CERNER CORP /MO/ - 10-Q Quarterly Report

UNITED STATES
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 29, 2002

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 of incorporation or organization)		(I.R.S. Employer Identification Number)

2800 Rockcreek Parkway
North 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 35,476,097 shares of Common Stock, $.01 par value, outstanding at June 29, 2002.

TABLE OF CONTENTS


Part I. Financial Information
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF EARNINGS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II. Other Information
	Item 4 Submission of Matters to a Vote of Security Holders.
	Item 6. Exhibits and Reports on Form 8-K.
EX-4(a) Credit Agreement dated May 31, 2002
EX-99.1 Certification Pursuant to 18 USC Sec. 1350
EX-99.2 Certification Pursuant to 18 USC Sec. 1350

CERNER CORPORATION AND SUBSIDIARIES

INDEX


Part I.	Financial Information:
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 29, 2002 (unaudited) and December 29, 2001	1
	Consolidated Statements of Earnings for the three and six months ended June 29, 2002 and June 30, 2001 (unaudited)	2
	Consolidated Statements of Cash Flows for the six months ended June 29, 2002 and June 30, 2001 (unaudited)	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk (Not applicable)
Part II.	Other Information:
Item 6.	Exhibits and Reports on Form 8-K	20

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


			June 29,			December 29,
(In thousands)			2002			2001

			(unaudited)
Assets
	Current Assets:
	Cash and cash equivalents		$	143,386		$	107,536
	Receivables			250,058			220,205
	Inventory			7,240			5,834
	Prepaid expenses and other			17,333			14,101

	Total current assets			418,017			347,676
	Property and equipment, net			116,299			94,705
	Software development costs, net			105,178			96,962
	Goodwill, net			34,203			23,879
	Intangible assets, net			19,554			18,015
	Investments			16,915			122,992
	Other assets			9,698			8,073

			$	719,864		$	712,302

Liabilities and Stockholders’ Equity
	Current Liabilities:
	Accounts payable		$	30,759		$	20,942
	Current installments of long-term debt			38,136			27,817
	Deferred revenue			43,164			53,304
	Income taxes			41,186			5,661
	Accrued payroll and tax withholdings			38,083			40,565
	Other accrued expenses			10,482			10,529

	Total Current Liabilities			201,810			158,188
	Long-term debt			79,699			92,132
	Deferred income taxes			25,903			62,393
	Deferred revenue			2,750			4,750
	Stockholders’ Equity:
	Common stock, $.01 par value, 150,000,000 shares authorized, 36,679,096 shares issued at June 29, 2002 and 36,564,690 issued in 2001			367			366
	Additional paid-in capital			218,733			216,811
	Retained earnings			212,860			188,550
	Treasury stock, at cost (1,202,999 shares in 2002 and 1,201,625 shares in 2001)			(20,863	)		(20,799	)
	Accumulated other comprehensive income:
		Foreign currency translation adjustment		(1,385	)		(2,095	)
		Unrealized gain/(loss) on available-for-sale equity securities (net of deferred tax benefit of $30 for 2002 and deferred tax liability of $6,810 for 2001)		(10	)		12,006

		Total stockholders’ equity		409,702			394,839

			$	719,864		$	712,302

See notes to condensed consolidated financial statements.

CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)


			Three Months Ended						Six Months Ended

			June 29,			June 30,			June 29,			June 30,
			2002			2001			2002			2001

(In thousands, except per share data)
Revenues:
		System sales	$	75,291		$	56,489		$	154,535		$	109,878
		Support, maintenance and services		105,282			73,402			201,318			140,912

		Total revenues		180,573			129,891			355,853			250,790

Costs and expenses:
		Cost of revenues		38,994			29,847			79,438			55,584
		Sales and client service		76,837			53,202			151,255			103,357
		Software development		31,569			24,366			61,262			48,371
		General and administrative		12,300			8,982			24,342			18,655

		Total costs and expenses		159,700			116,397			316,297			225,967

Operating earnings				20,873			13,494			39,556			24,823
Other income (expense):
	Interest expense, net			(1,373	)		(1,023	)		(2,896	)		(1,635	)
	Other income, net			20			95			31			191
	Gain on sale of investment			4,308			—			4,308			—
	Loss on sale of investment			—			—			—			(385	)
	Write-down of investment			—			(127,616	)		—			(127,616	)
	Gain on software license settlement			—			7,580			—			7,580

	Total			2,955			(120,964	)		1,443			(121,865	)

Earnings (loss) before income taxes and cumulative effect of a change in accounting principle				23,828			(107,470	)		40,999			(97,042	)
Income taxes				(9,136	)		38,487			(15,903	)		34,387

Earnings (loss) before cumulative effect of a change in accounting principle				14,692			(68,983	)		25,096			(62,655	)
Cumulative effect of a change in accounting for goodwill, net of $486 income tax benefit				—			—			786			—

Net earnings (loss)				14,692			(68,983	)		24,310			(62,655	)

Basic earnings (loss) per share:
Earnings (loss) before cumulative effect of a change in accounting principle			$	.41		$	(1.98	)	$	.73		$	(1.80	)
Cumulative effect of a change in accounting for goodwill				—			—			(.02	)		—

Net earnings (loss)			$	.41		$	(1.98	)	$	.71		$	(1.80	)

Basic weighted average shares outstanding				35,442			34,856			34,410			34,826
Diluted earnings (loss) per share:
Earnings (loss) before cumulative effect of a change in accounting principle				.39			(1.98	)		.67			(1.80	)
Cumulative effect of a change in accounting for goodwill				—			—			(.02	)		—

Net earnings (loss)				.39			(1.98	)		.65			(1.80	)

Diluted weighted average shares outstanding				37,478			34,856			37,360			34,826

See notes to condensed consolidated financial statements.

CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


			Six Months Ended

			June 29, 2002			June 30, 2001

(In thousands)
Cash flows from operating activities:
	Net earnings (loss)		$	24,310		$	(62,655	)
	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
		Depreciation and amortization		27,168			23,580
		Common stock received as consideration for sale of license software		—			(750	)
		Write-off of goodwill impairment		1,272			—
		Gain on sale of investment		(4,308	)		—
		Realized loss on sale of stock		—			385
		Write-down of investment		—			127,616
		Gain on software license settlement		—			(7,580	)
		Non-employee stock option compensation expense		34			56
		Equity in losses of affiliates		—			1,093
		Provision for deferred income taxes		(29,627	)		(44,801	)
	Changes in assets and liabilities (net of business acquired):
		Receivables, net		(28,817	)		(4,582	)
		Inventory		(1,406	)		1,166
		Prepaid expenses and other		(4,400	)		(5,601	)
		Accounts payable		4,895			6,644
		Accrued income taxes		35,413			5,958
		Deferred revenue		(12,641	)		(8,304	)
		Other accrued liabilities		(3,443	)		1,160

	Total adjustments			(15,860	)		96,040

	Net cash provided by operating activities			8,450			33,385

Cash flows from investing activities:
		Purchase of capital equipment		(21,493	)		(8,150	)
		Purchase of land, buildings and improvements		(5,484	)		(4,356	)
		Acquisition of business		(13,429	)		—
		Investment in investee companies		—			(1,292	)
		Proceeds from sale of available-for-sale securities		90,119			1,572
		Issuance of notes receivable		—			(100	)
		Repayment of notes receivable		—			89
		Capitalized software development costs		(22,915	)		(18,179	)

	Net cash provided by (used in) investing activities			26,798			(30,416	)

Cash flows from financing activities:
		Proceeds from issuance of long-term debt		10,086			2,953
		Repayment of long-term debt		(12,019	)		(682	)
		Proceeds from exercise of options		1,825			2,404

	Net cash provided by (used in) financing activities			(108	)		4,675

	Foreign currency translation adjustment			710			(378	)

	Net increase in cash and cash equivalents			35,850			7,266
	Cash and cash equivalents at beginning of period			107,536			90,893

	Cash and cash equivalents at end of period		$	143,386		$	98,159

See notes to condensed consolidated financial statements.

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