-----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, Ku/UGDwzb6UfoOFGzFQDWOyxaAr2VpjCaf4erds2WOs93twxTKDw7VeLZtOEFTgu X5FJ0zRxChXQnmQyfCAX5w== 0001036050-99-001112.txt : 19990518 0001036050-99-001112.hdr.sgml : 19990518 ACCESSION NUMBER: 0001036050-99-001112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626285 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 March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to___________ Commission file number 0-7416 SHARED MEDICAL SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1704148 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 51 Valley Stream Parkway Malvern, Pennsylvania 19355 (Address of principal 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 April 30, 1999, there were 26,651,573 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEET ------------------------------------ (Amounts in thousands)
March 31 December 31 1999 1998 ----------- ----------- (unaudited) ASSETS Current Assets: Cash and short-term investments.................... $ 39,553 $ 40,070 Accounts receivable, net........................... 334,898 337,669 Prepaid expenses and other current assets.......... 32,172 33,466 ---------- ----------- Total Current Assets............................. 406,623 411,205 Property and Equipment, net......................... 141,043 137,521 Computer Software, net.............................. 81,126 75,709 Other Assets........................................ 180,163 184,013 ---------- ----------- $808,955 $808,448 ========== =========== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Notes payable...................................... $173,496 $158,808 Current portion of long-term debt and capital leases.................................... 3,559 3,437 Dividends payable.................................. 5,593 5,589 Accounts payable................................... 32,646 42,029 Accrued expenses................................... 61,535 86,499 Current deferred revenues.......................... 41,014 40,206 Accrued and current deferred income taxes.......... 37,827 30,390 ---------- ----------- Total Current Liabilities........................ 355,670 366,958 ---------- ----------- Deferred Revenues................................... 6,161 6,908 ---------- ----------- Long-Term Debt and Capital Leases................... 13,521 14,386 ---------- ----------- Deferred Income Taxes............................... 22,346 20,846 ---------- ----------- 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; 30,665,609 shares issued in 1999 and 30,635,512 in 1998...................... 307 306 Paid-in capital................................... 81,032 79,773 Retained earnings................................. 398,121 385,401 Common stock in treasury, at cost, 4,029,950 shares in 1999 and 4,029,773 in 1998............. (55,497) (55,497) Cumulative translation adjustment................. (12,706) (10,633) ---------- ----------- Total Stockholders' Investment................... 411,257 399,350 ---------- ----------- $808,955 $808,448 ========== ===========
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 March 31 -------------------------- 1999 1998 ---------- -------- (unaudited) Revenues: Service and system fees............................. $259,809 $213,731 Hardware sales...................................... 27,260 41,735 ---------- -------- 287,069 255,466 ---------- -------- Cost and Expenses: Operating and development........................... 121,487 103,368 Marketing and installation.......................... 92,876 67,015 General and administrative.......................... 20,103 19,515 Cost of hardware sales.............................. 21,018 35,413 Interest............................................ 2,049 1,412 ---------- -------- 257,533 226,723 ---------- -------- Income Before Income Taxes........................... 29,536 28,743 Provision for Income Taxes........................... 11,223 10,922 ---------- -------- Net Income........................................... $ 18,313 $ 17,821 ========== ======== Net Income Per Share: Basic.............................................. $.69 $.68 ========== ======== Diluted............................................ $.68 $.66 ========== ======== Number of shares used to compute per share amounts: Basic.............................................. 26,575 26,200 ========== ======== Diluted............................................ 27,034 26,967 ========== ======== Dividends Declared Per Common Share.................. $ .21 $.21 ========== ========
The accompanying notes are an integral part of this statement. 3 SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (Amounts in thousands)
Three Months Ended March 31 ---------------------- 1999 1998 -------- -------- (unaudited) Cash Flows from Operating Activities: Net Income...................................... $ 18,313 $ 17,821 Adjustments to reconcile net income to net cash used for operating activities - Depreciation and amortization................ 11,691 9,837 Asset (increase) decrease - Accounts receivable........................ 2,771 (20,914) Prepaid expenses and other current assets.. 1,547 1,747 Other assets............................... 2,743 (8,607) Liability increase (decrease) - Accounts payable and accrued expenses...... (34,347) (28,369) Accrued and current deferred income taxes.. 7,437 4,688 Deferred revenues.......................... 61 (4,387) Deferred income taxes...................... 1,500 1,000 Other........................................ (1,433) (4,372) -------- -------- Net cash provided by (used for) operating activities................................ 10,283 (31,556) -------- -------- Cash Flows from Investing Activities: Property and equipment additions................ (11,090) (6,025) Computer software additions..................... (8,888) (6,070) Businesses acquired............................. - (25,101) Equipment dispositions.......................... - 35 -------- -------- Net cash used for investing activities..... (19,978) (37,161) -------- -------- Cash Flows from Financing Activities: Dividends paid.................................. (5,588) (5,268) Exercise of stock options....................... 1,260 3,674 Increase in notes payable....................... 14,688 65,875 Payments of long-term debt and capital lease obligations.............................. (1,182) (678) Change in treasury stock........................ - (546) -------- -------- Net cash provided by financing activities.. 9,178 63,057 -------- -------- Net Decrease in Cash and Short-Term Investments.. (517) (5,660) Cash and Short-Term Investments, Beginning of Period....................................... 40,070 30,692 -------- -------- Cash and Short-Term Investments, End of Period... $ 39,553 $ 25,032 ======== ========
The accompanying notes are an integral part of this statement. 4 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Notes to Consolidated Financial Statements - March 31, 1999 (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. 2. Accounts Receivable: At March 31, 1999 and December 31, 1998, the Company's trade accounts receivable were reduced by allowances for doubtful accounts of $13,573,000 and $13,369,000, respectively. 3. Property and Equipment: The major classes of property and equipment at March 31, 1999 and December 31, 1998 were as follows (amounts in thousands):
March 31 December 31 1999 1998 ----------- ----------- (unaudited) Land and land improvements............... $ 11,568 $ 11,616 Buildings, including construction in progress.......................... 96,760 92,193 Equipment................................ 215,544 212,481 ----------- ----------- 323,872 316,290 Less accumulated depreciation and amortization..................... 182,829 178,769 ----------- ----------- $141,043 $137,521 =========== ===========
4. Computer Software: The accumulated amortization for capitalized internally produced computer software and purchased software at March 31, 1999 and December 31, 1998 was $85,500,000 and $80,357,000, respectively. 5. Comprehensive Income: The Company's comprehensive income for the three months ended March 31, 1999 was (amounts in thousands):
Quarter Ended March 31 ----------------------- 1999 1998 ------- ------- (unaudited) Net Income...............................$18,313 $17,821 Other Comprehensive Income: Foreign currency translation adjustments............................ (2,073) (2,928) ------- ------- Comprehensive Income.....................$16,240 $14,893 ======= =======
5 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- 6. Business Segment Information: Business segment information for the Company for the three months ended March 31, 1999 and 1998 was as follows (amounts in thousands):
Quarter Ended March 31 ---------------------------- 1999 1998 ---------------------------- (unaudited) Revenues: North America................$247,091 $223,985 International................ 39,978 31,481 ---------------------------- $287,069 $255,466 ============================ Pretax Income/(Loss): North America................$ 31,706 $ 30,285 International................ (2,170) (1,542) ---------------------------- $ 29,536 $ 28,743 ============================
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 three months ended March 31, 1999. Management is not aware of any potential material impairments to the Company's current financial position. The most significant requirements for funds now anticipated are for the completion of construction of an office building addition at the Company's corporate headquarters, purchases of equipment, and payment of cash dividends. The Company plans to fund its anticipated expenditures primarily from operations and from short-term and long-term borrowings. At March 31, 1999, the Company had lines of credit with banks, primarily based on LIBOR, of approximately $268.3 million. At March 31, 1999, approximately $94.8 million of these lines of credit were unused. On April 29, 1999, the Company completed a private placement of $175.0 million of long-term unsecured notes to reduce current notes payable, fund the cost to complete the corporate office building addition, and fund working capital requirements. Material Changes in Results of Operations - ----------------------------------------- Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31, 1998. Revenues -------- Service and system fees revenues were $259.8 million, an increase of 21.6% compared to the first quarter of 1998. North American revenues increased primarily due to higher levels of professional services and software and related services. The higher level of professional services was generally attributable to system installations, consulting, and facilities management fees. The increase in software and related services was primarily due to higher levels of sales and installations to new and existing customers and support fees. 6 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- International revenues increased primarily due to the effect of companies acquired in 1998, and higher levels of professional services. Hardware sales revenues decreased to $27.3 million for the first quarter of 1999 from $41.7 million in the first quarter of 1998, primarily due to changes in the timing and product mix of systems installed. Contributing to this decrease were lower levels of installations of mainframe systems to new and existing customers that process the Company's INVISION(R) product at their sites, partially offset by increased sales of networking equipment. Cost and Expenses ----------------- Operating and development expenses decreased to 46.8% of service and system fees revenues in the first quarter of 1999 from 48.4% for the first quarter of 1998. This change was principally due to a lower rate of growth, as compared to the growth in service and system fees revenues, for personnel and related costs, partially offset by a higher rate of growth for third- party software costs. Marketing and installation expenses increased to 35.7% of service and system fees revenues in the first quarter of 1999 from 31.4% in the first quarter of 1998, 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, partially offset by a lower rate of growth for personnel and related costs. General and administrative expenses, as a percentage of service and system fees revenues, decreased to 7.7% in the first quarter of 1999 from 9.1% in the first quarter of 1998, primarily due to the Company's continuing efforts to leverage administrative costs over an increasing revenue base. Cost of hardware sales decreased to 77.1% of hardware sales revenues in the first quarter of 1999 from 84.9% in the first quarter of 1998. This change was primarily due to the different product mixes of systems installed in each quarter. Interest expense was $2.0 million in the quarter ended March 31, 1999 compared to $1.4 million in the same period in 1998. This change was generally attributable to a higher level of average outstanding short-term borrowings during the current period. Provision for Income Taxes -------------------------- Income taxes increased $.3 million in the quarter ended March 31, 1999 when compared to the same period in 1998. This change was primarily due to an increase of $.8 million in income before income taxes. The Company's effective tax rate for federal, state, and foreign income taxes was 38.0% in the first quarter of 1999 and 1998. Net Income ---------- Net income was $18.3 million in the quarter ended March 31, 1999 compared to $17.8 million in the quarter ended March 31, 1998 for the reasons discussed above. 7 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Year 2000 - --------- Computer systems that 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 substantially all of its applications. 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 the necessary steps to be taken to achieve Year 2000 readiness of their Company systems. The Company believes that approximately 75% of the required upgrades of Company products in the North American customer base have been completed, 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. 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 or 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 may cause a delay in the introduction of new products, and or a decline in decisions to purchase new products 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 also 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. 8 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Costs incurred modifying products sold to customers have been recorded in accordance with the Company's policies for internally produced software. 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. The costs for such work have not been separately tracked and are therefore not practicably estimable. 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 such as utilities, including telecommunications used internally and at the Company's Information Services Center. 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 a material 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 external support systems and internal systems. In addition to the alternate power and fuel source contingency systems already in place for the Company's Information Services Center, these plans include supplementing the organization with additional technical resources from other areas of the Company during the critical period from Friday, December 31, 1999 through Monday, January 3, 2000, and forming auxiliary support centers in the Company's field organization. The Company expects that this contingency planning process will continue through 1999. Euro Conversion - --------------- On January 1, 2002, the participating countries of the European Union (EU) 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 Company's European businesses have historically been conducted directly in each European country in which the Company has customers and there are currently no significant cross border transactions among the Company's various European operating entities. Accordingly, the Company does not anticipate the euro conversion will have a material impact on its business operations. 9 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- The Company continues to assess the need to modify or replace 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 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 a material 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. PART II - OTHER INFORMATION 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) No reports on Form 8-K were filed during the three-month period ended March 31, 1999. 10 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 May 17, 1999 /S/Terrence W. Kyle - ------------ ----------------------------------- Date Terrence W. Kyle Senior Vice President, Treasurer, and Assistant Secretary, Principal Financial Officer and Duly Authorized Officer 11 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Exhibit Index No. Description --- ------------------------------------------------------------ (27) Financial Data Schedule 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 39,553 0 348,471 13,573 0 406,623 323,872 182,829 808,955 355,670 13,521 0 0 307 410,950 808,955 27,260 287,069 21,018 214,363 20,103 0 2,049 29,536 11,223 18,313 0 0 0 18,313 .69 .68
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