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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950136-02-000898.txt : 20020415
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ACCESSION NUMBER: 0000950136-02-000898
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20011229
FILED AS OF DATE: 20020329
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: 1934 Act
SEC FILE NUMBER: 000-15386
FILM NUMBER: 02593441
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
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<DOCUMENT>
<TYPE>10-K
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<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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 December 29, 2001
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
North 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, 2002, there were 35,390,736 shares of Common Stock
outstanding, of which 7,611,087 shares were owned by affiliates. The aggregate
market value of the outstanding Common Stock of the Registrant held by
non-affiliates, based on the closing sale price of such stock on March 15, 2002,
was $1,216,470,846.
Documents incorporated by reference: portions of the Registrant's Proxy
Statement for the 2002 Annual Meeting of Stockholders are incorporated by
reference in Part III hereof.
<PAGE>
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, North Kansas City, Missouri 64117, and its telephone number
is (816) 221-1024.
Cerner designs, develops, markets, installs, hosts and supports software
information technology and content solutions for healthcare organizations and
consumers. Cerner implements these solutions as individual, combined or
enterprise-wide systems.
Cerner's integrated suite of solutions enable healthcare providers to improve
operating effectiveness, reduce costs, reduce medical errors, reduce variances
and improve the quality of care as measured by clinical outcomes. Cerner(R)
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. Cerner
solutions allow secure access to data by clinical, administrative and financial
users in organized settings of care and by consumers from their home. These
solutions can be implemented as a part of an enterprise-wide solution or
individually, using the client's existing investment in information technology.
Cerner solutions are available as integrated applications managed by its clients
or as a service option under the application outsourcing (hosting) model. Hosted
solutions are applications that are provided to clients from Cerner's solutions
center in Lee's Summit, Missouri.
Cerner solutions are designed and developed using the Cerner Millennium(TM)
Architecture, a single information architecture. Millennium(TM) is a unified
technology infrastructure for combining clinical and management information
applications. Millennium 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.
HEALTHCARE INDUSTRY
- -------------------
The healthcare delivery industry in the United States remains 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 (IOM) released a report called "To
Err is Human" indicating that medical error is one of the top ten causes of
death in the United States, with up to 98,000 lives lost each year. In March
2001, the IOM released a report titled "Crossing the Quality Chasm: A New Health
System for the 21st Century" indicating the use of information technology is
critical to improving the quality and safety of healthcare. The Leapfrog Group,
a subgroup of large employers from the Business Roundtable, is also becoming a
forceful proponent for systemic change to healthcare organizations. Leapfrog
recommends that employers select health plans with hospitals that, among other
recommendations, use a computerized physician-order-entry system as a primary
method of eliminating medical errors in hospitals.
Another threat to the healthcare system is the growing shortage of hospital
personnel. According to a 2001 American Hospital Association Workforce Study,
there are approximately 126,000 unfilled nursing
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positions. Many hospitals are beginning to turn to information technology to
help reduce the impact of the nursing shortage. The use of information
technology can significantly reduce the amount of paperwork a nurse performs,
resulting in greater efficiency, improved quality of care, and increased job
satisfaction.
While addressing staffing issues, healthcare providers must prepare for the very
large increase in demand for healthcare services that will be caused by the
aging of the baby boomers. By 2010, the average baby boomer will be
approximately 65 years old. This upcoming increase in demand for services
underscores the importance of improving the efficiency and quality of
healthcare.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) adds an
additional element of complexity for healthcare organizations around security
and patient confidentiality. While some of the rules under HIPAA have not been
finalized, the provisions are focused on a centralized and systematic method of
access control that Cerner thinks is best met by a single integrated
architecture.
After several periods of declines in the financial condition of hospitals and
health systems, they are beginning to show improved economic health, resulting
in an increased ability to invest in information technology. A 2001 report by
Solucient showed a 100 basis point improvement in hospital operating margins in
the first half of 2001. This economic strength reflects higher utilization of
facilities whose capacity was reduced in the Balanced Budget Act era and by rate
increases from the managed care intermediaries to well-positioned providers.
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 healthcare: the consumer, the physician, the
hospital and the managed care organization. The emergence of near ubiquitous
Internet connectivity will facilitate consumer participation in the healthcare
management process.
Cerner is responding to the changing and increasing needs of the healthcare
industry for better information systems by developing Millennium, its latest
generation of solutions. See "Cerner's Technology - Cerner Millennium
Architecture" for a discussion of Millennium.
THE CERNER VISION
- -----------------
Cerner's business and products are organized around a central vision of how
healthcare can and should operate. This vision is founded on four steps:
o Automate the core processes of healthcare: eliminate the paper medical
record
o Connect the person: create the personal health system
o Structure the knowledge: position every clinical decision as a learning
event
o Close the loop: implement evidence-based medicine
These steps describe Cerner's business today and plans for Cerner's business
both in 2002 and beyond.
Automate the Process
- --------------------
Cerner is dedicated to the elimination of the paper medical record.
Medical care cannot make significant steps forward in quality and consistency
without using the power and advantages of information technology. As long as
medical information is locked and isolated in a paper record, a physician is cut
off from rapid, contextual reference to the vast knowledge available in today's
medicine. The elimination of the paper record will lead to improved quality and
safety of care, dramatic productivity increases and enhanced documentation.
3
<PAGE>
The electronic recording of medical information will lead to improvements in the
quality of care and the safety of patients and reduce costs. By allowing care
providers to access a patient's single, longitudinal medical record in
real-time, clinicians can view demographic information, medical history, lab
results and current conditions and treatment plans, along with notes from
attending and consulting physicians. Guidelines and pathways sensitive to the
person's medical condition and problems will assist the physician in making the
"appropriate" decisions on how to diagnose and treat medical conditions. This
comprehensive view of a patient's health status allows for better medical
decision-making at the point of care. Online documentation and physician order
entry helps to prevent the errors in and misinterpretation of documentation and
orders, reducing the costs of duplication and medical error. This automation
also will reduce the time for care delivery and lower costs.
Once all the steps of care are captured electronically, the enhanced
documentation will lead to more efficient healthcare, both in terms of treatment
and finance, and will set the stage for data collection that will be the
backbone of structuring the knowledge of healthcare. Electronic medical records
reduce some of the duplication caused by poor record-keeping. Wasteful
duplication is eliminated, redundant tests are not ordered. Also, documentation
required for health plan reimbursement is maintained efficiently, reducing claim
denials. Finally, electronic record-keeping lays the groundwork of data
collection necessary to make dramatic changes in care delivery.
Connect the Person
- ------------------
Cerner is dedicated to helping its clients build a personal health system;
creating a "new medium" between the person and physician; empowering the
individual; and creating a new center to healthcare.
The healthcare system is undergoing fundamental change as the person moves to
the center of care delivery. Increasing access to expert knowledge over the
Internet and a cultural shift toward more self-direction are combining to move
the center of power and control to the person. With the electronic medical
record, persons can access their medical records securely anytime and anywhere
they have Internet access. When combined with personalized health content, the
consumer gains a better sense of the care they are receiving and the options
available to them. They will have better communications with their providers,
and can take more ownership of their own health and work to manage it to their
satisfaction.
Structure the Knowledge
- -----------------------
Cerner is dedicated to building systems that treat every clinical decision as a
learning event by structuring, storing and studying the content of medicine.
Medicine must have a structure that allows physicians to record treatment and
outcomes in such a way as to permit comparability. The basis of this structure
is a common nomenclature that can exactly capture the meaning of input from
physicians and clinicians. By storing this data and then providing a framework
for comparability, physicians can make sense and glean value from the
information that is gathered both through automated processes and connected
persons. Without a knowledge framework, data collected will provide no real
benefit. By building this structure, every encounter with a patient, and every
piece of new knowledge and information, can be catalogued, measured and analyzed
to improve care. This knowledge framework will deliver better standards of care
and an improved understanding of medicine.
Close the Loop
- --------------
Cerner is dedicated to building systems that implement evidence-based medicine,
dramatically reducing the current average time from the discovery of an improved
method to the change in "standard of care" medical practice.
Advances in technology offer great opportunities to healthcare and must be used
to practical effect. The knowledge gained must be used to deliver better care
faster. The information learned must be applied. Today, patients may wait as
long as ten years before new knowledge reaches widespread use. With systems
designed to embed evidence-based medicine inside the clinicians' workflow using
pathways,
4
<PAGE>
guidelines and alerts, physicians can ensure that every medical decision is
optimal, based on the best and most recent knowledge available. The results will
be better outcomes and reduced variance.
THE CERNER STRATEGY
- -------------------
Key elements of the Company's business strategy include the following:
Penetrate the integrated healthcare provider market. Large health systems
represent a significant component of the healthcare information technology
market. These organizations are focused on improving safety and reducing costs
through operating efficiencies. Cerner's enterprise-wide process-based, clinical
and management systems provide the technology to enable an integrated system to
manage healthcare across the system, significantly reduce costs, improve the
efficiency of healthcare delivery and maintain and improve the quality of
healthcare.
Expand market share in individual domains and further penetrate existing client
base. 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 anticipates
growth in sales of new products, such as its new patient accounting product that
launched in 2001. This product addresses a large new market previously not
covered by the existing product suite. The Company also intends to aggressively
market Cerner clinical and management information systems and services to its
existing client base.
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 Millennium
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.
Expand products and services. Using the Millennium architecture, Cerner intends
to continue expanding the range of products and services offered to providers.
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.
Offer its products on a hosted solution basis. The Company offers its Millennium
applications through its application outsourcing option. This option offers
information technology services to clients that include software, computer
hardware, implementation, technical support, wide-area network (WAN) services
and automatic software upgrades. Unlike traditional software implementations,
software delivered through the application outsourcing option 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. Using Cerner
hosted solutions, any size organization can access the same robust clinical
applications, architecture and user-interface advantages that were previously
only available to larger institutions.
CERNER'S TECHNOLOGY -- CERNER MILLENNIUM ARCHITECTURE
- -----------------------------------------------------
The cornerstone of Cerner's technology strategy is Cerner Millennium, the single
architecture around which each of Cerner's information products is developed.
This person-centric, single data model, open and highly scaleable architecture
allows Cerner to meet the clinical, financial, management and business
information requirements of a healthcare delivery system across the continuum of
care. Cerner
5
<PAGE>
Millennium, the core of which was developed between 1994 and 1999, is Cerner's
newest version of computing software. Millennium uses n-tier client/server
technology to optimize distributed computing performance and scalability across
multiple client and server platforms. The 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. 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 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, Millennium provides secure, 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, 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 a single 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 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 Millennium architecture.
First is the person-centric transactions and secure messaging, which consider
the breadth of requirements not only of a patient, but also of healthy
consumers. Second is healthcare community dynamics, which take 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.
MillenniumObjects(TM)
- ---------------------
Cerner is extending Millennium's reach and scope with the goal of becoming the
de facto standard for healthcare information technology. A key element in that
effort by Cerner is MillenniumObjects. Cerner uses MillenniumObjects to extend
Millennium to third party suppliers of healthcare information technology,
supporting their development efforts and increasing Millennium's market
penetration. MillenniumObjects is a collection of reusable programming elements
from Cerner's Millennium architecture. These segments of code, or objects,
enable third-party developers to create front-end applications, like Palm or Web
browser solutions, that draw upon the data model and proven functionality of
Millennium. With MillenniumObjects, programmers can quickly and efficiently
build applications that integrate with Cerner's architecture, reusing existing
objects that achieve the tasks they are seeking to replicate. Third-party
programmers can avoid the time- and cost-intensive process of writing new code
to perform functions Cerner engineers have already developed.
MillenniumObjects is the mechanism Cerner uses to extend its own applications to
the Internet. By licensing the objects library to third parties, Cerner has an
excellent opportunity to proliferate the Millennium architecture - as well as
the brand, clinical expertise and technical excellence upon which it was built.
PRODUCTS
- --------
The Cerner Millennium family of products is the only fully-integrated,
large-scale, contemporary, enterprise-wide healthcare information system on the
market today capable of both retrieving and disseminating clinical and financial
information across an entire health system. Cerner Millennium product families
are dedicated to meeting the automation needs of virtually every segment of the
care continuum.
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<PAGE>
Cerner solutions can be acquired individually or as a fully integrated health
information system. Cerner also markets more than 200 product options that
complement Cerner's major information systems. In addition, Cerner sells
computers and related hardware manufactured by third parties and consulting
services to its clients.
Cerner's solution categories include:
o Enterprise-wide Systems, which automate processes across and
throughout the health system enterprise, including:
o Access Management
o Care Management
o Enterprise Repositories, and
o Financial and Operational Management Systems, which automate
business operations.
o Clinical Systems, which automate critical processes across the
healthcare continuum.
o Decision Support Systems and Knowledge Solutions, which enhance
clinical and business processes with information and actions.
o Consumer Systems, which support Internet-based healthcare communities
that effectively connect individuals, providers and health systems.
o Technologies for developing applications or connecting other
technologies and systems to Cerner Millennium.
o Solution Suites, which address key processes and segments in
healthcare.
Enterprise-Wide Systems
-----------------------
Access Management
Cerner CapStone(R) Enterprise Access Management System creates the
enterprise-wide master person identifier (EMPI) and automates the
identification, eligibility, registration and scheduling processes across
hospitals, clinics, physician practices and other care delivery organizations.
Care Management
PowerChart(R) Electronic Medical Record System is the enterprise clinician's
desktop solution for viewing, ordering, documenting and managing care delivery,
including PowerOrders(TM) for physician ordering.
PowerOrders is Cerner's industry-leading physician order entry solution that
goes beyond a mere data communication system by giving appropriate access to
real-time, relevant clinical information at any point in the care process.
Enterprise Repositories
The Open Clinical Foundation(R) manages clinical information, providing the
foundation for the electronic medical record.
The Open Management Foundation(TM) stores management information of enterprise
financial, operational and process results, creating the foundation for the
enterprise-wide management and executive information system.
The Open Agreement Foundation(TM) manages health plan contracts and agreements,
and member information.
The Open Research Foundation(TM) provides open repository storage of clinical
and medical information to support medical research.
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<PAGE>
The Open Image Foundation(TM) provides the clinical and document imaging
foundation for the electronic medical record.
Financial and Operational
The ProFit(TM) Enterprise Billing and Accounts Receivable System is Cerner's
system for revenue accounting, billing and accounts receivable for the entire
health system as well as each individual domain or organization. ProFit
integrates clinical and financial data to ensure accurate charge capture and
billing.
Cerner ProVision(TM) Enterprise Image Management System is the only integrated
solution that manages clinical and document imaging across the entire healthcare
organization.
The ProFile(TM) 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.
PowerVision(R) Enterprise Decision Support links comprehensive clinical and
financial data and makes it available at the point of care - allowing care to be
better managed as it occurs.
The ProCure(TM) Materials Management System automates the business operations
around supply chain, materials acquisition and equipment management for the
organization.
The ProCare(TM) Medical Management System automates medical management for the
health system, addressing the areas of utilization, case and risk management, as
well as infection control.
Clinical Systems
----------------
Points of Care
The INet(R) 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.
Cerner's CareNet(R) Acute Care Management System is designed to automate the
entire care process in acute or institutional settings. The application
collects, refines, organizes and evaluates detailed clinical and management
data. It enables the entire care team to manage individual activities and plans,
as well as measure outcomes and goals.
The CVNet(R) Cardiology Information System automates the processes within the
cardiology department, supporting the scheduling, ordering, documentation and
data capture required by professionals in the cardiology domain.
The SurgiNet(R) 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.
The FirstNet(R) 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.
The PowerChart Office(TM) Management System supports the broad range of clinical
and business activities that occur within a physician office, clinic or large
physician organization. This system ties the office together with other medical
entities and automates key care team activities in both primary and specialty
care settings.
The ProCall(R) Home Care Management System automates the clinical and business
processes of home care organizations, such as home health agencies, visiting
nurse associations and hospices.
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<PAGE>
Clinical Centers
The PathNet(R) 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 RadNet(R) Radiology Information System addresses the operational and
management requirements of radiology departments or services. It allows a
department to replace its manual, paper-based system of record-keeping with an
efficient computer-based system.
Cerner ProVision PACS (picture archiving and communications system) is fully
integrated with Cerner's radiology information system. Using Cerner's
end-to-end, fully integrated radiology information and image management systems,
radiologists can improve operational efficiencies and reduce medical error.
The PharmNet(R) Pharmacy Information System provides full integration for rapid
pharmacy order entry and support of the clinical pharmacy in either an inpatient
or retail setting. PharmNet streamlines medication order entry, enabling the
pharmacist or technician to place all types of pharmaceutical orders, and
automates dispensing functions.
Decision Support Systems and Knowledge Solutions
------------------------------------------------
Discern Expert(R) is an event-driven, rules-based decision support software
application that allows users to define clinical and management rules
(Alerts(TM)) that are applied to event data captured or generated by other
applications. It supports both synchronous (real-time, interactive) processing
and asynchronous (noninteractive) processing of events.
Discern Explorer(R) is a decision support software application integrated with
other Cerner Millennium 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 applications.
Care Designs(TM) are clinical pathways and protocols that automate the specific
plans of care for an individual and operate within Cerner's clinical systems.
Cerner Multum(TM) drug database provides caregivers and consumers alike with
access to drug information and the ability to perform drug interaction checking
to prevent adverse events.
Cerner APACHE(TM) clinical decision support and outcomes management systems
manage the clinical and financial outcomes of high-risk patients in critical and
acute care.
Health Facts(R) is Cerner's comparative data warehouse for benchmarking
information and services for subscribers to support their own improvement
processes.
Consumer Systems
----------------
Cerner IQHealth(TM) creates an Internet-based healthcare community that connects
persons and healthcare providers. It also stores consumer health information,
ultimately helping individuals better manage their own health. With IQHealth,
sponsoring organizations can create and brand a "health exchange" in the
community to directly connect hospitals, physicians, payers, consumers and
employers.
IQHealth's Web Portal Services develop, deploy and support clients' Internet
strategies.
IQHealth's Health Content enables an organization to become a trusted source for
valuable consumer health and drug information.
IQHealth's Survey and Assessment Tools allow organizations to create Web-based
surveys to assess individual and community health risks and promote healthy
activities.
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IQHealth's Personal Health Record (PHR) is a personal health management solution
that gives consumers the ability to store personal health information and
monitor conditions over time.
IQHealth's Physician and Consumer Messaging allows physicians to conveniently
and securely receive test results from the hospital, confer with colleagues and
share information with consumers. Consumers can also use this tool to schedule
appointments and request prescription refills.
Health Connections, a 24x7 call center staffed by nurses, provides ready access
to accurate health information so that consumers can better manage their health
and participate in care decisions.
Technologies
------------
MillenniumObjects is a collection of reusable programming elements from the
revolutionary Cerner Millennium architecture. These segments of code, or
objects, allow third-party developers to create front-end applications that draw
upon the data model and proven functionality of Cerner Millennium.
The Open Engine Application Gateway System(TM) facilitates the exchange of data
and assists in the management of interfaces between foreign systems in a network
environment. It serves as a solution kit to help write interface code.
The Open Port Interface System(TM) 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 solutions and a scripting environment. Communications
protocols are configured via table-driven parameters. These sophisticated
methodologies result in decreased implementation times and greater client
satisfaction.
Solution Suites
---------------
Computerized Physician Order Entry (CPOE)
Cerner offers a step-by-step total CPOE solution ranging from basic automation
to complete medication integration.
Cerner HealthSmart(TM) CPOE is a stand-alone approach to CPOE for organizations
that are taking initial steps in streamlining the orders process. This level of
automation leverages the industry's most robust CPOE application, PowerOrders,
and includes key functionality, like clinical documentation, order sets, starter
content, rules packages and basic reporting tools, to deliver immediate
benefits.
Cerner HealthSmart CPOE Connect takes clients to the next level by leveraging
existing information systems. This intermediate level of Cerner's solution
extends a stand-alone CPOE system into two other critical areas of the orders
process, pharmacy and nursing. By supporting interfaces with foreign systems,
this solution allows the communication infrastructure to begin leveraging an
organization's legacy systems.
Cerner HealthSmart Medication Integration is the first comprehensive clinical
information solution to support the complete orders process and connect each
care team member - physician, pharmacist and nurse. Clients achieve maximum
safety, workflow efficiency and operational performance with Cerner's fully
integrated orders solution.
Revenue Cycle Management
Cerner HealthSmart Revenue Cycle Integration draws upon the powerful
capabilities of CapStone and ProFit to help health organizations streamline and
automate processes from registration through billing, realizing substantial
savings and speeding the revenue collection process. Cerner's revolutionary
Clinically Driven Revenue Cycle(TM) approach proactively manages the revenue
cycle as an outcome of the clinical automation process.
10
<PAGE>
Community Hospitals
Community Hospital Solutions(TM) automate clinical and business processes in the
community hospital. Community Hospital Solutions suites include administrative,
clinical, patient care, hospital integration, and community. These integrated
solutions based on Cerner Millennium offer to community hospitals much of the
power previously accessible only by larger integrated delivery networks.
SOFTWARE DEVELOPMENT
- --------------------
Cerner commits significant resources to developing new health information system
products. As of December 29, 2001, approximately 1,311 associates were engaged
full-time in product development activities. Total expenditures for the
development and enhancement of the Company's products were approximately
$113,872,000, $90,694,000, and $88,699,000 during the 2001, 2000 and 1999 fiscal
years respectively. These figures include both capitalized and non-capitalized
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, and
plans to continue to expand in the global marketplace.
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, Open Port and MillenniumObjects product
lines.
See "Cerner's Technology - Cerner Millennium Architecture" 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 organizations. Cerner's
Millennium 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 Millennium applications are designed
to operate on either computers manufactured by Compaq Computer Corporation or
IBM's RISC System/6000 AIX (UNIX) platform, 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's executive marketing management is located in its North Kansas
City, Missouri, headquarters, while its client representatives are deployed
across the United States and globally. In addition to the United States, the
Company, through subsidiaries and joint ventures, has sales staff and/or offices
in Australia, Belgium, Canada, Germany, Singapore, Malaysia, Saudi Arabia and
the United Kingdom. Cerner's consolidated revenues include foreign sales of
$22,350,000, 25,815,000 and $24,001,000 for the 2001, 2000 and 1999 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 sponsors
executive conferences, which feature industry experts who address the
information system needs of large healthcare organizations.
11
<PAGE>
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 and the Company's global support organization in Brussels, Belgium.
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.
BACKLOG
- -------
At December 29, 2001, Cerner had a contract backlog of approximately
$566,280,000. 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 December 29, 2001, the Company had approximately
$80,714,000 of contracts receivable, which represents revenues recognized under
the percent of completion method but not yet billable under the terms of the
contract. At December 29, 2001, Cerner had a software support and maintenance
backlog of approximately $221,393,000. Such backlog represents contracted
software support and hardware maintenance services for a period of twelve
months. The Company estimates that approximately 51 percent of the aggregate
backlog of $787,673,000 will be recognized as revenue during 2002.
NUMBER OF EMPLOYEES ("ASSOCIATES")
- ----------------------------------
As of March 1, 2002, the Company employed 4,173 associates.
OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
- ----------------------------------------------
Information under the caption "Factors That May Affect Future Results of
Operations, Financial Condition of 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 (a) variations in the Company's
quarterly operating results; (b) volatility of the Company's stock price; (c)
market risk of investments; (d) potential impairment of goodwill; (e) changes in
the healthcare industry; (f) significant competition; (g) the Company's
proprietary technology may be subjected to infringement claims or may be
infringed upon; (h) possible regulation of the Company's software by the U.S.
Food and Drug Administration or other government regulation; (i) the possibility
of product-related liabilities; (j) possible failures or defects in the
performance of the Company's software; and (k) the possibility that the
Company's anti-takeover defenses could delay or prevent an acquisition of the
Company.
Item 2. Properties
The Company's world headquarter offices are located in a Company-owned office
park in North Kansas City, Missouri, containing approximately 500,000 square
feet of useable space (the "Campus"). As of December 29, 2001, the Company was
using approximately 467,035 square feet and substantially all of the remainder
was leased to tenants. In the first quarter of 2001, Cerner Properties began
construction of a new facility situated between the buildings located at 2800
and 2900 Rockcreek Parkway on the Campus. This facility, when completed, will be
approximately 134,000 square feet in size and will house office, cafeteria and
meeting space for the Company. Planned occupancy date of this new facility is
the first quarter of 2003.
In the spring of 2001, the Company acquired property formally owned by Harrah's
Operating Company, Inc., located along the north riverbank of the Missouri
River, approximately 2 miles from the Company's Campus. This property consists
of an 80,000 square foot building and a 1,300 car parking garage. The
12
<PAGE>
building has been renovated for use as a corporate training, meeting and event
center for the Company. Use of the parking garage began on February 18, 2002 to
meet overflow parking demands on the Company's Campus.
The Company also leases office space in San Jose, California; Denver, Colorado;
Lake Mary Florida; Waltham, Massachusetts; Detroit, Michigan; St. Louis,
Missouri; Dallas, Texas; Houston, Texas; Washington, D.C.; Chesapeake, Virginia
and Vienna, Virginia. The Company operates its primary solutions center (or data
center) in leased space in Lee's Summit, Missouri. The Company also leases
office space in Sydney, Australia and Brussels, Belgium. Cerner Arabia, a joint
venture in which the Company maintains a 40% equity interest, leases space in
Riyadh, Saudi Arabia.
13
<PAGE>
Item 3. Legal Proceedings
The Company has no material pending litigation.
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 December 29, 2001.
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 29, 2002.
Officers are elected annually and serve at the discretion of the board of
directors.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Neal L. Patterson 52 Chairman of the Board of Directors and Chief Executive Officer
Clifford W. Illig 51 Vice Chairman of the Board of Directors
Earl H. Devanny, III 50 President
Glenn P. Tobin, Ph.D. 40 Executive Vice President and Chief Operating Officer
Paul M. Black 43 Executive Vice President and Chief Sales Officer
Rick M. Smith 50 Executive Vice President
Jack A. Newman, Jr. 54 Executive Vice President
Douglas M. Krebs 44 Senior Vice President and President of Cerner International, Inc.
Stephen M. Goodrich 50 Senior Vice President and Chief Quality Officer
Richard J. Flanigan, Jr. 42 Senior Vice President and General Manager
Stephen D. Garver 41 Senior Vice President and Managing Partner
Marc G. Naughton 47 Senior Vice President and Chief Financial Officer
Jeffrey A. Townsend 38 Senior Vice President and Chief Engineering Officer
Stanley M. Sword 40 Senior Vice President and Chief People Officer
Randy D. Sims 41 Vice President, Chief Legal Officer and Secretary
</TABLE>
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 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.
14
<PAGE>
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 ADAC Healthcare
Information Systems, Inc. Prior to joining ADAC, Mr. Devanny served as a Vice
President of the Company 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.
Paul M. Black joined the Company in March of 1994 as a Regional Vice President.
He was promoted in June 1998 to Senior Vice President and Chief Sales Officer
and to Executive Vice President in September of 2000. Prior to joining the
Company, he spent twelve years with IBM Corporation.
Rick M. Smith joined the Company in June of 2001 as Executive Vice President of
Cerner Consulting. Prior to joining the Company, he spent more than 27 years
with Deloitte Consulting.
Jack A. Newman, Jr. joined the Company in January of 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 Healthcare Strategy Practice.
Douglas M. Krebs joined the Company in June 1994 as a Regional Vice President.
He was promoted to Senior Vice President and Area Manager in April 1999. On
February 1, 2000, Mr. Krebs 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.
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. He was named Chief Quality
Officer in January of 2000.
Richard J. Flanigan, Jr. joined the Company in November 1994 as a Regional Vice
President. In 1997, his responsibilities were extended and he was named as
General Manager. He was promoted to Senior Vice President in April 2000. 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 and was
promoted to Senior Vice President in April 2000. Prior to joining the Company,
Mr. Garver spent ten years with Andersen Consulting in a variety of roles within
the systems integration practice.
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. He was promoted to Senior Vice President in March
2002
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. He
was promoted to Senior Vice President in March 2001.
Stanley M. Sword joined the Company in August 1998 as Vice President. He was
promoted to Senior Vice President in March 2002. Prior to joining Cerner, he
served as a client partner in the outsourcing practice of AT&T Solutions and as
the Vice President of Organization Development for NCR Corporation. Prior to
joining AT&T, Mr. Sword spent ten years with Anderson Consulting in a variety of
roles within the systems integration practice.
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
15
<PAGE>
Marley Company for seven years, holding the position of Assistant General
Counsel when he left to join Farmland.
16
<PAGE>
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 2001 and 2000 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.
<TABLE>
<CAPTION>
2001 2000
------------------------------------- ----------------------------------------
High Low Last High Low Last
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
First quarter 61.50 30.81 34.25 40.88 17.88 27.00
Second quarter 49.50 28.00 42.00 32.14 19.75 27.25
Third quarter 57.35 37.57 49.50 48.00 26.31 46.44
Fourth quarter 60.00 45.06 50.69 64.88 40.50 46.25
</TABLE>
At January 31, 2002, there were approximately 1,200 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
<TABLE>
<CAPTION>
2001(1)(2) 2000(3)(4)(5)(6)(7) 1999(8)(9) 1998(10) 1997
---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Statements of Earnings Data:
Revenues $ 542,605 404,504 340,197 330,902 245,057
Operating earnings 61,532 25,602 3,698 33,530 22,170
Earnings (loss) before income taxes and extraordinary
item (63,314) 172,123 302 33,268 24,484
Extraordinary item - early extinguishment of debt - - (1,395) - -
Net earnings (loss) (42,366) 105,265 (1,211) 20,589 15,148
Earnings (loss) per share before extraordinary item:
Basic (1.21) 3.08 .01 .63 .46
Diluted (1.21) 2.96 .01 .61 .45
Earnings (loss) per share:
Basic (1.21) 3.08 (.04) .63 .46
Diluted (1.21) 2.96 (.04) .61 .45
Weighted average shares outstanding:
Basic 34,907 34,123 33,623 32,825 32,881
Diluted 34,907 35,603 33,916 33,667 33,668
Balance Sheet Data:
Working capital $ 189,488 186,181 170,053 118,681 156,808
Total assets 712,302 616,411 660,891 436,485 331,781
Long-term debt, net 92,132 102,299 100,000 25,000 30,026
Stockholders' equity 394,839 343,717 378,937 271,143 233,747
</TABLE>
(1) Includes a non-recurring gain on the settlement of the WebMD
performance warrants. The impact of this gain is a $4.8 million (net of
tax) increase in net earnings and an increase to diluted earnings per
share of $.13 for 2001.
(2) Includes a non-recurring charge on the adjustment of the carrying value
of the WebMD shares. The impact of this charge is an $81.4 million (net
of tax) decrease in net earnings and a decrease to diluted earnings per
share of ($2.21) for 2001.
(3) Includes a non-recurring investment gain of $120.4 million, net of
$68.3 million tax expense, related to the conversion of shares of
CareInsite common stock to shares of WebMD common
17
<PAGE>
stock. The impact of this non-recurring investment gain on diluted
earnings per share was $3.38 for 2000.
(4) Includes a non-recurring investment loss of $24.5 million, net of $13.9
million tax benefit, related to the sale of shares of WebMD common
stock. The impact of this non-recurring investment loss on diluted
earnings per share was ($.69) for 2000.
(5) Includes a non-recurring charge of $6.7 million related to the
write-down of intangible assets associated with the acquisition of
Health Network Ventures, Inc. The impact of this non-recurring charge
on diluted earnings per share was ($.19) for 2000.
(6) Includes a non-recurring charge of $3.2 million related to the
acquisition of CITATION Computer Systems, Inc. The impact of this
non-recurring charge on diluted earnings per share was ($.09) for 2000.
(7) Includes a non-recurring charge of $1.0 million, net of $.7 million tax
benefit, related to the acquisition of ADAC Healthcare Information
Systems, Inc. The impact of this non-recurring charge on diluted
earnings per share was ($.03) for 2000.
(8) Includes a non-recurring charge of $5.8 million, net of $3.6 million
tax benefit, related to the cost in excess of revenues of completing
fixed fee implementation contracts. The impact of this non-recurring
charge on diluted earnings per share was ($.17) for 1999.
(9) Includes a non-recurring charge of $.9 million, net of $.5 million tax
benefit, related to the accrual of branch restructuring costs. The
impact of this non-recurring charge on diluted earnings per share was
($.03) for 1999.
(10) Includes a non-recurring charge of $3.1 million, net of $1.9 million
tax benefit, related to the acquisition of Multum Information Services,
Inc. The impact of this non-recurring charge on diluted earnings per
share was ($.09) for 1998.
Summary Pro-forma Financial Data
(Statements of Earnings Data Excluding Non-Recurring Gains, Losses and Charges)
<TABLE>
<CAPTION>
2001(1)(2) 2000(3)(4)(5)(6)(7) 1999 (8)(9) 1998(10) 1997
---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Statements of Earnings Data, Before
Non-recurring Gains, Losses and Charges:
Revenues $ 542,605 404,504 340,197 330,902 245,057
Operating earnings 61,532 37,189 14,505 38,568 22,170
Earnings before income taxes and extraordinary item 56,723 33,518 11,109 38,306 24,484
Extraordinary item - early extinguishment of debt - - (1,395) - -
Net earnings 34,217 20,366 5,462 23,687 15,148
Earnings per share before extraordinary item:
Basic .98 .60 .20 .72 .46
Diluted .93 .57 .20 .70 .45
Earnings per share:
Basic .98 .60 .16 .72 .46
Diluted .93 .57 .16 .70 .45
Weighted average shares outstanding:
Basic 34,907 34,123 33,623 32,825 32,881
Diluted 36,843 35,603 33,916 33,667 33,668
</TABLE>
18
<PAGE>
(1) Pro-Forma Statement of Earnings Data excludes a non-recurring gain on
the settlement of the WebMD performance warrants. The impact of this
gain is a $4.8 million (net of tax) increase in net earnings and an
increase to diluted earnings per share of $.13 for 2001.
(2) Pro-Forma Statement of Earnings Data excludes a non-recurring charge on
the adjustment of the carrying value of the WebMD shares. The impact of
this charge is an $81.4 million (net of tax) decrease in net earnings
and a decrease to diluted earnings per share of ($2.21) for 2001.
(3) Pro-Forma Statement of Earnings Data excludes a non-recurring
investment gain of $120.4 million, net of $68.3 million tax expense,
related to the conversion of shares of CareInsite common stock to
shares of WebMD common stock. The impact of this non-recurring
investment gain on diluted earnings per share was $3.38 for 2000.
(4) Pro-Forma Statement of Earnings Data excludes a non-recurring
investment loss of $24.5 million, net of $13.9 million tax benefit,
related to the sale of shares of WebMD common stock. The impact of this
non-recurring investment loss on diluted earnings per share was ($.69)
for 2000.
(5) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$6.7 million related to the write-down of intangible assets associated
with the acquisition of Health Network Ventures, Inc. The impact of
this non-recurring charge on diluted earnings per share was ($.19) for
2000.
(6) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$3.2 million related to the acquisition of CITATION Computer Systems,
Inc. The impact of this non-recurring charge on diluted earnings per
share was ($.09) for 2000.
(7) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$1.0 million, net of $.7 million tax benefit, related to the
acquisition of ADAC Healthcare Information Systems, Inc. The impact of
this non-recurring charge on diluted earnings per share was ($.03) for
2000.
(8) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$5.8 million, net of $3.6 million tax benefit, related to the cost in
excess of revenues of completing fixed fee implementation contracts.
The impact of this non-recurring charge on diluted earnings per share
was ($.17) for 1999.
(9) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$.9 million, net of $.5 million tax benefit, related to the accrual of
branch restructuring costs. The impact of this non-recurring charge on
diluted earnings per share was ($.03) for 1999.
(10) Pro-Forma Statement of Earnings Data excludes a non-recurring charge of
$3.1 million, net of $1.9 million tax benefit, related to the
acquisition of Multum Information Services, Inc. The impact of this
non-recurring charge on diluted earnings per share was ($.09) for 1998.
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
- ------------
In 2001, the Company set records in bookings, revenues, pro-forma earnings and
cash flow. The Company continued to expand its product line to more than 40
products at the end of 2001, and the breadth of the Company's products was
evidenced by record bookings contributions from ten different application
categories. The Company continued to build new client relationships, with
approximately 40 percent of new business bookings coming from clients that had
no prior relationship with the Company. The Company also continued to strengthen
its strategic presence in Europe. Operationally, the Company brought 420
Millennium applications live in 2001, bringing the total number of live
applications to more than 1,200.
The Company continued to address new markets in 2001 with the launch of two
major new application suites, ProFit and Cerner ProVision. During 2001, the
Company completed a major implementation of ProFit, the Company's patient
accounting solution, improving its position to address an estimated $3 billion
market. ProVision, the Company's enterprise wide image management solution, was
also launched in 2001. ProVision allows the Company to be competitive in an
estimated $1 billion market.
Several industry forces continue to create significant pressures on health care
organizations to expand the use of information technology. The Leapfrog Group is
becoming an increasing force for driving systemic change in health care
organizations. Leapfrog recommends that employers select health plans with
hospitals that use a computerized physician-order-entry system as a primary
method of eliminating medical errors in hospitals. The Institute of Medicine
issued a report in 2001 indicating that the use of information technology is
critical to improving the quality and safety of health care. The industry is
also facing workforce shortages, with as many as 126,000 open nursing positions,
and this issue could be exacerbated in coming years by the very large increase
in demand for health care services that will be caused by the aging of the baby
boomers, the average of whom will be approximately 65 years old by 2010. The
Health Insurance Portability and Accountability Act of 1996 (HIPAA) adds an
additional element of complexity for healthcare organizations around security
and patient confidentiality.
The Company believes the wide range of issues health care organizations face can
be best addressed with information technology. The Company believes that its
investment in the Millennium architecture creates a major competitive advantage.
Millennium is the only fully integrated, large-scale, contemporary,
enterprise-wide architecture in the industry. This integration and the
comprehensiveness of the Company's solutions position the Company very well to
address the array of issues faced by health care organizations.
Results of Operations
- ---------------------
Year Ended December 29, 2001, Compared to Year Ended December 30, 2000
The Company's revenues increased 34% to $542,605,000 in 2001 from $404,504,000
in 2000. Net earnings, before non-recurring charges and credits were $34,217,000
in 2001 compared to $20,366,000 in 2000. Non-recurring charges and credits in
2001, as described below, included a gain on software license settlement and
investment losses. Non-recurring charges and credits in 2000, as described
below, included a realized investment gain and loss, write-offs of acquired
in-process research and development and a write-down of intangible assets.
Including the non-recurring charges and credits, the Company had a loss of
$42,366,000 in 2001 compared to net earnings of $105,265,000 in 2000.
Revenues - In 2001, revenues increased due to an increase in system sales and
support of installed systems. System sales increased 42% to $373,078,000 in 2001
from $263,109,000 in 2000. Included in system sale are revenues from the sale of
software, hardware, sublicensed software and professional services. The increase
in system sales is due to an increase in new contract bookings in 2001 compared
to 2000.
20
<PAGE>
Total sales to the installed base in 2001, including new systems, incremental
hardware and software, support and maintenance services and discrete services,
were 73% of total revenues in 2001 compared to 77% in 2000.
At December 29, 2001, the Company had $566,280,000 in contract backlog and
$221,393,000 in support and maintenance backlog, compared to $439,943,000 in
contract backlog and $184,360,000 in support and maintenance backlog at the end
of 2000.
Support and maintenance revenues increased 22% in 2001 compared to 2000.
Included in support and maintenance are revenues from support and maintenance of
software, hardware and sublicensed software. These revenues represented 26% of
2001 and 28% of 2000 total revenues. This increase was due primarily to the
increase in the Company's installed and converted client base.
Other revenues increased 9% to $28,861,000 in 2001 from $26,497,000 in 2000.
Included in other revenues are revenues from subscriptions, services to clients
and education to clients. This increase was due primarily to additional revenues
derived from subscriptions and services to clients.
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 21% of total revenues in 2001,
and 22% of total revenues in 2000. 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,
tradeshow costs and advertising costs. These expenses as a percent of total
revenues were 42% in both 2001 and 2000. 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 2001
and 2000 were $113,872,000 and $90,694,000, respectively. These amounts exclude
amortization. Capitalized software costs were $37,828,000 and $30,982,000 for
2001 and 2000, respectively.
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 7% in both 2001 and 2000.
Write-off of Acquired In-Process Research and Development - Write-off of
acquired in-process research and development includes one-time expenses
resulting from the acquisitions of CITATION Computer Systems, Inc. and ADAC
Healthcare Information Systems, Inc., in 2000.
Write-down of Intangible Assets - Write-down of intangible assets is a one-time
expense resulting from the decision to discontinue a portion of the Health
Network Ventures, Inc. business as more fully described in Note 2 to the
Consolidated Financial Statements.
Interest Expense, Net - Interest income was $2,896,000 in 2001 compared to
$3,645,000 in 2000. This decrease is due primarily to a decrease in invested
cash. Interest expense was $7,321,000 in 2001 compared to $7,316,000 in 2000.
Write-Down of Investment - The write-down of investment is a non-recurring
charge related to the adjustment of the carrying value of the WebMD shares in
2001.
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<PAGE>
Gain on Software License Settlement - The gain on software license settlement is
a non-recurring gain related to the settlement of the WebMD performance warrants
in 2001.
Realized Gain on Exchange of Stock - The realized gain on exchange of stock is a
non-recurring investment gain related to the exchange of CareInsite shares for
WebMD shares in 2000.
Realized Loss on Sale of Stock - The realized loss on sale of stock is a
non-recurring investment loss related to the sale of Cybercare shares in 2001
and a portion of the WebMD shares in 2000.
Income Taxes - The Company's effective tax rate was a benefit of 33% in 2001 and
an expense of 39% in 2000. The benefit is a result of the non-recurring loss on
the WebMD shares and other permanent differences.
Year Ended December 30, 2000, Compared to Year Ended January 1, 2000
The Company's revenues increased 19% to $404,504,000 in 2000 from $340,197,000
in 1999. Net earnings, before extraordinary item and non-recurring charges and
credits was $20,366,000 in 2000 compared to $6,857,000 in 1999. Non-recurring
charges and credits in 2000, as described below, included a realized investment
gain and loss, write-off of acquired in-process research and development and a
write-down of intangible assets. Non-recurring charges in 1999, as described
below, include contract reserves and branch restructuring charges. Including the
extraordinary item and non-recurring charges, the Company had earnings of
$105,265,000 in 2000 compared to a loss of $1,211,000 in 1999.
Revenues - In 2000, revenues increased due to an increase in system sales and
support of installed systems. System sales increased 17% to $263,109,000 in 2000
from $224,510,000 in 1999. Included in system sale are revenues from the sale of
software, hardware, sublicensed software and professional services. The increase
in system sales is due to an increase in new contract bookings in 2000 compared
to 1999.
Total sales to the installed base in 2000, including new systems, incremental
hardware and software, support and maintenance services and discrete services,
were 77% of total revenues in 2000 compared to 75% in 1999.
At December 30, 2000, the Company had $439,943,000 in contract backlog and
$184,360,000 in support and maintenance backlog, compared to $338,614,000 in
contract backlog and $162,798,000 in support and maintenance backlog at the end
of 1999.
Support and maintenance revenues increased 22% in 2000 as compared to 1999.
Included in support and maintenance are revenues from support and maintenance of
software, hardware and sublicensed software. These revenues represented 28% of
2000 and 1999 total revenues.
Other revenues increased 23% to $26,497,000 in 2000 from $21,489,000 in 1999.
Included in other revenues are revenues from subscriptions, services to clients
and education to clients. This increase was due primarily to additional revenues
derived from subscriptions and services to clients; these increases were
$1,765,000 and $2,324,000, respectively. The Company anticipates that other
revenues will continue to increase in 2001.
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 22% of total revenues in 2000,
and 25% of total revenues in 1999, excluding a non-recurring charge relating to
fixed fee implementation contracts, as described below. 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.
22
<PAGE>
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 Cerner 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 Cerner 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 estimated that the costs to complete
certain fixed fee implementation contracts would 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. $7,148,000
of these additional costs were incurred in 2000, with the remaining costs to be
completed in 2001. There were no significant changes in the estimates of the
costs to complete in 2000.
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,
tradeshow costs and advertising costs. These expenses as a percent of total
revenues were 42% in 2000 and 41% in 1999, excluding a non-recurring charge
related to the closing of five branch offices, as described below. 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 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. All of these costs were paid in 2000. The Company
continued to maintain offices in Denver, Colorado; Detroit, Michigan; St. Louis,
Missouri; Dallas, Texas; Washington, D.C.; Chesapeake, Virginia; Houston, Texas;
Brussels, Belgium and Sydney, Australia, in addition to the world headquarters
in North 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 2000
and 1999 were $90,694,000 and $88,699,000, respectively. These amounts exclude
amortization. Capitalized software costs were $30,982,000 and $30,192,000 for
2000 and 1999, respectively.
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 7% in 2000 and 8% in 1999.
Write-off of In-Process Research and Development - Write-off of in-process
research and development includes one-time expenses resulting from the
acquisitions of CITATION Computer Systems, Inc. and ADAC Healthcare Information
Systems, Inc., in 2000.
Write-down of Intangible Assets - Write-down of intangible assets is a one-time
expense resulting from the decision to discontinue a portion of the Health
Network Ventures, Inc. business as more fully described in Note 2 to the
Consolidated Financial Statements.
Interest Expense, Net - Net interest expense was $3,671,000 in 2000 compared to
$3,396,000 in 1999. The increase is due to an increase in borrowings.
Realized Gain on Exchange of Stock - The Realized gain on exchange of stock is a
non-recurring investment gain related to the exchange of CareInsite shares for
WebMD shares in 2000.
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<PAGE>
Realized Loss on Sale of Stock - The realized loss on sale of stock is a
non-recurring investment loss related to the sale of a portion of the WebMD
shares in 2000.
Income Taxes - The Company's effective tax rate was 39% in 2000 and 1999.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents of $107,536,000 at the end of
2001 and working capital of $189,488,000 compared to cash and cash equivalents
of $90,893,000 at the end of 2000 and working capital of $186,181,000.
The Company generated cash of $64,838,000, $53,313,000 and $27,389,000 from
operations in 2001, 2000 and 1999, respectively. Cash flow from operations
increased in 2001 and 2000, due primarily to the increase in net earnings before
noncash charges, increased collection of receivables, improved payment terms and
record level of conversions. Cash flow from operations increased in 1999, due
primarily to increased collection of receivables, improved payment terms and
record level of conversions.
Cash used in investing activities consisted primarily of capitalized software
development costs of $37,828,000 and $30,982,000 and purchases of capital
equipment, land and buildings of $25,722,000 and $16,154,000 in 2001 and 2000,
respectively. The Company also made additional investments in affiliates of
$1,664,000 and $7,370,000 and completed acquisitions of businesses for
$4,045,000 and $16,829,000 in 2001 and 2000, respectively.
Revenues provided under support and maintenance agreements represent recurring
cash flows. Support and maintenance revenues increased 22%, 22% and 23%, in
2001, 2000 and 1999, respectively, and the Company expects these revenues to
continue to grow as the base of installed systems grows.
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 are being used
for 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 December 29,
2001.
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 and the
amounts the Company invests in software development, acquisitions and capital
expenditures. 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
(4.75% at December 29, 2001) less .5% or LIBOR (1.87% at December 29, 2001) plus
1.35%. The interest rate may be reduced by up to .5% if certain net worth ratios
are maintained. At December 29, 2001, the Company had $15,000,000 in outstanding
borrowings under this agreement and had $30,000,000 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 1/4% is payable quarterly on the unused portion of the
revolving line of credit. The revolving line of credit matures on September 30,
2002. The Company believes that its present cash position, together with cash
generated from operations, will be sufficient to meet anticipated cash
requirements during 2002.
At December 29, 2001, the Company was committed to spending between $35,000,000
to $40,000,000 under a construction contract for a new building at its Kansas
City headquarters complex. The construction will be financed by the Company's
line of credit and cash generated from operations.
24
<PAGE>
The effects of inflation on the Company's business during 2001 and 2000 were not
significant.
Critical Accounting Policies
- ----------------------------
The Company believes that there are several accounting policies that are
critical to understanding the Company's historical and future performance, as
these policies affect the reported amount of revenue and other significant areas
involving management's judgements and estimates. These significant accounting
policies relate to revenue recognition, software development, other than
temporary declines in the market value of investments, allowance for doubtful
accounts, and potential impairments of goodwill. These policies and the
Company's procedures related to these policies are described in detail below and
under specific areas within the discussion and analysis of the Company's
financial condition and results of operations. In addition, please refer to Note
1 to the accompanying financial statements for further discussion of the
Company's accounting policies.
Revenue Recognition
- -------------------
Revenues are derived primarily from the sale of clinical and financial
information systems and solutions. The components of these revenues are the
licensing of computer software, software support and hardware maintenance,
remote hosting and outsourcing, training, installation, consulting and
implementation services, subscription content, and the sale of computer hardware
and sublicensed software.
The Company recognizes revenue in accordance with the provisions of Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition," as amended by SOP No.
98-4, SOP 98-9 and clarified by Staff Accounting Bulletin (SAB) 101 "Revenue
Recognition in Financial Statements". SOP No 97-2, as amended, generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on the relative fair values of those
elements. Revenue from multiple-element software arrangements is recognized
using the residual method. Under the residual method, revenue is recognized in a
multiple element arrangement when Company-specific objective evidence of fair
value exists for all of the undelivered elements in the arrangement (i.e.
professional services, maintenance, hardware and sublicensed software), but does
not exist for one or more of the delivered elements in the arrangement (i.e.
software products). The Company allocates revenue to each element in a multiple
element arrangement based on the element's respective fair value, with the fair
value determined by the price charged when that element is sold separately.
Specifically, the Company determines the fair value of the maintenance portion
of the arrangement based on the renewal price of the maintenance charged to
clients, professional services portion of the arrangement, other than
installation services, based on hourly rates which the Company charges for these
services when sold apart from a software license, and the hardware and
sublicense software based on the prices for these elements when they are sold
separate from the software. If evidence of the fair value cannot be established
for the undelivered elements of a license agreement, the entire amount of
revenue under the arrangement is deferred until these elements have been
delivered or objective evidence can be established.
Inherent in the revenue recognition process are significant management estimates
and judgements which influence the timing and the amount of revenue recognition.
The Company provides several models for the procurement of its clinical and
financial information systems. The predominant method is a perpetual software
license agreement, project related installation services, implementation and
consulting services, computer hardware and sublicensed software, and software
support. For those arrangements involving the use of services, the Company uses
the percentage of completion method of accounting, following the guidance in the
AICPA Statement of Position No. 81-1 (SOP 81-1), Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.
The Company provides installation services, which include project scoping
services, conducting pre-installation audit and creating initial environments.
Because installation services are deemed to be essential to the functionality of
the software, software license and installation services fees are recognized
over the software installation period using output measures which reflect direct
labor hours incurred,
25
<PAGE>
beginning at software delivery and culminating at completion of installation,
typically a three to six month process.
The Company also provides implementation and consulting services, which include
consulting activities that fall outside of the scope of the standard
installation services. These services vary depending on the scope and complexity
requested by the client. Examples of such services may include additional
database consulting, system configuration, project management, testing
assistance, network consulting and post conversion review services.
Implementation and consulting services are generally not deemed to be essential
to the functionality of the software, and, thus, do not impact the timing of the
software license recognition, unless software license fees are tied to
implementation milestones. In those instances, the portion of the software
license fee tied to implementation milestones is deferred until the related
milestone is accomplished and related fees become billable and non-forfeitable.
Implementation fees are recognized over the service period, which may extend
from six months to three years.
Remote hosting and outsourcing services are marketed under long-term
arrangements generally over periods of 5 to 10 years. Revenues from these
arrangements are recognized as the services are performed.
Software maintenance fees are marketed under annual and multi-year arrangements
and are recognized as revenue ratably over the contracted maintenance term.
Hardware maintenance revenues are billed and recognized monthly over the
contracted maintenance term.
Subscription and content fees are generally marketed under annual and multi-year
agreements and are recognized ratably over the contracted terms.
Hardware and sublicensed software sales are generally recognized upon delivery
to the customer.
The Company also offers its products on an application service provider ("ASP")
or a term license basis, making available Company software functionality on a
remote processing basis from the Company's data centers. The data centers
provide system and administrative support as well as processing services.
Revenue on software and services provided on an ASP or term license basis is
recognized on a monthly basis over the term of the contract. The Company
capitalizes related direct costs consisting of third party costs and direct
software installation and implementation costs. These costs are amortized over
the term of the arrangement.
In the event the Company contractually agrees to develop new or customized
software code for a client, the Company will utilize percentage of completion
accounting in accordance with SOP 81-1.
Deferred revenue is comprised of deferrals for license fees, maintenance and
other services for which payment has been received and for which the service has
not yet been performed. Long-term deferred revenue, at December 29, 2001,
represents amounts received from license fees, maintenance and other services to
be earned or provided beginning in periods on or after December 29, 2002.
Software Development Costs
- --------------------------
Costs incurred internally in creating computer software products are expensed
until technological feasibility has been established upon completion of a
detailed 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 expected
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 over five years. During 2001, 2000 and
1999, the Company capitalized $37,828,000, $30,982,000 and $30,192,000,
respectively, of total software development costs of $113,872,000, $90,694,000,
and $88,699,000, respectively. Amortization expense of capitalized software
development costs in 2001, 2000, and 1999 was $24,142,000, $18,713,000, and
$14,156,000, respectively, and accumulated amortization was $100,553,000,
$76,411,000, and $57,698,000, respectively.
26
<PAGE>
The Company expects that major software information systems companies, large
information technology consulting service providers and systems 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 capitalized software may become less valuable or
obsolete and could be subject to impairment.
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. For
realized gains and losses on available-for-sale investments, the Company
utilizes the specific identification method as the basis to determine cost.
Investments in the common stock of certain affiliates over which the Company
exerts significant influence are accounted for by the equity method.
The Company also has certain other minority equity investments in non-publicly
traded securities. These investments are generally carried at cost as the
Company owns less than 20% of the voting equity and does not have the ability to
exercise significant influence over these companies. The balance of these
investments at December 29, 2001 and December 30, 2000 was $18,212,000 and
$26,601,000, respectively. These investments are inherently high risk as the
market for technologies and content by these companies are usually early stage
at the time of the investment by the Company and such markets may never be
significant. The Company could lose its entire investment in certain or all of
these companies. The Company monitors these investments for impairment and makes
appropriate reductions in carrying values when necessary.
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.
Concentrations
- --------------
Substantially all of the Company's cash and cash equivalents and short-term
investments, are held at two major U.S. financial institutions. The majority of
the Company's cash equivalents consist of U.S. Government Federal Agency
Securities, short-term marketable securities, and overnight repurchase
agreements. Deposits held with banks may exceed the amount of insurance provided
on such deposits. Generally these deposits may be redeemed upon demand and,
therefore, bear minimal risk.
Substantially all of the Company's clients are integrated delivery networks,
hospitals, and other healthcare related organizations. If significant adverse
macro-economic factors were to impact these organizations it could materially
adversely affect the Company. The Company's access to certain software and
hardware components are dependent upon single and sole source suppliers. The
inability of any supplier to fulfill supply requirements of the Company could
affect future results.
Allowance for Doubtful Accounts
- -------------------------------
The Company performs ongoing credit evaluations of its clients and generally
does not require collateral from its clients. The Company maintains an allowance
for potential losses on a specific identification basis and based on historical
experience and management's judgements. The Company's allowance for doubtful
accounts as of December 29, 2001 and December 30, 2000 was $6,880,000 and
$5,999,000, respectively.
Goodwill
- --------
Excess of cost over net assets acquired (goodwill) is being amortized on a
straight-line basis over four to eight years. Accumulated amortization was
$8,727,000, and $5,964,000 at the end of 2001, and 2000, respectively. The
Company assesses the recoverability of goodwill based on forecasted undiscounted
27
<PAGE>
future operating cash flows. Estimates of future operating cash flows inherently
involve substantial management judgement about the likely impacts of current and
future events and conditions.
On June 30, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Intangible Assets". Major provisions
of these Statements are as follows: all business combinations initiated after
June 30, 2001 must use the purchase method of accounting; the pooling of
interests method of accounting is prohibited except for transactions initiated
before July 1, 2001; intangible assets acquired in a business combinations must
be recorded separately from goodwill if they arise from contractual or other
legal rights or are separable from the acquired entity and can be sold,
transferred, licensed, retired or exchanged, either individually or as part of a
related contract, asset or liability; goodwill and intangible assets with
indefinite lives are not amortized but are tested for impairment annually, and
whenever there is an impairment indicator; all acquired goodwill must be
assigned to reporting units for purposes of impairment testing and segment
reporting; and effective January 1, 2002, goodwill from previous acquisitions
will no longer be subject to amortization, but will be subject to annual
evaluations for impairment based on fair value. The Company completed two
acquisitions subsequent to June 30, 2001, which resulted in approximately, $14.2
million of goodwill that was not amortized in accordance with SFAS 142. Goodwill
amortization for 2001 was approximately $2,247,000. Management is currently
reviewing the impact that the provisions of this statement will have on the
Company's financial statements.
Factors that may Affect Future Results of Operations, Financial Condition or
- ----------------------------------------------------------------------------
Business
- --------
Statements made in this report, the Annual Report to Shareholders in which this
report is made a part, 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 "could,"
"should," "will be," "will lead," "will assist," "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, potentially
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 Cerner 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 client. The sale may be subject to delays due to clients' 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 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 one month to three years and may
involve significant efforts both by the Company and the client. 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
28
<PAGE>
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 generally 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.
At December 29, 2001, the Company owned 14,820,527 shares of common stock of
WebMD Corporation (WebMD) (formerly CareInsite, Inc.), which have a cost basis
of $85,811,000 and a carrying value of $104,485,000, as these shares are
accounted for as available-for-sale. 2,000,000 shares of WebMD held by the
Company are not registered. At December 29, 2001 the Company also holds
1,048,783 warrants of WebMD with an exercise price of $3.08 and a cost basis and
carrying value of $4,146,000. The warrants are carried at cost, as they do not
have a fair value that is currently available on a securities exchange. The
warrants expire on January 26, 2003.
On February 13, 2000 CareInsite entered into an agreement to merge with WebMD.
The merger of CareInsite and WebMD ("Merger") closed on September 12, 2000.
Prior to the merger, the carrying value of the CareInsite stock was $6.22 per
share, the market price of WebMD on September 12, 2000 was $15.00 per share.
Upon the exchange of CareInsite stock for WebMD stock the Company recorded a
non-recurring investment gain of $120,362,000, net of tax, as a result of the
exchange.
On December 12, 2000, the Company sold 4,273,509 shares of WebMD for
$25,641,000. Accordingly, the Company recorded a non-recurring investment loss
of $24,539,000, net of tax, as a result of the sale.
On June 18, 2001 the Company reached an agreement with WebMD regarding certain
performance metrics related to specified levels of physician usage arising out
of the original license transaction between the Company and CareInsite, which
has been merged into WebMD. Under the agreement, the Company received 2,000,000
shares of WebMD stock, valued at $11,580,000, in exchange for $432,000 in cash
and the cancellation of various obligations due to the Company by WebMD. As a
result of this agreement, the Company recognized a non-recurring gain of
$4,836,000, net of $2,744,000 in tax, on software license settlement in the
accompanying consolidated statement of operations. The Company's policy is to
review declines in fair value of its marketable equity securities for declines
that may be other than temporary. As a result of this policy, during the second
quarter of 2001, the Company recorded a
29
<PAGE>
write-down of its investment in WebMD from $15.00 to $5.79 per share.
Accordingly, the Company recognized a charge to earnings in 2001 of $81,419,000,
net of $46,197,000 in tax.
At December 29, 2001, marketable securities (which consist of money market and
commercial paper) of the Company were recorded at cost, which approximates fair
value of approximately $108 million, with an overall average return of
approximately 4.5% and an overall weighted maturity of less than 90 days. The
marketable securities held by the Company are not subject to significant price
risk as a result of the short-term nature of the investments.
The Company has limited exposure to material future earnings or cash flow
exposures from changes in interest rates on long-term debt since substantially
all of its long-term debt is at a fixed rate. The Company also had $15,000,000
outstanding under its working capital line of credit, which has a variable
interest rate based on prime (4.75% at December 29, 2001) less .5% or LIBOR
(1.87% at December 29, 2001) plus 1.35%. 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 instruments to manage
foreign currency risk.
Potential Impairment of Goodwill - Excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over four to eight years.
Accumulated amortization was $8,727,000, and $5,964,000 at the end of 2001, and
2000, respectively. The Company assesses the recoverability of goodwill based on
forecasted undiscounted future operating cash flows.
Effective January 1, 2002, under SFAS 141 and SFAS 142 goodwill from previous
acquisitions will no longer be subject to amortization, but will be subject to
annual evaluations for impairment based on fair value. The Company completed two
acquisitions subsequent to June 30, 2001, which resulted in approximately $14.2
million of goodwill that was not amortized in accordance with SFAS 142. Goodwill
amortization for 2001 was approximately $2,247,000. In the event that goodwill
becomes impaired the Company would be required to take a charge against earnings
for the impairment.
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. In
addition, the issued and pending rules under the Health Information Portability
and Accountability Act of 1996 (HIPAA), will have a direct impact on the
healthcare industry by requiring identifiers and standardized transactions/code
sets and necessary security and privacy measures in order to ensure the
protection of patient health information. 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 client base
could be eroded, competition for clients could become more intense and the
importance of acquiring each client 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
30
<PAGE>
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 GE Medical Systems, Siemens Medical Solutions
Health Services 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, on a timely
and cost-effective basis, new and enhanced products that satisfy changing client
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 recently initiated a patent
program but currently has a very limited patent portfolio. 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 were 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
31
<PAGE>
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 could 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 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 Cerner
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 (a) a Board of
Directors that is staggered into three classes to serve staggered three-year
terms, (b) blank check preferred stock, (c) supermajority voting provisions, (d)
inability of shareholders to act by written consent or call a special meeting,
(e) limitations on the ability of shareholders to nominate directors or make
proposals at shareholder meetings and (f) 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.
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.
32
<PAGE>
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 Shareholders to be held on May 24, 2002, 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 Shareholders to be held on May 24, 2002, 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 Shareholders to be held on May 24, 2002, 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 Shareholders to be held on May 24, 2002, 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 Shareholders to be held on May 24, 2002, 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.
33
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K
(a) Financial Statements.
<TABLE>
<CAPTION>
<S> <C>
(1) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial Statements
Consolidated Balance Sheets -
December 29, 2001 and December 30, 2000
Consolidated Statements of Operations -
Years Ended December 29, 2001, December 30, 2000 and January 1, 2000
Consolidated Statements of Changes In Equity
Years Ended December 29, 2001, December 30, 2000 and January 1, 2000
Consolidated Statements of Cash Flows
Years Ended December 29, 2001, December 30, 2000 and January 1, 2000
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 December 29, 2001 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:
</TABLE>
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
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) Amended and Restated Bylaws, dated March 9, 2001, (filed as Exhibit 4.2 to
Registrant's Form S-8 filed on September 26, 2001 and hereby incorporated by
reference).
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).
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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).
4(d) First Amendment to Credit Agreement between Cerner Corporation and Firstar Bank
Midwest, N.A., a successor to Mercantile Bank dated June 30, 2000.
4(e) Second Amendment to Credit Agreement between Cerner Corporation and Firstar
Bank, N.A. Overland Park, formerly known as Firstar Bank Midwest, N.A. and
successor to Mercantile Bank dated July 1, 2001.
4(f) Third Amendment to Credit Agreement between Firstar Bank, N.A. formerly known as
or as successor to Firstar Bank, N.A. Overland Park, Firstar Bank Midwest, N.A.
and Mercantile Bank dated December 21, 2001.
4(g) Cerner Corporation Note Agreement dated as of April 1, 1999 among Cerner
Corporation, Principal Life Insurance Company, Principal Life Insurance Company,
on behalf of one or more separate accounts, Commercial Union Life Insurance
Company of America, Nippon Life Insurance Company of America, John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, and
Investors Partner Life Insurance Company (filed as Exhibit 4(e) to Registrant's
Form 8-K date April 23, 1999, and hereby incorporate 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 (filed
as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the year ended
January 1, 2000, and hereby incorporated by reference).*
10(f) Indemnification Agreement between William B. Neaves Ph.D. and Nancy-Ann DeParle
and Registrant (filed as Exhibit 10.1 and 10.2 to Registrant's Form 10-Q for the
quarter ended September 29, 2001 and hereby incorporated herein by reference).*
10(g) Amended Stock Option Plan D of Registrant as of December 8, 2000 (filed as
Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the year ended
December 30, 2000, and hereby incorporated herein by reference).*
10(h) Amended Stock Option Plan E of Registrant as of December 8, 2000 (filed as
Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the year ended
December 30, 2000, and hereby incorporated herein by reference).*
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10(i) Cerner Performance Plan for 2000 (filed as Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the year ended January 1, 2000, and hereby incorporated
herein by reference).*
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).*
10(l) Promissory Notes of Earl H. Devanny, III (filed as Exhibit 10(l) to Registrant's
Annual Report on Form 10-K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
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 (filed as Exhibit 10(q) to
Registrant's Annual Report on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(r) Employment Agreement of Glenn P. Tobin, Ph.D. (filed as Exhibit 10(r) to
Registrant's Annual Report on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(s) Employment Agreement of Stanley M. Sword (filed as Exhibit 10(s) to Registrant's
Annual Report on Form 10-K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
10(t) Employment Agreement of Jack A. Newman, Jr. (filed as Exhibit 10(s) to
Registrant's Annual Report on Form 10-K for the year ended December 30, 2000).*
10(u) Employment Agreement of Robert (Rick) M. Smith.
10(v) Cerner Corporation 2001 Long-Term Incentive Plan F (filed as Annex I to
Registrant's 2001 Proxy Statement and hereby incorporated by reference).*
10(w) Cerner Corporation 2001 Associate Stock Purchase Plan (filed as Annex II
Registrant's 2001 Proxy Statement and hereby incorporated by reference).*
10(x) Qualified Performance-Based Compensation Plan.*
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11 Computation of Registrant's Earnings Per Share. (Exhibit omitted. Information
contained in notes to consolidated financial statements.)
22 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
</TABLE>
* Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K.
Report on Form 8-K was filed on December 21, 2001.
(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.
37
<PAGE>
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 29, 2002 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:
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
/s/ Neal L. Patterson March 29, 2002
- ---------------------------------------
Neal L. Patterson, Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
/s/ Clifford W. Illig March 29, 2002
- ---------------------------------------
Clifford W. Illig, Vice Chairman and Director
/s/ Marc G. Naughton March 29, 2002
- ---------------------------------------
Marc G. Naughton, Senior Vice President and
Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ Michael E. Herman March 29, 2002
- ---------------------------------------
Michael E. Herman, Director
/s/ Gerald E. Bisbee March 29, 2002
- ---------------------------------------
Gerald E. Bisbee, Jr., Ph.D., Director
/s/ John C. Danforth March 29, 2002
- ---------------------------------------
John C. Danforth, Director
/s/ Jeff C. Goldsmith March 29, 2002
- ---------------------------------------
Jeff C. Goldsmith, Ph.D., Director
/s/ William B. Neaves March 29, 2002
- ---------------------------------------
William B. Neaves, Ph.D., Director
/s/ Nancy-Ann DeParle March 29, 2002
- ---------------------------------------
Nancy-Ann DeParle
</TABLE>
38
<PAGE>
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 December 29, 2001 and December 30, 2000, and
the related consolidated statements of operations, changes in equity, and cash
flows for each of the years in the three-year period ended December 29, 2001.
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 auditing standards generally accepted
in the United States of America. 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 December 29, 2001 and December 30, 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 29, 2001, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Kansas City, Missouri
January 23, 2002
- --------------------------------------------------------------------------------
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 accounting principles
generally accepted in the United States of America 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.
39
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 29, 2001 and December 30, 2000
<TABLE>
<CAPTION>
2001 2000
---------------------------------
<S> <C> <C>
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 107,536 90,893
Receivables 220,205 188,036
Inventory 5,834 2,174
Prepaid expenses and other 14,101 7,393
---------------------------------
Total current assets 347,676 288,496
Property and equipment, net 94,705 82,234
Software development costs, net 96,962 83,276
Intangible assets 41,894 22,227
Investments 122,992 130,626
Other assets 8,073 9,552
---------------------------------
$ 712,302 616,411
=================================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 20,942 20,532
Current installments of long-term debt 27,187 72
Deferred revenue 53,304 40,212
Income taxes 5,661 9,718
Accrued payroll and tax withholdings 40,565 27,338
Other accrued expenses 10,529 4,443
---------------------------------
Total current liabilities 158,188 102,315
Long-term debt, net 92,132 102,299
Deferred income taxes 62,393 57,430
Deferred revenue 4,750 10,650
Stockholders' Equity:
Common stock, $.01 par value,150,000,000 shares authorized,
36,564,690 shares issued in 2001 and
35,967,618 shares in 2000 366 360
Additional paid-in capital 216,811 192,715
Retained earnings 188,550 230,916
Treasury stock, at cost (1,201,625 shares in 2001 and 2000) (20,799) (20,799)
Accumulated other comprehensive income:
Foreign currency translation adjustment (2,095) (743)
Unrealized gain (loss) on available-for-sale equity securities
(net of deferred tax liability of $6,810 in 2001 and
deferred tax asset of $33,036 in 2000) 12,006 (58,732)
---------------------------------
Total stockholders' equity 394,839 343,717
---------------------------------
Commitments (Note 13)
$ 712,302 616,411
=================================
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
For the years ended December 29, 2001, December 30, 2000 and January 1, 2000
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share data)
Revenues
System sales $ 373,078 263,109 224,510
Support and maintenance 140,666 114,898 94,198
Other 28,861 26,497 21,489
---------------------------------------------
Total revenues 542,605 404,504 340,197
---------------------------------------------
Costs and expenses
Cost of revenues 115,606 90,118 95,038
Sales and client service 226,776 169,289 141,234
Software development 100,186 78,425 72,663
General and administrative 38,505 29,483 27,564
Write-off of acquired in-process
research and development - 4,900 -
Write-down of intangible assets - 6,687 -
---------------------------------------------
Total costs and expenses 481,073 378,902 336,499
---------------------------------------------
Operating earnings 61,532 25,602 3,698
Other income (expense):
Interest expense, net (4,425) (3,671) (3,396)
Write-down of investment (127,616) - -
Gain on software license settlement 7,580 - -
Realized gain on exchange of stock - 188,654 -
Realized loss on sale of stock (385) (38,462) -
---------------------------------------------
Total other income (expense), net (124,846) 146,521 (3,396)
---------------------------------------------
Earnings (loss) before income taxes and extraordinary item (63,314) 172,123 302
Income taxes 20,948 (66,858) (118)
---------------------------------------------
Earnings (loss) before extraordinary item (42,366) 105,265 184
Extraordinary item, net of tax - - (1,395)
---------------------------------------------
Net earnings (loss) $ (42,366) 105,265 (1,211)
=============================================
Basic earnings (loss) per share before extraordinary item $ (1.21) 3.08 .01
=============================================
Basic earnings (loss) per share $ (1.21) 3.08 (.04)
=============================================
Diluted earnings (loss) per common share before extraordinary item $ (1.21) 2.96 .01
=============================================
Diluted earnings (loss) per common share $ (1.21) 2.96 (.04)
=============================================
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
Consolidated Statements of Changes in Equity
- --------------------------------------------------------------------------------
For the years ended December 29, 2001, December 30, 2000 and January 1, 2000
<TABLE>
<CAPTION>
Accumulated
Additional Treasury other
Common Stock paid-in Retained stock comprehensive Comprehensive
Shares Amount capital earnings amount income income (loss)
----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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 security, net of deferred tax
expense of $59,971 - - - - - 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
=================================================================
Exercise of options 439 5 7,050 - (3) -
Issuance of common stock grants as
compensation 2 - 31 - - -
Acquisition of business 594 6 14,056 - - -
Non-employee stock option compensation
expense - - 229
Fair value of employee stock options
exchanged in acquisition of business
Tax benefit from disqualifying disposition - - 1,089 - - -
of stock options - - 3,525 - - -
Foreign currency translation adjustment - - - - - (766) (766)
Unrealized loss on available-for-sale
equity securities, net of deferred tax
benefit of $92,842 - - - - - (69,807) (69,807)
Reclassification adjustment for gains
recognized in net income, net of
deferred taxes of $54,400 - - - - - (95,900) (95,900)
Net earnings - - - 105,265 - - 105,265
----------------------------------------------------------------------------------
Comprehensive income (loss) (61,208)
==============
Balance at December 30, 2000 35,968 $ 360 192,715 230,916 (20,799) (59,475)
=================================================================
Exercise of options 235 2 4,065 - - -
Acquisition of business 362 4 17,667 - - -
Non-employee stock option compensation
expense - - 215 - - -
Tax benefit from disqualifying disposition
of stock options - - 2,328 - - -
Associate stock purchase plan discounts - - (179) - - -
Foreign currency translation adjustment - - - - - (1,352) (1,352)
Unrealized gain on available-for-sale
equity securities, net of deferred tax
expense of $6,810 - - - - - 12,006 12,006
Reclassification adjustment for losses
recognized in net loss, net of deferred
taxes of $33,036 - - - - - 58,732 58,732
Net loss - - - (42,366) - (42,366)
----------------------------------------------------------------------------------
Comprehensive income 27,020
==============
Balance at December 29, 2001 36,565 $ 366 216,811 188,550 (20,799) 9,911
=================================================================
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the years ended December 29, 2001, December 30, 2000 and January 1, 2000
<TABLE>
<CAPTION>
2001 2000 1999
-------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (42,366) 105,265 (1,211)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 47,305 37,988 31,388
Common stock received as consideration for sale of license software (750) (6,150) -
Write down of investment 127,616 - -
Gain on software license settlement (7,580) - -
Realized gain on exchange of stock - (188,654) -
Realized loss on sale of stock 385 38,462 -
Write-down of intangible assets - 6,687 -
Write-off of acquired in-process research and development - 4,900 -
Non-recurring fixed fee implementation cost - - 9,449
Non-recurring branch restructure charge - - 1,358
Extraordinary item, net of tax - - 1,395
Issuance of common stock grants as compensation - 31 40
Non-employee stock option compensation expense 215 229 239
Equity in losses of affiliates 1,525 1,095 423
Provision for deferred income taxes (43,199) 67,640 (3,165)
Tax benefit from disqualifying dispositions of stock options 2,328 3,525 594
Loss on disposal of capital equipment - 33 478
Changes in operating assets and liabilities (net of businesses acquired):
Receivables, net (26,389) (14,994) 6,200
Inventory (3,252) 595 1,389
Prepaid expenses and other (8,216) (7,025) 844
Accounts payable (4,572) (3,389) (5,207)
Accrued income taxes 10,207 (5,329) 461
Deferred revenue (2,164) 5,280 (16,676)
Other current liabilities 13,745 7,124 (610)
-------------------------------------
Total adjustments 107,204 (51,952) 28,600
-------------------------------------
Net cash provided by operating activities 64,838 53,313 27,389
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital equipment (17,654) (16,154) (14,345)
Purchase of land, buildings, and improvements (8,068) - -
Acquisition of businesses, net of cash received (4,045) (16,829) -
Investment in affiliates (1,664) (7,370) (13,615)
Proceeds from sale of stock of available for sale securities 1,572 26,152 -
Advances to affiliates - 1,000 (1,000)
Issuance of notes receivable (205) (385) (3,628)
Repayment of notes receivable 707 1,152 -
Capitalized software development costs (37,828) (30,982) (30,192)
-------------------------------------
Net cash used in investing activities (67,185) (43,416) (62,662)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 18,088 - 99,568
Repayment of long-term debt (1,634) (967) (32,167)
Proceeds from sale of common stock - - -
Proceeds from exercise of options 4,067 7,052 625
Associate stock purchase plan discounts (179) - -
-------------------------------------
Net cash provided by financing activities 20,342 6,085 68,026
-------------------------------------
Foreign currency translation adjustment (1,352) (766) 266
-------------------------------------
Net increase in cash and cash equivalents 16,643 15,216 33,019
Cash and cash equivalents at beginning of year 90,893 75,677 42,658
-------------------------------------
Cash and cash equivalents at end of year $ 107,536 90,893 75,677
=====================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 7,341 7,348 5,448
Income taxes, net of refund 9,535 930 1,647
Noncash investing and financing activities
Issuance of common stock for acquisition of business 17,671 14,062 -
Issuance of notes payable for acquisition of business - 1,385 -
Addition to paid-in capital for the fair value of
employee stock options exchanged in the acquisition
of business - 1,089 -
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
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) Nature of Operations - The Company designs, develops, markets, installs,
hosts and supports software information technology and content solutions for
healthcare organizations and consumers. The Company also implements these
solutions as individual, combined or enterprise-wide systems.
(c) Revenue Recognition - Revenues are derived primarily from the sale of
clinical and financial information systems and solutions. The components of
these revenues are the licensing of computer software, software support and
hardware maintenance, remote hosting and outsourcing, training, installation,
consulting and implementation services, subscription content, and the sale of
computer hardware and sublicensed software.
The Company recognizes revenue in accordance with the provisions of Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition," as amended by SOP No.
98-4, SOP 98-9 and clarified by Staff Accounting Bulletin (SAB) 101 "Revenue
Recognition in Financial Statements". SOP No 97-2, as amended, generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on the relative fair values of those
elements. Revenue from multiple-element software arrangements is recognized
using the residual method. Under the residual method, revenue is recognized in a
multiple element arrangement when Company-specific objective evidence of fair
value exists for all of the undelivered elements in the arrangement (i.e.
professional services, maintenance, hardware and sublicensed software), but does
not exist for one or more of the delivered elements in the arrangement (i.e.
software products). The Company allocates revenue to each element in a multiple
element arrangement based on its respective fair value, with the fair value
determined by the price charged when that element is sold separately.
Specifically, the Company determines the fair value of the maintenance portion
of the arrangement based on the renewal price of the maintenance charged to
clients, professional services portion of the arrangement, other than
installation services, based on hourly rates which the Company charges for these
services when sold apart from a software license, and the hardware and
sublicense software based on the prices for these elements when they are sold
separate from the software. If evidence of the fair value cannot be established
for the undelivered elements of a license agreement, the entire amount of
revenue under the arrangement is deferred until these elements have been
delivered or objective evidence can be established.
Inherent in the revenue recognition process are significant management
estimates and judgements which influence the timing and the amount of revenue
recognition. The Company provides several models for the procurement of its
clinical and financial information systems. The predominant method is a
perpetual software license agreement, project related installation services,
implementation and consulting services, computer hardware and sublicensed
software, and software support. For those arrangements involving the use of
services, the Company uses the percentage of completion method of accounting,
following the guidance in the AICPA Statement of Position No. 81-1 (SOP 81-1),
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts.
The Company provides installation services, which include project scoping
services, conducting pre-installation audit, and creating initial environments.
Because installation services are deemed to be essential to the functionality of
the software, software license and installation services fees are recognized
over the software installation period using output measures which reflect direct
labor hours incurred, beginning at software delivery and culminating at
completion of installment, typically a three to six month process.
44
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company also provides implementation and consulting services, which include
consulting activities that fall outside of the scope of the standard
installation services. These services vary depending on the scope and complexity
requested by the client. Examples of such services may include additional
database consulting, system configuration, project management, testing
assistance, network consulting and post conversion review services.
Implementation and consulting services are generally not deemed to be essential
to the functionality of the software, and, thus, do not impact the timing of the
software license recognition, unless software license fees are tied to
implementation milestones. In those instances, the portion of the software
license fee tied to implementation milestones is deferred until the related
milestone is accomplished and related fees become billable and non-forfeitable.
Implementation fees are recognized over the service period, which may extend
from six months to three years.
Remote hosting and outsourcing services are marketed under long-term
arrangements generally over periods of 5 to 10 years. Revenues from these
arrangements are recognized as the services are performed.
Software maintenance fees are marketed under annual and multi-year arrangements
and are recognized as revenue ratably over the contracted maintenance term.
Hardware maintenance revenues are billed and recognized monthly over the
contracted maintenance term.
Subscription and content fees are generally marketed under annual and multi-year
agreements and are recognized ratably over the contracted terms.
Hardware and sublicensed software sales are generally recognized upon delivery
to the customer.
The Company also offers its products on an application service provider ("ASP")
or term license basis, making available Company software functionality on a
remote processing basis from the Company's data centers. The data centers
provide system and administrative support as well as processing services.
Revenue on software and services provided on an ASP or term license basis is
recognized on a monthly basis over the term of the contract. The Company
capitalizes related direct costs consisting of third party costs and direct
software installation and implementation costs. These costs are amortized over
the term of the arrangement.
In the event the Company contractually agrees to develop new or customized
software code for a client, the Company will utilize percentage of completion
accounting in accordance with SOP 81-1.
Deferred revenue is comprised of deferrals for license fees, maintenance and
other services for which payment has been received and for which the service has
not yet been performed. Long-term deferred revenue, at December 29, 2001,
represents amounts received from license fees, maintenance and other services to
be earned or provided beginning in periods on or after December 29, 2002.
(d) Fiscal Year - The Company's fiscal year ends on the Saturday closest to
December 31. Fiscal years 2001, 2000 and 1999 consisted of 52 weeks each. All
references to years in these notes to consolidated financial statements
represent fiscal years unless otherwise noted.
(e) Software Development Costs - Costs incurred internally in creating computer
software products are expensed until technological feasibility has been
established upon completion of a detailed 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 expected 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 over
five years. During 2001, 2000 and
45
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1999, the Company capitalized $37,828,000, $30,982,000 and $30,192,000,
respectively, of total software development costs of $113,872,000, $90,694,000,
and $88,699,000, respectively. Amortization expense of capitalized software
development costs in 2001, 2000, and 1999 was $24,142,000, $18,713,000, and
$14,156,000, respectively, and accumulated amortization was $100,553,000,
$76,411,000, and $57,698,000, respectively.
The Company expects that major software information systems companies, large
information technology consulting service providers and systems 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 capitalized software may become less valuable or
obsolete and could be subject to impairment.
(f) Cash Equivalents - Cash equivalents consist of short-term marketable
securities with original maturities less than ninety days.
(g) 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. For realized gains and losses on available-for-sale
investments, the Company utilizes the specific identification method as the
basis to determine cost. Investments in the common stock of certain affiliates
over which the Company exerts significant influence are accounted for by the
equity method.
The Company also has certain other minority equity investments in non-publicly
traded securities. These investments are generally carried at cost as the
Company owns less than 20% of the voting equity and does not have the ability to
exercise significant influence over these companies. The balance of these
investments at December 29, 2001 and December 30, 2000 was $18,212,000 and
$26,601,000, respectively. These investments are inherently high risk as the
market for technologies and content by these companies are usually early stage
at the time of the investment by the Company and such markets may never be
significant. The Company could lose its entire investment in certain or all of
these companies. The Company monitors these investments for impairment and makes
appropriate reductions in carrying values when necessary.
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.
(h) Inventory - Inventory consists primarily of computer hardware and
sub-licensed software held for resale and is recorded at the lower of cost
(first-in, first-out) or market.
(i) 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.
(j) 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:
46
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------------------------------------------------------------------
Per- Per- Per-
Earnings Shares Share Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share before
extraordinary item
Basic earnings (loss)
per share
Income available to
common stockholders $ (42,366) 34,907 $(1.21) 105,265 34,123 $ 3.08 184 33,623 $ .01
======= ======== ======
Effect of dilutive
securities
Stock options -- -- -- 1,480 -- 293
Diluted earnings (loss)
per share
Income available to
common stockholders
including assumed ---------------------------------------------------------------------------------------------------------
conversions $ (42,366) 34,907 $(1.21) 105,265 35,603 $ 2.96 184 33,916 $ .01
=========================================================================================================
Net earnings (loss)
per share
Basic earnings (loss)
per share
Income available to
common stockholders (42,366) 34,907 $(1.21) 105,265 34,123 $ 3.08 (1,211) 33,623 $(.04)
======= ======== =======
Effect of dilutive
securities
Stock options -- -- -- 1,480 -- 293
Diluted earnings (loss)
per share
Income available to
common stockholders
including assumed ---------------------------------------------------------------------------------------------------------
conversions (42,366) 34,907 $(1.21) 105,265 35,603 $ 2.96 (1,211) 33,916 $(.04)
=========================================================================================================
</TABLE>
Options to purchase 299,000, 521,000, and 3,185,000 shares of common stock at
per share prices ranging from $48.19 to $574.82, $35.88 to $84.07, and $17.50 to
$31.00 were outstanding at the end of 2001, 2000 and 1999, 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. Additionally, all options were excluded from the 2001 diluted earnings
per share computations as the effect of their inclusion would have been
anti-dilutive on the loss per share calculation.
(k) 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 $23,813, ($518,000)
and $95,000 in 2001, 2000 and 1999, respectively.
(l) 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.
(m) Goodwill - Excess of cost over net assets acquired (goodwill) is being
amortized on a straight-line basis over four to eight years. Accumulated
amortization was $8,727,000, and $5,964,000 at the end of 2001, and 2000,
respectively. The Company assesses the recoverability of goodwill based on
forecasted undiscounted future operating cash flows.
47
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On June 30, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Intangible Assets". Major provisions
of these Statements are as follows: all business combinations initiated after
June 30, 2001 must use the purchase method of accounting; the pooling of
interests method of accounting is prohibited except for transactions initiated
before July 1, 2001; intangible assets acquired in a business combinations must
be recorded separately from goodwill if they arise from contractual or other
legal rights or are separable from the acquired entity and can be sold,
transferred, licensed, retired or exchanged, either individually or as part of a
related contract, asset or liability; goodwill and intangible assets with
indefinite lives are not amortized but are tested for impairment annually, and
whenever there is an impairment indicator; all acquired goodwill must be
assigned to reporting units for purposes of impairment testing and segment
reporting; and effective January 1, 2002, goodwill from previous acquisitions
will no longer be subject to amortization, but will be subject to annual
evaluations for impairment based on fair value. The Company completed two
acquisitions subsequent to June 30, 2001, which resulted in approximately $14.2
million of goodwill that was not amortized in accordance with SFAS 142. Goodwill
amortization for 2001 was approximately $2,247,000. Management is currently
reviewing the impact that the provisions of this statement will have on the
Company's financial statements.
(n) Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
(o) Segment Reporting - In June of 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131 (SFAS No. 131),
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes annual and interim reporting standards for operating segments of
a company. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues, and its major customers. The Company is not organized by
multiple operating segments for the purpose of making operating decisions or
assessing performance. Accordingly, the Company operates in one operating
segment and reports only certain enterprise-wide disclosures.
(p) Concentrations - Substantially all of the Company's cash and cash
equivalents, short-term investments, are held at two major U.S. financial
institutions. The majority of the Company's cash equivalents consist of U.S.
Government Federal Agency Securities, short-term marketable securities, and
overnight repurchase agreements. Deposits held with banks may exceed the amount
of insurance provided on such deposits. Generally these deposits may be redeemed
upon demand and, therefore, bear minimal risk.
Substantially all of the Company's clients are integrated delivery networks,
hospitals, and other healthcare related organizations. If significant adverse
macro-economic factors were to impact these organizations it could materially
adversely affect the Company. The Company's access to certain software and
hardware components are dependent upon single and sole source suppliers. The
inability of any supplier to fulfill supply requirements of the Company could
affect future results.
The Company performs ongoing credit evaluations of its clients and generally
does not require collateral from its clients. The Company maintains an allowance
for potential losses on a specific identification basis and based on historical
experience and mangement's judgements. The
48
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Company's allowance for doubtful accounts as of December 29, 2001 and December
30, 2000 was $6,880,000 and $5,999,000, respectively.
2 Business Acquisitions
During the three years ended December 29, 2001, the Company completed six
acquisitions, which were accounted for under the purchase method of accounting.
Pro forma results of operations have not been presented for any of the
acquisitions because the effects of these acquisitions were not material to the
Company on either an individual or an aggregate basis. The results of operations
of each acquisition are included in the Company's consolidated statement of
operations from the date of each acquisition.
The amounts allocated to purchased in-process research and development (IPRD)
were determined through established valuation techniques in the software
industry and were expensed upon acquisition because technological feasibility
had not been established and no future alternative uses existed. Research and
development costs to bring the products from the acquired companies to
technological feasibility, individually or in the aggregate, are not expected to
have a material impact on the Company's future results of operations or cash
flows. Amounts allocated to goodwill and other intangibles are amortized on a
straight-line basis over five to seven years, except for the goodwill for the
acquisitions in 2001, which were not amortized in accordance with SFAS 142.
Amounts allocated to software are amortized based on current and expected future
revenues for each product with minimum annual amortization equal to the
straight-line amortization over the estimated economic life of the product. The
IPRD amounts in the table below are reflected as one-time charges to earnings at
the date of acquisition.
49
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
A summary of the Company's purchase acquisitions for the three years ended
December 29, 2001, is included in the following table (in millions, except share
amounts):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Entity Name, Description of Developed Customer
Business Acquired, and Date Consideration Goodwill Technology Workforce Base IPRD Form of
Reason Business Acquired Consideration
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 2001 Acquisitions
- -------------------------------------------------------------------------------------------------------------------------
Dynamic Healthcare 12/01 $20.0 $9.2 $7.5 -- -- -- $2.3 cash
Technologies (d) (e) $17.7 362,000
shares of
common stock
issued
Clinical and diagnostic
workflow for pathology,
laboratory and radiology
Intergrate technology into
Cerner Millennium
- -------------------------------------------------------------------------------------------------------------------------
7/01 $3.6 $5.0 $0.2 -- -- -- $3.6 cash
APACHE Medical Systems
(d) (f)
Clinical decision support
/outcomes management systems
Integrate knowledge into
Cerner Millennium
- -------------------------------------------------------------------------------------------------------------------------
Fiscal 2000 Acquisitions
- -------------------------------------------------------------------------------------------------------------------------
ADAC Healthcare Information 11/00 $5.3 $3.4 $3.0 $.4 $1.7 $1.7 $3.9 cash
Systems, Inc. (a) (f) $1.4 note
payable
Image management solutions
for radiology departments
Integrate technology into
Cerner Millennium
- -------------------------------------------------------------------------------------------------------------------------
CITATION Computer Systems, 8/00 $17.8 $8.3 $2.7 $1.2 $2.0 $3.2 $2.6 cash
Inc. (b) $14.1 594,000
shares of
Laboratory systems for small common stock
to mid-sized hospitals issued
$1.1 vested
Integrate technology into options
Cerner Millennium assumed
- -------------------------------------------------------------------------------------------------------------------------
Mitch Cooper & Associates (f) 4/00 $2.0 $2.0 -- -- -- -- $2.0 cash
Supply chain re-engineering
consulting practice
Integrated knowledge into
Cerner Millennium
- -------------------------------------------------------------------------------------------------------------------------
Health Network Ventures, 4/00 $8.3 $4.2 -- -- -- -- $8.3 cash
Inc. (c)
Software solutions that
enable transaction processing
between providers and other
health-related entities
Integrate knowledge into
Cerner Millennium
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(a) The acquired in-process research and development is related to the PACS
(Picture Archiving and Communications Systems) product. The PACS product, when
integrated with the Company's radiology information system, provides a
comprehensive radiology solution, from automating and streamlining the
information workflow to complete image management. PACS was approximately 86%
complete at the time of the acquisition. When ADAC HCIS was acquired, management
projected that PACS would be completed in 3 months at an estimated cost of
$150,000. The risks associated with PACS are like any other software development
project and include changes in technology and competition. The PACS project was
valued using the income approach with the following assumptions: material net
cash inflows were expected to commence in 2001; no material changes from
historical pricing, margins, or expense levels are anticipated; and, a 20% risk
adjusted discount rate was applied to the estimated net cash flows. PACS was
complete at the end of 2001.
(b) The acquired in-process research and development is related to CITATION's
enhanced versions of the C-LAB and C-COM products. C-LAB addresses the complex
information needs of the laboratory's general lab, microbiology, anatomical
pathology and blood bank departments with a Windows NT client server solution.
C-LAB was approximately 68% complete at the time of the acquisition. When
CITATION was acquired, management projected that C-LAB would be completed in 6-9
months at an estimated cost of $700,000. The risks associated with C-LAB are
like any other software development project and include changes in technology
and competition. The C-LAB project was valued using the income approach with the
following assumptions: material net cash inflows were expected to commence in
2001; no material changes from historical pricing, margins, or expense levels
are anticipated; and, a 20% risk adjusted discount rate was applied to the
estimated net cash flows. C-LAB was approximately 85% complete at the end of
2001. C-COM is also designed for a Windows NT client server user and works with
other information systems in healthcare facilities by providing a central data
repository for clinical orders and results. It then allows for routing of the
patient information to all care-providing centers throughout the healthcare
enterprise. C-COM was approximately 75% complete at the time of the acquisition.
When CITATION was acquired, management projected that C-COM would be completed
in 3-6 months at an estimated cost of $500,000. The risks associated with C-COM
are like any other software development project and include changes in
technology and competition. The C-COM project was valued using the income
approach with the following assumptions: material net cash inflows were expected
to commence in 2001; no material changes from historical pricing, margins, or
expense levels are anticipated; and, a 20% risk adjusted discount rate was
applied to the estimated net cash flows. C-COM was complete at the end of 2001.
(c) Subsequent to the acquisition of Health Network Ventures, Inc., the Company
determined that it would discontinue the portion of the business focused on
individual physician practice connectivity and transaction processing. As a
result of this decision, the Company recorded a non-recurring charge in the
second quarter of 2000 in the amount of $6,687,000 related to a write-down of
intangible assets.
(d) The assets and liabilities of the acquired companies at the date of
acquisition are as follows:
Dynamic
Healthcare APACHE Medical
Technologies Systems
----------------------------------------
Current Assets $10,896,000 $249,000
Total Assets $29,087,000 $5,728,000
Current Liabilities $14,335,000 $2,129,000
Total Liabilities $9,116,000 $2,178,000
51
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(e) The Company is in the process of obtaining additional information regarding
the valuation of certain contracts acquired from DHT in making a final
determination in the allocation of the purchase price to the net assets
acquired. Any adjustment to the valuation of these contracts would result in a
corresponding adjustment to the amount assigned to goodwill.
(f) The following goodwill amounts are deductible for tax purposes:
Goodwill Deductible for
tax purposes
-------------------------
APACHE Medical Systems $5,000,000
ADAC Healthcare Information Systems, Inc. $3,400,000
Mitch Cooper & Associates $2,000,000
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) 2001 2000
------------ ----------
Accounts receivable $ 139,491 96,946
Contracts receivable 80,714 91,090
------------ ----------
Total receivables $ 220,205 188,036
============ ==========
Substantially all receivables are derived from sales and related support and
maintenance of the Company's clinical and financial information systems to
healthcare providers located throughout the United States and in certain foreign
countries. Included in receivables at the end of 2001, 2000 and 1999 are amounts
due from healthcare providers located in foreign countries of $19,611,000,
$23,600,000 and $17,704,000, respectively. Consolidated revenues include foreign
sales of $22,350,000, $25,815,000, and $24,001,000, during 2001, 2000 and 1999,
respectively. Consolidated long-lived assets at the end of 2001, and 2000,
include foreign long-lived assets of $776,000, and $649,000, 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 2001, and
2000 the allowance for estimated uncollectible accounts was $6,880,000, and
$5,999,000, respectively.
52
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4 Property and Equipment
A summary of property, equipment, and leasehold improvements stated at cost,
less accumulated depreciation and amortization, is as follows:
<TABLE>
<CAPTION>
(In thousands) 2001 2000
----------- -----------
<S> <C> <C>
Furniture and fixtures $ 27,339 24,004
Computer and communications equipment 96,855 82,769
Marketing equipment 2,381 2,045
Shop equipment 2,902 2,902
Leasehold improvements 26,578 21,533
Capital lease equipment 2,202 1,104
Land, buildings, and improvements 43,809 32,437
----------- -----------
202,066 166,794
Less accumulated depreciation and amortization 107,361 84,560
----------- -----------
Total property and equipment, net $ 94,705 82,234
=========== ===========
</TABLE>
5 Investments
Investments consist of the following:
<TABLE>
<CAPTION>
(In thousands) 2001 2000
----------- ------------
<S> <C> <C>
Investments in available-for-sale equity securities, at cost $ 85,964 194,268
Plus unrealized holding gain (loss) 18,816 (91,768)
----------- ------------
Investment in available-for-sale equity securities, at fair 104,780 102,500
value
Investments in non-marketable equity securities, at cost 18,212 26,601
Investments accounted for under the equity method - 1,525
----------- ------------
Total investments, net $ 122,992 130,626
=========== ============
</TABLE>
At December 29, 2001, the Company owned 14,820,527 shares of common stock of
WebMD Corporation (WebMD) (formerly CareInsite, Inc.), which have a cost basis
of $85,811,000 and a carrying value of $104,485,000, as these shares are
accounted for as available-for-sale. 2,000,000 shares of WebMD held by the
Company are not registered. At December 29, 2001 the Company also holds
1,048,783 warrants of WebMD with an exercise price of $3.08 and a cost basis and
carrying value of $4,146,000. The warrants are carried at cost, as they do not
have a fair value that is currently available on a securities exchange. The
warrants expire on January 26, 2003.
On February 13, 2000 CareInsite entered into an agreement to merge with WebMD.
The merger of CareInsite and WebMD ("Merger") closed on September 12, 2000.
Prior to the merger, the carrying value of the CareInsite stock was $6.22 per
share, and the market price of WebMD on September 12, 2000 was $15.00 per share.
Upon the exchange of CareInsite stock for WebMD stock, the Company recorded a
non-recurring investment gain of $120,362,000, net of tax, as a result of the
exchange.
On December 12, 2000, the Company sold 4,273,509 shares of WebMD for
$25,641,000. Accordingly, the Company recorded a non-recurring investment loss
of $24,539,000, net of tax, as a result of the sale.
On June 18, 2001 the Company reached an agreement with WebMD regarding certain
performance metrics related to specified levels of physician usage arising out
of the original license transaction between the Company and CareInsite, which
has been merged into WebMD. Under the agreement, the Company received 2,000,000
shares of WebMD stock, valued at $11,580,000, in exchange for $432,000 in cash
and the cancellation of various obligations due to
53
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
the Company by WebMD. As a result of this agreement, the Company recognized a
non-recurring gain of $4,836,000, net of $2,744,000 in tax, in gain on software
license settlement in the accompanying consolidated statement of operations. The
Company's policy is to review declines in fair value of its marketable equity
securities for declines that may be other than temporary. As a result of this
policy, during the second quarter of 2001, the Company recorded a write-down of
its investment in WebMD from $15.00 per share to $5.79 per share. Accordingly,
the Company recognized a charge to earnings of $81,419,000, net of $46,197,000
in tax.
6 Indebtedness
The Company has a loan agreement with a bank that provides for a current
revolving line of credit for working capital purposes. The current 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 (4.75% at
December 29, 2001) less .5% or LIBOR (1.87% at December 29, 2001) plus 1.35%.
The interest rate may be reduced by up to .5% if certain net worth ratios are
maintained. At December 29, 2001, the Company had $15,000,000 in outstanding
borrowings under this agreement and had $45,000,000 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 1/4% is payable quarterly on the unused portion of the
revolving line of credit. The revolving line of credit matures on September 30,
2002.
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 were used for
capital improvements and to strengthen the Company's cash position. During 1999
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 December 29,
2001.
The Company also has capital lease obligations and other notes payable amounting
to $4,319,000, payable over the next four years.
The aggregate maturities for the Company's long-term debt is as follows (in
thousands):
2002 $ 27,187
2003 16,132
2004 18,667
2005 18,667
2006 18,667
2007 and thereafter 19,999
-----------
$ 119,319
===========
The Company estimates the fair value of its long-term, fixed-rate debt using
discounted cash flow analysis based on the Company's current borrowing rates for
debt with similar maturities. The fair value of the Company's long-term debt is
$97,686,000 at December 29, 2001.
54
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7 Interest Income and Expense
A summary of interest income and expense is as follows:
<TABLE>
<CAPTION>
(In thousands) 2001 2000 1999
---------------------------------------------------
<S> <C> <C> <C>
Interest income $ 2,896 3,645 2,582
Interest expense (7,321) (7,316) (5,978)
------------- --------------- -------------
Interest expense, net $ (4,425) (3,671) (3,396)
============= =============== =============
</TABLE>
8 Stock Options, Warrants and Equity
At the end of 2001 and 2000, the Company had 1,000,000 shares of authorized but
unissued preferred stock, $.01 par value.
At December 29, 2001, the Company had five 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 645,000 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 50,000 shares of common stock through January 1, 2005. Additional
shares were approved by the Company's shareholders on May 17, 1994, May 16, 1995
and 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.
Initially, under Stock Option Plan E, the Company was 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. Additional shares of 1,100,000 and 1,000,000 were approved by
the Company's Board of Directors on December 8, 2000 and March 9, 2001,
respectively, increasing the total authorized to grant to 4,100,000 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 the 2001 Long-Term Incentive Plan F, the Company is authorized to grant to
associates, directors and consultants 2,000,000 shares of common stock awards.
Awards under this plan may consist of stock options, restricted stock and
performance shares, as well as other awards such as stock appreciation rights,
phantom stock and performance unit awards which may be payable in the form of
common stock or cash. However, not more than 500,000 of such shares will be
available to granting any types of grants other than options or stock
appreciation rights.
55
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company has also granted 504,507 other non-qualified stock options under
separate agreements to employees and 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 recognized expenses
related to the non-qualified stock options of $215,000 and $229,000 for 2001 and
2000, respectively. In 2000, the Company granted an additional 350,000 stock
options to a third party at an exercise price equal to the fair market value on
the date of grant. The options are vested and become exercisable at the earlier
of five years or when certain conditions are met.
The Company accounts for associate 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 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 five fixed stock option plans
and other stock options at the end of 2001, 2000, and 1999, and changes during
these years ended is presented below:
<TABLE>
<CAPTION>
2001 2000 1999
-----------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
Of exercise Of exercise of exercise
Fixed options Shares price Shares price shares price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 6,300,265 $ 22.50 5,529,995 $ 19.79 5,488,191 20.38
Granted 1,483,998 47.37 1,684,144 31.50 1,447,246 16.69
Exercised (235,942) 17.46 (455,706) 17.23 (255,747) 4.91
Forfeited (304,097) 26.04 (458,168) 21.13 (1,149,695) 22.40
- --------------------------------------------------------------------------------------------------------------
Outstanding at end of year 7,244,224 $ 28.79 6,300,265 $ 22.50 5,529,995 $ 19.79
============ =========== ============
Options exercisable at year-end 1,825,150 $ 24.29 1,458,001 $ 20.97 1,297,147 $ 19.49
</TABLE>
The following table summarizes information about fixed and other stock options
outstanding at December 29, 2001.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- -------------------------------------------------------------------- -------------------------------
Range of Number Weighted-average Number
Exercise outstanding remaining Weighted-average exercisable Weighted-average
Prices At 12/29/01 contractual life exercise price at 12/29/01 exercise price
- -------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.90-17.04 1,818,787 15.1 years $ 14.71 676,413 $ 14.59
17.25-25.00 2,122,915 11.0 22.06 633,861 21.39
25.50-43.29 2,176,636 10.7 34.27 466,389 29.04
43.33-574.82 1,125,886 7.5 53.69 48,487 151.91
----------- -----------
5.90-574.82 7,244,224 11.4 28.79 1,825,150 24.29
=========== ===========
</TABLE>
56
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted during 2001,
2000 and 1999 was $25.93, $18.96 and $10.88, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions:
2001 2000 1999
-----------------------------------------
Expected years until exercise 4.7 4.7 8
Risk-free interest rate 4.5% 5.0% 6.9%
Expected stock volatility 71.3% 72.1% 61.3%
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
$11,172,000 or $.30 per share in 2001, approximately $7,527,000 or $.21 per
share in 2000 and approximately $3,922,000 or $.12 per share in 1999.
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.
9 Associate Stock Purchase Plan
The Company established an Associate Stock Purchase Plan (ASPP) in 2001, which
qualifies under Section 423 of the Internal Revenue Code. All full-time
associates are eligible to participate. Participants may elect to make
contributions from 1% to 20% of compensation to the ASPP, subject to annual
limitations determined by the Internal Revenue Service. Participants may
purchase Company Common Stock at a 15% discount on the last day of the purchase
period. Under APB No. 25 the ASPP qualifies as a non-compensatory plan and no
compensation expense has been recognized.
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 80% 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 33% of the first 6% of the participant's contribution. The
Company's expense for the plan amounted to $3,269,000, $2,532,000 and $1,187,000
for 2001, 2000 and 1999, respectively.
The Company added a discretionary match to the Plan in 2000. Contributions are
based on attainment of established earnings per share goals for the year. Only
participants in the Plan are eligible to receive the discretionary match
contribution. For the year ended December 29, 2001 and December 30, 2000, the
Company expensed $3,688,000 and $1,100,000 for discretionary distributions,
respectively.
57
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11 Income Taxes
Income tax expense (benefit) before extraordinary item for the years ended 2001,
2000 and 1999, consists of the following:
(In thousands) 2001 2000 1999
--------------------------------------
Current:
Federal $ 20,129 175 3,514
State 2,862 (70) 573
Foreign (740) (887) (804)
--------- --------- ----------
Total current 22,251 (782) 3,283
--------- --------- ----------
Deferred:
Federal (41,307) 63,524 (2,891)
State (1,451) 4,482 (288)
Foreign (441) (366) 14
-------- --------- ----------
Total deferred (43,199) 67,640 (3,165)
--------- --------- ----------
Total income tax expense (benefit) $(20,948) 66,858 118
========= ========= ==========
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 ($39,846,000) and ($92,842,000) for the years ended 2001
and 2000, respectively.
Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities that give rise to significant portions of
deferred income taxes at the end of 2001 and 2000 relate to the following:
(In thousands) 2001 2000
--------------------------
Deferred Tax Assets
Accrued expenses $ 6,304 6,395
Separate return net operating losses 14,151 12,281
Other 2,726 1,718
----------- ------------
Total deferred tax assets 23,181 20,394
----------- ------------
Deferred Tax Liabilities
Unrealized gain on investments (10,754) (21,975)
Software development costs (40,673) (32,143)
Contract and service revenues and costs (40,559) (37,930)
Depreciation and amortization (2,622) (2,764)
Other (1,464) (1,446)
----------- ------------
Total deferred tax liabilities (96,072) (96,258)
----------- ------------
Net deferred tax liability $ (72,891) (75,864)
=========== ============
Based upon the level of historical taxable income and projections for future
taxable income over the periods which the deferred tax assets are deductible, as
well as the scheduled reversal of deferred tax liabilities, management believes
it is more likely than not the Company will realize the benefit of these
deductible differences.
58
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The effective income tax rates for 2001, 2000, and 1999 were 33%, 39%, and 39%,
respectively. These effective rates differ from the federal statutory rate of
35% as follows:
<TABLE>
<CAPTION>
(In thousands) 2001 2000 1999
------------------------------------------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rates $ (22,160) 60,243 106
State income tax, net of federal benefit 43 2,972 10
Goodwill 705 4,225 259
Other, net 464 (582) (257)
----------- ----------- -----------
Total income tax expense (benefit) $ (20,948) 66,858 118
=========== =========== ===========
</TABLE>
Income taxes payable are reduced by the tax benefit resulting from disqualifying
dispositions of stock acquired under the Company's stock option plans. The 2001,
2000, and 1999 benefits of $2,328,000, $3,525,000, and $594,000, respectively,
are treated as increases to additional paid-in capital.
12 Related Party Transactions
The Company loaned $165,000 in 2001 and $160,000 in 2000, 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. The balance of these loans, including
accrued interest, at December 29, 2001 and December 30, 2000 was $2,543,000 and
$2,764,000, respectively.
The Company leases an airplane from a company owned by Mr. Neal L. Patterson and
Mr. Clifford W. Illig. The airplane is leased on a per mile basis with no
minimum usage guarantee. The lease rate is believed to approximate fair market
value for this type of aircraft. During 2001 and 2000, respectively, the Company
paid an aggregate of $548,000 and $496,000 for the rental of the airplane. The
airplane is used principally by Mr. Patterson, Mr. Tobin, Mr. Black and Mr.
Devanny to make client visits.
On July 1, 2001, the Company completed its purchase of certain assets and
certain liabilities for cash of APACHE Medical Systems, Inc., a Delaware
corporation ("APACHE"), as further described in note 2, Business Acquisitions.
One of the Company's directors, Gerald E. Bisbee, Jr., Ph.D., was at the time
Chairman of the Board and a shareholder of APACHE.
13 COMMITMENTS
The Company leases space to unrelated parties in its North Kansas City
headquarters complex under noncancelable operating leases. Included in other
revenues is rental income of $183,000, $624,000 and $1,005,000, in 2001, 2000
and 1999, respectively.
The Company is committed under operating leases for office space through October
2006. Rent expense for office and warehouse space for the Company's regional and
global offices for 2001, 2000 and 1999 was $2,718,000, $1,735,000 and
$2,226,000, respectively. Future minimum lease revenues (in thousands) and
aggregate minimum future payments (in thousands) under these noncancelable
operating leases are as follows:
59
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Future
Minimum
lease
Years commitments
-------------------------------
2002 $ 5,419
2003 5,449
2004 3,588
2005 1,257
2006 425
At December 29, 2001, the Company was committed to spending between $35,000,000
to $40,000,000 under a construction contract for a new building at its Kansas
City headquarters complex.
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 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.
All of these costs were paid in 2000.
60
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14 Quarterly Results (unaudited)
Selected quarterly financial data for 2001 and 2000 is set forth below:
<TABLE>
<CAPTION>
Earnings (loss) Basic
(In thousands, except per share data) before income Net earnings Diluted
taxes and earnings (loss) earnings (loss)
Revenues extraordinary item (loss) per share per share
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001 quarterly results:
March 31 $ 120,996 10,428 6,328 .18 .17
June 30 (1) (2) 129,986 (107,470) (68,983) (1.98) (1.98)
September 29 139,837 15,459 9,242 .26 .25
December 29 151,786 18,269 11,047 .32 .30
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 542,605 (63,314) (42,366)
=========== ========= ========
2000 quarterly results:
April 1 $ 87,107 3,986 2,392 .07 .07
July 1 (3) 93,502 44 (2,613) (.08) (.08)
September 30 (4)(5) 104,325 195,588 123,336 3.61 3.45
December 30 (6)(7) 119,570 (27,495) (17,850) (.51) (.51)
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 404,504 172,123 105,265
=========== ========= ========
</TABLE>
(1) Includes a non-recurring gain on the settlement of the WebMD
performance warrants. The impact of this gain is a $4.8 million (net of
tax) increase in net earnings and an increase to diluted earnings per
share of $.13 for the second quarter and for 2001.
(2) Includes a non-recurring charge on the adjustment of the carrying value
of the WebMD shares. The impact of this charge is an $81.4 million (net
of tax) decrease in net earnings and a decrease to diluted earnings per
share of ($2.23) for the second quarter and ($2.21) for 2001.
(3) Includes a non-recurring charge of $6.7 million related to the
write-down of intangible assets associated with the acquisition of
Health Network Ventures, Inc. The impact of this non-recurring charge
on diluted earnings per share was ($.19) for the second quarter and for
2000.
(4) Includes a non-recurring charge of $3.2 million related to the
acquisition of CITATION Computer Systems, Inc. The impact of this
non-recurring charge on diluted earnings per share was ($.09) for the
third quarter and for 2000.
(5) Includes a non-recurring investment gain of $120.4 million, net of
$68.3 million tax expense, related to the conversion of shares of
CareInsite common stock to shares of WebMD common stock. The impact of
this non-recurring investment gain on diluted earnings per share was
$3.37 for the third quarter and $3.38 for 2000.
(6) Includes a non-recurring charge of $1.0 million, net of $.7 million tax
benefit, related to the acquisition of ADAC Healthcare Information
Systems, Inc. The impact of this non-recurring charge on diluted
earnings per share was ($.03) for the fourth quarter and for 2000.
(7) Includes a non-recurring investment loss of $24.5 million, net of $13.9
million tax benefit, related to the sale of shares of WebMD common
stock. The impact of this non-recurring
61
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
investment loss on diluted earnings per share was ($.67) for the fourth
quarter and ($.69) for 2000.
62
<PAGE>
Independent Auditors' Report
on Financial Statement Schedule
The Board of Directors
Cerner Corporation:
Under date of January 23, 2002, we reported on the consolidated balance sheets
of Cerner Corporation and subsidiaries as of December 29, 2001 and December 30,
2000 and the related consolidated statements of operations, changes in equity,
and cash flows for each of the years in the three-year period ended December 29,
2001. These consolidated financial statements and our report thereon are
included in the Company's annual report on Form 10-K for the year 2001. 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
January 23, 2002
<PAGE>
Cerner Corporation
Valuation and Qualifying Accounts Schedule II
<TABLE>
<CAPTION>
Additions
Balance at Charged to Additions
Beginning Costs and Through Balance at
Description of Period Expenses Acquisitions Deductions End of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For Year Ended January 1, 2000
Doubtful Accounts and Sale Allowances $ 3,405,000 $ 1,354,000 $ 0 $ 0 $ 4,759,000
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Additions
Beginning Costs and Through Balance at
Description of Period Expenses Acquisitions Deductions End of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For Year Ended December 30, 2000
Doubtful Accounts and Sale Allowances $ 4,759,000 $ 0 $ 1,341,000 $ (101,000) $ 5,999,000
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Additions
Beginning Costs and Through Balance at
Description of Period Expenses Acquisitions Deductions End of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For Year Ended December 29, 2001
Doubtful Accounts and Sale Allowances $ 5,999,000 $ 800,000 $ 365,000 $ (284,000) $ 6,880,000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4(D)
<SEQUENCE>3
<FILENAME>file002.txt
<DESCRIPTION>FIRST AMENDMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4(d)
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment") is made as
of June 30, 2000, by and among CERNER CORPORATION, a Delaware corporation (the
"Borrower"), and FIRSTAR BANK MIDWEST, N.A., successor to Mercantile Bank, as
Agent and, as of the date hereof, the sole Bank under the Credit Agreement
referred to below, and as Issuing Bank.
Preliminary Statements
(a) The Borrower, the Agent, the Issuing Bank and the Bank are parties
to a Credit Agreement dated as of April 1, 1999 (the "Credit Agreement").
Capitalized terms used and not defined in this Amendment have the meanings given
to them in the Credit Agreement.
(b) The Borrower has requested that (1) the maturity of the revolving
credit facility be extended to June 30, 2003, (2) the commitment (non-usage) fee
referred to in Section 3.1 of the Credit Agreement be amended, and (3) the
definition of Tangible Net Worth and certain of the financial covenants in the
Credit Agreement be modified in certain respects.
(c) The Agent, on behalf of the Bank and the Issuing Bank, is willing
to agree to the foregoing requests, subject, however, to the terms, conditions
and agreements set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Termination Date. The definition of Revolving Credit Termination
Date in Section 1.1 of the Credit Agreement is deleted and is replaced by the
following:
"Revolving Credit Termination Date" shall mean June 30, 2003;
provided, however, that if such date would otherwise fall on a date
which is not a Business Day, the Revolving Credit Termination Date
shall be the next preceding Business Day.
2. Tangible Net Worth. The definition of Tangible Net Worth in Section
1.1 of the Credit Agreement is deleted and is replaced by the following:
"Tangible Net Worth" shall mean Consolidated Net Worth, less
the sum of all goodwill, trade names, trademarks, patents,
organization expense, unamortized debt discount and expense and
other similar intangibles properly classified as such in accordance
with GAAP, which are incurred or booked subsequent to July 1, 2000,
provided that there shall not be so excluded software development
costs which are capitalized by the Borrower in accordance with GAAP
on a basis consistent with that described in Note 1(d) of the
Borrower's audited financial statements dated January 1, 2000.
<PAGE>
3. Commitment (Non-Usage) Fee.
(a) Section 3.1. Section 3.1 of the Credit Agreement is deleted and
is replaced by the following:
3.1 Commitment Fees. The Borrower shall pay to the Agent, for
the pro rata account of each Bank, a commitment fee at a rate per
annum equal to the Applicable Commitment Fee Margin on the daily
average unused amount of such Bank's Revolving Credit Commitment,
for the period from and including the date of the First Amendment
to but excluding the earlier of the date Revolving Credit
Commitments are terminated or the Revolving Credit Termination
Date. Accrued commitment fees shall be payable on each Quarterly
Date and on the dates referred to in the immediately preceding
sentence.
(b) Conforming Definitions. Section 1.1 of the Credit Agreement is
amended to add the following definitions in the appropriate
alphabetical order:
"Applicable Commitment Fee Margin" means as follows: if at the
end of any fiscal quarter the Tangible Net Worth Ratio is within
the respective ranges set forth below, then the Applicable
Commitment Fee Margin at all times during the second succeeding
fiscal quarter shall be the percentage set forth opposite such
ratio:
Tangible Net Worth Ratio Margin
------------------------ ------
Greater than 1.25 to 1 0.32%
Less than or equal to 1.25
to 1, but greater than .80 to 1 0.25%
Less than or equal to .80 to 1 0.18%
provided, however, that during any period that the Borrower has
failed to deliver the financial statements or the Borrowing Base
and Compliance Certificate as required by Section 6.1 hereof, the
Applicable Commitment Fee Margin shall be 0.32%.
"First Amendment" means the First Amendment to Credit
Agreement, dated as of June 30, 2000, among the parties to the
Credit Agreement.
4. Tangible Net Worth Ratio. Section 6.6 of the Credit Agreement is
deleted and is replaced by the following:
6.6 Minimum Tangible Net Worth. The Borrower shall not permit
its Tangible Net Worth on any date to be less than the sum of (i)
$300,000,000, plus (ii) an amount equal to 50% of its Consolidated
Net
<PAGE>
Income (without reduction for any deficit in its Consolidated Net
Income) for the period from the date of the First Amendment to and
including the date of determination thereof, computed on a
cumulative basis for such entire period.
5. Fixed Charge Ratio. Section 6.8 of the Credit Agreement is deleted
and is replaced by the following:
6.8 Fixed Charge Coverage Ratio. The Borrower will not at any
time permit the ratio of Consolidated Income Available for Fixed
Charges to Fixed Charges for the Borrower's most recently completed
four fiscal quarters to be less than 2 to 1.
For purposes of this Section 6.8 only, the following terms shall
have the following meanings:
Capitalized Lease - Any lease the obligation for Rentals
with respect to which, in accordance with GAAP, would be
required to be capitalized on a balance sheet of the lessee.
Consolidated Income Available for Fixed Charges - For any
period, the sum of (i) Consolidated Net Income, plus (to the
extent deducted in determining Consolidated Net Income), (ii)
all provisions for any federal, state, or other income taxes
made by the Borrower and the Subsidiary Guarantors during such
period plus (iii) Fixed Charges.
Consolidated Net Income - For any period, the consolidated
net income (or deficit) of the Borrower and the Subsidiary
Guarantors after deducting, without duplication, all operating
expenses, provisions for all taxes and reserves (including
reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP and after
deducting portions of income properly attributable to
outstanding minority interests, if any, in Subsidiary
Guarantors; provided, however, that there shall be excluded (i)
any income (or deficit) of any Person accrued prior to the date
it becomes a Subsidiary Guarantor or merges into or
consolidates with the Borrower or a Subsidiary Guarantor; (ii)
the income (or deficit) of any Person (other than a Subsidiary
Guarantor) in which the Borrower or any Subsidiary Guarantor
has any ownership interest (except that any such income
actually received by the Borrower or such Subsidiary Guarantor
in the form of cash dividends shall be included without
limitation); (iii) any gains or losses, or other income,
properly classified as extraordinary in accordance with GAAP;
(iv) any gains or losses, or other income, characterized as
non-recurring in the financial statements delivered pursuant
to Section 6.1; (v) any gain or loss resulting from the sale
of fixed or capital assets other than in the ordinary course
of
<PAGE>
business; (vi) any portion of the net income of a Subsidiary
Guarantor which for any reason (other than solely as a result
of any restrictions contained in Section 6.12 of this
Agreement) cannot be distributed as a cash dividend; (vii) any
gain or loss resulting from the sale or other disposition of
any Investment; (viii) any gains resulting from the
reappraisal, revaluation or write-up of assets and any gains
or losses resulting from the reappraisal, revaluation or
write-up of the Borrower's original $70,000,000 Investment in
CareInsite, Inc.; (ix) proceeds of any life insurance policy;
(x) any gain or loss resulting from the acquisition of any
securities of the Borrower or any Subsidiary Guarantor; and
(xi) any reversal of any reserve, except to the extent that
provision for such reserve shall have been made from income
arising during the fiscal period in which such reversal
occurs.
Fixed Charges - For any period, the sum of (i) interest
expense (including the interest component of Rentals under
Capitalized Leases), amortization of debt discount and expense
on Indebtedness of the Borrower and the Subsidiary Guarantors
during such period and (ii) Rentals under all leases other
than Capitalized Leases of the Borrower and the Subsidiary
Guarantors, determined on a consolidated basis in accordance
with GAAP.
Investments - All investments made in cash or by delivery
of property, directly or indirectly, in any Person, whether by
acquisition of shares of capital stock, indebtedness or other
obligations or securities or by loan, advance, capital
contribution or otherwise; provided, however, that
"Investments" shall not mean or include investments in
property to be used, held for use or consumed in the ordinary
course of business.
Rentals - As of the date of any determination thereof, all
fixed payments (including all payments which the lessee is
obligated to make to the lessor on termination of the lease or
surrender of the property) payable by the Borrower or a
Subsidiary Guarantor, as lessee or sublessee under a lease of
real or personal property, but exclusive of any amounts
required to be paid by the Borrower or a Subsidiary Guarantor
(whether or not designated as rents or additional rents) on
account of maintenance, repairs, insurance, taxes,
assessments, amortization and similar charges. Fixed rents
under any so-called "percentage leases" shall be computed on
the basis of the minimum rents, if any, required to be paid by
the lessee, regardless of sales volume or gross revenues.
Voting Stock - Capital stock of any class of a corporation
having power to vote for the election of members of the board
of directors of such corporation, or persons performing
similar functions.
<PAGE>
6. Financial Covenants to Apply to Borrower and Subsidiary
Guarantors. The following definitions in Section 1.1 of the Credit Agreement are
amended to read as follows:
"Consolidated Net Income" shall mean, for any period,
the net income and net losses of the Borrower and the
Subsidiary Guarantors on a consolidated basis as defined
according to GAAP.
"Consolidated Net Worth" shall mean, at any date, the
amount shown as "total shareholders' equity" (or any like
caption) on a consolidated balance sheet of the Borrower and
the Subsidiary Guarantors in accordance with GAAP.
"Current Assets" shall mean, at any date, the current
assets of the Borrower and the Subsidiary Guarantors
determined on a consolidated basis as of such date in
accordance with GAAP.
"Current Liabilities" shall mean, at any date, the
current liabilities of the Borrower and the Subsidiary
Guarantors determined on a consolidated basis as of such date
in accordance with GAAP.
"EBITDA" shall mean, for any period, Consolidated Net
Income for the period in question plus (a) the sum of (i) all
amounts deducted in arriving at such Consolidated Net Income
in respect to Interest Expense for such period; federal, state
and local income taxes for such period; depreciation and
amortization and other noncash nonoperating charges for such
period; and to the extent not included in the above,
miscellaneous expenses from nonoperating transactions which do
not relate to any extraordinary items for such period and (ii)
extraordinary losses for such period, minus (b) the sum of (i)
all amounts included in arriving at such Consolidated Net
Income in respect of miscellaneous income from nonoperating
transactions and which do not relate to any extraordinary
items for such period; and (ii) all extraordinary profits for
the period, determined on a consolidated basis for the
Borrower and the Subsidiary Guarantors.
"Interest Expense" shall mean, for any period, all
cash and noncash interest on Indebtedness (including imputed
interest on Capital Lease Obligations) of the Borrower and the
Subsidiary Guarantors during such period; provided, however,
that there shall be added to "Interest Expense" any fees or
commissions or net losses amortized during such period under
any Interest Rate Protection Agreement and any fees or
commissions payable in connection with any letters of credit
during such period and there shall be subtracted from
"Interest Expense" any net gains under any Interest Rate
Protection Agreement during such period.
"Tangible Net Worth Ratio" shall mean, at any date,
the ratio of (i) the total liabilities of the Borrower and the
Subsidiary Guarantors determined on a consolidated basis on
such date, to (ii) Tangible Net Worth
<PAGE>
on such date.
7. Release of Cerner Belgium From Guaranty. The Bank hereby
releases Cerner Belgium, Inc., a Delaware corporation formerly known as Cerner
Healthwise, Inc., from all liabilities and other obligations Cerner Belgium,
Inc. has under the Guaranty, dated April 1, 1999, from Cerner Healthwise, Inc.
and certain other Subsidiary Guarantors in favor of the Bank (the "Subsidiary
Guaranty"). The foregoing release shall not release or limit the liability of,
or impose any duty on the Bank now or hereafter to release or limit the
liability of, any other existing or future Subsidiary Guarantor under the
Subsidiary Guaranty or any other Person now or hereafter liable in whole or in
part for the payment or performance of any of the Obligations, whether pursuant
to a Guarantee, any of the Credit Documents, or otherwise.
8. Conditions Precedent to Amendment. Notwithstanding anything in
this Amendment to the contrary, unless and to the extent the Bank waives the
benefits of this sentence by giving written notice thereof to the Borrower, the
Bank shall have no duties under this Amendment, nor shall any waivers, releases
or other concessions, if any, made or given by the Bank under this Amendment be
effective, in each case until the Bank has received fully executed originals of
each of the following, each in form and substance satisfactory to the Bank:
(a) Amendment. This Amendment;
(b) Assumption Agreement. An Assumption Agreement in
favor of the Bank, dated on or about the date hereof, from Cerner
Investment Corp., Cerner Campus Redevelopment Corporation and Health
Network Ventures, Inc. whereby such Persons agree to become Subsidiary
Guarantors and be bound by the Subsidiary Guaranty, together with the
related Secretary's Certificates signed by each such Person in favor of
the Bank; and
(c) Other. Such other documents as the Bank may
reasonably request in connection with the transactions contemplated
hereby.
9. Firstar. Firstar Bank Midwest, N.A. is the successor to
Mercantile Bank. Accordingly, unless the context clearly requires otherwise, all
references in the Credit Agreement and the other Credit Documents to Mercantile
Bank (whether in its capacity as Agent, the Issuing Bank or as a Bank) are
amended to refer instead to "Firstar Bank Midwest, N.A., and its successors and
assigns".
10. Representations and Warranties. The Borrower represents and
warrants to the Agent. the Bank and the Issuing Bank as follows: (a) it is a
duly organized and validly existing corporation and has full corporate power and
authority to enter into this Amendment and any documents or transactions
contemplated hereby and to pay and perform its obligations in respect of each of
the foregoing; (b) the execution, delivery and performance by the Borrower of
this Amendment and any documents contemplated hereby or any transactions
contemplated hereby do not violate or conflict with, or require any consent
under, (i) the Borrower's certificate of incorporation, by-laws, or any other
agreement or document relating to the Borrower's existence or authority to act,
(ii) any agreement or instrument to which the Borrower is a party or by which
the Borrower or any of its properties is bound, (iii) any court order, judicial
proceeding or any administrative or arbitral order or decree, or (iv) any
applicable law, rule or regulation; and (c) no authorization, approval or
consent of or by, and no notice to or filing or registration with, any
governmental authority or any other Person is necessary for the Borrower to
enter into this Amendment or any document contemplated hereby or any transaction
contemplated hereby or to perform its obligations with respect to each of the
foregoing.
<PAGE>
11. Reaffirmation of Credit Documents. The Borrower reaffirms its
obligations under the Credit Agreement and the other Credit Documents to which
it is a party or by which it is bound, and represents, warrants and covenants to
the Agent, the Issuing Bank and the Bank, as a material inducement to the Agent,
the Issuing Bank and the Bank to enter into this Amendment and the transactions
contemplated hereby, that: (a) the Borrower has no (and, in any event, hereby
waives any) defense, claim or right of setoff in respect of the Credit
Agreement, any of the other Credit Documents or the actions or inactions of the
Agent, the Issuing Bank or the Bank; and (b) all representations and warranties
made by the Borrower in the Credit Agreement and the other Credit Documents are
true and complete on the date hereof as if made on the date hereof.
12. No Other Amendments. Except as amended hereby, the Credit
Agreement and the other Credit Documents shall remain in full force and effect
and be binding on the Borrower in accordance with their respective terms.
13. Counterparts; Fax Signatures. This Amendment and any document
contemplated hereby may be executed in one or more counterparts and by different
parties thereto, all of which counterparts, when taken together, shall
constitute but one agreement. This Amendment and any document contemplated
hereby may be executed and delivered by facsimile or other electronic
transmission, and any such execution or delivery shall be fully effective as if
executed and delivered in person.
14. Legal Fees. The Borrower shall pay all legal fees and expenses
incurred by the Agent in connection with the preparation and closing of this
Amendment and any other documents referred to herein and the consummation of any
transactions referred to herein, such legal fees not to exceed $2,000.
15. Mo.rev.stat. Ss. 432.045 Required Notice. The following
statement is given pursuant to Mo.Rev.Stat. ss. 432.045: "ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN
THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT." All other
Credit Documents are incorporated into this Amendment; provided, however, that,
to the extent of any direct conflict between the terms and conditions of the
other Credit Documents and this Amendment, the terms and conditions of this
Amendment shall prevail and govern.
16. Governing Law. This Amendment shall be governed by the laws of
the State of Missouri without regard to any choice of law rule thereof giving
effect to the laws of any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
CERNER CORPORATION, a Delaware corporation
By: /s/ Marc G. Naughton
---------------------------------
Name Marc G. Naughton
Title: CFO
FIRSTAR BANK MIDWEST, N.A., successor to
Mercantile Bank, as Agent, as Issuing Bank
and as a Bank
By: /s/Mark R. Jorgenson
---------------------------------
Name Mark Jorgenson
Title: SVP
Consent of Guarantors
Reference is made to the Guaranty dated as of April 1, 1999, in favor
of the Agent, on behalf of the Banks and the Issuing Bank, to which the
undersigned are parties, either as an original signatory thereto or pursuant to
any subsequent assumption, joinder or other agreements (each a "Guarantor"), and
any other guaranty executed by any Guarantor in favor of the Agent or any Bank
or the Issuing Bank relating to any indebtedness of the Borrower to any Bank or
the Issuing Bank (collectively, with respect to each Guarantor, such Guarantor's
"Guaranty"). Capitalized terms used and not defined in this Consent of
Guarantors have the meanings given to them in the Credit Agreement referred to
in the above Amendment. To induce the Agent, the Issuing Bank and the Bank to
enter into the above Amendment, each Guarantor: (a) consents to the Borrower,
the Agent, the Issuing Bank and the Bank entering into the above Amendment; (b)
agrees that the execution, delivery and performance of the above Amendment and
any documents or transactions contemplated thereby shall not discharge, limit or
otherwise impair the obligations of such Guarantor under such Guarantor's
Guaranty; (c) agrees that such Guarantor's Guaranty is and remains in full force
and effect and is enforceable against such Guarantor in accordance with its
terms; (d) waives any defense, claim or right of setoff such Guarantor may have
in respect of such Guarantor's Guaranty, the Credit Agreement, the other Credit
Documents or the actions or inactions of the Agent, the Issuing Bank or the
Bank; and (e) agrees that neither the Agent, the Issuing Bank or the Bank has
any duty to give such Guarantor notice of or obtain such Guarantor's consent to
the transactions described in the above Amendment, and that the Agent, the
Issuing Bank and the Bank's giving of notice to such Guarantor and obtainment of
such Guarantor's consent in this instance shall not impose any similar or other
duty upon the Agent, the Issuing Bank or the Bank in any future matter or
transaction.
<PAGE>
This Consent of Guarantors may be validly executed and delivered by fax
or other electronic transmission and in multiple counterparts and by different
parties thereto.
CERNER INTERNATIONAL, INC., CERNER MULTUM, INC.,
a Delaware corporation a Delaware corporation, formerly
known as Multum Information
Services, Inc.
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
------------------------------- --------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Treasurer Title: Treasurer
CERNER PROPERTIES, INC., CERNER HEALTH FACTS, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
------------------------------- -------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: CFO
CERNER HEALTH CONNECTIONS, INC. CERNER PERFORMANCE LOGISTICS, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
------------------------------- -------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: CFO
CERNER INVESTMENT CORP., CERNER CAMPUS REDEVELOPMENT
A Nevada corporation CORPORATION, a Missouri corporation
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
------------------------------- -------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: Secretary & Treasurer
<PAGE>
HEALTH NETWORK VENTURES, INC.,
a Delaware corporation
By: /s/ Marc G. Naughton
-----------------------------
Name: Marc G. Naughton
Title: Treasurer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4(E)
<SEQUENCE>4
<FILENAME>file003.txt
<DESCRIPTION>SECOND AMENDMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4(e)
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment") is made as
of July 1, 2001, by and among CERNER CORPORATION, a Delaware corporation (the
"Borrower"), and FIRSTAR BANK, N.A. OVERLAND PARK, formerly know as Firstar Bank
Midwest, N.A. and successor to Mercantile Bank, as Agent and, as of the date
hereof, the sole Bank under the Credit Agreement referred to below, and as
Issuing Bank.
Preliminary Statements
(a) The Borrower, the Agent, the Issuing Bank and the Bank are parties
to a Credit Agreement dated as of April 1, 1999, as amended by a First Amendment
to Credit Agreement dated as of June 30, 2000 (as so amended, the "Credit
Agreement"). Capitalized terms used and not defined in this Amendment have the
meanings given to them in the Credit Agreement.
(b) The Borrower has requested that, among other things, (1) the total
Revolving Credit Commitment be increased to $30 million, (2) the maturity of the
revolving credit facility be extended to June 30, 2004, (3) the interest rate
and non-usage fee with respect to the revolving credit facility be amended in
certain respects, and (4) various covenants in the Credit Agreement be amended
in certain respects.
(c) The Agent, on behalf of the Bank and the Issuing Bank, is willing
to agree to the foregoing requests, subject, however, to the terms, conditions
and agreements set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Increased Commitment. The reference to "$18,000,000" in the
definition of Revolving Credit Commitment in Section 1.1 of the Credit Agreement
is deleted and is replaced by "$30,000,000." In connection therewith, Exhibit A
to the Credit Agreement is deleted and is replaced by Exhibit A to this
Amendment.
2. Termination Date. The definition of Revolving Credit
Termination Date in Section 1.1 of the Credit Agreement is deleted and is
replaced by the following:
"Revolving Credit Termination Date" shall mean June 30, 2004; provided,
however, that if such date would otherwise fall on a date which is not a
Business Day, the Revolving Credit Termination Date shall be the next preceding
Business Day.
3. Interest Rate. The definition of Applicable Margin in Section
1.1 of the Credit Agreement is deleted and is replaced by the following:
<PAGE>
"Applicable Margin" shall mean as follows: if at the end of any fiscal
quarter (commencing with the quarter ending on September 30, 2001), the Tangible
Net Worth Ratio is within the respective ranges set forth below, then with
respect to Corporate Base Rate Loans and Eurodollar Loans the "Applicable
Margin" at all times during the second succeeding fiscal quarter shall be the
respective percentages set forth opposite such ratios:
<TABLE>
<CAPTION>
Tangible Net Applicable Margin for Applicable Margin
Worth Ratio Corporate Base Loans for Eurodollar Loans
----------- -------------------- --------------------
<S> <C> <C>
Greater than 1.25 to 1 0.50% 1.35%
Less than or equal to 1.25
to 1, but greater than .80 to 1 0.75% 1.10%
Less than or equal to .80 to 1 1.00% 0.85%
</TABLE>
provided, however, that during any period that the Borrower has failed to
deliver the financial statements or the Borrowing Base and Compliance
Certificate as required by Section 6.1 hereof, the Applicable Margin for
Corporate Base Rate Loans shall be 0.50% and the Applicable Margin for
Eurodollar Loans shall be 1.35%.
4. Commitment (Non-Usage) Fee. The definition of Applicable
Commitment Fee in Section 1.1 of the Credit Agreement is deleted and is replaced
by the following:
"Applicable Commitment Fee Margin" means as follows: if at the end of
any fiscal quarter the Tangible Net Worth Ratio is within the respective ranges
set forth below, then the Applicable Commitment Fee Margin at all times during
the second succeeding fiscal quarter shall be the percentage set forth opposite
such ratio:
Tangible Net Worth Ratio Margin
------------------------ ------
Greater than 1.25 to 1 0.25%
Less than or equal to 1.25 to 1,
but greater than .80 to 1 0.18%
Less than or equal to .80 to 1 0.12%
provided, however, that during any period that the Borrower has failed to
deliver the financial statements or the Borrowing Base and Compliance
Certificate as required by Section 6.1 hereof, the Applicable Commitment Fee
Margin shall be 0.25%.
2
<PAGE>
5. Foreign Subsidiary. The definition of Foreign Subsidiary in
Section 1.1 of the Credit Agreement is deleted and is replaced by the following:
"Foreign Subsidiary" shall mean any Subsidiary that is not
organized under the laws of any State of the United States of America
or that has any permanent place of business outside the United States
of America, including, without limitation, Cerner Corporation PTY
Limited, a corporation organized under the laws of Australia, Cerner
FSC, Inc., a corporation organized under the laws of Barbados, Cerner
Limited, a corporation organized under the laws of the United Kingdom,
Cerner Deutschland GmbH, a corporation organized under the laws of
Germany, Cerner Singapore Limited, a Delaware corporation, Cerner
Canada Limited, a Delaware corporation, Cerner (Malaysia) SDN BHD, a
corporation organized under the laws of Malaysia, and Cerner Belgium,
Inc., a Delaware corporation.
6. Subsidiary Guarantors. The definition of Subsidiary Guarantors
in Section 1.1 of the Credit Agreement is deleted and is replaced by the
following:
"Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower other than the Foreign Subsidiaries. As of July 1, 2001, the
Subsidiary Guarantors are (1) Cerner Properties, Inc., (2) Cerner
International, Inc., (3) Cerner Multum, Inc., (4) Cerner Health
Connections, Inc., (5) Cerner Health Facts, Inc., (6) Cerner Citation,
Inc., (7) Cerner Investment Corp., (8) Health Network Ventures, Inc.,
(9) Cerner Campus Redevelopment Corporation, and (10) Cerner Radiology
Information Systems, Inc.
7. Definition of Consolidated Total Assets. Section 1.1 of the
Credit Agreement is amended to add the following definition in the appropriate
alphabetical order:
"Consolidated Total Assets" shall mean, at any date, the total assets
of the Borrower and its Subsidiaries as determined on a consolidated basis in
accordance with GAAP, as reflected in the most recent financial statements of
the Borrower and its Subsidiaries delivered to the Bank in accordance with
Section 6.1 hereof.
8. Permitted Liens.
(a) Purchase Money Liens. Subsection (vi) of the definition
of Permitted Liens in Section 1.1 of the Credit Agreement is deleted and is
replaced by the following:
(vi) Liens existing on any assets acquired by the Borrower or
any of its Subsidiaries after the date of this Agreement
or created at the time of acquisition of such assets by
the Borrower or any of its Subsidiaries after the date
of this Agreement to secure purchase money Indebtedness;
provided that any such acquisition or incurrence of
Indebtedness must be permitted by all other applicable
provisions of this Agreement, that the Lien must not
extend to any assets other than those being acquired,
3
<PAGE>
that the purchase money Indebtedness not exceed 90% of
the value of the asset so acquired, and that the
aggregate amount of purchase money Indebtedness secured
by all such Liens (excluding the aggregate amount of
purchase money Indebtedness incurred pursuant to an
Acquisition that is permitted by the terms of this
Agreement) does not at any time exceed 5% of
Consolidated Total Assets;
(b) Additional Basket. A new subsection (x) is added to the
definition of Permitted Liens in Section 1.1 of the Credit Agreement which reads
as follows:
(x) in addition to the Liens described in subparts (i)
through (ix) above, other Liens provided that the
aggregate amount of Indebtedness secured thereby does
not at any time exceed 5% of Consolidated Total Assets.
(c) Conforming Stylistic Changes. The "and" at the end of subpart
(viii) of the definition of Permitted Liens in Section 1.1 of the Credit
Agreement is deleted. Similarly, the period at the end of subpart (ix) of such
definition is deleted and is replaced by "; and".
9. Amendments to Section 6.1 Regarding Information
(a) New Subsidiary. Subpart (f) of Section 6.1 of the Credit
Agreement is deleted and is replaced by the following:
(f) except as otherwise provided in Section 6.11(d), not
more than 5 Business Days after the formation of any
Subsidiary or any Acquisition that, upon the
consummation of that Acquisition, will result in any
Person becoming a Subsidiary of the Borrower, notice
thereof describing such transaction or event and the
expected proceeds to be received therefrom, in detail
satisfactory to the Majority Banks;
(b) Audit Management Letter. Subpart (h) of Section 6.1 of the
Credit Agreement is deleted and is replaced by the following:
(h) [this subsection intentionally left blank]
(c) Timing of Certain Information. The reference to "30 days" in
subpart (a) of Section 6.1 of the Credit Agreement is deleted and is replaced by
"45 days". Similarly, the reference to "30 days" in subpart (l) of Section 6.1
of the Credit Agreement is deleted and is replaced by "45 days".
4
<PAGE>
10. Litigation Notices. Subpart (a) of Section 6.2 of the Credit
Agreement is deleted and is replaced by the following:
(a) all legal or arbitration proceedings, and of all
proceedings by or before any Governmental Authority
affecting the Borrower or any of its Subsidiaries which,
if adversely determined, might result in a monetary loss
(regardless of whether any portion of such loss is
covered by insurance) to the Borrower or any such
Subsidiary in an amount in excess of 1% of Consolidated
Total Assets individually or in excess of 5% of
Consolidated Total Assets in the aggregate for all such
proceedings; and
11. Restrictive Agreements by Subsidiaries. Section 6.10(b) of the
Credit Agreement is deleted and is replaced by the following:
(b) [this subsection intentionally left blank]
12. Acquisitions.
(A) Notifications. Section 6.11(d)(i) of the Credit
Agreement is deleted and is replaced by the following:
(i) in the case of an Acquisition in which the value
of the assets, securities or other interests
acquired equals or exceeds 5% of Consolidated
Total Assets, at least 5 Business Days prior
written notice of such Acquisition, which notice
shall include a description of the terms of the
Acquisition, the manner in which it will be
financed, summary historical financial
information about the Person being acquired or
the Person from whom such assets are being
acquired, as the case may be, pro forma financial
calculation demonstrating why the proposed
Acquisition will not result in any Default under
this Agreement, and
(B) Section 6.11(D)(II). Section 6.11(d)(ii) of the Credit
Agreement is deleted and is replaced by the following:
(ii) [this subsection intentionally left blank]
(C) Transfers Among Obligors. A new Section 6.11(f) is added
to the Credit Agreement which reads as follows:
(f) any transfer of assets by the Borrower to any
Subsidiary Guarantor, or any transfer of assets
by any Subsidiary Guarantor to the Borrower or to
any other Subsidiary
5
<PAGE>
Guarantor, in each case provided that (i) no
Default or Event of Default then exists or would
result therefrom, and (ii) in the case of any
transfer of assets the value of which exceeds 5%
of Consolidated Total Assets at such time, the
Borrower gives the Agent written notice of the
nature and specifics of such transfer not more
than five (5) Business Days after such transfer.
In connection with the addition of such new Section 6.11(f), (1) the
"or" at the end of Section 6.11(d)(iii) of the Credit Agreement is
deleted and is replaced by a semicolon, and (2) the period at the end
of Section 6.11(e) of the Credit Agreement is deleted and is replaced
by "; or".
13. Sale and Lease-backs. Section 6.13 of the Credit Agreement is
deleted and is replaced by the following:
6.13. Sale and Lease-Back Transactions. The Borrower shall
not, nor shall it permit any of its Subsidiaries to,
enter into any arrangement, directly or indirectly, with
any Person (other than the Borrower or one of its
Subsidiaries except a Foreign Subsidiary) whereby it
shall sell or transfer any property, real or personal,
whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it
intends to use for substantially the same purpose or
purposes as the property being sold or transferred (a
"Sale and Lease-Back Transaction"); provided that the
Borrower or one or more of its Subsidiaries may enter
into any Sale and Lease-Back Transaction if (a) at the
time of such Sale and Lease-Back Transaction no Default
shall have occurred and be continuing, and (b) the
aggregate amount of property sold or transferred
pursuant to such Sale and Lease-Back Transaction and all
prior Sale and Lease-Back Transactions since the date of
this Agreement does not exceed 5% of Consolidated Total
Assets.
14. Permitted Investments.
(a) Government Obligations. Section 6.14(a) of the Credit
Agreement is deleted and is replaced by the following:
(a) Investments in short-term or long-term
obligations issued or fully guaranteed by the
U.S. Government;
(b) Strategic Investments. Section 6.14(f) of the Credit
Agreement is deleted and is replaced by the following:
(f) Investments in other companies for strategic
alliance or investment purposes in an aggregate
amount outstanding at any time not to exceed 5%
of Consolidated Total Assets;
6
<PAGE>
(c) Foreign Debt. Section 6.14(g) of the Credit Agreement is
deleted and is replaced by the following:
(g) Investments in foreign government debt in an
aggregate amount outstanding at any time not to
exceed 5% of Consolidated Total Assets;
15. Transactions with Affiliates. Section 6.16 of the Credit
Agreement is deleted and is replaced by the following:
6.16. Transactions With Affiliates. The Borrower shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly, (a) make any Investment in an Affiliate, (b) transfer,
sell, lease, assign or otherwise dispose of any assets to an Affiliate,
(c) merge or consolidate with or purchase or acquire any assets from an
Affiliate, (d) Guarantee or assume any obligations of an Affiliate, or
(e) enter into any other transaction directly or indirectly with or for
the benefit of an Affiliate; provided that (i) any Affiliate who is an
individual may serve as a director, officer or employee of the
Borrower, or any of its Subsidiaries and receive compensation or
indemnification in connection with his services in such capacity, (ii)
the Borrower or any Subsidiary may enter into any sale, license, lease
or similar transaction with an Affiliate in the ordinary course of
business if the monetary or business consideration arising therefrom
would be not materially less advantageous to the Borrower or the
Subsidiary as the monetary or business consideration which it would
obtain in a comparable arm's-length transaction with a similarly
situated Person not an Affiliate, and (iii) the prohibitions in
subparts (a) and (d) of this Section 6.16 on transactions with
Affiliates are modified as follows: (x) the prohibitions do not apply
insofar as such Investment or Guarantee, as the case may be, exists on
the date hereof, and (y) notwithstanding such prohibitions (1) the
Borrower may Guarantee or assume any obligations of a Subsidiary
(provided that (i) the obligations being Guaranteed or assumed do not
include any obligation of the Subsidiary to pay Indebtedness, and (ii)
the Borrower itself could have entered into the transaction or
transactions giving rise to the obligations being Guaranteed or assumed
without violating any provision of this Agreement), and (2) the
Borrower may make such Investments and Guarantee such obligations if
the aggregate outstanding amount of such Investments and such
Guaranteed obligations do not at any time exceed 5% of Consolidated
Total Assets. In addition, the prohibitions in subpart (b) of this
Section 6.16 shall not apply to any transfer of assets made in
accordance with the provisions of Section 6.11(f).
7
<PAGE>
16. Notice of Business Location Change. Section 6.20(a) of the
Credit Agreement is deleted and is replaced by the following:
(a) The Borrower shall not, and shall not permit any of its
Subsidiaries to, (i) engage in any business other than that in which it is
presently engaged or is directly related thereto, (ii) change its corporate
structure, or (iii) liquidate, wind-up or dissolve itself.
17. Inactive Subsidiaries. The definition of Inactive Subsidiaries
in Section 1.1 of the Credit Agreement is deleted and is replaced by the
following:
"Inactive Subsidiaries" means Cerner Campus
Redevelopment Corporation and Cerner Radiology Information
Systems, Inc.
18. Replacement Schedules. Schedules 1.1, 5.12, 5.14 and 6.14 of
the Credit Agreement are deleted and are replaced by Schedules 1.1, 5.12, 5.14
and 6.14 to this Amendment.
19. Subsidiary Merger. Section 6.11(e) of the Credit Agreement is
deleted and is replaced by the following:
(e) any merger or consolidation, so long as after giving
effect thereto, no Default or Event of Default has
occurred and is continuing and provided that either (i)
the Borrower is the surviving corporation thereof, or
(ii) in the case of a merger or consolidation involving
a Wholly-Owned Subsidiary and one more other Persons
(other than the Borrower), either (1) the Wholly-Owned
Subsidiary is the surviving corporation thereof, or (2)
the Wholly-Owned Subsidiary is merged or consolidated
into such other Person and (x) contemporaneously
therewith, the other Person becomes a Wholly-Owned
Subsidiary, and (y) if the Wholly-Owned Subsidiary being
merged or consolidated is a Subsidiary Guarantor, the
Borrower shall cause such other Person, within five (5)
Business Days after such merger or consolidation, as the
case may be, to become a party to the Subsidiary
Guaranty (even if, notwithstanding anything to the
contrary in Section 6.10(c), such other Party is a
Foreign Subsidiary) and to comply with the other
provisions under Section 6.10(c) applicable to a Person
who becomes a Subsidiary.
20. Conditions Precedent to Amendment. Notwithstanding anything in
this Amendment to the contrary, unless and to the extent the Agent waives the
benefits of this sentence by giving written notice thereof to the Borrower,
neither the Agent, any Bank or the Issuing Bank shall have any duties under this
Amendment, nor shall any waivers, releases or other concessions, if any, made or
given by the Agent, any of the Banks, or the Issuing Bank under this Amendment
be effective, in each case until the Agent has received fully executed originals
of each of the following, each in form and substance satisfactory to the Agent:
8
<PAGE>
(a) Amendment. This Amendment;
(b) NOTE. A promissory note from the Borrower, as maker, to
Firstar Bank, N.A. Overland Park, as payee, dated on or about the date
hereof, in the stated principal amount of $30,000,000, which note shall
amend and restate the Note originally issued to such Bank pursuant to
the Credit Agreement.
(c) Other. Such other documents as the Agent may reasonably
request in connection with the transactions contemplated hereby.
21. Firstar. Firstar Bank Midwest, N.A. has changed its name to
Firstar Bank, N.A. Overland Park. Accordingly, unless the context clearly
requires otherwise, all references in the Credit Agreement and the other Credit
Documents to Firstar Bank Midwest, N.A. (whether in its capacity as Agent, the
Issuing Bank or as a Bank) are amended to refer instead to "Firstar Bank, N.A.
Overland Park, and its successors and assigns".
22. Representations and Warranties. The Borrower represents and
warrants to the Agent. the Bank and the Issuing Bank as follows: (a) it is a
duly organized and validly existing corporation and has full corporate power and
authority to enter into this Amendment and any documents or transactions
contemplated hereby and to pay and perform its obligations in respect of each of
the foregoing; (b) the execution, delivery and performance by the Borrower of
this Amendment and any documents contemplated hereby or any transactions
contemplated hereby do not violate or conflict with, or require any consent
under, (i) the Borrower's certificate of incorporation, by-laws, or any other
agreement or document relating to the Borrower's existence or authority to act,
(ii) any agreement or instrument to which the Borrower is a party or by which
the Borrower or any of its properties is bound, (iii) any court order, judicial
proceeding or any administrative or arbitral order or decree, or (iv) any
applicable law, rule or regulation; and (c) no authorization, approval or
consent of or by, and no notice to or filing or registration with, any
governmental authority or any other Person is necessary for the Borrower to
enter into this Amendment or any document contemplated hereby or any transaction
contemplated hereby or to perform its obligations with respect to each of the
foregoing.
23. Reaffirmation of Credit Documents. The Borrower reaffirms its
obligations under the Credit Agreement and the other Credit Documents to which
it is a party or by which it is bound, and represents, warrants and covenants to
the Agent, the Issuing Bank and the Bank, as a material inducement to the Agent,
the Issuing Bank and the Bank to enter into this Amendment and the transactions
contemplated hereby, that: (a) the Borrower has no (and, in any event, hereby
waives any) defense, claim or right of setoff in respect of the Credit
Agreement, any of the other Credit Documents or the actions or inactions of the
Agent, the Issuing Bank or the Bank; and (b) all representations and warranties
made by the Borrower in the Credit Agreement and the other Credit Documents are
true and complete on the date hereof as if made on the date hereof.
9
<PAGE>
24. No Other Amendments. Except as amended hereby, the Credit
Agreement and the other Credit Documents shall remain in full force and effect
and be binding on the Borrower in accordance with their respective terms.
25. Counterparts; Fax Signatures. This Amendment and any document
contemplated hereby may be executed in one or more counterparts and by different
parties thereto, all of which counterparts, when taken together, shall
constitute but one agreement. This Amendment and any document contemplated
hereby may be executed and delivered by facsimile or other electronic
transmission, and any such execution or delivery shall be fully effective as if
executed and delivered in person.
26. Legal Fees. The Borrower shall pay all legal fees and expenses
incurred by the Agent in connection with the preparation and closing of this
Amendment and any other documents referred to herein and the consummation of any
transactions referred to herein, such legal fees not to exceed $5,000.
27. Mo.rev.stat. Ss. 432.045 Required Notice. The following
statement is given pursuant to Mo.Rev.Stat. ss. 432.045: "ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN
THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT." All other
Credit Documents are incorporated into this Amendment; provided, however, that,
to the extent of any direct conflict between the terms and conditions of the
other Credit Documents and this Amendment, the terms and conditions of this
Amendment shall prevail and govern.
28. Governing Law. This Amendment shall be governed by the laws of
the State of Missouri without regard to any choice of law rule thereof giving
effect to the laws of any other jurisdiction.
[signature page(s) follow]
10
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
CERNER CORPORATION, a Delaware corporation
By: /s/Marc G. Naughton
------------------------------------------
Name: Marc G. Naughton
Title: CFO
FIRSTAR BANK, N.A. OVERLAND PARK,
formerly known as Firstar Bank Midwest, N. A.,
as Agent, as Issuing Bank and as a Bank
By: /s/Mark R. Jorgenson
------------------------------------------
Name: Mark R. Jorgenson
Title: SVP
Consent of Guarantors
Reference is made to the Guaranty dated as of April 1, 1999, in favor
of the Agent, on behalf of the Banks and the Issuing Bank, to which the
undersigned are parties, either as an original signatory thereto or pursuant to
any subsequent assumption, joinder or other agreements (each a "Guarantor"), and
any other guaranty executed by any Guarantor in favor of the Agent or any Bank
or the Issuing Bank relating to any indebtedness of the Borrower to any Bank or
the Issuing Bank (collectively, with respect to each Guarantor, such Guarantor's
"Guaranty"). Capitalized terms used and not defined in this Consent of
Guarantors have the meanings given to them in the Credit Agreement referred to
in the above Amendment. To induce the Agent, the Issuing Bank and the Bank to
enter into the above Amendment, each Guarantor: (a) consents to the Borrower,
the Agent, the Issuing Bank and the Bank entering into the above Amendment,
including, without limitation, the provisions therein relating to the increase
in the maximum principal amount of the revolving credit facility under the
Credit Agreement from $18,000,0000 to $30,000,000; (b) agrees that the
execution, delivery and performance of the above Amendment and any documents or
transactions contemplated thereby shall not discharge, limit or otherwise impair
the obligations of such Guarantor under such Guarantor's Guaranty; (c) agrees
that such Guarantor's Guaranty is and remains in full force and effect and is
enforceable against such Guarantor in accordance with its terms; (d) waives any
defense, claim or right of setoff such Guarantor may have in respect of such
Guarantor's Guaranty, the Credit
11
<PAGE>
Agreement, the other Credit Documents or the actions or inactions of the Agent,
the Issuing Bank or any Bank; and (e) agrees that neither the Agent, the Issuing
Bank or any Bank has any duty to give such Guarantor notice of or obtain such
Guarantor's consent to the transactions described in the above Amendment, and
that the Agent, the Issuing Bank and the Bank's giving of notice to such
Guarantor and obtainment of such Guarantor's consent in this instance shall not
impose any similar or other duty upon the Agent, the Issuing Bank or any Bank in
any future matter or transaction. This Consent of Guarantors may be validly
executed and delivered by fax or other electronic transmission and in multiple
counterparts and by different parties thereto.
CERNER INTERNATIONAL, INC., CERNER MULTUM, INC.,
a Delaware corporation a Delaware corporation, formerly known as
Multum Information Services, Inc.
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
----------------------------- --------------------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Treasurer Title: Treasurer
CERNER PROPERTIES, INC., CERNER HEALTH FACTS, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
----------------------------- --------------------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: CFO
CERNER HEALTH CONNECTIONS, INC., CERNER CITATION, INC., a Delaware
a Delaware corporation corporation, formerly known as Cerner
Performance Logistics, Inc.
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
----------------------------- --------------------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: CFO
12
<PAGE>
CERNER INVESTMENT CORP., CERNER CAMPUS REDEVELOPMENT
a Nevada corporation CORPORATION, a Missouri corporation
By: /s/ Marc G. Naughton By: /s/ Marc G. Naughton
--------------------------------- --------------------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: CFO Title: Secretary & Treasurer
HEALTH NETWORK VENTURES, INC.,
a Delaware corporation
By: /s/ Marc G. Naughton
---------------------------------
Name: Marc G. Naughton
Title: Treasurer
13
<PAGE>
Exhibit A
---------
COMMITMENTS
-----------
Firstar Bank, N.A. Overland Park $30,000,000
TOTAL $30,000,000
14
<PAGE>
SCHEDULE 1.1
EXISTING LIENS
--------------
1. Cerner Corporation PTY Limited has put money into escrow in connection
with the sale and installation of Cerner systems to Royal Alexandra
Hospital.
2. GE Healthcare Financial Services has filed a UCC financing statement in
connection with the Assignment and Bill of Sale of Stream of Payments
Agreement dated as of June 28, 2001 related to Eastern Maine
Healthcare.
3. GE Healthcare Financial Services has filed a UCC financing statement in
connection with the Assignment and Bill of Sale of Stream of Payments
Agreement dated as of June 25, 2001 related to Somerset Hospital.
4. GE Healthcare Financial Services has filed a UCC financing statement in
connection with the Assignment and Bill of Sale of Stream of Payments
Agreement dated as of June 25, 2001 Uniontown Hospital.
15
<PAGE>
SCHEDULE 5.12
EXISTING SUBSIDIARIES
^ Denotes Subsidiary not wholly-owned by Cerner Corporation or Cerner
International, Inc.
* Denotes Foreign Subsidiary
A. Cerner Corporation ahs the following Subsidiaries:
--------------------------------------------------
o Cerner Health Connections, Inc., a Delaware corporation
o Cerner Health Facts, Inc., a Delaware corporation
o Cerner Multum, Inc., a Delaware corporation
o Cerner Radiology Information Systems, Inc., a Texas corporation
o Cerner Citation, Inc., a Delaware corporation
o Cerner Properties, Inc., a Delaware corporation
o Cerner International, Inc., a Delaware corporation
o Cerner Investment Corp., a Nevada corporation
o Health Network Ventures, Inc., a Delaware corporation
o Cerner Campus Redevelopment Corporation, a Missouri corporation
o *Cerner FSC, Inc., a corporation organized under the laws of
Barbados (Wholly-Owned Subsidiary of Cerner Corporation)
o *Cerner Canada Limited, a Delaware corporation (Wholly-Owned
Subsidiary of Cerner Corporation)
o ^*Cerner (Malaysia) SDN BHD, a corporation organized under the laws
of Malaysia (Cerner Corporation owns 99,998 shares, the remaining 2
shares are owned by Thomas s/o Mariassosay and Syed Mohd Tahir Bin
Dato' Syed Azman respectively)
o *Cerner Belgium, Inc.
16
<PAGE>
A. Cerner International, Inc. has the following Subsidiaries:
----------------------------------------------------------
o *Cerner Singapore Limited, a Delaware corporation
o *Cerner Corporation PTY Limited, a corporation organized under the
laws of Australia
o ^*Cerner Limited, a corporation organized under the laws of the
United Kingdom (Cerner International, Inc. owns 9,999 shares, the
remaining 1 share is owned by Huntsmoor Nominees Limited)
o *Cerner Deutschland GmbH, a corporation organized under the laws of
Germany
17
<PAGE>
SCHEDULE 5.14
EXISTING MATERIAL CONTRACTS
---------------------------
1. This Agreement, as amended.
2. Direct Application Reseller Agreement dated June 30, 2001 between the
Borrower and Compaq Computer Corporation.
3. Note Agreement dated as of April 1, 1999 between the Borrower,
Principal Life Insurance Company, Principal Life Insurance Company, on
behalf of one or more separate accounts, Commercial Union Life
Insurance Company of America, Nippon Life Insurance Company of America,
John Hancock Mutual Life Insurance Company, John Hancock Variable Life
Insurance Company, Investors Partner Life Insurance Company.
18
<PAGE>
SCHEDULE 6.14
EXISTING INVESTMENTS
--------------------
1. The Borrower has a 40% ownership in Cerner Arabia Ltd. in Saudi Arabia
2. The Borrower owns approximately 3% of the common stock of WebMD common
stock
3. The Borrower has an ownership interest in Protocare, Inc.
4. The Borrower has an ownership interest in Cogent Healthcare, Inc.
5. The Borrower has an ownership interest in Blue Ox Medical Network, Inc.
6. The Borrower has an ownership interest in LifeOutcomes.com, Inc.
7. The Borrower has an ownership interest in LifeMetrix, Inc.
19
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4(F)
<SEQUENCE>5
<FILENAME>file004.txt
<DESCRIPTION>THIRD AMENDMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 4(f)
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (the "Amendment") is made as
of December 21, 2001, between CERNER CORPORATION, a Delaware corporation (the
"Borrower"), and FIRSTAR BANK, N.A., formerly know as or as successor to Firstar
Bank, N.A. Overland Park, Firstar Bank Midwest, N.A. and Mercantile Bank, as
Agent and, as of the date hereof, the sole Bank under the Credit Agreement
referred to below, and as Issuing Bank.
Preliminary Statements
(a) The Borrower, the Agent, the Issuing Bank and the Bank are parties
to a Credit Agreement dated as of April 1, 1999, as amended by (1) a First
Amendment to Credit Agreement dated as of June 30, 2000, and (2) a Second
Amendment to Credit Agreement dated as of July 1, 2001 (as so amended, the
"Credit Agreement"). Capitalized terms used and not defined in this Amendment
have the meanings given to them in the Credit Agreement.
(b) The Borrower has requested that, among other things, (1) the
maximum total Revolving Credit Commitment be increased from $30 million to $45
million, of which not more than $25 million shall be committed to the Revolving
Credit Loan facility described in Section 2.1(a) of the Credit Agreement, and
not more than $45 million (less the principal amount of any Revolving Credit
Loans then outstanding) shall be committed to the Letter of Credit facility
described in Section 2.21 of the Credit Agreement, (2) Cerner DHT, Inc., a
Delaware corporation (the "New Subsidiary Guarantor") be added as a new
Subsidiary Guarantor under the Credit Agreement, and (3) various covenants in
the Credit Agreement be amended in certain respects.
(c) The Agent, on behalf of the Bank and the Issuing Bank, is willing
to agree to the foregoing requests, subject, however, to the terms, conditions
and agreements set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Increased Total Commitment; Separate Limits for Revolving Credit
Loans and Letters of Credit.
(a) Revolving Credit Commitment. The definition of "Revolving
Credit Commitment" in Section 1.1 of the Credit Agreement is deleted
and is replaced by the following:
"Revolving Credit Commitment" shall mean, as to
each Bank, (i) its obligation to make Revolving Credit Loans
under Section 2.1(a) hereof in an aggregate principal amount
at any time outstanding not to exceed the amount set forth
opposite such Bank's name on Exhibit A hereto under the column
entitled "Revolving Credit Loan Commitment Amount," and (ii)
its LC Exposure for Letters of Credit issued pursuant to
Section 2.21 hereof in an amount at any time not to exceed the
amount set forth opposite such Bank's name on Exhibit A hereto
under the column entitled "Letter of Credit Commitment
Amount;" provided, however, that at no time shall any Bank's
Revolving Credit Commitment exceed its pro rata share of the
Borrowing Base then in effect.
<PAGE>
(b) New Exhibit A. Exhibit A to the Credit Agreement is deleted
and is replaced by Exhibit A to this Amendment.
(c) $25 Million Limit On Revolving Credit Facility. A new Section
2.1(c) is added to the Credit Agreement which reads as follows:
(c) Notwithstanding anything herein to the
contrary, and without limiting any provisions herein requiring
the Borrower to have a certain Borrowing Base in order to
obtain or maintain credit under this Agreement, from and after
the date of the Third Amendment, (i) the maximum principal
amount of Revolving Credit Loans outstanding at any time may
not exceed $25,000,000, (ii) the aggregate LC Exposure of all
Banks at any time may not exceed $45,000,000 (less, to the
extent not already deducted therefrom, the principal amount of
all Revolving Credit Loans then outstanding), and (iii) the
principal amount of all Revolving Credit Loans outstanding at
any time and the aggregate LC Exposure of all Banks at such
time may not exceed $45,000,000 in the aggregate.
(d) Conforming Definition. Section 1.1 of the Credit Agreement is
amended to add the following definition in the appropriate alphabetical
order:
"Third Amendment" means the Third Amendment to
Credit Agreement, dated as of December 21, 2001, among the
parties to this Agreement.
2. Subsidiary Guarantors. The definition of Subsidiary Guarantor in
Section 1.1 of the Credit Agreement is deleted and is replaced by the following:
Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower other than the Foreign Subsidiaries. As of the date of
the Third Amendment, the Subsidiary Guarantors are (1) Cerner
Properties, Inc., (2) Cerner International, Inc., (3) Cerner
Multum, Inc., (4) Cerner Health Connections, Inc., (5) Cerner
Health Facts, Inc., (6) Cerner Citation, Inc., (7) Cerner
Investment Corp., (8) Health Network Ventures, Inc., (9) Cerner
Campus Redevelopment Corporation, (10) Cerner Radiology
Information Systems, Inc., and (11) Cerner DHT, Inc.
3. New Minimum Cash Balances Covenant.
(a) Covenant. A new Section 6.21 is added to the Credit Agreement
which reads as follows:
6.21 Minimum Cash Balances. The Borrower shall not
permit the amount of Consolidated Cash Balances on the last day
of any fiscal quarter of the Borrower to be less than 150% of
the amount of Consolidated Firstar Funded Debt on such date.
<PAGE>
(b) Conforming Definitions. Section 1.1 of the Credit Agreement is
amended to add the following definitions in the appropriate alphabetical order:
"Consolidated Cash Balances" shall mean, at any
date, the aggregate amount of Qualifying Cash Investments of the
Borrower and the Subsidiary Guarantors on a consolidated basis
in accordance with GAAP. If the amount or value of a Qualifying
Cash Investment is not priced daily on a recognized national
market or by the issuer thereof or is not otherwise readily
determinable, then the Agent shall determine the value of such
Qualifying Cash Investment using commercially reasonable
valuation methods.
"Consolidated Firstar Funded Debt" shall mean, at
any date, the aggregate amount of Funded Debt of the Borrower
and the Subsidiary Guarantors due Firstar Bank, N.A. on a
consolidated basis in accordance with GAAP.
"Qualifying Cash Investments" means (i) cash, (ii)
Investments described in subparts (b), (c), (h), (i) and (j) of
Section 6.14 hereof, and (iii) Investments in obligations issued
or fully guaranteed by the U.S. Government having a maturity of
one year or less when issued.
(c) Events of Default to Include New Financial Covenant. Section
7(d) of the Credit Agreement is deleted and is replaced by the following:
(d) the Borrower shall fail to keep, observe or
perform any of its obligations under Sections 6.2, 6.3(c), 6.4,
6.5, 6.6, 6.7, 6.8, 6.10, 6.11, 612 or 6.21 of this Agreement;
or
5. Replacement Schedules. Schedules 5.12, 5.14 and 6.14 of the
Credit Agreement are deleted and are replaced by Schedules 5.12, 5.14 and 6.14
to this Amendment.
6. Conditions Precedent to Amendment. Notwithstanding anything in
this Amendment to the contrary, unless and to the extent the Agent waives the
benefits of this sentence by giving written notice thereof to the Borrower,
neither the Agent, any Bank or the Issuing Bank shall have any duties under this
Amendment, nor shall any waivers, releases or other concessions, if any, made or
given by the Agent, any of the Banks, or the Issuing Bank under this Amendment
be effective, in each case until the Agent has received fully executed originals
of each of the following, each in form and substance satisfactory to the Agent:
(a) Amendment. This Amendment;
(b) NOTE. A promissory note from the Borrower, as maker, to
Firstar Bank, N.A., as payee, dated on or about the date hereof, in the
stated principal amount of $45,000,000, which note shall amend and
restate the Note previously issued to such Bank pursuant to the Credit
Agreement.
(c) Assumption Agreement. An Assumption Agreement, dated on or
about the date hereof, from the New Subsidiary Guarantor in favor of
the Agent, whereby, among other things, the New Subsidiary Guarantor
agrees to become a Subsidiary Guarantor for all purposes under the
Subsidiary Guaranty.
<PAGE>
(d) Secretary's Certificate -- New Subsidiary Guarantor. A
certificate of the secretary or assistant secretary of the New
Subsidiary Guarantor in favor of the Agent, dated on or about the date
hereof, whereby, among other things, such secretary or assistant
secretary affirms that attached thereto are true and current copies of
the New Subsidiary Guarantor's certificate of incorporation and
by-laws, and that included therein are specimen signatures of officers
of the New Subsidiary Guarantor executing this Amendment and the
Assumption Agreement referred to above.
(e) Good Standing Certificate -- New Subsidiary Guarantor. A
recent certificate of good standing or similar certificate from the
Secretary of State or similar government official of the state of
incorporation of the New Subsidiary Guarantor.
(f) Other. Such other documents as the Agent may reasonably
request in connection with the transactions contemplated hereby.
7. Firstar. Firstar Bank, N.A. has succeeded to all rights of Firstar
Bank, N.A. Overland Park under the Credit Documents. Accordingly, unless the
context clearly requires otherwise, all references in the Credit Agreement
and the other Credit Documents to Firstar Bank, N.A. Overland Park (whether in
its capacity as Agent, the Issuing Bank or as a Bank) are amended to refer
instead to "Firstar Bank, N.A., and its successors and assigns".
8. Representations and Warranties. The Borrower represents and warrants
to the Agent, the Bank and the Issuing Bank as follows: (a) it is a duly
organized and validly existing corporation and has full corporate power and
authority to enter into this Amendment and any documents or transactions
contemplated hereby and to pay and perform its obligations in respect of each of
the foregoing; (b) the execution, delivery and performance by the Borrower of
this Amendment and any documents contemplated hereby or any transactions
contemplated hereby do not violate or conflict with, or require any consent
under, (i) the Borrower's certificate of incorporation, by-laws, or any other
agreement or document relating to the Borrower's existence or authority to act,
(ii) any agreement or instrument to which the Borrower is a party or by which
the Borrower or any of its properties is bound, (iii) any court order, judicial
proceeding or any administrative or arbitral order or decree, or (iv) any
applicable law, rule or regulation; and (c) no authorization, approval or
consent of or by, and no notice to or filing or registration with, any
governmental authority or any other Person is necessary for the Borrower to
enter into this Amendment or any document contemplated hereby or any transaction
contemplated hereby or to perform its obligations with respect to each of the
foregoing.
9. Reaffirmation of Credit Documents. The Borrower reaffirms its
obligations under the Credit Agreement and the other Credit Documents to which
it is a party or by which it is bound, and represents, warrants and covenants to
the Agent, the Issuing Bank and the Bank, as a material inducement to the Agent,
the Issuing Bank and the Bank to enter into this Amendment and the transactions
contemplated hereby, that: (a) the Borrower has no (and, in any event, hereby
waives any) defense, claim or right of setoff in respect of the Credit
Agreement, any of the other Credit Documents or the actions or inactions of the
Agent, the Issuing Bank or the Bank; and (b) all representations and warranties
made by the Borrower in the Credit Agreement and the other Credit Documents are
true and complete on the date hereof as if made on the date hereof.
10. No Other Amendments. Except as amended hereby, the Credit Agreement
and the other Credit Documents shall remain in full force and effect and be
binding on the Borrower in accordance with their respective terms.
<PAGE>
11. Counterparts; Fax Signatures. This Amendment and any document
contemplated hereby may be executed in one or more counterparts and by different
parties thereto, all of which counterparts, when taken together, shall
constitute but one agreement. This Amendment and any document contemplated
hereby may be executed and delivered by facsimile or other electronic
transmission, and any such execution or delivery shall be fully effective as if
executed and delivered in person.
12. Legal Fees. The Borrower shall pay all legal fees and expenses
incurred by the Agent in connection with the preparation and closing of this
Amendment and any other documents referred to herein and the consummation of any
transactions referred to herein, which legal fees shall not exceed $5,000.
13. Mo.rev.stat. Ss. 432.045 Required Notice. The following statement
is given pursuant to Mo.Rev.Stat. ' 432.045: "ORAL AGREEMENTS OR COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT." All other Credit Documents are
incorporated into this Amendment; provided, however, that, to the extent of any
direct conflict between the terms and conditions of the other Credit Documents
and this Amendment, the terms and conditions of this Amendment shall prevail and
govern.
14. Governing Law. This Amendment shall be governed by the laws of the
State of Missouri without regard to any choice of law rule thereof giving effect
to the laws of any other jurisdiction.
[signature page(s) follow]
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
CERNER CORPORATION,
a Delaware corporation
By: \s\Marc G. Naughton
Name: Marc G. Naughton
Title: Vice President & CFO
FIRSTAR BANK, N.A., formerly known as
or as successor to Firstar Bank, N.A.
Overland Park, as Agent, as Issuing
Bank and as a Bank
By: \s\Mark R. Jorgenson
Name: Mark R. Jorgenson
Title: SVP
Consent of Guarantors
Reference is made to the Guaranty dated as of April 1, 1999, in favor
of the Agent, on behalf of the Banks and the Issuing Bank, to which the
undersigned are parties, either as an original signatory thereto or pursuant to
any subsequent assumption, joinder or other agreements (each a "Guarantor"), and
any other guaranty executed by any Guarantor in favor of the Agent or any Bank
or the Issuing Bank relating to any indebtedness of the Borrower to any Bank or
the Issuing Bank (collectively, with respect to each Guarantor, such Guarantor's
"Guaranty"). Capitalized terms used and not defined in this Consent of
Guarantors have the meanings given to them in the Credit Agreement referred to
in the above Amendment. To induce the Agent, the Issuing Bank and the Bank to
enter into the above Amendment, each Guarantor: (a) consents to the Borrower,
the Agent, the Issuing Bank and the Bank entering into the above Amendment,
including, without limitation, the provisions therein relating to the increase
in the maximum principal amount of the revolving credit facility under the
Credit Agreement from $30,000,0000 to $45,000,000; (b) agrees that the
execution, delivery and performance of the above Amendment and any documents or
transactions contemplated thereby shall not discharge, limit or otherwise impair
the obligations of such Guarantor under such Guarantor's Guaranty; (c) agrees
that such Guarantor's Guaranty is and remains in full force and effect and is
enforceable against such Guarantor in accordance with its terms; (d) waives any
defense, claim or right of setoff such Guarantor may have in respect of such
Guarantor's Guaranty, the Credit Agreement, the other Credit Documents or the
actions or inactions of the Agent, the Issuing Bank or any Bank; and (e) agrees
that neither the Agent, the Issuing Bank or any Bank has any duty to give such
Guarantor notice of or obtain such Guarantor's consent to the transactions
described in the above Amendment, and that the Agent, the Issuing Bank and the
Bank's giving of notice to such Guarantor and obtainment of such Guarantor's
consent in this instance shall not impose any similar or other duty upon the
Agent, the Issuing Bank or any Bank in any future
<PAGE>
matter or transaction. This Consent of Guarantors may be validly executed and
delivered by fax or other electronic transmission and in multiple counterparts
and by different parties thereto.
<TABLE>
<CAPTION>
<S> <C>
CERNER INTERNATIONAL, INC., CERNER MULTUM, INC.,
a Delaware corporation a Delaware corporation,
formerly known as Multum
Information Services, Inc.
By: /s/Marc G. Naughton By: /s/Marc G. Naughton
--------------------------------- ------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Vice President & Treasurer Title: Treasurer
CERNER PROPERTIES, INC., CERNER HEALTH FACTS, INC.,
a Delaware corporation a Delaware corporation
By: _/s/ Marc G. Naughton By:/s/Marc G. Naughton
---------------------------------- --------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Vice President & CFO Title: Vice President & CFO
CERNER HEALTH CONNECTIONS, INC., CERNER CITATION, INC., a Delaware
a Delaware corporation corporation, formerly known as Cerner
Performance Logistics, Inc.
By: /s/Marc G. Naughton By: /s/Marc G. Naughton
---------------------------------- --------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Vice President & CFO Title: Vice President & CFO
CERNER INVESTMENT CORP., CERNER CAMPUS REDEVELOPMENT
a Nevada corporation CORPORATION, a Missouri corporation
By:/s/ Marc G. Naughton By: Marc G. Naughton
---------------------------------- ------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Vice President & CFO Title: Treasurer
HEALTH NETWORK VENTURES, INC., CERNER RADIOLOGY INFORMATION
a Delaware corporation SYSTEMS, INC., a Texas corporation
</TABLE>
<PAGE>
By:/s/ Marc G. Naughton By:/s/ Marc G. Naughton
----------------------------------------- --------------------
Name: Marc G. Naughton Name: Marc G. Naughton
Title: Treasurer Title: Vice President & CFO
CERNER DHT, INC.,
a Delaware corporation
By:/s/ Marc G. Naughton
Name: Marc G. Naughton
Title: Vice President & CFO
<PAGE>
EXHIBIT A
Banks and Commitments
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Revolving Credit Letter of Credit Bank's Total
Loan Commitment Commitment Commitment
Bank Amount Amount Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Firstar Bank, N.A. $25,000,000* $45,000,000 $45,000,000
- ----------------------------------------------------------------------------------------------------------------------
Totals: $25,000,000* $45,000,000 $45,000,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* As more particularly described in Section 2.1(c) of the Credit
Agreement, the Revolving Credit Loan facility is a subfacility of - and
accordingly shall act to reduce - the amount of Letters of Credit that
may be outstanding under the Letter of Credit facility at any time.
<PAGE>
SCHEDULE 5.12
SUBSIDIARIES
^ Denotes Subsidiary not wholly-owned by Cerner Corporation or Cerner
International, Inc.
* Denotes Foreign Subsidiary
1. Cerner Health Connections, Inc., a Delaware corporation
2. Cerner Health Facts, Inc., a Delaware corporation
3. Cerner Multum, Inc., a Delaware corporation
4. *Cerner Belgium, Inc., a Delaware corporation
5. Cerner Citation, Inc., a Delaware corporation
6. Cerner Properties, Inc., a Delaware corporation
7. Cerner Campus Redevelopment Corporation, a Missouri corporation
8. Cerner Investment Corp., a Nevada corporation
9. First Hand Foundation, a Missouri not for profit corporation
10. *Cerner FSC, Inc., a corporation organized under the laws of Barbados
11. *Cerner Canada Limited, a Delaware corporation
12. *Cerner (Malaysia) SDN BHD, a corporation organized under the laws of
Malaysia (Cerner Corporation owns 99,998 shares, the remaining 2 shares
are owned by Thomas s/o Mariassosay and Syed Mohd Tahir Bin Dato' Syed
Azman respectively)
13. Health Network Ventures, Inc., a Delaware corporation
14. Cerner Radiology Information Systems, Inc., a Texas corporation
15. Cerner DHT, Inc., a Delaware corporation
16. Cerner International, Inc., a Delaware corporation, has the following
Subsidiaries:
o *Cerner Singapore Limited, a Delaware corporation
o *Cerner Corporation PTY Limited, a corporation organized under
the laws of Australia
o ^*Cerner Limited, a corporation organized under the laws of
the United Kingdom (Cerner International, Inc. owns 9,999
shares, the remaining 1 share is owned by Huntsmoor Nominees
Limited)
<PAGE>
o ^*Cerner Deutschland GMBH, a corporation organized under the
laws of Germany
o ^*Cerner Arabia Limited, a corporation organized under the laws
of Saudi Arabia (Cerner International, Inc. owns 400 shares,
and El Seif Development Co. owns 600 shares)
<PAGE>
SCHEDULE 5.14
EXISTING MATERIAL CONTRACTS
---------------------------
1. This Agreement.
2. Note Agreement between the Borrower and the Purchasers thereto in the
aggregate amount of $100,000,000 dated April 1, 1999.
<PAGE>
SCHEDULE 6.14
INVESTMENTS
-----------
1. The Borrower has a 40% ownership interest in Cerner Arabia Ltd. in Saudi
Arabia.
2. The Borrower owns approximately 3% of the common stock of WebMd
Corporation.
3. The Borrower has approximately a 9% ownership interest in Protocare, Inc.
4. The Borrower has approximately a .5% ownership interest in Cyber-Care, Inc.
5. The Borrower has approximately a 4% ownership interest in Cogent
Healthcare, Inc.
6. The Borrower has approximately a 5% ownership interest in Concentric
Medicine, Inc.
7. The Borrower has approximately a 7.5% ownership interest in Life
Outcomes.com, Inc.
8. The Borrower has approximately a 3% ownership interest in LifeMetrix, Inc.
9. The Borrower has approximately a 2% ownership interest in Cedara Software
Corp.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.10(U)
<SEQUENCE>6
<FILENAME>file005.txt
<DESCRIPTION>CERNER ASSOCIATE EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
[LOGO] CERNER
Exhibit 10(u)
CERNER ASSOCIATE EMPLOYMENT AGREEMENT
This Cerner Associate Employment Agreement describes the formal employment
relationship between Rick Smith and Cerner Corporation, a Delaware corporation.
This Agreement is effective on the 18th day of June 2001.
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, other
than the conditions agreed to in this Agreement, the offer letter, or the June
18, 2001 letter agreement (referred to in Section 20 of this Agreement). This
Agreement, the offer letter, and the June 18, 2001 letter agreement may be
modified only by written agreement between Cerner and you.
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.
- --------------------
Associate's Initials
<PAGE>
If Cerner terminates your employment prior to June 18, 2002 (and
unless the termination is for Cause), Cerner will pay you a
severance payment of $175,000 ("Six-month Severance"). If Cerner
terminates your employment on or after June 18, 2002, but prior
to June 18, 2003 (and unless the termination is for Cause),
Cerner will pay you a severance payment of $263,000 ("Nine-month
Severance"). If Cerner terminates your employment on or after
June 18, 2003 (and unless the termination is for Cause), Cerner
will pay you a severance payment of $350,000 ("One-year
Severance"). In addition, in the event Cerner terminates your
employment without Cause prior to June 18, 2003, at Cerner's
sole discretion and option, Cerner may increase the severance
period in one month increments beyond the applicable Six-month
or None-month Severance period up to a maximum duration (the
original Six-month or Nine-month Severance period plus any
extension) of one (1) year. You shall be compensated for any
such additional months of severance elected by Cerner at the
highest rate of your monthly base salary within the year before
your termination from employment. 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
following your last day of employment at Cerner. All severance
payments will be paid less appropriate payroll deductions,
payable in installments on Cerner's regular pay days. 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 pay days. Any such lump sum payment
shall have no effect upon your obligations to comply with your
non-competition obligations under Paragraph 7. You agree to
immediately notify Cerner if you accept other employment during
the severance and non-competition period provided for by this
Paragraph 2.C. and Paragraph 7. Cerner's obligations to make any
further severance payments hereunder shall be reduced (but not
below zero) by the base salary you receive from a new employer
during the severance and non-competition period, 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 performance 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 and any CPP letter
agreements between you and Cerner. Payments under the CPP will
accrue on the last day of each fiscal quarter, and will be paid
to you in accordance with the plan regardless of whether you are
employed by Cerner on the date the payments are paid out.
In the event that Cerner pays or reimburses you for any
relocation costs, you agree to repay such sums to Cerner on a
prorated basis if (i) you voluntarily resign from employment
with Cerner for any reason within two (2) years of the date your
relocation is complete or (ii) Cerner terminates your employment
for Cause within two (2) years of the date your move is
complete. You will not be required to repay such costs if Cerner
terminates your employment without Cause or you quit with "Good
Reason" (as defined in the Offer Letter), notwithstanding any
other provisions of Cerner's relocation policy. You further
agree that Cerner may, at its discretion, deduct from your
paycheck(s), including your final paycheck, any such sums
required to be repaid under this provision and that you will
repay Cerner any outstanding balance owed within thirty (30)
days of your employment termination. Regardless of the duration
stated herein, nothing contained in this provision shall
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create employment for a definite term or otherwise modify the
parties "at will" relationship set forth in paragraph 2.B. of
this Agreement.
Cerner may pay or reimburse you for certain reasonable costs
associated with Other Assistance Programs in which Cerner
provides assistance, pursuant to the terms of such Other
Assistance Programs' policies, as may be amended from time to
time. In the event that Cerner pays or reimburses you for any
costs associated with such Other Assistance Programs, you agree
to repay such sums to Cerner in their entirety if (i) you
voluntarily resign from employment with Cerner for any reason
within the time specified in the policy pertaining to applicable
program(s), or (ii) Cerner terminates your employment for Cause
within the time specified in the policy pertaining to applicable
program(s). You further agree that Cerner may, at its
discretion, deduct from your paycheck(s), including your final
paycheck, any such sums required to be repaid under this
provision and that you will repay Cerner any outstanding balance
owed within thirty (30) days of your employment termination.
Regardless of the duration stated herein, nothing contained in
this provision shall create employment for a definite term or
otherwise modify the parties "at will" relationship set forth in
paragraph 2.B. of this Agreement.
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/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, including any Confidential
Information on any laptop, computer or other communication equipment
used by you during your employment with Cerner.
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 in whole or in part while employed at Cerner, plus for one
year thereafter with regard to such New Products or Ideas that were
initiated while employed by Cerner, 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 further
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agree to maintain all information respecting any New Products and Ideas
as Confidential Information and shall not disclose such information to
any party outside of Cerner without the express written approval of an
officer of 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 including any patents, copyrights, trade secrets
and other proprietary rights in the same. 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 one (1) year 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 one (1) year after the voluntary termination
of your employment with Cerner or your termination by Cerner for
Cause, or (ii) in the event that Cerner terminates your
employment without Cause, then 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 that are substantially similar to the
services you provided while 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 for any reason) from (x) accepting
employment with a large Conflicting Organization whose business
is diversified, and with a portion of its business that is not
considered 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, or (y) 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. For a period of one (1) year after the voluntary or involuntary
termination of your employment with Cerner, you agree not, on
behalf of yourself or on behalf of any
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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 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 (for any reason), you will immediately return to
Cerner all property and equipment which you have been issued or which
otherwise belongs to Cerner, including any laptops, computer equipment,
wireless telephone, pagers and/or other computer or communication
devices provided to you by Cerner. You further agree that Cerner may,
at its discretion, deduct from your paycheck(s), including your final
paycheck, the replacement cost of any such equipment or devices
provided to you that are not immediately returned to Cerner upon your
termination of employment and you agree to repay Cerner any outstanding
balance owed within 30 days following your employment termination.
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 for Cause.
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, both parties agree that the promises made in
it, by each respective party, are of a special nature, and that any
breach, violation or evasion by one party of the terms of this
Agreement will result in immediate and irreparable harm to the
non-breaching party. It will also cause damage to the non-breaching
party in amounts difficult to ascertain. Accordingly, the non-breaching
party shall be entitled to the remedies
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<PAGE>
of injunction and specific performance, as well as to all other legal
and equitable remedies which may be available to the non-breaching
party.
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. Cerner agrees to indemnify and hold you
harmless from and against any damages, liability, actions, suits or
other claims arising out of Cerner's breach of this Agreement. Cerner
agrees to indemnify you from and against any damages, liability,
actions, suits or other claims arising as a result of your actions
taken on behalf of Cerner in the due course of your employment with
Cerner to the extent Cerner's Bylaws, as amended from time to time, and
applicable laws permit such indemnification. Such indemnification,
again to the extent permitted by Cerner's Bylaws and applicable law,
shall also apply after your employment with Cerner has been terminated.
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 reasonable 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; ARBITRATION.
---------------------------
This Agreement will be governed by, construed, interpreted, and its
validity determined, under the laws of the State of Missouri. Any
controversy or claim arising out of or relating to your employment
relationship with Cerner and/or this Agreement, except for those claims
arising under Sections 3, 5, 6 or 7 of this Agreement and claims
arising under applicable workers' or unemployment compensation laws,
shall be settled by arbitration administered by the American
Arbitration Association under its then-current National Rules for the
Resolution of Employment Disputes and judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Subject to the provisions of Section 14 hereof, attorneys'
fees and costs of arbitration shall be allocated between the parties by
the arbitrator(s).
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.
--------------------------------------
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<PAGE>
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,
except for the June 18, 2001 letter agreement that Cerner will issue to
you on your start date, a copy of which has been provided to you,
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 ___________ day of ___________, ____.
----------------------------------------
Associate
Cerner Corporation
----------------------------------------
Stanley M. Sword
Vice President and Chief People Officer
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<PAGE>
APPENDIX A
DEFINITION OF TERMS
ASSOCIATE or CERNER ASSOCIATE means an employee of Cerner.
CAUSE means that Cerner terminates your employment due to your material
dishonesty to Cerner, illegal conduct with respect to your actions as an
associate of Cerner, conviction of a felony crime, a material breach of any
Cerner policy or a material breach of this Agreement.
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 IDX Systems Corporation, Eclipsys Corporation,
McKessonHBOC, Inc., GE Medical Systems, a division of General Electric Company,
Philips Medical Systems, Siemens Medical Solutions Health Services Corporation
and Meditech, Inc.; provided, however, that the principal business of any such
company is, at the date of your termination of employment, providing consulting
services of a substantially similar nature as those consulting services then
performed by Cerner, and that Cerner shall have the right to update such list no
later than your date of termination from Cerner. Should any dispute arise with
regard to the updated list of competitors, as provided by Cerner, then both you
and Cerner shall decide upon a mutually acceptable third party to determine
whether any listed organization is in fact a Conflicting Organization at the
time of your termination of employment from Cerner.
CONFLICTING PRODUCT means any product, process or service which is the same as,
similar to, or competes with any Cerner product, process or service with 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, designs, 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.
OTHER ASSISTANCE PROGRAMS means programs that Cerner may pay or reimburse you
for certain reasonable costs incurred and also provide for Cerner's recovery of
such amounts as specified in the policies of such Other Assistance Programs, as
may be amended from time to time. Other Assistance Programs include, but are not
limited to: tuition assistance, specialty external
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<PAGE>
training, and immigration assistance. Cerner reserves the right to establish
future assistance programs and designate such programs as Other Assistance
Programs for purposes of inclusion under paragraph 2.C. of this Agreement.
VENDOR means any actual or potential licensor, supplier, contractor, agent,
consultant or other purveyor of products or services to Cerner.
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<PAGE>
APPENDIX B
SUMMARY OF ATTACHMENTS
----------------------
The following documents, if noted, are incorporated as attachments to this
Employment Agreement.
<TABLE>
<CAPTION>
Not
Included Included Attachment Description
<S> <C> <C> <C>
X I Original Offer Letter
----- -----
----- ----- II Offer Letter Amendments
X III Termination Statement
----- -----
----- -----
X IV Sales Associate Provisions
----- -----
V Inventory of Prior Inventions
----- -----
</TABLE>
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<PAGE>
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 (including any laptops, computer equipment, wireless
telephone, pagers and/or other computer or communication devices
provided to you by Cerner), 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 or earlier if
requested by Cerner) 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 or earlier if
requested by Cerner) all Confidential Information, as specified
by such Agreement, and all correspondence and other writings. I
have returned (or will return within 10 calendar days or earlier
if requested by Cerner) 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
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<PAGE>
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 and my Employment Agreement. 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.
------------------------------------
Associate
------------------------------------
Date
------------------------------------
Termination Date
Cerner Corporation
------------------------------------
By
------------------------------------
Title
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-22
<SEQUENCE>7
<FILENAME>file006.txt
<DESCRIPTION>SUBSIDIARIES OF REGISTRANT
<TEXT>
<PAGE>
EXHIBIT 22
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 Belgium, Inc. Delaware
Cerner International, Inc. Delaware
Cerner Limited United Kingdom
Cerner Citation, Inc. Delaware
Citation Professional Services, 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
Health Network Ventures, Inc. Delaware
Cerner Radiology Information Systems, Inc. Texas
Cerner DHT, Inc. Delaware
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>file007.txt
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>
<PAGE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Cerner Corporation:
We consent to incorporation by reference in the Registration Statements (No.
333-77029, No. 333-75308, No. 333-70170, 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, Registration Statement No. 33-72756 on Form S-3, and Registration
Statements (No. 333-72024 and No. 333-40156) on Form S-4 of Cerner Corporation
of our reports, dated January 23, 2002, relating to the consolidated balance
sheets of Cerner Corporation as of December 29, 2001 and December 30, 2000 and
the related consolidated statements of operations, changes in equity, and cash
flows and the related schedule for each of the years in the three-year period
ended December 29, 2001, which reports are included herein.
KPMG LLP
Kansas City, Missouri
March 29, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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