-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WjoQoDUCsJXIDADXgy0UluFwnchN4vA4PgqDG/UnokmXSD+hI1OrujzbLbN//xCG 20Y16qeuuGNEARCTiU7QsQ== 0001036050-98-001968.txt : 19981118 0001036050-98-001968.hdr.sgml : 19981118 ACCESSION NUMBER: 0001036050-98-001968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED MEDICAL SYSTEMS CORP CENTRAL INDEX KEY: 0000089415 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 231704148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13303 FILM NUMBER: 98751381 BUSINESS ADDRESS: STREET 1: 51 VALLEY STREAM PKWY CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6102196300 MAIL ADDRESS: STREET 1: 51 VALLEY STREAM PKWY CITY: MALVERN STATE: PA ZIP: 19355 10-Q 1 SHARED MEDICAL SYSTEMS CORPORATION FORM 10-Q 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 September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to___________ Commission file number 0-7416 SHARED MEDICAL SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1704148 (State or other jurisdiction of (I.R.S. Employer 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 October 30, 1998, there were 26,600,878 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEET ------------------------------------ (Amounts in thousands)
September 30 December 31 1998 1997* ------------ ------------ (unaudited) ASSETS Current Assets: Cash and short-term investments..................... $ 36,486 $ 30,692 Accounts receivable, net............................ 317,226 254,801 Prepaid expenses and other current assets........... 40,601 33,767 ------------ ------------ Total Current Assets.............................. 394,313 319,260 Property and Equipment, net.......................... 122,839 106,305 Computer Software, net............................... 68,165 60,921 Other Assets......................................... 177,403 127,490 ------------ ------------ $762,720 $613,976 ============ ============ LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Notes payable....................................... $178,751 $ 49,692 Current portion of long-term debt and capital leases..................................... 2,898 2,670 Dividends payable................................... 5,585 5,268 Accounts payable.................................... 30,004 33,562 Accrued expenses.................................... 57,025 75,370 Current deferred revenues........................... 34,836 36,677 Accrued and current deferred income taxes........... 29,476 26,345 ------------ ------------ Total Current Liabilities......................... 338,575 229,584 ------------ ------------ Deferred Revenues.................................... 6,063 7,398 ------------ ------------ Long-Term Debt and Capital Leases.................... 14,047 16,291 ------------ ------------ Deferred Income Taxes................................ 19,846 30,846 ------------ ------------ Commitments Stockholders' Investment: Preferred stock, par value $.10; authorized 1,000,000 shares; none issued.......... - - Common stock, par value $.01; authorized 120,000,000 shares; 30,657,987 shares issued in 1998 and 30,266,512 in 1997...................... 307 303 Paid-in capital.................................... 81,043 59,897 Retained earnings.................................. 372,343 334,981 Common stock in treasury, at cost, 4,060,720 shares in 1998 and 4,060,785 in 1997.............. (55,954) (56,021) Cumulative translation adjustment.................. (13,550) (9,303) ------------ ------------ Total Stockholders' Investment.................... 384,189 329,857 ------------ ------------ $762,720 $613,976 ============ ============
* Restated to reflect the acquisition of Data-Plan Software GmbH in January 1998, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 2 SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF INCOME ----------------------------------- (Amounts in thousands except for per share amounts)
Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ------------------------------ 1998 1997* 1998 1997* ----------------------------- ------------------------------ (unaudited) (unaudited) Revenues: Service and system fees.................. $241,485 $202,636 $675,881 $579,842 Hardware sales........................... 42,148 27,211 120,210 84,716 ----------------------------- ------------------------------ 283,633 229,847 796,091 664,558 ----------------------------- ------------------------------ Cost and Expenses: Operating and development................ 119,514 96,450 326,900 277,397 Marketing and installation............... 81,723 67,368 224,106 190,615 General and administrative............... 20,572 17,759 57,213 52,475 Cost of hardware sales................... 33,200 23,226 97,778 71,859 Interest................................. 2,488 1,007 6,012 2,817 ----------------------------- ------------------------------ 257,497 205,810 712,009 595,163 ----------------------------- ------------------------------ Income Before Income Taxes................ 26,136 24,037 84,082 69,395 Provision for Income Taxes................ 9,931 9,135 31,955 26,371 ----------------------------- ------------------------------ Net Income................................ $ 16,205 $ 14,902 $ 52,127 $ 43,024 ============================= ============================== Net Income Per Common Share: Basic................................... $.61 $.57 $1.98 $1.65 ============================= ============================== Diluted................................. $.60 $.56 $1.93 $1.62 ============================= ============================== Number of shares used to compute per share amounts................ Basic................................... 26,496 26,092 26,337 26,024 ============================= ============================== Diluted................................. 27,147 26,606 27,074 26,543 ============================= ============================== Dividends Declared Per Common Share......................... $.21 $.21 $.63 $.63 ============================= ==============================
* Restated to reflect the acquisition of Data-Plan Software GmbH in January 1998, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 3 SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (Amounts in thousands)
Nine Months Ended September 30 ------------------------- 1998 1997* ----------- --------- (unaudited) Cash Flows from Operating Activities: Net Income...................................... $ 52,127 $ 43,024 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization................ 32,901 28,865 Asset (increase) decrease - Accounts receivable........................ (47,014) (26,233) Prepaid expenses and other current assets.. (4,570) (6,500) Other assets............................... (21,554) (21,880) Liability increase (decrease) - Accounts payable and accrued expenses...... (32,278) (8,645) Accrued and current deferred income taxes.. 2,468 11,675 Deferred revenues.......................... (5,345) (9,221) Deferred income taxes...................... 3,000 2,987 Other........................................ (4,331) (4,360) ----------- --------- Net cash (used for) provided by operating activities..................... (24,596) 9,712 ----------- --------- Cash Flows from Investing Activities: Property and equipment additions................ (34,214) (17,142) Computer software additions..................... (16,378) (14,189) Businesses acquired............................. (35,913) - Equipment dispositions.......................... 417 1,107 ----------- --------- Net cash used for investing activities..... (86,088) (30,224) ----------- --------- Cash Flows from Financing Activities: Dividends paid.................................. (16,358) (15,404) Exercise of stock options....................... 6,889 6,466 Increase in notes payable....................... 127,897 18,974 Payments of long-term debt and capital lease obligations.............................. (2,017) (4,913) Change in treasury stock........................ 67 (409) ----------- --------- Net cash provided by financing activities.. 116,478 4,714 ----------- --------- Net Increase (Decrease) in Cash and Short-Term Investments..................................... 5,794 (15,798) Cash and Short-Term Investments, Beginning of Period....................................... 30,692 42,124 ----------- --------- Cash and Short-Term Investments, End of Period... $ 36,486 $ 26,326 =========== =========
* Restated to reflect the acquisition of Data-Plan Software GmbH in January 1998, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 4 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Notes to Consolidated Financial Statements - September 30, 1998 (unaudited): 1. Basis of Presentation: 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 contained herein. All periods prior to January 1, 1998 have been restated to reflect the Company's business combination with Data-Plan Software GmbH (Data-Plan), which was completed on January 28, 1998 and accounted for as a pooling of interests. 2. Businesses Acquired: On January 28, 1998, the Company acquired Data-Plan Software GmbH, a provider of client/server clinical, financial, and administrative health information systems. Under the terms of the agreement, the Company issued 1,119,428 shares of the Company's common stock. This transaction was accounted for as a pooling of interests. Separate operating results for Shared Medical Systems Corporation (SMS) and Data-Plan for the quarter and nine months ended September 30, 1997 were as follows (amounts in thousands):
Three Months Nine Months Ended Ended September 30 September 30 1997 1997 ---------------- ---------------- (unaudited) (unaudited) Revenues: SMS.................... $224,732 $648,005 Data-Plan.............. 5,115 16,553 ---------------- ---------------- $229,847 $664,558 ================ ================ Net Income: SMS.................... $ 14,987 $ 43,604 Data-Plan.............. (85) (580) ---------------- ---------------- $ 14,902 $ 43,024 ================ ================
On January 31, 1998, the Company increased its ownership interest in Delta Health Systems from 50% to 100% by purchasing the remaining equity from Delta Computer Systems, Inc. for $21,176,000. On May 29, 1998, the Company acquired JJO Enterprises, a provider of decision support applications, for 57,593 shares of the Company's common stock. This transaction was accounted for as a pooling of interests. Prior periods have not been restated due to immateriality. On June 30, 1998, the Company acquired D.P. Informatica, Srl, a provider of information systems and services in Italy, for 130,081 shares of the Company's common stock. This transaction was accounted for as a pooling of interests. Prior periods have not been restated due to immateriality. On July 16, 1998, the Company completed the acquisition of Pyrenees Informatique, SA, for $10,812,000. Pyrenees is a provider of healthcare information systems in France. This transaction was accounted for as a purchase. 5 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- 3. Accounts Receivable: At September 30, 1998 and December 31, 1997, the Company's trade accounts receivable were reduced by allowances for doubtful accounts of $11,374,000 and $10,828,000, respectively. 4. Property and Equipment: The major classes of property and equipment at September 30, 1998 and December 31, 1997 were as follows (amounts in thousands):
September 30 December 31 1998 1997 ------------ ----------- (unaudited) (unaudited) Land and land improvements...... $ 11,596 $ 11,615 Buildings....................... 78,919 64,559 Equipment....................... 206,927 188,563 ------------ ----------- 297,442 264,737 Less accumulated depreciation and amortization........... 174,603 158,432 ------------ ----------- $122,839 $106,305 ============ ===========
5. Computer Software: The accumulated amortization for capitalized internally produced computer software and purchased software at September 30, 1998 and December 31, 1997 was $76,767,000 and $66,549,000, respectively. 6. Goodwill: Goodwill included in other assets, net of accumulated amortization, was $58,862,000 and $26,639,000 as of September 30, 1998 and December 31, 1997, respectively. The increase in goodwill from December 31, 1997 was primarily the result of the Company increasing its ownership interest in Delta Health Systems and the acquisition of Pyrenees Informatique, SA, as further described in Note 2. 7. Comprehensive Income: The Company's comprehensive income for the quarter and nine months ended September 30, 1998 was (amounts in thousands):
Quarter Ended Nine Months Ended September 30 September 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- (unaudited) (unaudited) Net Income................................ $16,205 $14,902 $52,127 $43,024 Other Comprehensive Income: Foreign currency translation adjustments............................. (2,188) (3,204) (4,247) (7,610) --------- --------- --------- --------- Comprehensive Income...................... $14,017 $11,698 $47,880 $35,414 ========= ========= ========= =========
6 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- 8. Business Segment Information: Business segment information for the Company for the quarter and nine months ended September 30, 1998 and 1997 was as follows (amounts in thousands):
Quarter Ended Nine Months Ended September 30 September 30 -------------------- -------------------- 1998 1997 1998 1997 -------------------- -------------------- (unaudited) (unaudited) Revenues: North America.............................. $253,508 $200,629 $705,233 $576,374 International.............................. 30,125 29,218 90,858 88,184 -------------------- -------------------- $283,633 $229,847 $796,091 $664,558 ==================== ==================== Pretax Income/(Loss): North America.............................. $33,864 $25,412 $ 95,764 $76,252 International.............................. (7,728) (1,375) (11,682) (6,857) -------------------- -------------------- $26,136 $24,037 $ 84,082 $69,395 ==================== ====================
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 nine months ended September 30, 1998. 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 construction of an office building at the Company's corporate headquarters, purchases of equipment and payment of cash dividends. The Company plans to fund construction of the office building principally through external financing. All other anticipated expenditures will be funded primarily through internally generated funds supplemented from time to time by bank borrowings. At September 30, 1998, the Company had lines of credit with banks of approximately $221,837,000, generally at their prime interest rates. At September 30, 1998, approximately $43,086,000 of these lines of credit were unused. Material Changes in Results of Operations - ----------------------------------------- Three Months Ended September 30, 1998 Compared to the Three Months Ended September 30, 1997. Revenues -------- Service and system fees revenues were $241,485,000, an increase of 19.2% compared to the third quarter of 1997. This increase was primarily due to higher levels of professional services in North America. The higher level of professional services was generally attributable to system installations, support, consulting, and facilities management fees. International revenues continue to be adversely impacted by weak demand and difficult economic conditions due in part to restrictions in spending by various European governments. 7 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Hardware sales revenues increased to $42,148,000 for the third quarter of 1998 from $27,211,000 in the third quarter of 1997, primarily due to the installation of IBM mainframe systems to new and existing customers that process the Company's INVISION product at their sites, and changes in the timing and mix of other installed systems. Historical hardware sales revenues are not necessarily indicative of future trends. Cost and Expenses - ----------------- Operating and development expenses increased to 49.5% of service and system fees revenues in the third quarter of 1998 from 47.6% for the third quarter of 1997. This change was primarily due to a higher rate of growth, as compared to the growth in service and system fees revenues, for personnel and related costs associated with support, facilities management, and consulting services provided to customers; and certain customer related expenses, including costs for third-party software, partially offset by a lower rate of growth for computer hardware and associated costs at the Company's Information Services Center. Marketing and installation expenses increased to 33.8% of service and system fees revenues in the third quarter of 1998 from 33.2% in the third quarter of 1997, primarily due to a higher level of growth, as compared to the growth in service and system fees revenues, for customer implementation costs, including costs incurred for external consultants. General and administrative expenses, as a percentage of service and system fees revenues, decreased to 8.5% in the third quarter of 1998 from 8.8% in the third quarter of 1997, primarily due to the Company's continuing efforts to leverage administrative costs over an increasing revenue base and reduced provisions for bad debts. Cost of hardware sales decreased to 78.8% of hardware sales revenues in the third quarter of 1998 from 85.4% in the third quarter of 1997. This change was primarily due to the different product mixes of systems installed between periods. Interest expense was $2,488,000 in the quarter ended September 30, 1998 compared to $1,007,000 in the same period in 1997. This change was generally attributable to a higher level of average outstanding short-term borrowings during the current period. The increase in average outstanding short-term borrowings was partially attributable to funds used for businesses and investments acquired during the first nine months of 1998 and the fourth quarter of 1997. Provision for Income Taxes -------------------------- Income taxes increased $796,000 in the quarter ended September 30, 1998 when compared to the same period in 1997. This change was primarily due to an increase of $2,099,000 in income before income taxes. The Company's effective tax rate for federal, state, and foreign income taxes was 38.0% in the third quarter of 1998 and 1997. Net Income ---------- Net income was $16,205,000 in the quarter ended September 30, 1998 compared to $14,902,000 in the quarter ended September 30, 1997 for the reasons discussed above. 8 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September 30, 1997. Revenues -------- Service and system fees revenues were $675,881,000, an increase of 16.6% compared to the same period in 1997. This increase was primarily due to higher levels of professional services and system fees in North America. The higher level of professional services was generally attributable to system installations, support, consulting, and facilities management fees. The increase in system fees was due to higher levels of sales and installations to new and existing customers. International revenues continue to be adversely impacted by weak demand and difficult economic conditions due in part to restrictions in spending by various European governments. Hardware sales revenues increased to $120,210,000 for the nine months ended September 30, 1998 from $84,716,000 for the same period in 1997, primarily due to the installation of IBM mainframe systems to new and existing customers that process the Company's INVISION product at their sites, and changes in the timing and mix of other installed systems. Historical hardware sales revenues are not necessarily indicative of future trends. Cost and Expenses ----------------- Operating and development expenses increased to 48.4% of service and system fees revenues for the nine months ended September 30, 1998 from 47.8% in the comparable period of 1997. This change was primarily due to a higher rate of growth, as compared to the growth in service and system fees revenues, for personnel and related costs associated with support, facilities management, and consulting services provided to customers; and certain customer related expenses, including costs for third-party software, partially offset by a lower rate of growth for computer hardware and associated costs at the Company's Information Services Center. Marketing and installation expenses increased to 33.2% of service and system fees revenues for the nine months ended September 30, 1998 from 32.9% in the comparable period of 1997, primarily due to a higher rate of growth, as compared to the growth in service and system fees revenues, for customer implementation costs, including costs incurred for external consultants. General and administrative expenses, as a percentage of service and system fees revenues, decreased to 8.5% for the nine months ended September 30, 1998 from 9.0% in the comparable period of 1997. This change was primarily due to a lower rate of growth for personnel and related costs as part of the Company's continuing efforts to leverage administrative costs over an increasing revenue base. Cost of hardware sales decreased to 81.3% of hardware sales for the nine months ended September 30, 1998 from 84.8% in the comparable period of 1997. This change was primarily due to the different product mixes of systems installed between periods. 9 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Interest expense was $6,012,000 for the nine months ended September 30, 1998 compared to $2,817,000 in the same period in 1997. This change was generally attributable to a higher level of average outstanding short-term borrowings during the current period. The increase in average outstanding short-term borrowings was partially attributable to funds used for businesses and investments acquired during the first nine months of 1998 and the fourth quarter of 1997. Provision for Income Taxes -------------------------- Income taxes increased $5,584,000 in the first three quarters of 1998 when compared to the same period in 1997. This change was primarily due to an increase of $14,687,000 in income before income taxes. The Company's effective tax rate for federal, state, and foreign income taxes was 38.0% for the nine months ended September 30, 1998 and 1997. Net Income ---------- Net income was $52,127,000 in the first three quarters of 1998 compared to $43,024,000 in the first three quarters of 1997 for the reasons discussed above. Year 2000 - --------- Computer systems which are designed to accept only two digits in the date field identifying the year may fail or malfunction when attempting to process dates after December 31, 1999. In 1995, the Company established a task force consisting of representatives from affected areas of the Company to oversee a Company-wide effort to deal with this "Year 2000" issue. This project team established a plan to coordinate the software changes necessary for the Company's products, the migration of Company customers to Year 2000 compliant versions of Company products, and the assessment and remediation, if necessary, of the Company's internal systems. The Company has completed development of Year 2000 ready versions for most of its applications, including all of the Company's major product offerings. The Company is continuing its efforts to complete the remaining application development work. The Company's primary efforts are now to assist its customers in migrating to the Year 2000 compliant versions of the Company's products. The Company is continuing to conduct an extensive customer education, training and communications program, which began in 1996, to provide information to customers regarding Year 2000 readiness and their migration paths. The Company believes that a significant portion of the required upgrades of Company products in the North American customer base have been completed, and estimates that approximately 70% of such upgrades will be completed by the end of 1998 and that most of the remaining upgrades in the North American customer base and most of the required upgrades in the Company's International customer base will be completed by mid-1999. The ability of the Company to assist its customers in installing Year 2000 compliant versions of its products will be dependent on the availability of Company and external resources, and the readiness and ability of customers to participate in such installations. 10 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- The Company is continually assessing and informing customers of the Year 2000 compliance status of third-party products that customers use in connection with their Company products. In many cases, customers have been and will be required to upgrade to newer software and or hardware products offered by such third- party vendors to achieve Year 2000 compliance of their information systems. While the Company expects a continued demand for its services, it is possible that the Year 2000 issue will cause a decline in decisions to purchase new information systems by healthcare providers as they focus instead on efforts to update their current systems. Customer efforts to update their current systems, and potential constraints on available resources, could cause delays in installation of the Company's products. Although the Company believes that it has taken adequate protective steps, it is possible that claims will be made against the Company should its customers experience Year 2000 problems. Among other matters such claims could relate to (i) malfunctions in Company products, which have not been upgraded, whether because an enhancement has not been provided by the Company or because the Company-provided enhancement has not been installed by the customer, (ii) difficulties resulting from Year 2000 problems in third-party hardware or software used in connection with the operation of Company products, or (iii) consulting services provided by the Company to its customers concerning Year 2000 issues. The Company anticipates that claims may be made even in cases where the Company is not ultimately responsible. The majority of the Company's Year 2000 software development work has been integrated into the Company's operations in the normal course of business, and therefore the costs for such work have not been separately tracked. Costs incurred modifying products sold to customers have been recorded in accordance with the Company's policies for internally produced software. The Company continues to assess, test (where possible) and or seek assurance from third-party vendors regarding Year 2000 compliance of the Company's critical internal information technology and non-information technology systems. Based on these efforts, the Company believes that a majority of such systems are now Year 2000 compliant. The Company is currently pursuing the remediation or replacement of its remaining non-compliant internal systems and expects that all of its critical internal systems will be compliant by mid-1999. Any failure in a critical internal system relating to Year 2000 problems, whether in a system maintained by the Company or by a third-party vendor, could have an adverse effect on the Company's business operations. The costs to the Company of addressing the Year 2000 issue with respect to its internal systems have not been material and have been expensed as incurred. The Company does not expect the remaining costs of remediation with respect to such systems to be material. The Company is currently in the process of developing contingency plans to deal with issues which may arise in 1999 and 2000, such as expected increases in customer upgrade and support activities, problems caused by customer delays in implementing Company or third-party upgrades, and possible disruptions in the Company's supply chain and internal systems. The Company expects that this contingency planning process will continue through 1999. 11 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Euro Conversion - --------------- On January 1, 1999, the participating countries of the European Union (EU) are scheduled to establish fixed conversion rates between their existing currencies (legacy currencies) and the euro. Also on that date, the new European Central Bank will have the authority to direct monetary policy for each of the participating countries. Legacy currencies will remain legal tender in the participating countries as denominations of the euro through January 1, 2002. At that point, the participating countries will issue new euro-denominated bills and coins for use in cash transactions. All legacy currencies are to be withdrawn from circulation by July 1, 2002. The delivery and payment for healthcare services in Europe will continue to be regulated on a country by country basis subsequent to the creation of the EU. The Company's European businesses have historically been conducted separately in each European country in which the Company has customers. There are currently no significant cross border transactions among the Company's European subsidiaries. The Company does not anticipate the euro conversion will have a material impact on its business operations. The Company is currently modifying or replacing its internal systems to be "euro-compliant" and does not expect the costs of such remediation to be material. The Company's European products have traditionally been developed for specific country requirements. These existing products are in the process of being modified to be euro-compliant. The Company also believes that its new client-server platform, which is intended to be marketed throughout Europe, is euro-compliant. While the Company believes that the measures it has taken in preparation for the euro conversion are adequate, certain risk factors could have an adverse impact on the Company's European business operations including: (i) more intense competition in certain countries as a result of the new common currency, and (ii) malfunctions in critical information systems. Cautionary Note Regarding Forward-Looking Statements - ---------------------------------------------------- This Form 10-Q contains forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Among such factors are changes in length and composition of sales cycles; non-renewals of customer contracts; inability to keep pace with competitive, technological and market developments; failure to protect proprietary software; delays in product development; undetected errors or bugs in software products; customer reductions caused by health industry consolidation; difficulty in product installation; dependence on suppliers; interruption of availability of resources necessary to provide products and services; difficulties encountered by the Company, customers, or others in dealing with the Year 2000 issue; inability to successfully integrate acquired business operations; changes in economic, political and regulatory conditions (including the euro-conversion) in the health industry; regulation of additional products as medical devices by the federal Food and Drug Administration; and fluctuations in foreign currencies, interest rates and taxes. 12 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- PART II - OTHER INFORMATION Item 2. Changes in Securities. Effective September 30, 1998, the Company issued a total of 33,254 shares of its Common Stock to rabbi trusts to be held for the benefit of six officers of the Company in connection with deferred compensation arrangements for such officers. The issuance of such shares either did not constitute an offer or sale of such shares within the meaning of the Securities Act of 1933 (the "Act"), or was exempt from registration under Section 4(2) of the Act. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are included in this report: No. Description --- ---------------------------------------------------------------- (27) Financial Data Schedule (b) A report on Form 8-K was filed on October 20, 1998 reporting a press release issued by the Company on October 19, 1998 concerning its financial results for the quarter ended September 30, 1998. 13 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 November 16, 1998 /S/Terrence W. Kyle - ----------------- ---------------------------------- Date Terrence W. Kyle Senior Vice President, Treasurer, and Assistant Secretary, Principal Financial Officer and Duly Authorized Officer 14 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Exhibit Index No. Description --- ------------------------------------------------------------ (27) Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 36,486 0 328,600 11,374 0 394,313 297,442 174,603 762,720 338,575 14,047 0 0 307 383,882 762,720 120,210 796,091 97,778 551,006 57,213 0 6,012 84,082 31,955 52,127 0 0 0 52,127 1.98 1.93
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