<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, 1995
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 (I.R.S. Employer Identification No.)
of incorporation or
organization)
51 VALLEY STREAM PARKWAY
MALVERN, PENNSYLVANIA 19355
(Address of principal (Zip Code)
executive offices)
(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, 1995, there were 23,179,924 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
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments............. $ 19,331,000 $ 21,249,000
Accounts receivable, net of reserve of
$5,224,000 in 1995 and $5,317,000 in 1994.. 151,452,000 138,554,000
Prepaid expenses and other current assets... 22,560,000 17,675,000
------------ ------------
Total Current Assets...................... 193,343,000 177,478,000
------------ ------------
Property and Equipment, at cost:
Land and land improvements.................. 10,718,000 10,711,000
Buildings................................... 60,035,000 59,402,000
Equipment................................... 172,921,000 169,487,000
------------ ------------
243,674,000 239,600,000
Less: Accumulated depreciation and
amortization....................... 139,907,000 134,513,000
------------ ------------
103,767,000 105,087,000
------------ ------------
Computer Software, net of accumulated
amortization of $40,436,000 in 1995 and
$36,158,000 in 1994......................... 40,094,000 38,801,000
------------ ------------
Other Assets.................................. 64,415,000 58,699,000
------------ ------------
$401,619,000 $380,065,000
============ ============
</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
1995 1994
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Current Liabilities:
Notes payable..................................... $ 38,788,000 $ 12,383,000
Current portion of long-term obligations
under capital leases............................ 3,693,000 3,100,000
Dividends payable................................. 4,864,000 4,818,000
Accounts payable.................................. 20,210,000 23,633,000
Accrued expenses.................................. 23,228,000 38,189,000
Current deferred revenues......................... 27,240,000 28,133,000
Accrued and current deferred income taxes......... 6,388,000 6,591,000
------------ ------------
Total Current Liabilities....................... 124,411,000 116,847,000
------------ ------------
Deferred Revenues................................... 14,738,000 17,352,000
------------ ------------
Long-Term Obligations Under Capital Leases.......... 4,300,000 4,974,000
------------ ------------
Deferred Income Taxes............................... 22,448,000 21,696,000
------------ ------------
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none issued........ - -
Common stock, par value $.01; authorized
60,000,000 shares;..............................
1995 1994
---------- ----------
Shares issued........ 27,188,455 26,964,821
Less-
Treasury shares:
Donated........ 1,114,400 1,114,400
Purchased...... 2,909,905 2,907,875
Shares outstanding. 23,164,150 22,942,546 272,000 270,000
Paid-in capital................................... 37,228,000 32,365,000
Retained earnings................................. 254,260,000 244,698,000
Purchased common stock in treasury, at cost....... (55,183,000) (55,116,000)
Cumulative translation adjustment................. (855,000) (3,021,000)
------------ ------------
Total Stockholders' Investment.................. 235,722,000 219,196,000
------------ ------------
$401,619,000 $380,065,000
============ ============
</TABLE>
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system fees.. $143,922,000 $122,708,000 $278,060,000 $238,122,000
Hardware sales........... 11,357,000 9,899,000 22,558,000 19,655,000
------------ ------------ ------------ ------------
155,279,000 132,607,000 300,618,000 257,777,000
------------ ------------ ------------ ------------
Cost and Expenses:
Operating and
development............. 67,936,000 57,399,000 131,227,000 110,563,000
Marketing and
installation............ 49,063,000 42,012,000 93,113,000 80,299,000
General and
administrative.......... 12,451,000 11,036,000 25,037,000 22,213,000
Cost of hardware sales... 9,323,000 7,834,000 18,563,000 16,083,000
Interest................. 635,000 290,000 1,085,000 576,000
------------ ------------ ------------ ------------
139,408,000 118,571,000 269,025,000 229,734,000
------------ ------------ ------------ ------------
Income Before
Income Taxes............. 15,871,000 14,036,000 31,593,000 28,043,000
Provision for Income
Taxes.................... 6,190,000 5,474,000 12,321,000 10,937,000
------------ ------------ ------------ ------------
Net Income................ $ 9,681,000 $ 8,562,000 $ 19,272,000 $ 17,106,000
============ ============ ============ ============
Net Income Per Common
Share.................... $.41 $.37 $.82 $.74
============ ============ ============ ============
Number of shares used
to compute per share
amounts.................. 23,641,000 23,235,000 23,603,000 23,230,000
============ ============ ============ ============
Dividends Per Common
Share.................... $.21 $.21 $.42 $.42
============ ============ ============ ============
</TABLE>
The accompanying note is an integral part of this statement.
4
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------------
1995 1994
------------- -------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income..................................... $ 19,272,000 $ 17,106,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization.................. 17,535,000 15,157,000
Asset (increase) decrease -
Accounts receivable........................... (10,827,000) (8,524,000)
Prepaid expenses and other current assets..... (4,884,000) (2,840,000)
Other assets.................................. 51,000 (4,998,000)
Liability increase (decrease) -
Accounts payable and accrued expenses......... (18,384,000) (6,210,000)
Accrued and current deferred income taxes..... (203,000) (6,175,000)
Deferred revenues............................. (3,507,000) (1,481,000)
Deferred income taxes......................... 752,000 (1,940,000)
Other.......................................... 1,808,000 718,000
------------ ------------
Net cash provided by operating activities..... 1,613,000 813,000
------------ ------------
Cash Flows from Investing Activities:
Property and equipment additions............... (9,521,000) (8,342,000)
Investment in computer software................ (5,684,000) (5,859,000)
Dispositions of equipment...................... 141,000 187,000
Investment in subsidiary....................... (8,497,000) -
------------ ------------
Net cash used for investing activities........ (23,561,000) (14,014,000)
------------ ------------
Cash Flows from Financing Activities:
Dividends paid................................. (9,665,000) (9,574,000)
Change in treasury stock....................... (67,000) (55,000)
Payments on long-term obligations
under capital leases.......................... (1,508,000) (1,277,000)
Increase in notes payable...................... 26,405,000 7,295,000
Exercise of stock options...................... 4,865,000 1,791,000
------------ ------------
Net cash provided by (used for)
financing activities......................... 20,030,000 (1,820,000)
------------ ------------
Net Decrease in Cash and Short-Term Investments.. (1,918,000) (15,021,000)
Cash and Short Term Investments, Beginning of
Period.......................................... 21,249,000 35,826,000
------------ ------------
Cash and Short-Term Investments, End of Period... $ 19,331,000 $ 20,805,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
5
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Note to Consolidated Financial Statements
June 30, 1995 (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, 1995.
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, 1995. Management is not aware of any potential material
impairments to the Company's current financial position nor is it aware of any
material changes.
Effective June 1, 1995, the Company acquired for approximately $8,500,000 the
business and assets of Professional Datacare (PDC) from the National Health
Systems' North West Regional Health Authority in the United Kingdom. PDC
provides various financial processing services in the United Kingdom. This
acquisition was accounted for using the purchase method. PDC's results from
operations for June 1995 were immaterial.
The most significant requirements for funds now anticipated are for purchases of
equipment and payment of cash dividends. The Company plans to fund any
anticipated expenditures primarily through internally generated funds
supplemented by bank borrowings as necessary.
At June 30, 1995, the Company had lines of credit with banks totaling
$69,452,000, primarily at their prime interest rates. At June 30, 1995,
$30,664,000 of these lines of credit remained unused.
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended June 30, 1995 Compared to the Three Months Ended
June 30, 1994.
Revenues
--------
Service and system fees revenues increased by $21,214,000 (17.3%) in the
second quarter of 1995 compared to the second quarter of 1994.
Contributing to this increase were higher levels of professional
services, system processing fees, and system sales. Also affecting this
increase were revenues associated with the Company's MedSeries4 division
which was acquired on September 30, 1994, and the impact in 1995 of
stronger foreign currencies relative to the dollar for certain
international operations. No revenues for the MedSeries4 division are
included in the Company's results of operations for the second quarter of
1994. The higher level of professional services was generally
attributable to increases in system support and consulting fees. The
increase in system processing fees was primarily due to the higher level
of customer applications processed at the Company's Information Services
Center.
6
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Hardware sales revenues increased to $11,357,000 for the second quarter
of 1995 from $9,899,000 in the second quarter of 1994 due primarily to
changes in the timing and product mix of systems installed and the impact
in 1995 of stronger foreign currencies for certain international
operations.
Cost and Expenses
-----------------
Operating and development expenses increased to 47.2% of service and
system fees revenues in the second quarter of 1995 from 46.8% in the
second quarter of 1994. This change was primarily due to increased
computer hardware and associated costs related to higher levels of system
processing services provided to the Company's customers.
Marketing and installation expenses decreased to 34.1% of service and
system fees revenues in the second quarter of 1995 from 34.2% in the
second quarter of 1994. This decrease was primarily due to improved
efficiency in providing installation and support services to the
Company's customers and the Company's efforts to control certain
marketing and installation costs.
General and administrative expenses, as a percentage of service and
system fees revenues, decreased to 8.7% in the second quarter of 1995
from 9.0% in the second quarter of 1994, primarily due to the Company's
ongoing efforts to control administrative costs.
Cost of hardware sales increased to 82.1% of hardware sales revenues in
the second quarter of 1995 from 79.1% in the second quarter of 1994. This
change was primarily due to the different product mixes of systems
installed in each quarter.
Interest expense was $635,000 in the quarter ended June 30, 1995 compared
to $290,000 in the same period in 1994. This change was primarily due to
a higher level of 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,
1995, by $716,000 (13.1%) when compared to the same period in 1994. This
change was due to an increase of $1,835,000 (13.1%) in income before
income taxes. The Company's effective tax rate was 39% during the second
quarter of 1995 and 1994.
Net Income
----------
Net income was $9,681,000 in the quarter ended June 30, 1995 compared to
$8,562,000 in the quarter ended June 30, 1994 for the reasons discussed
above.
7
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Six Months Ended June 30, 1995 Compared to the Six Months Ended
June 30, 1994.
Revenues
--------
Service and system fees revenues increased by $39,938,000 (16.8%) for the
six months ended June 30, 1995 compared to the same period in 1994.
Contributing to this increase were higher levels of professional
services, system processing fees, and system sales. Also affecting this
increase were revenues associated with the Company's MedSeries4 division
which was acquired on September 30, 1994, and the impact in 1995 of
stronger foreign currencies relative to the dollar for certain
international operations. No revenues for the MedSeries4 division are
included in the Company's results of operations for the six months ended
June 30, 1994. The higher level of professional services was generally
attributable to increases in system support and consulting fees. The
increase in system processing fees was primarily due to the higher level
of customer applications processed at the Company's Information Services
Center.
Hardware sales revenues increased to $22,558,000 for the six months ended
June 30, 1995 from $19,655,000 for the same period in 1994 due primarily
to changes in the timing and product mix of systems installed and the
impact in 1995 of stronger foreign currencies for certain international
operations.
Cost and Expenses
-----------------
Operating and development expenses increased to 47.2% of service and
system fees revenues in the first two quarters of 1995 from 46.4% in the
first two quarters of 1994. This change was primarily due to increased
computer hardware and associated costs related to higher levels of system
processing services provided to the Company's customers.
Marketing and installation expenses decreased to 33.5% of service and
system fees revenues in the first two quarters of 1995 from 33.7% in the
first two quarters of 1994. This decrease was primarily due to improved
efficiency in providing installation and support services to the
Company's customers and the Company's efforts to control certain
marketing and installation costs.
General and administrative expenses, as a percentage of service and
system fees revenues, decreased to 9.0% in the first two quarters of 1995
from 9.3% in the first two quarters of 1994, primarily due to the
Company's ongoing efforts to control administrative costs.
Cost of hardware sales increased to 82.3% of hardware sales revenues in
the first two quarters of 1995 from 81.8% in the first two quarters of
1994. This change was primarily due to the different product mixes of
systems installed in each quarter.
Interest expense was $1,085,000 in the six months ended June 30, 1995
compared to $576,000 in the same period in 1994. This change was
primarily due to a higher level of 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
1995 by $1,384,000 (12.7%) when compared to the same period in 1994. This
change was due to an increase in income before income taxes of $3,550,000
(12.7%). The Company's effective tax rate was 39.0% in the first two
quarters of 1995 and 1994.
Net Income
----------
Net income was $19,272,000 in the first two quarters of 1995 compared to
$17,106,000 in the first two quarters of 1994 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
May 11, 1995. At the meeting, the stockholders were requested a) to elect six
directors for one year terms, b) to consider and vote on a proposal to approve
the Company's 1994 Non-Qualified Stock Option and Restricted Stock Plan, and c)
to act upon a stockholder proposal regarding board nominating policy.
a) The following is a summary of the votes for elected directors:
<TABLE>
<CAPTION>
Votes Broker
Nominee Votes For Withheld Non-votes
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
R. James Macaleer........ 17,153,333 68,449 0
Raymond K. Denworth, Jr.. 17,154,431 67,351 0
Frederick W. DeTurk...... 17,155,452 66,330 0
Josh S. Weston........... 17,156,141 65,641 0
Jeffrey S. Rubin......... 17,156,170 65,612 0
Marvin S. Cadwell........ 17,156,489 65,293 0
</TABLE>
There are no other persons whose terms as directors continued after this
meeting.
9
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
b) The following is a summary of the votes on the proposal to approve the
Company's 1994 Non-Qualified Stock Option and Restricted Stock Plan:
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
----------------- --------------- ----------- ----------
<S> <C> <C> <C>
8,800,126 6,147,659 345,071 1,928,926
</TABLE>
c) The following is a summary of the votes on the stockholder proposal
regarding board nominating policy:
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
----------------- --------------- ----------- ----------
<S> <C> <C> <C>
3,545,121 11,006,170 702,932 1,967,559
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included in this report:
No. Description
---- ----------------------------------------------------------------
(10) Material Contract -
Performance bonus plan - 1995:*
Marion G. Tomlin
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month
period ended June 30, 1995.
* May be deemed a management contract or compensatory arrangement.
10
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Exhibit Index
No. Description
--- -----------------------------------------
(10) Material Contract -
Performance bonus plan - 1995:*
Marion G. Tomlin
(27) Financial Data Schedule
* May be deemed a management contract or compensatory arrangement.
12
<PAGE>
Exhibit (10)
TO: Tom Tomlin
FROM: R. James Macaleer
DATE: June 6, 1995
SUBJECT: YOUR 1995 ICP
- --------------------------------------------------------------------------------
1. If TSD meets its PTI objective (P) (including all revenues from the sales
of the products of other SMS business units, along with the associated
expenses for these products), you will receive $60,000. If P is exceeded,
you shall receive $60,000, plus one percent of the difference between the
actual PTI (A) and P. If there is a PTI shortfall, you will receive an
amount equal to $60,000 x Y/2/, where Y is defined in the chart below.
<TABLE>
<CAPTION>
A Y
- -
<S> <C>
Greater than P 1.0
P - 0.2M .87
P - 0.4M .76
P - 0.6M .68
P - 0.8M .62
P - 1.0M .57
P - 1.2M .52
P - 1.4M .48
P - 1.6M .45
P - 1.8M 0
</TABLE>
If A is between table entries, straight line interpolation shall be used to
calculate Y.
2. Sales
a. If your sales attainment is 80% or better of your quota for the sale
of software to new clients, you will receive $30,000 x the actual
percentage sales attainment x Y.
b. If your sales attainment is 70% or better of your quota for the sale
of add-on software to existing customers, you will receive $15,000 x
the actual percentage sales attainment x Y.
3. Accounts Receivable - Incentive compensation for TSD's average annual A/R
days (D) (billed and unbilled) will be based on improvement from D as of
12/31/94, as follows:
a. Current A/R Days - Participant will be eligible to receive a Current
----------------
A/R Days bonus based on TSD's 12 month average Current A/R Days for
1995 as follows:
<PAGE>
Your 1995 ICP
June 6, 1995
Page 2
<TABLE>
<CAPTION>
---------------------------------------------------
Annual Current A/R Days
Average (% of D) Bonus
---------------------------------------------------
<S> <C>
56 - 63% $5,000
---------------------------------------------------
63 - 70% $2,500
---------------------------------------------------
70 - 77% $1,250
---------------------------------------------------
77 - 84% 0
---------------------------------------------------
Greater than 84% ($2,500)
---------------------------------------------------
</TABLE>
b. Total A/R Days - Participant will earn a bonus for Total A/R based on
--------------
TSD's 12 month average Total A/R Days for 1995, as follows:
<TABLE>
<CAPTION>
---------------------------------------------------
Annual Current A/R Days
Average (% of D) Bonus
---------------------------------------------------
<S> <C>
84% $5,000
---------------------------------------------------
84 - 90% $2,500
---------------------------------------------------
90 - 97% $1,250
---------------------------------------------------
97 - 104% 0
---------------------------------------------------
Greater than 104% ($2,500)
---------------------------------------------------
</TABLE>
A/R will be computed based on the average A/R on the last working day
of each quarter.
4. Development Objectives
a. If PSD, CDS, and GFS are live on UNIX no later than their target date,
the payment under this subparagraph shall be $12,000 x Y.
b. If all of V2.0, except Nursing, is live by the target date, payment
under this subparagraph shall be $17,000 x Y.
c. If the full complement of Nursing software
(Charting/Tracking/Assessment/ Screening, and Healthcare Guidelines)
is in productive use by the customer by its target date, payment under
this subparagraph shall be $11,000 x Y.
No payment shall be made under each subsection above until the customer has
actually paid for the software and services. If payment is not received by
the end of the fourth calendar month after first productive use, there
shall be no payment for each subparagraph above. The amount to be paid
under each subparagraph, above, shall be reduced by 50% if the target date
is missed by more than 30 days. If the target date is missed by more than
60 days, there shall be no payment.
RJM/gtr
cc: P. Mullen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 19,331
<SECURITIES> 0
<RECEIVABLES> 156,676
<ALLOWANCES> 5,224
<INVENTORY> 0
<CURRENT-ASSETS> 193,343
<PP&E> 243,674
<DEPRECIATION> 139,907
<TOTAL-ASSETS> 401,619
<CURRENT-LIABILITIES> 124,411
<BONDS> 4,300
<COMMON> 272
0
0
<OTHER-SE> 235,450
<TOTAL-LIABILITY-AND-EQUITY> 401,619
<SALES> 22,558
<TOTAL-REVENUES> 300,618
<CGS> 18,563
<TOTAL-COSTS> 242,903
<OTHER-EXPENSES> 25,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,085
<INCOME-PRETAX> 31,593
<INCOME-TAX> 12,321
<INCOME-CONTINUING> 19,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,272
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
