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 April 4, 1998
-------------------
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) 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 32,713,885 shares of Common Stock, $.01 par
value, outstanding at April 4, 1998.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
I N D E X
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 4, 1998
and January 3, 1998 (unaudited)
Consolidated Statements of Earnings for the
three months ended April 4, 1998
and March 29, 1997 (unaudited)
Consolidated Statements of Cash Flows
for the three months ended April 4, 1998
and March 29, 1997 (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
<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 4, January 3,
1998 1998
--------------------------
(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 5,335 $ 7,541
Short-term investments 56,864 70,002
Receivables 137,828 125,516
Inventory 1,885 1,743
Prepaid expenses and other 4,231 3,553
---------- ----------
Total current assets 206,143 208,355
Property and equipment, net 67,866 65,724
Software development costs, net 43,651 40,566
Intangible assets, net 8,185 6,402
Noncurrent receivables 2,213 2,290
Other assets 8,523 8,444
---------- ----------
$ 336,581 $ 331,781
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 13,389 $ 11,330
Current installments of long-term debt 43 35
Advanced billings 8,000 8,290
Deferred income taxes 20,499 18,245
Accrued payroll and tax withholdings 12,411 11,610
Other accrued expenses 2,645 2,037
---------- ----------
Total Current Liabilities 56,987 51,547
---------- ----------
Long-term debt, net 30,022 30,026
Deferred income taxes 14,521 16,461
Stockholders' Equity:
Common stock, $.01 par value, 150,000,000
shares authorized, 33,915,403 shares issued
in 1998 and 33,816,829 issued in 1997 339 338
Additional paid-in capital 148,711 148,074
Retained earnings 106,944 106,273
Treasury stock, at cost (1,201,518
shares in 1998 and 1997) (20,796) (20,796)
Accumulated other comprehensive income (147) (142)
----------- -----------
Total stockholders' equity 235,051 233,747
----------- -----------
$ 336,581 $ 331,781
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
April 4, March 29,
----------------------
1998 1997
---------- ----------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
System sales $ 53,373 $ 34,075
Support and maintenance 18,012 15,724
Other 2,289 1,330
--------- ---------
Total revenues 73,674 51,129
--------- ---------
Costs and expenses:
Cost of revenues 22,072 15,147
Sales and client service 25,950 18,620
Software development 13,634 9,616
General and administrative 6,034 5,207
Write-off of in-process
research and development 5,038 --
--------- ---------
Total costs and expenses 72,728 48,590
Operating earnings 946 2,539
Interest income, net 160 584
--------- ---------
Earnings before income taxes 1,106 3,123
Income Taxes 435 1,187
--------- ---------
Net earnings $ 671 $ 1,936
========= =========
Basic earnings per share $ 0.02 $ 0.06
========= =========
Basic weighted average shares outstanding 32,669 32,916
--------- ---------
Diluted earnings per share $ 0.02 $ 0.06
========= =========
Diluted weighted average shares outstanding 33,352 33,480
--------- ---------
</TABLE>
See Notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
April 4, 1998
March 29,1997
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 671 $ 1,936
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,915 4,084
Issuance of stock as compensation -- 16
Write-off of acquired in-process
research and development 5,038 --
Equity in losses of investee companies 151 --
Provision for deferred income taxes (1,940) (1)
Changes in assets and liabilities:
Receivables (12,148) (2,108)
Inventory (142) 140
Prepaid expenses and other (894) 431
Accounts payable 1,917 (635)
Accrued income taxes 2,114 1,212
Other accrued liabilities 237 350
--------- ---------
Total adjustments 248 3,489
--------- ---------
Net cash provided by operating activities 919 5,425
--------- ---------
Cash flows from investing activities:
Purchase of capital equipment (4,012) (2,664)
Purchase of land, building and improvements -- (17)
Acquisition of business, net of cash acquired (6,874) --
Investment in investee companies (250) --
Capitalized software development costs (5,750) (4,034)
--------- ---------
Net cash used in investing activities (16,886) (6,715)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (10) (34)
Proceeds from exercise of options 638 243
Purchase of treasury stock -- (2,276)
--------- ---------
Net cash provided by (used in) financing activities 628 (2,067)
--------- ---------
Foreign currency translation adjustment (5) (62)
--------- ---------
Net decrease in cash, cash equivalents,
and short-term investments (15,344) (3,419)
Cash, cash equivalents, and short-term investments
at beginning of period 77,543 110,902
--------- ---------
Cash, cash equivalents, and short-term investments
at end of period $ 62,199 $ 107,483
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Interim Statement Presentation & Accounting Policies
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 April 4, 1998 and
January 3, 1998 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.
The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" as of January
4, 1998. This statement establishes requirements for reporting
and display of comprehensive income and its components. For the
three months ended April 4, 1998 and March 29, 1997, total
Comprehensive Income, which includes foreign currency translation
adjustments, amounted to $666,000 and $1,874,000, respectively.
(2) Earnings Per Share
Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue stock were exercised or converted into
common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
(3) Acquisition of Business
On March 16, 1998, the Company purchased all of the
outstanding common stock of Multum Information Systems, Inc.,
(Multum) for $6.9 million. Multum is a supplier to the
healthcare industry of drug knowledge databases and intelligent
software components that improve the quality and cost-
effectiveness of medical care. The Company plans to incorporate
Multum's drug information and expert dosing component into its
Health Network Architecture Millennium solutions to enable
Multum's expert knowledge to become executable within the process
of care delivery.
The acquisition has been accounted for using the purchase
method of accounting with the operating results of Multum
included in the Company's consolidated statement of earnings
since the date of acquisition. $5 million of the purchase price
was allocated to in-process research and development that had not
reached technological feasibility and was treated as a
<PAGE>
one-time charge to earnings reducing after tax income for the quarter
ended April 4, 1998 by $3.1 million or $.09 per share on a
diluted basis.
The allocation of the purchase price to the estimated fair
values of the identified tangible and intangible assets acquired
and liabilities assumed, resulted in goodwill of $1,581,000. The
goodwill is being amortized straight-line over seven years.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Three Months Ended April 4, 1998 Compared to Three Months Ended March 29, 1997
The Company's revenues increased 44% to $73,674,000 for the
three-month period ended April 4, 1998 from $51,129,000 for the
three-month period ended March 29, 1997. Net earnings decreased
65% to $671,000 in the 1998 period from $1,936,000 for the 1997
period. Excluding a one-time write-off of in-process research
and development, net earnings would have increased 95% to
$3,769,000, relative to the 1997 period.
System sales revenues increased 57% to $53,373,000 for the
three-month period ended April 4, 1998 from $34,075,000 for the
corresponding period in 1997. The increase in system sales was
due primarily to an increase in revenue from Health Network
Architecture (HNA) contracts. HNA contracts were 60% of total
system sales for the quarter ended April 4, 1998 compared to 35%
for the prior year period. The revenue from the sale of
additional hardware and software products to the installed client
base increased 29% in the first quarter of 1998 over the same
period in 1997.
At April 4, 1998, the Company had $230,529,000 in contract
backlog and $138,395,000 in support and maintenance backlog,
compared to $132,405,000 in contract backlog and $117,867,000 in
support and maintenance backlog at March 29, 1997.
Support and maintenance revenues increased 15% to $18,012,000
during the first quarter of 1998 from $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 increased 72% to $2,289,000 in the first
quarter of 1998 from $1,330,000 in the same period of 1997. This
increase was due primarily to services performed beyond
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 30% of
total revenues in the first quarter of 1998 and 1997. 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 35% and 36% in the first quarter
of 1998 and 1997, respectively. The increase in total sales and
client service expenses to $25,950,000 in 1998 from $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. Total
expenditures for software development, including both capitalized
and noncapitalized portions, for the first quarter of 1998 and
1997 were $16,720,000 and $11,709,000, respectively. These
amounts exclude amortization of previously capitalized
expenditures. Capitalized software costs were $5,750,000 and
$4,034,000 for the first quarter of 1998 and 1997, respectively.
<PAGE>
The increase in aggregate expenditures for software development
in 1998 is 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 8% and 10% in the first
quarter of 1998 and 1997, respectively. Total general and
administrative expenses for the first quarter of 1998 and 1997
were $6,034,000 and $5,207,000, respectively.
Write-off of in process research and development is a one-
time expense resulting from the acquisition of Multum.
Net interest income decreased 73% in the first quarter of
1998 than in the same period in 1997. This decrease is primarily
due to a decrease in cash and cash equivalents.
The Company's effective tax rates were 39% and 38% for the
first quarter of 1998 and 1997, 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 $5,335,000 and short term
investments of $56,864,000 at April 4, 1998 and working capital
of $149,156,000. The Company generated net cash from operations
of $919,000 and $5,425,000 during the three month periods ended
April 4, 1998 and March 29, 1997, respectively. The decrease in
net cash from operations is due primarily to an increase in
receivables from record revenues. The Company acquired Multum
on March 16, 1998 for $6.9 million. The Company has $18,000,000
of long-term, revolving credit from banks, all of which was
available as of April 4, 1998.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. The Company's support
and maintenance backlog at April 4, 1998 was $138,395,000,
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(a) Financial Data Schedule
Exhibit 27(b) Financial Data Schedule restated for March 29, 1998
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended April 4, 1998.
<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 19, 1998 By:\s\Marc G.Naughton
- ------------ ------------------
Date Marc G. Naughton
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION> Exhibit 11
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Three Months Ended
April 4, March 29,
------------------ -------------------
1998 1997
------------------ -------------------
<S> <C> <C>
Net earnings: $ 671,000 $ 1,936,000
=========== ===========
Weighted average number
of common and common stock
equivalent shares:
Basic average number of
outstanding common shares 32,668,513 32,915,727
----------- -----------
Basic earnings per common shares: $ 0.02 $ 0.06
----------- -----------
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be
repurchased with the proceeds
of exercised options and converted
warrantes based on the average
market price during the period) 683,637 564,083
---------- -----------
33,352,150 33,479,810
---------- -----------
Diluted earnings per common and
common stock equivalent shares:
equivalent shares: $ 0.02 $ 0.06
---------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 5,335,000
<SECURITIES> 56,864,000
<RECEIVABLES> 141,678,000
<ALLOWANCES> 1,637,000
<INVENTORY> 1,885,000
<CURRENT-ASSETS> 206,143,000
<PP&E> 108,142,000
<DEPRECIATION> 40,276,000
<TOTAL-ASSETS> 336,581,000
<CURRENT-LIABILITIES> 56,987,000
<BONDS> 0
0
0
<COMMON> 339,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 336,581,000
<SALES> 73,674,000
<TOTAL-REVENUES> 73,674,000
<CGS> 22,072,000
<TOTAL-COSTS> 50,656,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (160,000)
<INCOME-PRETAX> 1,106,000
<INCOME-TAX> 435,000
<INCOME-CONTINUING> 671,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 671,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</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> 103,104,000
<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> 0.06
<EPS-DILUTED> 0.06
</TABLE>
