<PAGE>
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 June 30, 1994
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 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
(610) 219-6300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report)
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), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No
----- -----
On July 31, 1994, there were 22,887,357 shares of Common Stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
----------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments.......... $ 20,805,000 $ 35,826,000
Accounts receivable, net of reserve of
$4,303,000 in 1994 and $4,279,000 in
1993.................................... 121,662,000 113,138,000
Prepaid expenses, inventories, etc....... 19,412,000 16,572,000
------------ ------------
Total Current Assets................... 161,879,000 165,536,000
------------ ------------
Property and Equipment, at cost:
Land and land improvements............... 10,706,000 10,703,000
Buildings................................ 58,292,000 57,368,000
Equipment................................ 162,998,000 183,257,000
------------ ------------
231,996,000 251,328,000
Less: Accumulated depreciation and
amortization.................... 129,734,000 146,463,000
------------ ------------
102,262,000 104,865,000
------------ ------------
Computer Software, net of accumulated
amortization of $31,945,000 in 1994 and
$28,552,000 in 1993...................... 35,837,000 33,547,000
------------ ------------
Other Assets............................... 42,252,000 37,494,000
------------ ------------
$342,230,000 $341,442,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET (Continued)
--------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable............................................ $ 13,125,000 $ 5,830,000
Current portion of long-term obligations
under capital leases................................... 2,633,000 2,433,000
Dividends payable........................................ 4,804,000 4,778,000
Accounts payable......................................... 20,304,000 16,509,000
Accrued expenses......................................... 22,429,000 32,434,000
Current deferred revenues................................ 24,918,000 23,477,000
Accrued and current deferred income taxes................ 1,204,000 7,379,000
------------ ------------
Total Current Liabilities.............................. 89,417,000 92,840,000
------------ ------------
Deferred Revenues.......................................... 18,697,000 21,619,000
------------ ------------
Long-Term Obligations Under Capital Leases................. 5,528,000 6,395,000
------------ ------------
Deferred Income Taxes...................................... 20,442,000 22,382,000
------------ ------------
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none
issued................................................. - -
Common stock, par value $.01; authorized
60,000,000 shares;
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C> <C> <C>
Shares issued............ 26,895,992 26,770,731
Less-
Treasury shares:
Donated.............. 1,114,400 1,114,400
Purchased............ 2,905,096 2,903,523
Shares
outstanding............. 22,876,496 22,752,808 269,000 268,000
Paid-in capital.......................................... 30,619,000 28,829,000
Retained earnings........................................ 236,333,000 228,831,000
Purchased common stock in treasury,
at cost................................................ (55,003,000) (54,948,000)
Cumulative translation adjustment........................ (4,072,000) (4,774,000)
------------ ------------
Total Stockholders' Investment......................... 208,146,000 198,206,000
------------ ------------
$342,230,000 $341,442,000
============ ============
</TABLE>
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------- -------------------------------
1994 1993 1994 1993
------------------- ------------ ----------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system
fees.................. $122,708,000 $110,586,000 $238,122,000 $218,700,000
Hardware sales.......... 9,899,000 13,560,000 19,655,000 22,666,000
------------ ------------ ------------ ------------
132,607,000 124,146,000 257,777,000 241,366,000
Cost of Hardware
Sales................... 7,834,000 10,591,000 16,083,000 17,924,000
------------ ------------ ------------ ------------
Revenues Less Cost of
Hardware Sales.......... 124,773,000 113,555,000 241,694,000 223,442,000
------------ ------------ ------------ ------------
Expenses:
Operating and
development............ 57,399,000 50,898,000 110,563,000 101,904,000
Marketing and
installation........... 42,012,000 38,703,000 80,299,000 74,494,000
General and
administrative......... 11,036,000 10,810,000 22,213,000 21,477,000
Interest................ 290,000 487,000 576,000 751,000
------------ ------------ ------------ ------------
110,737,000 100,898,000 213,651,000 198,626,000
------------ ------------ ------------ ------------
Income Before
Income Taxes............ 14,036,000 12,657,000 28,043,000 24,816,000
Provision for
Income Taxes............ 5,474,000 4,810,000 10,937,000 9,430,000
------------ ------------ ------------ ------------
Net Income............... $ 8,562,000 $ 7,847,000 $ 17,106,000 $ 15,386,000
============ ============ ============ ============
Net Income Per Common
Share................... $.37 $.34 $.74 $.67
============ ============ ============ ============
Number of shares used
to compute per
share amounts........... 23,235,000 23,023,000 23,230,000 23,027,000
============ ============ ============ ============
Dividends Per
Common Share............ $.21 $.21 $.42 $.42
============ ============ ============ ============
</TABLE>
The accompanying note is an integral part of this statement.
4
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SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------------
1994 1993
------------- -------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................. $ 17,106,000 $ 15,386,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization............... 15,157,000 14,849,000
Asset (increase) decrease -
Accounts receivable........................ (8,524,000) (8,287,000)
Prepaid expenses, inventories, etc......... (2,840,000) (2,662,000)
Other assets............................... (4,998,000) (5,160,000)
Liability increase (decrease) -
Accounts payable and accrued expenses...... (6,210,000) (1,852,000)
Deferred revenues.......................... (1,481,000) 3,528,000
Accrued and deferred income taxes.......... (8,115,000) 947,000
Other....................................... 718,000 (776,000)
------------ ------------
Net cash provided by operating
activities............................... 813,000 15,973,000
------------ ------------
Cash Flows from Investing Activities:
Property and equipment additions............ (8,342,000) (13,780,000)
Investment in computer software............. (5,859,000) (5,237,000)
Dispositions of equipment................... 187,000 198,000
Partnership investment and related loan..... - (8,200,000)
------------ ------------
Net cash used for investing activities..... (14,014,000) (27,019,000)
------------ ------------
Cash Flows from Financing Activities:
Dividends paid.............................. (9,574,000) (9,481,000)
Change in treasury stock.................... (55,000) (12,000)
Payments on long-term obligations under
capital leases............................. (1,277,000) (921,000)
Increase in notes payable................... 7,295,000 3,978,000
Exercise of stock options................... 1,791,000 700,000
------------ ------------
Net cash used for financing activities..... (1,820,000) (5,736,000)
------------ ------------
Net Decrease in Cash and Short-Term
Investments.................................. (15,021,000) (16,782,000)
Cash and Short Term Investments, Beginning
of Period.................................... 35,826,000 30,854,000
------------ ------------
Cash and Short-Term Investments, End
of Period.................................... $ 20,805,000 $ 14,072,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
5
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Note to Consolidated Financial Statements
June 30, 1994 (unaudited) -
Note 1 - The information furnished in this Form 10-Q reflects all normal
------
and recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial statements as of June
30, 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Material Changes in Financial Condition
- - ---------------------------------------
The Company's financial condition has remained strong throughout the six months
ended June 30, 1994. Management is not aware of any potential material
impairments to the Company's current financial position nor is it aware of any
material changes. Cash decreased $15,021,000 from December 31, 1993 primarily
due to a change in the timing of payments for certain accruals, and income
taxes.
The most significant requirements for funds now anticipated are for the proposed
purchase of GTE Health Systems (GTEHS) for approximately $15,000,000 to
$17,000,000, equipment, and the payment of cash dividends. The acquisition of
GTEHS is subject to certain conditions contained in a letter of intent. The
Company plans to fund these expenditures primarily through internally generated
funds and short-term borrowings.
At June 30, 1994, the Company had lines of credit with banks totaling
$51,089,000, primarily at their prime interest rates. At June 30, 1994,
$37,964,000 of these lines of credit remained unused.
Material Changes in Results of Operations
- - -----------------------------------------
Three Months Ended June 30, 1994 Compared to the Three Months Ended June 30,
1993.
Revenues
--------
Service and system fees revenues increased by $12,122,000 (11%) in the second
quarter of 1994 compared to the second quarter of 1993. Contributing to this
increase were higher levels of professional services, primarily related to
installations and support, and system processing fees.
Hardware sales revenues decreased to $9,899,000 for the second quarter of
1994 from $13,560,000 in the second quarter of 1993 due primarily to changes
in the timing and product mix of systems installed.
6
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Cost of Hardware Sales
----------------------
Cost of hardware sales decreased by $2,757,000 in the quarter ended June 30,
1994 compared to the same period in 1993. This decrease was primarily due to
the decrease in hardware sales revenues. Additionally, cost of hardware
sales fluctuated due to changes in the timing and product mix of systems
installed.
Expenses
--------
Operating and development expenses increased by $6,501,000 (13%) in the
quarter ended June 30, 1994 compared to the same period in 1993. This
increase was primarily due to increased personnel and related costs to
support the higher levels of professional services provided by the Company
and increased computer hardware and related costs at the Company's
Information Systems Center.
Marketing and installation expenses increased by $3,309,000 (9%) in the
quarter ended June 30, 1994 compared to the same period in 1993 primarily due
to increased personnel and related costs to support the higher levels of
professional services provided by the Company.
General and administrative expenses increased by $226,000 (2%) in the quarter
ended June 30, 1994 compared to the same period in 1993 primarily due to
increased personnel and related costs to support the business.
Interest expense decreased to $290,000 for the second quarter of 1994 from
$487,000 in the second quarter of 1993 due primarily to the decreased level
of average outstanding borrowings associated with the Company's short-term
loan obligations.
Provision for Income Taxes
--------------------------
The provision for income taxes increased in the quarter ended June 30, 1994,
by $664,000 (14%) when compared to the same period in 1993. This increase was
primarily due to an increase in income before income taxes of $1,379,000
(11%). Additionally, the Company's effective tax rate was 39% during the
second quarter of 1994 compared to 38% during the second quarter of 1993. The
change in the effective tax rate was primarily due to an increase in the
statutory federal corporate income tax rate enacted in the third quarter of
1993.
Net Income
----------
Net income was $8,562,000 in the quarter ended June 30, 1994 compared to
$7,847,000 in the quarter ended June 30, 1993 for the reasons discussed
above.
7
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Six Months Ended June 30, 1994 Compared to the Six Months Ended June 30, 1993.
Revenues
--------
Service and system fees revenues increased by $19,422,000 (9%) for the six
months ended June 30, 1994 compared to the same period in 1993. Contributing
to this increase were higher levels of professional services, primarily
related to installations and support, and system processing fees.
Hardware sales revenues decreased to $19,655,000 for the six months ended
June 30, 1994 from $22,666,000 for the same period in 1993 due primarily to
changes in the timing and product mix of systems installed.
Cost of Hardware Sales
----------------------
Cost of hardware sales decreased by $1,841,000 in the first two quarters of
1994 compared to the first two quarters of 1993. This decrease was primarily
due to the decrease in hardware sales revenues. Additionally, cost of
hardware sales fluctuated due to changes in the timing and product mix of
systems installed.
Expenses
--------
Operating and development expenses increased by $8,659,000 (9%) in the first
two quarters of 1994 compared to the first two quarters of 1993. This
increase was primarily due to increased personnel and related costs to
support the higher levels of professional services provided by the Company
and increased computer hardware and related costs at the Company's
Information Systems Center.
Marketing and installation expenses increased by $5,805,000 (8%) in the first
two quarters of 1994 compared to the first two quarters of 1993 primarily due
to increased personnel and related costs to support the higher levels of
professional services provided by the Company.
General and administrative expenses increased by $736,000 (3%) in the first
two quarters of 1994 compared to the first two quarters of 1993 primarily due
to increased personnel and related costs to support the business.
Interest expense decreased to $576,000 for the six months ended June 30, 1994
from $751,000 for the same period in 1993 due primarily to the decreased
level of average outstanding borrowings associated with the Company's
short-term loan obligations.
8
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
The provision for income taxes increased in the first two quarters of 1994 by
$1,507,000 (16%) when compared to the same period in 1993. This increase was
primarily due to an increase in income before income taxes of $3,227,000
(13%). Additionally, the Company's effective tax rate was 39% during the
first six months of 1994 compared to 38% during the first six months of 1993.
The change in the effective tax rate was primarily due to an increase in the
statutory federal corporate income tax rate enacted in the third quarter of
1993.
Net Income
----------
Net income was $17,106,000 in the first two quarters of 1994 compared to
$15,386,000 in the first two quarters of 1993 for the reasons discussed
above.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on April 29,
1994. The following is a summary of the votes for elected directors:
<TABLE>
<CAPTION>
Votes Broker
Nominee Votes For Withheld Nonvotes
-----------------------------------------------------------
<S> <C> <C> <C>
R. James Macaleer........ 20,206,551 77,695 0
Raymond K. Denworth, Jr.. 20,216,494 67,752 0
Frederick W. DeTurk...... 20,215,038 69,208 0
Josh S. Weston........... 20,215,495 68,751 0
Harvey J. Wilson......... 20,213,664 70,582 0
Jeffrey S. Rubin......... 20,193,212 91,034 0
</TABLE>
There are no other persons whose terms as directors continued after this
meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) None
(b) No reports on Form 8-K were filed during the three-month
period ended June 30, 1994.
9
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
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.
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Registrant
August 12, 1994 /s/ Terrence W. Kyle
- - --------------- ----------------------------------
Date Terrence W. Kyle
Vice President of Finance
Principal Financial Officer and
Duly Authorized Officer
10
