-----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, C+WJnQ5emCCsbh60JIcTgCNn2R8pp2Ync1w29/9UHQONo0XK6UeVIuKQW4LxkapI awmo9fe6Mk7b9aITp47mBg== 0000804753-00-000052.txt : 20000411 0000804753-00-000052.hdr.sgml : 20000411 ACCESSION NUMBER: 0000804753-00-000052 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERNER CORP /MO/ CENTRAL INDEX KEY: 0000804753 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 431196944 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15386 FILM NUMBER: 581722 BUSINESS ADDRESS: STREET 1: 2800 ROCKCREEK PKWY-STE 601 CITY: KANSAS CITY STATE: MO ZIP: 64117 BUSINESS PHONE: 8162211024 MAIL ADDRESS: STREET 1: 2800 ROCKCREEK PKWY STREET 2: DROP 1624 CITY: KANSAS CITY STATE: MO ZIP: 64117 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____________ to ___________ Commission File Number 0-15386 CERNER CORPORATION (Exact name of Registrant as specified in its charter) Delaware 43-1196944 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 2800 Rockcreek Parkway Kansas City, Missouri 64117 (816) 221-1024 (Address of principal executive offices, including zip code; Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Preferred Stock Purchase Rights (Title of Class) 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 _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] At March 15, 2000, there were 33,794,735 shares of Common Stock outstanding, of which 7,810,343 shares were owned by affiliates. The aggregate market value of the outstanding Common Stock of the Registrant held by non-affiliates, based on the average of bid and asked prices of such stock on March 15, 2000, was $772,223,643. Documents incorporated by reference: portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference in Part III hereof. PART I Item 1. Business Overview - -------- Cerner Corporation ("Cerner" or the "Company") is a Delaware corporation incorporated in 1980. The Company's principal offices are located at 2800 Rockcreek Parkway, Kansas City, Missouri 64117, and its telephone number is (816) 221-1024. Cerner designs, develops, markets, installs and supports information technology and content solutions for healthcare organizations and consumers that are capable of being implemented on an individual, combined or enterprise-wide basis and are accessible over the internet by consumers, physicians and healthcare providers. Cerner's integrated suite of solutions enable healthcare providers to improve operating effectiveness, reduce costs and improve the quality of care as measured by clinical outcomes. Cerner's solutions are designed to provide the appropriate health information and knowledge to care givers, clinicians and consumers and the appropriate management information to healthcare administration on a real-time basis, allowing secure access to data by clinical and administrative users in organized settings of care and by consumers from their home. These solutions can be implemented as part of an enterprise- wide solution or individually, leveraging the client's existing investment in information technology. Cerner solutions are available as integrated applications managed by our clients or as a service option under the Applications Solutions Provider (ASP) model, where applications are provided to clients from Cerner's solutions center in Kansas City, Missouri. Cerner solutions are designed and developed using the Health Network Architecture (''HNA''), a single information architecture. HNA is a unified technology infrastructure for combining clinical and management information applications. HNA allows each participating healthcare organization to access an individual's clinical record at the point of care, to organize it for the specific needs of the physician, nurse, laboratory technician or other care provider on a real-time basis, and to use the information in management decisions to improve the efficiency and productivity of the entire enterprise. HNA solutions allow healthcare organizations to reduce costs of delivering care, reduce clinical variance, reduce medical errors, and improve patient safety. Cerner has developed and is licensing and installing or offering as a service, its newest generation of HNA solutions known as "Millennium". See "Cerner's Techology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of HNA Millennium. Healthcare Industry - ------------------- While the rate of healthcare cost increases has slowed in the last five years, the demand for healthcare services has continued unabated. A more health conscious and better-informed health consumer combined with the aging of the population in general has accelerated the demand for healthcare services. In most markets the drive toward pure capitation (a fixed monthly fee per member in payment for all required services) and a primary care gatekeeper model as key components of managed care has slowed. A virtual integrated health organization built upon connections, partnerships, alliances, and relationships with physician, payors, employers, and suppliers is emerging as the operating model for health organizations. In order to operate effectively in this virtual model, healthcare organizations must increasingly rely on broadly deployed information technology to accomplish the integration necessary to manage costs and deliver high quality patient outcomes. The healthcare delivery industry in the United States is highly fragmented, very complex and remarkably inefficient. While science and medical technology continue to make significant breakthrough progress in dealing with human disease and injury, the management and clinical processes of these complex delivery organizations have made little progress in the past twenty years. Even today, the major clinical workflow depends on manual, paper- based medical record systems augmented by spotty automation. This has resulted in an industry which is economically inefficient and produces significant variances in medical outcomes. In November 1999, the Institute of Medicine released a report called "To Err is Human" 2 indicating that medical error is one of the top ten causes of death in the United States. The industry must address these issues by identifying ways to enhance efficiencies and improve the quality of care. The healthcare industry has also been buffeted by significant external forces during the 1990's. Managed Care Organizations defined themselves as an intermediary in the flow of funds and exerted pressures on healthcare spending. These pressures resulted in lowering total spending on healthcare but did not necessarily address any of the larger, systemic issues in the industry. As a result of the pressures created by managed care, healthcare providers consolidated both horizontally and vertically into newly defined delivery systems. It is clear many of these delivery systems were created to form entities to negotiate with managed care but many organizations also expected new economies of scale. For the most part these economies never materialized. A number of for-profit business models were created during the decade attempting to find the leverage point which would transform the healthcare delivery system. The models included for-profit acute care, physician practice management companies and, most recently, the carve-out focused factories specializing in one element of healthcare, such as cardiology. Most of these efforts have been unsuccessful. Finally, Federal government policy in the United States has also been an active force shaping the health care environment. The policy impact includes the focus on health care reform in the 1992 presidential election, the very aggressive Medicare Fraud and Abuse compliance programs initiated during the decade and, most recently, the passing of the Balanced Budget Act, which reduced payments to health care providers by over $250 billion dollars over a five-year period. This legislation took its full grip on providers here in the United States during 1999, significantly reducing the operating margins of hospitals and physician groups while raising their cost of capital. In order to be competitive in this dynamic marketplace, healthcare enterprises will need to deploy information technology solutions that internally automate the paper-based medical record systems and externally create smart connections between the major participants in health care: the consumer, the physician, the hospital and the managed care organization. The emergence of near ubiquitous internet connectivity has enabled a new class of eHealth solutions that allow the consumer to participate fully in the care and health management process. This same technology has also enabled a new way to deliver these solutions under the Application Services Provider (ASP) model, whereby information solutions are delivered to clients from a remote location. The complexity of healthcare's information requirements will continue to increase with provider consolidations and the challenging cost containment pressures created by the Balance Budget Act. The soon to be published final regulations under the Health Insurance Portability and Accountability Act of 1996 add an additional element of uncertainty for healthcare organizations around security and patient confidentiality. Physician organizations are affected by the same pressures and will increasingly need to utilize person/patient focused information systems (i) to improve quality and efficiency for their growing practices and physician networks, (ii) to develop the data necessary to compete for contracts with payors and (iii) to be able to share the financial risks of healthcare delivery. Managed care organizations are increasingly recognizing the value of process-oriented and clinically driven information to understand and improve the health of their members, to reduce medical errors and to reduce costs. These larger, more complex integrated healthcare enterprises are seeking closer relationships with technology suppliers that can provide comprehensive information systems solutions, including integrated process-based systems for clinical domains, data repositories, applications for physicians and management teams and consumer connectivity. Cerner is responding to the changing and increasing needs of the healthcare industry for better information systems by developing HNA Millennium, its latest generation of solutions. See "Cerner's Techology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of HNA Millennium. 3 Healthcare Information Technology (HCIT) Industry - ------------------------------------------------- The Healthcare Information Technology industry is evolving to meet the needs of a changing marketplace. Beginning in the 1960's, computer systems developed for use in healthcare were financially oriented, with a focus on the ability to capture charges and generate patient bills and update the general ledger. Later, hospital and commercial organizations began to use clinical information systems, which automate the activities within clinical departments, such as laboratory, pharmacy, radiology and surgery departments, to improve the productivity of resources and automate the production and use of significant amounts of clinical information. During the late eighties and early nineties, individual clinical departments selected systems based upon specific features on a ''best of breed'' basis resulting in disparate and disconnected information systems within the institution. Most recently, there has been a shift from the purchase of disparate clinical systems selected on a ''best of breed'' basis to systems that are able to integrate communication effectively throughout the healthcare enterprise. This approach requires a common system architecture, in which system's functional components are engineered and built with a common data model, messaging system, standards and other lower level technical components. The system users enjoy a common look and feel as well as common navigation capabilities. This infrastructure trend also affects the relationship between the health system and the suppliers of information technology. Moving to a common architecture approach requires the creation of a strategic relationship with one HCIT company dedicated to implementing a shared vision for the role of information in the operation of the health system. Many HCIT companies have responded to this trend by acquiring smaller HCIT companies with existing application offerings and thereby offering a "solution" under one brand to the market place. Attempts to integrate these disparate architectures have not delivered the anticipated clinical or financial benefits for clients or HCIT companies. In the long run, the Company believes that value for consumers and providers will center on a common architectural framework that allows the seamless transmission of knowledge and processes among all the healthcare constituents. The internet's role in the transformation of healthcare is not well defined at present, but all indications are that it will be one of the major enablers of the shift to a consumer-centric industry. As more and more households have internet access, consumers have access to an increasing amount of health information, resulting in an informed and empowered healthcare consumer. The same infrastructure that is automating the clinical and managerial operations of the medical center and clinic is extending to all trading partners within the healthcare industry. Managed care authorizations, referrals, claims and remittance can be submitted to local, regional, and national exchanges for rapid processing. Orders for tests and results can be securely transmitted over the internet to physicians and consumers alike. Most importantly, consumers will have the option of working closely with their local healthcare organization to organize and manage their care or selectively work with providers on an as needed basis. An internet-based personal health record will emerge to assist patients and caregivers with maintaining the wide variety of health and care related information. Cerner's HNA Millennium solutions, with their person-centric design and web-based architecture, are well suited to meet the requirements of the connected health system. See "Cerner's Techology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of HNA Millennium. 4 The Cerner Vision - ----------------- Cerner's vision is to enable the transformation of healthcare through the implementation of information technology and the deployment of medical knowledge. As a result of the rapid changes in the healthcare and information technology industries, Cerner believes that a "New Health Enterprise" will emerge with a digital center and an information "backbone" which connects consumers, physicians, hospitals, pharmacies, home health agencies and payors to service the healthcare needs of a community or defined member population. This digital information backbone is enabled by the increased connectivity created by the internet. Cerner believes that healthcare delivery systems will reach an inflection point within the next decade, creating the emergence of these New Health Enterprises in the United States. Currently, healthcare organizations are seeing increased workflow volume while the reimbursement per case decreases. The New Health Enterprise will require information systems that can manage care delivery virtually across an entire community while simultaneously managing the business services side of healthcare management. This will require managing care from the person/patient's home to the Intensive Care Unit in a paperless fashion. In this digital environment, Cerner envisions that consumers and physicians will be able to choose from a variety of electronic access devices (e.g. Personal Computers linked to internet portals, Personal Digital Assistants, home/personal- based diagnostic and therapeutic technology) to connect to the clinical process of care and create or review a complete health record for each individual. This precise and specific personal medical information will create large data repositories storing and tracking health outcomes over multiple lifetimes. New knowledge and medical insights will be harvested from this data. Cerner's products securely manage health care transactions from each point of access to their destination. Cerner's products also allow preferencing and customization to the consumer and physicians, embed clinical rules, clinical evidence and protocols to monitor care safety and quality, and use of business and compliance rules to create more efficient business management between the health enterprise and their payors, patients, physician groups, supply chain, community, and outside business relationships. Cerner's Technology -- Health Network Architecture (HNA) and HNA - ----------------------------------------------------------------- Millennium - ---------- The cornerstone of Cerner's technology strategy is HNA, the single architecture around which each of Cerner's information products is developed. This open, highly scaleable architecture allows Cerner to meet the clinical, management, and business information requirements of a healthcare delivery system across the continuum of care. Cerner's newest version of HNA computing platform, Millennium, developed between 1994 and 1999, utilizes N-tiered client/server technology to optimize distributed computing performance and scalability across multiple client and server platforms. The HNA Millennium architecture and applications were designed and developed to accommodate healthcare specific requirements for mission critical computing and secure access, whether the user is inside the healthcare enterprise or at home via the internet. HNA Millennium's breadth of focus and functionality are well suited for large-scale and enterprise application technologies for healthcare organizations, including the ability to leverage the internet for eHealth- related self-service and business to business functions. The value of HNA Millennium to a client organization is the use across a healthcare organization of a single system based on a fully integrated common architecture and database. With its single data model, HNA Millennium provides real time access to all information across multiple applications, domains, organizations and physical locations, including physician, hospital, nursing, laboratory, pharmacy, and consumers, to all of those needing such access, wherever they are located. Given its integrated and open design, HNA Millennium can also provide a centralized repository of clinical and financial transactions to help standardize access and messaging of disparate applications across a health system. The alternative to an architectural approach is to use disparate systems based on differing architectures and data structures to automate the care processes across the continuum of care. These disparate systems must be interfaced together and rely on these interfaces to transmit, modify and arrange data 5 exchanged between them, which limits the data's usefulness across multiple systems and inhibits real-time access. In addition, many of these systems lack functional scalability and cannot operate across multiple provider settings or locations within a healthcare organization. Two overarching capabilities are embedded into the HNA Millennium architecture: (i) person centric transactions and messaging, which considers the breadth of requirements not only of a patient, but also of healthy consumers, and (ii) healthcare community dynamics, which takes into account the flexibility required by the constantly changing relationships between healthcare organizations, physicians and consumers, and the need to maintain complex security and end user preferences based on the context and business attributes of the transaction in a community setting. Strategy - -------- Key elements of the Company's business strategy include: To penetrate the integrated healthcare provider market. - ---------------------------------------------------------- The transformation of healthcare delivery must deal with the changing financial model from fee-for-service to fixed or controlled fee payments for services provided. In order to accomplish the transition, integrated healthcare systems must decrease costs generally, utilize fewer resources per patient or member encounter, decrease the amount of care required by focusing on preventative measures and increase member populations by attracting additional members through better quality healthcare and services. Cerner's process-based, clinical and management systems provide the technology to enable an integrated system to manage healthcare to significantly reduce costs, improve the efficiency of healthcare delivery and maintain and improve the quality of healthcare. To expand its market share in individual domains. - ------------------------------------------------ Cerner expects continued growth in clinical domain systems for specific markets such as nursing, physician office, laboratory, pharmacy, radiology, surgery, emergency medicine and cardiology, as institutional providers look to restructure and reengineer these high cost centers. The Company also intends to market aggressively Cerner clinical and management information systems and services to its existing client base. To remain committed to a common architecture. - ---------------------------------------------- Because Cerner believes that the constituents in health management need to work together to benefit defined populations in a community, the Company has made a commitment to a single unified architecture as the platform for "fully integrated'' health information and management systems. This platform enables Cerner's process-based HNA systems to be scaleable on a linear basis, using either Cerner compatible modules for process-oriented applications or competitive systems interfaced using open system protocols. To expand its products and services. - -------------------------------------- Using HNA Millennium, Cerner intends to continue expanding the range of products and services offered to providers either through internal development or by acquisitions or joint ventures. These new products and services will complement the systems currently offered, address the emerging information needs of clients or employ technological advances. Cerner believes that major opportunities exist as providers and managed care organizations reach into new markets and offer more alternative services to remain competitive. The Company believes these organizations will find value in having personal health records and trusted health information accessible to the individual in the home. In addition, Cerner recognizes the value of the aggregate database being developed by its broad client base as a potential means to enable comparative or normative procedure evaluations as a powerful new tool in the healthcare industry. The substantial project management process redesign, technology integration, and training involved in healthcare systems taking advantage of the opportunities provided by clinical and management information technology represent a significant market for the Company's consulting services. To offer web-based solutions. - ------------------------------- The Company has extended its product offerings around the HNA Millennium architecture to facilitate powerful business-to-consumer and business-to-business connections 6 via the internet. This satisfies healthcare consumers' increasing demands for anytime, anywhere access to health information, communication with their physician, access to services and management of a personal health record. Cerner's expertise in complex clinical and management information systems allows health organizations to create and brand a health "portal" in their community that connects consumers, physicians, hospitals, disease management providers, payors, reference labs, pharmacies, and supply-chain organizations via the internet. Bringing the consumer and provider closer together in the context of the health record creates an opportunity for the majority of Cerner's products to deploy via the internet. Cerner currently has applications that are developed and being used for web deployment. Cerner also provides content and applications to other internet-focused companies, and in the future will offer additional internet services and solutions, as the business demand requires. To offer its products as an Application Service Provider. - ---------------------------------------------------------- The Company now offers its HNA Millennium applications through its new Application Service Provider (ASP) organization. The ASP organization offers information technology services to clients in a package that includes software, computer hardware, implementation, technical support, wide-area network (WAN) services and automatic software upgrades. Unlike traditional software implementations, software delivered through an ASP is not installed at the user's location, but is delivered, operated, and maintained in Cerner's solutions center in a rapidly accelerated implementation timeframe with a smaller initial user investment. Using Cerner's ASP, any size organization can access the same robust clinical applications, architecture, and user- interface advantages that were previously only available to larger institutions. Our Technology - Information Product Suites - ------------------------------------------- The Company's technology includes Enterprise Systems, which automate processes across and throughout the health system enterprise; Enterprise Repositories, which capture, sort, present and analyze clinical and business information; Clinical Systems for Direct Care, which automate the clinical processes within hospitals and the physicians practice; Clinical Systems for Care Centers, which automate the clinical processes within specific departments or domains; Decision Support Systems and Knowledge Solutions, which enhance clinical and business processes with information and actions; Financial and Operational Management Systems, which automate the business operations; Population Health Management systems for managing health; Demand Management systems and services for managing the need for care; Personal Health systems for individuals to manage their own health; and Interface Technologies for connecting other technologies to HNA Millennium. These systems can be acquired individually or as a fully integrated health information system. The individual systems perform together even if installed at different times. Cerner's applications can all be delivered over the internet in a web browser using third-party application server software or for selected applications, native web implementations. Cerner also markets over 200 product options that complement Cerner's major information systems. In connection with the licensing of an information system, Cerner also generally sells to its client's computers, related hardware, networks and sub-licensed software components that are manufactured and supplied to Cerner by third parties. Enterprise Systems and Enterprise Repositories - ---------------------------------------------- Cerner's Enterprise Systems automate processes across the entire health system. Capstone automates the identification, eligibility, registration and scheduling processes across hospitals, clinics, physician practices and other care delivery organizations, integrating the health system and incorporating existing systems. It includes a structured repository for the storage and viewing of health plan information, records, contracts, eligibility and coverage data. PowerLink connects community-based physicians to health systems for referrals, authorizations, claims, eligibility, and reporting. PowerChart is the enterprise clinician's desktop solution for viewing, ordering and documenting the electronic medical record, which is maintained in the Open Clinical Foundation (OCF) data repository. ePowerChart extends the power of this viewer to the web. Physicians can gain access to the electronic medical record to view results and documentation from any internet-based terminal. It includes a structured repository for the storage of 7 person/patient orders; discrete results; clinical reports and other documents; indexes to document images from foreign document imaging systems; and indexes to third-party dictation systems. Open Management Foundation (OMF) Data Repository is a structured repository for process- and activity-related information useful for management of a healthcare organization. Information can originate from numerous sources and can be maintained in an easily accessible, standardized format. OMF can be integrated into an architecture containing products from different suppliers. Clinical Systems for Direct Care - -------------------------------- Cerner's CareNet Acute Care Management System is designed to automate the entire care process in acute or institutional settings. It collects, refines, organizes, and evaluates detailed clinical and management data. It enables the entire care team to plan and manage individual activities and plans, as well as measure outcomes and goals. CareNet consists of two major solutions - Care Team Automation, which automates documentation related to care delivery at the point of care within an acute care organization, including nursing order entry and viewing of the patient's medical record, as well as basic registration capabilities; and Care Coordination, which supports acute care planning, including pathways used to audit care, nursing care plans, multidisciplinary care plans, single-discipline pathways and multidisciplinary pathways. The INet Intensive Care Management System is designed to automate the entire care process in intensive care settings. It supports chart review and browsing, order management, documentation management, and automatic data acquisition, as well as basic patient management. It automatically acquires patient data from bedside medical devices, manages information flow and presentation at the bedside, supports care management through care planning and critical pathways, and encourages timely decisions based on comprehensive data availability; information tailored to the practitioner and the patient; and rule-based decision support. The ProVide Physician Office Management System supports the broad range of clinical and business activities that occur within a physician office, clinic, or large physician organization (such as a multi-site clinic or management service organization) and ties the office together with others in the community. It automates key activities of the care team in both primary and specialty care settings. ProVide offers clinicians and staff a variety of functional capabilities, including patient/member tracking, clinical records access and navigation, eligibility checking, order and referral processing, and reference library access and navigation. ProVide allows an enterprise to deliver a common medical record effectively integrating the ambulatory and acute care record in one single instance. In addition to the traditional implementation and operations model, this system is immediately deployable under an ASP model hosted in Cerner's solutions center and includes options for the rapid implementation of the solution. The ProCall Home Care Management System automates the clinical and business processes of home health organizations, such as visiting nurse associations and hospices. It is appropriate for Medicare-certified or noncertified agencies providing skilled nursing, specialized care, supervisory activities, assessments, and unskilled attendant or medical delivery services. ProCall facilitates the documentation of care activities in the home and provides access to the electronic medical record. It automates the referral, scheduling, and management reporting processes performed by office personnel in home care agencies, and supports their business and administrative processes. In addition to these solutions, ProCall also supports telephonic documentation to allow patients and caregivers to document activities and results by using a touch-tone phone. Financial and management reporting capabilities provide needed information to directors and managers in home care agencies to allow them to compete in a prospective-pay environment. Interfaces to patient billing systems are also supported. The ProCall system is immediately deployable under an ASP model hosted in Cerner's solutions center and includes options for the rapid implementation of the solution. 8 Clinical Systems for Care Centers - --------------------------------- The PathNet Laboratory Information System addresses the information management needs of six clinical areas: general laboratory, microbiology, blood bank transfusion services, blood bank donor services, anatomic pathology, and human leukocyte antigen. PathNet automates the ordering and reporting of procedures, the production of accurate and timely reports, and the maintenance of accessible clinical records. The PathNet system is immediately deployable under an ASP model hosted in Cerner's solutions center and includes options for the rapid implementation of the solution. To facilitate electronic ordering by community physicians and to allow the rapid dissemination of lab results, Cerner also provides PathLink, a web-based application for both order and results. PathLink combines the order critiquing, routing and labeling logic of PathNet with the convenience of the web. The RadNet Radiology Information System addresses the operational and management requirements of diagnostic radiology departments or services. It allows a department to replace its manual, paper- based system of record keeping with an efficient computer-based system. Specific modules on mammography, film tracking, and inventory management are also offered. Incorporated in the RadNet system is the capability to display and route medical images in a viewer called ProView. Complex interfaces to major PACS (Pictorial Archive Retrieval Systems) are also offered to integrate the radiology information system to the PACS. The PharmNet Pharmacy Information System provides full integration in an HNA environment for rapid pharmacy order entry and support of the clinical pharmacy in either an inpatient or outpatient/retail setting. PharmNet streamlines medication order entry, enabling the pharmacist or technician to place all types of pharmaceutical orders on one easy-to-use screen. Dispensing functions, including interfaces to automated dispensing devices also are fully supported. Medication fill lists, intravenous fill lists and medication administration records are produced automatically or on demand. The SurgiNet Surgery Information System is designed to address the needs of the surgical department, including automating the functions of resource and equipment scheduling, inventory management, anesthesia management and operating room management. Case cart management, preference cards, and peri-operative documentation are key attributes of the system. The FirstNet Emergency Medicine Information System offers patient and provider tracking and an intuitive presentation of patient diagnoses and clinical events for the emergency department. FirstNet provides basic emergency department functionality, including quick admits, tracking, triage, and patient history, as well as a graphical reference to patient location and order status. Physician documentation following structured documentation pathways is also offered. The CVNet Cardiology Information System automates the processes within the department of cardiology, supporting the scheduling, ordering, documentation and data capture required by professionals in the cardiology domain. Decision Support Systems and Knowledge Solutions - ------------------------------------------------ Discern Expert is an event-driven, rule-based, decision support software application that allows users to define clinical and management rules that are applied to events accessing data that is captured or generated by other HNA applications. It supports both synchronous (real-time, interactive) processing and asynchronous (noninteractive) processing of events. Discern Expert manages the evaluation and display of executable clinical knowledge through both Cerner-developed Alerts and Insights, which are licensed separately, or client-developed alerts. Discern Explorer is a decision support software application integrated with other Cerner HNA clinical and management information systems that allows users to execute predetermined or ad hoc queries and reports regarding process-related data that is generated by the other HNA applications. 9 Alerts and Insights are automated clinical guidelines that, through Cerner systems, provide decision support. Alerts represent specific, synchronous (interactive) or asynchronous (noninteractive), rule-based alerts that operate in conjunction with Discern Expert. Insights are specific, synchronous (interactive), rule-based clinical guidelines that operate in conjunction with Discern Expert and that are peer-reviewed and medically researched. Care Designs are clinical pathways and protocols that automate the specific plans of care for an individual, and operate within Cerner's clinical systems. Health Facts is Cerner's comparative data warehouse for benchmarking information and services for subscribers to support their own improvement processes. Data is provided from client's information systems as well as national and regional data sets. The Health Facts warehouse is hosted at Cerner's World Headquarters and accessed via the web by any web browser. Financial and Operational Management Systems - -------------------------------------------- The ProFit Enterprise Billing & Accounts Receivable System is Cerner's system for revenue accounting, billing and accounts receivables for the entire health system as well as each individual domain or organization. The ProRate Agreement Management System is a system to designed to automate the managed care processes around membership, eligibility tracking, claims processing and contract management. The ProLogue Enterprise Management System includes a suite of management applications specifically designed to assemble and use the information contained in the Open Management Foundation to help an organization complete its strategic plans, including clinical metrics, case profiling, and performance profiling of individuals and organizations. The ProFile Health Information Management System helps meet the operations management needs of the health information management (medical records) department and includes functionality for the various chart tracking and completion tasks commonly associated with maintaining medical records. The ProCure Materials Management System and the ProTrack Equipment Management System automate the business operations around supply chain and includes materials and equipment management for the organization. Population Health Management - ---------------------------- Survey and Assessments produces personal health risk assessments and analyzes those to create interventions that promote self-care and improve health. The offering includes both (i) the tools necessary to build unique survey instruments to assess patient wellness, functional status and satisfaction and (ii) specific content to score a health risk assessment. Demand Management - ----------------- Health Connections is a demand management system that includes applications and services to automate and manage the operations of a call center, including protocol-based triage, referral management and person information. The ProLink Call Center Management System is Cerner's suite of applications that enables call centers to automate the telecare function for providers as well as health plans or disease management companies. 10 Personal Health - --------------- Vitality is Cerner's internet-based home software product designed to extend medical care to the consumer's home. It provides a way for the consumer to interact on a regular basis with a healthcare provider. Vitality can store health and medical records for easy access. By providing health appraisals and personalized health plans, Vitality takes the first step toward improving health education for members in a community. Vitality can be tightly integrated into the person record within the health system or can standalone. In either case, relevant health information can be shared among providers and the patient under control of the patient. Vitality can be hosted at the client data center or at Cerner's solution center. Interface Technologies - ---------------------- The Open Engine Application Gateway System facilitates the exchange of data and assists in the management of point-to-point interfaces between foreign systems. It serves as a toolkit to help write interface code. The Open Port Interface System represents Cerner's standardized technology for providing reliable foreign system, medical device, and other standard interfaces in a timely manner. Message translation and data mapping are done with point-and-click tools and a scripting environment. Communications protocols are configured via table- driven parameters. These sophisticated methodologies result in decreased implementation times and greater client satisfaction. Software Development - -------------------- Cerner commits significant resources to developing new health information system products. As of January 1, 2000, 1,022 employees were engaged full-time in product development activities. Total expenditures for the development and enhancement of the Company's products were approximately $88,699,000, $74,159,000 and $54,524,000 during the 1999, 1998 and 1997 fiscal years respectively. These figures include both capitalized and noncapitalized portions and exclude amounts amortized for financial reporting purposes. The Company expects to continue investment and development efforts for its current and future product offerings. As new clinical and management information needs emerge, Cerner intends to enhance its current product lines with new versions released to clients on a periodic basis. In addition, Cerner plans to expand its current product lines by developing additional information systems for clinical, financial, operational and/or consumer use and to continue to support simultaneous use of Cerner's products across multiple facilities. All Cerner systems are developed under HNA using a proprietary systems development methodology. This methodology defines and controls each task throughout the product development cycle and ensures that current and future products can be fully integrated. The Company is committed to maintaining open attributes in its system architecture through operability in a diverse set of technical and application environments. The Company strives to design its systems to co-exist with disparate applications developed and supported by other suppliers. This effort is exemplified by Cerner's Open Engine and OMF product lines. See "Cerner's Techology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of the development of Cerner's latest generation of software products. Sales and Marketing - ------------------- The markets for Cerner's information system products include integrated delivery networks, physician groups and networks and their management service organizations, managed care organizations, hospitals, medical centers, free-standing reference laboratories, blood banks, imaging centers, pharmacies, pharmaceutical manufacturers, employer coalitions, and public health organizations. To date, a substantial portion of system sales have been in clinical applications in hospital-based provider 11 organizations. Cerner's HNA architecture is highly scaleable, with applications being used in hospitals ranging from under 50 beds to over 2,000 beds and managed care settings with over 2,000,000 members. All Cerner systems are designed to operate on computers manufactured by Compaq Computer Corporation (''Compaq''). In addition, many Cerner Classic applications are available on IBM's RISC System/6000 AIX (UNIX) platform. All HNA Millennium applications are designed to operate on either Compaq or IBM platforms, thereby allowing Cerner to be price competitive across the full range of size and organizational structure of healthcare providers. The sale of a health information system usually takes approximately nine to eighteen months, from the time of initial contact to the signing of a contract. The Company is in the process of expanding its sales force in anticipation of increased market demands expected to be created by its HNA Millennium solutions. See "Cerner's Techology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of the development of Cerner's latest generation of software products. The Company's executive marketing management is located in its Kansas City, Missouri, headquarters, while its account representatives are deployed across the United States. The Company, through subsidiaries and joint ventures, has sales staff and/or offices in Australia, Canada, Singapore and Saudi Arabia. The Company has a nonexclusive distribution agreement with Siemens Health Service GmbH & Co. KG by which its products are marketed, implemented and supported in Europe and elsewhere. Cerner's consolidated revenues include foreign sales of $24,001,000, $17,545,000 and $16,272,000 for the 1999, 1998 and 1997 fiscal years, respectively. The Company supports its sales force with technical personnel who perform demonstrations of Cerner's products and assist clients in determining the proper hardware and software configurations. The Company's primary direct marketing strategy is to generate sales contacts from its existing client base and through presentations at industry seminars and tradeshows. Cerner attends a number of major tradeshows each year and has begun to sponsor executive conferences, which feature industry experts who address the information system needs of large healthcare organizations. At the end of 1998 Cerner licensed HNA Millenium functionality to CareInsite, Inc. ("CareInsite"), in exchange for a 19.9% equity interest in such company. Cerner currently has a 18.7% equity interest in CareInsite. CareInsite is majority owned by Medical Manager, Inc. ("Medical Manager") and was formed for the purpose of creating internet-based physician connectivity and electronic commerce. In February of 2000, CareInsite and Medical Manager announced an agreement to merge with Healtheon/WebMD Corporation. The merger is subject to shareholder approval and regulatory clearance. Client Services - --------------- All of Cerner's clients enter into software maintenance agreements with Cerner for support of their Cerner systems. In addition to immediate software support in the event of problems, these agreements allow these clients the use of new releases of the Cerner products covered by these agreements. Each client has 24-hour access to the client support staff located at Cerner's corporate headquarters. Most of Cerner's clients also enter into hardware maintenance agreements with Cerner. These arrangements normally provide for a fixed monthly fee for specified services. In the majority of cases, Cerner subcontracts hardware maintenance to the hardware manufacturer. Cerner recently modified its strategy of using regional business centers to provide support for its clients. Due to the increase in the number of Cerner personnel working at client sites and the resulting decrease in utilization and cost effectiveness of its regional branch offices, Cerner decided to close its facilities in Atlanta, Boston, Dallas, Los Angeles and Washington, D.C. effective April 30, 2000. Cerner's offices in Detroit and Denver will remain open. 12 Backlog - ------- At January 1, 2000, Cerner had contract backlog of approximately $338,614,000. Such backlog represents system sales from signed contracts, which had not yet been recognized as revenue. The Company recognizes revenue on a percent of completion basis, based on certain milestone conditions, for its software products. At January 1, 2000, the Company had approximately $75,360,000 of contracts receivable, which represents revenues recognized under the percent of completion method but not yet billable under the terms of the contract. At January 1, 2000, Cerner had a software support and maintenance backlog of approximately $162,798,000. Such backlog represents contracted software support and hardware maintenance services for a period of twelve months. The Company estimates that approximately 47% of the aggregate backlog of $501,412,000 will be recognized as revenue during 2000. Other Factors Affecting the Company's Business - ---------------------------------------------- Information under the caption "Factors that may Affect Future Results of Operations, Financial Condition or Business" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 is incorporated herein by reference. Such information includes a discussion of various factors that could, among other things, affect the Company's business in the future, including (i) variations in the Company's quarterly operating results; (ii) volatility of the Company's stock price; (iii) market risk of investments; (iv) changes in the healthcare industry; (v) significant competition; (vi) the Company's proprietary technology may be subjected to infringement claims or may be infringed upon; (vii) possible regulation of the Company's software by the U.S. Food and Drug Administration or other government regulation; (viii) the possibility of product- related liabilities; (ix) possible failures or defects in the performance of the Company's software; (x) the possibility that the Company's anti-takeover defenses could delay or prevent an acquisition of the Company; and (xi) risks and uncertainties related to the Year 2000 transition. Item 2. Properties The Company's offices are located in a Company-owned office park in North Kansas City, Missouri, containing approximately 500,000 square feet of useable space. As of January 1, 2000, the Company was using approximately 436,000 square feet and substantially all of the remainder was leased to tenants. The Company also leases office space for its branch offices in Detroit, Denver and Australia. The Company's current leases for office space in Boston and Washington, D.C. terminate at the end of April. The Company is negotiating the termination of or planning to sublease its current leases for office space in Atlanta, Dallas and Los Angeles. Item 3. Legal Proceedings On June 11, 1999, a lawsuit was filed against the Company and eleven other companies engaged in various aspects of the healthcare information systems business. The lawsuit was brought in the United States District Court for the Northern District of Texas Fort Worth Division and is entitled Allcare Health Management System, Inc. v. Cerner Corporation, et al., and sought damages for patent infringement. The case was dismissed with prejudice with respect to the Company on February 9, 2000 and the Company entered into an agreement with Allcare and its principals to obtain a license to use the patent which was the subject of the litigation, as well as all future patents of Allcare and all patents related to healthcare information systems of Allcare's principals issued prior to February 1, 2012. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the stockholders of the Company during the fourth quarter of the fiscal year ended January 1, 2000. 13 Item 4A. Executive Officers of the Company The following table sets forth the names, ages, positions and certain other information regarding the Company's executive officers as of March 27, 2000. Officers are elected annually and serve at the discretion of the board of directors. Name Age Positions - ---- --- --------- Neal L. Patterson 50 Chairman of the Board of Directors and Chief Executive Officer Clifford W. Illig 49 Vice Chairman of the Board of Directors Earl H. Devanny, III 48 President Glenn P. Tobin, Ph.D. 38 Executive Vice President and Chief Operating Officer Jack A. Newman, Jr. 52 Executive Vice President Paul M. Black 41 Senior Vice President and Chief Sales Officer Alan D. Dietrich 37 Senior Vice President Stephen M. Goodrich 48 Senior Vice President Douglas M. Krebs 42 Senior Vice President and President of Cerner International Thomas C. Tinstman, M.D. 54 Senior Vice President and Chief Medical Officer Marc G. Naughton 45 Vice President and Chief Financial Officer Stanley M. Sword 38 Vice President and Chief People Officer Jeffrey A. Townsend 36 Vice President and Chief Engineering Officer Randy D. Sims 39 Vice President, Chief Legal Officer and Secretary Richard J. Flanigan, Jr. 40 Vice President and General Manager Stephen D. Garver 39 Vice President and Managing Partner Paul J. Sinclair 42 Vice President, Senior Partner and North American Operations Officer
Neal L. Patterson has been Chairman of the Board of Directors and Chief Executive Officer of the Company for more than five years. Mr. Patterson also served as President of the Company from March of 1999 until August of 1999. Clifford W. Illig has been a Director of the Company for more than five years. He also served as Chief Operating Officer of the Company for more than five years until October, 1998 and as President of the 14 Company for more than five years until March of 1999. Mr. Illig was appointed Vice Chairman of the Board of Directors in March of 1999. Earl H. Devanny, III joined the Company in August of 1999 as President. Prior to joining the Company, Mr. Devanny served as president of the Health Care Information Systems Division of ADAC Laboratories. Prior to joining ADAC, Mr. Devanny served as a Vice President of Cerner from 1994 to 1997. Prior to that he spent seventeen years with IBM Corporation. Glenn P. Tobin, Ph.D. joined the Company in April of 1998 as General Manager and Senior Vice President. On October 29, 1998, Dr. Tobin was appointed Executive Vice President and Chief Operating Officer. Prior to joining the Company, Dr. Tobin served as a senior consultant with McKinsey and Co., Inc. for more than five years. Jack A. Newman, Jr. joined the Company in January 1996 as Executive Vice President. Prior to joining the Company, he was with KPMG LLP for twenty-two years. Immediately prior to joining Cerner he was National Partner-in-Charge of KPMG's Health Care Strategy Practice. Paul M. Black joined the Company in March, 1994 as a Regional Vice President. He was promoted in December 1998 to his current position. Prior to joining Cerner, he spent twelve years with IBM Corporation. Alan D. Dietrich joined the Company in 1990 as Director of Business, Planning and Development. In January 1994 he was promoted to Senior Vice President. Stephen M. Goodrich joined the Company in October 1987 as a project leader in the product organization. In 1992 he was promoted to Vice President and was promoted to Senior Vice President in April 1999. Douglas M. Krebs joined the Company in June 1994 as Regional Vice President. He was promoted to Senior Vice President and Area Manager in April 1999. On February 1, 2000, Doug was appointed as President of Cerner International, Inc., a wholly owned subsidiary of the Company. Prior to joining Cerner, he spent fifteen years with IBM Corporation. Thomas C. Tinstman, M.D. joined the Company in November 1995 as Senior Vice President and Chief Medical Officer and has been a Director of the Company since May 1989. Prior to joining the Company, Dr. Tinstman was Director of Medical Informatics with University of Texas Medical Branch in Galveston, Texas. Prior to that he was a physician in private practice with Internal Medicine Associates, P.C. in Omaha, Nebraska. Marc G. Naughton joined the Company in November 1992 as Manager of Taxes. In November 1995 he was named Chief Financial Officer and in February 1996 he was promoted to Vice President. Stanley M. Sword joined the Company in August 1998 in his current role. Prior to joining Cerner, he served as a client partner in the outsourcing practice of AT&T Solutions for more than five years. Jeffrey A. Townsend joined the Company in June 1985. Since that time he has held several positions in the product organization and was promoted to Vice President in February 1997. He was appointed Chief Engineering Officer in March 1998. Randy D. Sims joined the Company in March 1997 as Vice President and Chief Legal Officer. Prior to joining the Company, Mr. Sims worked at Farmland Industries, Inc. for three years where he served most recently as Associate General Counsel. Prior to Farmland, Mr. Sims was in-house legal counsel at The Marley Company (now a division of United Dominion Industries) for seven years. Mr. Sims started his career at Marley as an attorney and was Assistant General Counsel when he left to join Farmland. 15 Richard J. Flanigan Jr. joined the Company in November 1994 as Regional Vice President. In 1997, his responsibilities were extended and he was named as General Manager. Prior to joining Cerner, Mr. Flanigan spent more than thirteen years in sales and management positions at IBM Corporation. Stephen D. Garver joined the Company in March 1992 as part of Cerner Consulting. In March of 1999 he was named Vice President and Managing Partner. Prior to joining the Company, Mr. Garver spent ten years with Andersen Consulting in a variety of roles within the systems integration practice. Paul J. Sinclair joined the Company in October 1996 as Vice President and Area Operations Officer. In March of 1999 he was named Senior Partner and North American Operations Officer. Prior to joining the Company, he worked for seven years at Seer Technologies. 16 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters The Company's common stock trades on The Nasdaq Stock MarketSM under the symbol CERN. The following table sets forth the high, low, and last sales prices for the fiscal quarters of 1999 and 1998 as reported by The Nasdaq National Market System. These quotations represent prices between dealers and do not include retail mark-up, mark-down, or commissions, and do not necessarily represent actual transactions. 1999 1998 ------------------------------ -----------------------------
High Low Last High Low Last ---- --- ---- ---- --- ---- First quarter 27 1/4 12 7/8 15 5/8 24 9/16 19 1/16 21 15/16 Second quarter 23 1/2 12 1/2 19 33/64 29 15/16 20 7/8 27 7/8 Third quarter 19 15/16 14 1/4 14 31/32 31 7/16 22 22 5/8 Fourth quarter 20 3/4 12 15/16 19 11/16 27 1/16 20 1/2 26 3/4
At February 14, 2000, there were approximately 1,300 owners of record. To date, the Company has paid no dividends and it does not intend to pay dividends in the foreseeable future. Management believes it is in the stockholders' best interest to reinvest funds in the operation of the business. Item 6. Selected Financial Data 1999(1)(2) 1998(3) 1997 1996 1995 ---------- ------- ---- ---- ---- (In thousands, except per share data) Statements of Earnings Data: Revenues $ 340,197 330,902 245,057 189,107 186,901 Operating earnings 3,698 33,530 22,170 10,601 37,265 Earnings before income taxes and extraordinary item 302 33,268 24,484 12,902 37,220 Extraordinary item - early extinguishment of debt (1,395) - - - - Net earnings (loss) (1,211) 20,589 15,148 8,251 22,521 Earnings per share before extraordinary item: Basic .01 .63 .46 .25 .75 Diluted .01 .61 .45 .25 .72 Earnings (loss) per share: Basic (.04) .63 .46 .25 .75 Diluted (.04) .61 .45 .25 .72 Weighted average shares outstanding: Basic 33,623 32,825 32,881 32,729 29,845 Diluted 33,916 33,667 33,668 33,620 31,448 Balance Sheet Data: Working capital $ 170,053 118,681 156,808 171,204 174,064 Total assets 660,891 436,485 331,781 314,753 303,945 Long-term debt, net 100,000 25,000 30,026 30,000 30,104 Stockholders' equity 378,937 271,143 233,747 230,735 221,374
(1) Includes a non-recurring charge of $5.8 million, net of $3.6 million tax benefit, related to the cost in excess of revenues of completing fixed fee implementation contracts. The effected tax impact of non-recurring charges on diluted earnings per share was ($.17) for 1999. 17 (2) Includes a non-recurring charge of $.9 million, net of $.5 million tax benefit, related to the accrual of branch restructuring costs. The effected tax impact of non-recurring charges on diluted earnings per share was ($.03) for 1999. (3) Includes a non-recurring, acquisition-related charge of $3.1 million, net of $1.9 million tax benefit. The tax-effected impact of non-recurring charges on diluted earnings per share was ($.09) for 1998. Summary Financial Data ___________________________________________________________ 1999(1)(2) 1998(3) 1997 1996 1995 ---- ---- ---- ---- ---- (In thousands, except per share data) Statements of Earnings Data, Before Non-recurring Charges: Revenues $ 340,197 330,902 245,057 189,107 186,901 Operating earnings 14,505 38,568 22,170 10,601 37,265 Earnings before income taxes and extraordinary item 11,109 38,306 24,484 12,902 37,220 Extraordinary item - early extinguishment of debt (1,395) - - - - Net earnings 5,462 23,687 15,148 8,251 22,521 Earnings per share before extraordinary item: Basic .20 .72 .46 .25 .75 Diluted .20 .70 .45 .25 .72 Earnings per share: Basic .16 .72 .46 .25 .75 Diluted .16 .70 .45 .25 .72 Weighted average shares outstanding: Basic 33,623 32,825 32,881 32,729 29,845 Diluted 33,916 33,667 33,668 33,620 31,448 Balance Sheet Data: Working capital $ 170,053 118,681 156,808 171,204 174,064 Total assets 660,891 436,485 331,781 314,753 303,945 Long-term debt, net 100,000 25,000 30,026 30,000 30,104 Stockholders' equity 378,937 271,143 233,747 230,735 221,374
(1) Statement of Earnings Data excludes a non-recurring charge of $5.8 million, net of $3.6 million tax benefit, related to the cost in excess of revenues of completing fixed fee implementation contracts. The effected tax impact of non-recurring charges on diluted earnings per share was ($.17) for 1999. (2) Statement of Earnings Data excludes a non-recurring charge of $.9 million, net of $.5 million tax benefit, related to the accrual of branch restructuring costs. The effected tax impact of non-recurring charges on diluted earnings per share was ($.03) for 1999. (3) Statement of Earnings Data excludes a non-recurring, acquisition-related charge of $3.1 million, net of $1.9 million tax benefit. The tax-effected impact of non-recurring charges on diluted earnings per share was ($.09) for 1998. 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction - ------------ At the beginning of 1999 the Company indicated that 1999 could be a difficult year for the Company due to the possible impact of Y2K issues and the effects of the Balanced Budget Act of 1997 and unfortunately that became true. In both the first and second quarters of 1999 our earnings per share were below expectations. Total revenues declined from the first quarter to the second quarter and from the second quarter to the third quarter, caused by a decline in system sales and new bookings. Potential clients simply could not focus on their Y2K remediation efforts, deal with the decreased funding resulting from the Balanced Budget Act of 1997 and invest in new information systems at the same time. However, beginning in the fourth quarter of 1999 the Company saw significant improvements. Revenue for the fourth quarter was the highest for the year and the second highest quarter ever recorded, bookings in the Company's core business were the highest ever recorded, cash collections increased significantly and non-billed receivables declined to approximately 47% of total receivables, the lowest level since 1996. The increase in revenues and cash collections and the decline in unbilled revenues reflect our success in completing HNA Millennium projects, HNA Millennium market readiness and a declining Y2K impact in the Company's markets. However, 1999 did mark important accomplishments. The Company met all of its Y2K commitments to clients and the Company's clients have had no Y2K-related problems with the Company's systems. The Company completed the successful implementation of 349 HNA Millennium applications, more than double the number completed during 1997 and 1998, and reduced the average time from project start to conversion from 26.5 months at the end of 1996 to 9.8 months at the end of 1999. During 2000 patient accounting and other business and management systems, where the Company currently has no or limited market share, will become available. The Company believes HNA Millennium provides a significant competitive advantage because it utilizes the only fully integrated, large scale, enterprise wide architecture in the industry and can deliver a superior combination of functionality, efficiency, cost containment and quality control through interrelated clinical and management information systems. Although the Company believes that there will be some "tail" to the Y2K impact into the year 2000, it also believes that the impact of the Balanced Budget Act of 1997 and the other pressures to decrease costs and provide improved care throughout the healthcare system will stimulate the market for healthcare information systems during the year 2000. Results of Operations - --------------------- Year Ended January 1, 2000, Compared to Year Ended January 2, 1999 The Company's revenues increased 3% to $340,197,000 in 1999 from $330,902,000 in 1998. Net earnings, before extraordinary item and non-recurring charges was $6,857,000 in 1999 compared to $23,687,000 in 1998. Non-recurring charges in 1999, as described below, included contract reserves and branch restructuring charges. Non-recurring charges in 1998 include acquisition related charges. Including the extraordinary item and non- recurring charges, the Company incurred a loss of $1,211,000, in 1999 compared to earnings of $20,589,000 in 1998. Revenues - In 1999, revenues increased due to an increase in support of installed systems and other revenues. System sales decreased 9% to $224,510,000 in 1999 from $245,490,000 in 1998. The decrease in system sales is due to a decrease in new contract bookings in 1999 compared to 1998. The Company believes that this decrease is due primarily to delays in purchasing decisions related to Year 2000 and the Balanced Budget Act of 1997. The sale of additional hardware and software products to the installed client base increased 27% in 1999 as compared to 1998. 19 Total sales to the installed base in 1999, including new systems, incremental hardware and software, support and maintenance services, and discrete services, were 75% of total revenues in 1999 compared to 69% in 1998. The higher percentage was primarily due to the decrease in system sales to new clients. At January 1, 2000, the Company had $338,614,000 in contract backlog and $162,798,000 in support and maintenance backlog, compared to $314,965,000 in contract backlog and $153,453,000 in support and maintenance backlog at the end of 1998. Support and maintenance revenues increased 23% in 1999 compared to 12% in 1998. These revenues represented 28% of 1999 total revenues and 23% of 1998 total revenues. The higher percentage was primarily attributable to the decrease in system sales and an increase in installed systems. Other revenues increased 148% to $21,489,000 in 1999 from $8,657,000 in 1998. This increase was due primarily to services performed beyond contracted requirements for existing clients. The Company anticipates that other revenues will continue to increase in 2000. Cost of Revenues - The cost of revenues includes the cost of third party consulting services, computer hardware and sublicensed software purchased from computer and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. The cost of revenues was 25% of total revenues in 1999, excluding a non-recurring fixed fee implementation cost, as described below, and 27% of total revenues in 1998. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, services and support) components carrying different margin rates changes from period to period. The decrease in the cost of revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware and sublicensed software, which carry a higher cost of revenue percentage. Included in the 1999 cost of revenues is a charge of $9,449,000, which represents the remaining additional costs in excess of revenues required to complete certain remaining HNA Millennium fixed fee implementation contracts. The Company switched to an hourly fee-for-service implementation model in 1997. Delays in some of the older projects, primarily caused by delays in development of the Company's HNA Millennium products, increased the time required to complete these installations. While the Company originally anticipated these fixed fee implementations would be completed in 1999, in some instances the focus by clients on their internal Y2K projects created a further delay. As a result of the significant implementation work completed in the last half of 1999 and the agreement between the Company and these clients in the fourth quarter as to the scope of work remaining, the Company estimates that the costs to complete certain fixed fee implementation contracts will exceed the remaining revenue by $9,449,000. The Company recognized the impact of these excess costs in the fourth quarter income statement as a non-recurring cost of revenues. Sales and Client Service - Sales and client service expenses include salaries of client service personnel, communications expenses, and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, trade show costs, and advertising costs. These expenses as a percent of total revenues were 41% in 1999, excluding a non-recurring charge related to the closing of five branch offices, as described below, and 35% in 1998. The increase in total sales and client service expenses is attributable to the cost of a larger field sales and services organization and marketing of new products. Included in 1999 sales and client service expenses is a non- recurring charge related to the closing of five branch offices. In December, 1999, the Company made a decision to close five of its branch offices. The Company created a regional branch structure in 1994 in order to bring associates closer to its clients. The natural evolution of that strategy and the ability to leverage internal information technology infrastructure to create a more virtual workplace has resulted in a significant decrease in utilization of certain regional offices. This led to the decision to close these physical locations. The Company recorded a charge 20 of $1.4 million in the 1999 fourth quarter to provide for the costs of closing these locations, primarily based on estimated lease cancellation fees. The Company will continue to maintain offices in Denver, Detroit and Australia, in addition to the world headquarters in Kansas City, Missouri. Software Development - Software development expenses include salaries, documentation, and other direct expenses incurred in product development and amortization of software development costs. Total expenditures for software development, including both capitalized and noncapitalized portions, for 1999 and 1998 were $88,699,000 and $74,159,000, respectively. These amounts exclude amortization. Capitalized software costs were $30,192,000 and $25,052,000 for 1999 and 1998, respectively. The increase in aggregate expenditures for software development in 1999 is due to development of HNA Millennium products and development of community care products. General and Administrative - General and administrative expenses include salaries for corporate, financial, and administrative staffs, utilities, communications expenses, and professional fees. These expenses as a percent of total revenues were 8% in 1999 and 1998. Interest Expense, Net - Net interest expense was $3,396,000 in 1999 compared to $262,000 in 1998. The increase is due to an increase in borrowings. On April 15, 1999, the Company completed a $100,000,000 private placement of debt pursuant to a Note Agreement date April 1, 1999. The Series A Senior Notes, with a $60,000,000 principal amount at 7.14% are payable in five equal annual installments beginning in April 2002. The Series B Senior Notes, with a $40,000,000 principal amount at 7.66% are payable in six equal annual installments beginning April 2004. The proceeds were used to retire the Company's existing $30,000,000 of debt, and the remaining funds will be used for proposed capital improvements and to strengthen the Company's cash position. In connection with the early extinguishment of debt, the Company incurred a $1,395,000 net of taxes, extraordinary loss for a prepayment penalty and write-off of deferred loan costs. The note agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets, and pay dividends. The Company was in compliance with all covenants at January 1, 2000. Income Taxes - The Company's effective tax rate was 39% in 1999 and 38% in 1998. Year Ended January 2, 1999, Compared to Year Ended January 3, 1998 The Company's revenues increased 35% to $330,902,000 in 1998 from $245,057,000 in 1997. Net earnings increased 36% to $20,589,000 in 1998 from $15,148,000 in 1997. Excluding acquisition related charges, net earnings increased 56% to $23,687,000 in 1998 relative to 1997. Revenues - In 1998, revenues increased due to an increase in system sales and support of installed systems. System sales increased 44% to $245,490,000 in 1998 from $170,906,000 in 1997. This increase in system sales resulted primarily from an increase in installations under Health Network Architecture (HNA) contracts. Revenue from HNA contracts increased 23% compared to 1997. The sale of additional hardware and software products to the installed client base increased 30% in 1998 as compared to 1997. Total sales to the installed base in 1998, including new systems, incremental hardware and software, support and maintenance services, and discrete services, were 69% of total revenues in 1998 compared to 73% in 1997. The lower percentage was primarily due to the increase in system sales to new clients. At January 2, 1999, the Company had $314,965,000 in contract backlog and $153,453,000 in support and maintenance backlog, compared to $198,274,000 in contract backlog and $132,842,000 in support and maintenance backlog at the end of 1997. 21 Support and maintenance revenues increased 12% in 1998 compared to 20% in 1997. These revenues represented 23% of 1998 total revenues and 28% of 1997 total revenues. The lower percentage was primarily due to the increase in system sales. Other revenues increased 59% to $8,657,000 in 1998 from $5,438,000 in 1997. This increase was due primarily to services performed beyond contracted requirements for existing clients. Cost of Revenues - The cost of revenues includes the cost of computer hardware and sublicensed software purchased from computer and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. The cost of revenues was 27% of total revenues in 1998 and 29% of total revenues in 1997. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, services and support) components carrying different margin rates changes from period to period. The decrease in the cost of revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware and sublicensed software, which carry a higher cost of revenue percentage. Sales and Client Service - Sales and client service expenses include salaries of client service personnel, communications expenses, and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, trade show costs, and advertising costs. These expenses as a percent of total revenues were 35% in 1998 and 34% in 1997. The increase in total sales and client service expenses is attributable to the cost of a larger field sales and services organization and marketing of new products. Software Development - Software development expenses include salaries, documentation, and other direct expenses incurred in product development and amortization of software development costs. Total expenditures for software development, including both capitalized and noncapitalized portions, for 1998 and 1997 were $74,159,000 and $54,524,000, respectively. These amounts exclude amortization. Capitalized software costs were $25,052,000 and $18,373,000 for 1998 and 1997, respectively. The increase in aggregate expenditures for software development in 1998 is due to development of HNA Millennium products and development of community care products. General and Administrative - General and administrative expenses include salaries for corporate, financial, and administrative staffs, utilities, communications expenses, and professional fees. These expenses as a percent of total revenues were 8% in 1998 and 9% in 1997. Write-off of In-Process Research and Development - Write-off of in-process research and development is a one-time expense resulting from the acquisition of Multum. Interest Income (Expense), Net - Net interest expense was $262,000 in 1998 compared to net interest income of $2,314,000 in 1997. The decrease is due primarily to a decrease in invested cash. Income Taxes - The Company's effective tax rate was 38% in 1998 and 1997. Liquidity and Capital Resources - ------------------------------- The Company had total cash and cash equivalents of $75,677,000 at the end of 1999 and working capital of $170,053,000, compared to cash and cash equivalents of $42,658,000 at the end of 1998, and working capital of $118,681,000. The increase in working capital resulted primarily from the completion of a $100,000,000 private placement of debt, partially offset by the Company's further investment in software development. The Company generated cash of $27,389,000, $5,893,000, and $18,692,000 from operations in 1999, 1998, and 1997, respectively. Cash flow from operations increased in 1999, due primarily to increased 22 collection of receivables, improved payment terms, and record level conversions. Cash flow from operations decreased in 1998, due primarily to increases in receivables from increased revenues, and from non-cash consideration received for the sale of license software. Cash used in investing activities consisted primarily of capitalized software development costs of $30,192,000 and $25,052,000 and purchases of capital equipment of $14,286,000 and $20,846,000 in 1999 and 1998, respectively. The Company also made additional investments in affiliates in 1999 of $13,615,000, primarily CareInsite. The major source of cash from financing activities in 1999 was provided by the Company's refinancing of its long-term debt, more fully described in note 6 to the Consolidated Financial Statements. In November 1998, the Company sold 670,000 shares of common stock to General Electric Company, which resulted in cash proceeds of $14,874,000. Revenues provided under support and maintenance agreements represent recurring cash flows. Support and maintenance revenues increased 23%, 12%, and 20%, in 1999, 1998, and 1997, respectively, and the Company expects these revenues to continue to grow as the base of installed systems grows. The Company's liquidity is influenced by many factors, including the amount and timing of the Company's revenues, its cash collections from its clients as implementation of its products proceed and the amounts the Company invests in software development and capital expenditures. The Company expects to have an increase in its cash position for 2000. The Company believes that its present cash position, together with cash generated from operations, will be sufficient to meet anticipated cash requirements during 2000. The Company has an $18,000,000 line of credit available. The effects of inflation were minimal on the Company's business. Factors that may Affect Future Results of Operations, Financial - ----------------------------------------------------------------- Condition or Business - --------------------- Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases and oral statements made by representatives of the Company that are not historical in nature, or that state the Company's or management's intentions, hopes, beliefs, expectations, or predictions of the future, are "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and involve risks and uncertainties. The words "should," "will be," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast" and similar expressions are intended to identify such forward-looking statements. It is important to note that any such performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below as well as those discussed elsewhere in reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time. Quarterly Operating Results May Vary - ------------------------------------- - The Company's quarterly operating results have varied in the past and may continue to vary in future periods. Quarterly operating results may vary for a number of reasons including demand for the Company's products and services, the Company's long sales cycle, the long installation and implementation cycle for these larger, more complex and costlier systems and other factors described in this section and elsewhere in this report. As a result of healthcare industry trends and the market for the Company's HNA Millennium products, a large percentage of the Company's revenues are generated by the sale and installation of larger, more complex and costlier systems. The sales process for these systems is lengthy and involves a significant technical evaluation and commitment of capital and other resources by the customer. The sale may be subject to delays due to customers' internal budgets and procedures for approving large capital expenditures and by competing needs for other capital expenditures and deploying new technologies or personnel resources. Delays in the expected sale or installation of these large contracts may have a significant impact on the Company's 23 anticipated quarterly revenues and consequently its earnings, since a significant percentage of the Company's expenses are relatively fixed. These larger, more complex and costlier systems are installed and implemented over time periods ranging from approximately six months to three years and involve significant efforts both by the Company and the client. In addition, implementation of the Company's HNA Millennium products is a new and evolving process. The Company recognizes revenue upon the completion of standard milestone conditions and the amount of revenue recognized in any quarter depends upon the Company's and the client's ability to meet these project milestones. Delays in meeting these milestone conditions or modification of the contract relating to one or more of these systems could result in a shift of revenue recognition from one quarter to another and could have a material adverse effect on results of operations for a particular quarter. In addition, support payments by clients for the Company's products do not commence until the product is in use. The Company's revenues from system sales historically have been lower in the first quarter of the year and greater in the fourth quarter of the year. Stock Price May Be Volatile - ------------------------------- - The trading price of the Company's common stock may be volatile. The market for the Company's common stock may experience significant price and volume fluctuations in response to a number of factors including actual or anticipated quarterly variations in operating results, changes in expectations of future financial performance or changes in estimates of securities analysts, governmental regulatory action, healthcare reform measures, client relationship developments and other factors, many of which are beyond the Company's control. Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of the Company's common stock, regardless of actual operating performance. Market Risk of Investments - ----------------------------- - The Company accounts for its investments in equity securities which have readily determinable fair values as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income. Investments in the common stock of certain affiliates over which the Company exerts significant influence are accounted for by the equity method. Investments in other equity securities are reported at cost. All equity securities are reviewed by the Company for declines in fair value. If such declines are considered to be other than temporary, the cost basis of the individual security is written down to fair value as a new cost basis, and the amount of the write-down is included in earnings. Included in the Company's investments is the ownership of 13,149,259 shares (18.7%) of the common stock of CareInsite, Inc. ("CareInsite"), formerly known as Synetic Healthcare Communications, Inc. which have a cost basis of $81,804,000 and a carrying value of $248,821,000 at January 1, 2000. 12,437,500 of these shares were received in 1998 as consideration for the sale of licensed software, and an additional 711,759 shares were purchased in 1999. The value assigned to the shares acquired in 1998 was $70,000,000 and was based on a methodology which utilized both a comparable company and the expected underlying discounted future cash flows. On June 16, 1999, CareInsite undertook an initial public offering of common stock. The common stock of CareInsite is traded in the public market and listed on the Nasdaq National Market. The stock of CareInsite held by the Company is not registered and is subject to certain lock-up provisions. A permanent impairment in the value of CareInsite common stock would result in a charge to earnings in either the then current or future periods. There would be no effect on cash flows because the revenue was earned through contractual rights granted in exchange for CareInsite stock. An increase in the value of the CareInsite stock would have no effect on reported earnings. The Company has not engaged in equity swaps or other hedging techniques to manage the equity risk inherent in the CareInsite shares. 24 Under Statement of Financial Accounting Standards no. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), the Company is required to mark to market those shares which are classified as available-for-sale. Additionally, SFAS No. 115 requires shares that are eligible under Rule 144 for public sale within a twelve month period be considered as available-for-sale. Under Rule 144, as currently in effect, a person who has beneficially owned shares of common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding and the average weekly trading volume of the common stock during the four preceding calendar weeks. As of January 1, 2000, the Company has marked to market 2,230,700 shares of CareInsite common stock, with a market value of $179,571,000, that are considered available-for-sale under Rule 144 and SFAS No. 115. All CareInsite shares the Company owns will be considered available-for-sale and be marked to market in the first quarter of 2000. If all shares were eligible to be marked to market at January 1, 2000, the market value would be $1,058,515,000. If the Company realizes certain performance metrics related to specified levels of physician usage, CareInsite will issue to the Company 2,503,125 shares of common stock at a price of $.01 per share ("Performance Shares"). The measurement date is February 15, 2001. No amounts have been recognized in the consolidated financial statements for the Performance Shares due to the uncertainty of the future events. The Company was also granted, by CareInsite, 1,008,445 common stock warrants with an exercise price of $4.00 per share ("THINC Warrants"). The THINC Warrants were exercisable only in the event that The Health Information Network Connections, LLC ("THINC") exercised warrants granted to them by CareInsite at $4.00 per share. THINC was allowed to exercise their warrants 180 days after the initial public offering of CareInsite. On January 29, 2000 CareInsite completed an acquisition of THINC. As part of that agreement, 806,756 of the 1,008,445 THINC Warrants became immediately exercisable, with the remaining amount forfeited. The THINC Warrants expire in three years. On February 13, 2000 CareInsite entered into an agreement to merge with Healtheon/WebMD Corporation ("Merger Agreement"). As part of the Merger Agreement, the Company will receive 1.3 shares of Healtheon/WebMD Corporation in exchange for each common share of CareInsite held by the Company. In addition the Performance Shares will be adjusted at a rate of 1.3 shares of Healtheon/WebMD Corporation for each share of CareInsite. All physician users of systems of Healtheon/WebMD Corporation or its affiliates shall be included for purposes of determining the specified levels of physician usage. The THINC Warrants will also be adjusted at a rate of 1.3 shares of Healtheon/WebMD Corporation for each share of CareInsite. The proposed merger of CareInsite and Healtheon/WebMD Corporation ("Merger") is subject to shareholder and regulatory approval. There is no guarantee the Merger will close. The Company has agreed under terms of the Merger Agreement to certain lock-up provisions, which differ from the terms of its lock-up provisions with CareInsite. The Merger is expected to close in the second quarter of 2000. If the Merger closes the Company will record the Healtheon/WebMD Corporation shares received at their then fair value and recognize a gain on the disposition of the CareInsite shares. Based on proposed lock-up provisions, 50% of the Healtheon/WebMD Corporation shares would thereafter be considered available-for-sale and would be marked to market at each balance sheet date. The remainder would be carried at cost until the third quarter of 2000. The Company owns 50% of Health Network Ventures ("HNV"), a joint venture investment which is accounted for under the equity method. Under the terms of the joint venture agreement, the Company may require its partner to sell to the Company its share of HNV for $12,000,000, subject to certain adjustments, ("Call Option") at any time after July 1, 2000. In addition the partner may require the Company to purchase its share of HNV for $6,000,000, subject to certain adjustments, ("Put Option") at any time after July 1, 2000. 25 The Company is exposed to market risk from changes in marketable securities (which consist of money market and commercial paper). At January 1, 2000, marketable securities of the Company were recorded at cost, which approximates fair value of approximately $76 million, with an overall average return of approximately 5% and an overall weighted maturity of less than 90 days. The marketable securities held by the Company are not subject to price risk as a result of the short-term nature of the investments. The Company is not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term debt since 100% of its long-term debt is at a fixed rate. To date, the Company has not entered into any derivative financial instruments to manage interest rate risk. The Company conducts business in several foreign jurisdictions. However, the business transacted is in the local functional currency and the Company does not currently have any material exposure to foreign currency transaction gains or losses. All other business transactions are in U.S. dollars. To date, the Company has not entered into any derivative financial instrument to manage foreign currency risk and is currently not evaluating the future use of any such financial instruments. Changes in the Healthcare Industry - ---------------------------------- - The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. For example, the Balanced Budget Act of 1997 (Public Law 105-32) contains significant changes to Medicare and Medicaid and began to have its initial impact in 1998 due to limitations on reimbursement, resulting cost containment initiatives, and effects on pricing and demand for capital intensive systems. These factors affect the purchasing practices and operation of healthcare organizations. Federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state level and to change healthcare financing and reimbursement systems. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in the Company's products and services. Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for the Company's products and services. As the healthcare industry consolidates, the Company's customer base could be eroded, competition for customers could become more intense and the importance of acquiring each customer becomes greater. Significant Competition - ----------------------- - The market for healthcare information systems is intensely competitive, rapidly evolving and subject to rapid technological change. The Company believes that the principal competitive factors in this market include the breadth and quality of system and product offerings, the stability of the information systems provider, the features and capabilities of the information systems, the ongoing support for the system, and the potential for enhancements and future compatible products. Certain of the Company's competitors have greater financial, technical, product development, marketing and other resources than the Company and some of its competitors offer products that it does not offer. The Company's principal existing competitors include Shared Medical Systems Corporation, IDX Systems Corporation, McKesson HBOC, Inc. and Eclipsys Corporation, each of which offers a suite of products that compete with many of the Company's products. There are other competitors that offer a more limited number of competing products. In addition, the Company expects that major software information systems companies, large information technology consulting service providers and system integrators, internet-based start-up companies and others specializing in the healthcare industry may offer competitive products or services. The pace of change in the healthcare information systems market is rapid and there are frequent new product introductions, product enhancements and evolving industry standards and requirements. As a result, the Company's success will depend upon its ability to keep pace with technological change and to introduce, 26 on a timely and cost-effective basis, new and enhanced products that satisfy changing customer requirements and achieve market acceptance. Proprietary Technology May Be Subjected to Infringement Claims or - ----------------------------------------------------------------- May Be Infringed Upon - --------------------- - The Company relies upon a combination of trade secret, copyright and trademark laws, license agreements, confidentiality procedures, employee nondisclosure agreements and technical measures to maintain the trade secrecy of its proprietary information. The Company has not historically filed patent applications or copyrights covering its software technology. As a result, the Company may not be able to protect against misappropriation of its intellectual property. In addition, the Company could be subject to intellectual property infringement claims as the number of competitors grows and the functionality of its products overlaps with competitive offerings. These claims, even if not meritorious, could be expensive to defend. If the Company becomes liable to third parties for infringing their intellectual property rights, it could be required to pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. Government Regulation - ---------------------- - The United States Food and Drug Administration (the "FDA") has declared that software products intended for the maintenance of data used in making decisions regarding the suitability of blood donors and the release of blood or blood components for transfusion are medical devices under the Federal Food, Drug and Cosmetic Act ("Act") and amendments to the Act. As a consequence, the Company is subject to extensive regulation by the FDA with regard to its blood bank software. If other of the Company's products are deemed to be actively regulated medical devices by the FDA, the Company could be subject to extensive requirements governing pre- and post- marketing requirements including premarket notification clearance prior to marketing. Complying with these FDA regulations would be time consuming and expensive. It is possible that the FDA may become more active in regulating computer software that is used in healthcare. Following an inspection by the FDA in March of 1998, the Company received a Form FDA 483 (Notice of Inspectional Observations) alleging non-compliance with certain aspects of FDA's Quality System Regulation with respect to the Company's PathNet HNAC Blood Bank Transfusion and Donor products (the "Blood Bank Products"). The Company subsequently received a Warning Letter, dated April 29, 1998, as a result of the same inspection. The Company responded promptly to the FDA and undertook a number of actions in response to the Form 483 and Warning Letter including an audit by a third party of the Company's Blood Bank Products and improvements to Cerner's Quality System. A copy of the third party audit was submitted to the FDA in October of 1998 and, at the request of the FDA, additional information and clarification was submitted to the FDA in January of 1999. There can be no assurance, however, that the Company's actions taken in response to the Form 483 and Warning Letter will be deemed adequate by the FDA or that additional actions on behalf of the Company will not be required. In addition, the Company remains subject to periodic FDA inspections and there can be no assurances that the Company will not be required to undertake additional actions to comply with the Act and any other applicable regulatory requirements. Any failure by the Company to comply with the Act and any other applicable regulatory requirements could have a material adverse effect on the Company's ability to continue to manufacture and distribute its products. FDA has many enforcement tools including recalls, seizures, injunctions, civil fines and/or criminal prosecutions. Any of the foregoing would have a material adverse effect on the Company's business, results of operations or financial condition. Product Related Liabilities - ----------------------------- - Many of the Company's products provide data for use by healthcare providers in providing care to patients. Although no such claims have been brought against the Company to date regarding injuries related to the use of its products, such claims may be made in the future. Although the Company maintains product liability insurance coverage in an amount that it believes is sufficient for its business, there can be no assurance that such coverage will prove to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. A successful claim brought 27 against the Company which is uninsured or under-insured could materially harm its business, results of operations or financial condition. System Errors and Warranties - --------------------------------- - The Company's systems, particularly the HNA Millennium versions, are very complex. As with complex systems offered by others, the Company's systems may contain errors, especially when first introduced. Although the Company conducts extensive testing, it has discovered software errors in its products after their introduction. The Company's systems are intended for use in collecting and displaying clinical information used in the diagnosis and treatment of patients. Therefore, users of the Company products have a greater sensitivity to system errors than the market for software products generally. The Company's agreements with its clients typically provide warranties against material errors and other matters. Failure of a client's system to meet these criteria could constitute a material breach under such contracts allowing the client to cancel the contract, or could require the Company to incur additional expense in order to make the system meet these criteria. The Company's contracts with its clients generally limit the Company's liability arising from such claims but such limits may not be enforceable in certain jurisdictions. Anti-Takeover Defenses - ------------------------ - The Company's charter, bylaws, shareholders' rights plan and certain provisions of Delaware law contain certain provisions that may have the effect of delaying or preventing an acquisition of the Company. Such provisions are intended to encourage any person interested in acquiring the Company to negotiate with and obtain the approval of the Board of Directors in connection with any such transaction. These provisions include (i) a Board of Directors that is staggered into three classes to serve staggered three-year terms, (ii) blank check preferred stock, (iii) supermajority voting provisions, (iv) inability of stockholders to act by written consent or call a special meeting, (v) limitations on the ability of stockholders to nominate directors or make proposals at stockholder meetings, and (vi) triggering the exercisability of stock purchase rights on a discriminatory basis, which may invoke extensive economic and voting dilution of a potential acquirer if its beneficial ownership of the Company's common stock exceeds a specified threshold. Certain of these provisions may discourage a future acquisition of the Company not approved by the Board of Directors in which shareholders might receive a premium value for their shares. Year 2000 - ---------- - As of the date of this annual report, the Company has not seen any adverse impact as a result of the Year 2000 transition on any of its systems or those of its clients or suppliers. Nonetheless, the Company will continue to monitor the effect of the Year 2000 transition, and there can be no absolute assurance that Year 2000 issues will not materialize in the future and have a material adverse effect on the Company, its products or its operations. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Information contained under the caption "Factors that may Affect Future Results of Operations, Financial Condition or Business -- Market Risk of Investments" set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Financial Statements and Notes required by this Item are submitted as a separate part of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 28 PART III Item 10. Directors and Executive Officers of the Registrant The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2000, contains under the caption "Election of Directors" certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference. The information required by Item 10 of Form 10-K as to executive officers is set forth in Item 4A of Part I hereof. The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2000, contains under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference. Item 11. Executive Compensation The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2000, contains under the caption "Executive Compensation" the information required by Item 11 of Form 10-K and such information is incorporated herein by this reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2000, contains under the caption "Voting Securities and Principal Holders Thereof" the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference. Item 13. Certain Relationships and Related Transactions The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2000, contains under the caption "Certain Transactions" the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference. 29 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Financial Statements. (1) Consolidated Financial Statements: Independent Auditors' Report on Consolidated Financial Statements Consolidated Balance Sheets - January 1, 2000 and January 2, 1999 Consolidated Statements of Operations - Years Ended January 1, 2000, January 2, 1999 and January 3, 1998 Consolidated Statements of Changes In Equity Years Ended January 1, 2000, January 2, 1999 and January 3, 1998 Consolidated Statements of Cash Flows Years Ended January 1, 2000, January 2, 1999 and January 3, 1998 Notes to Consolidated Financial Statements (2) The following financial statement, schedule and independent auditors' report on financial statement schedule of the Registrant for the three-year period ended January 1, 2000 are included herein: Schedule II - Valuation and Qualifying Accounts, Independent Auditors' Report on Consolidated Financial Statement Schedule. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (3) The exhibits required to be filed by this item are set forth below: Number Description - ------ ----------- 3(a) Restated Certificate of Incorporation of the Registrant, (filed as Exhibit 3(i) to Registrant's Quarterly Report on Form 10-Q for the year ended June 29, 1996 and hereby incorporated by reference). 3(b) Bylaws, as amended (filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the six months ended June 30, 1995, and hereby incorporated by reference). 30 4(a) Amended and Restated Rights Agreement, dated as of March 12, 1999, between Cerner Corporation and UMB Bank, n.a., as Rights Agents, which includes the Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of Cerner Corporation, as Exhibit A, and the Form of Rights Certificate, as Exhibit B (filed as an Exhibit to Registrant's current report on Form 8-A/A dated March 31, 1999 and incorporated herein by reference). 4(b) Specimen stock certificate (filed as Exhibit 4(a) to Registrant's Registration Statement on Form S-8 (File No. 33-15156) and hereby incorporated herein by reference). 4(c) Credit Agreement between Cerner Corporation and Mercantile Bank dated April 1, 1999 (filed as Exhibit 4(d) to Registrant's Annual Report on Form 10-K for the year ended January 2, 1999, and hereby incorporated herein by reference). 10(a) Incentive Stock Option Plan C of Registrant (filed as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, and hereby incorporated herein by reference).* 10(b) Indemnification Agreements between the Registrant and Neal L. Patterson, Clifford W. Illig, Gerald E. Bisbee, Jr., Ph.D. and Thomas C. Tinstman, M.D., (filed as Exhibit 10(i) to Registrant's Annual report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference).* 10(c) Indemnification Agreement between Michael E. Herman and Registrant (filed as Exhibit 10(i)(a) to Registrant's Quarterly Report on Form 10-Q for the year ended June 29, 1996 and hereby incorporated by reference).* 10(d) Indemnification Agreement between John C. Danforth, and Registrant (filed as Exhibit 10(i)(b) to Registrant's Quarterly Report on Form 10-Q for the year ended June 29, 1996 and hereby incorporated by reference).* 10(e) Indemnification Agreement between Jeff C. Goldsmith, Ph.D. and Registrant.* 10(f) Amended Stock Option Plan D of Registrant (filed as Exhibit 10 (g) to Registrant's Annual Report on Form 10-K for the year ended January 3, 1998, and hereby incorporated by reference).* 10(g) Stock Option Plan E of Registrant (filed as Exhibit 10(h) to Registrant's Annual Report on Form 10- K for the year ended January 3, 1998, and hereby incorporated by reference).* 10(h) Cerner Performance Plan for 1999 (filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended January 2, 1999, and hereby incorporated herein by reference).* 10(i) Cerner Performance Plan for 2000.* 10(j) Long-Term Incentive Plan for 1999 (filed as Exhibit 10(l) to Registrant's Annual Report on Form 10- K for the year ended January 2, 1999, and hereby incorporated herein by reference).* 10(k) Promissory Note of Jack A. Newman, Jr. (filed as Exhibit 10(m) to Registrant's Annual Report on Form 10- K for the year ended January 2, 1999, and hereby incorporated herein by reference)* 31 10(l) Promissory Notes of Earl H. Devanny, III.* 10(m) Promissory Note of Glenn P. Tobin, Ph.D. (filed as Exhibit 10(o) to Registrant's Annual Report on Form 10- K for the year ended January 2, 1999, and hereby incorporated herein by reference).* 10(n) Cerner Corporation Executive Stock Purchase Plan (filed as Exhibit 4(g) to Registrant's Registration Statement on Form S-8 (File No. 333-77029) and hereby incorporated herein by reference).* 10(o) Form of Stock Pledge Agreement for Cerner Corporation Executive Stock Purchase Plan (filed as Exhibit 4(h) to Registrant's Registration Statement on Form S-8 (File No. 333-77029) and hereby incorporated herein by reference).* 10(p) Form of Promissory Note for Cerner Corporation Executive Stock Purchase Plan (filed as Exhibit 4(i) to Registrant's Registration Statement on Form S-8 (File No. 333-77029) and hereby incorporated herein by reference).* 10(q) Employment Agreement of Earl H. Devanny, III.* 10(r) Employment Agreement of Glenn P. Tobin, Ph.D.* 10(s) Employment Agreement of Stanley M. Sword.* 11 Computation of Registrant's Earnings Per Share. (Exhibit omitted. Information contained in notes to consolidated financial statements.) 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule. * Management contracts or compensatory plans or arrangements required to be identified by Item 14(a)(3). (b) Reports on Form 8-K Reports on form 8-K were filed on March 18, 1999, April 23, 1999 and September 28, 1999. (c) Exhibits. The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. CERNER CORPORATION Dated: March 27, 2000 By: /s/Neal L.Patterson -------------------------- Neal L. Patterson Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature and Title Date ------------------- ---- ____/s/Neal L. Patterson_________________ March 27, 2000 Neal L. Patterson, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) ____/s/Clifford W. Illig_________________ March 27, 2000 Clifford W. Illig, Vice Chairman and Director ____/s/Marc G. Naughton__________________ March 27, 2000 Marc G. Naughton, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) ____/s/Michael E. Herman_________________ March 27, 2000 Michael E. Herman, Director ____/s/Gerald E. Bisbee___________________ March 27, 2000 Gerald E. Bisbee, Jr., Ph.D., Director ____/s/Thomas C. Tinstman__________________ March 27, 2000 Thomas C. Tinstman, M.D., Senior Vice President and Director 33 ____/s/John C. Danforth____________________ March 27, 2000 John C. Danforth, Director ____/s/Jeff C. Goldsmith___________________ March 27, 2000 Jeff C. Goldsmith, Ph.D., Director 34 Independent Auditors' Report - ------------------------------------------------------------------ The Board of Directors and Stockholders Cerner Corporation: We have audited the accompanying consolidated balance sheets of Cerner Corporation and subsidiaries as of January 1, 2000 and January 2, 1999, and the related consolidated statements of operations, changes in equity, and cash flows for each of the years in the three-year period ended January 1, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cerner Corporation and subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended January 1, 2000, in conformity with generally accepted accounting principles. KPMG LLP Kansas City, Missouri February 14, 2000 Management's Report - ----------------------------------------------------------------- The management of Cerner Corporation is responsible for the consolidated financial statements and all other information presented in this report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate to the circumstances, and, therefore, included in the financial statements are certain amounts based on management's informed estimates and judgments. Other financial information in this report is consistent with that in the consolidated financial statements. The consolidated financial statements have been audited by Cerner Corporation's independent certified public accountants and have been reviewed by the audit committee of the Board of Directors. 35 Consolidated Balance Sheets - -------------------------------------------------------------------------------- January 1, 2000 and January 2, 1999 1999 1998 ---------------------------- (Dollars in thousands) Assets Current Assets: Cash and cash equivalents $ 75,677 42,658 Receivables 161,174 167,374 Inventory 1,262 2,651 Prepaid expenses and other 4,316 4,234 ------------ ------------ Total current assets 242,429 216,917 Property and equipment, net 77,938 77,292 Software development costs, net 71,007 54,971 Intangible assets, net 7,511 8,884 Investments, net 252,123 71,719 Other assets 9,883 6,702 ------------ ------------ $ 660,891 436,485 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 20,261 14,092 Current installments of long-term debt - 5,030 Deferred revenue 21,245 33,921 Income taxes 10,987 26,057 Accrued payroll and tax withholdings 17,241 16,625 Other accrued expenses 2,642 2,511 ------------ ------------ Total current liabilities 72,376 98,236 Long-term debt, net 100,000 25,000 Deferred income taxes 93,578 22,106 Deferred revenue 16,000 20,000 Stockholders' Equity: Common stock, $.01 par value ,150,000,000 shares authorized, 34,932,703 shares issued in 1999 and 34,674,164 shares in 1998 349 347 Additional paid-in capital 166,735 165,239 Retained earnings 125,651 126,862 Treasury stock, at cost (1,201,518 shares in 1999 and 1998) (20,796) (20,796) Accumulated other comprehensive income: Foreign currency translation adjustment 23 (243) Unrealized gain (loss) on available- for-sale equity securities (net of deferred tax liability of $59,806 in 1999 and deferred tax asset of $165 in 1998) 106,975 (266) ------------ ------------ Total stockholders' equity 378,937 271,143 ------------ ------------ Commitments (Note 12) $ 660,891 436,485 ============= ============
See notes to consolidated financial statements. 36 Consolidated Statements of Operations - -------------------------------------------------------------------------------- For the years ended January 1, 2000, January 2, 1999, and January 3, 1998 1999 1998 1997 -------------------------------------- (In thousands, except per share data) Revenues System sales $ 224,510 245,490 170,906 Support and maintenance 94,198 76,755 68,713 Other 21,489 8,657 5,438 -------------------------------------- Total revenues 340,197 330,902 245,057 -------------------------------------- Costs and expenses Cost of revenues 95,038 89,544 71,943 Sales and client service 141,234 117,107 83,788 Software development 72,663 59,754 44,086 General and administrative 27,564 25,929 23,070 Write-off of acquired in-process research and development - 5,038 - -------------------------------------- Total costs and expenses 336,499 297,372 222,887 -------------------------------------- Operating earnings 3,698 33,530 22,170 Interest income (expense), net (3,396) (262) 2,314 -------------------------------------- Earnings before income taxes and extraordinary item 302 33,268 24,484 Income taxes (118) (12,679) (9,336) -------------------------------------- Earnings before extraordinary item 184 20,589 15,148 Extraordinary item, net of tax (1,395) - - -------------------------------------- Net earnings (loss) $ (1,211) 20,589 15,148 ====================================== Basic earnings per share before extraordinary item $ .01 .63 .46 ====================================== Basic earnings (loss) per share $ (.04) .63 .46 ====================================== Diluted earnings per common share before extraordinary item $ .01 .61 .45 ====================================== Diluted earnings (loss) per common share $ (.04) .61 .45 ======================================
See notes to consolidated financial statements. 37 Consolidated Statements of Changes in Equity - -------------------------------------------------------------------------------- For the years ended January 1, 2000, January 2, 1999, and January 3, 1998 Accumulated Additional Treasury other Common Stock paid-in Retained stock Comprehensive Comprehensive Shares Amount capital earnings amount income income ------------------------------------------------------------------------------------------ (In thousands) Balance at December 28, 1996 33,404 334 144,941 91,125 (5,693) 28 --------------------------------------------------------------------- Exercise of options 311 3 978 - - - Issuance of common stock grants as compensation 2 - 48 - - - Issuance of restricted common stock 100 1 1,586 - - - Tax benefit from disqualifying disposition of stock options - - 521 - - - Purchase of 688,500 shares of treasury stock - - - - (15,103) - Foreign currency translation adjustment - - - - - (170) (170) Net earnings - - - 15,148 - - 15,148 ------------------------------------------------------------------------------------- Comprehensive income 14,978 ======== Balance at January 3, 1998 33,817 338 148,074 106,273 (20,796) (142) --------------------------------------------------------------------- Exercise of options 185 2 1,248 - - - Issuance of common stock grants as compensation 2 - 44 - - - Issuance of common stock 670 7 14,867 - - - Non-employee stock option compensation expense - - 385 - - - Tax benefit from disqualifying disposition of stock options - - 621 - - - Foreign currency translation adjustment - - - - - (101) (101) Unrealized loss on available- for-sale equity security, net of deferred tax asset of $165 - - - - - (266) (266) Net earnings - - - 20,589 - - 20,589 -------------------------------------------------------------------------------------- Comprehensive income 20,222 ======== Balance at January 2, 1999 34,674 $ 347 165,239 126,862 (20,796) (509) ====================================================================== Exercise of options 257 2 623 - - - Issuance of common stock grants as compensation 2 - 40 - - - Non-employee stock option compensation expense - - 239 - - - Tax benefit from disqualifying disposition of stock options - - 594 - - - Foreign currency translation adjustment - - - - - 266 266 Unrealized gain on available- for-sale equity securities, net of deferred tax liability of $59,806 - - - - - 107,241 107,241 Net loss - - - (1,211) - - (1,211) -------------------------------------------------------------------------------------- Comprehensive income 106,296 ======== Balance at January 1, 2000 34,933 $ 349 166,735 125,651 (20,796) 106,998 =====================================================================
See notes to consolidated financial statements. 38 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- For years ended January 1, 2000, January 2, 1999, and January 3, 1998 1999 1998 1997 ----------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (1,211) 20,589 15,148 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 31,388 25,411 18,075 Common stock received as consideration for sale of license software - (70,000) - Non-recurring fixed fee implementation cost 9,449 - - Non-recurring branch restructure charge 1,358 - - Extraordinary item, net of tax 1,395 - - Write-off of acquired in-process research and development - 5,038 - Issuance of common stock grants as compensation 40 44 48 Non-employee stock option compensation expense 239 385 - Equity in losses of affiliates 423 1,601 864 Provision for deferred income taxes (3,165) 15,816 8,246 Tax benefit from disqualifying dispositions of stock options 594 621 521 Loss on disposal of capital equipment 478 223 110 Changes in operating assets and liabilities (net of business acquired): Receivables, net 6,200 (39,481) (27,931) Inventory 1,389 (908) (127) Prepaid expenses and other 844 (3,970) (2,075) Accounts payable (5,207) 2,620 1,984 Accrued income taxes 461 (2,334) - Deferred revenue (16,676) 45,410 479 Other current liabilities (610) 4,828 3,350 ------------------------------------ Total adjustments 28,600 (14,696) 3,544 ------------------------------------ Net cash provided by operating activities 27,389 5,893 18,692 ------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of capital equipment (14,286) (20,846) (14,896) Purchase of land, buildings, and improvements - (2,767) (86) Acquisition of business - (6,874) - Investment in affiliates (13,615) (1,217) (4,500) Advances to affiliates (1,000) - - Executive stock purchase program (3,628) - - Proceeds on disposal of capital equipment 59 - 212 Capitalized software development costs (30,192) (25,052) (18,373) ------------------------------------ Net cash used in investing activities (62,662) (56,756) (37,643) ------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 99,568 - - Repayment of long-term debt (32,167) (45) (116) Proceeds from sale of common stock - 14,874 - Proceeds from exercise of options 625 1,250 981 Purchase of treasury stock - - (15,103) ------------------------------------ Net cash provided by (used in) financing activities 68,026 16,079 (14,238) ------------------------------------ Foreign currency translation adjustment 266 (101) (170) ------------------------------------ Net increase (decrease) in cash and cash equivalents 33,019 (34,885) (33,359) Cash and cash equivalents at beginning of year 42,658 77,543 110,902 ------------------------------------ Cash and cash equivalents at end of year $ 75,677 42,658 77,543 ==================================== Supplemental disclosures of cash flow information Cash paid (received) during the year for: Interest $ 5,448 2,504 2,473 Income taxes, net of refund 1,647 (2,112) 1,024 Noncash investing and financing activities Issuance of restricted common stock and grants 40 44 1,635
See notes to consolidated financial statements. 39 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1 Summary of Significant Accounting Policies (a) Principles of Consolidation - The consolidated financial statements include the accounts of Cerner Corporation and its wholly owned subsidiaries (the Company). All significant intercompany transactions and balances have been eliminated in consolidation. (b) Revenue Recognition - Revenues are derived primarily from the sale of clinical information systems. The Company also provides project implementation and consulting services. In addition, revenue is generated from servicing installed clinical information systems, which generally includes support of software and maintenance of hardware. The Company also derives revenue from the sale of computer hardware. Clinical information system sales contracts are negotiated separately and generally include the licensing of the Company's clinical information system software, project-related services associated with the installation of the systems, and the sale of computer hardware. Clinical information system sales contracts are noncancelable and provide for a right of return only in the event the system fails to meet the performance criteria set forth in the contracts. The Company recognizes revenue from sales of clinical information systems using a percentage-of-completion method based on meeting key milestone events over the term of the contracts in accordance with Statement of Position 97-2, "Software Revenue Recognition". Revenue recognized is limited to amounts to be billed within one year. Revenue associated with project implementation and consulting services is recognized as the services are performed. Revenue from the licensing of additional software is recognized upon installation at the client's site. Revenue from the sale of computer hardware is recognized upon shipment. Revenue from ongoing software support and equipment maintenance is recognized as the services are rendered. (c) Fiscal Year - The Company's fiscal year ends on the Saturday closest to December 31. Fiscal years 1999 and 1998, respectively, consisted of 52 weeks each, and fiscal year 1997 consisted of 53 weeks. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted. (d) Software Development Costs - Costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detail program design. Thereafter, all software development costs are capitalized and subsequently reported at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with minimum annual amortization equal to the straight-line amortization over the estimated economic life of the product. The Company is amortizing capitalized costs on a straight-line basis over five years. During 1999, 1998, and 1997, the Company capitalized $30,192,000, $25,052,000, and $18,373,000, respectively, of total software development costs of $88,699,000, $74,159,000, and $54,524,000, respectively. Amortization expense of capitalized software development costs in 1999, 1998, and 1997 was $14,156,000, $10,647,000, and $7,935,000, respectively, and accumulated amortization was $57,698,000, $43,542,000, and $32,895,000, respectively. (e) Cash Equivalents - Cash equivalents consist of short-term marketable securities with original maturities less than ninety days. (f) Investments - The Company accounts for its investments in equity securities which have readily determinable fair values as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income. Investments in the common stock of certain affiliates over which the Company exerts significant influence are accounted for by the equity method. Investments in other equity securities are reported at cost. All equity securities are reviewed by the Company for declines in fair value. If such 40 declines are considered to be other than temporary, the cost basis of the individual security is written down to fair value as a new cost basis, and the amount of the write-down is included in earnings. (g) Inventory - Inventory consists primarily of computer hardware held for resale and is recorded at the lower of cost (first-in, first-out) or market. (h) Property and Equipment - Property, equipment, and leasehold improvements are stated at cost. Depreciation of property and equipment is computed using the straight-line method over periods of 5 to 39 years. Amortization of leasehold improvements is computed using a straight-line method over the lease terms, which range from periods of two to twelve years. (i) Earnings per Common Share - Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common stockholders 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 the earnings of the Company. A reconciliation of the numerators and the denominators of the basic and diluted per- share computations is as follows: (In thousands, except per share data) 1999 1998 1997 ----------------------------------------------------------------------------------------------------------- Per Per Per Earnings Shares Share Earnings Shares Share Earnings Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------------------------------------------------------------------------------------------------------- Earnings per share before extraordinary item - -------------------------------------------- Basic earnings per share Income available to common stock holders $ 184 33,623 $ .01 20,589 32,825 $ .63 15,148 32,881 $ .46 ======= ====== ===== Effect of dilutive securities Stock options -- 293 -- 842 -- 787 Diluted earnings per share Income available to common stockholders including assumed conversions ---------------------------------------------------------------------------------------------------- $ 184 33,916 $ .01 20,589 33,667 $ .61 15,148 33,668 $ .45 ==================================================================================================== Net earnings (loss) per share Basic earnings (loss) per share Income available to common stock holders $(1,211) 33,623 $ (.04) 20,589 32,825 $ .63 15,148 32,881 $ .46 ======= ====== ===== Effect of dilutive securities Stock options -- 293 -- 842 -- 787 Diluted earnings (loss) per share Income available to common stock holders including assumed conversions ------------------------------------------------------------------------------------------------------ $(1,211) 33,916 $ (.04) 20,589 33,667 $ .61 15,148 33,668 $ .45 ======================================================================================================
Options to purchase 3,185,000, 1,652,000 and 1,149,000 shares of common stock at per share prices ranging from $17.50 to $31.00, $25.00 to $31.00, and $21.50 to $31.00 were outstanding at the end of 1999, 1998 and 1997, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. 41 (j) Foreign Currency - Assets and liabilities in foreign currencies are translated into dollars at rates prevailing at the balance sheet date. Revenues and expenses are translated at average rates for the year. The net exchange differences resulting from these translations are reported in accumulated other comprehensive income. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of earnings. The net gain (loss) resulting from foreign currency transactions was $95,000, ($673,000), and ($762,000) in 1999, 1998, and 1997, respectively. (k) Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. (l) Goodwill - Excess of cost over net assets acquired (goodwill) is being amortized on a straight-line basis over seven to eight years. Accumulated amortization was $5,387,000 and $4,037,000 at the end of 1999 and 1998, respectively. The Company assesses the recoverability of goodwill based on forecasted undiscounted future operating cash flows. (m) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2 Acquisition of Business On March 16, 1998, the Company purchased all of the outstanding common stock of Multum Information Systems, Inc., (Multum) for $6.9 million. Multum is a supplier to the healthcare industry of drug knowledge databases and intelligent software components designed to improve the quality and cost-effectiveness of medical care. The Company plans to incorporate Multum's drug information and expert dosing component into its Health Network Architecture Millennium solutions to enable Multum's expert knowledge to become executable within the process of care delivery. The acquisition has been accounted for using the purchase method of accounting with the operating results of Multum included in the Company's consolidated statement of earnings since the date of acquisition. Approximately $5,000,000 of the purchase price was allocated to in-process research and development that had not reached technological feasibility and was treated as a one-time charge to earnings reducing after tax income for 1998 by $3.1 million or $.09 per share on a diluted basis. This acquisition would not have materially affected revenues, net earnings, or earnings per share on a pro forma basis for any period presented. The acquired in-process research and development related to Multum's component based, drug information software development kit (SDK) for use in clinical information systems. Its components are designed for use in a variety of configurations and to provide complete control over the retrieval of drug information from Multum's knowledge databases. SDK was approximately 80% complete at the time of the acquisition. When Multum was acquired, it was projected that SDK would be completed in 12-18 months at an estimated cost of $1.9 million. The risks associated with completing SDK are like any other software development project and include changes in technology and competition. The SDK project was valued using the income approach with the following assumptions: material net cash inflows are expected to commence in 2000; no material changes from historical pricing, margins or expense levels are anticipated; and, a 20% risk adjusted discount rate was applied to estimated net cash flows. SDK was approximately 90% complete at the end of 1998 and was completed in 1999. 42 The allocation of the purchase price to the estimated fair values of the identified tangible and intangible assets acquired and liabilities assumed, resulted in goodwill of $1,581,000. The goodwill is being amortized straight-line over seven years. 3 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 the Company 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 under the percentage-of-completion method are recorded as deferred revenue. A summary of receivables is as follows: (In thousands) 1999 1998 -------------------------- Accounts receivable $ 85,814 72,747 Contracts receivable 75,360 94,627 ---------- ---------- Total receivables $ 161,174 167,374 ========== ==========
Substantially all receivables are derived from sales and related support and maintenance of the Company's clinical information systems to healthcare providers located throughout the United States and in certain foreign countries. Included in receivables at the end of 1999 and 1998 are amounts due from healthcare providers located in foreign countries of $17,704,000 and $12,071,000, respectively. Consolidated revenues include foreign sales of $24,001,000, $17,545,000, and $16,272,000, during 1999, 1998, and 1997, respectively. Consolidated long-lived assets at the end of 1999 and 1998, include foreign long-lived assets of $638,000 and $290,000, respectively. Revenues and long-lived assets from any one foreign country are not material. The Company provides an allowance for estimated uncollectible accounts based upon historical experience and management's judgment. At the end of 1999 and 1998 the allowance for estimated uncollectible accounts was $4,759,000 and $3,405,000, respectively. 4 Property and Equipment A summary of property, equipment, and leasehold improvements stated at cost, less accumulated depreciation and amortization, is as follows: (In thousands) 1999 1998 -------------------- Furniture and fixtures $ 21,623 19,153 Computer and communications equipment 67,462 59,280 Marketing equipment 1,984 1,913 Leasehold improvements 16,905 13,543 Capital lease equipment 713 713 Land, buildings, and improvements 32,437 32,437 --------- --------- 141,124 127,039 Less accumulated depreciation and amortization 63,186 49,747 --------- --------- Total property and equipment, net $ 77,938 77,292 ========= =========
43 5 Investments Investments consist of the following: (In thousands) 1999 1998 --------- ----------- Investments in available-for-sale equity securities $ 13,057 503 Plus unrealized holding gain (loss) 166,781 (431) ---------- ---------- Investment in available-for-sale equity securities, at fair value 179,838 72 Investments in equity securities, at cost 69,822 70,000 Investments accounted for under the equity method 2,463 1,647 ---------- ---------- Total investments, net $ 252,123 71,719 ========== ==========
Included in the Company's investments is the ownership of 13,149,259 shares (18.7%) of common stock, of CareInsite, Inc. ("CareInsite"), formerly known as Synetic Healthcare Communications, Inc. which have a cost basis of $81,804,000 and a carrying value of $248,821,000 at January 1, 2000. 12,437,500 of these shares were received in 1998 as consideration for the sale of license software, and an additional 711,759 shares were purchased in 1999. The value assigned to the shares acquired in 1998 was $70,000,000 and was based on a methodology which utilized both a comparable company and the expected underlying discounted future cash flows. On June 16, 1999, CareInsite undertook an initial public offering of common stock. The common stock of CareInsite is traded in the public market and listed on the Nasdaq National Market. The stock of CareInsite held by the Company is not registered and is subject to certain lock-up provisions. A permanent impairment in the value of CareInsite common stock would result in a charge to earnings in either the then current or future periods. There would be no effect on cash flows because the revenue was earned through contractual rights granted in exchange for CareInsite stock. An increase in the value of the CareInsite stock would have no effect on reported earnings. The Company has not engaged in equity swaps or other hedging techniques to manage the equity risk inherent in the CareInsite shares. Under Statement of Financial Accounting Standards no. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), the Company is required to mark to market those shares which are classified as available-for-sale. Additionally, SFAS No. 115 requires shares that are eligible under Rule 144 for public sale within a twelve month period be considered as available-for-sale. Under Rule 144, as currently in effect, a person who has beneficially owned shares of common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding and the average weekly trading volume of the common stock during the four preceding calendar weeks. As of January 1, 2000, the Company has marked to market 2,230,700 shares of CareInsite common stock, with a market value of $179,571,000, that are considered available-for-sale under Rule 144 and SFAS No. 115. All CareInsite shares the Company owns will be considered available-for-sale and be marked to market in the first quarter of 2000. If all shares were eligible to be marked to market at January 1, 2000, the market value would be $1,058,515,000. If the Company realizes certain performance metrics related to specified levels of physician usage, CareInsite will issue to the Company 2,503,125 shares of common stock at a price of $.01 per share ("Performance Shares"). The measurement date is February 15, 2001. No amounts have been recognized in the consolidated financial statements for the Performance Shares due to the uncertainty of the future events. The Company was also granted, by CareInsite, 1,008,445 common stock warrants with an exercise price of $4.00 per share ("THINC Warrants"). The THINC Warrants were exercisable only in the event that The Health Information Network Connections, LLC ("THINC") exercised warrants granted to them by 44 CareInsite at $4.00 per share. THINC was allowed to exercise their warrants 180 days after the initial public offering of CareInsite. On January 29, 2000 CareInsite completed an acquisition of THINC. As part of that agreement, 806,756 of the 1,008,445 THINC Warrants became immediately exercisable, with the remaining amount forfeited. The THINC Warrants expire in three years. On February 13, 2000 CareInsite entered into an agreement to merge with Healtheon/WebMD Corporation ("Merger Agreement"). As part of the Merger Agreement, the Company will receive 1.3 shares of Healtheon/WebMD Corporation in exchange for each common share of CareInsite held by the Company. In addition the Performance Shares will be adjusted at a rate of 1.3 shares of Healtheon/WebMD Corporation for each share of CareInsite. All physician users of systems of Healtheon/WebMD Corporation or its affiliates shall be included for purposes of determining the specified levels of physician usage. The THINC Warrants will also be adjusted at a rate of 1.3 shares of Healtheon/WebMD Corporation for each share of CareInsite. The proposed merger of CareInsite and Healtheon/WebMD Corporation ("Merger") is subject to shareholder and regulatory approval. There is no guarantee the Merger will close. The Company has agreed under terms of the Merger Agreement to certain lock-up provisions, which differ from the terms of its lock-up provisions with CareInsite. The Merger is expected to close in the second quarter of 2000. If the Merger closes the Company will record the Healtheon/WebMD Corporation shares received at their then fair value and recognize a gain on the disposition of the CareInsite shares. Based on proposed lock-up provisions, 50% of the Healtheon/WebMD Corporation shares would thereafter be considered available-for-sale and would be marked to market at each balance sheet date. The remainder would be carried at cost until the third quarter of 2000. The Company owns 50% of Health Network Ventures ("HNV"), a joint venture investment which is accounted for under the equity method. Under the terms of the joint venture agreement, the Company may require its partner to sell to the Company its share of HNV for $12,000,000, subject to certain adjustments, ("Call Option") at anytime after July 1, 2000. In addition the partner may require the Company to purchase its share of HNV for $6,000,000, subject to certain adjustments, ("Put Option") at any time after July 1, 2000. 6 Indebtedness The Company has a loan agreement with a bank that provides for a long-term revolving line of credit for working capital purposes. The long-term revolving line of credit is unsecured and requires monthly payments of interest only. Interest is payable at the Company's option at a rate based on prime (8.5% at January 1, 2000) or LIBOR (6.5% at January 1, 2000) plus 1.5%. The interest rate may be reduced by up to .4% if certain net worth ratios are maintained. At January 1, 2000, the Company had no outstanding borrowings under this agreement and had $18,000,000 available for working capital purposes. The agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets, and pay dividends. A commitment fee of 3/10% is payable quarterly on the unused portion of the revolving line of credit. On April 15, 1999, the Company completed a $100,000,000 private placement of debt pursuant to a Note Agreement dated April 1, 1999. The Series A Senior Notes, with a $60,000,000 principal amount at 7.14% are payable in five equal annual installments beginning in April 2002. The Series B Senior Notes, with a $40,000,000 principal amount at 7.66% are payable in six equal annual installments beginning April 2004. The proceeds were used to retire the Company's existing $30,000,000 of debt, and the remaining funds will be used for proposed capital improvements and to strengthen the Company's cash position. In connection with the early extinguishment of debt, the Company incurred an extraordinary loss for a prepayment penalty and write-off of deferred loan costs of $1,395,000 net of taxes. The note agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets, and pay dividends. The Company was in compliance with all covenants at January 1, 2000. 45 The fair value of the Company's Senior Notes approximates their carrying value at January 1, 2000 based on current rates offered to the Company for similar debt instruments of comparable maturities. 7 Interest Income and Expense A summary of interest income and expense is as follows: (In thousands) 1999 1998 1997 ----------------------------- Interest income $ 2,582 2,242 4,755 Interest expense (5,978) (2,504) (2,441) -------- -------- -------- Interest income (expense), net $(3,396) (262) 2,314 ======== ======== ========
8 Stock Options and Warrants At January 1, 2000, the Company had four fixed stock option plans. Under Stock Option Plan B, the Company could grant to associates options to purchase up to 5,600,000 shares of common stock through November 30, 1993. The options are exercisable at the fair market value on the date of grant for a period determined by the Board of Directors (not more than ten years from the date granted). The options contain restrictions as to transferability and exercisability after termination of employment. Under Stock Option Plan C, the Company is authorized to grant to associates options to purchase up to 95,000 shares of common stock through May 18, 2003. The options are exercisable at the fair market value on the date of grant for a period determined by the Board of Directors (not more than ten years from the date granted). The options contain restrictions as to transferability and exercisability after termination of employment. The Company has committed not to issue any more stock options under Stock Option Plan C. Initially under Stock Option Plan D, the Company was authorized to grant to associates, directors, consultants, or advisors to the Company options to purchase up to 2,600,000 shares of common stock through January 1, 2005. An additional 2,000,000 shares were approved by the Company's shareholders on May 22, 1998, increasing the total authorized to grant to 4,600,000 shares. The options are exercisable at a price (not less than fair market value on the date of grant) and during a period determined by the Stock Option Committee. Options under this plan currently vest over periods of up to ten years and are exercisable for periods of up to 25 years. Under Stock Option Plan E, the Company is authorized to grant to associates (other than officers subject to the provisions of Section 16(a) of the Securities and Exchange Act of 1934), consultants, or advisors to the Company options to purchase up to 2,000,000 shares of common stock through January 1, 2005. The options are exercisable at a price (not less than fair market value on the date of grant) and during a period determined by the Stock Option Committee. Options under this plan currently vest over periods of up to ten years and are exercisable for periods of up to 25 years. The Company has also granted 210,362 other non-qualified stock options under separate agreements to certain third parties. These options are exercisable at a price equal to or greater than the fair market value on the date of grant. These options vest over periods of up to six years and are exercisable for periods of up to ten years. The Company accounts for stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. On December 31, 1995, the Company adopted Statement of 46 Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in FAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of FAS 123. A combined summary of the status of the Company's four fixed stock option plans and other stock options at the end of 1999, 1998, and 1997, and changes during these years ended is presented below: 1999 1998 1997 Weighted- Weighted- Weighted- Number average Number average Number average of exercise of exercise of exercise Fixed Options shares price shares price shares price - ---------------------------------------------------------------------------------------- Outstanding at 5,488,191 $ 20.38 4,179,258 $ 17.74 3,196,072 $ 16.50 beginning of year Granted 1,447,246 16.69 1,932,710 24.15 1,592,363 18.22 Exercised (255,747) 4.91 (185,335) 6.88 (310,531) 3.12 Forfeited (1,149,695) 22.40 (438,442) 17.57 (298,646) 17.50 - ---------------------------------------------------------------------------------------- Outstanding at end of year 5,529,995 $ 19.79 5,488,191 $ 20.38 4,179,258 $ 17.74 ========== ========== ========== Options exercisable at year-end 1,297,147 1,111,943 876,376
The following table summarizes information about fixed and other stock options outstanding at January 1, 2000. Options outstanding Options exercisable - ---------------------------------------------------------------------------- ----------------------------------- Range of Number Weighted-average Number exercise Outstanding Remaining Weighted-average exercisable Weighted-average prices At 01/01/00 contractual life exercise price at 01/01/00 exercise price - ---------------------------------------------------------------------------- ------------------------------------ $ 1.34-15.00 1,762,957 17.8 years $ 14.03 494,770 $ 13.06 15.13-20.50 1,393,497 13.5 17.71 305,613 18.51 20.56-25.00 1,411,870 12.4 23.19 205,557 22.97 25.88-31.00 961,671 14.8 28.37 291,207 29.01 --------- --------- 1.34-31.00 5,529,995 14.8 19.79 1,297,147 19.49 ========= =========
The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $10.88, $14.97 and $10.99, respectively, on the date of grant using the Black Scholes option- pricing model with the following weighted-average assumptions: 1999 1998 1997 ----------------------------------- Expected years until exercise 8 8 8 Risk-free interest rate 6.9% 5.0% 6.2% Expected stock volatility 61.3% 58.5% 56.9% Expected dividend yield 0% 0% 0%
Since the Company applies APB Opinion No. 25 in accounting for its plans, no compensation cost has been recognized for its stock options issued to employees. Had the Company recorded compensation expense based on the fair value at the grant date for its stock options under FAS 123, the Company's net earnings and earnings per share on a diluted basis would have been reduced by approximately $3,922,000 or $.12 per share in 1999, approximately $5,929,000 or $.18 per share in 1998 and approximately $3,965,000 or $.12 per share in 1997. 47 Pro forma net earnings reflect only options granted since January 1, 1995. Therefore, the full impact of calculating compensation expense for stock options under FAS 123 is not reflected in the pro forma net earnings amounts presented above, because compensation cost is reflected over the options' vesting period of ten years for these options. Compensation expense for options granted prior to January 1, 1995 is not considered. In November 1998, the Company entered into an agreement with General Electric Company (GE) to integrate the Company's Health Network Architecture Millennium RadNet Radiology Information System with GE Medical Systems' Picture Archive and Communication Systems technology. In conjunction with the agreement, the Company sold GE 670,000 shares of common stock for $14,874,000 and granted warrants for the purchase of 500,000 shares of common stock at an exercise price equal to the fair value of the stock at the grant date ($25.49). The warrants become exercisable provided certain conditions are met, including achievement of certain levels of revenue. The warrants expire after seven years or thirty days after termination of the agreement. 9 Income Taxes Income tax expense (benefit) before extraordinary item for the years ended 1999, 1998, and 1997, consists of the following: (In thousands) 1999 1998 1997 Current: Federal $ 3,514 (1,929) 916 State 573 (1,061) 80 Foreign (804) (147) 94 --------- -------- -------- Total current 3,283 (3,137) 1,090 --------- -------- -------- Deferred: Federal (2,891) 13,634 7,338 State (288) 1,565 908 Foreign 14 617 - --------- -------- -------- Total deferred (3,165) 15,816 8,246 --------- -------- -------- Total income tax expense $ 118 12,679 9,336 ========= ======== ======== Income tax benefit attributable to the extraordinary item (early retirement of debt) was $865,000 in 1999. Income tax expense (benefit) allocated to stockholders' equity for unrealized holding gain (losses) on available-for-sale equity securities was $59,971,000 and ($165,000) in 1999 and 1998, respectively. 48 Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of deferred income taxes at the end of 1999 and 1998 relate to the following:
(In thousands) 1999 1998 ----------------------------- Deferred Tax Assets Contract reserves $ 3,615 - Acquisition accrual 1,779 2,033 Accrued expenses 4,669 3,223 Separate return net operating losses - 1,577 Other 1,637 1,076 --------- -------- Total deferred tax assets 11,700 7,909 --------- -------- Deferred Tax Liabilities Unrealized gain on investments (59,806) - Software development costs (26,812) (20,695) Contract and service revenues and costs (23,591) (32,255) Depreciation and amortization (4,480) (3,856) Other (5,581) (2,867) --------- -------- Total deferred tax (120,270) (59,673) --------- -------- Net deferred tax liability $ (108,570) (51,764) ========== ========
The effective income tax rates for 1999, 1998, and 1997 were 39%, 38%, and 38%, respectively. These effective rates differ from the federal statutory rate of 35% as follows: (In thousands) 1999 1998 1997 ----------------------------------- Tax expense at statutory rates $ 106 11,644 8,569 State income tax, net of federal benefit 10 1,280 632 Other, net 2 (245) 135 ------- ------- ------ Total income tax expense $ 118 12,679 9,336 ======= ======= ======
Income taxes payable are reduced by the tax benefit resulting from disqualifying dispositions of stock acquired under the Company's stock option plans. The 1999, 1998, and 1997 benefits of $594,000, $621,000, and $521,000, respectively, are treated as increases to additional paid-in capital. 10 Foundations Retirement Plan The Cerner Corporation Foundations Retirement Plan (the Plan) is established under Section 401(k) of the Internal Revenue Code. All full-time associates are eligible to participate. Participants may elect to make pretax contributions from 1% to 15% of compensation to the Plan, subject to annual limitations determined by the Internal Revenue Service. Participants may direct contributions into mutual funds, a money market fund, or a Company stock fund. The Company makes matching contributions to the Plan, on behalf of participants, in an amount equal to 20% of the participant's contribution, limited to an annual maximum of $600 per participant. The Company's expense for the plan amounted to $1,187,000, $1,005,000, and $761,000 for 1999, 1998, and 1997, respectively. 49 11 Related Party Transactions In 1999, the Company loaned $3,628,000 to the Company's senior management under the terms of the Executive Stock Purchase Program ("Program"). The purpose of the Program is to advance the interests of the Company, the Company's senior management, and the Company's shareholders by offering the Company's senior management an incentive to purchase shares of the Company's stock on the open market. Pursuant to the Program, the Company provided Program loans to executives to help finance up to 50% of the total purchase price of the stock purchased. All Program loans have a term of five (5) years, at an interest rate of 5.5%. Principal and interest is not due until the end of the five-year loan term, unless the executive terminates employment. Executives may also elect to pay interest annually. If interest is not paid annually, it will compound annually. All Program loans are secured by the purchased shares and any pledged shares. 12 Commitments The Company leases space to unrelated parties in its Kansas City headquarters complex under noncancelable operating leases. Included in other revenues is rental income of $1,005,000, $1,795,000, and $1,694,000 in 1999, 1998, and 1997, respectively. The Company is committed under operating leases for office space through December 2004. Rent expense for office and warehouse space for the Company's regional and international offices for 1999, 1998, and 1997 was $2,226,000, $1,847,000, and $1,759,000, respectively. Future minimum lease revenues (in thousands) and aggregate minimum future payments (in thousands) under these noncancelable operating leases are as follows: Future Future Minimum Minimum lease lease Years Revenues Commitments ----------------------------------- 2000 $ 425 1,566 2001 176 719 2002 40 428 2003 23 435 2004 - 267
In December, 1999, the Company made a decision to close five of its branch offices. The Company created a regional branch structure in 1994 in order to bring associates closer to its clients. The natural evolution of that strategy and the ability to leverage internal information technology infrastructure to create a more virtual workplace has resulted in a significant decrease in utilization of certain regional offices. This led to the decision to close these physical locations. The Company recorded a charge of $1.4 million in sales and client service expenses in the 1999 fourth quarter to provide for the costs of closing these locations, primarily based on estimated lease cancellation fees. The Company will continue to maintain offices in Denver, Detroit and Australia, in addition to the world headquarters in Kansas City, Missouri. 13 Stockholders' Equity At the end of 1999 and 1998, the Company had 1,000,000 shares of authorized but unissued preferred stock, $.01 par value. 50 14 Quarterly Results (unaudited) Selected quarterly financial data for 1999 and 1998 is set forth below: (In thousands, except per share data) Earnings (loss) Basic before Net earnings Diluted income taxes and earnings (loss) earnings (loss) Revenues extraordinary item (loss) per share per share ------------------------------------------------------------------------ 1999 quarterly results: April 3 $ 86,743 4,543 2,817 .08 .08 July 3 (1) 82,782 428 (1,135) (.03) (.03) October 2 80,929 1,146 680 .02 .02 January 1 (2) 89,743 (5,815) (3,573) (.11) (.11) - ---------------------------------------------------------------------------------------------------- Total 340,197 302 (1,211) (.04) (.04) ======= ====== ======= ===== ===== 1998 quarterly results: April 4 (3) 73,674 1,106 671 .02 .02 July 4 79,152 8,726 5,369 .16 .16 October 3 82,832 10,185 6,348 .19 .19 January 2 95,244 13,251 8,201 .26 .24 - ---------------------------------------------------------------------------------------------------- Total 330,902 33,268 20,589 .63 .61 ======= ====== ====== ==== ====
(1) In the second quarter of 1999, the Company incurred an extraordinary loss on the early extinguishment of debt of $1,395,000, net of taxes of $865,000. Earnings, basic earnings per share, and diluted earnings per share, before the extraordinary item for the second quarter of 1999 were $260,000, $0.01, and $0.01, respectively. (2) See note 12 regarding a non-recurring charge in the fourth quarter of 1999. The fourth quarter of 1999 also includes an additional non-recurring charge of $5.8 million, net of $3.6 million tax benefit, for contract reserves. (3) See note 2 regarding a non-recurring charge in the first quarter of 1998. 51 Cerner Corporation Valuation and Qualifying Accounts Schedule II
Additions Balance at Charged to Beginning Costs and Balance at Description of Period Expenses Deductions End of Period - -------------------------------------------------------------------------------- For Year Ended January 3, 1998 Doubtful Accounts $ 1,121,000 $ 369,000 $ 0 $ 1,490,000 Sales Allowances $ 0 $ 0 $ 0 $ 0
Additions Balance at Charged to Beginning Costs and Balance at Description of Period Expenses Deductions End of Period - -------------------------------------------------------------------------------- For Year Ended January 2, 1999 Doubtful Accounts $ 1,490,000 $ 1,915,000 $ 0 $ 3,405,000 Sales Allowances $ 0 $ 0 $ 0 $ 0
Additions Balance at Charged to Beginning Costs and Balance at Description of Period Expenses Deductions End of Period - ------------------------------------------------------------------------------ For Year Ended January 1, 2000 Doubtful Accounts $ 3,405,000 $ 4,351,000 $(2,997,000) $ 4,759,000 Sales Allowances $ 0 $ 0 $ 0 $ 0
Independent Auditors' Report on Financial Statement Schedule The Board of Directors Cerner Corporation: Under date of February 14, 2000, we reported on the consolidated balance sheets of Cerner Corporation and subsidiaries as of January 1, 2000 and January 2, 1999 and the related consolidated statements of operations, changes in equity, and cash flows for each of the years in the three- year period ended January 1, 2000. These consolidated financial statements and our report thereon are included in the Company's annual report on Form 10-K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed under Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Kansas City, Missouri February 14, 2000 EX-10 2 EXHIBIT 10(E) INDEMNIFICATION AGREEMENT ------------------------- THIS AGREEMENT is made and entered into this 18th day of November, 1999, between Cerner Corporation, a Delaware corporation ("Corporation"), and Jeff Goldsmith ("Indemnitee"). WITNESSETH: WHEREAS, Indemnitee is a member of the board of directors of the Corporation and as such is performing a valuable service for the Corporation; and WHEREAS, although Indemnitee has certain rights to indemnification under the Bylaws and Certificate of Incorporation of the Corporation, such Bylaws and Certificate of Incorporation specifically provide that they are not exclusive and thereby contemplate that the Corporation may enter into agreements with its officers and directors; and WHEREAS, the Corporation and Indemnitee desire to enter into this Agreement to provide to Indemnitee additional rights to indemnification in consideration of Indemnitee's continued service to the Corporation as a director; NOW, THEREFORE, in consideration of Indemnitee's continued service as a director of the Corporation after the date hereof and for and in consideration of the premises and the covenants contained herein, the Corporation and Indemnitee do hereby promise and agree as follows: 1. Indemnification. The Corporation hereby agrees to --------------- hold harmless and indemnify Indemnitee to the fullest extent permitted by Section 145, Title 8 of the Delaware Code, as in effect on the date of the execution of this Agreement and as it may hereafter be amended, or any other statutory provision permitting or authorizing such indemnification which is adopted subsequent to the execution of this Agreement. 2. Maintenance of Insurance. So long as Indemnitee ------------------------ shall continue to serve as a director of the Corporation (or shall continue at the request of the Corporation or on behalf of the Corporation to serve as a director, officer, employee or agent of any Other Enterprise) and thereafter so long as Indemnitee shall be subject to any possible claim or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate by reason of the fact that Indemnitee is or was a director of the Corporation (or is or was serving in any of said other capacities at the request of the Corporation), the Corporation may maintain director liability insurance if such insurance becomes reasonably available and if, in the business judgment of the board of directors of the Corporation as it may exist from time to time, both (i) the premium cost for such insurance is reasonable, and (ii) the coverage provided by such insurance is not so limited by exclusions that there is insufficient benefit provided by such director liability insurance. 3. Additional Indemnification. Subject only to the -------------------------- provisions in Sections 4, 5, 6 and 7 of this Agreement, the Corporation hereby further agrees to hold harmless and indemnify Indemnitee: (a) Against any and all liabilities and expenses, including without limitation, judgments, amounts paid in settlement (provided that such settlement and all amounts paid in connection therewith are approved in advance by the Corporation, which approval shall not be unreasonably withheld), attorneys' fees, ERISA excise taxes or penalties, fines and other expenses actually and reasonably incurred by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, administrative, investigative or appellate (including an action by or in the right of the Corporation) to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Indemnitee is, was or at any time becomes a director of the Corporation, or is or was serving at the request of the Corporation as a director, officer, agent or employee of any Other Enterprise; and (b) Otherwise to the fullest extent as may be provided to Indemnitee by the Corporation pursuant to the non-exclusivity provisions of paragraph 28 of the Corporation's Bylaws and subsection (f) of Section 145, Title 8 of the Delaware Code relating to indemnification. 4. Limitations on Additional Indemnification. (a) The ----------------------------------------- Corporation will not hold Indemnitee harmless or provide indemnification pursuant to Section 3 hereof: (1) except to the extent that the aggregate amount of losses to be indemnified thereunder exceeds the amount of such losses for which Indemnitee is indemnified either pursuant to (i) the Corporation's Certificate of Incorporation, Bylaws, vote of stockholders or disinterested directors or other agreement, (ii) Sections 1 or 2 hereof, (iii) pursuant to any director liability insurance purchased and maintained on behalf of Indemnitee by the Corporation, or (iv) otherwise than pursuant to this Agreement; (2) in respect of remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (3) on account of any suit for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation pursuant to Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local law; (4) on account of Indemnitee's conduct which is finally adjudged by a court to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (5) if a final adjudication by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. (b) Notwithstanding any other provisions of this Agreement, if the Indemnitee is or was serving as a director of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of any Other Enterprise, and has been successful on the merits or other- wise in defense of any action, suit or proceeding referred to in Section 3 of this Agreement (including the dismissal of any such action, suit or proceeding without prejudice), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith to the extent he has not been fully indemnified therefor other- wise than pursuant to this Agreement. 5. Advancement of Expenses. Expenses (including ------------------------- attorneys' fees) actually and reasonably incurred by an Indemnitee who may be entitled to indemnification hereunder in defending an action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that the Indemnitee is not entitled to indemnification by the Corporation. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by (i) the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding from which the advancement is requested, or (ii) if a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders, that, based upon the facts known to the board, counsel or stockholders at the time such determination is made, such Indemnitee acted in bad faith and in a manner that such Indemnitee did not believe to be in or not opposed to the best interest of the Corporation, or, with respect to any criminal proceeding, that such Indemnitee believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the board, stockholders or independent legal counsel reasonably determines that such Indemnitee deliberately breached his duty to the Corporation or its stockholders. 6. Notification and Defense of Claim. Promptly after --------------------------------- receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense; (b) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Indemnitee. After notice from the Corporation to Indemnitee of its election so to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such action, or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have made the conclusion provided for in (ii) above; and (c) The Corporation shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its prior written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Corporation nor Indemnitee will unreasonably withhold their consent to any proposed settlement. 7. Determination of Right to Indemnification. Prior ----------------------------------------- to indemnifying an Indemnitee pursuant to this Agreement, unless ordered by a court, the Corporation shall determine that such Indemnitee is entitled thereto under the terms of this Agreement. Any determination that a person shall or shall not be indemnified under this Agreement shall be made by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, or if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or by the stockholders, and such determination shall be final and binding upon the Corporation; provided, however, that in the event such determination is adverse to the Indemnitee, such Indemnitee shall have the right to maintain an action in any court of competent jurisdiction against the Corporation to determine whether or not such Indemnitee is entitled to such indemnification hereunder. If such court action is successful and the Indemnitee is determined to be entitled to such indemnification, such Indemnitee shall be reimbursed by the Corporation for all fees and expenses (including attorneys' fees) actually and reasonably incurred in connection with any such action (including without limitation the investigation, defense, settlement or appeal of such action). This Agreement shall be applicable to any claim asserted after the date hereof whether such claim arises from acts or omissions occurring before or after the date hereof. 8. Certain Definitions. For purposes of this -------------------- Agreement, references to "Other Enterprise" shall include without limitation any other corporation, partnership, joint venture, trust or employee benefit plan; references to "fine" or "fines" shall include any excise taxes assessed on Indemnitee with respect to any employee benefit plan; references to "defense" shall include investigations of any action, suit or proceeding as well as appeals in any threatened, pending or completed action, suit or proceeding and shall also include any defensive assertion of a cross claim or counterclaim; and references to "serving at the request of the Corporation" shall include any service as a director of the Corporation which imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan he shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. For the purpose of this Agreement, unless the board of directors of the Corporation shall determine otherwise, any Indemnitee who shall serve as an officer or director of any Other Enterprise of which the Corporation, directly or indirectly, is a stockholder or creditor, or in which the Corporation is in any way interested, shall be presumed to be serving as such director or officer at the request of the Corporation. In all other instances where any Indemnitee shall serve as a director, officer, employee or agent of an Other Enterprise, if it is not otherwise established that such Indemnitee is or was serving as such director, officer, employee or agent at the request of the Corporation, the board of directors of the Corporation shall determine whether such Indemnitee is or was serving at the request of the Corporation, and it shall not be necessary to show any actual or prior request for such service, which determination shall be final and binding on the Corporation and the Indemnitee seeking indemnification. 9. Continuation and Enforcement of Indemnification. ----------------------------------------------- (a) The Corporation expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on the Corporation hereby in order to induce Indemnitee to continue as a director of the Corporation and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity. The rights to indemnification and advancement of expenses created by or provided pursuant to this Agreement are bargained-for conditions of Indemnitee's acceptance and/or maintenance of his election or appointment as a director of the Corporation and such rights shall continue after Indemnitee has ceased to be a director of the Corporation or a director, officer, employee or agent of any Other Enterprise and shall inure to the benefit of Indemnitee's heirs, executors, administrators and estate. (b) Indemnitee expressly confirms and agrees that under no circumstances shall the language or any of the promises and covenants contained in this Agreement be construed or interpreted as creating a contract of employment. (c) To the fullest extent permitted by the laws of the State of Delaware, Indemnitee shall have the right to maintain an action in any court of competent jurisdiction to enforce and/or recover damages for breach of the rights to indemnification created by or provided pursuant to the terms of this Agreement. If such court action is successful, Indemnitee shall be reim bursed by the Corporation for all fees and expenses (including attorneys' fees) actually and reasonably incurred in connection with such action (including without limitation the investigation, defense, settlement or appeal of such action). 10. Non-Exclusivity. The right to indemnification --------------- pursuant to this Agreement shall not be deemed exclusive of any other rights of indemnification to which Indemnitee may be entitled under any statute, other agreement, the Certificate of Incorporation, Bylaws, pursuant to a vote of stockholders or disinterested directors, insurance policy or otherwise, both as to actions in his official capacity and as to action in another capacity while holding his directorship, and shall not limit in any way any right the Corporation may have to create additional or independent or supplementary obligations to indemnify Indemnitee. 11. Severability. Each of the provisions of this ------------ Agreement is a separate and distinct agreement independent of the others, and if any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, illegal or unenforceable by a court for any reason whatsoever, the remaining provisions of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby. The parties hereto expressly agree that any provision hereof held invalid, illegal or unenforceable shall be construed and modified by the court finding such provision invalid, illegal or unenforceable to the extent necessary so as to render such provision valid and enforceable as against all persons or entities and to provide the maximum possible protection to the person subject to indemnification hereunder within the bounds of validity, legality and enforceability. Without limiting the generality of the foregoing, if the Indemnitee is entitled to indemnification under this Agreement by the Corporation for some or a portion of the judgments, amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines or other expenses actually and reasonably incurred by the Indemnitee in connection with any threatened, pending or completed action, suit or proceeding (including without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, administrative, investigative or appellate, but not, however, for all of the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion thereof to which such person is entitled. 12. Governing Law. This Agreement shall be governed, ------------- interpreted and construed in accordance with the laws of the State of Delaware without regard to any of its conflict of law rules. 13. Modification; Survival. This Agreement ------------------------ constitutes the entire agreement of the parties relating to the subject matter hereof and no amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. The provisions of this Agreement shall survive the termination of Indemnitee's service as a director and/or officer of the Corporation with respect to actions, suits or proceedings brought or instituted in respect of any action taken or the failure to take any action occurring prior to such termination of service. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement and affixed their signatures hereto as of the date first above written. /s/Jeff Goldsmith -------------------------- Jeff Goldsmith, Indemnitee CERNER CORPORATION, a Delaware corporation By /s/Marc G. Naughton ------------------------ Marc G. Naughton, Chief Financial Officer [SEAL] ATTEST: /s/Randy D. Sims - ----------------------------- Randy D. Sims, Secretary EX-10 3 EXHIBIT 10(I) CERNER PERFORMANCE PLAN FOR 2000 Cerner Performance Plans for 2000 CPP Overview - ------------ Cerner's business is expected to continue to grow at a phenomenal rate over the coming years. While we continue to seek talented associates for most areas our our business, several needs are expected to drive our hiring needs in the near term. We are aggressively expanding our sales team to provide better coverage for our prospective clients in the US, and globally. In addition, we expect to hire a significant number of: 1) consulting professionals who implement our solutions and tailor them to drive benefits for our clients, and 2) functional experts, architects, and engineers who build and support what have proven to be the industry leading solutions for all facets of health care. Currently, approximately 25% of all associates participate in Cerner Performance Plans. Generally, sales associates participate in marketing incentives that comprise the majority of their total compensation. Senior consultants and leaders with P&L responsibility participate in performance plans that comprise 20 - 25% of their total compensation. Executives participate in performance plans that comprise 30 - 50% of their total compensation, depending on the nature and scope of their responsibility. CPP Plans - --------- The first structure in the design of CPP is the plan. Plans are defined by role or team, and reflect the key responsibilities for an associate. Even though every Cerner associate "wears multiple hats" or plays multiple roles through the course of a year, most associates participate in only one plan. The potential incentive for an associate is called a Target Bonus Level (TBL). There are three types of plans: Business Unit CPP -- All associates participating in Cerner Performance Plans participate in an Annual CPP plan. Several types of metrics may be used to calculate performance and plan payout. The most common metric is a rewardable event metric, and is typically a quarterly, cumulative year-to-date target for business unit bookings, or operating earnings. We calculate and make quarterly rewardable events payments to reinforce consistent performance in support of annual corporate earnings targets. Year-end payments of rewardable events are adjusted by a factor which reflects the associate's performance. This Annual Performance Evaluation factor (APE) is used to reflect and reward success on not only the "what" dimension of performance, but also the "how." We believe this is an important factor because Cerner's long- term success will be highly correlated to "how" (developing associate capabilities, sharing knowledge, building effective teams, supporting other business units, etc.) results are delivered now. The APE factor can adjust payments downward by as much as 50%, or upward by 30%. For sales associates, marketing incentives are paid on the basis of percent of quota, or sales commission. These plans reward performance within a specified geographical region and/or product set. EPS Incentive Plan -- A limited number of senior executives participate in this plan which is intended to drive aggressive EPS growth. Payments are calculated annually. CPP Eligibility and Payments - ---------------------------- CPP plans are administered on quarterly cycles, which are aligned with the quarters in the financial year. Eligibility and payments are made on this basis. 1 Eligibility Eligibility for a plan is based on the role of the associate, and executive approval. Participants will be eligible for participation in the first full plan quarter following employment (or transfer into a role). If an associate starts during the first 15 working days of a quarter, he/she may be approved to participate in the plan for that quarter; however, sales associates will receive 50% of the payout for the agreement margings attained that quarter, and full payout for following quarters. If an associate's participation in a Cerner Performance Plan is terminated due to termination of employment or transfer to a non-CPP role, the associate will be entitled to payment for any earned but not yet paid amounts. Payments are earned only for completed quarters; i.e., if participation is terminated in the middle of a quarter, no incentive will be paid for that quarter. If an associate transfers from one CPP-based role to another, participation in the previous plan will be "closed out" per normal end-of-quarter processing under the provisions of the previous plan. Participation in the new plan will be effective as of the beginning of the following quarter. Whenever possible, such transfers should be coordinated to be effective as of the beginning of a quarter to avoid partial quarter issues. Payment Cycles Rewardable event incentives will be calculated and paid quarterly. Payments will be made by the 15th of the second month succeeding quarter. Marketing Incentives will be calculated and paid quarterly, by the end of the month following quarter-end. Incentives are earned only upon completion of certain contracting and payment requirements. As these requirements are met, marketing incentive payments are made on a monthly basis. 2 2000 CPP Metrics Neal L. Patterson EPS Incentive TBL: $210,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $227,500
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
Clifford W. Illig EPS Incentive TBL: $25,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Glenn P. Tobin EPS Incentive TBL: $80,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $110,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
Jack A. Newman, Jr. Business Unit TBL: $235,000
Rewardable Event Weighting Cycle - ---------------- --------- ------ Client Development Bookings 40% Q Total Bookings 30% Q Corporate EPS 30% Q
Thomas C. Tinstman, M.D. Business Unit TBL: $100,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
3 Paul M. Black EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $225,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Total Bookings 70% Q Corporate EPS 30% Q
Earl H Devanny, III EPS Incentive TBL: $100,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $123,750
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
Alan D. Dietrich Business Unit TBL: $125,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Business Unit Bookings 50% Q Total Bookings 20% Q Corporate EPS 30% Q
Stephen M. Goodrich EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $96,250
Rewardable Event Weighting Cycle - ---------------- --------- ----- Business Unit Operating Earnings 50% Q Corporate EPS 50% Q
4 Douglas M. Krebs EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $202,500
Rewardable Event Weighting Cycle - ---------------- --------- ----- Total Bookings 25% Q International Bookings 50% Q Corporate EPS 25% Q
Stephen D. Garver EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $195,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 30% Q Cerner Consulting Bookings 30% Q Cerner Consulting Operating Earnings 40% Q
Marc G. Naughton EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $76,250
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
5 Stanley M. Sword EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $100,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
Jeffrey A. Townsend EPS Incentive TBL: $50,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $118,750
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 70% Q Total Bookings 30% Q
Richard J. Flanigan, Jr. Business Unit TBL: $201,250
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 30% Q Business Unit Bookings 30% Q Business Unit Operating Earnings 40% Q
Paul J. Sinclair EPS Incentive TBL: $30,000
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% A
Business Unit TBL: $142,500
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 30% Q Cerner Consulting Bookings 30% Q Cerner Consulting Operating Earnings 40% Q
6 Randy D. Sims Business Unit TBL: $68,750
Rewardable Event Weighting Cycle - ---------------- --------- ----- Corporate EPS 100% Q
Target Bonus Level (TBL) represents the amount payable if the target is achieved. If the target is exceeded additional amounts can be paid. 7 EX-10 4 EXHIBIT 10(L) PROMISSORY NOTES FOR EARL H. DEVANNY, III PROMISSORY NOTE and SECURITY AGREEMENT September 13, 1999 $125,000.00 For value received, the undersigned promises to pay to the order of Cerner Corporation, a Delaware corporation ("Cerner") the sum of One Hundred Twenty-five Thousand Dollars ($125,000.00), payable as follows: Date Principal Repayment ---- ------------------- September 13, 2004 $125,000 This Promissory Note will not bear interest for the first two (2) years. Beginning on September 13, 2001, interest will accrue on the unpaid principal balance hereof at the rate of five percent (5%) per annum and shall be payable annually on September 13, with the first interest payment due on September 13, 2002. Interest shall be computed on the basis of a 360-day year. Payment of this Promissory Note shall be made at the office of Cerner at 2800 Rockcreek Parkway, Kansas City, Missouri, 64117, or at such other place within the State of Missouri as Cerner may designate in writing to the undersigned, in United States dollars. Notwithstanding the foregoing, and without notice by Cerner to the undersigned, the entire unpaid principal amount of this Promissory Note (plus accrued interest, if any) shall become immediately due and payable in full upon (i) the voluntary termination of the undersigned's employment with Cerner or (ii) Cerner's termination of the undersigned's employment due to the undersigned's dishonesty, illegal conduct, breach of Cerner's policy or breach of the undersigned's Cerner Associate Employment Agreement, dated August 13, 1999. In the event of the undersigned's involuntary termination of employment with Cerner (other than for the undersigned's dishonesty, illegal conduct, breach of Cerner's policy or breach of the undersigned's Cerner Associate Employment Agreement, dated August 13,1999), the entire remaining principal amount of this Promissory Note (plus accrued interest, if any) will be due and payable one (1) year following such involuntary termination, without notice by Cerner to the undersigned. Any amount hereunder not paid when due shall thereafter bear interest at the lesser of the highest amount permitted by applicable law or the prime or base rate of interest announced from time to time by CitiBank, N.A., New York, New York. The undersigned hereby grants to Cerner a security interest in (i) all outstanding Cerner Performance Plan ("CPP") or other bonus payments due to the undersigned from Cerner at any time, (ii) all stock options granted to the undersigned by Cerner, whether vested or not vested, and (iii) any shares of Cerner Common Stock acquired by the undersigned as a result of exercising any stock options granted to the undersigned by Cerner as security for all amounts due to Cerner hereunder. The undersigned will deliver to Cerner any such certificates representing Cerner Common Stock to be held by Cerner. The undersigned shall assist Cerner in taking whatever steps Cerner deems advisable in perfecting its security interest in the foregoing collateral, including but not limited to signing financing statements, stock powers and control agreements. In the event that this Promissory Note shall become payable in full as set forth above, Cerner shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of Missouri, including the right to sell any of the collateral held by Cerner hereunder and apply the proceeds thereof first to the costs and expenses, including reasonable attorney's fees and expenses, incurred by Cerner in exercising its rights hereunder and then to the amount secured by the collateral. In addition to the foregoing, if the amount of this Promissory Note is not paid when due, to the extent permitted by law, Cerner may set off any moneys due from Cerner to the undersigned, including without limitation, salary, CPP and any other compensation, if any, against any of the undersigned's obligations hereunder, whether or not the same is due and in any order of priority. 1 The undersigned waives any and all notices, demands, protests or other indulgences or rights granted by law in connection with the collection hereof by Cerner. In witness whereof, the undersigned has executed this Promissory Note and Security Agreement as of the day and year first above written. /s/Earl H. Devanny, III ------------------------ Earl H. Devanny, III 2 EX-10 5 EXHIBIT 10(L) PROMISSORY NOTE and SECURITY AGREEMENT February 17, 2000 $75,000.00 For value received, the undersigned promises to pay to the order of Cerner Corporation, a Delaware corporation ("Cerner") the sum of Seventy-five Thousand Dollars ($75,000.00), payable as follows: Date Principal Repayment ---- ------------------- February 17, 2005 $75,000 This Promissory Note will not bear interest for the first two (2) years. Beginning on February 17, 2002, interest will accrue on the unpaid principal balance hereof at the rate of five percent (5%) per annum and shall be payable annually on February 17, with the first interest payment due on February 17, 2003. Interest shall be computed on the basis of a 360-day year. Payment of this Promissory Note shall be made at the office of Cerner at 2800 Rockcreek Parkway, Kansas City, Missouri, 64117, or at such other place within the State of Missouri as Cerner may designate in writing to the undersigned, in United States dollars. Notwithstanding the foregoing, and without notice by Cerner to the undersigned, the entire unpaid principal amount of this Promissory Note (plus accrued interest, if any) shall become immediately due and payable in full upon (i) the voluntary termination of the undersigned's employment with Cerner or (ii) Cerner's termination of the undersigned's employment due to the undersigned's dishonesty, illegal conduct, breach of Cerner's policy or breach of the undersigned's Cerner Associate Employment Agreement, dated August 13, 1999. In the event of the undersigned's involuntary termination of employment with Cerner (other than for the undersigned's dishonesty, illegal conduct, breach of Cerner's policy or breach of the undersigned's Cerner Associate Employment Agreement, dated August 13,1999), the entire remaining principal amount of this Promissory Note (plus accrued interest, if any) will be due and payable one (1) year following such involuntary termination, without notice by Cerner to the undersigned. Any amount hereunder not paid when due shall thereafter bear interest at the lesser of the highest amount permitted by applicable law or the prime or base rate of interest announced from time to time by CitiBank, N.A., New York, New York. The undersigned hereby grants to Cerner a security interest in (i) all outstanding Cerner Performance Plan ("CPP") or other bonus payments due to the undersigned from Cerner at any time, (ii) all stock options granted to the undersigned by Cerner, whether vested or not vested, and (iii) any shares of Cerner Common Stock acquired by the undersigned as a result of exercising any stock options granted to the undersigned by Cerner as security for all amounts due to Cerner hereunder. The undersigned will deliver to Cerner any such certificates representing Cerner Common Stock to be held by Cerner. The undersigned shall assist Cerner in taking whatever steps Cerner deems advisable in perfecting its security interest in the foregoing collateral, including but not limited to signing financing statements, stock powers and control agreements. In the event that this Promissory Note shall become payable in full as set forth above, Cerner shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of Missouri, including the right to sell any of the collateral held by Cerner hereunder and apply the proceeds thereof first to the costs and expenses, including reasonable attorney's fees and expenses, incurred by Cerner in exercising its rights hereunder and then to the amount secured by the collateral. In addition to the foregoing, if the amount of this Promissory Note is not paid when due, to the extent permitted by law, Cerner may set off any moneys due from Cerner to the undersigned, including without limitation, salary, CPP and any other compensation, if any, against any of the undersigned's obligations hereunder, whether or not the same is due and in any order of priority. This Promissory Note is also secured by and subject to the benefits of the second mortgage dated February 25, 2000, made by the undersigned in favor of Cerner. 1 The undersigned waives any and all notices, demands, protests or other indulgences or rights granted by law in connection with the collection hereof by Cerner. In witness whereof, the undersigned has executed this Promissory Note and Security Agreement as of the day and year first above written. /s/Earl H. Devanny, III ____________________________ Earl H. Devanny, III STATE OF MISSOURI ) ) SS. COUNTY OF CLAY ) On this 17th day of February, 2000 before me personally appeared Earl H. Devanny, III, to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed. /s/Sondra Kiely ___________________________ Notary Public (NOTARIAL SEAL) My commission expires:_________________________ SONDRA KIELY Notary Public - Notary Seal State of Missouri Clay County My Commission Expires May 4, 2002 2 EX-10 6 EXHIBIT 10(Q) EMPLOYMENT AGREEMENT OF EARL H. DEVANNY, III Cerner Corporation CERNER ASSOCIATE EMPLOYMENT AGREEMENT This Cerner Associate Employment Agreement describes the formal employment relationship between E. H. Devanny, III ---------------------- ASSOCIATE (Print Name) and Cerner Corporation, a Delaware corporation This Agreement is effective on the 13th day of August, 1999. ----- ------ 1. CERNER'S LETTER OFFERING EMPLOYMENT TO YOU. ------------------------------------------ At the time you accepted employment with Cerner, you received an offer letter outlining or confirming the specifics of Cerner's offer of employment to you. The position, terms, compensation, benefits and other provisions of that offer letter represent the initial conditions of your Cerner employment. The offer letter is incorporated into this Agreement as Attachment I. Any amendments or changes to the offer letter are included as part of Attachment II to this Agreement, and supersede the terms in the offer letter. Cerner reserves the right to modify at anytime the conditions of your employment by Cerner. 2. EMPLOYMENT RELATIONSHIP. ----------------------- A. Formation. By signing this Agreement, you represent --------- that every material fact contained in your resume and application for employment with Cerner is true and accurate to the best of your knowledge and belief. You also agree that falsification of your resume or application is grounds for immediate discharge. B. Type. To the extent permitted by law, your ---- employment relationship with Cerner is "at will", which means that you may resign from Cerner at any time, for any reason, or for no reason at all, and without advance notice (except as described below). It also means that Cerner may terminate your employment at any time, for any legally permitted reason, or for no reason at all, and without advance notice. C. Resignation and Termination. You agree to cooperate --------------------------- with Cerner by participating fully in an exit interview in the event you leave the employ of Cerner. You agree to give Cerner written notice of your intention to resign from employment at least ten (10) business days prior to the last day you intend to work at Cerner. To facilitate the provisions of paragraphs 7 and 8 of this agreement, you also agree to report to Cerner, in conjunction with your written notice of intent, the identity of your new employer (if any) and the nature of your proposed duties for that employer. Cerner, however, reserves the right either to accelerate your intended effective termination date to an earlier actual date or to allow your intended effective termination date to stand. If you resign, however, with fewer than ten (10) business days notice, or if you actually leave Cerner's employ prior to expiration of the ten business days notice period and without the permission of Cerner, then you agree that (to the extent permitted by law) no vacation pay, salary or other compensation otherwise due, from the date of your resignation notice until the time of your approved effective termination date, will be owed or paid to you by Cerner. Failure to provide a two-week notice period may affect your future rehire ability with Cerner. If you voluntarily resign and give proper notice as outlined above and Cerner elects to accelerate your effective termination date to a date less than two (2) weeks from the date of your notice, Cerner will continue to pay your base salary through the remainder of such two (2) week period. In the event your voluntary or involuntary termination occurs during a performance period associated with a documented bonus or incentive compensation plan, any final payments to you as a result of your participation in such plan will be determined by the documented procedures of the plan. In the event Cerner terminates your employment, Cerner reserves the right to set the effective date of such termination. Upon your resignation or the termination of your employment, you agree to promptly execute a Termination Statement in the form of Attachment III. D. Severance Payments. If Cerner terminates your employ ------------------ ment (and unless the termination was due to your dishonesty, illegal conduct, or breach of Cerner's policy or this Agreement), Cerner will pay you a minimum of six (6) months severance pay (based on your annualized base salary amount at the time of your involuntary termination), less appropriate payroll deductions, payable on Cerner's regular paydays. In addition, Cerner will increase the severance period beyond the minimum six (6) month period at the rate of two (2) additional months for each one (1) month that you are employed by Cerner, up to a maximum duration (the original six (6) month period plus any extension) of two (2) years. Additionally, at Cerner's sole discretion and option, Cerner may increase the severance period beyond that set forth in the preceding sentence up to a maximum aggregate duration of two (2) years (the original six (6) month period, plus any extension, plus any election by Cerner to extend). You understand and agree that the extension by Cerner of the period of your severance compensation will also extend the period of time of your non-competition obligations under Paragraph 7. You also understand and agree that, at Cerner's sole discretion and option, Cerner may elect to make any severance payment, or any part thereof, in a lump sum payment as opposed to making such payment on Cerner's regular paydays. Any such lump sum payment shall have no effect upon your obligations to comply with your non- competition obligations under Paragraph 7. Notwithstanding the foregoing, it is not the intent of either of us that you continue to receive any severance payments (if applicable) after you have accepted other employment after leaving Cerner. You agree to immediately notify Cerner if you accept other employment during the severance and non-competition period provided for by this Paragraph 2 and Paragraph 7. Cerner's obligations to make any further severance payments hereunder shall immediately cease upon your commencement of employment of a new employer, but your obligations of non-competition under Paragraph 7 shall continue pursuant to such terms. E. Relocation Costs and Other Payments. If Cerner has ----------------------------------- compensated you for certain costs associated with any relocation which may be required as a prerequisite to your being hired into a position with Cerner, all such compensation shall be made according to Cerner's published relocation policy. Such compensation, along with any signing bonus and grant of stock options will be made in consideration for your agreement to serve in the position for which you were relocated for at least two years. If (i) you voluntarily resign from employment with Cerner (for reasons other than a Change in Control, as defined in your stock option grant letter) within two (2) years of the date your move is complete or (ii) Cerner terminates your employment due to your dishonesty, illegal conduct, or breach of Cerner policy or this Agreement within two (2) years of the date your move is complete and (A) you received a 2 signing bonus from Cerner, and/or (B) you have realized any profit from the exercise of stock options granted to you by Cerner and/or (C) Cerner has compensated you for any relocation expenses or otherwise reimbursed to you any sums of money pursuant to Cerner's relocation policy, then you agree that you shall repay such sums to Cerner in their entirety. F. SALES ASSOCIATE/CERNER CONSULTING PROVISIONS. If --------------------------------------------- you are employed by Cerner in a sales capacity or in certain Cerner Consulting roles, additional provisions incorporated as Attachment IV to this Agreement are applicable to your employment relationship. 3. AGREEMENT NOT TO DISCLOSE OR TO USE CONFIDENTIAL INFORMATION. ------------------------------------------------------------ You agree that you will forever maintain the confidentiality of Confidential Information. You will never disclose Confidential Information except to persons who have both the right and need to know it, and then only for the purpose and in the course of performing Cerner duties, or of permitting or assisting in the authorized use of Cerner products and services. In the event your employment with Cerner terminates (voluntarily or involuntarily), you will promptly deliver to Cerner all Confidential Information. 4. NON-CERNER EMPLOYMENT. --------------------- Except for those part-time associates, hired to work less than 40 hours per week, employment at Cerner is a full-time responsibility. As a full-time associate, it is Cerner's expectation that you devote your full time and attention to meet your Cerner responsibilities and that you will not engage in any other employment activities which would detract from or conflict with your ability to carry out your duties at Cerner. If you are a part-time associate, it is Cerner's expectation that you will not engage in other employment activities that would detract from or conflict with your ability to carry out your part-time duties at Cerner. 5. NEW PRODUCTS AND IDEAS. ---------------------- With respect to New Products and Ideas that you develop, author, or conceive while employed at Cerner, plus for one year thereafter, you agree to keep accurate, complete and timely records of such New Products and Ideas, and will promptly disclose and fully describe such New Products and Ideas in writing to Cerner. You agree to assign and transfer to Cerner, without further consideration, your entire right, title and interest in and to all such New Products and Ideas. You waive any and all moral rights which you otherwise would have in any New Products and Ideas. You agree to execute promptly at Cerner's expense, a written assignment of title to Cerner, and all letters (and applications for letters) of patent and copyright, in all countries, for any New Products or Ideas required to be assigned by this Agreement. You also agree to assist Cerner or its nominee in every reasonable way (at Cerner's request and expense, but at no charge to Cerner), both during and after your time of employment at Cerner, in vesting and defending title to the New Products and Ideas in and for Cerner, in any and all countries, including the obtainment and preservation of patents, copyrights, trade secrets and other proprietary rights. This Section does not apply to your new products and ideas which do not relate directly to the business of Cerner, and which are developed entirely on your own time. 6. PRIOR INVENTIONS. ---------------- Any and all patented and unpatented inventions, new products and ideas which you made prior to your employment by Cerner are excluded from the scope of this Agreement and are documented on Attachment V, Inventory of Prior Inventions. 3 7. NON-COMPETITION AND NON-SOLICITATION ------------------------------------ For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner: A. You will tell any prospective new employer, prior to accepting employment, that this Employment Agreement exists. B. (i) For a period of two (2) years after the voluntary termination of your employment with Cerner or your termination for dishonesty, illegal conduct or breach of Cerner's policy or this Agreement or, (ii) in the event Cerner terminates your employment (unless the termination was due to your dishonesty, illegal conduct or breach of Cerner's policy or this Agreement), for the period you are paid severance pursuant to Paragraph 2 (including any time that you would have been paid sever- ance pursuant to Paragraph 2 but for the fact you commenced employment with a new employer), you will not provide services directly or indirectly related to your employment at Cerner to any Conflicting Organization in the United States or in any country in which Cerner has a business interest. C. Notwithstanding the foregoing, nothing contained in this Paragraph 7 shall prohibit you (after your termination of employment with Cerner) from taking a position with a general consulting organization whose only Conflicting Product is the provision of consulting services to the healthcare industry, so long as you personally do not thereby provide or assist in providing consulting services to a Client with respect to any Cerner product, process or service or any Conflicting Product. D. You agree not, on behalf of yourself or on behalf of any other person, entity, or organization, to employ, solicit for employment, or otherwise seek to employ or retain any Cerner associate or employee, or any employee of a Cerner client company, or in any way assist or facilitate any such employment, solicitation, or retention effort. 8. [Omitted]. 9. PUBLICITY RELEASE. ----------------- You consent and agree to the use of your name, voice and picture (including but not limited to use in still photographs, videotape and film formats, and both during and after your period of employment at Cerner) for advertising, promotional, public relations, and other business purposes (including its and their use in newspapers, brochures, magazines, journals and films or videotapes) by Cerner. 10. CERNER PROPERTY. --------------- You understand that you may be assigned various items of Cerner property and equipment to help you carry out your Cerner responsibilities. When such property or equipment is issued, you will formally acknowledge receipt of it and will take all reasonable precautions and actions necessary to safeguard and maintain it in normal operating condition. You further agree to accept financial responsibility for damage or wear to the property and equipment you are issued beyond that associated with normal business use. You will notify Cerner immediately of any such damage or loss. If your employment with Cerner terminates, you will immediately return to Cerner all property and equipment which you have been issued or which otherwise belongs to Cerner. 4 11. SYSTEMS AND PHYSICAL SECURITY. ----------------------------- You understand the importance of both systems and physical security to the daily operations of Cerner and to the protection of business information. You will, therefore, comply with and assist in the vigorous enforcement of all policies, practices, and procedures which may be developed to ensure the integrity of Cerner systems and facilities. Further, you understand that willful violation of such policies, practices, and procedures may result in termination of your employment. 12. PRIOR EMPLOYMENT OBLIGATIONS. ---------------------------- You represent and agree that you will not disclose to Cerner, or induce Cerner to use, any proprietary or confidential information belonging to any previous employer or to others. 13. REMEDIES. -------- By signing this Agreement, you agree that the promises you have made in it are of a special nature, and that any breach, violation or evasion by you of the terms of this Agreement will result in immediate and irreparable harm to Cerner. It will also cause damage to Cerner in amounts difficult to ascertain. Accordingly, Cerner shall be entitled to the remedies of injunction and specific performance, as well as to all other legal and equitable remedies which may be available to Cerner. 14. INDEMNIFICATION. --------------- You agree to indemnify and hold Cerner harmless from and against any damages, liability, actions, suits or other claims arising out of your breach of this Agreement. 15. MODIFICATION. ------------ This Agreement may not be modified in any respect, except by a written agreement executed by you and Cerner. However, Cerner may from time to time publish and adopt supplementary policies with respect to the subject matter of this Agreement, and you agree that such supplementary policies shall be binding upon you. 16. NOTICES. ------- Any notice required or permitted to be given pursuant to the terms of the Agreement shall be sufficient if given in writing and if personally delivered by receipted hand delivery to you or to Cerner, or if deposited in the United States Mail, postage prepaid, first class or certified mail, to you at your residence address or to Cerner's Corporate headquarters address or to such other addresses as each party may give the other party notice in accordance with this Agreement. 17. TERM OF THIS AGREEMENT. ---------------------- This Agreement begins as noted above and will continue in perpetuity, even though your employment can be terminated by you or by Cerner as described elsewhere herein. 18. GOVERNING LAW; JURISDICTION. --------------------------- This Agreement will be governed by, construed, interpreted, and its validity determined, under the laws of the State of Missouri. You and Cerner each hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any Missouri state court or federal court of the United States of America sitting in Kansas City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement. 5 19. SEVERABILITY. ------------ If any provision of this Agreement is held to be unenforceable, then this Agreement will be deemed amended to the extent necessary to render the otherwise unenforceable provision, and the rest of this Agreement, valid and enforceable. 20. ENTIRE AGREEMENT AND PRIOR AGREEMENTS. ------------------------------------- You hereby acknowledge receipt of a signed counterpart of this Agreement and acknowledge that it is your entire agreement with Cerner concerning the subject matter. This Agreement cancels, terminates, and supersedes any of your previous oral or written understandings or agreements with Cerner or with any officer or representative of Cerner with respect to your employment with Cerner. 21. SUCCESSORS. ---------- This Agreement shall be binding upon Cerner's successors and assigns. This Agreement shall also be binding upon your heirs, spouse, assigns and legal representatives. *********************************************** This Employment Agreement is executed this 13th day of August, 1999. /s/Earl H. Devanny, III -------------------------------- E. H. Devanny, III Cerner Corporation /s/V. Holmes ------------------------------- Cerner Human Resources 6 APPENDIX A DEFINITION OF TERMS ------------------- CERNER CORPORATION and CERNER mean Cerner Corporation, the Delaware corporation. The terms also cover all of Cerner Corporation's parent, subsidiary and affiliate corporations and business enterprises, both presently existing and subsequently created or acquired. Such affiliate corporation may be directly or indirectly controlled by Cerner or related to Cerner by equity ownership. CLIENT means any actual or potential customer or licensee of Cerner. CONFIDENTIAL INFORMATION means Cerner, Client and Vendor trade secrets. It also means other Cerner, Cerner Associate, Client, and Vendor information which is not generally known, and is proprietary to Cerner Corporation or to Cerner Associates, Clients, and Vendors. It includes, but is not limited to, research, design, development, installation, purchasing, accounting, marketing, selling, servicing, finance, business systems, business practices, documentation, methodology, procedures, manuals (both internal and user), program listings, source codes, working papers, Client and Vendor lists, marketing and sales materials not otherwise available to the general public, sales activity information, computer programs and software, compensation plans, your personal compensation, performance evaluations, patient information and other client- related data, and all other non-public information of Cerner and its Associates, Clients, and Vendors. CONFLICTING ORGANIZATION means any person or organization engaged (or about to become engaged) in research, development, installation, marketing, selling, or servicing with respect to a Conflicting Product. CONFLICTING PRODUCT means any product, process or service which is the same as, similar to, or competes with any Cerner product, process or service upon which you worked during the last three years of your employment by Cerner, or about which you have acquired Confidential Information. NEW PRODUCTS AND IDEAS means discoveries, computer programs, improvements, works of authorship, methods, ideas and products (whether or not they are described in writing, reduced to practice, patentable or copyrightable) which results from any work performed by you for Cerner, or involve the use of any Cerner equipment, supplies, facilities or Confidential Information, or relate directly to the business of Cerner, or relate to Cerner's actual or demonstrably anticipated research or development. VENDOR means any actual or potential licensor, supplier, contractor, agent, consultant or other purveyor of products or services to Cerner. 7 APPENDIX B SUMMARY OF ATTACHMENTS ---------------------- The following documents, if noted, are incorporated as attachments to this Employment Agreement. Not Included Included Attachment Description X I Original Offer Letter -------- -------- -------- -------- II Offer Letter Amendments X III Termination Statement -------- -------- -------- -------- IV Sales Associate Provisions -------- -------- V Inventory of Prior Inventions
8 ATTACHMENT III -------------- TERMINATION STATEMENT --------------------- I represent that I have complied with all the provisions of the Cerner Associate Employment Agreement entered into between Cerner Corporation and me on the 13th day of August, 199919, in that: 1. I have not improperly disclosed or otherwise misused any of the Confidential Information covered by such Agreement. I shall continue to comply with all the continuing terms of the Agreement, including but not limited to the non-disclosure and (for the required term) non-compete provisions, and also including but not limited to the reporting of any New Products and Ideas conceived or made by me as covered by the Agreement. 2. I do not have in my possession, nor have I taken with me or failed to return, any records, plans, information, drawings, designs, documents, manuals, formulae, statistics, correspondence, client and vendor lists, specifications, blueprints, reproduc- tions, sketches, notes, reports, proposals, or other documents or materials, or copies of them, or any equipment, credit cards or other property belonging to Cerner or its Clients or Vendors. I have returned to Cerner (or will return within 10 calendar days) all material and information compiled or received by me during the term of such employment. I have returned (or will return within 10 calendar days) all Confidential Information, as specified by such Agreement, and all correspondence and other writings. I have returned (or will return within 10 calendar days) all keys and other means of access to Cerner's premises. 3. I understand and agree that, with regard to all provisions of this Agreement relating to non- disclosure, non-solicitation, and confidentiality of information, such provisions shall not cease as of this termination but shall continue in full force and effect in perpetuity or as otherwise indicated within this Agreement. In compliance with the Agreement, I shall continue to preserve as confiden- tial all Confidential Information as defined in the Agreement. ------------------------------- Associate ------------------------------- Date ------------------------------- Termination Date Cerner Corporation ------------------------------- By ------------------------------- Title 9 ATTACHMENT IV ------------- SALES ASSOCIATE AND CERNER CONSULTING PROVISIONS ------------------------------------------------ The following provisions are incorporated into this Employment Agreement for all associates who are responsible for sales activities related to Cerner products and certain associates in the Cerner Consulting group. Should my employment by Cerner Corporation terminate for any reason, I understand and agree that: 1. Cerner reserves the right to offset any advances made to me against commissions or other amounts which I owe to Cerner, against available but unpaid salary, commissions payable, accrued vacation, expense reimbursement, or any other forms of compensation or reimbursement which may be owed to me. Any such offsets will be clearly documented by Cerner before they are processed. In addition, I agree that I will pay to Cerner the amount of any remaining balance owed to Cerner Corporation after the foregoing deductions, within 30 days of the end of my employment. 2. Any commissions to which I might otherwise be entitled will be payable to me only if the associated contract for products or services has been completed and fully executed by both parties, and if all deposit monies related to such contract have been paid in full by the client and received by Cerner prior to my last date of employment, in accordance with the terms of my Cerner Performance Plan. Cerner will not unreasonably delay or withhold execution of such contracts for the purpose of avoiding a commission payment to me, if it would otherwise be due. 3. Commissions, bonuses or other incentive-based compensation which may have accrued but are not payable as of my termination date because of the payment schedule defined for such compensation in the related Cerner Performance Plan will be paid to me according to the provisions of such Plan. Such payment will be subject to the offsets described in item 1 above and will apply only to items otherwise payable within one year following my termination date. /s/Earl H. Devanny III --------------------------------- Associate August 13, 1999 --------------------------------- Date --------------------------------- Termination Date Cerner Corporation /s/V. Holmes --------------------------------- By Associate Relations --------------------------------- Title 10 EX-10 7 EXHIBIT 10(R) EMPLOYMENT AGREEMENT OF GLENN P. TOBIN, PH.D. CERNER CORPORATION CERNER ASSOCIATE EMPLOYMENT AGREEMENT This Cerner Associate Employment Agreement describes the formal employment relationship between Glenn Tobin, Ph.D. ------------------ ASSOCIATE and and Cerner Corporation, a Delaware corporation This Agreement is effective on the 15th day of April, 1998. 1. CERNER'S LETTER OFFERING EMPLOYMENT TO YOU. ------------------------------------------ At the time you accepted employment with Cerner, you received an offer letter outlining or confirming the specifics of Cerner's offer of employment to you. The position, terms, compensation, benefits and other provisions of that offer letter represent the initial conditions of your Cerner employment. The offer letter is incorporated into this Agreement as Attachment I. Any amendments or changes to the offer letter are included as part of Attachment II to this Agreement, and supersede the terms in the offer letter. 2. EMPLOYMENT RELATIONSHIP. ----------------------- A. Formation. By signing this Agreement, you represent that --------- every material fact contained in your resume and application for employment with Cerner is true and accurate to the best of your knowledge and belief. You also agree that falsification of your resume or application is grounds for immediate discharge. B. Type. To the extent permitted by law, your employment ---- relationship with Cerner is "at will", which means that you may resign from Cerner at any time, for any reason, or for no reason at all, and without advance notice (except as described below). It also means that Cerner may terminate your employment at any time, for any legally permitted reason, or for no reason at all, and without advance notice. C. Resignation and Termination. You agree to cooperate with --------------------------- Cerner by participating fully in an exit interview in the event you leave the employ of Cerner. You agree to give Cerner written notice of your intention to resign from employment at least ten (10) business days prior to the last day you intend to work at Cerner. To facilitate the provisions of paragraphs 7 and 8 of this agreement, you also agree to report to Cerner, in conjunction with your written notice of intent, the identity of your new employer (if any) and the nature of your proposed duties for that employer. Cerner, however, reserves the right either to accelerate your intended effective termination date to an earlier actual date or to allow your intended effective termination date to stand. If you resign, however, with fewer than ten (10) business days notice, or if you actually leave Cerner's employ prior to expiration of the ten business days notice period and without the permission of Cerner, then you agree that (to the extent permitted by law)no vacation pay, salary or other compensation 1 otherwise due, from the date of your resignation notice until the time of your approved effective termination date, will be owed or paid to you by Cerner. If Cerner terminates your employment (and unless the termination was due to your dishonesty, illegal conduct, or breach of Cerner's policy or this Agreement), Cerner will pay you a minimum of six(6) months severance pay (based on your annualized base salary amount at the time of your involuntary termination), less appropriate payroll deductions, payable on Cerner's regular paydays. In addition, at Cerner's sole discretion and option, Cerner may increase the severance period beyond the minimum six (6) month period at the rate of two (2) additional months for each one (1)month that you are employed by Cerner, up to a maximum duration (the original six (6) month period plus any extension) of two (2) years. You understand and agree that the election by Cerner to extend the period of your severance compensation will also extend the period of time of your non-competition obligations under Paragraph 7. Cerner agrees to notify you of its election to extend the time of your severance and your non-competition obligations within thirty (30) days of your last day of employment at Cerner. You also understand and agree that, at Cerner's sole discretion and option, Cerner may elect to make any severance payment, or any part thereof, in a lump sum payment as opposed to making such payment on Cerner's regular paydays. Any such lump sum payment shall have no effect upon your obligations to comply with your non-competition obligations under Paragraph 7. Notwithstanding the foregoing, it is not the intent of either of us that you continue to receive any severance payments (if applicable) after you have accepted other employment after leaving Cerner. You agree to immediately notify Cerner if you accept other employment during the severance and non competition period provided for by this Paragraph 2 and Paragraph 7. Cerner's obligations to make any further severance payments hereunder shall immediately cease upon your commencement of employment with a new employer, but your obligations of non-competition under Paragraph 7 shall continue pursuant to such terms. If you voluntarily resign and give proper notice as outlined above and Cerner elects to accelerate your effective termination date to a date less than two (2) weeks from the date of your notice, Cerner will continue to pay your base salary through the remainder of such two (2) week period. In the event your voluntary or involuntary termination occurs during a performance period associated with a documented bonus or incentive compensation plan, any final payments to you as a result of your participation in such plan will be determined by the documented procedures of the plan. If Cerner has reimbursed you for certain costs associated with any relocation which may be required as a prerequisite to your being hired into a position with Cerner, all such reimbursements shall be made according to Cerner's published relocation expense reimbursement policy. Such reimbursements will be made in consideration for your agreement to serve in the position for which you were relocated for at least two years. Therefore, in the event Cerner has reimbursed you for any relocation expenses or otherwise paid to you any sums of money pursuant to Cerner's relocation policy, you agree that you shall repay such sums to Cerner on a prorated basis if (i) you voluntarily resign from employment with Cerner within two (2) years of the date your move is complete or (ii) Cerner terminates your employment due to your dishonesty, illegal conduct, or breach of Cerner policy or this Agreement within two (2) years of the date your move is complete. In the event Cerner terminates your employment, Cerner reserves the right to set the effective date of such termination. Upon your resignation or the termination of your employment, you agree to promptly execute a Termination Statement in the form of Attachment III. D. SALES ASSOCIATE PROVISIONS. If you are employed by Cerner -------------------------- in a sales capacity, additional provisions incorporated as Attachment IV to this Agreement are applicable to your employment relationship. 3. AGREEMENT NOT TO DISCLOSE OR TO USE CONFIDENTIAL INFORMATION. ------------------------------------------------------------ You agree that you will forever maintain the confidentiality of Confidential Information. You will never disclose Confidential Information except to persons who have both the right and need to know it, and then 2 only for the purpose and in the course of performing Cerner duties, or of permitting or assisting in the authorized use of Cerner products and services. In the event your employment with Cerner terminates(voluntarily or involuntarily), you will promptly deliver to Cerner all Confidential Information. 4. NON-CERNER EMPLOYMENT. --------------------- Except for those part-time associates, hired to work less than 40 hours per week, employment at Cerner is a full-time responsibility. As a full-time associate, it is Cerner's expectation that you devote your full time and attention to meet your Cerner responsibilities and that you will not engage in any other employment activities which would detract from or conflict with your ability to carry out your duties at Cerner. If you are a part-time associate, it is Cerner's expectation that you will not engage in other employment activities that would detract from or conflict with your ability to carry out your part-time duties at Cerner. 5. NEW PRODUCTS AND IDEAS. ---------------------- With respect to New Products and Ideas that you develop, author, or conceive while employed at Cerner, plus for one year thereafter, you agree to keep accurate, complete and timely records of such New Products and Ideas, and will promptly disclose and fully describe such New Products and Ideas in writing to Cerner. You agree to assign and transfer to Cerner, without further consideration, your entire right, title and interest in and to all such New Products and Ideas. You waive any and all moral rights which you otherwise would have in any New Products and Ideas. You agree to execute promptly at Cerner's expense, a written assignment of title to Cerner, and all letters (and applications for letters) of patent and copyright, in all countries, for any New Products or Ideas required to be assigned by this Agreement. You also agree to assist Cerner or its nominee in every reasonable way (at Cerner's request and expense, but at no charge to Cerner), both during and after your time of employment at Cerner, in vesting and defending title to the New Products and Ideas in and for Cerner, in any and all countries, including the obtainment and preservation of patents, copyrights, trade secrets and other proprietary rights. This Section does not apply to your new products and ideas which do not relate directly to the business of Cerner, and which are developed entirely on your own time. 6. PRIOR INVENTIONS. ---------------- Any and all patented and unpatented inventions, new products and ideas which you made prior to your employment by Cerner are excluded from the scope of this Agreement and are documented on Attachment V, Inventory of Prior Inventions. 7. NON-COMPETITION AND NON-SOLICITATION ------------------------------------ A. For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner, you will tell any prospective new employer, prior to accepting employment, that this Employment Agreement exists. B. (i) For a period of two (2) years after the voluntary termination of your employment with Cerner or your termination for dishonesty, illegal conduct or breach of Cerner's policy or this Agreement or, (ii) in the event Cerner terminates your employment (unless the termination was due to your dishonesty, illegal conduct or breach of Cerner's policy or this Agreement), for the period you are paid severance pursuant to Paragraph 2 (including any time that you would have been paid severance pursuant to Paragraph 2 but for the fact you commenced employment with a new employer), you will not provide services directly or indirectly related to your employment at Cerner to any Conflicting Organization in the United States or in any country in which Cerner has a business interest. However, you may accept employment with a large Conflicting Organization whose business is diversified, and with a portion of its business that is not a Conflicting Organization, provided that Cerner, prior to your 3 acceptance of such employment, shall receive separate written assurances satisfactory to Cerner from such Conflicting Organization and from you that you will not render services directly or indirectly in connection with any Conflicting Product. C. For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner, you agree not, on behalf of yourself or on behalf of any other person, entity, or organization, to employ, solicit for employment, or otherwise seek to employ or retain any Cerner associate or employee, or any employee of a Cerner client company, or in any way assist or facilitate any such employment, solicitation, or retention effort. 8. INTENTIONALLY DELETED. --------------------- 9. PUBLICITY RELEASE. ----------------- You consent and agree to the use of your name, voice and picture (including but not limited to use in still photographs, videotape and film formats, and both during and after your period of employment at Cerner) for advertising, promotional, public relations, and other business purposes (including its and their use in newspapers, brochures, magazines, journals and films or videotapes) by Cerner. 10. CERNER PROPERTY. --------------- You understand that you may be assigned various items of Cerner property and equipment to help you carry out your Cerner responsibilities. When such property or equipment is issued, you will formally acknowledge receipt of it and will take all reasonable precautions and actions necessary to safeguard and maintain it in normal operating condition. You further agree to accept financial responsibility for damage or wear to the property and equipment you are issued beyond that associated with normal business use. You will notify Cerner immediately of any such damage or loss. If your employment with Cerner terminates, you will immediately return to Cerner all property and equipment which you have been issued or which otherwise belongs to Cerner. 11. SYSTEMS AND PHYSICAL SECURITY. ----------------------------- You understand the importance of both systems and physical security to the daily operations of Cerner and to the protection of business information. You will, therefore, comply with and assist in the vigorous enforcement of all policies, practices, and procedures which may be developed to ensure the integrity of Cerner systems and facilities. Further, you understand that willful violation of such policies, practices, and procedures may result in termination of your employment. 12. PRIOR EMPLOYMENT RELATIONSHIPS AND OBLIGATIONS. ---------------------------------------------- By accepting employment with Cerner, you represent to Cerner that you are not subject to any non-competition or confidentiality agreements that your employment and activities at Cerner would violate. You also represent and agree that you will not disclose to Cerner, or induce Cerner to use, any proprietary or confidential information belonging to any previous employer or to others. 13. REMEDIES. -------- By signing this Agreement, you agree that the promises you have made in it are of a special nature, and that any breach, violation or evasion by you of the terms of this Agreement will result in immediate and irreparable harm to Cerner. It will also cause damage to Cerner in amounts difficult to ascertain. Accordingly, Cerner shall be entitled to the remedies of injunction and specific performance, as well as to all other legal and equitable remedies which may be available to Cerner. 4 14. INDEMNIFICATION. --------------- You agree to indemnify and hold Cerner harmless from and against any damages, liability, actions, suits or other claims arising out of your breach of this Agreement. 15. MODIFICATION. ------------ This Agreement may not be modified in any respect, except by a written agreement executed by you and Cerner. However, Cerner may from time to time publish and adopt supplementary policies with respect to the subject matter of this Agreement, and you agree that such supplementary policies shall be binding upon you. 16. NOTICES. ------- Any notice required or permitted to be given pursuant to the terms of the Agreement shall be sufficient if given in writing and if personally delivered by receipted hand delivery to you or to Cerner, or if deposited in the United States Mail, postage prepaid, first class or certified mail, to you at your residence address or to Cerner's Corporate headquarters address or to such other addresses as each party may give the other party notice in accordance with this Agreement. 17. TERM OF THIS AGREEMENT. ---------------------- This Agreement begins as noted above and will continue in perpetuity, even though your employment can be terminated by you or by Cerner as described elsewhere herein. 18. GOVERNING LAW. ------------- This Agreement will be governed by, construed, interpreted, and its validity determined, under the laws of the State of Missouri. 19. SEVERABILITY. ------------ If any provision of this Agreement is held to be unenforceable, then this Agreement will be deemed amended to the extent necessary to render the otherwise unenforceable provision, and the rest of this Agreement, valid and enforceable. 20. ENTIRE AGREEMENT AND PRIOR AGREEMENTS. ------------------------------------- You hereby acknowledge receipt of a signed counterpart of this Agreement and acknowledge that it is your entire agreement with Cerner concerning the subject matter. This Agreement cancels, terminates, and supersedes any of your previous oral or written understandings or agreements with Cerner or with any officer or representative of Cerner with respect to your employment with Cerner. 5 21. SUCCESSORS. ---------- This Agreement shall be binding upon Cerner's successors and assigns. This Agreement shall also be binding upon your heirs, spouse, assigns and legal representatives. *********************************************** This Employment Agreement is executed this 15th day of April, 1998. Associate /s/Glenn Tobin ------------------------------- Glenn Tobin, Ph.D. Cerner Corporation /s/Clifford W. Illig ------------------------------ Cerner Human Resources 6 APPENDIX A DEFINITION OF TERMS ------------------- CERNER CORPORATION and CERNER mean Cerner Corporation, the Delaware corporation. The terms also cover all of Cerner Corporation's parent, subsidiary and affiliate corporations and business enterprises, both presently existing and subsequently created or acquired. Such affiliate corporation may be directly or indirectly controlled by Cerner or related to Cerner by equity ownership. CLIENT means any actual or potential customer or licensee of Cerner. CONFIDENTIAL INFORMATION means Cerner, Client and Vendor trade secrets. It also means other Cerner, Cerner Associate, Client, and Vendor information which is not generally known, and is proprietary to Cerner Corporation or to Cerner Associates, Clients, and Vendors. It includes, but is not limited to, research, design, development, installation, purchasing, accounting, marketing, selling, servicing, finance, business systems, business practices, documentation, methodology, procedures, manuals (both internal and user), program listings, source codes, working papers, Client and Vendor lists, marketing and sales materials not otherwise available to the general public, sales activity information, computer programs and software, compensation plans, your personal compensation, performance evaluations, patient information and other client-related data, and all other non-public information of Cerner and its Associates, Clients, and Vendors. CONFLICTING ORGANIZATION means any person or organization engaged (or about to become engaged) in research, development, installation, marketing, selling, or servicing with respect to a Conflicting Product. The following types of organizations are specifically included within the definition of Conflicting Organization: (i) any large provider of a broad health care information technology product line (e.g. HBO & Company, SMS Corporation, IDX Systems, Medaphis Corporation, Meditech, etc.); (ii) specialist providers of health care information technology products in areas in which Cerner has a product line (e.g. radiology departments) or is making a major strategic thrust (e.g. consumer- focused health care information); and (iii) specialist health care consulting companies primarily focused on information technology (e.g. Superior Consulting Company, Inc. or First Consulting Group). The following types of organizations are specifically excluded from the definition of Conflicting Organization (so long as your role with such organization would not involve the development or management of a significant Conflicting Product): (i) broad providers of management consulting services (e.g. McKinsey or Andersen Consulting); (ii) specialist health care consulting firms not focused on information technology (e.g. APM); (iii) medical device or pharmaceutical companies; (iv) payor and provider-based organizations; and (v) health care service companies. CONFLICTING PRODUCT means any product, process or service which is the same as, similar to, or competes with any Cerner product, process or service in which Cerner has a Significant Business Interest or about which you have acquired Confidential Information or upon which you worked directly during the last two years of your employment by Cerner, NEW PRODUCTS AND IDEAS means discoveries, computer programs, improvements, works of authorship, methods, ideas and products (whether or not they are described in writing, reduced to practice, patentable or copyrightable) which results from any work performed by you for Cerner, or involve the use of any Cerner equipment, supplies, facilities or Confidential Information, or relate directly to the business of Cerner, or relate to Cerner's actual or demonstrably anticipated research or development. SIGNIFICANT BUSINESS INTEREST means any of Cerner's base information technology and services, businesses, any product process or service in which Cerner has made a major strategic thrust, or had developed significant strategic plans. Cerner does not have a Significant Business Interest in products, processes or services that are (i) ancillary to Cerner's core offerings, (ii) discontinued or (iii) substantially noncompetitive in the marketplace. VENDOR means any actual or potential licensor, supplier, contractor, agent, consultant or other purveyor of products or services to Cerner. 7 APPENDIX B SUMMARY OF ATTACHMENTS ---------------------- The following documents, if noted, are incorporated as attachments to this Employment Agreement. Not Included Included Attachment Description X I Original Offer Letter -------- -------- -------- -------- II Offer Letter Amendments X III Termination Statement -------- -------- -------- -------- IV Sales Associate Provisions -------- -------- V Inventory of Prior Inventions 8 ATTACHMENT II ------------- TERMINATION STATEMENT --------------------- I represent that I have complied with all the provisions of the Cerner Associate Employment Agreement entered into between Cerner Corporation and me on the ______________________ day of _________________, 19____, in that: 1. I have not improperly disclosed or otherwise misused any of the Confidential Information covered by such Agreement. I shall continue to comply with all the continuing terms of the Agreement, including but not limited to the non-disclosure and (for the required term) non-compete provisions, and also including but not limited to the reporting of any New Products and Ideas conceived or made by me as covered by the Agreement. 2. I do not have in my possession, nor have I taken with me or failed to return, any records, plans, information, drawings, designs, documents, manuals, formulae, statistics, correspondence, client and vendor lists, specifications, blueprints, reproductions, sketches, notes, reports, proposals, or other documents or materials, or copies of them, or any equipment, credit cards or other property belonging to Cerner or its Clients or Vendors. I have returned to Cerner (or will return within 10 calendar days) all material and information compiled or received by me during the term of such employment. I have returned (or will return within 10 calendar days) all Confidential Information, as specified by such Agreement, and all correspondence and other writings. I have returned (or will return within 10 calendar days) all keys and other means of access to Cerner's premises. 3. I understand and agree that, with regard to all provisions of this Agreement relating to non-disclosure, non-solicitation, and confidentiality of information, such provisions shall not cease as of this termination but shall continue in full force and effect in perpetuity or as otherwise indicated within this Agreement. In compliance with the Agreement, I shall continue to preserve as confidential all Confidential Information as defined in the Agreement. ---------------------------------- Associate ---------------------------------- Date ---------------------------------- Termination Date Cerner Corporation --------------------------------- By --------------------------------- Title 9
EX-10 8 EXHIBIT 10(S) EMPLOYMENT AGREEMENT OF STANLEY M. SWORD CERNER CORPORATION CERNER ASSOCIATE EMPLOYMENT AGREEMENT This Cerner Associate Employment Agreement describes the formal employment relationship between Stanley M. Sword ---------------- ASSOCIATE and and Cerner Corporation, a Delaware corporation This Agreement is effective on the 10th day of August, 1998. 1. CERNER'S LETTER OFFERING EMPLOYMENT TO YOU. ------------------------------------------ At the time you accepted employment with Cerner, you received an offer letter outlining or confirming the specifics of Cerner's offer of employment to you. The position, terms, compensation, benefits and other provisions of that offer letter represent the initial conditions of your Cerner employment. The offer letter is incorporated into this Agreement as Attachment I. Any amendments or changes to the offer letter are included as part of Attachment II to this Agreement, and supersede the terms in the offer letter. Cerner reserves the right to modify at any time the conditions of your employment at Cerner. 2. EMPLOYMENT RELATIONSHIP. ----------------------- A. Formation. By signing this Agreement, you represent that --------- every material fact contained in your resume and application for employment with Cerner is true and accurate to the best of your knowledge and belief. You also agree that falsification of your resume or application is grounds for immediate discharge. B. Type. To the extent permitted by law, your employment ---- relationship with Cerner is "at will", which means that you may resign from Cerner at any time, for any reason, or for no reason at all, and without advance notice (except as described below). It also means that Cerner may terminate your employment at any time, for any legally permitted reason, or for no reason at all, and without advance notice. C. Resignation and Termination. You agree to cooperate with --------------------------- Cerner by participating fully in an exit interview in the event you leave the employ of Cerner. You agree to give Cerner written notice of your intention to resign from employment at least ten (10) business days prior to the last day you intend to work at Cerner. To facilitate the provisions of paragraphs 7 and 8 of this agreement, you also agree to report to Cerner, in conjunction with your written notice of intent, the identity of your new employer (if any) and the nature of your proposed duties for that employer. Cerner, however, reserves the right either to accelerate your intended effective termination date to an earlier actual date or to allow your intended effective termination date to stand. If you resign, however, with fewer than ten (10) business days notice, or if you actually leave Cerner's employ prior to expiration of the ten business days notice period and without the permission of Cerner, then you agree that (to the extent permitted by law) no vacation pay, salary or other compensation 1 otherwise due, from the date of your resignation notice until the time of your approved effective termination date, will be owed or paid to you by Cerner. If Cerner terminates your employment prior to the date you move your family to the Kansas City area (and unless the termination was due to your dishonesty, illegal conduct, or breach of Cerner's policy or this Agreement), Cerner will pay you a minimum of three (3) months severance pay (based on your annualized base salary amount at the time of your involuntary termination), less appropriate payroll deductions, payable on Cerner's regular paydays. If Cerner terminates your employment after the date you move your family to the Kansas City area (and unless the termination was due to your dishonesty, illegal conduct, or breach of Cerner's policy or this Agreement), Cerner will pay you a minimum of six (6) months severance pay (based on your annualized base salary amount at the time of your involuntary termination), less appropriate payroll deductions, payable on Cerner's regular paydays. In addition, the severance period will increase beyond the minimum six (6) month period at the rate of one (1) additional month for each six (6) months that you are employed by Cerner, up to a maximum duration (the original six (6) month period plus any extension) of one (1) year. You understand and agree that the period of your severance compensation will also extend the period of time of your non-competition obligations under Paragraph 7. You also understand and agree that, at Cerner's sole discretion and option, Cerner may elect to make any severance payment, or any part thereof, in a lump sum payment as opposed to making such payment on Cerner's regular paydays. Any such lump sum payment shall have no effect upon your obligations to comply with your non-competition obligations under Paragraph 7. Notwithstanding the foregoing, it is not the intent of either of us that you continue to receive any severance payments (if applicable) after you have accepted other employment after leaving Cerner. You agree to immediately notify Cerner if you accept other employment during the severance and non-competition period provided for by this Paragraph 2 and Paragraph 7. Cerner's obligations to make any further severance payments hereunder shall immediately cease upon your commencement of employment with a new employer, but your obligations of non-competition under Paragraph 7 shall continue pursuant to such terms. If you voluntarily resign and give proper notice as outlined above and Cerner elects to accelerate your effective termination date to a date less than two (2) weeks from the date of your notice, Cerner will continue to pay your base salary through the remainder of such two (2) week period. In the event your voluntary or involuntary termination occurs during a performance period associated with a documented bonus or incentive compensation plan, any final payments to you as a result of your participation in such plan will be determined by the documented procedures of the plan. If Cerner has reimbursed you for certain costs associated with any relocation which may be required as a prerequisite to your being hired into a position with Cerner, all such reimbursements shall be made according to Cerner's published relocation expense reimbursement policy. Such reimbursements will be made in consideration for your agreement to serve in the position for which you were relocated for at least two (2) years. Therefore, in the event Cerner has reimbursed you for any relocation expenses or otherwise paid to you any sums of money pursuant to Cerner's relocation policy, you agree that you shall repay such sums to Cerner on a prorated basis if (i) you voluntarily resign from employment with Cerner within two (2) years of the date your move is complete or (ii) Cerner terminates your employment due to your dishonesty, illegal conduct, or breach of Cerner policy or this Agreement within two (2) years of the date your move is complete. In the event Cerner terminates your employment, Cerner reserves the right to set the effective date of such termination. Upon your resignation or the termination of your employment, you agree to promptly execute a Termination Statement in the form of Attachment III. D. SALES ASSOCIATE PROVISIONS. If you are employed by Cerner -------------------------- in a sales capacity, additional provisions incorporated as Attachment IV to this Agreement are applicable to your employment relationship. 2 3. AGREEMENT NOT TO DISCLOSE OR TO USE CONFIDENTIAL INFORMATION. ------------------------------------------------------------ You agree that you will forever maintain the confidentiality of Confidential Information. You will never disclose Confidential Information except to persons who have both the right and need to know it, and then only for the purpose and in the course of performing Cerner duties, or of permitting or assisting in the authorized use of Cerner products and services. In the event your employment with Cerner terminates (voluntarily or involuntarily), you will promptly deliver to Cerner all Confidential Information. 4. NON-CERNER EMPLOYMENT. --------------------- Except for those part-time associates, hired to work less than 40 hours per week, employment at Cerner is a full-time responsibility. As a full-time associate, it is Cerner's expectation that you devote your full time and attention to meet your Cerner responsibilities and that you will not engage in any other employment activities which would detract from or conflict with your ability to carry out your duties at Cerner. If you are a part-time associate, it is Cerner's expectation that you will not engage in other employment activities that would detract from or conflict with your ability to carry out your part-time duties at Cerner. 5. NEW PRODUCTS AND IDEAS. ---------------------- With respect to New Products and Ideas that you develop, author, or conceive while employed at Cerner, plus for one (1) year thereafter, you agree to keep accurate, complete and timely records of such New Products and Ideas, and will promptly disclose and fully describe such New Products and Ideas in writing to Cerner. You agree to assign and transfer to Cerner, without further consideration, your entire right, title and interest in and to all such New Products and Ideas. You waive any and all moral rights which you otherwise would have in any New Products and Ideas. You agree to execute promptly at Cerner's expense, a written assignment of title to Cerner, and all letters (and applications for letters) of patent and copyright, in all countries, for any New Products or Ideas required to be assigned by this Agreement. You also agree to assist Cerner or its nominee in every reasonable way (at Cerner's request and expense, but at no charge to Cerner), both during and after your time of employment at Cerner, in vesting and defending title to the New Products and Ideas in and for Cerner, in any and all countries, including the obtainment and preservation of patents, copyrights, trade secrets and other proprietary rights. This Section does not apply to your new products and ideas which do not relate directly to the business of Cerner, and which are developed entirely on your own time. 6. PRIOR INVENTIONS. ---------------- Any and all patented and unpatented inventions, new products and ideas which you made prior to your employment by Cerner are excluded from the scope of this Agreement and are documented on Attachment V, Inventory of Prior Inventions. 7. NON-COMPETITION AND NON-SOLICITATION ------------------------------------ A. For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner, you will tell any prospective new employer, prior to accepting employment, that this Employment Agreement exists. B. (i) For a period of two (2) years after the voluntary termination by you of your employment with Cerner or your termination for dishonesty, illegal conduct or breach of Cerner's policy or this Agreement or, (ii) in the event Cerner terminates your employment (unless the termination was due to your dishonesty, illegal conduct or breach of Cerner's policy or this Agreement), for the period you are paid severance pursuant to Paragraph 2 (including any time that you would have been paid severance pursuant to 3 Paragraph 2 but for the fact you commenced employment with a new employer), you will not provide services directly or indirectly related to your employment at Cerner to any Conflicting Organization in the United States or in any country in which Cerner has a business interest. However, you may accept employment with a large Conflicting Organization whose business is diversified, and with a portion of its business that is not a Conflicting Organization, provided that Cerner, prior to your acceptance of such employment, shall receive separate written assurances satisfactory to Cerner from such Conflicting Organization and from you that you will not render services directly or indirectly in connection with any Conflicting Product. C. For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner for any reason or for no reason, you agree not, on behalf of yourself or on behalf of any other person, entity, or organization, to employ, solicit for employment, or otherwise seek to employ or retain any Cerner associate or employee, or any employee of a Cerner client company, or in any way assist or facilitate any such employment, solicitation, or retention effort. 8. INTENTIONALLY DELETED. --------------------- 9. PUBLICITY RELEASE. ----------------- You consent and agree to the use of your name, voice and picture (including but not limited to use in still photographs, videotape and film formats, and both during and after your period of employment at Cerner) for advertising, promotional, public relations, and other business purposes (including its and their use in newspapers, brochures, magazines, journals and films or videotapes) by Cerner. 10. CERNER PROPERTY. --------------- You understand that you may be assigned various items of Cerner property and equipment to help you carry out your Cerner responsibilities. When such property or equipment is issued, you will formally acknowledge receipt of it and will take all reasonable precautions and actions necessary to safeguard and maintain it in normal operating condition. You further agree to accept financial responsibility for damage or wear to the property and equipment you are issued beyond that associated with normal business use. You will notify Cerner immediately of any such damage or loss. If your employment with Cerner terminates, you will immediately return to Cerner all property and equipment which you have been issued or which otherwise belongs to Cerner. 11. SYSTEMS AND PHYSICAL SECURITY. ----------------------------- You understand the importance of both systems and physical security to the daily operations of Cerner and to the protection of business information. You will, therefore, comply with and assist in the vigorous enforcement of all policies, practices, and procedures which may be developed to ensure the integrity of Cerner systems and facilities. Further, you understand that willful violation of such policies, practices, and procedures may result in termination of your employment. 12. PRIOR EMPLOYMENT RELATIONSHIPS AND OBLIGATIONS. ---------------------------------------------- By accepting employment with Cerner, you represent to Cerner that you are not subject to any non-competition or confidentiality agreements that your employment and activities at Cerner would violate. You also represent and agree that you will not disclose to Cerner, or induce Cerner to use, any proprietary or confidential information belonging to any previous employer or to others. 13. REMEDIES. -------- By signing this Agreement, you agree that the promises you have made in it are of a special nature, and that any breach, violation or evasion by you of the terms of this Agreement will result in immediate and 4 irreparable harm to Cerner. It will also cause damage to Cerner in amounts difficult to ascertain. Accordingly, Cerner shall be entitled to the remedies of injunction and specific performance, as well as to all other legal and equitable remedies which may be available to Cerner. 14. INDEMNIFICATION. --------------- You agree to indemnify and hold Cerner harmless from and against any damages, liability, actions, suits or other claims arising out of your breach of this Agreement. 15. MODIFICATION. ------------ This Agreement may not be modified in any respect, except by a written agreement executed by you and Cerner. However, Cerner may from time to time publish and adopt supplementary policies with respect to the subject matter of this Agreement, and you agree that such supplementary policies shall be binding upon you. 16. NOTICES. ------- Any notice required or permitted to be given pursuant to the terms of the Agreement shall be sufficient if given in writing and if personally delivered by receipted hand delivery to you or to Cerner, or if deposited in the United States Mail, postage prepaid, first class or certified mail, to you at your residence address or to Cerner's Corporate headquarters address or to such other addresses as each party may give the other party notice in accordance with this Agreement. 17. TERM OF THIS AGREEMENT. ---------------------- This Agreement begins as noted above and will continue in perpetuity, even though your employment can be terminated by you or by Cerner as described elsewhere herein. 18. GOVERNING LAW; JURISDICTION. --------------------------- This Agreement will be governed by, construed, interpreted, and its validity determined, under the laws of the State of Missouri. You and Cerner each hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any Missouri state court or federal court of the United States of America sitting in Kansas City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement. 19. SEVERABILITY. ------------ If any provision of this Agreement is held to be unenforceable, then this Agreement will be deemed amended to the extent necessary to render the otherwise unenforceable provision, and the rest of this Agreement, valid and enforceable. 20. ENTIRE AGREEMENT AND PRIOR AGREEMENTS. ------------------------------------- You hereby acknowledge receipt of a signed counterpart of this Agreement and acknowledge that it is your entire agreement with Cerner concerning the subject matter. This Agreement cancels, terminates, and supersedes any of your previous oral or written understandings or agreements with Cerner or with any officer or representative of Cerner with respect to your employment with Cerner. 5 21. SUCCESSORS. ---------- This Agreement shall be binding upon Cerner's successors and assigns. This Agreement shall also be binding upon your heirs, spouse, assigns and legal representatives. *********************************************** This Employment Agreement is executed this 10th day of August, 1998. Associate /s/Stanley M. Sword ------------------------------------ Stanley M. Sword Cerner Corporation /s/Clifford W. Illig ----------------------------------- 6 APPENDIX A DEFINITION OF TERMS ------------------- CERNER CORPORATION and CERNER mean Cerner Corporation, the Delaware corporation. The terms also cover all of Cerner Corporation's parent, subsidiary and affiliate corporations and business enterprises, both presently existing and subsequently created or acquired. Such affiliate corporation may be directly or indirectly controlled by Cerner or related to Cerner by equity ownership. CLIENT means any actual or potential customer or licensee of Cerner. CONFIDENTIAL INFORMATION means Cerner, Client and Vendor trade secrets. It also means other Cerner, Cerner Associate, Client, and Vendor information which is not generally known, and is proprietary to Cerner Corporation or to Cerner Associates, Clients, and Vendors. It includes, but is not limited to, research, design, development, installation, purchasing, accounting, marketing, selling, servicing, finance, business systems, business practices, documentation, methodology, procedures, manuals (both internal and user), program listings, source codes, working papers, Client and Vendor lists, marketing and sales materials not otherwise available to the general public, sales activity information, computer programs and software, compensation plans, your personal compensation, performance evaluations, patient information and other client-related data, and all other non-public information of Cerner and its Associates, Clients, and Vendors. CONFLICTING ORGANIZATION means any person or organization engaged (or about to become engaged) in research, development, installation, marketing, selling, or servicing with respect to a Conflicting Product. CONFLICTING PRODUCT means any product, process or service which is the same as, similar to, or competes with any Cerner product, process or service upon which you worked during the last three years of your employment by Cerner, or about which you have acquired Confidential Information. NEW PRODUCTS AND IDEAS means discoveries, computer programs, improvements, works of authorship, methods, ideas and products (whether or not they are described in writing, reduced to practice, patentable or copyrightable) which results from any work performed by you for Cerner, or involve the use of any Cerner equipment, supplies, facilities or Confidential Information, or relate directly to the business of Cerner, or relate to Cerner's actual or demonstrably anticipated research or development. VENDOR means any actual or potential licensor, supplier, contractor, agent, consultant or other purveyor of products or services to Cerner. 7 APPENDIX B SUMMARY OF ATTACHMENTS ---------------------- The following documents, if noted, are incorporated as attachments to this Employment Agreement. Not Included Included Attachment Description X I Original Offer Letter -------- -------- -------- -------- II Offer Letter Amendments X III Termination Statement -------- -------- -------- -------- IV Sales Associate Provisions -------- -------- V Inventory of Prior Inventions 8 ATTACHMENT III -------------- TERMINATION STATEMENT --------------------- I represent that I have complied with all the provisions of the Cerner Associate Employment Agreement entered into between Cerner Corporation and me on the ______________________ day of _______________, ____, in that: 1. I have not improperly disclosed or otherwise misused any of the Confidential Information covered by such Agreement. I shall continue to comply with all the continuing terms of the Agreement, including but not limited to the non-disclosure and (for the required term) non-compete provisions, and also including but not limited to the reporting of any New Products and Ideas conceived or made by me as covered by the Agreement. 2. I do not have in my possession, nor have I taken with me or failed to return, any records, plans, information, drawings, designs, documents, manuals, formulae, statistics, correspondence, client and vendor lists, specifications, blueprints, reproductions, sketches, notes, reports, proposals, or other documents or materials, or copies of them, or any equipment, credit cards or other property belonging to Cerner or its Clients or Vendors. I have returned to Cerner (or will return within 10 calendar days) all material and information compiled or received by me during the term of such employment. I have returned (or will return within 10 calendar days) all Confidential Information, as specified by such Agreement, and all correspondence and other writings. I have returned (or will return within 10 calendar days) all keys and other means of access to Cerner's premises. 3. I understand and agree that, with regard to all provisions of this Agreement relating to non-disclosure, non- solicitation, and confidentiality of information, such provisions shall not cease as of this termination but shall continue in full force and effect in perpetuity or as otherwise indicated within this Agreement. In compliance with the Agreement, I shall continue to preserve as confidential all Confidential Information as defined in the Agreement. --------------------------------- Associate --------------------------------- Date --------------------------------- Termination Date Cerner Corporation -------------------------------- By -------------------------------- Title 9 EX-21 9 SUBSIDIARIES OF REGISTRANT Exhibit 21 SUBSIDIARIES OF REGISTRANT
Name State of Incorporation ---- ---------------------- Cerner Corporation Pty Limited New South Wales (Australia) Cerner Deutschland GmbH Germany Cerner FSC, Inc. Barbados Cerner Health Connections, Inc. Delaware Cerner Health Facts, Inc. Delaware Cerner HealthWise, Inc. Delaware Cerner International, Inc. Delaware Cerner Limited United Kingdom Cerner Performance Logistics, Inc. Delaware Cerner Properties, Inc. Delaware Cerner Singapore Limited Delaware Cerner (Malaysia) Sdn Bnd Malaysia Cerner Canada Limited Delaware Cerner Multum, Inc. Delaware Cerner Investment Corp. Nevada Cerner Campus Redevelopment Corporation Missouri
EX-23 10 CONSENT OF INDEPENDENT AUDITORS Independent Auditors' Consent The Board of Directors Cerner Corporation: We consent to incorporation by reference in the Registration Statements (No. 333-77029, No. 33-56868, No. 33-55082, No. 33- 41580, No. 33-39777, No. 33-39776, No. 33-20155, and No. 33- 15156) on Form S-8 and Registration Statement No. 33-72756 on Form S-3 of Cerner Corporation of our reports, dated February 14, 2000, relating to the consolidated balance sheets of Cerner Corporation as of January 1, 2000 and January 2, 1999 and the related consolidated statements of operations, changes in equity, and cash flows and related schedule for each of the years in the three-year period ended January 1, 2000, which reports are incorporated herein by reference or are included herein. KPMG LLP Kansas City, Missouri March 28, 2000 EX-27 11 FINANCIAL DATA SCHEDULE
5 12-MOS JAN-01-2000 JAN-01-2000 75,677,000 0 165,933,000 4,759,000 1,262,000 242,429,000 141,124,000 63,186,000 660,891,000 72,376,000 0 0 0 349,000 0 660,891,000 340,197,000 340,197,000 95,038,000 241,461,000 0 0 3,396,000 302,000 118,000 184,000 0 1,395,000 0 (1,211,000) (.04) (.04)
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