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 29, 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
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) 201-1000
- ----------------------------------------------------------------------
(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 32,857,844 shares of Common Stock, $.01 par
value, outstanding at March 29, 1997.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
I N D E X
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 29, 1997
and December 28, 1996 (unaudited)
Consolidated Statements of Earnings for the
three months ended March 29, 1997
and March 30, 1996 (unaudited)
Consolidated Statements of Cash Flows
for the three months ended March 29, 1997
and March 30, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------------------
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 29, December 28,
1997 1996
(In thousands)
<CAPTION>
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 6,557 $ 6,905
Short-term investments 100,926 103,997
Receivables 99,090 96,238
Inventory 1,476 1,616
Prepaid expenses and other 2,299 3,660
-------- --------
Total current assets 210,348 212,416
Property and equipment, net 60,800 60,047
Software development costs, net 32,221 30,128
Intangible assets, net 3,815 3,973
Noncurrent receivables 2,893 3,637
Other assets 5,425 4,552
-------- --------
$315,502 $314,753
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,711 $ 9,346
Current installments of long-term debt 70 104
Advanced billings 7,677 7,811
Accrued income taxes 14,866 13,654
Accrued payroll and tax withholdings 8,713 6,755
Other accrued expenses 2,068 3,542
-------- --------
Total Current Liabilities 42,105 41,212
-------- --------
Long-term debt, net 30,000 30,000
Deferred income taxes 12,805 12,806
Stockholders' Equity:
Common stock, $.01 par value,150,000,000
shares authorized, 33,520,862 shares
issued in 1997 and 33,403,727 issued in 1996 335 334
Additional paid-in capital 145,197 144,941
Retained earnings 93,063 91,125
Treasury stock, at cost (663,018 shares in 1997
and 513,018 shares in 1996) (7,969) (5,693)
Foreign currency translation adjustment (34) 28
-------- --------
Total stockholders' equity 230,592 230,735
-------- --------
$315,502 $314,753
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
March 29, March 30,
---------------------
1997 1996
-------- --------
(In thousands, except Per share data)
<CAPTION>
<S> <C> <C>
Revenues:
System sales $34,075 $37,168
Support and maintenance 15,724 13,579
Other 1,330 1,835
------- -------
Total revenues 51,129 52,582
------- -------
Costs and expenses:
Cost of revenues 15,147 17,284
Sales and client service 18,620 15,623
Software development 9,616 8,540
General and administrative 5,207 4,850
------- -------
Total costs and expenses 48,590 46,297
------- -------
Operating earnings 2,539 6,285
Interest income, net 584 671
------- -------
Earnings before income taxes 3,123 6,956
Income Taxes 1,187 2,734
------- -------
Net earnings $ 1,936 $ 4,222
======= =======
Earnings per share $ .06 $ .13
======= =======
Weighted average shares outstanding 33,480 33,701
------- -------
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 29, 1997 March 30, 1996
------------------------------
(In thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,936 $ 4,222
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,084 3,603
Issuance of stock as compensation 16 --
Provision for deferred income taxes (1) 3,725
Loss on disposal of capital equipment -- 14
Changes in assets and liabilities:
Receivables (2,108) (3,213)
Inventory 140 (1,739)
Prepaid expenses and other 431 (1,074)
Accounts payable (635) 3,340
Accrued income taxes 1,212 --
Other accrued liabilities 350 1,336
-------- --------
Total adjustments 3,489 5,992
-------- --------
Net cash provided by operating activities 5,425 10,214
-------- --------
Cash flows from investing activities:
Purchase of capital equipment (2,664) (5,179)
Purchase of land, building and improvements (17) (219)
Capitalized software development costs (4,034) (2,981)
-------- --------
Net cash used in investing activities (6,715) (8,379)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 3
(repayment) of long-term debt (34) (34)
Proceeds from exercise of options 243 147
Purchase of treasury stock (2,276) --
-------- --------
Net cash provided by (used in) financing activities (2,067) 116
-------- --------
Foreign currency translation adjustment (62) 126
-------- --------
Net increase (decrease) in cash, cash equivalents,
and short-term investments (3,419) 2,077
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 $107,483 $114,195
======== ========
<FN>
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 March 29, 1997 and
December 28, 1996 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 29,
1997 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ---------------------
Three Months Ended March 29, 1997 Compared to Three Months Ended
March 30, 1996
The Company's revenues decreased 3% from $52,582,000 for the
three-month period ended March 30, 1996 to $51,129,000 for the
three-month period ended March 29, 1997. Net earnings decreased
54% from $4,222,000 in the 1996 period to $1,936,000 for the 1997
period.
System sales revenues decreased 8% from $37,168,000 for the
three-month period ended March 30, 1996 to $34,075,000 for the
corresponding period in 1997. The decrease in system sales was
due primarily to the decrease in revenue from the sale of
additional hardware and software products to the installed client
base. The revenue from the sale of additional hardware and
software products to the installed client base decreased 27% in
the first quarter of 1997 over the same period in 1996.
At March 29, 1997, the Company had $132,405,000 in contract
backlog and $117,867,000 in support and maintenance backlog,
compared to $89,416,000 in contract backlog and $98,638,000 in
support and maintenance backlog at March 30, 1996.
Support and maintenance revenues increased 16% from
$13,579,000 during the first quarter of 1996 to $15,724,000
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 28% from $1,835,000 in the first
quarter of 1996 to $1,330,000 in the same period of 1997. This
was due primarily to a decrease of 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 30% of
total revenues in the first quarter of 1997 and 33% 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 unreimbursed
travel expenses. Also included are sales and marketing salaries,
trade show costs and advertising costs. These expenses as a
percent of total revenues were 36% and 30% in the first quarter
of 1997 and 1996, respectively. The increase in total sales and
client service expenses from $15,623,000 in 1996 to $18,620,000
in 1997 was attributable to the cost of a larger field sales and
services 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
first quarter of 1997 and 1996 were $11,709,000 and $10,049,000,
respectively. These amounts exclude amortization of previously
capitalized expenditures. Capitalized software costs were
$4,034,000 and $2,981,000 for the first quarter of 1997 and 1996,
respectively. The increase in aggregate expenditures for
<PAGE>
software development in 1997 was due to development of 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 10% and 9% in the first
quarter of 1997 and 1996, respectively. Total general and
administrative expenses for the first quarter of 1997 and 1996
were $5,207,000 and $4,850,000, respectively.
Net interest income decreased 13% in the first quarter 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 38% and 39% for the
first 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.
Capital Resources and Liquidity
- -------------------------------
The Company's liquidity position remains strong with total
cash and cash equivalents of $6,557,000 and short term
investments of $100,926,000 at March 29, 1997 and working capital
of $168,243,000. The Company generated net cash from operations
of $5,425,000 and $10,214,000 during the three month periods
ended March 29, 1997 and March 30, 1996, respectively. The
decrease in net cash from operations is due primarily to lower
net earnings and a lower provision for income taxes. During the
first quarter of 1997, the Company purchased 150,000 shares of
the Company's common stock with a total cost of $2,276,000. The
Company has $18,000,000 of long-term, revolving credit from
banks, all of which was available as of March 29, 1997.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. The Company's support
and maintenance backlog at March 29, 1997 was $117,867,000,
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.
<PAGE>
Part II. Other Information
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 March 29, 1997.
<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 12, 1997 By: /s/Marc G. Naughton
- ------------ ------------------------
Date Marc G. Naughton
Chief Financial Officer
Exhibit 11
<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Three Months Ended
March 29, March 30,
-------------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net earnings: $ 1,936,000 $ 4,222,000
============ ============
Weighted average number of common and
common stock equivalent shares:
Weighted average number of
outstanding common shares 32,915,727 32,538,127
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) 564,083 1,162,807
------------ ------------
33,479,810 33,700,934
Earnings per common and common stock
equivalent shares: $ .06 $ .13
============ ============
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) 0 214
------------ ------------
33,479,810 33,701,147
============ ============
Earnings per common and common
stock equivalent shares assuming
full dilution: $ .06 $ .13
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 6,557,000
<SECURITIES> 100,926,000
<RECEIVABLES> 100,211,000
<ALLOWANCES> 1,121,000
<INVENTORY> 1,476,000
<CURRENT-ASSETS> 210,348,000
<PP&E> 92,120,000
<DEPRECIATION> 31,320,000
<TOTAL-ASSETS> 315,502,000
<CURRENT-LIABILITIES> 42,105,000
<BONDS> 0
0
0
<COMMON> 335,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 315,502,000
<SALES> 51,129,000
<TOTAL-REVENUES> 51,129,000
<CGS> 15,147,000
<TOTAL-COSTS> 33,443,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (584,000)
<INCOME-PRETAX> 3,123,000
<INCOME-TAX> 1,187,000
<INCOME-CONTINUING> 1,936,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,936,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
