(X)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended July 2, 2011 | ||
OR | ||
( )
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware | 43-1196944 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
Large accelerated filer [X] | Accelerated filer [ ] | Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
(In thousands, except share data) | 2011 | 2010 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 214,056 | $ | 214,511 | ||||
Short-term investments |
467,966 | 356,501 | ||||||
Receivables, net |
504,290 | 476,905 | ||||||
Inventory |
13,076 | 11,036 | ||||||
Prepaid expenses and other |
105,197 | 83,272 | ||||||
Deferred income taxes |
8,737 | 3,836 | ||||||
Total current assets |
1,313,322 | 1,146,061 | ||||||
Property and equipment, net |
497,770 | 498,829 | ||||||
Software development costs, net |
247,709 | 244,848 | ||||||
Goodwill |
189,194 | 161,374 | ||||||
Intangible assets, net |
56,146 | 38,468 | ||||||
Long-term investments |
329,990 | 264,467 | ||||||
Other assets |
86,676 | 68,743 | ||||||
Total assets |
$ | 2,720,807 | $ | 2,422,790 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 72,571 | $ | 65,035 | ||||
Current installments of long-term debt |
29,820 | 24,837 | ||||||
Deferred revenue |
132,721 | 109,351 | ||||||
Accrued payroll and tax withholdings |
90,908 | 86,921 | ||||||
Other accrued expenses |
24,931 | 19,788 | ||||||
Total current liabilities |
350,951 | 305,932 | ||||||
Long-term debt |
84,871 | 67,923 | ||||||
Deferred income taxes and other liabilities |
140,903 | 126,215 | ||||||
Deferred revenue |
13,946 | 17,303 | ||||||
Total liabilities |
590,671 | 517,373 | ||||||
Shareholders Equity: |
||||||||
Cerner Corporation shareholders equity: |
||||||||
Common stock, $.01 par value, 250,000,000 shares
authorized, 168,931,933 shares issued at July 2, 2011
and 168,058,570 shares issued at January 1, 2011 |
1,689 | 1,681 | ||||||
Additional paid-in capital |
689,190 | 616,972 | ||||||
Retained earnings |
1,427,435 | 1,290,835 | ||||||
Accumulated other comprehensive income (loss), net |
11,702 | (4,191 | ) | |||||
Total Cerner Corporation shareholders equity |
2,130,016 | 1,905,297 | ||||||
Noncontrolling interest |
120 | 120 | ||||||
Total shareholders equity |
2,130,136 | 1,905,417 | ||||||
Total liabilities and shareholders equity |
$ | 2,720,807 | $ | 2,422,790 | ||||
1
Three Months Ended | Six Months Ended | |||||||||||||||
(In thousands, except per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues: |
||||||||||||||||
System sales |
$ | 157,145 | $ | 135,902 | $ | 297,524 | $ | 252,853 | ||||||||
Support, maintenance and services |
355,330 | 311,575 | 696,324 | 618,620 | ||||||||||||
Reimbursed travel |
11,748 | 8,524 | 22,039 | 15,865 | ||||||||||||
Total revenues |
524,223 | 456,001 | 1,015,887 | 887,338 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of system sales |
61,887 | 52,863 | 119,986 | 97,691 | ||||||||||||
Cost of support, maintenance and services |
24,847 | 16,824 | 47,137 | 32,739 | ||||||||||||
Cost of reimbursed travel |
11,748 | 8,524 | 22,039 | 15,865 | ||||||||||||
Sales and client service |
210,213 | 190,030 | 411,561 | 377,623 | ||||||||||||
Software development (Includes amortization of $19,910
and $38,968 for the three and six months ended
July 2, 2011; and $16,421 and $32,259 for the
three and six months ended July 3, 2010.) |
69,790 | 67,988 | 140,934 | 134,767 | ||||||||||||
General and administrative |
37,765 | 33,420 | 72,558 | 66,645 | ||||||||||||
Total costs and expenses |
416,250 | 369,649 | 814,215 | 725,330 | ||||||||||||
Operating earnings |
107,973 | 86,352 | 201,672 | 162,008 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income, net |
2,875 | 421 | 4,851 | 2,204 | ||||||||||||
Other income (expense), net |
5 | (495 | ) | 40 | (571 | ) | ||||||||||
Total other income (expense), net |
2,880 | (74 | ) | 4,891 | 1,633 | |||||||||||
Earnings before income taxes |
110,853 | 86,278 | 206,563 | 163,641 | ||||||||||||
Income taxes |
(38,809 | ) | (30,801 | ) | (69,963 | ) | (57,878 | ) | ||||||||
Net earnings |
$ | 72,044 | $ | 55,477 | $ | 136,600 | $ | 105,763 | ||||||||
Basic earnings per share |
$ | 0.43 | $ | 0.34 | $ | 0.81 | $ | 0.64 | ||||||||
Diluted earnings per share |
$ | 0.42 | $ | 0.33 | $ | 0.79 | $ | 0.62 | ||||||||
Basic weighted average shares outstanding |
168,299 | 164,669 | 167,706 | 164,291 | ||||||||||||
Diluted weighted average shares outstanding |
173,591 | 170,673 | 173,128 | 170,447 |
2
Six Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net earnings |
$ | 136,600 | $ | 105,763 | ||||
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
102,670 | 91,451 | ||||||
Share-based compensation expense |
13,131 | 10,806 | ||||||
Provision for deferred income taxes |
7,869 | 6,112 | ||||||
Changes in assets and liabilities (net of businesses acquired): |
||||||||
Receivables, net |
(35,718 | ) | 12,675 | |||||
Inventory |
(1,969 | ) | 2,024 | |||||
Prepaid expenses and other |
(11,185 | ) | 14,591 | |||||
Accounts payable |
2,913 | 14,900 | ||||||
Accrued income taxes |
477 | (12,117 | ) | |||||
Deferred revenue |
14,494 | (19,656 | ) | |||||
Other accrued liabilities |
19,346 | (10,808 | ) | |||||
Net cash provided by operating activities |
248,628 | 215,741 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital purchases |
(51,677 | ) | (56,011 | ) | ||||
Capitalized software development costs |
(41,055 | ) | (41,248 | ) | ||||
Purchases of investments |
(628,686 | ) | (319,056 | ) | ||||
Maturities of investments |
447,009 | 209,650 | ||||||
Purchase of other intangibles |
(5,098 | ) | (2,551 | ) | ||||
Acquisition of businesses, net of cash acquired |
(28,069 | ) | (14,486 | ) | ||||
Net cash used in investing activities |
(307,576 | ) | (223,702 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from sale of future receivables |
- | 1,516 | ||||||
Repayment of long-term debt |
(454 | ) | (1,686 | ) | ||||
Proceeds from excess tax benefits from stock compensation |
26,570 | 13,112 | ||||||
Proceeds from exercise of options |
29,972 | 14,224 | ||||||
Contingent consideration payments for acquisition of businesses |
(779 | ) | - | |||||
Net cash provided by financing activities |
55,309 | 27,166 | ||||||
Effect of exchange rate changes on cash |
3,184 | (5,133 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
(455 | ) | 14,072 | |||||
Cash and cash equivalents at beginning of period |
214,511 | 241,723 | ||||||
Cash and cash equivalents at end of period |
$ | 214,056 | $ | 255,795 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 3,074 | $ | 3,483 | ||||
Income taxes, net of refund |
40,061 | 63,415 | ||||||
Summary of acquisition transactions: |
||||||||
Fair value of net tangible assets (liabilities) acquired |
$ | (8,053 | ) | $ | 1,069 | |||
Fair value of intangible assets acquired |
18,204 | 5,076 | ||||||
Fair value of goodwill |
26,130 | 11,290 | ||||||
Less: Fair value of contingent liability payable |
(5,235 | ) | (1,725 | ) | ||||
Less: Fair value of working capital settlement payable |
(939 | ) | - | |||||
Cash paid for acquisition |
30,107 | 15,710 | ||||||
Cash acquired |
(2,038 | ) | (1,224 | ) | ||||
Net cash used |
$ | 28,069 | $ | 14,486 | ||||
3
4
(In thousands) | ||||
Allocation Amount | ||||
Tangible assets and liabilities |
||||
Current assets |
$ | 5,249 | ||
Property and equipment |
209 | |||
Current liabilities |
(6,803 | ) | ||
Deferred tax liabilities |
(6,708 | ) | ||
Total net tangible liabilities acquired |
(8,053 | ) | ||
Intangible assets |
||||
Customer relationships |
11,204 | |||
Existing technologies |
6,401 | |||
Non-compete agreements |
599 | |||
Total intangible assets acquired |
18,204 | |||
Goodwill |
26,130 | |||
Total purchase price |
$ | 36,281 | ||
5
| Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. | ||
| Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. | ||
| Level 3 Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
(In thousands) | July 2, 2011 | January 1, 2011 | ||||||||||||||||||||||||
Balance Sheet | Fair Value Measurements Using | Fair Value Measurements Using | ||||||||||||||||||||||||
Description | Classification | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Money market funds |
Cash equivalents | $ | 48,060 | $ | - | $ | - | $ | 44,237 | $ | - | $ | - | |||||||||||||
Time deposits |
Cash equivalents | - | 6,686 | - | - | - | - | |||||||||||||||||||
Time deposits |
Short-term investments | - | 56,591 | - | - | 41,764 | - | |||||||||||||||||||
Commercial paper |
Short-term investments | - | 44,800 | - | - | 44,500 | - | |||||||||||||||||||
Government and corporate bonds |
Short-term investments | - | 366,575 | - | - | 251,787 | - | |||||||||||||||||||
Auction rate securities |
Short-term investments | - | - | - | - | 18,450 | - | |||||||||||||||||||
Government and corporate bonds |
Long-term investments | - | 329,990 | - | - | 264,467 | - |
6
(In thousands) | July 2, 2011 | January 1, 2011 | ||||||
Gross accounts receivable |
$ | 365,192 | $ | 352,554 | ||||
Less: Allowance for doubtful accounts |
18,751 | 15,550 | ||||||
Accounts receivable, net of allowance |
346,441 | 337,004 | ||||||
Contracts receivable |
157,849 | 139,901 | ||||||
Total receivables, net |
$ | 504,290 | $ | 476,905 | ||||
7
Three Months Ended | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Earnings | Shares | Per-Share | Earnings | Shares | Per-Share | |||||||||||||||||||
(In thousands, except per share data) | (Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | ||||||||||||||||||
Basic earnings per share: |
||||||||||||||||||||||||
Income available to common
shareholders |
$ | 72,044 | 168,299 | $ | 0.43 | $ | 55,477 | 164,669 | $ | 0.34 | ||||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Stock options and non-vested restricted stock |
- | 5,292 | - | 6,004 | ||||||||||||||||||||
Diluted earnings per share: |
||||||||||||||||||||||||
Income available to common shareholders including assumed conversions |
$ | 72,044 | 173,591 | $ | 0.42 | $ | 55,477 | 170,673 | $ | 0.33 | ||||||||||||||
Six Months Ended | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Earnings | Shares | Per-Share | Earnings | Shares | Per-Share | |||||||||||||||||||
(In thousands, except per share data) | (Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | ||||||||||||||||||
Basic earnings per share: |
||||||||||||||||||||||||
Income available to common
shareholders |
$ | 136,600 | 167,706 | $ | 0.81 | $ | 105,763 | 164,291 | $ | 0.64 | ||||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Stock options and non-vested restricted stock |
- | 5,422 | - | 6,156 | ||||||||||||||||||||
Diluted earnings per share: |
||||||||||||||||||||||||
Income available to common shareholders including assumed conversions |
$ | 136,600 | 173,128 | $ | 0.79 | $ | 105,763 | 170,447 | $ | 0.62 | ||||||||||||||
8
Three Months Ended | Six Months Ended | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Stock option and non-vested restricted share compensation expense |
$ | 6,187 | $ | 5,656 | $ | 13,131 | $ | 10,806 | ||||||||
Associate stock purchase plan expense |
566 | 404 | 1,048 | 805 | ||||||||||||
Amounts capitalized in software development costs, net of amortization |
(185 | ) | (214 | ) | (250 | ) | (258 | ) | ||||||||
Amounts charged against earnings, before income tax benefit |
$ | 6,568 | $ | 5,846 | $ | 13,929 | $ | 11,353 | ||||||||
Amount of related income tax benefit recognized in earnings |
$ | 2,502 | $ | 2,178 | $ | 5,307 | $ | 4,229 | ||||||||
9
(In thousands) | ||||||||||||
Balance Sheet | Fair Value | |||||||||||
Classification | July 2, 2011 | January 1, 2011 | ||||||||||
Net investment hedge |
Short-term (S/T) liabilities | $ | 14,928 | $ | 14,488 | |||||||
Net investment hedge |
Long-term (L/T) liabilities | 59,711 | 57,950 | |||||||||
Total net investment hedge |
$ | 74,639 | $ | 72,438 | ||||||||
Net Unrealized Gain (Loss) | Net Unrealized Gain (Loss) | |||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net investment hedge S/T |
$ | (20 | ) | $ | 3 | $ | 272 | $ | 565 | |||||||
Net investment hedge L/T |
(78 | ) | 18 | 1,090 | 2,826 | |||||||||||
Total net investment hedge |
$ | (98 | ) | $ | 21 | $ | 1,362 | $ | 3,391 | |||||||
10
Operating Segments | ||||||||||||||||
(In thousands) | Domestic | Global | Other | Total | ||||||||||||
Three months ended 2011 |
||||||||||||||||
Revenues |
$ | 450,254 | $ | 73,969 | $ | | $ | 524,223 | ||||||||
Cost of revenues |
87,413 | 11,069 | | 98,482 | ||||||||||||
Operating expenses |
106,126 | 31,671 | 179,971 | 317,768 | ||||||||||||
Total costs and expenses |
193,539 | 42,740 | 179,971 | 416,250 | ||||||||||||
Operating earnings (loss) |
$ | 256,715 | $ | 31,229 | $ | (179,971 | ) | $ | 107,973 | |||||||
Operating Segments | ||||||||||||||||
(In thousands) | Domestic | Global | Other | Total | ||||||||||||
Three months ended 2010 |
||||||||||||||||
Revenues |
$ | 381,017 | $ | 74,984 | $ | | $ | 456,001 | ||||||||
Cost of revenues |
64,149 | 14,062 | | 78,211 | ||||||||||||
Operating expenses |
104,335 | 34,382 | 152,721 | 291,438 | ||||||||||||
Total costs and expenses |
168,484 | 48,444 | 152,721 | 369,649 | ||||||||||||
Operating earnings (loss) |
$ | 212,533 | $ | 26,540 | $ | (152,721 | ) | $ | 86,352 | |||||||
Operating Segments | ||||||||||||||||
(In thousands) | Domestic | Global | Other | Total | ||||||||||||
Six months ended 2011 |
||||||||||||||||
Revenues |
$ | 871,244 | $ | 144,643 | $ | | $ | 1,015,887 | ||||||||
Cost of revenues |
165,338 | 23,824 | | 189,162 | ||||||||||||
Operating expenses |
211,475 | 60,770 | 352,808 | 625,053 | ||||||||||||
Total costs and expenses |
376,813 | 84,594 | 352,808 | 814,215 | ||||||||||||
Operating earnings (loss) |
$ | 494,431 | $ | 60,049 | $ | (352,808 | ) | $ | 201,672 | |||||||
Operating Segments | ||||||||||||||||
(In thousands) | Domestic | Global | Other | Total | ||||||||||||
Six months ended 2010 |
||||||||||||||||
Revenues |
$ | 736,332 | $ | 151,006 | $ | | $ | 887,338 | ||||||||
Cost of revenues |
125,390 | 20,905 | | 146,295 | ||||||||||||
Operating expenses |
209,058 | 64,095 | 305,882 | 579,035 | ||||||||||||
Total costs and expenses |
334,448 | 85,000 | 305,882 | 725,330 | ||||||||||||
Operating earnings (loss) |
$ | 401,884 | $ | 66,006 | $ | (305,882 | ) | $ | 162,008 | |||||||
11
12
| becoming more efficient at implementing our software by leveraging implementation tools
and methodologies we have developed that can reduce the amount of effort required to
implement our software; |
||
| leveraging our investments in R&D by entering new markets that do not require
significant incremental R&D but can contribute significantly to
revenue growth; and |
||
| leveraging our scalable business infrastructure to reduce the rate of increase in
general and administrative spending to below our revenue growth
rate. |
13
14
% of | % of | |||||||||||||||||||
(In thousands) | 2011 | Revenue | 2010 | Revenue | % Change | |||||||||||||||
Revenues |
||||||||||||||||||||
System sales |
$ | 157,145 | 30 | % | $ | 135,902 | 30 | % | 16 | % | ||||||||||
Support and maintenance |
138,180 | 26 | % | 127,999 | 28 | % | 8 | % | ||||||||||||
Services |
217,150 | 42 | % | 183,576 | 40 | % | 18 | % | ||||||||||||
Reimbursed travel |
11,748 | 2 | % | 8,524 | 2 | % | 38 | % | ||||||||||||
Total revenues |
524,223 | 100 | % | 456,001 | 100 | % | 15 | % | ||||||||||||
Costs of revenue |
||||||||||||||||||||
Costs of revenue |
98,482 | 19 | % | 78,211 | 17 | % | 26 | % | ||||||||||||
Total margin |
425,741 | 81 | % | 377,790 | 83 | % | 13 | % | ||||||||||||
Operating expenses |
||||||||||||||||||||
Sales and client service |
210,213 | 40 | % | 190,030 | 42 | % | 11 | % | ||||||||||||
Software development |
69,790 | 14 | % | 67,988 | 15 | % | 3 | % | ||||||||||||
General and administrative |
37,765 | 7 | % | 33,420 | 7 | % | 13 | % | ||||||||||||
Total operating expenses |
317,768 | 61 | % | 291,438 | 64 | % | 9 | % | ||||||||||||
Total costs and expenses |
416,250 | 79 | % | 369,649 | 81 | % | 13 | % | ||||||||||||
Operating earnings |
107,973 | 20.6 | % | 86,352 | 18.9 | % | 25 | % | ||||||||||||
Interest income (expense), net |
2,875 | 421 | ||||||||||||||||||
Other income (expense), net |
5 | (495 | ) | |||||||||||||||||
Income taxes |
(38,809 | ) | (30,801 | ) | ||||||||||||||||
Net earnings |
$ | 72,044 | $ | 55,477 | 30 | % | ||||||||||||||
| System sales, which include revenues from the sale of software, technology resale
(hardware and sublicensed software), deployment period licensed software upgrade rights,
installation fees, transaction processing and subscriptions, increased 16% to $157.1
million for the second quarter of 2011 from $135.9 million for the same period in 2010. The
increase in system sales was driven by a strong increase in licensed software and
subscriptions. |
||
| Support and maintenance revenues increased 8% to $138.2 million during the second
quarter of 2011 from $128.0 million during the same period in 2010. This increase was
attributable to continued success at selling Cerner Millennium applications, implementing
them at client sites and initiating billing for support and maintenance fees. We expect
support and maintenance revenues will continue to grow as the base of installed Cerner
Millennium systems grow. |
||
| Services revenue, which includes professional services excluding installation, and
managed services, increased 18% to $217.2 million from $183.6 million for the same period
in 2010. This increase was driven by growth in CernerWorksSM managed services as
a result of continued demand for our hosting services and an increase in professional
services due to increased implementation activities. |
15
(In thousands) | July 2, 2011 | July 3, 2010 | ||||||
Contract backlog |
$ | 4,736,253 | $ | 3,847,337 | ||||
Support and maintenance backlog |
678,626 | 636,699 | ||||||
Total backlog |
$ | 5,414,879 | $ | 4,484,036 | ||||
| Sales and client service expenses as a percent of total revenues were 40% in the second
quarter of 2011, compared to 42% in the same period of 2010. These expenses increased 11%
to $210.2 million in the second quarter of 2011, from $190.0 million in the same period of
2010. Sales and client service expenses include salaries of sales and client service
personnel, depreciation and other expenses associated with our CernerWorks managed service
business, communications expenses, unreimbursed travel expenses, expense for share-based
payments, sales and marketing salaries and trade show and advertising costs. The increase
was primarily attributable to growth in managed services and
professional services. |
||
| Software development expenses as a percent of revenue were 14% in the second quarter of
2011, compared to 15% in the same period of 2010. These expenses increased 3% to $69.8
million in the second quarter of 2011, from $68.0 million in the same period of 2010.
Expenditures for software development in the second quarter of 2011 reflect continued
development and enhancement of the Cerner Millennium platform and software solutions and
investments in new growth initiatives. Although these expenses increased in the second
quarter of 2011, the reduction as a percentage of revenue reflects our ongoing efforts to
control spending relative to revenue growth. Because of the strong platform we have built,
we are able to continue advancing our solutions and investing in new solutions without
large increases in spending. A summary of our total software development expense in the
second quarters of 2011 and 2010 is as follows: |
Three Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Software development costs |
$ | 70,469 | $ | 72,299 | ||||
Capitalized software costs |
(20,174 | ) | (20,321 | ) | ||||
Capitalized costs related to share-based payments |
(415 | ) | (411 | ) | ||||
Amortization of capitalized software costs |
19,910 | 16,421 | ||||||
Total software development expense |
$ | 69,790 | $ | 67,988 | ||||
16
General and administrative expenses as a percent of total revenues were 7%, in the
second quarter of 2011 and 2010. These expenses increased 13% to $37.8 million in the second
quarter of 2011, from $33.4 million for the same period in 2010. General and administrative
expenses include salaries for corporate, financial and administrative staffs, utilities,
communications expenses, professional fees, transaction gains or losses on foreign currency
and expense for share based payments. The increase in general and administrative expenses
was driven primarily by corporate personnel costs and reduced foreign
currency gains. |
| Net interest income was $2.9 million in the second quarter of 2011 compared to net
interest income of $0.4 million in the second quarter of 2010. Interest income increased to
$3.9 million in the second quarter of 2011 from $2.1 million for the same period in 2010
due primarily to growth in investments and an increase in investment returns. Interest
expense decreased to $1.0 million in the second quarter of 2011 from $1.7 million for the
same period in 2010, due to payments on our long-term debt. |
||
| Other income was insignificant in the second quarter of 2011, compared to other expense
of $0.5 million for the same period in 2010. Other income and expense in the second
quarter of 2010 included offsetting unrealized gains and losses included in earnings
related to our auction rate securities and put-like settlement of $4.4 million. |
||
| Our effective tax rate was 35.0% for the second quarter of 2011 and 35.7% for the second
quarter of 2010. This decrease was primarily due to the research and development tax
credit being in effect for the second quarter of 2011 while it was not effective for the
second quarter of 2010. |
(In thousands) | 2011 | % of Revenue | 2010 | % of Revenue | % Change | |||||||||||||||
Domestic Segment |
||||||||||||||||||||
Revenues |
$ | 450,254 | 100 | % | $ | 381,017 | 100 | % | 18 | % | ||||||||||
Costs of revenue |
87,413 | 19 | % | 64,149 | 17 | % | 36 | % | ||||||||||||
Operating expenses |
106,126 | 24 | % | 104,335 | 27 | % | 2 | % | ||||||||||||
Total costs and expenses |
193,539 | 43 | % | 168,484 | 44 | % | 15 | % | ||||||||||||
Domestic operating earnings |
256,715 | 57 | % | 212,533 | 56 | % | 21 | % | ||||||||||||
Global Segment |
||||||||||||||||||||
Revenues |
73,969 | 100 | % | 74,984 | 100 | % | -1 | % | ||||||||||||
Costs of revenue |
11,069 | 15 | % | 14,062 | 19 | % | -21 | % | ||||||||||||
Operating expenses |
31,671 | 43 | % | 34,382 | 46 | % | -8 | % | ||||||||||||
Total costs and expenses |
42,740 | 58 | % | 48,444 | 65 | % | -12 | % | ||||||||||||
Global operating earnings |
31,229 | 42 | % | 26,540 | 35 | % | 18 | % | ||||||||||||
Other, net |
(179,971 | ) | (152,721 | ) | 18 | % | ||||||||||||||
Consolidated operating earnings |
$ | 107,973 | $ | 86,352 | 25 | % | ||||||||||||||
17
| Revenues increased 18% to $450.3 million in the second quarter of 2011 from $381.0 million in the same period in 2010. This increase was driven by growth across all business models, with particular strength in managed services and professional services. | ||
| Cost of revenues was 19% of revenues in the second quarter of 2011, compared to 17% of revenues in the same period in 2010. The higher cost of revenues as a percent of revenue was primarily driven by lower margin on technology resale, which was due to a higher mix of medical device resale with lower than historical levels of margin, and a slightly higher level of third party consulting costs. | ||
| Operating expenses increased 2% to $106.1 million in the second quarter of 2011, from $104.3 million in the same period in 2010, due primarily to growth in managed services and professional services expenses. |
| Revenues decreased 1% to $74.0 million in the second quarter of 2011 from $75.0 million in the same period in 2010. Overall, declines in technology resale revenue were partially offset by an increase in licensed software and support services revenue. | ||
| Cost of revenues was 15% of revenues in the second quarter of 2011, compared with 19% in the same period of 2010. The lower cost of revenues in 2011 was primarily driven by the decline in technology resale, which carries a higher cost of revenue. | ||
| Operating expenses decreased 8% to $31.7 million for the second quarter of 2011, from $34.4 million in the same period in 2010, primarily due to a decrease in personnel-related professional services expense. |
18
% of | % of | |||||||||||||||||||
(In thousands) | 2011 | Revenue | 2010 | Revenue | % Change | |||||||||||||||
Revenues |
||||||||||||||||||||
System sales |
$ | 297,524 | 29 | % | $ | 252,853 | 28 | % | 18 | % | ||||||||||
Support and maintenance |
270,007 | 27 | % | 255,105 | 29 | % | 6 | % | ||||||||||||
Services |
426,317 | 42 | % | 363,515 | 41 | % | 17 | % | ||||||||||||
Reimbursed travel |
22,039 | 2 | % | 15,865 | 2 | % | 39 | % | ||||||||||||
Total revenues |
1,015,887 | 100 | % | 887,338 | 100 | % | 14 | % | ||||||||||||
Costs of revenue |
||||||||||||||||||||
Costs of revenue |
189,162 | 19 | % | 146,295 | 16 | % | 29 | % | ||||||||||||
Total margin |
826,725 | 81 | % | 741,043 | 84 | % | 12 | % | ||||||||||||
Operating expenses |
||||||||||||||||||||
Sales and client service |
411,561 | 41 | % | 377,623 | 43 | % | 9 | % | ||||||||||||
Software development |
140,934 | 14 | % | 134,767 | 15 | % | 5 | % | ||||||||||||
General and administrative |
72,558 | 7 | % | 66,645 | 8 | % | 9 | % | ||||||||||||
Total operating expenses |
625,053 | 62 | % | 579,035 | 65 | % | 8 | % | ||||||||||||
Total costs and expenses |
814,215 | 80 | % | 725,330 | 82 | % | 12 | % | ||||||||||||
Operating earnings |
201,672 | 19.9 | % | 162,008 | 18.3 | % | 24 | % | ||||||||||||
Interest income (expense), net |
4,851 | 2,204 | ||||||||||||||||||
Other income (expense), net |
40 | (571 | ) | |||||||||||||||||
Income taxes |
(69,963 | ) | (57,878 | ) | ||||||||||||||||
Net earnings |
$ | 136,600 | $ | 105,763 | 29 | % | ||||||||||||||
| System sales, which include revenues from the sale of software, technology resale
(hardware and sublicensed software), deployment period licensed software upgrade rights,
installation fees, transaction processing and subscriptions, increased 18% to $297.5
million for the first six months of 2011 from $252.9 million for the same period in 2010.
The increase in system sales was driven by a strong increase in licensed software,
subscriptions and technology resale. |
||
| Support and maintenance revenues increased 6% to $270.0 million during the first six
months of 2011 from $255.1 million during the same period in 2010. The increase is
attributable to growth in Cerner Millennium applications for which support billing has been
initiated. |
||
| Services revenue, which includes professional services excluding installation, and
managed services, increased 17% to $426.3 million from $363.5 million for the same period
in 2010. This increase is driven by growth in CernerWorks managed services as a result of
continued demand for our hosting services and an increase in professional services due to
increased implementation activities. |
(In thousands) | July 2, 2011 | July 3, 2010 | ||||||
Contract backlog |
$ | 4,736,253 | $ | 3,847,337 | ||||
Support and maintenance backlog |
678,626 | 636,699 | ||||||
Total backlog |
$ | 5,414,879 | $ | 4,484,036 | ||||
19
| Sales and client service expenses as a percent of total revenues were 41% in the first
six months of 2011, compared to 43% in the same period of 2010. These expenses increased 9%
to $411.6 million in the first six months of 2011, from $377.6 million in the same period
of 2010. Sales and client service expenses include salaries of sales and client service
personnel, depreciation and other expenses associated with our CernerWorks managed service
business, communications expenses, unreimbursed travel expenses, expense for share-based
payments, sales and marketing salaries and trade show and advertising costs. The increase
was primarily attributable to growth in the managed services business, a higher level of
professional services expenses, slightly offset by a decrease in bad
debt expense. |
||
| Software development expense as a percent of total revenues was 14% in the first six
months of 2011, compared to 15% in the same period of 2010. These expenses increased 5% to
$140.9 million in the first six months of 2011, from $134.8 million in the same period of
2010. Expenditures for software development in the first half of 2011 reflect continued
development and enhancement of the Cerner Millennium platform and software solutions and
investments in new growth initiatives. Although these expenses increased in the first six
months of 2011, the reduction as a percentage of revenue reflects our ongoing efforts to
control spending relative to revenue growth. Because of the strong platform we have built,
we are able to continue advancing our solutions and investing in new solutions without
large increases in spending. A summary of our total software development expense in the
first six months of 2011 and 2010 is as follows: |
Six Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Software development costs |
$ | 143,021 | $ | 143,756 | ||||
Capitalized software costs |
(40,345 | ) | (40,603 | ) | ||||
Capitalized costs related to share-based payments |
(710 | ) | (645 | ) | ||||
Amortization of capitalized software costs |
38,968 | 32,259 | ||||||
Total software development expense |
$ | 140,934 | $ | 134,767 | ||||
| General and administrative expenses as a percent of total revenues were 7% in the
first six months of 2011, compared to 8% for the same period in 2010. These expenses
increased 9% to $72.6 million in the first six months of 2011, from $66.6 million for the
same period in 2010. General and administrative expenses include salaries for corporate,
financial and administrative staffs, utilities, communications expenses, professional fees,
transaction gains or losses on foreign currency and expense for share based payments. An
increase in corporate personnel costs accounted for the majority of the overall increase in
general and administrative expenses. |
20
| Net interest income was $4.9 million in the first six months of 2011 compared to net
interest income of $2.2 million in the first six months of 2010. Interest income increased
to $7.4 million in the first six months of 2011 from $5.8 million for the same period in
2010, due primarily to growth in investments and an increase in investment returns.
Interest expense decreased to $2.5 million in the first six months of 2011 from $3.6
million for the same period in 2010, due primarily to long-term debt payments made in the
fourth quarter of 2010. |
||
| Other income was insignificant in the first six months of 2011, compared to other
expense of $0.6 million for the same period in 2010. Other income and expense in the first
six months of 2010 includes offsetting unrealized gains and losses included in earnings
related to our auction rate securities and put-like settlement feature in the amount of
$5.7 million. |
||
| Our effective tax rate was 33.9% for the first six months of 2011 and 35.4% for the
first six months of 2010. This decrease was primarily due to the research and development
tax credit being in effect for the first six months of 2011 while it was not effective for
the first six months of 2010 and a favorable foreign tax audit settlement during the first
quarter. |
(In thousands) | 2011 | % of Revenue | 2010 | % of Revenue | % Change | |||||||||||||||
Domestic Segment |
||||||||||||||||||||
Revenues |
$ | 871,244 | 100 | % | $ | 736,332 | 100 | % | 18 | % | ||||||||||
Costs of revenue |
165,338 | 19 | % | 125,390 | 17 | % | 32 | % | ||||||||||||
Operating expenses |
211,475 | 24 | % | 209,058 | 28 | % | 1 | % | ||||||||||||
Total costs and expenses |
376,813 | 43 | % | 334,448 | 45 | % | 13 | % | ||||||||||||
Domestic operating earnings |
494,431 | 57 | % | 401,884 | 55 | % | 23 | % | ||||||||||||
Global Segment |
||||||||||||||||||||
Revenues |
144,643 | 100 | % | 151,006 | 100 | % | -4 | % | ||||||||||||
Costs of revenue |
23,824 | 16 | % | 20,905 | 14 | % | 14 | % | ||||||||||||
Operating expenses |
60,770 | 42 | % | 64,095 | 42 | % | -5 | % | ||||||||||||
Total costs and expenses |
84,594 | 58 | % | 85,000 | 56 | % | 0 | % | ||||||||||||
Global operating earnings |
60,049 | 42 | % | 66,006 | 44 | % | -9 | % | ||||||||||||
Other, net |
(352,808 | ) | (305,882 | ) | 15 | % | ||||||||||||||
Consolidated operating earnings |
$ | 201,672 | $ | 162,008 | 24 | % | ||||||||||||||
| Revenues increased 18% to $871.2 million in the first six months of 2011 from $736.3
million the same period in 2010. This increase was driven by growth in professional
services, managed services, technology resale and licensed software. |
||
| Cost of revenues increased to 19% of revenues in the first six months of 2011, compared
to 17% in the same period in 2010. The higher cost of revenues as a percent of revenue was
primarily driven by lower margin on technology resale, which was due to a higher mix of
medical device resale with lower than historical levels of margin, and a slightly higher
level of third party consulting costs. |
21
| Operating expenses increased 1% to $211.5 million in the first six months of 2011, from
$209.1 million in the same period in 2010, due primarily to growth in managed services and
professional services expense, offset by a decrease in bad debt expense. |
| Revenues decreased 4% to $144.6 million in the first six months of 2011 from $151.0
million in the same period in 2010. Overall, declines in licensed software, technology
resale and professional service revenue were partially offset by an increase in support
services and managed services revenue. The global revenue comparisons were also impacted by
a change in certain contract accounting estimates during the first quarter of 2010. |
||
| Cost of revenues was 16% of revenues in the first six months of 2011, compared with 14%
in the same period of 2010. |
||
| Operating expenses decreased 5% to $60.8 million for the first six months of 2011, from
$64.1 million in the same period in 2010, primarily due to a decrease in personnel-related
professional services expense. |
22
Six Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Cash flows from operating activities |
$ | 248,628 | $ | 215,741 | ||||
Cash flows from investing activities |
(307,576 | ) | (223,702 | ) | ||||
Cash flows from financing activities |
55,309 | 27,166 | ||||||
Effect of exchange rate changes on cash |
3,184 | (5,133 | ) | |||||
Total change in cash and cash equivalents |
(455 | ) | 14,072 | |||||
Cash and cash equivalents at beginning of period |
214,511 | 241,723 | ||||||
Cash and cash equivalents at end of period |
$ | 214,056 | $ | 255,795 | ||||
Free cash flow (non-GAAP) |
$ | 155,896 | $ | 118,482 | ||||
Six Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Cash collections from clients |
$ | 1,040,110 | $ | 930,749 | ||||
Cash paid to employees and suppliers and other |
(748,347 | ) | (648,110 | ) | ||||
Cash paid for interest |
(3,074 | ) | (3,483 | ) | ||||
Cash paid for taxes, net of refund |
(40,061 | ) | (63,415 | ) | ||||
Total cash from operations |
$ | 248,628 | $ | 215,741 | ||||
Six Months Ended | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Long-term debt repayments |
$ | (454 | ) | $ | (1,686 | ) | ||
Cash from option exercises (including excess tax benefits) |
56,542 | 27,336 | ||||||
Other, net |
(779 | ) | 1,516 | |||||
Total cash flows from financing activities |
$ | 55,309 | $ | 27,166 | ||||
23
Three Months Ended | Six Months Ended | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Cash flows from operating activities |
$ | 122,127 | $ | 110,238 | $ | 248,628 | $ | 215,741 | ||||||||
Capital purchases |
(30,305 | ) | (23,903 | ) | (51,677 | ) | (56,011 | ) | ||||||||
Capitalized software development costs |
(20,589 | ) | (20,732 | ) | (41,055 | ) | (41,248 | ) | ||||||||
Free cash flow (non-GAAP) |
$ | 71,233 | $ | 65,603 | $ | 155,896 | $ | 118,482 | ||||||||
24
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 4. | Controls and Procedures |
a) | Evaluation of disclosure controls and procedures. The Companys Chief Executive
Officer (CEO) and Chief Financial Officer (CFO) have evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by the Quarterly Report (the
Evaluation Date). They have concluded that, as of the Evaluation Date, these disclosure
controls and procedures were effective to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them by others within
those entities and would be disclosed on a timely basis. The CEO and CFO have concluded
that the Companys disclosure controls and procedures are designed, and are effective, to
give reasonable assurance that the information required to be disclosed by the Company in
reports that it files under the Exchange Act is recorded, processed, summarized and
reported within the time period specified in the rules and forms of the SEC. They have
also concluded that the Companys disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports that are filed or submitted
under the Exchange Act are accumulated and communicated to the Companys management,
including the CEO and CFO, to allow timely decisions regarding
required disclosure. |
||
b) | There were no changes in the Companys internal controls over financial reporting
during the six months ended July 2, 2011 that have materially affected, or are reasonably
likely to materially affect, its internal controls over financial reporting. |
||
c) | The Companys management, including its CEO and CFO, has concluded that our disclosure
controls and procedures and internal control over financial reporting are designed to
provide reasonable assurance of achieving their objectives and are effective at that
reasonable assurance level. However, the Companys management can provide no assurance
that our disclosure controls and procedures or our internal control over financial
reporting can prevent all errors and all fraud under all circumstances. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been or will be
detected. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected. |
25
Total Number of | Approximate | |||||||||||||||
Shares | Dollar Value of | |||||||||||||||
Purchased as | Shares That May | |||||||||||||||
Total Number of | Part of Publicly | Yet Be Purchased | ||||||||||||||
Shares | Average Price | Announced Plans | Under the Plans | |||||||||||||
Period | Purchased (a) | Paid per Share | or Programs | or Programs | ||||||||||||
April 3, 2011 - April 30, 2011 |
| | | | ||||||||||||
May 1, 2011 - May 28, 2011 |
| | | | ||||||||||||
May 29, 2011 - July 2, 2011 |
6,496 | 59.58 | | | ||||||||||||
Total |
6,496 | 59.58 | | |||||||||||||
(a) | All of the shares presented on the table above were originally granted to employees as
restricted stock pursuant to our Long-Term Incentive Plan F. The Long-Term Incentive Plan F allows
for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock,
and pursuant to the Long-Term Incentive Plan F, the shares reflected above were relinquished by
employees in exchange for our agreement to pay federal and state withholding obligations resulting
from the vesting of the Companys restricted stock. |
(a) | Exhibits |
31.1
|
Certification of Neal L. Patterson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Marc G. Naughton, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS
|
INS XBRL Instance Document | |
101.SCH
|
XBRL Taxonomy Extension Schema Document | |
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE
|
PRE XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document |
26
CERNER CORPORATION Registrant |
||||
August 1, 2011 | By: | /s/Marc G. Naughton | ||
Date | Marc G. Naughton | |||
Chief Financial Officer (duly authorized officer and principal financial officer) |
||||
27
/s/ Neal L. Patterson | ||||
Neal L. Patterson | ||||
Chief Executive Officer | ||||
/s/ Marc G. Naughton | ||||
Marc G. Naughton | ||||
Chief Financial Officer | ||||
/s/ Neal L. Patterson | ||||
Neal L. Patterson, Chairman of the Board, | ||||
Chief Executive Officer
and President August 1, 2011 |
/s/ Marc G. Naughton | ||||
Marc G. Naughton, Executive Vice President | ||||
and Chief Financial
Officer August 1, 2011 |
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
|
Jul. 02, 2011
|
Jan. 01, 2011
|
---|---|---|
Condensed Consolidated Balance Sheets | ||
Common stock, par value | $ 0.01 | |
Common stock, shares authorized | 250,000,000 | |
Common stock, shares issued | 168,931,933 | 168,058,570 |
Condensed Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2011
|
Jul. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
|
Revenues: | ||||
System sales | $ 157,145 | $ 135,902 | $ 297,524 | $ 252,853 |
Support, maintenance and services | 355,330 | 311,575 | 696,324 | 618,620 |
Reimbursed travel | 11,748 | 8,524 | 22,039 | 15,865 |
Total revenues | 524,223 | 456,001 | 1,015,887 | 887,338 |
Costs and expenses: | ||||
Cost of system sales | 61,887 | 52,863 | 119,986 | 97,691 |
Cost of support, maintenance and services | 24,847 | 16,824 | 47,137 | 32,739 |
Cost of reimbursed travel | 11,748 | 8,524 | 22,039 | 15,865 |
Sales and client service | 210,213 | 190,030 | 411,561 | 377,623 |
Software development (Includes amortization of $19,910 and $38,968 for the three and six months ended July 2, 2011; and $16,421 and $32,259 for the three and six months ended July 3, 2010.) | 69,790 | 67,988 | 140,934 | 134,767 |
General and administrative | 37,765 | 33,420 | 72,558 | 66,645 |
Total costs and expenses | 416,250 | 369,649 | 814,215 | 725,330 |
Operating earnings | 107,973 | 86,352 | 201,672 | 162,008 |
Other income (expense): | ||||
Interest income, net | 2,875 | 421 | 4,851 | 2,204 |
Other income (expense), net | 5 | (495) | 40 | (571) |
Total other income (expense), net | 2,880 | (74) | 4,891 | 1,633 |
Earnings before income taxes | 110,853 | 86,278 | 206,563 | 163,641 |
Income taxes | (38,809) | (30,801) | (69,963) | (57,878) |
Net earnings | $ 72,044 | $ 55,477 | $ 136,600 | $ 105,763 |
Basic earnings per share | $ 0.43 | $ 0.34 | $ 0.81 | $ 0.64 |
Diluted earnings per share | $ 0.42 | $ 0.33 | $ 0.79 | $ 0.62 |
Basic weighted average shares outstanding | 168,299 | 164,669 | 167,706 | 164,291 |
Diluted weighted average shares outstanding | 173,591 | 170,673 | 173,128 | 170,447 |
Segment Reporting (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Summary Of The Operating Information |
|
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jul. 02, 2011
|
Jul. 28, 2011
|
|
Document And Entity Information | ||
Entity Registrant Name | CERNER CORP /MO/ | |
Entity Central Index Key | 0000804753 | |
Document Type | 10-Q | |
Document Period End Date | Jul. 02, 2011 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q2 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 169,052,633 |
Acquisitions (Allocation Of Purchase Price To Estimated Fair Values Of Identified Tangible And Intangible Assets Acquired, Net Of Liabilities Assumed) (Details) (Resource Systems [Member], USD $)
In Thousands |
May 23, 2011
|
---|---|
Current assets | $ 5,249 |
Property and equipment | 209 |
Current liabilities | (6,803) |
Deferred tax liabilities | (6,708) |
Total net tangible assets acquired | (8,053) |
Total intangible assets acquired | 18,204 |
Goodwill | 26,130 |
Total purchase price | 36,281 |
Customer Relationships [Member]
|
|
Total intangible assets acquired | 11,204 |
Existing Technologies [Member]
|
|
Total intangible assets acquired | 6,401 |
Non-compete Agreements [Member]
|
|
Total intangible assets acquired | $ 599 |
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Earnings Per Share
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Earnings Per Share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders 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 our earnings. A reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:
Options to purchase 2.2 million and 1.2 million shares of common stock at per share prices ranging from $38.99 to $60.62 and $29.11 to $43.35 were outstanding at July 2, 2011 and July 3, 2010, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive. In addition, the computation of diluted earnings per share does not include 0.2 million performance based non-vested stock awards outstanding as of July 2, 2011, as all necessary conditions of such contingently issuable shares have not been satisfied.
Options to purchase 1.8 million and 0.8 million shares of common stock at per share prices ranging from $38.06 to $60.62 and $29.11 to $43.35 were outstanding for the six months ended July 2, 3011 and July 3, 2010, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive. In addition, the computation of diluted earnings per share does not include 0.2 million performance based non-vested stock awards outstanding as of July 2, 2011, as all necessary conditions of such contingently issuable shares have not been satisfied. |
Fair Value Measurements (Narrative) (Details) (USD $)
In Millions |
Jul. 02, 2011
|
---|---|
Fair Value Measurements | |
Fair value of long-term debt, including current maturities | $ 101.8 |
Segment Reporting (Summary Of The Operating Information) (Details) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2011
|
Jul. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
|
Revenues | $ 524,223 | $ 456,001 | $ 1,015,887 | $ 887,338 |
Cost of revenues | 98,482 | 78,211 | 189,162 | 146,295 |
Operating expenses | 317,768 | 291,438 | 625,053 | 579,035 |
Total costs and expenses | 416,250 | 369,649 | 814,215 | 725,330 |
Operating earnings (loss) | 107,973 | 86,352 | 201,672 | 162,008 |
Domestic Segment [Member]
|
||||
Revenues | 450,254 | 381,017 | 871,244 | 736,332 |
Cost of revenues | 87,413 | 64,149 | 165,338 | 125,390 |
Operating expenses | 106,126 | 104,335 | 211,475 | 209,058 |
Total costs and expenses | 193,539 | 168,484 | 376,813 | 334,448 |
Operating earnings (loss) | 256,715 | 212,533 | 494,431 | 401,884 |
Global Segment [Member]
|
||||
Revenues | 73,969 | 74,984 | 144,643 | 151,006 |
Cost of revenues | 11,069 | 14,062 | 23,824 | 20,905 |
Operating expenses | 31,671 | 34,382 | 60,770 | 64,095 |
Total costs and expenses | 42,740 | 48,444 | 84,594 | 85,000 |
Operating earnings (loss) | 31,229 | 26,540 | 60,049 | 66,006 |
Other Segment [Member]
|
||||
Operating expenses | 179,971 | 152,721 | 352,808 | 305,882 |
Total costs and expenses | 179,971 | 152,721 | 352,808 | 305,882 |
Operating earnings (loss) | $ (179,971) | $ (152,721) | $ (352,808) | $ (305,882) |
Acquisitions (Narrative) (Details) (USD $)
|
6 Months Ended | |
---|---|---|
Jul. 02, 2011
years
|
May 23, 2011
|
|
Business Acquisition, Period Results Included in Combined Entity | The operating results of Resource Systems were combined with our operating results subsequent to the purchase date of May 23, 2011. | |
Resource Systems [Member]
|
||
Percentage of outstanding common shares acquired | 100.00% | |
Payments to Acquire Businesses, Gross | $ 36,281,000 | |
Value of contingent consideration based on a probability-weighted assessment | 5,200,000 | |
Acquired Finite-lived Intangible Asset, Weighted Average Useful Life | 5 | |
Goodwill | $ 26,130,000 |
Acquisitions (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Allocation Of Purchase Price To Estimated Fair Values Of Identified Tangible And Intangible Assets Acquired, Net Of Liabilities Assumed |
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Acquisitions
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Acquisitions |
On May 23, 2011, we completed the purchase of 100% of the outstanding common shares of Resource Systems, Inc., developer of the CareTracker® point-of-care electronic documentation system primarily used within skilled nursing and assisted living facilities. Cerner believes that there is significant market opportunity for information technology solutions in the long-term care market as the U.S. population ages and life expectancy continues to increase. Consideration for the acquisition of Resource Systems is expected to total $36.3 million consisting of up-front cash plus additional contingent consideration, which is payable if we achieve certain revenue milestones through the quarters ending June 30, 2012 and December 29, 2012 and bookings milestones through the quarters ending June 30, 2012 and June 29, 2013 from the clients acquired from Resource Systems. We valued the contingent consideration at $5.2 million based on a probability-weighted assessment of potential contingent consideration payment scenarios. The allocation of the purchase price to the estimated fair values of the identified tangible and intangible assets acquired, net of liabilities assumed, is summarized below:
The fair values of the acquired intangible assets and the contingent consideration were estimated by applying the income approach. Such estimations required the use of inputs that were unobservable in the market place (Level 3), including a discount rate that we estimated would be used by a market participant in valuing these assets, projections of revenues and cash flows, probability weighting factors and client attrition rates. See Note 3 for further information about the fair value level hierarchy.
The goodwill of $26.1 million arising from the acquisition consists largely of the synergies and economies of scale, including the value of the assembled workforce, expected from combining the operations of Cerner and Resource Systems. All of the goodwill was allocated to our Domestic operating segment and is not expected to be deductible for tax purposes. The other identifiable intangible assets are being amortized over five years. The operating results of Resource Systems were combined with our operating results subsequent to the purchase date of May 23, 2011. Pro-forma results of operations, assuming this acquisition was made at the beginning of the earliest period presented, have not been presented because the effect of this acquisition was not material to our results. |
Share-Based Compensation (Compensation Expense Recognized In The Consolidated Statements Of Operations) (Details) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2011
|
Jul. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
|
Amounts charged against earnings, before income tax benefit | $ 6,568 | $ 5,846 | $ 13,929 | $ 11,353 |
Amount of related income tax benefit recognized in earnings | 2,502 | 2,178 | 5,307 | 4,229 |
Stock Option and Non-vested Share Compensation Expense [Member]
|
||||
Amounts charged against earnings, before income tax benefit | 6,187 | 5,656 | 13,131 | 10,806 |
Associate Stock Purchase Plan Expense [Member]
|
||||
Amounts charged against earnings, before income tax benefit | 566 | 404 | 1,048 | 805 |
Amounts Capitalized in Software Development Costs, Net of Amortization [Member]
|
||||
Amounts charged against earnings, before income tax benefit | $ (185) | $ (214) | $ (250) | $ (258) |
Comprehensive Income
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Comprehensive Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income |
Total comprehensive income, which includes net earnings, foreign currency translation adjustments and gains and losses from a hedge of our net investment in the United Kingdom (U.K.), amounted to $76.2 million and $43.5 million for the three months ended July 2, 2011 and July 3, 2010, respectively, and $152.5 and $87.1 million for the six months ended July 2, 2011 and July 3, 2010, respectively. None of the items within comprehensive income, including net earnings, relate to non-controlling interests. As of July 2, 2011, we designated all of our Great Britain Pound (GBP) denominated long-term debt as a net investment hedge of our U.K. operations. The objective of the hedge is to reduce our foreign currency exposure in the U.K. subsidiary investment. Changes in the exchange rate between the United States Dollar (USD) and GBP, related to the notional amount of the hedge, are recognized as a component of accumulated other comprehensive income (loss), to the extent the hedge is effective. The following tables represent the fair value of the net investment hedge included within the Condensed Consolidated Balance Sheets and the related unrealized gain or loss, net of related income tax effects:
We recognize foreign currency transaction gains and losses within the Condensed Consolidated Statements of Operations as a component of general and administrative expenses. We realized a foreign currency gain of $0.1 million and $0.7 million during the three months ended July 2, 2011 and July 3, 2010, respectively, and a nominal loss during the six months ended July 2, 2011 and a gain of $0.6 million for the six months ended July 3, 2010. |
Receivables (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Receivables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Net Receivables |
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Contingencies
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6 Months Ended | ||
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Jul. 02, 2011
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Contingencies | |||
Contingencies |
The terms of our software license agreements with our clients generally provide for a limited indemnification of such intellectual property against losses, expenses and liabilities arising from third party claims based on alleged infringement by our solutions of an intellectual property right of such third party. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include a right to replace or modify an infringing solution. To date, we have not had to reimburse any of our clients for any losses related to these indemnification provisions pertaining to third party intellectual property infringement claims. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the terms of the corresponding agreements with our clients, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions. From time to time we are involved in routine litigation incidental to the conduct of our business, including for example, employment disputes and litigation alleging solution defects, intellectual property infringement, violations of law and breaches of contract and warranties. We believe that no such routine litigation currently pending against us, if adversely determined, would have a material adverse effect on our consolidated financial position, results of operations or cash flows. |
Earnings Per Share (Narrative) (Details) (USD $)
In Millions, except Per Share data |
3 Months Ended | 6 Months Ended | ||
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Jul. 02, 2011
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Jul. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
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Options and performance based non-vested stock awards excluded from computation of diluted earnings per share | 0.2 | 0.2 | ||
Minimum common stock price per share | $ 38.99 | $ 29.11 | $ 38.06 | $ 29.11 |
Maximum common stock price per share | $ 60.62 | $ 43.35 | $ 60.62 | $ 43.35 |
Outstanding Stock Awards [Member]
|
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Options and performance based non-vested stock awards excluded from computation of diluted earnings per share | 2.2 | 1.2 | 1.8 | 0.8 |
Share-Based Compensation
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Jul. 02, 2011
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Share-Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation |
On March 11, 2011, approximately 208,000 stock options were granted to executive officers and other executive level associates under our Long-Term Incentive Plan F. These awards will vest 40% on March 11, 2013, and 20% will vest on March 11, 2014, 2015 and 2016. The fair value of each of these awards was $25.72 per award. Total compensation expense related to these awards is $5.3 million, which is expected to be recognized over a period of 5 years. On March 11, 2011, we granted approximately 120,000 shares of performance-based non-vested restricted stock to certain executive officers, pursuant to our Long-Term Incentive Plan F. The fair value of each of these awards was $51.60 based on the closing price of our common stock on the date of grant. These awards are scheduled to vest 10% on June 1, 2012 and 2013 and the remaining 80% on June 1, 2014, contingent upon the objective performance metric of a relative adjusted GAAP earnings growth percentage over 2010 for each respective year. These performance awards are also subject to reduction based on an annual subjective performance assessment related to individual performance and performance goal attainment, as defined in the award agreements. The amount of compensation expense recognized is based on management's estimate of the most likely outcome and will be reassessed at each reporting date through the final vesting date, which may result in adjustments to compensation cost. On May 13, 2011, approximately 33% of the above performance-based awards were forfeited due to the resignation of an executive officer. Based on a current period vesting probability assessment, total compensation cost related to the remaining awards is $4.1 million and is expected to be recognized over a period of 3 years.
On May 3, 2011, approximately 876,000 stock options were granted to executive level associates under our Long-Term Incentive Plan F and Long-Term Incentive Plan G. These awards will vest 40% on May 3, 2013, and 20% will vest on May 3, 2014, 2015 and 2016. The weighted average fair value of each of these awards was $29.38 per award. Total compensation expense related to these awards is $25.7 million, which is expected to be recognized over a period of 5 years. On May 27, 2011, we granted approximately 22,400 shares of non-vested restricted stock to our board members under our 2011 Omnibus Equity Incentive Plan. The fair value of each of these awards was $60.14 based on the closing price of our common stock on the date of grant. The majority of these awards are scheduled to vest 100% on May 17, 2012. Total compensation expense related to these awards is $1.3 million, which is expected to be recognized over a one-year period. The following table presents the total compensation expense recognized in the condensed consolidated statements of operations with respect to stock options, non-vested restricted shares and Associate Stock Purchase Plan shares:
As of July 2, 2011, there was $72.5 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of 3.34 years. |
Fair Value Measurements
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
We determine fair value measurements used in our condensed consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
The following table details our financial assets measured at fair value within the fair value hierarchy:
We classify our long-term, fixed rate debt as a long-term liability on the balance sheet and estimate the fair value using a Level 3 discounted cash flow analysis based on our current borrowing rates for debt with similar maturities. The fair value of our long-term debt, including current maturities, was approximately $101.8 million at July 2, 2011. |
Income Taxes (Narrative) (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Apr. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
|
Income Taxes | |||
Effective tax rate | 33.90% | 35.40% | |
Income tax return under examination | 2008 and 2009 | ||
Anticipated unrecognized tax benefits in the next 12 months | $ 0 |
Receivables
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
|
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Receivables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables |
Receivables consist primarily of accounts receivable and contracts receivable. Accounts receivable represent recorded revenues that have been billed. Contracts receivable represent recorded revenues that are billable by us 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 are recorded as deferred revenue. Substantially all receivables are derived from sales and related support and maintenance and professional services of our clinical, administrative and financial information systems and solutions to health care providers located throughout the United States and in certain non-U.S. countries. We perform ongoing credit evaluations of our clients and generally do not require collateral from our clients. We provide an allowance for estimated uncollectible accounts based on specific identification, historical experience and our judgment. Provisions for losses on uncollectible accounts for the first six months of 2011 and 2010 totaled $4.0 million and $6.0 million, respectively. A summary of net receivables is as follows:
During the second quarter of 2008, Fujitsu Services Limited's (Fujitsu) contract as the prime contractor in the National Health Service (NHS) initiative to automate clinical processes and digitize medical records in the Southern region of England was terminated by the NHS. This had the effect of automatically terminating our subcontract for the project. We are in dispute with Fujitsu regarding Fujitsu's obligation to pay the amounts comprised of accounts receivable and contracts receivable related to that subcontract, and we are working with Fujitsu to resolve these issues based on processes provided for in the contract. Part of that process requires resolution of disputes between Fujitsu and the NHS regarding the contract termination. As of July 2, 2011, it remains unlikely that the matter will be resolved in the next 12 months. Therefore these receivables have been classified as long-term and represent the significant majority of other long-term assets as of the second quarter ended July 2, 2011. While the ultimate collectability of the receivables pursuant to this process is uncertain, we believe that we have valid and equitable grounds for recovery of such amounts and that collection of recorded amounts is probable. During the first six months of 2011 and 2010, we received total client cash collections of $1.0 billion and $930.7 million, respectively, of which $35.1 million and $25.3 million were received from third party arrangements with non-recourse payment assignments. |
Fair Value Measurements (Financial Assets Measured At Fair Value) (Details) (USD $)
In Thousands |
Jul. 02, 2011
|
Jan. 01, 2011
|
---|---|---|
Level 1 [Member] | Money Market Funds [Member]
|
||
Cash equivalents | $ 48,060 | $ 44,237 |
Level 2 [Member] | Time Deposits [Member]
|
||
Cash equivalents | 6,686 | |
Short-term investments | 56,591 | 41,764 |
Level 2 [Member] | Commercial Paper [Member]
|
||
Short-term investments | 44,800 | 44,500 |
Level 2 [Member] | Government and Corporate Bonds [Member]
|
||
Short-term investments | 366,575 | 251,787 |
Long-term investments | 329,990 | 264,467 |
Level 2 [Member] | Auction Rate Securities [Member]
|
||
Short-term investments | $ 18,450 |
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