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 July 1, 2000
------------------------
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) 201-1024
---------------------------------------------------------------
(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 33,888,981 shares of Common Stock, $.01 par
value, outstanding at July 1, 2000.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
-----------------------------------
I N D E X
---------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of July 1, 2000 (unaudited)
and January 1, 2000 1
Consolidated Statements of Operations for the
three months and six months ended July 1, 2000
and July 3, 1999 (unaudited) 2
Consolidated Statements of Cash Flows
for the six months ended July 1, 2000
and July 3, 1999 (unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 16
Part II. Other Information:
Item 4 Submission of Matters to a Vote of Security Holders 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>
July 1, January 1,
(In thousands) 2000 2000
--------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 89,288 $ 75,677
Receivables 146,853 161,174
Inventory 830 1,262
Prepaid expenses and other 5,233 4,316
---------- ----------
Total current assets 242,204 242,429
Property and equipment, net 77,080 77,938
Software development costs, net 76,544 71,007
Intangible assets, net 7,894 7,511
Investments, net 245,694 252,123
Other assets 10,653 9,883
---------- ----------
$ 660,069 $ 660,891
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 17,478 $ 20,261
Deferred revenue 36,947 21,245
Income taxes 10,467 10,987
Accrued payroll and tax withholdings 21,800 17,241
Other accrued expenses 805 2,642
---------- ----------
Total current liabilities 87,497 72,376
---------- ----------
Long-term debt, net 100,013 100,000
Deferred income taxes 85,457 93,578
Deferred revenue 15,125 16,000
Stockholders' Equity:
Common stock, $.01 par value, 150,000,000
shares authorized, 35,090,591 shares issued
in 2000 and 34,932,703 issued in 1999 351 349
Additional paid-in capital 169,203 166,735
Retained earnings 125,430 125,651
Treasury stock, at cost (1,201,610 shares in 2000 and
1,201,518 shares in 1999) (20,799) (20,796)
Accumulated other comprehensive income:
Foreign currency translation adjustment (282) 23
Unrealized gain on available-for-sale equity security
(net of deferred taxes of $55,165 in 2000 and $59,806 in 1999) 98,074 106,975
---------- ----------
Total stockholders' equity 371,977 378,937
---------- ----------
$ 660,069 $ 660,891
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------
July 1, July 3, July 1, July 3,
-------------------------------------------
2000 1999 2000 1999
---------- ---------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
System sales $ 58,833 $ 54,206 $ 112,910 $ 115,019
Support and maintenance 28,266 22,918 54,790 45,283
Other 6,403 5,658 12,909 9,223
---------- ---------- ---------- ----------
Total revenues 93,502 82,782 180,609 169,525
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues 19,479 21,932 37,861 45,500
Sales and client service 41,750 34,153 79,074 68,256
Software development 18,055 18,520 37,586 36,046
General and administrative 6,651 6,773 13,586 13,445
Write-down of intangible assets 6,687 - 6,687 -
---------- ---------- ---------- ----------
Total costs and expenses 92,622 81,378 174,794 163,247
---------- ---------- ---------- ----------
Operating earnings 880 1,404 5,815 6,278
Interest expense, net (836) (976) (1,785) (1,307)
---------- ---------- ---------- ----------
Earnings before income taxes and extraordinary item 44 428 4,030 4,971
Income Taxes (2,657) (168) (4,251) (1,894)
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item (2,613) 260 (221) 3,077
---------- ---------- ---------- ----------
Extraordinary loss on early extinguishment of debt,
net of taxes of $865 - (1,395) - (1,395)
---------- ---------- ---------- ----------
Net earnings (loss) $ (2,613) $ (1,135) $ (221) $ 1,682
========== ========== ========== ==========
Basic earnings (loss) per share:
Basic earnings (loss) per share before extraordinary item $ (0.08) $ 0.01 $ (0.01) $ 0.09
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.08) $ (0.03) $ (0.01) $ 0.05
========== ========== ========== ==========
Basic weighted average shares outstanding 33,830 33,615 33,804 33,587
---------- ---------- ---------- ----------
Diluted earning (loss) per share:
Diluted earnings (loss) per share before extraordinary item $ (0.08) $ 0.01 $ (0.01) $ 0.09
========== ========== ========== ==========
Diluted earning (loss) per share $ (0.08) $ (0.03) $ (0.01) $ 0.05
========== ========== ========== ==========
Diluted weighted average shares outstanding 33,830 33,911 33,804 33,918
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
----------------
July 1, 2000 July 3, 1999
--------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (221) $ 1,682
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 17,774 15,562
Extraordinary item, net of tax - 1,395
Write-down of intangible assets 6,687 -
Revenue from non-monetary transactions (5,128) (10,200)
Issuance of stock as compensation 31 40
Non-employee stock option compensation expense 117 116
Equity in losses of investee companies 206 890
Provision for deferred income taxes (638) 155
Tax benefit from disqualifying dispositions of stock options - 11
Loss on disposal of capital equipment 33 178
Gain on sale of investments (11) -
Changes in assets and liabilities:
Receivables, net 14,823 12,077
Inventory 455 101
Prepaid expenses and other (4,611) (914)
Accounts payable (3,297) (4,548)
Accrued income taxes 1,129 155
Deferred revenue 13,709 (5,624)
Other accrued liabilities 2,727 (1,386)
--------- ---------
Total adjustments 44,006 8,008
--------- ---------
Net cash provided by operating activities 43,785 9,690
--------- ---------
Cash flows from investing activities:
Purchase of capital equipment (6,126) (6,414)
Acquisition of business (10,333) -
Investment in investee companies (2,254) (12,705)
Advances to investee company 1,000 (750)
Proceeds from sale of stock in investee company 511 -
Executive stock purchase program - (3,343)
Capitalized software development costs (14,706) (14,967)
--------- ---------
Net cash used in investing activities (31,908) (38,179)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 99,568
Repayment of long-term debt (280) (30,019)
Prepayment penalty on early extinguishment of debt - (2,137)
Proceeds from exercise of options 2,319 218
--------- ---------
Net cash provided by financing activities 2,039 67,630
--------- ---------
Foreign currency translation adjustment (305) 335
--------- ---------
Net increase in cash and cash equivalents 13,611 39,476
Cash and cash equivalents at beginning of period 75,677 42,658
--------- ---------
Cash and cash equivalents at end of period $ 89,288 $ 82,134
========= =========
</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 July 1, 2000 and January
1, 2000 and the results of operations and cash flows for the
periods presented. The results of the three-month and six-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 six
months ended July 1, 2000 and July 3, 1999, total Comprehensive
Income, which includes foreign currency translation adjustments
and unrealized gain (loss) on available-for-sale equity security
adjustments, amounted to ($9,427,000) and $41,461,000
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>
(In thousands, except per share data)
<CAPTION>
Three months ended Three months ended
July 1, 2000 July 3, 1999
-------------------------------------------------------------------------------
Earnings (loss) Shares Per-Share Earnings Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings(loss)per share:
Income available to common
Stockholders $ (2,613) 33,830 $ (.08) $ 260 33,615 $ .01
Effect of dilutive securities
(stock options) - - - 296
Diluted earnings(loss)per share:
Income available to common
Stockholders including -----------------------------------------------------------------------------
Assumed conversions $ (2,613) 33,830 $ (.08) $ 260 33,911 $ .01
=============================================================================
</TABLE>
4
<PAGE>
<TABLE>
Three months ended Three months ended
July 1, 2000 July 3, 1999
--------------------------------------------------------------------------------
Earnings (loss) Shares Per-Share Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------
Net earnings(loss) per share
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings(loss) per share:
Income (loss) available to
common stockholders
$ (2,613) 33,830 $ (.08) $ (1,135) 33,615 $ (.03)
Effect of dilutive securities
(stock options) - - - 296
Diluted earnings(loss) per share:
Income (loss)available to common
stockholders including ----------------------------------------------------------------------------
assumed conversions $ (2,613) 33,830 $ (.08) $ (1,135) 33,911 $ (.03)
============================================================================
</TABLE>
Options to purchase 2,184,000 and 3,286,000 shares of common
stock at per share prices ranging from $25.00 to $33.38 and
$18.13 to $31.00 were outstanding at the three months ended July
1, 2000 and July 3, 1999, but were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the
common shares.
<TABLE>
Six months ended Six months ended
July 1, 2000 July 3, 1999
----------------------------------------------------------------------------------
Earnings (loss) Shares Per-Share Earnings Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings(loss) per share:
Income (loss)available to
common stockholders $ (221) 33,804 $ (.01) $ 3,077 33,587 $ .09
Effect of dilutive securities
(stock options) - - - 331
Diluted earnings (loss) per share:
Income (loss)available to
common stockholders including --------------------------------------------------------------------------------
assumed conversions $ (221) 33,804 $ (.01) $ 3,077 33,918 $ .09
================================================================================
</TABLE>
<TABLE>
Six months ended Six months ended
July 1, 2000 July 3, 1999
--------------------------------------------------------------------------------
Earnings (loss) Shares Per-Share Earnings Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------
Net earnings(loss) per share
----------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings(loss) per share:
Income (loss) available to
common stockholders $ (221) 33,804 $ (.01) $ 1,682 33,587 $ .05
Effect of dilutive securities
(stock options) - - - 331
Diluted earnings(loss) per share:
Income (loss) available to
common stockholders including -------------------------------------------------------------------------------
assumed conversions $ (221) 33,804 $ (.01) $ 1,682 33,918 $ .05
===============================================================================
</TABLE>
5
<PAGE>
Options to purchase 1,907,000 and 3,286,000 shares of common
stock at per share prices ranging from $25.88 to $33.38, and
$18.13 to $31.00 were outstanding at the six months ended of July
1, 2000 and July 3, 1999, but were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the
common shares.
(3) Business Acquisitions
On April 2, 2000 the Company purchased the remaining 50% of the
outstanding common stock of Health Network Ventures, Inc. (HNV)
for $8.3 million. HNV develops software solutions that enable
transaction processing between providers, and other health-
related entities. Subsequent to the acquisition, the Company has
determined that it will shut down the portion of the business
focused on individual physician practice connectivity and
transaction processing given that it is the Company's strategy to
use CareInsite to process transactions. As a result of this
decision, the Company's recorded a non-recurring charge in the
second quarter of 2000 in the amount of $6,687,000 or $.20 per
share on a diluted basis related to a write-down of intangible
assets.
The Company also purchased the assets of Mitch Cooper &
Associates (MC&A) for $2 million on April 2, 2000. MC&A is a
supply chain re-engineering consulting practice. 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 $1,957,000. The
goodwill is being amortized straight-line over five years.
The acquisitions were accounted for using the purchase method of
accounting with the operating results of HNV and MC&A included in
the Company's consolidated statement of earnings since the date
of acquisition.
On May 15, 2000, the Company entered into an agreement to acquire
CITATION Computer Systems, Inc, a market leader in laboratory
systems for small to mid-sized hospitals. Under terms of the
agreement, CITATION shareholders will receive 0.1695 shares of
the Company's stock for 90% of CITATION stock and $5.10 in cash
for 10% of CITATION stock, resulting in the issuance of
approximately 598,000 shares of the Company's stock for 90% of
CITATION and payment of approximately $2 million for the
remaining 10% of CITATION. The transaction, which will be
accounted for as a purchase, is expected to close in the third
quarter this calendar year pending CITATION shareholder approval.
(4) 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) July 1, January 1,
2000 2000
-------------------------
<S> <C> <C>
Accounts receivable $ 65,878 85,814
Contracts receivable 80,975 75,360
-------------------------------------------------------
Total receivables $ 146,853 161,174
=========================
</TABLE>
6
<PAGE>
(5) Investments
Included in the Company's investments is the ownership of
13,149,259 shares (17.5%) of common stock, 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 $235,043,000 at July 1, 2000. 12,437,500 of
these shares were received in 1998 as consideration for the sale
of license software, and an additional 711,759 shares were
purchased in 1999. The value assigned to the shares acquired in
1998 was $70,000,000 and was based on a methodology which
utilized both a comparable company and the expected underlying
discounted future cash flows. On June 16, 1999, CareInsite
undertook an initial public offering of common stock. The common
stock of CareInsite is traded in the public market and listed on
the Nasdaq National Market. The stock of CareInsite held by the
Company is not registered and is subject to certain lock-up
provisions. A permanent impairment in the value of CareInsite
common 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.
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.
On April 1, 2000, the Company marked to market all 13,149,259
shares of CareInsite common stock that are considered available-
for-sale under SFAS No.115. The market value on July 1, 2000 was
$235,043,000.
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. No amounts have been recognized in the consolidated
financial statements for the Performance Shares due to the
uncertainty of the future events.
The Company was also granted, by CareInsite, 1,008,445 common
stock warrants with an exercise price of $4.00 per share ("THINC
Warrants"). The THINC Warrants were exercisable only in the
event that The Health Information Network Connections, LLC
("THINC") exercised warrants granted to them by CareInsite at
$4.00 per share. THINC was allowed to exercise their warrants
180 days after the initial public offering of CareInsite. On
January 29, 2000 CareInsite completed an acquisition of THINC.
As part of that agreement, 806,756 of the Company's 1,008,445
THINC Warrants became immediately exercisable, with the remaining
amount forfeited. The THINC Warrants expire in three years.
On February 13, 2000 CareInsite entered into an agreement to
merge with Healtheon/Web MD Corporation ("Merger Agreement"). As
part of the Merger Agreement, the Company will receive 1.3 shares
of Healtheon/Web MD Corporation in exchange for each common share
of CareInsite held by the Company. In addition the Performance
Shares will be adjusted at a rate of 1.3 shares of Healtheon/Web
MD Corporation for each share of CareInsite. All physician users
of systems of Healtheon/Web MD Corporation or its affiliates
shall be included for purposes of determining the specified
levels of physician usage. The THINC Warrants will also be
adjusted at a rate of 1.3 shares of Healtheon/Web MD Corporation
for each share of CareInsite. The proposed merger of CareInsite
and Healtheon/Web MD Corporation ("Merger") is subject to
shareholder and regulatory approval. There is no guarantee the
Merger will close.
The Company has agreed under terms of the Merger Agreement to
certain lock-up provisions, which differ from the terms of its
lock-up provisions with CareInsite. The Merger is expected to
close in the second half of 2000. If the Merger closes the
Company will record the Healtheon/Web MD Corporation shares
received at their then fair value and recognize a gain on the
disposition of the CareInsite shares.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
---------------------
Three Months Ended July 1, 2000 Compared to Three Months Ended
July 3, 1999
The Company's revenues increased 13% to $93,502,000 for the three-
month period ended July 1, 2000 from $82,782,000 for the three-
month period ended July 3, 1999. Net earnings, before
extraordinary item and non-recurring charge was $4,074,000 for
the three-month period ended July 1, 2000, compared to $260,000
for the three-month period ended July 3, 1999. Revenues from non-
monetary transactions were $1,815,000 for the three-month period
ended July 1, 2000 and $5,600,000 for the three-month period
ended July 3, 1999. The increase in net earnings, before
extraordinary item and non-recurring charge, is due to an
increase in new contract bookings in the three-month period ended
July 1, 2000 compared to the three-month period ended July 3,
1999. After the write off of intangible assets, the Company
incurred a loss of $2,613,000, net of tax, for the three-month
period ended July 1, 2000.
System sales revenues increased 9% to $58,833,000 for the three-
month period ended July 1, 2000 from $54,206,000 for the
corresponding period in 1999. This increase in system sales
resulted primarily from an increase in new business signed in the
three-month period ended July 1, 2000 compared to the three-month
period ended July 3, 1999.
At July 1, 2000, the Company had $393,480,000 in contract backlog
and $171,749,000 in support and maintenance backlog, compared to
$323,292,000 in contract backlog and $157,957,000 in support and
maintenance backlog at July 3, 1999.
Support and maintenance revenues increased 23% to $28,266,000
during the second quarter of 2000 from $22,918,000 during the
same period in 1999. This increase was due primarily to the
increase in the Company's installed and converted client base.
Other revenues increased 13% to $6,403,000 in the second quarter
of 2000 from $5,658,000 in the same period of 1999. This
increase was due primarily to subscriptions to clients; this
increase was $486,000.
The cost of revenues includes the cost of third party consulting
services, 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 21% of total revenues in the second quarter of 2000
compared to 26% in 1999. 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 45% and 41% in the second quarter
of 2000 and 1999, respectively. The increase in total sales and
client service expenses to $41,750,000 in 2000 from $34,153,000
in 1999 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 second quarter of 2000 and 1999
were $20,432,000 and $22,476,000, respectively. These amounts
exclude amortization. Capitalized software costs were $7,000,000
and $7,651,000 for the second quarter of 2000 and 1999,
respectively. The decrease in aggregate expenditures for
software development in 2000 is due to a reduction in third party
software development expenses.
8
<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 7% and 8% in the second
quarter of 2000 and 1999, respectively. Total general and
administrative expenses for the second quarter of 2000 and 1999
were $6,651,000 and $6,773,000, respectively.
On April 2, 2000 the Company purchased the remaining 50% of the
outstanding common stock of Health Network Ventures, Inc. (HNV)
for $8.3 million. HNV develops software solutions that enable
transaction processing between providers, and other health-
related entities. Subsequent to the acquisition, the Company has
determined that it will shut down the portion of the business
focused on individual physician practice connectivity and
transaction processing given that it is the Company's strategy to
use CareInsite to process transactions. As a result of this
decision, the Company recorded a non-recurring charge in the
second quarter of 2000 in the amount of $6,687,000 or $.20 per
share on a diluted basis related to a write-down of intangible
assets.
Net interest expense was $836,000 in the second quarter of 2000
compared to $976,000 in the second quarter of 1999. This
decrease is due to an increase in invested cash, resulting from
an increase in cash collections.
After adjusting for the non-deductible write-down of intangibles,
the Company's effective tax rate was 39% for the second quarter
of 2000 and 1999, respectively.
Six Months Ended July 1, 2000 Compared to Six Months Ended July
3, 1999
The Company's revenues increased 7% to $180,609,000 for the six-
month period ended July 1, 2000 from $169,525,000 for the six-
month period ended July 3, 1999. Net earnings before
extraordinary item and non-recurring charge were $6,466,000 for
the six-months ended July 1, 2000, compared to $3,077,000 for the
six-months ended July 3, 1999. The increase in net earnings,
before extraordinary item and non-recurring charge, is due to an
increase in new contract bookings in the six-month period ended
July 1, 2000 compared to the six-month period ended July 3, 1999.
Revenues from non-monetary transactions were $5,128,000 for the
six-month period ended July 1, 2000 and $10,200,000 for the six-
month period ended July 3, 1999. After the non-recurring charge,
which resulted from a write-off of intangible assets associated
with the HNV purchase, and extraordinary item, which resulted
from a prepayment penalty and write-off of deferred loan costs
from the early extinguishment of debt, net earnings (loss) were
($221,000) and $1,682,000 for the first six-months of 2000 and
1999, respectively.
System sales revenues decreased 2% to $112,910,000 for the six-
month period ended July 1, 2000 from $115,019,000 for the
corresponding period in 1999.
At July 1, 2000, the Company had $393,480,000 in contract backlog
and $171,749,000 in support and maintenance backlog, compared to
$323,292,000 in contract backlog and $157,957,000 in support and
maintenance backlog at July 3, 1999.
Support and maintenance revenues increased 21% to $54,790,000
during the first six months of 2000 from $45,283,000 during the
same period in 1999. This increase was due primarily to the
increase in the Company's installed and converted client base.
Other revenues increased 40% to $12,909,000 in the first six
months of 2000 from $9,223,000 in the same period of 1999. This
increase is due primarily to additional revenues derived from
gains on investments received on previous license software
arrangements and subscriptions to clients; these increases were
$2,686,000 and $1,042,000, respectively.
The cost of revenues includes the cost of third party consulting
services, 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 21% of total revenues in the first six months of 2000
compared to 27% in 1999. Such costs, as a percent of revenues,
typically have varied as the mix of revenue
9
<PAGE>
(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 40% in the first six
months of 2000 and 1999, respectively. The increase in total
sales and client service expenses to $79,074,000 in 2000 from
$68,256,000 in 1999 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 six months of 2000 and
1999 were $43,123,000 and $43,745,000 respectively. These
amounts exclude amortization. Capitalized software costs were
$14,706,000 and $14,967,000 for the first six months of 2000 and
1999, respectively. The decrease in aggregate expenditures for
software development in 2000 is due to a reduction in third party
software development expenses.
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 six months of
both 2000 and 1999. Total general and administrative expenses
for the first six months of 2000 and 1999 were $13,586,000 and
$13,445,000, respectively.
On April 2, 2000 the Company purchased the remaining 50% of the
outstanding common stock of Health Network Ventures, Inc. (HNV)
for $8.3 million. HNV develops software solutions that enable
transaction processing between providers, and other health-
related entities. Subsequent to the acquisition, the Company has
determined that it will shut down the portion of the business
focused on individual physician practice connectivity and
transaction processing given that it is the Company's strategy to
use CareInsite to process transactions. As a result of this
decision, the Company recorded a non-recurring charge in the
second quarter of 2000 in the amount of $6,687,000 or $.20 per
share on a diluted basis related to a write-down of intangible
assets.
Net interest expense was $1,785,000 in the first six months of
2000 compared to $1,307,000 in the first six months of 1999.
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.
After adjusting for the non-deductible write-down of intangibles,
the Company's effective tax rates were 40% and 38% for the first
six months of 2000 and 1999, respectively.
Capital Resources and Liquidity
-------------------------------
The Company's liquidity position remains strong with total cash
and cash equivalents of $89,288,000 at July 1, 2000 and working
capital of $154,707,000. The Company generated net cash from
operations of $43,785,000 and $9,690,000 during the six-month
periods ended July 1, 2000 and July 3, 1999, respectively. Cash
flow from operations increased in the first six-months of 2000,
due to increased collection of receivables and improved payment
terms. On April 15, 1999, the Company completed a $100,000,000
private placement of debt as previously discussed. The proceeds
were used to retire the Company's existing $30,000,000 of debt,
and the remaining funds are being used for capital improvements
and to strengthen the Company's cash position. The Company has
$18,000,000 of long-term, revolving credit from banks, all of
which was available as of July 1, 2000.
10
<PAGE>
Cash used in investing activities consisted primarily of
capitalized software development costs of $14,706,000 and
$14,967,000 and purchase of capital equipment of $6,126,000 and
$6,414,000 in the first six months of 2000 and 1999,
respectively. Also, included in investing activities in the
second quarter of 2000 was $10,333,000 for the acquisition of two
businesses, as previously discussed.
Revenues provided under the Company's support and maintenance
agreements represent recurring cash flows. Support and
maintenance revenues increased 23% in the second quarter of 2000
over the second quarter of 1999, 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 2000.
The effects of inflation were minimal on the Company's business
during the period discussed herein.
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
11
<PAGE>
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.
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 (17.5%) of common stock, 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 $235,043,000 at July 1, 2000. 12,437,500 of
these shares were received in 1998 as consideration for the sale
of license software, and an additional 711,759 shares were
purchased in 1999. The value assigned to the shares acquired in
1998 was $70,000,000 and was based on a methodology which
utilized both a comparable company and the expected underlying
discounted future cash flows. On June 16, 1999, CareInsite
undertook an initial public offering of common stock. The common
stock of CareInsite is traded in the public market and listed on
the Nasdaq National Market. The stock of CareInsite held by the
Company is not registered and is subject to certain lock-up
provisions. A permanent impairment in the value of CareInsite
common 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.
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.
On April 1, 2000, the Company marked to market all 13,149,259
shares of CareInsite common stock that are considered available-
for-sale under SFAS No.115. The market value on July 1, 2000 was
$235,043,000.
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. No amounts have been recognized in the consolidated
financial statements for the Performance Shares due to the
uncertainty of the future events.
The Company was also granted, by CareInsite, 1,008,445 common stock
warrants with an exercise price of $4.00 per share ("THINC Warrants").
The THINC Warrants were exercisable only in the event that The
12
<PAGE>
Health Information Network Connections, LLC ("THINC") exercised
warrants granted to them by CareInsite at $4.00 per share. THINC
was allowed to exercise their warrants 180 days after the initial
public offering of CareInsite. On January 29, 2000 CareInsite
completed an acquisition of THINC. As part of that agreement,
806,756 of the Company's 1,008,445 THINC Warrants became
immediately exercisable, with the remaining amount forfeited. The
THINC Warrants expire in three years.
On February 13, 2000 CareInsite entered into an agreement to
merge with Healtheon/Web MD Corporation ("Merger Agreement"). As
part of the Merger Agreement, the Company will receive 1.3 shares
of Healtheon/Web MD Corporation in exchange for each common share
of CareInsite held by the Company. In addition the Performance
Shares will be adjusted at a rate of 1.3 shares of Healtheon/Web
MD Corporation for each share of CareInsite. All physician users
of systems of Healtheon/Web MD Corporation or its affiliates
shall be included for purposes of determining the specified
levels of physician usage. The THINC Warrants will also be
adjusted at a rate of 1.3 shares of Healtheon/Web MD Corporation
for each share of CareInsite. The proposed merger of CareInsite
and Healtheon/Web MD Corporation ("Merger") is subject to
shareholder and regulatory approval. There is no guarantee the
Merger will close.
The Company has agreed under terms of the Merger Agreement to
certain lock-up provisions, which differ from the terms of its
lock-up provisions with CareInsite. The Merger is expected to
close in the second half of 2000. If the Merger closes the
Company will record the Healtheon/Web MD Corporation shares
received at their then fair value and recognize a gain on the
disposition of the CareInsite shares.
The Company is exposed to market risk from changes in marketable
securities (which consist of money market and commercial paper).
At July 1, 2000, marketable securities of the Company were
recorded at a fair value of approximately $89 million, 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 as
they are held to maturity.
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 and is currently not
evaluating the future use of any such financial instruments.
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 and is currently not evaluating
the future use of any such financial instruments.
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.
13
<PAGE>
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.
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 Federal Food, Drug and Cosmetic Act (the "Act")
and amendments to the Act. 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 including premarket
notification clearance prior to marketing. Complying with these
FDA regulations would be time consuming, burdensome and
expensive. It is possible that the FDA may 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 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 and improvements to Cerner's
Quality System. 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.
14
<PAGE>
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
would 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.
System Errors and Warranties - The Company's systems,
---------------------------------
particularly the HNA 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>
Item 3. Quantitative and Qualitative Disclosures about Market
------------------------------------------------------
Risk
----
Information contained under the caption "Factors the may Affect
Future Results of Operations, Financial Condition or Business -
Market Risk of Investments" set forth under Management's
Discussion and Analysis of Financial Conditions and Results of
Operations" in Item 2 is incorporated herein by reference.
Part II. Other Information
Item 4 Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the Company's annual shareholders meeting held on May 26,
2000, Clifford W. Illig was re-elected as a Class II Director,
for a three-year term expiring at the 2003 annual meeting of
shareholders. Neal L. Patterson, John C. Danforth, Jeff C.
Goldsmith, Dr. Gerald E. Bisbee, Jr., and Michael E. Herman
continued as directors after the meeting.
<TABLE>
Abstention and Broker
For Withheld Non-Votes
---------- ---------- ---------------------
<S> <C> <C> <C>
Clifford W. Illig 30,799,936 - 426,871
</TABLE>
The shareholders also ratified the selection by the Board of
Directors of KPMG LLP as the Company's independent certified
public accountants for the fiscal year ending December 30, 2000.
Shares voted in favor were 30,913,390, shares against 271,427 and
41,990 shares abstained or were broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Exhibit 10 First Amendment to the Credit Agreement
between Cerner Corporation and Mercantile
Bank dated April 1, 1999
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 July 1, 2000.
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
August 14, 2000 By:\s\Marc G. Naughton
---------------- -------------------
Date Marc G. Naughton
Chief Financial Officer
17
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