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 October 2, 1999
---------------
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 33,622,085 shares of Common Stock, $.01 par value,
outstanding at October 2, 1999.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
-----------------------------------
I N D E X
---------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of October 2, 1999 (unaudited)
and January 2, 1999 1
Consolidated Statements of Earnings for the
three months and nine months ended October 2, 1999
and October 3, 1998 (unaudited) 2
Consolidated Statements of Cash Flows
for the nine months ended October 2, 1999
and October 3, 1998 (unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information:
Item 5 Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
October 2, January 2,
(In thousands) 1999 1999
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 71,969 $ 42,658
Receivables 164,439 167,374
Inventory 2,514 2,651
Prepaid expenses and other 4,716 4,234
---------- ----------
Total current assets 243,638 216,917
Property and equipment, net 76,779 77,292
Software development costs, net 66,755 54,971
Intangible assets, net 7,804 8,884
Investments, net 172,930 71,719
Other assets 11,054 6,702
---------- ----------
$ 578,960 $ 436,485
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 10,044 $ 14,092
Current installments of long-term debt -- 5,030
Deferred revenue 19,822 33,921
Income taxes 22,241 26,057
Accrued payroll and tax withholdings 16,371 16,625
Other accrued expenses 3,707 2,511
---------- ----------
Total current liabilities 72,185 98,236
---------- ----------
Long-term debt, net 100,000 25,000
Deferred income taxes 60,068 22,106
Deferred revenue 17,000 20,000
Stockholders' Equity:
Common stock, $.01 par value, 150,000,000
shares authorized, 34,823,603 shares
issued in 1999 and 34,674,164 issued
in 1998 348 347
Additional paid-in capital 165,711 165,239
Retained earnings 129,225 126,862
Treasury stock, at cost (1,201,518
shares in 1999 and 1998) (20,796) (20,796)
Accumulated other comprehensive income:
Foreign currency translation adjustment 43 (243)
Unrealized gain (loss) on
available-for-sale equity securities
(net of deferred taxes of $34,180
for 1999 and ($165) for 1998) 55,176 (266)
---------- ----------
Total stockholders' equity 329,707 271,143
---------- ----------
$ 578,960 $ 436,485
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------
October 2, October 3, October 2, October 3,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
System sales $ 52,004 $ 60,395 $ 167,022 $ 171,987
Support and maintenance 23,640 19,998 68,924 56,719
Other 5,285 2,439 14,508 6,952
---------- ---------- ---------- ----------
Total revenues 80,929 82,832 250,454 235,658
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues 17,900 20,175 63,399 63,484
Sales and client service 35,460 30,172 103,716 84,231
Software development 18,210 15,611 54,256 43,820
General and administrative 7,191 6,544 20,638 18,999
Write-off of in-process
research and development - - - 5,038
---------- ---------- ---------- ----------
Total costs and expenses 78,761 72,502 242,009 215,572
---------- ---------- ---------- ----------
Operating earnings 2,168 10,330 8,445 20,086
Interest expense, net (1,022) (145) (2,328) (69)
---------- ---------- ---------- ----------
Earnings before income taxes
and extraordinary item 1,146 10,185 6,117 20,017
Income Taxes (466) (3,837) (2,359) (7,629)
---------- ---------- ---------- ----------
Earnings before
extraordinary item $ 680 $ 6,348 $ 3,758 $ 12,388
---------- ---------- ---------- ----------
Extraordinary loss on early
extinguishment of debt,
net of taxes of $865 - - (1,395) -
---------- ---------- ---------- ----------
Net earnings $ 680 $ 6,348 $ 2,363 $ 12,388
========== ========== ========== ==========
Basic earnings per share:
Basic earnings per share
before extraordinary item $ 0.02 $ 0.19 $ 0.11 $ 0.38
========== ========== ========== ==========
Basic earnings per share $ 0.02 $ 0.19 $ 0.07 $ 0.38
========== ========== ========== ==========
Basic weighted average
shares outstanding 33,622 32,771 33,599 32,727
---------- ---------- ---------- ----------
Diluted earnings per share:
Diluted earnings per share
before extraordinary item $ 0.02 $ 0.19 $ 0.11 $ 0.37
========== ========== ========== ==========
Diluted earnings per share $ 0.02 $ 0.19 $ 0.07 $ 0.37
========== ========== ========== ==========
Diluted weighted average
shares outstanding 33,862 33,740 33,930 33,575
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
-----------------
October 2, 1999 October 3, 1998
----------------- ----------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,363 $ 12,388
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 23,170 18,489
Extraordinary item, net of tax 1,395 --
Issuance of stock as compensation 40 --
Non-employee stock option
compensation expense 178 --
Write-off of acquired in-process
research and development -- 5,038
Equity in losses of investee companies 1,378 1,027
Provision for deferred income taxes 1,409 8,978
Tax benefit from disqualifying
dispositions of stock options 11 --
Loss on disposal of capital equipment 474 195
Changes in assets and liabilities:
Receivables, net 2,935 (30,692)
Inventory 137 (385)
Prepaid expenses and other (1,016) (3,260)
Accounts payable (4,048) (3,717)
Accrued income taxes (743) --
Deferred revenue (17,099) (6,916)
Other accrued liabilities 942 3,441
---------- ----------
Total adjustments 9,163 (7,802)
---------- ----------
Net cash provided by operating activities 11,526 4,586
---------- ----------
Cash flows from investing activities:
Purchase of capital equipment (10,815) (13,796)
Acquisition of business -- (6,874)
Investment in investee companies (12,801) (817)
Advances to investee company (750) --
Executive stock purchase program (3,343) --
Capitalized software development costs (22,437) (18,235)
---------- ----------
Net cash used in investing activities (50,146) (39,722)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 99,568 --
Repayment of long-term debt (30,030) (36)
Prepayment penalty on early
extinguishment of debt (2,137) --
Proceeds from exercise of options 244 1,465
---------- ----------
Net cash provided by financing activities 67,645 1,429
---------- ----------
Foreign currency translation adjustment 286 (243)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 29,311 (33,950)
Cash and cash equivalents at
beginning of period 42,658 77,543
---------- ----------
Cash and cash equivalents at
end of period $ 71,969 $ 43,593
========== ==========
Noncash investing and financing activities:
Mark to market of CareInsite investment,
net of deferred taxes of $34,274 $ 89,606 $ --
</TABLE>
See notes to consolidated financial statements.
3
<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 October 2, 1999 and
January 2, 1999 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.
The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" at the beginning of
1998. This statement establishes requirements for reporting and
display of comprehensive income and its components. For the
nine months ended October 2, 1999 and October 3, 1998, total
Comprehensive Income, which includes foreign currency translation
adjustments and unrealized gain on available-for-sale equity
securities, amounted to $58,091,000 and $12,145,000,
respectively.
(2) Earnings Per Share
Basic earnings per share (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
Company. A reconciliation of the numerators and denominators of
the basic and diluted per-share computations is as follows:
<TABLE>
Three months ended Three months ended
October 2, 1999 October 3, 1998
---------------------------------------------------------------------
Earnings Shares Per-Share Earnings Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share:
Income available
to common
stockholders $ 680 33,622 $ .02 6,348 32,771 $ .19
Effect of dilutive
securities
(stock options) -- 240 -- 969
Diluted earnings
per share:
Income available
to common stock-
holders including
assumed ---------------------------------------------------------------------
conversions $ 680 33,862 $ .02 6,348 33,740 $ .19
=====================================================================
</TABLE>
4
<PAGE>
<TABLE>
Nine months ended Nine months ended
October 2, 1999 October 3,1998
---------------------------------------------------------------------
Earnings Shares Per-Share Earnings Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
---------------------------------------------------------------------
Earnings per share before extraordinary item
- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share:
Income available
to common
stockholders $ 3,758 33,599 $ .11 12,388 32,727 $ .38
Effect of dilutive
securities
(stock options) -- 331 -- 848
Diluted earnings
per share:
Income available
to common stock-
holders including
assumed ---------------------------------------------------------------------
conversions $ 3,758 33,930 $ .11 12,388 33,575 $ .37
=====================================================================
</TABLE>
<TABLE>
Net earnings per share:
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share:
Income available
to common
stockholders $ 2,363 33,599 $ .07 12,388 32,727 $ .38
Effect of dilutive
securities
(stock options) -- 331 -- 848
Diluted earnings
per share:
Income available
to common stock-
holders including
assumed ---------------------------------------------------------------------
conversions $ 2,363 33,930 $ .07 12,388 33,575 $ .37
=====================================================================
</TABLE>
(3) Receivables
Receivables consist of accounts receivable and contracts
receivable. Accounts receivable represent recorded revenues that
have been billed. Contracts receivable represent recorded
revenues that are billable by the Company at future dates under
the terms of a contract with a client. Billings and other
consideration received on contracts in excess of related revenues
recognized under the percentage-of -completion method are
recorded as deferred revenue. A summary of receivables is as
follows:
<TABLE>
(In thousands) October 2, January 2,
1999 1998
-------------------------------
<S> <C> <C>
Accounts receivable $ 75,950 $ 72,747
Contracts receivable 88,489 94,627
-------------------------------------------------------------
Total receivables $ 164,439 $ 167,374
===============================
</TABLE>
(4) Borrowings
On April 15, 1999, the Company completed a $100,000,000 private
placement of debt pursuant to a Note Agreement dated April 1,
1999. The Series A Senior Notes, with a $60,000,000 principal
amount at 7.14% are due on April 15, 2006 and the Series B Senior
Notes, with a $40,000,000 principal amount at 7.66% are due April
15, 2009. The proceeds were used to retire the Company's existing
$30,000,000 of debt, and the remaining funds will be used for
proposed capital improvements and to strengthen the Company's
cash position. In connection with the early extinguishment of
debt, the Company incurred a $1,395,000, net of taxes,
extraordinary loss for a prepayment penalty and write-off of
deferred loan costs.
5
<PAGE>
(5) Investments
Included in the Company's investments is the ownership of
13,149,259 shares (18.7%) of common stock, which includes
purchases of 711,759 shares of common stock at a price of
$11,804,000 during the second quarter of 1999, of CareInsite,
Inc. ("CareInsite"), formerly known as Synetic Healthcare
Communications, Inc., which have a cost basis of $81,804,000 and
a carrying value of $171,411,000 at October 2, 1999.
On June 16, 1999, CareInsite undertook an initial public offering
of common stock. The common stock of CareInsite is now traded in
the public market and listed on the Nasdaq National Market. The
common stock of CareInsite held by the Company is not registered
and is subject to certain lock-up provisions.
Under Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115) the Company is required to mark to
market those shares which are classified as available-for-sale
securities. Due to the lock-up provisions of the stock not all
shares owned by the Company are available-for-sale. However,
SFAS No. 115 requires shares that are eligible under Rule 144 for
public sale within a twelve month period be considered as
available-for-sale. Under Rule 144, as currently in effect, a
person who has beneficially owned shares of common stock for at
least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1%
of the number of shares of common stock then outstanding and the
average weekly trading volume of the common stock during the four
preceding calendar weeks. As of October 2, 1999, the Company
has marked to market 2,090,100 shares (696,700 in the third
quarter) of CareInsite common stock that are considered available-
for-sale under Rule 144 and SFAS No. 115. The market value of
these shares is $101,370,000, at October 2, 1999. The remaining
shares, that will not be marked to market under Rule 144 in the
fourth quarter, will be considered available-for-sale and be
marked to market in the first and second quarters of 2000.
If the Company realizes certain performance metrics related to
specified levels of physician usage, CareInsite will issue to the
Company 2,503,125 shares of common stock at a price of $.01 per
share ("Performance Shares"). The measurement date is February
15, 2001. The Company was also granted, by CareInsite, 1,008,445
common stock warrants with an exercise price of $4.00 per share
("THINC Warrants"). These warrants are exercisable only in the
event that The Health Information Network Connection, LLC
("THINC") exercises warrants granted to them by CareInsite at
$4.00 per share. THINC may exercise their warrants 180 days
after the initial public offering of CareInsite. No amounts
have been recognized in the consolidated financial statements for
either the Performance Shares or the THINC Warrants due to the
uncertainty of the future events.
(6) Related Party Transactions
On April 30, 1999, the Company loaned $3,343,000 to the Company's
senior management under the terms of the Executive Stock Purchase
Program ("Program"). The purpose of the Program is to advance
the interests of the Company, the Company's senior management,
and the Company's shareholders by offering the Company's senior
management an incentive to purchase shares of the Company's stock
on the open market. Pursuant to the Program, the Company
provided Program loans to executives to finance up to 50% of the
total purchase price of the stock purchased. All Program loans
have a term of five (5) years, at an interest rate of 5.5%.
Principal and interest is not due until the end of the five-year
loan term, unless the executive terminates employment.
Executives may also elect to pay interest annually. If interest
is not paid annually, it will compound annually. All Program
loans are secured by the purchased shares and any pledged shares.
The program also provides for the grant of stock options based on
the number of shares purchased under the program. The options
are subject to certain vesting rights.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ---------------------
Three Months Ended October 2, 1999 Compared to Three Months
Ended October 3, 1998
The Company's revenues decreased 2% to $80,929,000 for the three-
month period ended October 2, 1999 from $82,832,000 for the three-
month period ended October 3, 1998. Net earnings were $680,000
for the three-month period ended October 2, 1999, compared to
$6,348,000 for the three-month period ended October 3, 1998. The
decrease in net earnings is due to a decrease in new contract
bookings in the three-month period ended October 2, 1999 compared
to the three-month period ended October 3, 1998. The Company
believes that this decrease is due primarily to delays in
purchasing decisions related to Year 2000 and the Balance Budget
Act of 1997.
System sales revenues decreased 14% to $52,004,000 for the three-
month period ended October 2, 1999 from $60,395,000 for the
corresponding period in 1998. This decrease in system sales
resulted primarily from a decrease in new business signed and
hardware sales in the three-month period ended October 2, 1999
compared to the three-month period ended October 3, 1998.
At October 2, 1999, the Company had $326,581,000 in contract
backlog and $159,819,000 in support and maintenance backlog,
compared to $272,277,000 in contract backlog and $146,328,000 in
support and maintenance backlog at October 3, 1998.
Support and maintenance revenues increased 18% to $23,640,000
during the third quarter of 1999 from $19,998,000 during the same
period in 1998. This increase was due primarily to the increase
in the Company's installed and converted client base.
Other revenues increased 117% to $5,285,000 in the third quarter
of 1999 from $2,439,000 in the same period of 1998. This
increase was due primarily to services performed beyond
contracted requirements for existing clients.
The cost of revenues includes the cost of third party consulting
services, computer hardware and sublicensed software purchased
from consulting firms and 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 22% of total revenues in
the third quarter of 1999 compared to 24% in 1998. 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 44% and 36% in the third quarter
of 1999 and 1998, respectively. The increase in total sales and
client service expenses to $35,460,000 in 1999 from $30,172,000
in 1998 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, and
amortization of software development costs. Total expenditures
for software development, including both capitalized and
noncapitalized portions, for the third quarter of 1999 and 1998
were $22,295,000 and $19,322,000, respectively. These amounts
exclude amortization. Capitalized software costs were $7,470,000
and $6,373,000 for the third quarter of 1999 and 1998,
respectively. The increase in aggregate expenditures for
software development in 1999 is due to development of HNA
Millennium products and development of community care products.
7
<PAGE>
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 8% in the third
quarter of 1999 and 1998, respectively. Total general and
administrative expenses for the third quarter of 1999 and 1998
were $7,191,000 and $6,544,000, respectively.
Net interest expense was $1,022,000 in the third quarter of 1999
compared to $145,000 in the third quarter of 1998. This increase
is due to an increase in borrowings. On April 15, 1999, the
Company completed a $100,000,000 private placement of debt
pursuant to a Note Agreement dated April 1, 1999. The Series A
Senior Notes, with a $60,000,000 principal amount at 7.14% are
due on April 15, 2006 and the Series B Senior Notes, with a
$40,000,000 principal amount at 7.66% are due April 15, 2009. The
proceeds were used to retire the Company's existing $30,000,000
of debt, and the remaining funds will be used for proposed
capital improvements and strengthen the Company's cash position.
The Company's effective tax rates were 41% and 38% for the third
quarter of 1999 and 1998, respectively.
Nine Months Ended October 2, 1999 Compared to Nine Months Ended
October 3, 1998
The Company's revenues increased 6% to $250,454,000 for the nine-
month period ended October 2, 1999 from $235,658,000 for the nine-
month period ended October 3, 1998. Net earnings before
extraordinary item were $3,757,000 for the nine-months ended
October 3, 1999, compared to $12,388,000 for the nine-months
ended October 3, 1998. The decrease in net earnings, before
extraordinary item, is due to a decrease in new contract bookings
in the nine-month period ended October 2, 1999 compared to the
nine-month period ended October 3, 1998. The Company believes
that this decrease is due primarily to delays in purchasing
decisions related to Year 2000 and the Balance Budget Act of
1997. After the extraordinary item, which resulted from a
prepayment penalty and write-off of deferred loan costs from the
early extinguishment of debt, net earnings were $2,362,000 for
the first nine-months of 1999.
System sales revenues decreased 3% to $167,023,000 for the nine-
month period ended October 2, 1999 from $171,987,000 for the
corresponding period in 1998. This decrease in system sales
resulted primarily from a decrease in new business signed in the
nine-month period ended October 2, 1999 compared to the nine-
month period ended October 3, 1998.
At October 2, 1999, the Company had $326,581,000 in contract
backlog and $159,819,000 in support and maintenance backlog,
compared to $272,277,000 in contract backlog and $146,328,000 in
support and maintenance backlog at October 3, 1998.
Support and maintenance revenues increased 22% to $68,924,000
during the first nine months of 1999 from $56,719,000 during the
same period in 1998. This increase was due primarily to the
increase in the Company's installed and converted client base.
Other revenues increased 109% to $14,508,000 in the first nine
months of 1999 from $6,952,000 in the same period of 1998. This
increase was due primarily to services performed beyond
contracted requirements for existing clients.
The cost of revenues includes the cost of third party consulting
services, computer hardware and sublicensed software purchased
from consulting firms and 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 25% of total revenues in
the first nine months of 1999 compared to 27% in 1998. 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 41% and 36% in the first nine
8
<PAGE>
months of 1999 and 1998, respectively. The increase in total
sales and client service expenses to $103,716,000 in 1999 from
$84,231,000 in 1998 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, and
amortization of software development costs. Total expenditures
for software development, including both capitalized and
noncapitalized portions, for the first nine months of 1999 and
1998 were $66,040,000 and $54,070,000, respectively. These
amounts exclude amortization. Capitalized software costs were
$22,437,000 and $18,235,000 for the first nine months of 1999 and
1998, respectively. The increase in aggregate expenditures for
software development in 1999 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% in the first nine months
of both 1999 and 1998. Total general and administrative expenses
for the first nine months of 1999 and 1998 were $20,638,000 and
$18,999,000, respectively.
Write-off of in-process research and development in 1998 is a one-
time expense resulting from the acquisition of Multum.
Net interest expense was $2,328,000 in the first nine months of
1999 compared to $69,000 in the first nine months of 1998. This
increase in expense is due to an increase in borrowings. On April
15, 1999, the Company completed a $100,000,000 private placement
of debt pursuant to a Note Agreement dated April 1, 1999. The
Series A Senior Notes, with a $60,000,000 principal amount at
7.14% are due on April 15, 2006 and the Series B Senior Notes,
with a $40,000,000 principal amount at 7.66% are due April 15,
2009. The proceeds were used to retire the Company's existing
$30,000,000 of debt, and the remaining funds will be used for
proposed capital improvements and strengthen the Company's cash
position. In connection with the early extinguishment of debt,
the Company incurred a $1,395,000, net of taxes, extraordinary
loss for a prepayment penalty and write-off of deferred loan
costs.
The Company's effective tax rates were 39% and 38% for the first
nine months of 1999 and 1998, respectively.
Capital Resources and Liquidity
- -------------------------------
The Company's liquidity position remains strong with total cash
and cash equivalents of $71,969,000 at October 2, 1999 and
working capital of $171,453,000. The Company generated net cash
from operations of $11,526,000 and $4,586,000 during the nine
month periods ended October 2, 1999 and October 3, 1998,
respectively. The increase in net cash from operations is due
primarily to a decrease in receivables. The Company acquired
Multum on March 16, 1998 for $6,900,000. On April 15, 1999, the
Company completed a $100,000,000 private placement of debt as
previously discussed. The Company has $18,000,000 of long-term,
revolving credit from banks, all of which was available as of
October 2, 1999.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. Support and
maintenance revenues increased 18% in the third quarter of 1999
over the third quarter of 1998, and the Company expects these
revenues to continue to grow as the base of installed systems
grows.
The Company's liquidity is influenced by many factors, including
the amount and timing of the Company's revenues, its cash
collections from its clients as implementation of its products
proceed and the amounts the Company invests in software
development and capital expenditures. The Company believes that
its present cash position, together with cash generated from
operations, will be sufficient to meet anticipated cash
requirements during the remainder of 1999. In addition to the
Company's $18,000,000 line of credit, it has obtained additional
debt capital in order to provide greater financial flexibility.
The effects of inflation were minimal on the Company's business
during the period discussed herein.
9
<PAGE>
Factors that may Affect Future Results of Operations, Financial
- ---------------------------------------------------------------
Condition or Business
- ---------------------
Statements made in this report, other reports and proxy
statements filed with the Securities and Exchange Commission,
communications to stockholders, press releases and oral
statements made by representatives of the Company that are not
historical in nature, or that state the Company's or management's
intentions, hopes, beliefs, expectations, or predictions of the
future, are "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as
amended, and involve risks and uncertainties. The words
"should," "will be," "intended," "continue," "believe," "may,"
"expect," "hope," "anticipate," "goal," "forecast" and similar
expressions are intended to identify such forward-looking
statements. It is important to note that any such performance,
and actual results, financial condition or business could differ
materially from those expressed in such forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed
below as well as those discussed elsewhere in reports filed with
the Securities and Exchange Commission. The Company undertakes
no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated
events or changes in future operating results, financial
condition or business over time.
Quarterly Operating Results May Vary - The Company's quarterly
- -------------------------------------
operating results have varied in the past and may continue to
vary in future periods. Quarterly operating results may vary for
a number of reasons including demand for the Company's products
and services, the Company's long sales cycle, the long
installation and implementation cycle for these larger, more
complex and costlier systems and other factors described in this
section and elsewhere in this report. As a result of healthcare
industry trends and the market for the Company's HNA Millennium
products, a large percentage of the Company's revenues are
generated by the sale and installation of larger, more complex
and costlier systems. The sales process for these systems is
lengthy and involves a significant technical evaluation and
commitment of capital and other resources by the customer. The
sale may be subject to delays due to customers' internal budgets
and procedures for approving large capital expenditures and by
competing needs for other capital expenditures and deploying new
technologies or personnel resources. Delays in the expected sale
or installation of these large contracts may have a significant
impact on the Company's anticipated quarterly revenues and
consequently its earnings, since a significant percentage of the
Company's expenses are relatively fixed.
These larger, more complex and costlier systems are installed and
implemented over time periods ranging from approximately nine
months to three years and involve significant efforts both by the
Company and the client. In addition, implementation of the
Company's Millennium products is a new and evolving process. The
Company recognizes revenue upon the completion of standard
milestone conditions and the amount of revenue recognized in any
quarter depends upon the Company's and the client's ability to
meet these project milestones. Delays in meeting these milestone
conditions or modification of the contract relating to one or
more of these systems could result in a shift of revenue
recognition from one quarter to another and could have a material
adverse effect on results of operations for a particular quarter.
In addition, support payments by clients for the Company's
products do not commence until the product is in use.
The Company's revenues from system sales historically have been
lower in the first quarter of the year and greater in the fourth
quarter of the year.
Stock Price May Be Volatile - The trading price of the
- -------------------------------
Company's common stock may be volatile. The market for the
Company's common stock may experience significant price and
volume fluctuations in response to a number of factors including
actual or anticipated quarterly variations in operating results,
changes in expectations of future financial performance or
changes in estimates of securities analysts, governmental
regulatory action, healthcare reform measures, client
relationship developments and other factors, many of which are
beyond the Company's control.
Furthermore, the stock market in general, and the market for
software, healthcare and high technology companies in particular,
has experienced extreme volatility that often has been unrelated
to the operating performance of particular companies. These
broad market and industry fluctuations may adversely affect the
trading price of the Company's common stock, regardless of actual
operating performance.
10
<PAGE>
Market Risk of Investments - The Company accounts for its
- -----------------------------
investments in equity securities which have readily determinable
fair values as available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses
reported, net of tax, as a separate component of accumulated
other comprehensive income. Investments in other equity
securities are reported at cost. All equity securities are
reviewed by the Company for declines in fair value. If such
declines are considered to be other than temporary, the cost
basis of the individual security is written down to fair value as
a new cost basis, and the amount of the write-down is included in
earnings.
Included in the Company's investments is the ownership of
13,149,259 shares (18.7%) of common stock which includes
purchases of 711,759 shares of common stock at a price of
$11,804,000 during the second quarter of 1999 of CareInsite, Inc.
("CareInsite"), formerly known as Synetic Healthcare
Communications, Inc., which have a cost basis of $81,804,000 and
a carrying value of $171,411,000 at October 2, 1999.
On June 16, 1999, CareInsite undertook an initial public offering
of common stock. The common stock of CareInsite is now traded
in the public market and listed on the Nasdaq National Market.
The common stock of CareInsite held by the Company is not
registered and is subject to certain lock-up provisions.
Under Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115) the Company is required to mark to
market those shares which are classified as available-for-sale
securities. Due to the lock-up provisions of the stock not all
shares owned by the Company are available-for-sale. However,
SFAS No. 115 requires shares that are eligible under Rule 144 for
public sale within a twelve month period be considered as
available-for-sale. Under Rule 144, as currently in effect, a
person who has beneficially owned shares of common stock for at
least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1%
of the number of shares of common stock then outstanding and the
average weekly trading volume of the common stock during the four
preceding calendar weeks. As of October 2, 1999, the Company
has marked to market 2,090,100 shares (696,700 in the third
quarter) of CareInsite common stock that are considered available-
for-sale under Rule 144 and SFAS No. 115. The market value of
these shares is $101,370,000, at October 2, 1999. The remaining
shares, that will not be marked to market under Rule 144 in the
fourth quarter, will be considered available-for-sale and be
marked to market in the first and second quarters of 2000.
If the Company realizes certain performance metrics related to
specified levels of physician usage, CareInsite will issue to the
Company 2,503,125 shares of common stock at a price of $.01 per
share ("Performance Shares"). The measurement date is February
15, 2001. The Company was also granted, by CareInsite, 1,008,445
common stock warrants with an exercise price of $4.00 per share
("THINC Warrants"). These warrants are exercisable only in the
event that The Health Information Network Connection, LLC
("THINC") exercises warrants granted to them by CareInsite at
$4.00 per share. THINC may exercise their warrants 180 days
after the initial public offering of CareInsite. No amounts
have been recognized in the Consolidated Financial Statements for
either the Performance Shares or the THINC Warrants due to the
uncertainty of the future events. A permanent impairment in the
value of CareInsite stock would result in a charge to earnings in
either the then current or future periods. There would be no
effect on cash flows because the revenue was earned through
contractual rights granted in exchange for CareInsite stock. An
increase in the value of the CareInsite stock would have no
effect on reported earnings. The Company has not engaged in
equity swaps or other hedging techniques to manage the equity
risk inherent in the CareInsite shares.
At October 2, 1999, marketable securities (which consist of money
market and commercial paper) of the Company were recorded at a
fair value of approximately $72,000,000, with an overall average
return of approximately 5% and an overall weighted maturity of
less than 90 days. The marketable securities held by the Company
are not subject to price risk due to their short-term nature.
The Company is not exposed to material future earnings or cash
flow exposures from changes in interest rates on long-term debt
since 100% of its long-term debt is at a fixed rate. To date,
the Company has not entered into any derivative financial
instruments to manage interest rate risk.
11
<PAGE>
The Company conducts business in several foreign jurisdictions.
However, the business transacted is in the local functional
currency and the Company does not currently have any material
exposure to foreign currency transaction gains or losses. All
other business transactions are in U.S. dollars. To date, the
Company has not entered into any derivative financial instrument
to manage foreign currency risk.
Changes in the Healthcare Industry - The healthcare industry is
- ----------------------------------
highly regulated and is subject to changing political, economic
and regulatory influences. For example, The Balanced Budget Act
of 1997 (Public Law 105-32) contains significant changes to
Medicare and Medicaid and began to have its initial impact in
1998 due to limitations on reimbursement, resulting cost
containment initiatives, and effects on pricing and demand for
capital intensive systems. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and
state legislatures have periodically considered programs to
reform or amend the U.S. healthcare system at both the federal
and state level and to change healthcare financing and
reimbursement systems. These programs may contain proposals to
increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which
healthcare industry participants operate. Healthcare industry
participants may respond by reducing their investments or
postponing investment decisions, including investments in the
Company's products and services.
Many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater market power. These
providers may try to use their market power to negotiate price
reductions for the Company's products and services. As the
healthcare industry consolidates, the Company's customer base
could be eroded, competition for customers could become more
intense and the importance of acquiring each customer becomes
greater.
Significant Competition - The market for healthcare information
- -----------------------
systems is intensely competitive, rapidly evolving and subject to
rapid technological change. The Company believes that the
principal competitive factors in this market include the breadth
and quality of system and product offerings, the stability of the
information systems provider, the features and capabilities of
the information systems, the ongoing support for the system, and
the potential for enhancements and future compatible products.
Certain of the Company's competitors have greater financial,
technical, product development, marketing and other resources
than the Company and some of its competitors offer products that
it does not offer. The Company's principle existing competitors
include Shared Medical Systems Corporation, IDX Systems
Corporation, McKesson HBOC, Inc. and Eclipsys Corporation, each
of which offers a suite of products that compete with many of the
Company's products. There are other competitors that offer a
more limited number of competing products.
In addition, the Company expects that major software information
systems companies, large information technology consulting
service providers and system integrators, Internet-based start-up
companies and others specializing in the healthcare industry may
offer competitive products or services. The pace of change in
the healthcare information systems market is rapid and there are
frequent new product introductions, product enhancements and
evolving industry standards and requirements. As a result, the
Company's success will depend upon its ability to keep pace with
technological change and to introduce, on a timely and cost-
effective basis, new and enhanced products that satisfy changing
customer requirements and achieve market acceptance.
Proprietary Technology May Be Subjected to Infringement Claims or
- -----------------------------------------------------------------
May Be Infringed Upon - The Company relies upon a combination of
- ---------------------
trade secret, copyright and trademark laws, license agreements,
confidentiality procedures, employee nondisclosure agreements and
technical measures to maintain the trade secrecy of its
proprietary information. The Company has not historically filed
patent applications or copyrights covering its software
technology. As a result, the Company may not be able to protect
against misappropriation of its intellectual property.
On June 11, 1999, a lawsuit was filed against the Company.
Eleven other companies engaged in various aspects of the
healthcare information systems business have also been named as
defendants in the same lawsuit. The lawsuit was brought in the
United States District Court for the Northern District of Texas Fort
12
<PAGE>
Worth Division and is entitled Allcare Health Management
-------------------------
System, Inc. v. Cerner Corporation, et al., and seeks damages for
- -----------------------------------------
patent infringement. The Company has filed an answer and the
lawsuit is in the early stage of discovery. The Company believes
the lawsuit is without merit and intends to vigorously defend
against it.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes
that no such currently pending routine litigation to which it is
party will have a material adverse effect on its financial
condition or results of operations
In addition, the Company could be subject to intellectual
property infringement claims as the number of competitors grows
and the functionality of its products overlaps with competitive
offerings. These claims, even if not meritorious, could be
expensive to defend. If the Company becomes liable to third
parties for infringing their intellectual property rights, it
could be required to pay a substantial damage award and to
develop noninfringing technology, obtain a license or cease
selling the products that contain the infringing intellectual
property.
Government Regulation - The United States Food and Drug
- ----------------------
Administration (the "FDA") has declared that software products
that are intended for the maintenance of data used in making
decisions regarding the suitability of blood donors and the
release of blood or blood components for transfusion are medical
devices under the 1976 Medical Device Amendments to the Federal
Food, Drug and Cosmetic Act and the Safe Medical Devices Act of
1990. As a consequence, the Company is subject to extensive
regulation by the FDA with regard to its blood bank software. If
other of the Company's products are deemed to be medical devices
by the FDA, the Company could be subject to extensive
requirements governing pre- and post- marketing conditions, such
as device investigation, approval, labeling and manufacturing.
Complying with these FDA regulations would be time consuming,
burdensome and expensive. The Company expects that the FDA is
likely to become more active in regulating computer software that
is used in healthcare.
Following an inspection by the FDA in March of 1998, the Company
received a two-item Form FDA 483 (Notice of Inspectional
Observations) containing observations of non-compliance with the
Federal Food, Drug and Cosmetic Act (the "Act") with respect to
the Company's PathNet HNA Blood Bank Transfusion and Donor
products (the "Blood Bank Products"). The Company subsequently
received a Warning Letter, dated April 29, 1998, as a result of
the same inspection. The Company responded promptly to the FDA
and undertook a number of actions in response to the Form 483 and
Warning Letter, including an audit by a third party of the
Company's Blood Bank Products. A copy of the third party audit
was submitted to the FDA in October of 1998 and, at the request
of the FDA, additional information and clarification was
submitted to the FDA in January of 1999.
There can be no assurance, however, that the Company's actions
taken in response to the Form 483 and Warning Letter will be
deemed adequate by the FDA or that additional actions on behalf
of the Company will not be required. In addition, the Company
remains subject to periodic inspections and there can be no
assurances that the Company will not be required to undertake
additional actions to comply with the Act and any other
applicable regulatory requirements. Any failure by the Company
to comply with the Act and any other applicable regulatory
requirements could have a material adverse effect on the
Company's ability to continue to manufacture and distribute its
products, and in more serious cases, could result in seizure,
recall, injunction and/or civil fines. Any of the foregoing
could have a material adverse effect on the Company's business,
results of operations or financial condition.
Product Related Liabilities - Many of the Company's products
- -----------------------------
provide data for use by healthcare providers in providing care to
patients. Although no such claims have been brought against the
Company to date regarding injuries related to the use of its
products, such claims may be made in the future. Although the
Company maintains product liability insurance coverage in an
amount that it believes is sufficient for its business, there can
be no assurance that such coverage will prove to be adequate or
that such coverage will continue to remain available on
acceptable terms, if at all. A successful claim brought against
the Company which is uninsured or under-insured could materially
harm its business, results of operations or financial condition.
13
<PAGE>
Year 2000 - The following statements are a "Year 2000 Readiness
- ----------
Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Computer programs that use two digits
to identify a year may fail or create errors in the year 2000,
leading to system failures or miscalculations causing disruptions
to the operations of the user. The Company has conducted a Year
2000 review of its operations focusing on the Company's products
and their use by its clients, the computers, operating systems
and data bases used in conjunction with its products and the
Company's internal operations.
The Company's software products currently being marketed are Year
2000 compliant. The costs incurred to make the Company's current
versions compliant have occurred in the ordinary course of
software development and enhancement and have not been material.
All of the Company's clients using older versions of its software
products are entitled to upgrade to the compliant versions with
no charge for the compliant version. However, some have elected
not to do so for a variety of reasons. The Company is working
with the clients who wish to upgrade to address Year 2000 issues.
Substantially all of these upgrades are complete. The Company is
assisting those clients to upgrade using electronic access from
the Company's facilities without charge. If the client desires
on-site assistance, the Company is assessing its normal charges.
These services are being conducted in the ordinary course of the
Company's business by its employees, and the costs to the Company
are not expected to be material. The Company is also engaged in
many projects to implement its products at client sites. These
projects require efforts both by the Company and its clients.
For some of these clients, these projects constitute their
solution to Year 2000 issues. Substantially all of these
projects are complete. The Company is working with its clients,
or the clients are working independently, on contingency plans
for Year 2000 issues where there is a reasonable likelihood the
project may not be completed by the end of 1999.
As clients and potential customers focus on efforts to update
their current systems, they may elect to delay capital
investments in information systems in order to focus their
capital budgets on the expenditures necessary to bring their
existing systems into Year 2000 compliance. As a result, the
Company may not achieve expected sales revenues and its business,
financial condition and results of operations could be materially
adversely affected.
The Company believes that its internal third-party software
applications, operating systems and telephone systems are Year
2000 compliant. The Company did have some internally developed
software applications that required upgrading to be Year 2000
compliant. These upgrades were done internally and have been
completed. The Company has also replaced some older computers
and operating systems that were not Year 2000 compliant in the
normal course of infrastructure maintenance.
The suppliers of the computers, operating systems and data bases
necessary to operate the current versions of the Company's
software products have indicated to the Company that those
products either are Year 2000 compliant or they would be by the
end of 1999. The Company has conducted tests of such computers,
operating systems and databases with its products now being
marketed and currently has no reasonable cause to believe that
the Company's products are not Year 2000 compliant when operated
with such computers, operating systems and databases. However,
in operation at clients' sites, the Company's software products
interchange data with many third party systems through interfaces
that may be unique to the client or the third party system. Such
interfaces or data interchanged may contain inaccuracies or such
data may not be in a format that allows the Company's system to
correctly identify the date. There can be no assurance that the
Company will not be subject to claims that result from the
failure of third party systems or their related interfaces to be
Year 2000 compliant. These claims, even if not meritorious,
could be expensive to defend.
Although the Company believes its Year 2000 review and the
actions it has taken and plans to take in response to the review
are appropriate, there can be no assurance that the review
identified all possible issues or that all identified issues will
be satisfactorily resolved. A material failure of the Company's
internal systems to be Year 2000 compliant, a material failure in
suppliers of the computers, operating systems and databases used
in conjunction with the Company's products to be Year 2000
compliant or a material delay in client projects related to Year
2000 issues could have a material adverse effect on the Company's
business, results of operations or financial condition.
14
<PAGE>
System Errors and Warranties - The Company's systems,
- ---------------------------------
particularly the Millennium versions, are very complex. As with
complex systems offered by others, the Company's systems may
contain errors, especially when first introduced. Although the
Company conducts extensive testing, it has discovered software
errors in its products after their introduction. The Company's
systems are intended for use in collecting and displaying
clinical information used in the diagnosis and treatment of
patients. Therefore, users of the Company products have a
greater sensitivity to system errors than the market for software
products generally. The Company's agreements with its clients
typically provide warranties against material errors and other
matters. Failure of a client's system to meet these criteria
could constitute a material breach under such contracts allowing
the client to cancel the contract, or could require the Company
to incur additional expense in order to make the system meet
these criteria. The Company's contract with its clients
generally limit the Company's liability arising from such claims
but such limits may not be enforceable in certain jurisdictions.
Anti-Takeover Defenses - The Company's charter, bylaws,
- ------------------------
shareholders' rights plan and certain provisions of Delaware law
contain certain provisions that may have the effect of delaying
or preventing an acquisition of the Company. Such provisions are
intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of
Directors in connection with any such transaction. These
provisions include (i) a Board of Directors that is staggered
into three classes to serve staggered three-year terms, (ii)
blank check preferred stock, (iii) supermajority voting
provisions, (iv) inability of stockholders to act by written
consent or call a special meeting, (v) limitations on the ability
of stockholders to nominate directors or make proposals at
stockholder meetings, and (vi) triggering the exercisability of
stock purchase rights on a discriminatory basis, which may invoke
extensive economic and voting dilution of a potential acquirer if
its beneficial ownership of the Company's common stock exceeds a
specified threshold. Certain of these provisions may discourage
a future acquisition of the Company not approved by the Board of
Directors in which shareholders might receive a premium value for
their shares.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
-----------------
On June 11, 1999, a lawsuit was filed against the Company.
Eleven other companies engaged in various aspects of the
healthcare information systems business have also been named as
defendants in the same lawsuit. The lawsuit was brought in the
United States District Court for the Northern District of Texas
Fort Worth Division and is entitled Allcare Health Management
---------------------------
System, Inc. v. Cerner Corporation, et al., and seeks damages for
- -----------------------------------------
patent infringement. The Company has filed an answer and the
lawsuit is in the early stages of discovery. The Company
believes the lawsuit is without merit and intends to vigorously
defend against it.
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
A Form 8-K was filed by the Company on September 28, 1999
reporting the resignation of Thomas A. McDonnell as a board
member and the appointment of Jeff Goldsmith, Ph.D. as his
replacement.
16
<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 16, 1999 By:\s\Marc G. Naughton
- ----------------- -------------------
Date Marc G. Naughton
Chief Financial Officer
Exhibit 11
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Earnings before
- -------------------
Extraordinary Item: $ 680,000 $ 6,348,000 $ 3,758,000 $ 12,388,000
------------------ ============ ============ ============ ============
Weighted average number
of common and common stock
equivalent shares:
Basic weighted average
number of outstanding
common shares 33,622,000 32,771,000 33,599,000 32,727,000
------------ ------------ ------------ ------------
Basic earnings per
common shares: $ 0.02 $ 0.19 $ 0.11 $ 0.38
------------ ------------ ------------ ------------
Dilutive effect (excess
of number of shares
issuable over number
of shares assumed to
be repurchased with
the proceeds of exercised
options and converted
warrants based on the
average market price
during the period) 240,000 969,000 331,000 848,000
------------ ------------ ------------ ------------
33,862,000 33,740,000 33,930,000 33,575,000
------------ ------------ ------------ ------------
Diluted earnings per common
and common stock ------------------------------------------------------
equivalent shares: $ 0.02 $ 0.19 $ 0.11 $ 0.37
======================================================
Net Earnings after
- ------------------
Extraordinary Item: $ 680,000 $ 6,348,000 $ 2,363,000 $ 12,388,000
------------------ ============ ============ ============ ============
Weighted average number
of common and common stock
equivalent shares:
Basic weighted average
number of outstanding
common shares 33,622,000 33,771,000 33,599,000 32,727,000
------------ ------------ ------------ ------------
Basic earnings per
common shares: $ 0.02 $ 0.19 $ 0.07 $ 0.38
------------ ------------ ------------ ------------
Dilutive effect (excess
of number of shares
issuable over number
of shares assumed to
be repurchased with
the proceeds of exercised
options and converted
warrants based on the
average market price
during the period) 240,000 969,000 331,000 848,000
------------ ------------ ------------ ------------
33,862,000 33,740,000 33,930,000 33,575,000
------------ ------------ ------------ ------------
Diluted earnings per common
and common stock ------------------------------------------------------
equivalent shares: $ 0.02 $ 0.19 $ 0.07 $ 0.37
======================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 71,969,000
<SECURITIES> 0
<RECEIVABLES> 169,304,000
<ALLOWANCES> 4,865,000
<INVENTORY> 2,514,000
<CURRENT-ASSETS> 243,638,000
<PP&E> 135,833,000
<DEPRECIATION> 59,054,000
<TOTAL-ASSETS> 578,960,000
<CURRENT-LIABILITIES> 72,185,000
<BONDS> 0
0
0
<COMMON> 348,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 578,960,000
<SALES> 80,929,000
<TOTAL-REVENUES> 80,929,000
<CGS> 17,900,000
<TOTAL-COSTS> 60,861,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,022,000
<INCOME-PRETAX> 1,146,000
<INCOME-TAX> 466,000
<INCOME-CONTINUING> 680,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 680,000
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
