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CERNER CORP /MO/

SEC Form 10-Q filed 2010-07-30 for the period ending 2010-07-03

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Selected tables from the SEC filing

Table 0

Financial table in standard format

CERNER CORPORATION AND SUBSIDIARIES
I N D E X


Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of July 3, 2010 (unaudited) and January 2, 2010	1

	Condensed Consolidated Statements of Operations for the three and six months ended July 3, 2010 and July 4, 2009 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the three and six months ended July 3, 2010 and July 4, 2009 (unaudited)	3

	Notes to Condensed Consolidated Financial Statements (unaudited)	4

Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

Part II.	Other Information:	25

Item 4.	Removed and Reserved	25

Item 6.	Exhibits	25
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

CERNER CORP /MO/ CIK:804753

Notes to Condensed Consolidated Financial Statements (unaudited)		4
Item 2.		11
Item 3.		24
Item 4.		24
Part II.		25
Item 4.		25
Item 6.		25
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Data column 1: "numyear" is ambiguous (2010 or 2010 or 2010 or 2009 or 2010 or 2009)
Data column 1: "month" is ambiguous (7 or 1 or 7 or 7 or 7 or 7)
Data column 1: "dayofmonth" is ambiguous (3 or 2 or 3 or 4 or 3 or 4)
Data column 1: Unable to interpret date in column header
Data column 2: Unable to interpret date in column header
Row "EX-31.1": Multi-column field in a numeric row
Row "EX-31.2": Multi-column field in a numeric row
Row "EX-32.1": Multi-column field in a numeric row
Row "EX-32.2": Multi-column field in a numeric row
Row "EX-101 INSTANCE DOCUMENT": Multi-column field in a numeric row
Row "EX-101 SCHEMA DOCUMENT": Multi-column field in a numeric row
Row "EX-101 CALCULATION LINKBASE DOCUMENT": Multi-column field in a numeric row
Row "EX-101 LABELS LINKBASE DOCUMENT": Multi-column field in a numeric row
Row "EX-101 PRESENTATION LINKBASE DOCUMENT": Multi-column field in a numeric row

Table 1

Financial table in standard format

Part I. Financial Information
Item 1. Financial Statements
CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of July 3, 2010 (unaudited) and January 2, 2010



(In thousands, except share data)	2010			2009


Assets
Current assets:
Cash and cash equivalents	$	255,795		$	241,723
Short-term investments		376,712			317,113
Receivables, net		441,567			461,411
Inventory		9,176			11,242
Prepaid expenses and other		94,755			106,791
Deferred income taxes		7,985			8,055

Total current assets		1,185,990			1,146,335

Property and equipment, net		507,045			509,178
Software development costs, net		241,351			233,265
Goodwill		160,401			151,479
Intangible assets, net		38,315			33,719
Long-term investments		45,129			-
Other assets		67,444			74,591


Total assets	$	2,245,675		$	2,148,567


Liabilities and Stockholders Equity
Current liabilities:
Accounts payable	$	47,485		$	36,893
Current installments of long-term debt		25,638			25,014
Deferred revenue		111,420			137,095
Accrued payroll and tax withholdings		78,113			80,093
Other accrued expenses		60,815			79,008

Total current liabilities		323,471			358,103

Long-term debt		90,665			95,506
Deferred income taxes and other liabilities		104,840			98,372
Deferred revenue		18,974			15,788

Total liabilities		537,950			567,769


Stockholders Equity:
Cerner Corporation stockholders equity:
Common stock, $.01 par value, 150,000,000 shares authorized, 83,258,106 shares issued at July 3, 2010 and 82,564,708 shares issued at January 2, 2010		833			826
Additional paid-in capital		597,385			557,545
Retained earnings		1,159,326			1,053,563
Treasury stock		(28,002	)		(28,002	)
Accumulated other comprehensive loss, net		(21,937	)		(3,254	)

Total Cerner Corporation stockholders equity		1,707,605			1,580,678

Noncontrolling interest		120			120


Total stockholders equity		1,707,725			1,580,798


Total liabilities and stockholders equity	$	2,245,675		$	2,148,567

CERNER CORP /MO/ CIK:804753

Assets
Current assets:
Cash and cash equivalents	$255,795	$241,723
Short-term investments	376,712	317,113
Receivables, net	441,567	461,411
Inventory	9,176	11,242
Prepaid expenses and other	94,755	106,791
Deferred income taxes	7,985	8,055
Total current assets	1,185,990	1,146,335
Property and equipment, net	507,045	509,178
Software development costs, net	241,351	233,265
Goodwill	160,401	151,479
Intangible assets, net	38,315	33,719
Long-term investments	45,129
Other assets	67,444	74,591
Total assets	$2,245,675	$2,148,567
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable	$47,485	$36,893
Current installments of long-term debt	25,638	25,014
Deferred revenue	111,420	137,095
Accrued payroll and tax withholdings	78,113	80,093
Other accrued expenses	60,815	79,008
Total current liabilities	323,471	358,103
Long-term debt	90,665	95,506
Deferred income taxes and other liabilities	104,840	98,372
Deferred revenue	18,974	15,788
Total liabilities	537,950	567,769
Stockholders Equity:
Cerner Corporation stockholders equity:
Common stock, $.01 par value, 150,000,000 shares authorized, 83,258,106 shares issued at July 3, 2010 and 82,564,708 shares issued at January 2, 2010	833	826
Additional paid-in capital	597,385	557,545
Retained earnings	1,159,326	1,053,563
Treasury stock	(28,002)	(28,002)
Accumulated other comprehensive loss, net	(21,937)	(3,254)
Total Cerner Corporation stockholders equity	1,707,605	1,580,678
Noncontrolling interest	120	120
Total stockholders equity	1,707,725	1,580,798
Total liabilities and stockholders equity	$2,245,675	$2,148,567

Data column 1: Unable to interpret date in column header
Data column 2: Unable to interpret date in column header

Table 2

Financial table in standard format

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended July 3, 2010 and July 4, 2009
(unaudited)


	Three Months Ended						Six Months Ended
(In thousands, except per share data)	2010			2009			2010			2009


Revenues:
System sales	$	135,902		$	114,302		$	252,853		$	214,491
Support, maintenance and services		311,575			281,444			618,620			565,272
Reimbursed travel		8,524			8,060			15,865			16,365


Total revenues		456,001			403,806			887,338			796,128


Costs and expenses:
Cost of system sales		52,863			42,629			97,691			84,193
Cost of support, maintenance and services		16,824			16,200			32,739			31,862
Cost of reimbursed travel		8,524			8,060			15,865			16,365
Sales and client service		190,030			171,633			377,623			344,986
Software development (Includes amortization of $16,421 and $32,259 for the three and six months ended July 3, 2010; and $15,830 and $28,879 for the three and six months ended July 4, 2009.)		67,988			65,090			134,767			129,826
General and administrative		33,420			34,038			66,645			60,760


Total costs and expenses		369,649			337,650			725,330			667,992


Operating earnings		86,352			66,156			162,008			128,136

Other income (expense):
Interest income (expense), net		421			(146	)		2,204			(467	)
Other income (expense), net		(495	)		213			(571	)		417


Total other income (expense), net		(74	)		67			1,633			(50	)


Earnings before income taxes		86,278			66,223			163,641			128,086
Income taxes		(30,801	)		(22,478	)		(57,878	)		(43,511	)


Net earnings	$	55,477		$	43,745		$	105,763		$	84,575


Basic earnings per share	$	0.67		$	0.54		$	1.29		$	1.05

Diluted earnings per share	$	0.65		$	0.52		$	1.24		$	1.02

Basic weighted average shares outstanding		82,334			80,691			82,146			80,512

Diluted weighted average shares outstanding		85,336			83,590			85,224			83,258

CERNER CORP /MO/ CIK:804753

Revenues:
System sales	$135,902	$114,302	$252,853	$214,491
Support, maintenance and services	311,575	281,444	618,620	565,272
Reimbursed travel	8,524	8,060	15,865	16,365
Total revenues	456,001	403,806	887,338	796,128
Costs and expenses:
Cost of system sales	52,863	42,629	97,691	84,193
Cost of support, maintenance and services	16,824	16,200	32,739	31,862
Cost of reimbursed travel	8,524	8,060	15,865	16,365
Sales and client service	190,030	171,633	377,623	344,986
Software development (Includes amortization of $16,421 and $32,259 for the three and six months ended July 3, 2010; and $15,830 and $28,879 for the three and six months ended July 4, 2009.)	67,988	65,090	134,767	129,826
General and administrative	33,420	34,038	66,645	60,760
Total costs and expenses	369,649	337,650	725,330	667,992
Operating earnings	86,352	66,156	162,008	128,136
Other income (expense):
Interest income (expense), net	421	(146)	2,204	(467)
Other income (expense), net	(495)	213	(571)	417
Total other income (expense), net	(74)	67	1,633	(50)
Earnings before income taxes	86,278	66,223	163,641	128,086
Income taxes	(30,801)	(22,478)	(57,878)	(43,511)
Net earnings	$55,477	$43,745	$105,763	$84,575
Basic earnings per share	$0.67	$0.54	$1.29	$1.05
Diluted earnings per share	$0.65	$0.52	$1.24	$1.02
Basic weighted average shares outstanding	82,334	80,691	82,146	80,512
Diluted weighted average shares outstanding	85,336	83,590	85,224	83,258

Data column 1: Unable to interpret date in column header
Data column 2: Unable to interpret date in column header
Data column 3: Unable to interpret date in column header
Data column 4: Unable to interpret date in column header

Table 3

Financial table in standard format

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.
The following table details our financial assets measured at fair value within the fair value hierarchy:


(In thousands)		July 3, 2010						January 2, 2010
	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	$	35,705	$	-	$	-	$	80,242	$	-	$	-
Time deposits	Cash equivalents		-		9,680		-		-		8,523		-
Corporate bonds	Cash equivalents		-		-		-		-		8,194		-
Time deposits	Short-term investments		-		20,445		-		-		37,784		-
Commercial paper	Short-term investments		-		33,387		-		-		19,987		-
Government and corporate bonds	Short-term investments		-		292,030		-		-		164,792		-
Auction rate securities	Short-term investments		-		-		27,190		-		-		85,203
Put-like feature	Short-term investments		-		-		3,660		-		-		9,347
Government and corporate bonds	Long-term investments		-		45,129		-		-		-		-

CERNER CORP /MO/ CIK:804753
	2010-07-03	2010-07-03	2010-07-03	2010-01-02	2010-01-02	2010-01-02
Balance Sheet
Description
Money market funds	$35,705			$80,242
Time deposits		9,680			8,523
Corporate bonds					8,194
Time deposits		20,445			37,784
Commercial paper		33,387			19,987
Government and corporate bonds		292,030			164,792
Auction rate securities			27,190			85,203
Put-like feature			3,660			9,347
Government and corporate bonds		45,129

Data column 1: Unable to interpret date in column header
Row "Balance Sheet": Multi-column field in a numeric row
Row "Balance Sheet": Multi-column field in a numeric row
Row "Money market funds": Multi-column field in a numeric row
Row "Money market funds": Multi-column field in a numeric row
Row "Money market funds": Multi-column field in a numeric row
Row "Money market funds": Multi-column field in a numeric row

Table 4

Financial table in standard format

(In thousands)

Three Months Ended

Six Months Ended

2010

2009

2010

2009

Beginning balance

   $
88,150

   $
99,600

   $
94,550

   $
105,300

Redemptions at par

(57,300
)

(450
)

(63,700
)

(6,150
)
Unrealized gain on auction rate securities included in earnings

4,364

3,092

5,687

9,382

Unrealized loss on put-like feature included in earnings

(4,364
)

(3,092
)

(5,687
)

(9,382
)

Ending balance

   $
30,850

   $
99,150

   $
30,850

   $
99,150

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 $120.6 million at July 3, 2010.
(4)

Receivables
Receivables consist 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 healthcare 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 2010 and 2009 totaled $6.0 million and $1.4 million, respectively. A summary of net receivables is as follows:


(In thousands)	July 3, 2010		January 2, 2010


Gross accounts receivable	$	332,756	$	342,992
Less: Allowance for doubtful accounts		20,705		16,895
Accounts receivable, net of allowance		312,051		326,097

Contracts receivable		129,516		135,314


Total receivables, net	$	441,567	$	461,411

CERNER CORP /MO/ CIK:804753
	2010-07-03	2010-01-02
Gross accounts receivable	$332,756	$342,992
Less: Allowance for doubtful accounts	20,705	16,895
Accounts receivable, net of allowance	312,051	326,097
Contracts receivable	129,516	135,314
Total receivables, net	$441,567	$461,411

Table 5

Financial table in standard format

(5) Income Taxes
We determine the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes we make a cumulative adjustment. We classify interest and penalties associated with unrecognized tax benefits as income tax expense in our Condensed Consolidated Statements of Operations.
Our effective tax rate was 35.4% and 34.0% for the first six months of 2010 and 2009, respectively. This increase is primarily due to the research and development tax credit not being extended for the 2010 tax year.
During the first quarter of 2010, the Internal Revenue Service commenced its examination of the 2008 income tax return. We do not believe this examination will have a material effect on our financial position, results of operations or liquidity.
Other than the aforementioned matter, we do not anticipate any settlements of the remaining unrecognized tax benefits within the next 12 months.
(6) 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:


	Three Months Ended
	2010						2009
	Earnings		Shares		Per-Share		Earnings		Shares		Per-Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
(In thousands, except per share data)
Basic earnings per share:
Income available to common stockholders	$	55,477		82,334	$	0.67	$	43,745		80,691	$	0.54
Effect of dilutive securities:
Stock options		-		3,002				-		2,899

Diluted earnings per share:
Income available to common stockholders including assumed conversions	$	55,477		85,336	$	0.65	$	43,745		83,590	$	0.52

CERNER CORP /MO/ CIK:804753

Earnings Shares Per-Share
(Numerator) (Denominator) Amount
(In thousands, except per share data)
Basic earnings per share:
Income available to common stockholders $55,477 82,334 $0.67	$43,745	80,691	$0.54
Effect of dilutive securities:
Stock options - 3,002	2,899
Diluted earnings per share:
Income available to common stockholders including assumed conversions $55,477 85,336 $0.65	$43,745	83,590	$0.52

Data column 1: Unable to interpret date in column header

Table 6

Financial table in standard format

Vesting Dates

Number of Shares

June 1, 2011

14,000

June 1, 2012

15,500

June 1, 2013

88,500

Total Shares

118,000

Subsequent to July 3, 2010, approximately 21% of the total shares related to this award were forfeited due to the resignation of an executive officer. The amount of compensation expense recognized is based on managements 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. Based on a current period vesting probability assessment, total compensation cost related to these awards is $7.6 million, net of forfeitures, and is expected to be recognized over a period of 3 years.
The following table presents the total compensation expense recognized in the condensed consolidated statements of operations with respect to stock options, non-vested shares and Associate Stock Purchase Plan shares:


	Three Months Ended						Six Months Ended
(In thousands)	2010			2009			2010			2009

Stock option and non-vested share compensation expense	$	5,656		$	3,270		$	10,806		$	6,962
Associate stock purchase plan expense		404			372			805			665
Amounts capitalized in software development costs, net of amortization		(214	)		(56	)		(258	)		(121	)

Amounts charged against earnings, before income tax benefit	$	5,846		$	3,586		$	11,353		$	7,506


Amount of related income tax benefit recognized in earnings	$	2,178		$	1,336		$	4,229		$	2,796

CERNER CORP /MO/ CIK:804753

Stock option and non-vested share compensation expense	$5,656	$3,270	$10,806	$6,962
Associate stock purchase plan expense	404	372	805	665
Amounts capitalized in software development costs, net of amortization	(214)	(56)	(258)	(121)
Amounts charged against earnings, before income tax benefit	$5,846	$3,586	$11,353	$7,506
Amount of related income tax benefit recognized in earnings	$2,178	$1,336	$4,229	$2,796

Table 7

Financial table in standard format

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:


(In thousands)
	Balance Sheet	Fair Value
Derivatives designated	Classification	July 3, 2010		January 2, 2010

Net investment hedge	Short-term (S/T) liabilities	$	14,114	$	15,015
Net investment hedge	Long-term (L/T) liabilities		70,571		75,075

Total net investment hedge		$	84,685	$	90,090

CERNER CORP /MO/ CIK:804753
	2010-07-03	2010-01-02
Net investment hedge	$14,114	$15,015
Net investment hedge	70,571	75,075
Total net investment hedge	$84,685	$90,090

Data column 1: Unable to interpret date in column header

Table 8

Financial table in standard format

(In thousands)

Balance Sheet

Fair Value
Derivatives designated

Classification

July 3, 2010

January 2, 2010

Net investment hedge

Short-term (S/T) liabilities

   $
14,114

   $
15,015

Net investment hedge

Long-term (L/T) liabilities

70,571

75,075

Total net investment hedge

   $
84,685

   $
90,090


(In thousands)
	Net Unrealized Gain (Loss)					Net Unrealized Gain (Loss)
Derivatives designated	For the Three Months Ended					For the Six Months Ended
	2010		2009			2010		2009

Net investment hedge - S/T	$	3	$	(870	)	$	565	$	(1,040	)
Net investment hedge - L/T		18		(5,220	)		2,826		(6,244	)

Total net investment hedge	$	21	$	(6,090	)	$	3,391	$	(7,284	)

CERNER CORP /MO/ CIK:804753

Net investment hedge - S/T	$3	$(870)	$565	$(1,040)
Net investment hedge - L/T	18	(5,220)	2,826	(6,244)
Total net investment hedge	$21	$(6,090)	$3,391	$(7,284)

Table 9

Financial table in standard format

within the next year. At July 3, 2010, we held auction rate securities with a par value of $30.9 million and an estimated fair value of $27.2 million.
We anticipate that any future changes in the fair value of the put-like feature will be offset by the changes in the fair value of the related auction rate securities with no material net impact to the Condensed Consolidated Statements of Operations. We do not expect the auction failures to impact our ability to fund our working capital needs, capital expenditures or other business requirements.
The following table summarizes our cash flows in the first six months of 2010 and 2009:


	Six Months Ended
(In thousands)	2010			2009


Cash flows from operating activities	$	215,741		$	165,756
Cash flows from investing activities		(223,702	)		(94,965	)
Cash flows from financing activities		27,166			12,512
Effect of exchange rate changes on cash		(5,133	)		121

Total change in cash and cash equivalents	$	14,072		$	83,424


Free cash flow (non-GAAP)	$	118,482		$	61,445

CERNER CORP /MO/ CIK:804753

Cash flows from operating activities	$215,741	$165,756
Cash flows from investing activities	(223,702)	(94,965)
Cash flows from financing activities	27,166	12,512
Effect of exchange rate changes on cash	(5,133)	121
Total change in cash and cash equivalents	$14,072	$83,424
Free cash flow (non-GAAP)	$118,482	$61,445

Data column 1: Unable to interpret date in column header
Data column 2: Unable to interpret date in column header

Original filing from SEC EDGAR system.