<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, 1996
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
of incorporation or organization) Identification No.)
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, 1996, there were 23,507,114 shares of Common Stock
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
----------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments................... $ 15,023 $ 23,310
Accounts receivable, net.......................... 192,703 171,320
Prepaid expenses and other current assets......... 25,431 25,975
----------- -----------
Total Current Assets............................ 233,157 220,605
Property and Equipment, net........................ 101,027 101,164
Computer Software, net............................. 46,035 42,955
Other Assets....................................... 67,509 70,249
----------- -----------
$447,728 $434,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable..................................... $ 41,424 $ 20,920
Current portion of long-term debt and
capital leases................................... 3,223 4,654
Dividends payable................................. 4,934 4,885
Accounts payable.................................. 15,554 28,301
Accrued expenses.................................. 31,313 39,469
Current deferred revenues......................... 26,454 23,557
Accrued and current deferred income taxes......... 9,687 10,913
----------- -----------
Total Current Liabilities....................... 132,589 132,699
----------- -----------
Deferred Revenues.................................. 9,612 13,209
----------- -----------
Long-Term Debt and Capital Leases.................. 15,805 16,960
----------- -----------
Deferred Income Taxes.............................. 24,566 23,285
----------- -----------
Commitments
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none issued........ - -
Common stock, par value $.01; authorized
60,000,000 shares; 27,529,743 shares issued in
1996 and 27,288,942 in 1995..................... 275 273
Paid-in capital.................................. 46,591 39,561
Retained earnings................................ 277,340 265,010
Common stock in treasury, at cost, 4,032,963
shares in 1996 and 4,027,815 in 1995............ (55,660) (55,286)
Cumulative translation adjustment................ (3,390) (738)
----------- -----------
Total Stockholders' Investment.................. 265,156 248,820
----------- -----------
$447,728 $434,973
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
(Amounts in thousands, except for
per share amounts)
<TABLE> Three Months Ended Six Months Ended
<CAPTION> June 30 June 30
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system fees.. $164,544 $143,922 $324,026 $278,060
Hardware sales........... 26,422 11,357 37,292 22,558
-------- -------- -------- --------
190,966 155,279 361,318 300,618
-------- -------- -------- --------
Cost and Expenses:
Operating and
development............. 79,401 67,936 154,531 131,227
Marketing and
installation............ 54,844 49,063 107,690 93,113
General and
administrative.......... 14,684 12,451 29,275 25,037
Cost of hardware sales... 22,651 9,323 32,095 18,563
Interest................. 907 635 1,711 1,085
-------- -------- -------- --------
172,487 139,408 325,302 269,025
-------- -------- -------- --------
Income Before
Income Taxes............. 18,479 15,871 36,016 31,593
Provision for Income
Taxes.................... 7,096 6,190 13,830 12,321
-------- -------- -------- --------
Net Income................ $ 11,383 $ 9,681 $ 22,186 $ 19,272
======== ======= ======== ========
Net Income Per Common
Share.................... $.47 $.41 $.92 $.82
======== ======== ======== ========
Number of shares used
to compute per share
amounts.................. 24,209 23,641 24,147 23,603
======== ======== ======== ========
Dividends Per Common
Share.................... $.21 $.21 $.42 $.42
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income...................................... $ 22,186 $ 19,272
Adjustments to reconcile net income to net
cash used for operating activities -
Depreciation and amortization................ 18,458 17,535
Asset (increase) decrease -
Accounts receivable........................ (21,383) (10,827)
Prepaid expenses and other current assets.. 545 (4,884)
Other assets............................... 1,752 51
Liability increase (decrease) -
Accounts payable and accrued expenses...... (20,903) (18,384)
Accrued and current deferred income taxes.. (1,226) (203)
Deferred revenues.......................... (701) (3,507)
Deferred income taxes...................... 1,281 752
Other........................................ (2,067) 1,808
-------- --------
Net cash (used for) provided by operating
activities................................ (2,058) 1,613
-------- --------
Cash Flows from Investing Activities:
Property and equipment additions................ (13,697) (9,521)
Investment in computer software................. (7,953) (5,684)
Dispositions of equipment....................... 221 141
Acquisition of business......................... - (8,497)
-------- --------
Net cash used for investing activities..... (21,429) (23,561)
-------- --------
Cash Flows from Financing Activities:
Dividends paid.................................. (9,805) (9,665)
Change in treasury stock........................ (374) (67)
Payments on long-term obligations............... (2,157) (1,508)
Increase in notes payable....................... 20,504 26,405
Exercise of stock options....................... 7,032 4,865
-------- --------
Net cash provided by financing activities.. 15,200 20,030
-------- --------
Net Decrease in Cash and Short-Term Investments.. (8,287) (1,918)
Cash and Short-Term Investments, Beginning
of Period....................................... 23,310 21,249
-------- --------
Cash and Short-Term Investments, End of Period... $ 15,023 $ 19,331
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Notes to Consolidated Financial Statements
June 30, 1996 (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, 1996.
Note 2 - At June 30, 1996 and December 31, 1995, the Company's trade
------
accounts receivable were reduced by allowances for doubtful accounts of
$4,671,000 and $4,847,000, respectively.
Note 3 - The major classes of property and equipment at
------
June 30, 1996 and December 31, 1995 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
Land and land improvements......... $ 10,712 $ 10,719
Buildings.......................... 60,718 60,597
Equipment.......................... 179,095 172,335
----------- -----------
250,525 243,651
Less accumulated depreciation
and amortization................ 149,498 142,487
----------- -----------
$101,027 $101,164
=========== ===========
</TABLE>
Note 4 - The accumulated amortization for capitalized internally produced
------
computer software and purchased software at June 30, 1996 and
December 31, 1995 was $49,653,000 and $45,317,000, respectively.
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, 1996. Management is not aware of any potential material
impairments to, or material changes in, the Company's current financial
position.
The most significant requirements for funds now anticipated are for purchases of
equipment and payment of cash dividends. The Company plans to fund anticipated
expenditures primarily through internally generated funds supplemented from time
to time by bank borrowings.
At June 30, 1996, the Company had lines of credit with banks of approximately
$73,600,000, generally at their prime interest rates. At June 30, 1996,
approximately $32,200,000 of these lines of credit were unused.
5
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended June 30, 1996 Compared to the Three Months Ended
June 30, 1995.
Revenues
--------
Service and system fees revenues were $164,544,000, an increase of 14.3%
compared to the second quarter of 1995. This increase was primarily due to
higher levels of professional services, system processing fees, and system
sales. The higher level of professional services was generally attributable
to system installations, support, and facilities management service 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. Also affecting this change were revenues associated with
the acquisitions of two businesses in Europe in June and September 1995.
Hardware sales revenues increased to $26,422,000 for the second quarter of
1996 from $11,357,000 in the second quarter of 1995. The higher level of
hardware sales revenues was primarily due to the installation of IBM
mainframe systems to new and existing customers that process the Company's
INVISION product at their site.
Cost and Expenses
-----------------
Operating and development expenses increased to 48.3% of service and system
fees revenues in the second quarter of 1996 from 47.2% for the second
quarter 1995. This change was primarily due to increases in certain
customer related expenses and personnel costs, partially offset by
efficiencies gained from a lower rate of growth for computer hardware and
associated costs to support the growth in the base of customers operating
their systems at the Company's Information Services Center.
Marketing and installation expenses decreased to 33.3% of service and
system fees revenues in the second quarter of 1996 from 34.1% in the second
quarter of 1995, primarily due to a lower rate of growth for personnel and
related costs as compared to the growth in service and system fees
revenues.
General and administrative expenses, as a percentage of service and systems
fees revenues, increased to 8.9% in the second quarter of 1996 from 8.7% in
the second quarter of 1995, primarily due to increased personnel and
related costs to support the business.
Cost of hardware sales increased to 85.7% of hardware sales revenues in the
second quarter of 1996 from 82.1% in the second quarter of 1995. This
change was primarily due to the different product mixes of systems
installed in each quarter.
Interest expense was $907,000 in the quarter ended June 30, 1996 compared
to $635,000 in the same period in 1995. This change was primarily due to a
higher level of outstanding borrowings throughout the current period, which
was partially attributable to funds used for the acquisitions of two
businesses in Europe in June and September 1995.
6
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
Income taxes increased $906,000 in the quarter ended June 30, 1996 when
compared to the same period in 1995. This change was primarily due to an
increase of $2,608,000 in income before income taxes. The Company's
effective tax rate for federal, state, and foreign income taxes was 38.4%
in the second quarter of 1996 and 39.0% in the second quarter of 1995. The
change in the effective tax rate was primarily due to a decrease in the
Company's effective state income tax rate.
Net Income
----------
Net income was $11,383,000 in the quarter ended June 30, 1996 compared to
$9,681,000 in the quarter ended June 30, 1995 for the reasons discussed
above.
Six Months Ended June 30, 1996 Compared to the Six Months Ended
June 30, 1995.
Revenues
--------
Service and system fees revenues were $324,026,000, an increase of 16.5%
compared to the same period in 1995. This increase was primarily due to
higher levels of professional services, system processing fees, and system
sales. The higher level of professional services was generally attributable
to system installations, support, and facilities management service 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. Also affecting this change were revenues associated with
the acquisitions of two businesses in Europe in June and September 1995.
Hardware sales revenues increased to $37,292,000 for the six months ended
June 30, 1996 from $22,558,000 for the same period in 1995. The higher
level of hardware sales revenues was primarily due to the installation of
IBM mainframe systems to new and existing customers that process the
Company's INVISION product at their site.
Cost and Expenses
-----------------
Operating and development expenses increased to 47.7% of service and system
fees revenues in the first two quarters of 1996 from 47.2% in the first two
quarters of 1995. This change was primarily due to increases in certain
customer related expenses and personnel costs, partially offset by
efficiencies gained from a lower rate of growth for computer hardware and
associated costs to support the growth in the base of customers
operating their systems at the Company's Information Services Center.
Marketing and installation expenses decreased to 33.2% of service and
system fees revenues in the first two quarters of 1996 from 33.5% in the
first two quarters of 1995. This decrease was primarily due to a lower rate
of growth for personnel and related costs as compared to the growth in
service and system fees revenues.
General and administrative expenses, as a percentage of service and system
fees revenues, remained at 9.0% in the first two quarters of 1996 and 1995.
7
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Cost of hardware sales increased to 86.1% of hardware sales revenues in the
first two quarters of 1996 from 82.3% in the first two quarters of 1995.
This change was primarily due to the different product mixes of systems
installed in each quarter.
Interest expense was $1,711,000 in the six months ended June 30, 1996
compared to $1,085,000 in the same period in 1995. This change was
primarily due to a higher level of outstanding borrowings throughout the
current period, which was partially attributable to funds used for the
acquisitions of two businesses in Europe in June and September 1995.
Provision for Income Taxes
--------------------------
The provision for income taxes increased $1,509,000 in the first two
quarters of 1996 when compared to the same period in 1995. This change was
due to an increase of $4,423,000 in income before income taxes. The
Company's effective tax rate for federal, state, and foreign income taxes
was 38.4% in the first two quarters of 1996 and 39.0% in the first two
quarters of 1995. The change in the effective tax rate was primarily due to
a decrease in the Company's effective state income tax rate.
Net Income
----------
Net income was $22,186,000 in the first two quarters of 1996 compared to
$19,272,000 in the first two quarters of 1995 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 25, 1996. At
the meeting, the stockholders were requested to elect six directors for one year
terms.
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........ 20,809,555 303,732 0
Raymond K. Denworth, Jr.. 20,581,404 531,883 0
Frederick W. DeTurk...... 20,797,348 315,939 0
Josh S. Weston........... 20,799,301 313,986 0
Jeffrey S. Rubin......... 20,803,426 309,861 0
Marvin S. Cadwell........ 20,806,026 307,261 0
</TABLE>
There are no other persons whose terms as directors continued after this
meeting.
8
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included in this report:
No. Description
---- -----------------------------------------------------------
(10) Material Contracts -
Performance bonus plans - 1996:
R. James Macaleer
Marvin S. Cadwell
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month
period ended June 30, 1996.
9
<PAGE>
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 14, 1996 /S/ Terrence W. Kyle
- --------------- ----------------------------------
Date Terrence W. Kyle
Vice President of Finance
Principal Financial Officer and
Duly Authorized Officer
10
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
EXHIBIT INDEX
No. Description
- --- -----------------------------------
(10) Material Contracts -
Performance bonus plans - 1996:
R. James Macaleer
Marvin S. Cadwell
(27) Financial Data Schedule
11
<PAGE>
Exhibit (10)
1996 INCENTIVE COMPENSATION PLANS FOR
R. JAMES MACALEER AND MARVIN S. CADWELL
---------------------------------------
The incentive compensation plans for Messrs. Macaleer and Caldwell for 1996 were
not set forth in formal documents. The plans operate as follows:
If SMS achieves its earnings per share (EPS) goal for 1996, the Incentive
Compensation for 1996 will be based on the combined sales results (NPV) of all
SMS business units for software and processing services, less any existing
ongoing processing revenues anticipated to be lost due to competitive losses and
losses due to mergers, acquisitions, and bankruptcies, of an installed account,
as follows:
If overall software sales and processing services attainment exceeds
90% of the targeted amount, Messrs. Macaleer and Cadwell's bonuses
shall be $80,000 and $160,000, respectively, multiplied by the actual
software sales and processing services percentage attainment, up to but
not exceeding a maximum of 110%. If overall sales attainment is 90% or
less than the targeted amount, then the actual bonuses will be $40,000
and $80,000, respectively.
If SMS misses its 1996 EPS goal by one cent per share, the calculated bonuses
shall be reduced by 10%. If the EPS goal is missed by two cents per share, the
calculated bonuses shall be reduced by 30%. If the EPS goal is missed by three
cents per share, the calculated bonuses shall be reduced by 45%. If the EPS
goal is missed by four cents per share, the calculated bonuses shall be reduced
by 60%. If SMS misses its EPS goal by more than four cents per share, there
will be no bonuses.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,023
<SECURITIES> 0
<RECEIVABLES> 197,374
<ALLOWANCES> 4,671
<INVENTORY> 0
<CURRENT-ASSETS> 233,157
<PP&E> 250,525
<DEPRECIATION> 149,498
<TOTAL-ASSETS> 447,728
<CURRENT-LIABILITIES> 132,589
<BONDS> 15,805
0
0
<COMMON> 275
<OTHER-SE> 264,881
<TOTAL-LIABILITY-AND-EQUITY> 447,728
<SALES> 37,292
<TOTAL-REVENUES> 361,318
<CGS> 32,095
<TOTAL-COSTS> 262,221
<OTHER-EXPENSES> 29,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,711
<INCOME-PRETAX> 36,016
<INCOME-TAX> 13,830
<INCOME-CONTINUING> 22,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,186
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
