operations of $10,214,000 and $5,509,000 during the
three months ended March 30, 1996 and April 1, 1995. During August 1995,
the Company sold 3,716,000 shares of common stock. The proceeds of this
sale, net of underwriting discounts and commissions and expenses, were
$108,287,000. 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
<PAGE>
working capital from the internally generated funds and bank borrowings.
The Company has $18,000,000 of long-term, revolving credit from bank, all
of which was available as of March 30, 1996.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. The Company's revenue backlog
at March 30, 1996 included $98,638,000 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.
(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 March 30, 1996.
<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
May 13, 1996 By:/s/ Marc G. Naughton
- ------------ --------------------
Date Marc G. Naughton
Chief Financial Officer
<PAGE>
Exhibit 11
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 30, April 1,
-------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Net earnings: $ 4,222,000 $ 4,541,000
Weighted average number of common and
common stock equivalent shares:
Weighted average number of
outstanding common shares 32,538,127 28,130,788
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be re-
purchased with the proceeds
of exercised options based
on the average market
price during the period) 1,162,807 1,762,116
------------- -------------
33,700,934 29,892,904
Earnings per common and common stock
equivalent shares: $ .13 $ .15
============= =============
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) 214 17,650
------------- --------------
33,701,148 29,910,554
============= ==============
Earnings per common and common
stock equivalent shares assuming
full dilution: $ .13 $ .15
============= ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 7,893,000
<SECURITIES> 106,302,000
<RECEIVABLES> 102,456,000
<ALLOWANCES> 1,129,000
<INVENTORY> 3,985,000
<CURRENT-ASSETS> 224,518,000
<PP&E> 80,438,000
<DEPRECIATION> 23,184,000
<TOTAL-ASSETS> 316,813,000
<CURRENT-LIABILITIES> 51,252,000
<BONDS> 0
<COMMON> 331,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 316,813,000
<SALES> 52,582,000
<TOTAL-REVENUES> 52,582,000
<CGS> 17,284,000
<TOTAL-COSTS> 29,013,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (671,000)
<INCOME-PRETAX> 6,956,000
<INCOME-TAX> 2,734,000
<INCOME-CONTINUING> 4,222,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,222,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
