Cerner Annual Report 1998

FY1998 Annual Report · Cerner

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(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

Cerner Corporation

Annual Report

1998

cerner

Transformations are at the heart of modern healthcare.
Every year, thousands of new discoveries in science, genetics,
and medical technology literally transform our ability to
prevent, contain, and treat disease.

Such discoveries do not happen by accident. They are preceded by an investment of years—even

decades—of research and planning, and fueled by the unwavering commitment of individuals to

whom an unsatisfactory current state is a catalyst for a future solution. There is a point in the discov-

ery process where the elements come together, offering proof that the equation is complete, and reaf-

firming that the investment was worthwhile. At this moment, the transformation begins.

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

In healthcare, the need is obvious for improved information and knowledge to make better

decisions. The health industry stands on the brink of a transformation driven by improved availa-

bility, usage, and analysis of information. Just as other industries have redefined themselves through

information technology, today’s healthcare leaders must do the same.

For the last five years, Cerner has invested heavily in designing and building an information

system that will enable the transformation of healthcare. Our intent with this investment was

deliberate: to create the ability to connect the appropriate person, knowledge, and resources—at the

appropriate time and location, to achieve the optimal health outcome. We reinvented our solutions

around a single, intelligent information architecture with that equation in mind.

In 1998, this investment came into its own, as Health Network Architecture (HNA) Millennium

proved itself and started driving substantial benefits to our health system partners. What no one else

in the health industry has attempted, Cerner has successfully done. Unique in its design,

HNA Millennium has the power to transform the business and practice of healthcare.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

F i n a n c i a l H i g h l i g h t s

1 9 9 8

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

A letter To Our
Shareholders, clients,
and associates

1998 was a paradoxical year, with great highs and lows:

• For the year ended January 2, 1999, revenues increased 35 percent to a record $330.9 million;

• Net earnings (excluding acquisition related charges) increased 56 percent to $23.7 million;

• Diluted earnings per share (excluding acquisition related charges) increased 56 percent to $0.70 per share;

• Operating margins (excluding acquisition related charges) improved from 9 percent to 12 percent;

• We completed our long development cycle for the HNA Millennium version of Cerner’s Health Network

Architecture (HNA), which we believe is the industry standard for the next generation of information technology;

• Cerner was recognized by Fortune magazine as one of the Top 100 Companies to Work for in America;

• External surveys identified Cerner as the Best Telephone Support provider in the industry;

• And, as we compose this letter in March 1999, Cerner’s shareholder value is near a five-year low.

Left to right:

Glenn P. Tobin, Executive Vice President & Chief Operating Officer
Neal L. Patterson, Chairman of the Board, President & Chief Executive Officer
Clifford W. Illig, Vice Chairman

Cerner’s 1998 imperative was to finish the development cycle of our new system architecture, HNA Millennium.

While the year brought disappointments in the areas of enterprisewide sales and shareholder value, Cerner and our

clients realized the significant benefits of HNA Millennium and we forged several strategic, long-term relationships with

leading companies. We believe, with confidence, that Cerner’s future is bright.

S h a r e h o l d e r V a l u e

We are extremely disappointed with Cerner’s current shareholder value. During 1997 and 1998, Cerner’s stock

outperformed the S&P 500 average. However, this changed in February 1999 when Cerner’s stock price declined

significantly. We believe that Cerner’s current stock price reflects that we missed the target for large, enterprisewide new

client bookings in the latter half of 1998, and broader concerns regarding the impact of year 2000 issues on the health-

care information technology marketplace. In the balance of this letter, we will discuss the key characteristics of the

healthcare information technology marketplace, 1998 events, and Cerner’s plan for 1999.

Our current stock price does not reflect the value we have created through HNA Millennium and Cerner’s leadership

within the industry. This leads us to believe we have not been successful in communicating Cerner’s basic core strategies

and our relative marketplace position. It is crucial that you understand that the investments we have made together in

HNA Millennium uniquely position Cerner to transform healthcare, and we expect them to eventually

transform Cerner’s shareholder value.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

C h a n g e i n D e m a n d f o r L a r g e S y s t e m s

Over the last half of 1998, there was a noticeable decrease in the healthcare industry’s demand for large strategic

information systems. Though we anticipated this shift to some degree, we underestimated the impact of this trend upon

Cerner’s sales of large, enterprisewide systems.

As discussed throughout the year in a number of venues, year 2000 issues had a significant impact upon the sales of

information system solutions throughout all industries, including healthcare. As healthcare organizations recognized that

year 2000 preparedness was central to their survival, they diverted resources from the purchase of new, strategic informa-

tion systems to year 2000 issues. In addition to the diversion of these potential resources, Cerner’s sales of enterprisewide

systems were clearly hindered by the lack of a large, complex reference site using significant portions of HNA Millennium

applications during 1998. However, in January of 1999, Cerner converted its first large tertiary care organization using

HNA Millennium applications. This achievement clearly drove the stake into the ground that HNA Millennium is

industrial strength.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

H N A M i l l e n n i u m D e v e l o p m e n t C y c l e

Software is never finished. Our clients’ business requirements evolve and software engineers continue to design

more efficient methods of performing the same functions. In addition, Cerner’s clients continue to be a source for new

innovations when they propose improvements to existing products. Computing, storage, and communication technolo-

gies also are enhanced, making the impossible, possible. Cerner always will be in the process of developing innovative

applications for new and changing markets. Software is never finished—this truth is a part of the dynamics of the

evolving industry of information systems and of software technology.

In the mid-1990s, Cerner committed to build the industry’s first fully integrated, enterprisewide, single architecture

using client/server, object-oriented, relational data technologies. After five years of enormous investments in research and

development, Cerner completed the major developmental cycle of HNA Millennium, the industry’s most comprehensive

set of fully integrated clinical and business management solutions. HNA Millennium is designed to manage health and

automate processes across the continuum of care. This is a significant milestone for Cerner, moving us into a position of

clear technological leadership within our industry.

This accomplishment within the healthcare information technology industry was achieved only through the vision,

wisdom, courage, resources, and perseverance of Cerner, our associates, our shareholders, and our client partners. As of

March 1999, Cerner successfully completed this part of the journey with 23 of HNA Millennium’s 30 product lines live at

client sites. In comparison, HNA Classic had seven product lines. We believe that HNA Millennium will be an “engine for

growth” for Cerner’s client partners and shareholders for years to come.

In last year’s annual report, we said that Cerner expected to convert 150 HNA Millennium applications by the end of

1998. We are pleased to report that 187 HNA Millennium applications were in operation by the end of 1998. Through

large-scale conversions with two of Cerner’s valued client partners, Cerner proved HNA Millennium performs and can be

scaled. More importantly, HNA Millennium creates the opportunity for healthcare organizations to change the way

healthcare is practiced and delivered across their communities. We estimate that Cerner will have more than 400

HNA Millennium applications converted by the end of 1999, demonstrating the power and completeness of our solutions.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

B u i l d i n g C e r n e r ’ s E x e c u t i v e M a n a g e m e n t T e a m

Cerner’s associate base continued to grow steadily in 1998. In fact, the number of Cerner associates has doubled

every two to four years for nearly 20 years. In 1998, we recruited and appointed a number of talented executives to our

senior management team. These additions reflect our strategy to meet the evolving needs of Cerner’s growth, product

development and management, sales and implementation, and people practices. The following are five of Cerner’s newest

executive appointments:

• Jeff Townsend, 35, was appointed Chief of Engineering for Cerner in March 1998. Jeff joined Cerner in

1985 and is one of the brightest young software executives in the country. Jeff is one of the architects

of HNA Millennium.

• Glenn Tobin, PhD, 37, joined Cerner in May 1998, and was appointed Chief Operating Officer in October

1998. Glenn brings a unique blend of skills and experience to this position, including depth of experience in

both information technology and healthcare strategy. Glenn is responsible for the core of Cerner’s business

with engineering, professional and client services, and marketing organizations reporting to him.

• Marvin Pember, CPA, MM, 45, joined Cerner as Senior Vice President and General Manager following

nearly 20 years of experience in healthcare organizations. Prior to joining Cerner, Marvin served as a senior

executive in a billion-dollar health system, gaining significant background in both the financial and operational

areas of hospitals, physician practices, and managed care organizations. Marvin is responsible for Cerner’s

provider-based and managed care Enterprise Business Units.

• Stan Sword, 37, joined Cerner in October 1998 as our first Chief People Officer. Cerner is committed to

becoming ‘The Place to Be’ for professionals who want to improve the way healthcare is delivered in the world

today. Stan has extensive experience in change management, education, and human resources. The creation

and designation of a Chief People Officer confirms Cerner’s commitment to attract the industry’s best

knowledge workers, invest in the future of our associates, and retain our current knowledge workers.

• Paul Black, 40, was promoted to Chief Sales Officer in December 1998. Paul has been one of the most

outstanding performers in our sales organization over the last five years, and served as Area General Manager

and Vice President prior to his appointment as CSO. Paul is responsible for worldwide sales for Cerner.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

D e v e l o p m e n t o f S i g n i f i c a n t S t r a t e g i c R e l a t i o n s h i p s

Synetic Healthcare Communications

Cerner’s first new strategic relationship in 1998 occurred in October when we announced our intent to form a rela-

tionship with Synetic, Inc. The vision of Synetic’s management team is very similar and synergistic with that of Cerner.

At the end of 1998, a subsidiary company to Synetic, Synetic Healthcare Communications, Inc. (SHC), was formed for

the purpose of creating Internet-based physician connectivity and electronic commerce. We licensed HNA Millennium

functionality to SHC in return for a 19.9 percent equity interest in the company. At Cerner, we believe strongly in the

future of SHC.

General Electric Company

In November 1998, Cerner announced a major technology and marketing agreement with General Electric

Company acting through its GE Medical Systems division. Cerner is a leader in radiology information systems (RIS),

and GE is a leader in radiology imaging systems, as well as picture archiving communication systems (PACS). PACS

systems are designed to store, retrieve, and enhance digital images produced by modern radiology imaging systems, such as

CAT scans, MRIs, and ultrasound medical technology. This agreement is focused upon building the next generation of

solutions in the radiology suite, a fully integrated RIS and PACS system.

Today’s buyers in the radiology marketplace are more discriminating, demanding increased

functionality. These buyers also appreciate architecture. So, the integration of both RIS and PACS

HNA Millennium, the most powerful,

is a logical new segment of the marketplace. GE’s significantly larger sales force also has the poten-

complete and technologically

advanced health information solution

available today, has more than 15.2

million lines of code embedded in it.

The power of HNA Millennium has

been realized through the automation

of more than 200 broad processes,

tial to increase the sales of Cerner’s radiology systems on a stand-alone and integrated basis, as well

as boosting the sales of Cerner’s broad HNA Millennium architecture into healthcare organizations.

T h e G l o b a l M a r k e t p l a c e

Cerner continues to value its relationship with Siemens Health Services GmbH & Co. KG in

the European marketplace. As a valued business partner, Siemens continues to increase Cerner’s

which consist of more than 11,500

presence within the European health community. At the beginning of 1999, Siemens completed its

discrete tasks.

first European conversion of HNA Millennium at a large health system in Berlin, Germany. This pro-

ject is the pilot site for HNA Millennium in Europe. Siemens’ completion of the first phase of HNA

Millennium installation at this pilot site is a milestone for both Siemens and the European healthcare community. In addi-

tion to the live HNA Millennium site in Berlin, Siemens has three additional HNA Millennium sites being implemented

in France, Austria, and the United Kingdom.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

T h e S t a t e o f H e a l t h c a r e

Cerner’s business environment continues to be extremely dynamic. Healthcare was radically re-sculpted in the

1990s, while information technology proliferated throughout society due to the microprocessor and the explosion of the

Internet. This trend offered organizations and individuals new methods of connecting and communicating. There are a

number of broad trends currently affecting the healthcare environment:

• The healthcare landscape continues to evolve at an accelerated rate.

• The United States has entitlement funding issues with key programs such as Medicare and Medicaid,

which will be exacerbated by changes in demographics during the next decade as baby boomers retire.

• Insurance companies became managed care organizations and promised better medicine and healthier

populations at lower costs. They failed to deliver fundamental, systemic, sustainable improvements

in each of these areas.

• Hospitals have consolidated into local and regional health systems, representing themselves as “systems

of care” to their communities. However, few of these health systems have the technology to share

information across their systems or between physicians and hospitals.

There is a fundamental need for technological strategies that can transform the healthcare industry. Cerner believes

that our vision is the only fundamental strategy that will enable our clients to transform their organizations into true

systems of care. Long-term opportunities exist to transform healthcare using information architectures. Cerner plans to

lead with a set of innovative new strategies that address the needs of the evolving healthcare landscape.

T h e H e a l t h c a r e I n f o r m a t i o n T e c h n o l o g y I n d u s t r y

While the healthcare industry struggled to find methods to transform itself, a significant consolidation of healthcare

information technology companies also occurred. The prevailing strategy used by the majority of Cerner’s major competi-

tors is to obtain a portfolio of products through the acquisition of companies. There is little new value created for the

healthcare industry when companies purchase existing, outdated technology. In contrast, Cerner’s marketplace strategy is

founded upon our commitment to transform healthcare through the development of the superior solution for today’s

health challenges, HNA Millennium.

Today, there are only four or five major healthcare information technology companies that have the technology,

resources, and skills necessary to compete for large, integrated, enterprisewide marketplace opportunities. Cerner is one of

these companies. We believe Cerner is the best-positioned company to succeed because we have the only person-centric,

single-system architecture in the industry.

In all growing marketplaces, new players will emerge. In the healthcare technology industry, Cerner believes these

new players will be derived from two different directions. First, we expect the large, service-based companies to attempt to

differentiate their services by purchasing information technology. This strategy will put these companies in direct compe-

tition with Cerner. Secondly, we expect competition from the pure, Internet-based, start-up companies. We believe the

Internet will significantly decrease the amount of infrastructure necessary for our clients to implement community-based

health systems. However, the Internet does not decrease clients’ needs for Cerner systems.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

C e r n e r ’ s P l a n f o r 1 9 9 9 & B e y o n d

During 1999, we believe that the issues and complexity around the year 2000 will distract some of our clients and

potential clients. We expect the financial community to flee from the uncertainty and continue to undervalue Cerner

and the healthcare information technology industry as a whole. However, we believe we can continue Cerner’s growth in

both revenues and earnings. In addition, we are confident that Cerner is extremely well positioned for growth entering

the new millennium.

Here is a summary of Cerner’s plan for 1999:

• In terms of expected new business revenues and corporate spending, Cerner has a conservative

1999 business plan. However, we expect that the plan will yield growth in top line revenues,

expansion of Cerner’s operating margins, and growth in earnings.

• In Cerner’s early HNA Millennium projects, a number of our clients were contracted on a fixed-fee

basis for implementation services. Due to delays in completing these projects, earnings from these

implementation services were significantly reduced. In 1997, Cerner discontinued contracting

implementation services on a fixed-fee basis and began offering these services on a fee-for-service model.

Over the next year, Cerner’s commitments to clients under the fixed-fee model will be substantially

completed and will be replaced with contracts using the fee-for-service model for implementation services.

We expect this swing within Cerner’s business model to generate growth in our operating margin.

• Since 1995, we have invested heavily in software development to build HNA Millennium. As a percent

of revenue, Cerner spent 22 percent of its revenues on development in 1998. We are now at the end of

this large development cycle. Over the next three years, we anticipate Cerner will increase the total

amount of dollars being spent on development. However, we expect the percentage of revenue that

Cerner spends on development to decline.

1 0

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

The remaining question: Can Cerner continue to grow its revenues far beyond 1999? We believe that the answer

to this question is, “yes.” Here are some of the compelling reasons why Cerner should experience growth into the new

millennium:

1) Cerner has a great history of organic growth. Cerner grew from approximately $50 million in revenues

to more than $330 million during this decade. Cerner has never been in a better position in its entire

history to create future growth in revenues and earnings.

2) Cerner is in a marketplace with tremendous potential—healthcare information technology. Most

analysts fully expect that the overall healthcare information technology marketplace will grow at

least 20 percent per year for the five years following the millennium.

3) We expect the clinical information system segments to grow faster than the general market. Cerner

now has the only fully integrated enterprisewide, single-system architecture in the marketplace.

We believe that we have a major competitive advantage. We also believe this will accelerate Cerner's

growth past the general marketplace.

4) HNA Millennium moves Cerner into new markets. Cerner’s HNA Classic architecture had seven major

product lines. Today, HNA Millennium has 30 product lines and should continue to grow over the

next few years. For example, patient accounting represents an estimated $2- to $3-billion marketplace.

Cerner has no market share in this niche today. However, by this time next year, we plan to have

HNA Millennium ProFit out into the marketplace. We believe that ProFit is a substantially improved solution

over other patient accounting systems currently available.

Yes, we expect 1999 to be an unpredictable year due to the nature and complexity of year 2000 issues.

However, we also believe Cerner’s technological investments position us as the clear leader in healthcare information

technology for the next millennium.

We are looking forward to the future.

Yours Very Truly,

Neal L. Patterson

Chairman of the Board, President & Chief Executive Officer

Clifford W. Illig

Vice Chairman

Glenn P. Tobin

Executive Vice President & Chief Operating Officer

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

1 1

Building an
Information Architecture
for Healthcare

oday’s health organizations must share enormous amounts of clinical and financial information across an

increasingly complex network of care providers. More than ever, they are being challenged to improve the

quality of care and overall performance of their organizations while squeezing costs from operations. The balance

between cost and quality is so delicate that separating the two could prove disastrous. The only effective way to

meet these demands is with an integrated information architecture.

Only Cerner has made the investment needed to create the health enterprise information system of the 21st century.

In 1998, we emerged from a five-year development cycle and a $130-million investment to become the clear leader in

the healthcare information technology industry. Today, HNA Millennium is the only fully integrated information and

knowledge system that spans the entire health continuum and the complete healthcare enterprise. This gives Cerner a

competitive advantage in the fastest-growing segment of the health industry—enterprise clinical solutions. With growth

estimated at 25 to 30 percent per year, this market could reach $6 billion by 2002.

A n A r c h i t e c t u r e f o r t h e F u t u r e

HNA Millennium reaches across all phases of the care process, connecting clinical, management, and operational

processes into one intelligent system. From the most advanced clinical and management systems for hospitals and physi-

cians’ offices to innovative solutions for payers, employers, and consumers, HNA Millennium seamlessly connects people

with the information they need to arrange, deliver, and manage care. HNA Millennium has one architecture, one set of

core processes, and one data model as its foundation. Across more than 30 different end-user applications that extend

from the laboratory to the intensive care unit and even into the home, that same architecture, core processes, and data

model are used. With a lifetime electronic medical record at the center of its open architecture, HNA Millennium is a

powerful enabling tool that allows progressive health organizations to achieve real clinical and economic benefits.

During 1998, HNA Millennium’s engineering design and core functionality were tested and proven. Following 1997’s

successful launch with 32 HNA Millennium conversions, in 1998 the number grew by almost 500 percent. By year-end,

Cerner had exceeded its own goals with 187 conversions at 50 client sites across the country. Throughout the year,

complex implementations involving multiple end-user applications in large health system settings validated the scalability

and performance of HNA Millennium.

I n n o v a t i o n T h r o u g h S e a m l e s s I n t e g r a t i o n

build

A N N U A L R E P O R T

1 2

C E R N E R C O R P O R A T I O N

HNA Millennium solutions are engineered for seamless integration to synchronize care in every area across the

health enterprise. Through common process design and shared functionality, HNA Millennium allows integrated health

organizations to improve processes and eliminate the costly redundancies inherent in the process of delivering care.

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GENERAL ELECTRIC AND CERNER

After an extensive evaluation of the future,

GE Medical Systems, a leader in the radiology

field, and Cerner announced a partnership in

1998 to develop the next generation of solutions

for the radiology suite. Through this partnership

Cerner’s industry-leading RadNet Radiology

Information System will be integrated with

GE Medical Systems’ Picture Archive and Com-

munication Systems (PACS) technology.

GE Medical Systems, through its own sales force,

will market this new solution. “We’ve built a

relationship with Cerner because we want to be

involved long-term with an organization that

really understands how information moves

around the enterprise,” says Vishal Wanchoo,

General Manager, Integrated Imaging Solutions,

GE Medical Systems.

Radiologists and other clinicians will benefit from

the new solution as they access information and

images in a seamless fashion on common work-

stations. Healthcare organizations will benefit

from improved productivity and enhanced deci-

sion making by clinicians, and the elimination of

unnecessary technology investment.

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

Cerner makes it possible for health organizations to maximize their current investment while taking incremental

steps toward building an information infrastructure. Our unique architecture is completely open, allowing Cerner systems

to connect easily to the legacy systems that generate the majority of a health organization’s information. At the end of

1998, Cerner systems openly interfaced to more than 120 foreign systems, through 2,500 active interfaces.

Information technology departments that must run a patchwork of different computing platforms and operating

systems require highly skilled, expensive technical professionals to maintain each of them. HNA Millennium is different.

By using one operating system and one database across all applications, HNA Millennium streamlines systems manage-

ment and can substantially reduce an organization’s labor costs for systems support. HNA Millennium supports both

IBM® AIX and Compaq OpenVMS computing platforms and utilizes the industry leading Oracle® database. At the

forefront of innovation, Cerner’s approach combines multi-tier client/server solutions with thin client and web

technologies to deliver the right tool for the right job.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

1 3

I m p r o v i n g A c c e s s t o H e a l t h c a r e

Managing a patient across a single episode of care requires a highly coordinated set of access, clinical, and financial

services. Now faced with the challenge of managing thousands of individuals through multiple episodes across numerous

providers and venues of care, healthcare executives are learning what other industries have known for years. Business

and information integration efforts must begin with processes that effectively manage interaction with consumers as they

move into and throughout the health enterprise. A health enterprise must be able to seamlessly orchestrate services

across the continuum to increase customer satisfaction and optimize utilization of its finite resources. In 1998, Cerner

introduced CapStone Enterprise Access Management System, a suite of solutions that automate and integrate the processes

of person identification, registration, scheduling, eligibility verification, and referral and authorization management across

the enterprise.

C l i n i c a l S o l u t i o n s

Cerner continued to expand its leadership in 1998 with advanced clinical information solutions that support the

delivery of high-quality, efficient patient care. One such solution is CareNet Order Management, which allows ordering

information to be distributed to the entire enterprise—seamlessly and immediately. CareNet Documentation

Management automates the information gathering, recording, and reporting of patient care activities, eliminating

paperwork and the need for redundant charting in multiple systems. PowerChart Electronic Medical Record System pro-

vides the whole care team with desktop access to a lifetime of data collected on individuals across care providers and

locations. Thousands of clinicians at major health systems across the country, such as Sisters of Mercy Health System,

St. Louis, Missouri; and Martha Jefferson Hospital, Charlottesville, Virginia, are using PowerChart to improve the care

acces

the broad health spectrum, including laboratory, radiology, pharmacy, emergency, surgery, cardiology, intensive care, acute

HNA Millennium supports the needs of today’s progressive health enterprise with fully integrated clinical systems for

process and establish a framework for creating a complete and active electronic medical record.

care, home health, and physician offices.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

SEAMLESS ACCESS

It is estimated that about 40 percent of the time, relevant medical information is not

available to physicians when seeing patients on an outpatient basis. It may be captured in

another system, in a paper chart that is missing, or simply not available. Without the

appropriate information, clinicians cannot make effective care decisions. With advanced

information technologies and seamless enterprise solutions from Cerner, that is changing.

Through HNA Millennium solutions, healthcare organizations have seamless access to an

individual’s personal history, medical record, insurance information, employer, and

demographic information. As care is delivered, information is immediately updated.

When the physician provides a referral to a specialty clinic, referral forms are automatically

generated, the individual’s next appointment is confirmed, and insurance eligibility is

verified. In the future, at the end of the visit, charges for the care from all providers

at various locations within the health system will be consolidated into one easily

understood bill.

M a n a g e r i a l a n d F i n a n c i a l S o l u t i o n s

In today’s increasingly risk-based environment, understanding the real costs of labor, equipment, and supplies is

essential. Through the Balanced Budget Act’s reduction in subsidies for Medicare and Medicaid, United States healthcare

organizations will lose $115 billion over the next five years. Organizations must take steps to manage costs and find ways

to combat this loss of revenue. Cerner made substantial investments in the development of managerial and financial

solutions throughout 1998 to help organizations overcome these challenges.

Cerner’s ProCare Medical Management System integrates clinical and financial information at the point of care to

impact decisions and improve economic and quality outcomes. ProCare supports data aggregation and analysis,

real-time case management, utilization management, outcomes reporting, disease management, physician profiling,

regulatory reporting, and risk management. Benchmark and satisfaction data can be integrated with clinical and financial

information to deliver a more complete picture of the health system.

The increased penetration of managed care across the country intensifies the need for new age systems to deal with

the multiplicity of reimbursement methodologies. As more integrated health organizations move to centralized business

processes in response, they are demanding a system that combines all venues and providers of care in one billing state-

With ProFit Enterprise Financial System, Cerner is creating the first truly integrated, enterprisewide financial solu-

tion for the healthcare industry that helps organizations manage reimbursement mechanisms across the continuum of

care. By using this solution, the financial office can view, manage, and analyze patient accounts, and in the future will

be able to consolidate charges from across the health system into one easily understood bill.

ment the consumer can clearly understand.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

Leveraging Knowledge
and Linking
the Community

early 30 years ago, when pioneers in medical informatics promised computers would revolutionize medicine, they

primarily saw information systems as an enabler for automation. As a leader in the automation revolution, Cerner

quickly recognized that information technology delivers its greatest value when the information in the system is used to

directly impact health outcomes and improve the quality of clinical decision making. With that understanding, Cerner

already has distinguished itself as a pioneer in the integration of information technology and knowledge.

It has been said that “information is knowledge.” Unfortunately in healthcare, too often information is just data.

To become knowledge, information must be placed into clinical or economic context and made available at the right

point in time. When that happens, information can help establish causes, make comparisons, improve results, and impact

decisions. Information is then transformed into knowledge with real power to influence health outcomes.

T r a n s f o r m i n g I n f o r m a t i o n I n t o K n o w l e d g e

Cerner continued its investments in knowledge in 1998, and brought substantial innovation to the market for how

best to codify, analyze, and use information in clinical practices. Cerner Knowledge Index (CKI) is the industry’s most

advanced methodology for establishing a common clinical nomenclature within healthcare systems. All terminology,

events, and concepts used by the system are in a standardized format, and referenced in a single unambiguous manner

that easily is mapped to industry standards. As a result, all systems speak the same language and different organizations

can use their own terminology without losing data integrity. Through the use of sophisticated mapping techniques and

unique identifiers, CKI enables healthcare data to be gathered, represented, stored, and retrieved in a single method, and

also makes clear the relationships between that data.

Another significant achievement of 1998 was the implementation of PowerNote and Care Designs, Cerner’s content-

rich, structured clinical documentation solution that truly delivers knowledge to the point of care at a time when it is

most needed and most valuable. PowerNote guides clinicians through Care Designs, which work with the electronic

medical record to sift through information and present the clinician with data that is most likely to be relevant

to a given patient encounter.

These innovations enhance Cerner’s proven expert-knowledge and decision-support systems. Cerner’s Discern

Expert, Discern Dialogue, and Insights provide clinicians with a view of clinical and financial data from throughout the

health system, then integrate event monitors, alerts, and detailed clinical knowledge that are executable at the point of

care to help clinicians make intelligent, evidence-based decisions.

With the 1998 purchase of Multum® Information Systems, Inc., a Denver-based supplier of drug knowledge

databases and intelligent software components, Cerner added another important component to its growing knowledge

architecture. Multum’s MediSource™ solution is the only commercially available drug-dosing tool that supplies expert,

know

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

REDUCING ADVERSE DRUG EVENTS

Adverse drug events, or ADEs, are the most common cause of unintentional injury or death

in hospitals. Each year, an estimated 2.2 million people are seriously injured and 100,000

die because of ADEs. Good Samaritan Regional Medical Center in Phoenix, Arizona,

received national attention with a study that demonstrates that a computerized decision

support system that monitors clinical events can significantly reduce the occurrence of, and

injuries associated with, ADEs.

Robert Raschke, MD, working with colleagues from pharmacy, nursing, and information

systems, wrote a set of computer alerts using Cerner’s Discern Expert decision-support

system. During the six-month study that included 9,306 admissions, the system generated

1,116 alerts. These alerts identified potentially dangerous clinical situations at a rate of 64

per 1,000 admissions. In 44 percent of these cases, physicians stated they were unaware

of the potential ADE before the alert notification.

The benefits of a highly effective ADE prevention program are enormous. Conservatively, 28 percent of ADEs,

in general, and 42 percent of life-threatening ADEs are preventable. If ADEs occur in approximately 7 percent

of admissions, an average 650-bed hospital could experience as many as 1,800 ADEs a year. Raschke and his

colleagues suggest that in a 650-bed hospital, as many as 36 lives and $3 million might be saved annually with

the implementation of a fully functional system for detecting preventable ADEs.

The results of this study were published in the October 21, 1998, issue of the Journal of the American Medical

Association (JAMA).

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

person-specific clinical and drug utilization review data. MediSource allows physicians, pharmacists, and other clinicians

to anticipate potentially harmful drug interactions before they occur, precluding ADE-related injuries, disabilities, and

even deaths. Multum also offers a comprehensive database of drug information, disease-therapeutic pathways, and

patient education materials.

W e b - E n a b l e d H e a l t h c a r e

Through its ability to instantly connect people with the information they need, the Internet is shattering the

payers, to empowering consumers to more actively manage their health, its effects are widespread.

As the Internet has become an important channel for delivering solutions and for connecting the healthcare

continuum, HNA Millennium has proven that is ready for the web. Using Cerner’s web-based solutions, caregivers and

to access information and perform transactions. In 1998, Cerner’s Internet versions of its PowerChart Electronic Medical

physical boundaries that once defined healthcare. From providing remote access for physicians and exchanging data with

providers are using networks, intranets, and the Internet to connect to healthcare organizations’ information systems, and

wledge

Cerner’s existing PowerLink Health Enterprise Network physician access solution, which connects community physicians to

Record System and ProVide Physician Practice Management System became deployable over the web. These complement

payers and health systems for referrals, authorizations, claims, eligibility, and reporting.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

CONNECTING WITH CONSUMERS

Approximately 50 million people in the world use e-mail

today, and that number is expected to double by 2000. Yet,

only about 1 percent of physicians take advantage of this

technology to communicate with patients. Connecting the

right people at the right time and place is part of the equation

for optimal health, and electronic communications is becom-

ing part of the answer. This medium of communication is

becoming more accepted, and its effects on the quality and

efficiency of the doctor-patient relationship has become the

focus of an ongoing study at the University of Michigan

Health System.

Healthcare organizations of the future must find ways

to keep the populations they serve connected. Electronic

communication adds another avenue to keep them

connected.

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

HNA Millennium’s proven technology platform opened the door in 1998 to the electronic commerce market. In an

agreement with Synetic, Inc., of Elmwood Park, New Jersey, Cerner’s HNA Millennium will provide the infrastructure for

Synetic Healthcare Communications, Inc., (SHC), an Internet-based company focused on clinical e-commerce. SHC

provides web-based solutions for physicians that facilitate the confidential online exchange of clinical information

between physicians and managed care organizations, pharmacy benefit managers, clinical laboratories, and pharmacies.

As part of this agreement, Cerner acquired an equity position in SHC, and will contribute engineering and systems

expertise to the development of future solutions.

C o n n e c t i n g t o t h e C o n s u m e r

Optimal health outcomes start when individuals become proactive in managing their health. In 1998, Cerner

telecare services, and Health Directory automated registration referral and authorization services.

continued its commitment to the development of solutions that are designed to support a system in which consumers,

physicians, and their health providers are all connected. One of these solutions, Vitality, is a comprehensive health

consumer health services that gained momentum in 1998 include Cerner’s Health Risk Assessments, Health Connections

management system that helps consumers monitor their health status and make more informed health decisions. Other

consumC E R N E R C O R P O R A T I O N

program that offers telephone support and services to individuals with multiple sclerosis. Nurse counselors provide

company. Cerner’s ProLink call center solution is providing the backbone for an innovative disease-management

free information, make referrals, and answer questions about living with the disease. The center handles nearly

In 1998, Cerner reached consumers in a very personal way through an agreement with a major pharmaceutical

8,000 calls each month.

A N N U A L R E P O R T

Creating a Unique
Company and Culture

erner was started by three individuals who believed that information technology could transform

healthcare. Their passion for excellence and innovation established the framework for this unique

company and its associates. As the company has continued to grow, Cerner has remained committed to a

culture that breeds innovation and success through the strong contributions of individuals and teams.

Nearly two decades old, we have not wavered in our commitment to transforming healthcare, and remain dedicated

to helping health systems achieve their strategic visions through information and knowledge solutions. This environ-

that were developed in 1998.

I n v e s t i n g i n A s s o c i a t e s

A c c e l e r a t i n g B u s i n e s s R e s u l t s

increase margin percentages, and make significant progress in the rollout of HNA Millennium.

Coming off a very strong year in 1997, Cerner met its three imperatives for 1998—to increase top line growth,

$362 million in 1998. Net earnings increased 56 percent to $23.7 million (excluding acquisition related charges).

This was another year of growth as the breadth of HNA Millennium made its way into the market. Revenues for the

year grew by 35 percent to reach a record high of $330.9 million. New business bookings increased by $94 million to

year’s success. We also saw very strong contributions from consulting and professional services, and from new markets

implement, and provide services for those solutions. Cerner associates are committed to building a legacy in healthcare.

ment has resulted in the industry’s most advanced solutions, as well as the best group of associates who help to build, sell,

Strong performance in Cerner’s core clinical markets, which grew by more than 60 percent over 1997, contributed to the

culture
er C E R N E R C O R P O R A T I O N

technology companies in the world for the most qualified candidates. Our success in attracting new associates is directly

values associates as its greatest assets. Cerner received this special honor by not only investing in associates’ careers, but

stone of more than 2,600 associates worldwide. To stay at the top of the industry, we compete with some of the largest

also by promoting health and wellness. Associates and their families have access to a world-class fitness center and an

as one of the Top 100 Best Companies to Work for in America in December 1998, the world learned that Cerner is a

Cerner’s culture is reflected in its associate body. With a 30 percent growth rate in 1998, Cerner reached a new mile-

everyone has the chance to contribute. Associates respect one another’s accomplishments and work hard to achieve

special place. For the Cerner community, this award reflects the company’s commitment to a corporate culture that

related to our culture. Cerner prides itself in building and maintaining a positive, flexible work environment where

on-site Montessori childcare center. Cerner offers comprehensive continuing education opportunities, flexible work

Associates have known for a long time that Cerner is “the place to be,” but when Fortune magazine named Cerner

success. When one team reaches a milestone, everyone celebrates.

schedules, and stock ownership programs.

A N N U A L R E P O R T

FORTUNE SELECTS CERNER AS ONE OF THE BEST

Cerner received a substantial honor in December 1998 when Fortune maga-

zine named the company as one of the “100 Best Companies to Work for in

America.” This award recognizes Cerner’s commitment and investments in

creating a culture that values associates as its greatest assets. The award is

especially significant as the company celebrates its 20th anniversary in 1999.

The “100 Best” list rankings were compiled through extensive research, analy-

sis, and a poll of more than 27,000 employees at more than 1,000 companies

nationwide. The review process included interviews with randomly selected

employees, completion of a written questionnaire, as well as documentation of

the company’s best “people practices.” Competing firms had to supply sup-

plementary materials, such as newsletters, employee handbooks, and videos.

Fortune used a 175-point scoring system to rank the companies.

This comprehensive study shows that Cerner successfully has created an

empowered workplace where associates believe they are making a difference

and are proud of their contributions. Associates are given a lot of responsibility,

and are willing to go the extra mile to get things done. Cerner’s friendly envi-

ronment, world-class fitness center, and on-site children’s center contribute to

making Cerner a great place to work.

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

I n v e s t i n g i n t h e F u t u r e

Cerner’s investment in the development of HNA Millennium is matched by its commitment to ensure that we have

the appropriate resources in Cerner Consulting to implement these solutions. Today Cerner Consulting is the fastest

growing area of the company. With more than 770 associates, the organization grew by 40 percent over 1997. With that

growth, Cerner also has added considerable experience to its consulting ranks. On average, the consultant leading an

HNA Millennium project has 16 years of industry experience. Adding to their industry knowledge, Cerner associates spent

the equivalent of 11,000 days in the HNA Millennium Certification Lab receiving training and certification in 1998, up

significantly from 1997.

In 1998, the four practices within Cerner Consulting were substantially improved. The Implementation Services

Practice offers the ability to convert a significant capital investment into a prudent benefits-realization strategy. The

Benefits Realization Practice mentors a client through the change process, working side-by-side with clients to drive real,

measurable benefits. Cerner’s Learning Services Practice seeks to increase client knowledge and competence by providing

projectwide, customized, and prepackaged training opportunities. The mission of the Technical Services Practice is to

develop and deploy technology capability essential to effectively implement and manage our clients’ technology

infrastructures.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

Building strong
client relationships

hile the true measure of a product or service can be determined by whether it delivers the intended

benefits to the user, the value of partnership is evaluated in a different way. Partners do not

measure success simply by the performance of their products. True success only can be achieved when the

mutual goals that have been established by the partners are reached. In 1998, Cerner demonstrated the

value of solutions and of partnership to clients around the world.

P a r t n e r s f o r S u c c e s s

Cerner was privileged in 1998 to work in partnership with a growing number of progressive health organizations

including Detroit Medical Center, Detroit, Michigan; Aurora Health Care, Milwaukee, Wisconsin; Health Midwest,

Cerner’s HNA Millennium as the foundation for their enterprise information architecture.

With more than 1,000 organizations using Cerner’s HNA Classic solutions to run parts of their health systems,

Cerner remains committed to the ongoing development and support of this platform. Although many of these

Kansas City, Missouri; and the UPMC Health System, Pittsburgh, Pennsylvania. These organizations have selected

organizations already are making the shift to HNA Millennium to take advantage of its broad enterprise architecture,

service

1998, the Greater New York Hospital Association (GNYHA) endorsed HNA Millennium solutions to its more than 175

7,210 member facilities, named Cerner as its preferred supplier of laboratory, radiology, and pharmacy solutions. Also in

HNA Millennium. AmeriNet, one of the nation’s largest and most respected healthcare purchasing organizations with

Health systems and health partners recognize the clinical excellence and management capabilities of

largest strategic alliance of leading hospitals and healthcare systems,

others will remain on the HNA Classic platform for years to come.

member hospitals. In a continuing relationship with the nation’s

Premier, Inc., endorses HNA Millennium OCF/PowerChart to its more

than 1,700 members.

I n d u s t r y - L e a d i n g S e r v i c e a n d S u p p o r t

Connecting people to the information and resources they need to

HNA Millennium Goes International

The first HNA Millennium conversion

outside the United States was at a hospital

in Sydney, Australia. The momentum

keep their systems running at peak performance is critical in health-

continued with the conversion of the first

care. Cerner’s commitment to excellence in client service consistently

ranks among the highest in the industry. The Immediate Response

Center (IRC) provides 24-hour, 7-day-a-week access to technicians

who can solve mission critical issues. Qualified technicians in Cerner’s

Immediate Answer Center (IAC) respond to non-critical issues.

Seventy percent of calls to the IRC and IAC are resolved the same

day they are received—an outstanding achievement in complex

environments that utilize technologies from multiple suppliers.

of five hospitals in a 2,300-bed organiza-

tion in Sydney. Cerner's growing presence

in the Australian market was further

strengthened when the State of New

South Wales designated Cerner as one of

its preferred suppliers.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

After being ranked as a leader in the industry for client service in 1997, Cerner’s efforts

were recognized again in 1998. Inside Healthcare Computing magazine named Cerner as

having the “Best Telephone Support” in the industry. Most importantly, clients have given

Cerner record-high satisfaction ratings in the mid-90 percent range for two years in a row.

E d u c a t i n g O u r E n d - U s e r s

Cerner Virtual University (CVU) offers comprehensive educational programs and

knowledge-transfer opportunities by integrating technology and proven learning strategies.

CVU works with clients, associates, and business partners to design, develop, and support

innovative learning strategies. Through a combination of computer-based training (CBT),

classroom and innovative training techniques that incorporate performance-based training,

Cerner is ensuring that client organizations are prepared to use and manage their Cerner systems.

An extension of CVU, the Cerner Knowledge Network (CKN) gives clients 24-hour access to a powerful web-based

repository of information on Cerner applications, technologies, and training programs. Use of CKN increased almost

100 percent in 1998. Approximately 10 percent of Cerner clients use CKN daily to check the status of service requests,

collaborate with other Cerner users via discussion forums, and order parts and equipment for their systems.

S t r o n g C o m m i t m e n t t o C o n t i n u o u s I m p r o v e m e n t

Building software is an evolutionary process of development and refinement. The process is never complete. In mid-

1998 Cerner launched the first phase of a performance strategy designed to verify that the technical and application

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

architectures of HNA Millennium would effectively handle the HIS workload processing of the largest hospital systems. A

multimillion-dollar investment was made in an in-house testing environment capable of replicating every aspect of the

client environment. Real code and real client databases are used to systematically test and tune the system, capturing

accurate baseline statistics for user-response time, stability, fault tolerance, throughput, and scalability for the

HNA Millennium application suite. Through this sophisticated approach, which leverages input from performance

experts outside the company, Cerner proved conclusively that the architecture will scale to the largest client

environments and perform to the expectations of clients. The Performance Lab also offers a unique opportunity to drive

continuous improvement in the system. Areas for enhancement are pinpointed, improved and then rapidly implemented

across Cerner’s cohesive architecture.

Cerner is committed to continuously improving the implementation of HNA Millennium. In 1998, we established

the Project Implementation Lab, where the implementation methodology of HNA Millennium is being scrutinized to

identify best practices. By establishing and perfecting a repeatable, predictable process, Cerner is creating a proven

methodology to reduce the total cost, work effort, and time required to realize benefits and better support rapid

installations.

Healthcare organizations already are realizing benefits quickly due to recordbreaking implementations. For example,

Cerner’s OCF/PowerChart has been implemented in six months at such organizations as Grey Bruce Health Services,

Ontario, Canada; and Health Midwest, Kansas City, Missouri. Once the core architecture is implemented, subsequent

applications can be implemented much more rapidly. For example, building off a foundation of Cerner solutions,

Bridgeport Hospital, Bridgeport, Connecticut, was able to implement FirstNet Emergency Care Information System

in nine weeks.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

Establishing new
boundaries

erner is positioned to lead the healthcare industry into the next millennium. As the industry is

poised for a major transformation, Cerner celebrates almost 20 years of innovation. Healthcare

executives who are preparing for this journey can do so with the confidence that Cerner has been

preparing for this transformation for close to two decades.

T h e M i l l e n n i u m H e a l t h I m p e r a t i v e

In 1998, Cerner sponsored the creation of the Millennium Health Imperative (MHI), a think-tank of executives

from leading healthcare organizations across the country. Through this imperative, Cerner is pooling the knowledge and

thought leadership of these individuals and others in the industry to help shape how information technology will aid in

this transformation.

Results from an initial research project conducted in partnership with

Modern Healthcare magazine provide valuable insight from the executive suites

of 43 of the nations’s leading integrated delivery systems. Overwhelmingly these

leaders recognize the need for greater investments in information technology in

order to advance healthcare, and believe the critical link for success is a closer

connection between an organization’s information technology strategy and

strategic business plan. As their average information technology investment

increases to $20 million over the next two to three years, nearly three-fourths of

respondents site a preference for one or a “select few” supplier relationships.

Future information and knowledge investment priorities include results

viewing by clinicians, outcomes analysis, electronic medical records, person

identification, and physician office connectivity.

Early conclusions from the MHI indicate enlightened organizations will stress “value creation” over ROI measure-

ment, with these objectives: improving the quality of patient care and clinical outcomes; impacting the timeliness, avail-

ability of information for decision support and documentation; and increasing patient satisfaction and customer service.

behavior but also their approach to technology and willingness to adopt solutions. Physicians must make computers

What must the equation for optimal healthcare look like in 2010? Nobody knows the answer, but it is evident

that the most effective health systems will focus on the individual. They will not only focus on changing physician

a part of their normal workflow, and begin utilizing decision support systems to provide knowledge to them in the

C o m m u n i t y , P h y s i c i a n s , a n d t h e F u t u r e

future

solutions have been developed with this goal in mind.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

critical two seconds when a clinical decision is being made. Health systems, providers, payers, and employers must

work collaboratively to reduce costs and implement programs that will change behaviors that lead to health prob-

information systems, and they must involve the community in this initiative. Cerner’s information and knowledge

lems, before those problems arise. They must work together to leverage the collective knowledge that resides in their

C r e a t i n g V i r t u a l H e a l t h S y s t e m s

Used to its full potential, information technology can alter the structure of

how care is delivered to individuals. We believe that over time healthcare will

shift away from the structured delivery systems of today toward more “virtual

health systems” where consumers can construct and reconstruct a care

delivery system that meets their individual or family needs. The medical

record, ultimately, will be the property of the individual, with each person

determining who has access to that record. Those who need the informa-

tion will be able to get to it, regardless of their location or prior affiliation

with the person.

Through the creation of a single cohesive architecture for healthcare, the

walls between care centers will become transparent as information travels seamlessly

between offices and settings. Individuals will give personal information once, and will no longer fill out

numerous forms at each care setting. Data collected at one setting will be available to others across the country.

While the long-term vision of a virtual health system is still on the horizon, the solutions Cerner is developing

today are bringing that picture closer to reality. This transformation will not be complete until every

individual in every part of the care process is connected to the right knowledge, resources, and persons

at the appropriate time and place.

(Knowledge + Technology + People) + (Time + Place) = Optimal Health Outcome

There are other boundaries to conquer. With solutions that span

the continuum of care and seamlessly unify health systems,

payers, and the community, Cerner will lead the way.

The transformation of healthcare has begun.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

1 9 9 8

F i n a n c i a l R e p o r t

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF EARNINGS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INDEPENDENT AUDITORS’ REPORT

MANAGEMENT’S REPORT

SELECTED FINANCIAL DATA

COMMON STOCK INFORMATION

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

CONSOLIDATED BALANCE SHEETS

January 2, 1999 and January 3, 1998

(Dollars in thousands)

ASSETS

Current Assets:
Cash and cash equivalents
Receivables
Inventory
Prepaid expenses and other

Total current assets

Property and equipment, net
Software development costs, net
Intangible assets, net
Investments, net
Other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable
Current installments of long-term debt
Deferred revenue
Income taxes
Accrued payroll and tax withholdings
Other accrued expenses

Total current liabilities

Long-term debt, net
Deferred income taxes
Deferred revenue

Stockholders’ Equity:
Common stock, $.01 par value, 150,000,000 shares authorized,

34,674,164 shares issued in 1998 and
33,816,829 shares in 1997

Additional paid-in capital
Retained earnings
Treasury stock, at cost (1,201,518 shares in 1998 and 1997)
Accumulated other comprehensive income:
Foreign currency translation adjustment
Unrealized loss on available-for-sale equity security

(net of deferred tax liability of $165)

Total stockholders’ equity

Commitments (Note 11)
See notes to consolidated ﬁnancial statements.

1998

1997

42,658
167,374
2,651
4,234

216,917

77,292
54,971
8,884
71,719
6,702

77,543
125,516
1,743
3,553

208,355

65,724
40,566
6,402
2,534
8,200

436,485

331,781

14,092
5,030
33,921
26,057
16,625
2,511

98,236

25,000
22,106
20,000

347
165,239
126,862
(20,796)

(243)

(266)

271,143

436,485

11,330
35
8,290
18,245
11,610
2,037

51,547

30,026
16,461
—

338
148,074
106,273
(20,796)

(142)

—

233,747

331,781

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

CONSOLIDATED STATEMENTS OF EARNINGS

For the years ended January 2, 1999, January 3, 1998, and December 28, 1996

(In thousands, except per share data)

REVENUES

System sales
Support and maintenance
Other

Total revenues

COSTS AND EXPENSES

Cost of revenues
Sales and client service
Software development
General and administrative
Write-off of acquired in-process research and development

Total costs and expenses

OPERATING EARNINGS

Interest income (expense), net

EARNINGS BEFORE INCOME TAXES

Income taxes

NET EARNINGS

BASIC EARNING PER SHARE

DILUTED EARNINGS PER SHARE

See notes to consolidated ﬁnancial statements.

1998

1997

1996

245,490
76,755
8,657

170,906
68,713
5,438

122,836
57,430
8,841

330,902

245,057

189,107

89,544
117,107
59,754
25,929
5,038

71,943
83,788
44,086
23,070
—

58,892
65,005
35,890
18,719
—

297,372

222,887

178,506

33,530

(262)

33,268
12,679

20,589

.63

.61

22,170

2,314

24,484
9,336

15,148

.46

.45

10,601

2,301

12,902
4,651

8,251

.25

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended January 2, 1999, January 3, 1998, and December 28, 1996

(In thousands)

Common Stock

Amount

Additional
paid-in
capital

Retained
earnings

Treasury
stock
amount

Accumulated
other

comprehensive Comprehensive

income

Balance at December 30, 1995

33,002

$ 330

143,876

82,874

(5,693)

(13)

Exercise of options
Tax beneﬁt from disqualifying

dispositions of stock options

Foreign currency translation

adjustment

Net earnings

Comprehensive income

402

—

—
—

—

—
—

805

260

—
—

—

—
8,251

—

—
—

Balance at December 28, 1996

33,404

334

144,941

91,125

(5,693)

Exercise of options
Issuance of common stock grants

as compensation

Issuance of restricted common stock
Tax beneﬁt from disqualifying

dispositions of stock options
Purchase of 688,500 shares of

treasury stock

Foreign currency translation

adjustment

Net earnings

Comprehensive income

311

2
100

—

—
—

—
1

—

—
—

978

48
1,586

521

—

—
—

—

—
—

—

—
—

—

— (15,103)

41
8,251

8,292

—

41
—

—

—
—

—

—
15,148

—
—

(170)
—

(170)
15,148

14,978

Balance at January 3, 1998

33,817

338

148,074

106,273

(20,796)

(142)

Exercise of options
Issuance of common stock grants

as compensation

Issuance of common stock
Non-employee stock option
compensation expense
Tax beneﬁt from disqualifying

dispositions of stock options

Foreign currency translation

adjustment

Unrealized loss on available-for-sale
equity security, net of deferred
tax liability of $165

Net earnings

Comprehensive income

185

2
670

—

—
—

—
7

—

—
—

1,248

44
14,867

385

621

—

—
—

—

—
—

—

—
20,589

—

—
—

—

—
—

—

—
—

—

(101)

(266)
—

(266)
20,589

20,222

Balance at January 2, 1999

34,674

$ 347

165,239

126,862

(20,796)

(509)

See notes to consolidated ﬁnancial statements.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended January 2, 1999, January 3, 1998, and December 28, 1996

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings
Adjustments to reconcile net earnings to

net cash provided by operating activities:

Depreciation and amortization
Common stock received as consideration for sale of license software
Write-off of acquired in-process research and development
Issuance of common stock grants as compensation
Non-employee stock option compensation expense
Equity in losses (income) of investee companies
Provision for deferred income taxes
Tax beneﬁt from disqualifying
dispositions of stock options

Loss on disposal of capital equipment

Changes in assets and liabilities:

Receivables, net
Inventory
Prepaid expenses and other
Accounts payable
Accrued income taxes
Deferred revenue
Other current liabilities

Total adjustments

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of capital equipment
Purchase of land, buildings, and improvements
Acquisition of business
Investment in investee companies
Proceeds on disposal of capital equipment
Capitalized software development costs

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long-term debt
Proceeds from sale of common stock
Proceeds from exercise of options
Purchase of treasury stock

Net cash provided by (used in) ﬁnancing activities

Foreign currency translation adjustment

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid (received) during the year for:

Interest
Income taxes, net of refund

NONCASH INVESTING AND FINANCING ACTIVITIES

Acquisition of equipment through capital leases
Issuance of restricted common stock and grants

See notes to consolidated ﬁnancial statements..

1998

1997

20,589

15,148

25,411
(70,000)
5,038
44
385
1,601
15,816

621
223

(39,481)
(908)
(3,970)
2,620
(2,334)
45,410
4,828

(14,696)

5,893

(20,846)
(2,767)
(6,874)
(1,217)
—
(25,052)

(56,756)

(45)
14,874
1,250
—

16,079

(101)

(34,885)
77,543

18,075
—
—
48
—
864
8,246

521
110

(27,931)
(127)
(2,075)
1,984
—
479
3,350

3,544

18,692

(14,896)
(86)
—
(4,500)
212
(18,373)

(37,643)

(116)
—
981
(15,103)

(14,238)

(170)

(33,359)
110,902

1996

8,251

15,498
—
—
—
—
(89)
2,894

260
99

2,376
630
(340)
(5,586)
—
1,649
2,620

20,011

28,262

(14,962)
(379)
—
(1,650)
33
(13,240)

(30,198)

(130)
—
809
—

679

(1,216)
112,118

42,658

77,543

110,902

2,504
(2,112)

—
44

2,473
1,024

73
1,635

2,517
685

—
—

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)

Principles of Consolidation – The consolidated ﬁnancial statements include the accounts of Cerner Corporation and its
wholly owned subsidiaries (the Company). All signiﬁcant intercompany transactions and balances have been eliminated in
consolidation.

(b) Revenue Recognition – Revenues are derived primarily from the sale of clinical information systems. The Company also

provides project implementation and consulting services. In addition, revenue is generated from servicing installed clinical
information systems, which generally includes support of software and maintenance of hardware. The Company also
derives revenue from the sale of computer hardware.

Clinical information system sales contracts are negotiated separately and generally include the licensing of the Company’s
clinical information system software, project-related services associated with the installation of the systems, and the sale of
computer hardware. Clinical information system sales contracts are noncancelable and provide for a right of return only in
the event the system fails to meet the performance criteria set forth in the contracts. The Company recognizes revenue
from sales of clinical information systems using a percentage-of-completion method based on meeting key milestone
events over the term of the contracts in accordance with Statement of Position 97-2, “Software Revenue Recognition.”

Revenue associated with project implementation and consulting services is recognized as the services are performed.
Revenue from the licensing of additional software is recognized upon installation at the client’s site. Revenue from the
sale of computer hardware is recognized upon shipment. Revenue from ongoing software support and equipment
maintenance is recognized as the services are rendered.

(c)

(d)

Fiscal Year – The Company’s ﬁscal year ends on the Saturday closest to December 31. Fiscal year 1998, ended January 2,
1999, consisted of 52 weeks, ﬁscal year 1997 consisted of 53 weeks, and ﬁscal year 1996 consisted of 52 weeks. All
references to years in these notes to consolidated ﬁnancial statements represent ﬁscal years unless otherwise noted.

Software Development Costs – Costs incurred internally in creating computer software products are expensed until
technological feasibility has been established upon completion of a detail program design. Thereafter, all software
development costs are capitalized and subsequently reported at the lower of amortized cost or net realizable value.
Capitalized costs are amortized based on current and future revenue for each product with minimum annual amortization
equal to the straight-line amortization over the estimated economic life of the product. The Company is amortizing
capitalized costs on a straight-line basis over ﬁve years. During 1998, 1997, and 1996, the Company capitalized
$25,052,000, $18,373,000, and $13,240,000, respectively, of total software development costs of $74,159,000,
$54,524,000, and $43,133,000, respectively. Amortization expense of capitalized software development costs in
1998, 1997, and 1996 was $10,647,000, $7,935,000, and $5,997,000, respectively, and accumulated amortization
was $43,542,000, $32,895,000, and $24,960,000, respectively.

(e) Cash Equivalents – Cash equivalents consist of short-term marketable securities with original maturities less than

ninety days.

(f)

Investments – The Company accounts for its investments in equity securities which have readily determinable fair
values as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains and losses reported,
net of tax, as a separate component of accumulated other comprehensive income. Investments in 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.

(g)

Inventory – Inventory consists primarily of computer hardware held for resale and is recorded at the lower of cost
(ﬁrst-in, ﬁrst-out) or market.

(h) Property and Equipment – Property, equipment, and leasehold improvements are stated at cost. Depreciation of
property and equipment is computed using the straight-line method over periods of 5 to 39 years. Amortization
of leasehold improvements is computed using a straight-line method over the lease terms, which range from periods
of two to twelve years.

(i)

Earnings per Common Share – Basic earnings per share (EPS) excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding for the period.
Diluted EPS reﬂects the potential dilution that could occur if securities or other contracts to issue stock were exercised
or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the
Company. A reconciliation of the numerators and the denominators of the basic and diluted per-share computations
is as follows:

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

1998

1997

1996

Earnings
(Numerator)

Shares
(Denominator)

Per
Share
Amount

Earnings
(Numerator)

Shares
(Denominator)

Per
Share
Amount

Earnings
(Numerator)

Shares
(Denominator)

Per
Share
Amount

Basic earnings per share

Income available to

common stockholders

$ 20,589

32,825

$ .63

15,148

32,881

$ .46

8,251

32,729

$ .25

Effect of dilutive securities

Stock options

Diluted earnings per share

Income available to

stockholders including

assumed conversions

—

842

—

787

—

891

$ 20,589

33,667

$ .61

15,148

33,668

$ .45

8,251

33,620

$ .25

Options to purchase 1,652,000, 1,149,000 and 494,000 shares of common stock at per share prices ranging from $25.00 to
$31.00, $21.50 to $31.00, and $18.50 to $29.63 were outstanding at the end of 1998, 1997 and 1996, 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.

(j)

(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 loss resulting from foreign currency
transactions was $673,000, $762,000, and $274,000 in 1998, 1997, and 1996, respectively.

Income Taxes – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the ﬁnancial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.

(l) Goodwill – Excess of cost over net assets acquired (goodwill) is being amortized on a straight-line basis over seven to

eight years. Accumulated amortization was $4,037,000 and $2,733,000 at the end of 1998 and 1997, respectively. The
Company assesses the recoverability of goodwill based on forecasted undiscounted future operating cash ﬂows.

(m) Comprehensive Income – The Company adopted statement of Financial Accounting Standards No. 130, “Reporting

Comprehensive Income” at the beginning of 1998. This statement establishes requirements for reporting and display of
comprehensive income and its components. The adoption of this statement had no effect on the previously reported
net earnings or stockholders’ equity.

(n) Use of Estimates – The preparation of ﬁnancial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the ﬁnancial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.

(o) Reclassiﬁcations – Certain 1997 and 1996 amounts have been reclassiﬁed to conform with the 1998 presentations.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 ACQUISITION OF BUSINESS

On March 16, 1998, the Company purchased all of the outstanding common stock of Multum Information Systems, Inc.,
(Multum) for $6.9 million. Multum is a supplier to the healthcare industry of drug knowledge databases and intelligent software
components designed to improve the quality and cost-effectiveness of medical care. The Company plans to incorporate
Multum’s drug information and expert dosing component into its Health Network Architecture Millennium solutions to enable
Multum’s expert knowledge to become executable within the process of care delivery.

The acquisition has been accounted for using the purchase method of accounting with the operating results of Multum
included in the Company’s consolidated statement of earnings since the date of acquisition. Approximately $5,000,000 of the
purchase price was allocated to in-process research and development that had not reached technological feasibility and was
treated as a one-time charge to earnings reducing after tax income for 1998 by $3.1 million or $.09 per share on a diluted
basis. This acquisition would not have materially affected revenues, net earnings, or net earnings per share on a pro forma basis
for any period presented.

The acquired in-process research and development related to Multum’s component based, drug information software
development kit (SDK) for use in clinical information systems. Its components are designed for use in a variety of conﬁgurations
and to provide complete control over the retrieval of drug information from Multum’s knowledge databases. SDK was
approximately 80% complete at the time of the acquisition. When Multum was acquired, it was projected that SDK would be
completed in 12-18 months at an estimated cost of $1.9 million. The risks associated with completing SDK are like any other
software development project and include changes in technology and competition. The SDK project was valued using the
income approach with the following assumptions: material net cash inﬂows are expected to commence in 2000; no material
changes from historical pricing, margins or expense levels are anticipated; and, a 20% risk adjusted discount rate was applied
to estimated net cash ﬂows. SDK was approximately 90% complete at the end of 1998; management expects it to be
completed in 1999.

The allocation of the purchase price to the estimated fair values of the identiﬁed tangible and intangible assets acquired and
liabilities assumed, resulted in goodwill of $1,581,000. The goodwill is being amortized straight-line over seven years.

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)

Accounts receivable
Contracts receivable

Total receivables

1998

72,747
94,627

167,374

1997

54,908
70,608

125,516

Substantially all receivables are derived from sales and related support and maintenance of the Company’s clinical information
systems to healthcare providers located throughout the United States and in certain foreign countries. Included in receivables
at the end of 1998 and 1997 are amounts due from healthcare providers located in foreign countries of $12,071,000 and
$9,950,000, respectively. Consolidated revenues include foreign sales of $17,545,000, $16,272,000, and $15,874,000,
during 1998, 1997, and 1996, respectively. Consolidated long-lived assets at the end of 1998 and 1997, include foreign
long-lived assets of $290,000 and $265,000, 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 1998 and 1997 the estimated allowance for uncollectible accounts was $3,405,000
and $1,490,000, respectively.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT

A summary of property, equipment, and leasehold improvements stated at cost, less accumulated depreciation and
amortization, is as follows:

(In thousands)

Furniture and ﬁxtures
Computer and communications equipment
Marketing equipment
Leasehold improvements
Capital lease equipment
Land, buildings, and improvements

Less accumulated depreciation and amortization

1998

19,153
59,280
1,913
13,543
713
32,437

127,039
49,747

Total property and equipment, net

77,292

INVESTMENTS

Investments consist of the following:

(In thousands)

Investments in available-for-sale equity securities
Less unrealized holding loss

Investment in available-for-sale equity securities, at fair value
Investments in other equity securities, at cost

1998

503
431

72
71,647

Total investments, net

71,719

1997

17,496
41,898
1,222
10,803
673
29,669

101,761
36,037

65,724

1997

503
—

503
2,031

2,534

Included in investments in other equity securities in 1998 is common stock received as consideration for the sale of license
software. There is no current market for the common stock. As a result, it was valued at $70,000,000 based on a methodology
which utilized both a comparable company and the expected underlying discounted future cash ﬂows. The common stock is
subject to certain lock-up provisions.

INDEBTEDNESS

The Company has a loan agreement with two banks 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 (7.75% at January 2, 1999) or LIBOR (5.094% at January 2, 1999) plus
1.75%. The interest rate may be reduced by up to .5% if certain net worth ratios are maintained. At January 2, 1999, the
Company had no outstanding borrowings under this agreement and had $18,000,000 available for working capital purposes.
The agreement contains certain net worth, current ratio, and ﬁxed charge coverage covenants and provides certain restrictions
on the Company’s ability to borrow, incur liens, sell assets, and pay dividends. A commitment fee of 3/16% is payable quarterly
on the unused portion of the revolving line of credit.

The Company has $30,000,000 of Senior Notes. The Senior Notes are payable in six equal annual installments beginning in
August 1999. Interest is payable on February 1 and August 1 at a rate of 8.3%. 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 also has an obligation under a capital lease agreement, which is secured by the related equipment, for $30,000
($61,000 at January 3, 1998) with interest at 8.5%, payable in monthly installments through September 1999.

The fair value of the Company’s Senior Notes is estimated to be $31,848,000 based on current rates offered to the Company
for debt of the same remaining maturities.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTEREST INCOME AND EXPENSE

A summary of interest income and expense is as follows:

(In thousands)

Interest income
Interest expense

Interest income (expense), net

STOCK OPTIONS AND WARRANTS

1998

2,242
(2,504)

1997

4,755
(2,441)

1996

4,839
(2,538)

(262)

2,314

2,301

At January 2, 1999, the Company had four ﬁxed stock option plans. Under Stock Option Plan B, the Company could grant
to associates options to purchase up to 5,600,000 shares of common stock through November 30, 1993. The options are
exercisable at the fair market value on the date of grant for a period determined by the Board of Directors (not more than
ten years from the date granted). The options contain restrictions as to transferability and exercisability after termination of
employment.

Under Stock Option Plan C, the Company is authorized to grant to associates options to purchase up to 95,000 shares of
common stock through May 18, 2003. The options are exercisable at the fair market value on the date of grant for a period
determined by the Board of Directors (not more than ten years from the date granted). The options contain restrictions as to
transferability and exercisability after termination of employment. The Company has committed not to issue any more stock
options under Stock Option Plan C.

Initially under Stock Option Plan D, the Company was authorized to grant to associates, directors, consultants, or advisors to
the Company options to purchase up to 2,600,000 shares of common stock through January 1, 2000. An additional 2,000,000
shares were approved by the Company’s shareholders on May 22, 1998, increasing the total authorized to grant to 4,600,000
shares. The options are exercisable at a price and during a period determined by the Stock Option Committee. Options under
this plan currently vest over periods of up to ten years and are exercisable for periods of up to 25 years.

Under Stock Option Plan E, the Company is authorized to grant to associates who are not ofﬁcers subject to the provisions of
Section 16(a) of the Securities and Exchange Act of 1934, consultants, or advisors to the Company options to purchase up to
2,000,000 shares of common stock through January 1, 2005. The options are exercisable at a price and during a period
determined by the Stock Option Committee. Options under this plan currently vest over periods of up to ten years and are
exercisable for periods of up to 25 years.

The Company has also granted 210,362 other non-qualiﬁed stock options under separate agreements to certain third parties.
These options are exercisable at a price equal to or greater than the fair market value on the date of grant. These options vest
over periods of up to six years and are exercisable for periods of up to ten years.

The Company accounts for stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock exceeds the exercise price. On December 31, 1995,
the Company adopted Statement of 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 N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A combined summary of the status of the Company’s four ﬁxed stock option plans and other stock options at the end
of 1998, 1997, and 1996, and changes during these years ended is presented below:

Fixed options

Outstanding at beginning of year
Granted
Exercised
Forfeited

Outstanding at end of year

1998

1997

1996

Number
of
shares

4,179,258
1,932,710
(185,335)
(438,442)

5,488,191

Weighted-
average
exercise
price

$ 17.74
24.15
6.88
17.57

$ 20.38

Number
of
shares

3,196,072
1,592,363
(310,531)
(298,646)

4,179,258

Weighted-
average
exercise
price

$ 16.50
18.22
3.12
17.50

$ 17.74

Number
of
shares

2,730,786
941,130
(401,754)
(74,090)

3,196,072

Weighted-
average
exercise
price

$ 15.95
15.97
2.02
12.52

$ 16.50

Options exercisable at year-end

1,111,943

876,376

838,143

The following table summarizes information about ﬁxed and other stock options outstanding at January 2, 1999.

Options outstanding

Options exercisable

Range of
exercise
prices

1.25-12.56
12.63-17.56
18.13-26.63
27.00-31.00

1.25-31.00

Number
outstanding
at 01/02/99

374,494
1,578,226
2,434,960
1,100,511

5,488,191

Weighted-average
remaining
contractual life

Weighted-average
exercise price

6.3 years

19.9
15.7
17.6

16.7

5.01
14.98
22.44
28.81

20.38

Number
exercisable
at 01/02/99

312,793
367,862
235,411
195,877

1,111,943

Weighted-average
exercise price

3.52
14.92
20.76
29.52

15.52

The per share weighted-average fair value of stock options granted during 1998, 1997 and 1996 was $14.97, $10.99
and $7.89, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-
average assumptions:

Expected years until exercise
Risk-free interest rate
Expected stock volatility
Expected dividend yield

1998

8
5.0%
58.5%
0%

1997

8
6.2%
56.9%
0%

1996

8
6.3%
49.2%
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 $5,929,000 or $.18 per share in 1998, approximately $3,965,000 or $.12 per share in 1997 and approximately
$3,023,000 or $.09 per share in 1996.

Pro forma net earnings reﬂects only options granted since January 1, 1995. Therefore, the full impact of calculating compensation
expense for stock options under FAS 123 is not reﬂected in the pro forma net earnings amounts presented above, because
compensation cost is reﬂected over the options’ vesting period of ten years for these options. Compensation expense for options
granted prior to January 1, 1995 is not considered.

In November 1998, the Company entered into an agreement with General Electric Company (GE) to integrate the Company’s
Health Network Architecture (HNA) Millennium RadNet Radiology Information System with GE Medical Systems’ Picture Archive
and Communication Systems technology. In conjunction with the agreement, the Company sold GE 670,000 shares of common
stock for $14,874,000 and granted warrants for the purchase of 500,000 shares of common stock at an exercise price equal to the
fair value of the stock at the grant date ($25.49). The warrants become exercisable provided certain conditions are met, including
achievement of certain levels of revenue. The warrants expire after seven years or thirty days after termination of the agreement.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES

Income tax expense (beneﬁt) for the years ended 1998, 1997, and 1996, consist of the following:

(In thousands)

Current:
Federal
State
Foreign

Total current

Deferred:
Federal
State
Foreign

Total deferred

1998

1997

1996

(1,929)
(1,061)
(147)

(3,137)

13,634
1,565
617

15,816

916
80
94

1,090

7,338
908
—

8,246

9,336

1,403
136
218

1,757

2,553
341
—

2,894

4,651

Total income tax expense

12,679

Temporary differences between the ﬁnancial statement carrying amounts and tax bases of assets and liabilities that give
rise to signiﬁcant portions of deferred income taxes at the end of 1998 and 1997 relate to the following:

(In thousands)

Deferred tax assets

Acquisition accrual
Accrued expenses
Separate return net operating losses
Other

Total deferred tax assets

Deferred tax liabilities

Software development costs
Contract and service revenues and costs
Depreciation and amortization
Other

Total deferred tax liabilities

1998

1997

2,033
3,223
1,577
1,076

7,909

(20,695)
(32,255)
(3,856)
(2,867)

(59,673)

—
2,028
1,577
2,190

5,795

(15,205)
(23,316)
(1,577)
(1,645)

(41,743)

Net deferred tax liability

(51,764)

(35,948)

The effective income tax rates for 1998, 1997, and 1996 were 38%, 38%, and 36%, respectively. These effective rates
differ from the federal statutory rate of 35% as follows:

(In thousands)

Tax expense at statutory rates
State income tax, net of federal beneﬁt
Other, net

Total income tax expense

1998

11,644
1,280
(245)

12,679

1997

8,569
632
135

9,336

1996

4,516
310
(175)

4,651

Income taxes payable are reduced by the tax beneﬁt resulting from disqualifying dispositions of stock acquired under
the Company’s stock option plans. The 1998, 1997, and 1996 beneﬁts of $621,000, $521,000, and $260,000,
respectively, are treated as increases to additional paid-in capital.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 ASSOCIATE STOCK PURCHASE RETIREMENT PLAN

The Cerner Corporation Associate Stock Purchase Retirement Plan (the Plan) is established under Section 401(k) of the Internal
Revenue Code. All full-time associates are eligible to participate. Participants may elect to make pretax contributions from 1%
to 15% of compensation to the Plan, subject to annual limitations determined by the Internal Revenue Service. Participants may
direct contributions into mutual funds, a money market fund, or a Company stock fund. The Company makes matching
contributions to the Plan, on behalf of participants, in an amount equal to 20% of the participant’s contribution, limited to an
annual maximum of $600 per participant. The Company’s expense for the plan amounted to $1,005,000, $761,000, and
$560,000 for 1998, 1997, and 1996, respectively.

11 COMMITMENTS

The Company is committed under operating leases for ofﬁce space through December 2004. Rent expense for ofﬁce
and warehouse space for the Company’s regional and international ofﬁces for 1998, 1997, and 1996 was $1,847,000,
$1,759,000, and $1,580,000, respectively. Aggregate minimum future payments (in thousands) under these noncancelable
leases are as follows:

Years

1999
2000
2001
2002
2003
2004

2,438
1,437
935
438
238
171

12 REAL ESTATE LEASE REVENUE

The Company leases space to unrelated parties in its Kansas City headquarters complex under noncancelable operating leases.
Included in other revenues is rental income of $1,795,000, $1,694,000, and $2,383,000 in 1998, 1997, and 1996, respectively.
Future minimum lease revenues (in thousands) under these noncancelable operating leases expiring through 2002 are as
follows:

Years

1999
2000
2001
2002

685
303
32
26

13 STOCKHOLDERS’ EQUITY

At the end of 1998 and 1997, the Company had 1,000,000 shares of authorized but unissued preferred stock,
$.01 par value.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14 QUARTERLY RESULTS (UNAUDITED)

Selected quarterly ﬁnancial data for 1998 and 1997 is set forth below:

(In thousands, except per share data)

1998 quarterly results:

April 4
July 4
October 3
January 2

Total

1997 quarterly results:

March 29
June 28
September 27
January 3

Total

Earnings
before
income
taxes

1,106
8,726
10,185
13,251

Net
earnings

671
5,369
6,348
8,201

Revenues

73,674
79,152
82,832
95,244

330,902

33,268

20,589

51,129
63,320
60,777
69,831

3,123
5,478
7,203
8,680

1,936
3,324
4,445
5,443

245,057

24,484

15,148

Basic
earnings
per share

Diluted
earnings
per share

.02
.16
.19
.26

.63

.06
.10
.13
.17

.46

.02
.16
.19
.24

.61

.06
.10
.13
.16

.45

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

1998 reﬂected major accomplishments that will provide long-term ﬁnancial and strategic beneﬁts for the Company, but also
included disappointments in bookings and stock performance despite a 35% increase in revenues and 56% increase in net
earnings (excluding acquisition related charges) as compared to 1997. Most notably, the Company completed the major
development cycle of HNA Millennium. The Company believes HNA Millennium provides a signiﬁcant competitive advantage
because it utilizes the only fully integrated, large-scale, enterprise-wide architecture in the industry and thus can deliver a
superior combination of functionality, efﬁciency, cost-containment and quality control through intrarelated clinical and
management information systems.

The Company is now effectively positioned to meet the complex needs of a dynamic and consolidating health-care industry
that requires sophisticated, powerful and comprehensive solutions to information sharing and process automation. Many
analysts expect that the overall health information marketplace will grow at least 20% per year for the next ﬁve years following
the millennium. The Company expects that the clinical information segments of this marketplace will grow even faster. With
over 30 product lines currently in HNA Millennium, which will grow over the next few years, the Company believes it can
sustain its technological leadership and capitalize on this opportunity. These 30 product lines will include, early in 2000, patient
accounting and other business and management systems, where the Company currently has no or limited market share.

In the fourth quarter of 1998, the Company licensed a broad set of HNA Millennium applications to Synetic Healthcare
Communications, Inc. (SHC) which is focused on clinical e-commerce through an Internet platform that connects payers,
physicians and patients. In exchange for granting this license and entering into related marketing and other agreements, the
Company received 19.9% of SHC’s common stock which the Company valued at $70 million. In November of 1998, the
Company entered into an agreement with GE Medical Systems division of General Electric Company (GE) to develop and
market the next generation of solutions in the radiology suite that combines the Company’s leadership in radiology information
systems with GE’s leadership in radiology imaging systems and picture archival communication systems. These alliances create
the potential to leverage the Company’s access to customers, emerging markets and technology.

The Company’s human resources were augmented signiﬁcantly during 1998. The Company recruited and promoted a number
of talented executives to its senior management team last year, including: Jeff Townsend, Chief of Engineering; Glenn Tobin,
Chief Operating Ofﬁcer; Marvin Pember, responsible for provider-based and managed cared Enterprise Business Units; Stan
Sword, Chief People Ofﬁcer; and Paul Black, promoted to Chief Sales Ofﬁcer. The Company also added approximately 550
associates. The Company’s ability to recruit and retain such talent was recognized in 1998 by Fortune Magazine with its award
as “One of the Top 100 Companies” to work for in the United States. The quality and service-orientation of our associates was
also validated by external surveys which identiﬁed the Company as the “Best Client Service” support provider in the industry.

Despite the many positive developments that occurred in 1998, the Company was disappointed with its ﬁnancial performance.
The Company did not fully anticipate the decrease in demand for large-scale systems within the health care industry resulting
from the diversion of capital and human resources to solve Year 2000 compliance issues. It is currently expected that this
decline in demand will likely persist during 1999 as customers continue to focus on efforts to update their current systems to
become Year 2000 compliant. However, after January 1, 2000, the Company expects that this problem will quickly dissipate.
Sales of enterprise wide systems were negatively impacted during 1998 because the Company did not have a large, complex
reference site using signiﬁcant portions of HNA Millenium applications until January of 1999.

While the Company is quite optimistic about its ﬁnancial performance heading into the new millennium, it is taking a
conservative view for 1999. This cautiousness is predicated primarily on the continued uncertainty that Year 2000 compliance
issues create for the buyers of health care information systems. Nevertheless, the Company believes that its revenues and
earnings will exceed those of 1998. Earnings from implementation services are expected to increase as more projects are billed
under a closely-scoped fee-for-service approach. Approximately 43% of the aggregate backlog of $468,418,000 is expected to
be recognized as revenues during 1999.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Year Ended January 2, 1999, Compared to Year Ended January 3, 1998

The Company’s revenues increased 35% to $330,902,000 in 1998 from $245,057,000 in 1997.
Net earnings increased 36% to $20,589,000 in 1998 from $15,148,000 in 1997. Excluding acquisition related charges, net
earnings increased 56% to $23,687,000 in 1998 relative to 1997.

Revenues – In 1998, revenues increased due to an increase in system sales and support of installed systems. System sales
increased 44% to $245,490,000 in 1998 from $170,906,000 in 1997. This increase in system sales resulted primarily from an
increase in installations under Health Network Architecture (HNA) contracts. Revenue from HNA contracts increased 23%
compared to 1997. The sale of additional hardware and software products to the installed client base increased 30% in 1998
as compared to 1997.

Total sales to the installed base in 1998, including new systems, incremental hardware and software, support and maintenance
services, and discrete services, were 69% of total revenues in 1998 compared to 73% in 1997. The lower percentage was
primarily due to the increase in system sales to new clients.

At January 2, 1999, the Company had $314,965,000 in contract backlog and $153,453,000 in support and maintenance
backlog, compared to $198,274,000 in contract backlog and $132,842,000 in support and maintenance backlog at the
end of 1997.

Support and maintenance revenues increased 12% in 1998 compared to 20% in 1997. These revenues represented 23% of
1998 total revenues and 28% of 1997 total revenues. The lower percentage was primarily due to the increase in system sales.

Other revenues increased 59% to $8,657,000 in 1998 from $5,438,000 in 1997. This increase was due primarily to services
performed beyond contracted requirements for existing clients.

Cost of Revenues – The cost of revenues includes the cost of computer hardware and sublicensed software purchased from
computer and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed
software support subcontracted to the manufacturers. The cost of revenues was 27% of total revenues in 1998 and 29% of
total revenues in 1997. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware,
services and support) components carrying different margin rates changes from period to period. The decrease in the cost of
revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware
and sublicensed software, which carry a higher cost of revenue percentage.

Sales and Client Service – Sales and client service expenses include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, trade show
costs, and advertising costs. These expenses as a percent of total revenues were 35% in 1998 and 34% in 1997. The increase
in total sales and client service expenses is attributable to the cost of a larger ﬁeld sales and services organization and marketing
of new products.

Software Development – Software development expenses include salaries, documentation, and other direct expenses incurred
in product development and amortization of software development costs. Total expenditures for software development,
including both capitalized and noncapitalized portions, for 1998 and 1997 were $74,159,000 and $54,524,000, respectively.
These amounts exclude amortization. Capitalized software costs were $25,052,000 and $18,373,000 for 1998 and 1997,
respectively. The increase in aggregate expenditures for software development in 1998 is due to development of HNA
Millennium products and development of community care products.

General and Administrative – General and administrative expenses include salaries for corporate, ﬁnancial, and administrative
staffs, utilities, communications expenses, and professional fees. These expenses as a percent of total revenues were 8% in
1998 and 9% in 1997.

Write-off of In-Process Research and Development – Write-off of in-process research and development is a one-time expense
resulting from the acquisition of Multum.

Interest Income (Expense), Net – Net interest expense was $262,000 in 1998 compared to net interest income of $2,314,000 in
1997. The decrease is due primarily to a decrease in invested cash.

Income Taxes – The Company’s effective tax rate was 38% in 1998 and 1997.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Year Ended January 3, 1998, Compared to Year Ended December 28, 1996

The Company’s revenues increased 30% to $245,057,000 in 1997 from $189,107,000 in 1996.
Net earnings increased 84% to $15,148,000 in 1997 from $8,251,000 in 1996. Net earnings from the Company’s foreign
operations decreased to $2,389,000 in 1997 from $2,897,000 in 1996.

Revenues – In 1997, revenues increased due to an increase in system sales and support of installed systems. System sales
increased 39% to $170,906,000 in 1997 from $122,836,000 in 1996. This increase in system sales resulted primarily from an
increase in installations under Health Network Architecture (HNA) contracts. HNA contracts were 57% of total systems sales
in 1997, compared to 43% in 1996. The sale of additional hardware and software products to the installed client base
decreased 8% in 1997 as compared to 1996.

Total sales to the installed base in 1997, including new systems, incremental hardware and software, support and maintenance
services, and discrete services, were 73% of total revenues in 1997 compared to 79% in 1996. The lower percentage was
primarily due to the increase in system sales to new clients.

At January 3, 1998, the Company had $198,274,000 in contract backlog and $132,842,000 in support and maintenance
backlog, compared to $110,330,000 in contract backlog and $107,255,000 in support and maintenance backlog at the
end of 1996.

Support and maintenance revenues increased 20% in 1997 compared to 16% in 1996. This increase was due primarily to the
increase in the Company’s installed and converted client base. These revenues represented 28% of 1997 total revenues and
30% of 1996 total revenues.

Other revenues decreased 38% to $5,438,000 in 1997 from $8,841,000 in 1996. This decrease was due primarily to a
decrease in real estate lease revenues from the rental to outside tenants, as the Company utilizes more ofﬁce space, and the
reporting of certain services revenue as system sales in 1997.

Cost of Revenues – The cost of revenues includes the cost of computer hardware and sublicensed software purchased from
computer and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed
software support subcontracted to the manufacturers. The cost of revenues was 29% of total revenues in 1997 and 31% of
total revenues in 1996. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware,
services and support) components carrying different margin rates changes from period to period. The decrease in the cost of
revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware
and sublicensed software, which carry a higher cost of revenue percentage.

Sales and Client Service – Sales and client service expenses include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, trade show
costs, and advertising costs. These expenses as a percent of total revenues were 34% in 1997 and 1996. 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 1997 and 1996 were $54,524,000 and $43,133,000, respectively.
These amounts exclude amortization. Capitalized software costs were $18,373,000 and $13,240,000 for 1997 and 1996,
respectively. The increase in aggregate expenditures for software development in 1997 is due to development of HNA
Millennium products and development of community care products.

Interest Income, Net – Net interest income was $2,314,000 in 1997 compared to $2,301,000 in 1996.

Income Taxes – The Company’s effective tax rates were 38% and 36% for 1997 and 1996, respectively. The lower 1996
tax rate is due to the utilization of foreign net operating losses.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company had total cash and cash equivalents of $42,658,000 at the end of 1998 and working capital of $118,681,000,
compared to cash and cash equivalents of $77,543,000 at the end of 1997, and working capital of $156,808,000. The
decrease in working capital resulted primarily from the Company’s investment in software development, the purchase of capital
equipment and the acquisition of Multum. In November 1998, the Company sold 670,000 shares of common stock to General
Electric Company, which resulted in cash proceeds of $14,874,000.

The Company generated cash of $5,893,000, $18,692,000, and $28,262,000 from operations in 1998, 1997, and 1996,
respectively. Cash ﬂow from operations decreased in 1998 and 1997, due primarily to increases in receivables from increased
revenues, and, in 1998 from non-cash consideration received for the sale of license software.

Revenues provided under support and maintenance agreements represent recurring cash ﬂows. Support and maintenance
revenues increased 12%, 20%, and 16%, in 1998, 1997, and 1996, respectively, and the Company expects these revenues to
continue to grow as the base of installed systems grows.

The Company’s liquidity is inﬂuenced by many factors, including the amount and timing of the Company’s revenues, its cash
collections from its clients as implementation of its products proceed and the amounts the Company invests in software
development and capital expenditures. The Company’s liquidity has decreased over the three year period ended January 2,
1999 due primarily to increased investment in software development and increase in receivables due to increased sales. The
Company expects that its cash position will decrease during the ﬁrst half of 1999 as it continues its investment in software
development, but the Company expects to have an increase in its cash position for the fourth quarter of 1999. The Company
believes that its present cash position, together with cash generated from operations, will be sufﬁcient to meet anticipated cash
requirements during 1999. The Company has an $18,000,000 line of credit available but may obtain additional debt capital in
order to provide greater ﬁnancial ﬂexibility.

The effects of inﬂation were minimal on the Company’s business.

Factors that may Affect Future Results of Operations, Financial Condition or Business

Statements made in this report, other reports and proxy statements ﬁled with the Securities and Exchange Commission,
communications to stockholders, press releases and oral statements made by representatives of the Company that are not
historical in nature, or that state the Company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the
future, are “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended, and involve risks and uncertainties. The words “should,” “will be,” “intended,” “continue,” “believe,” “may,”
“expect,” “hope,” “anticipate,” “goal,” “forecast” and similar expressions are intended to identify such forward-looking
statements. It is important to note that any such performance, and actual results, ﬁnancial condition or business could differ
materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below as well as those discussed elsewhere in reports ﬁled with the Securities
and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements to reﬂect
changed assumptions, the occurrence of unanticipated events or changes in future operating results, ﬁnancial condition or
business over time.

Quarterly Operating Results May Vary – The Company’s quarterly operating results have varied in the past and may continue
to vary in future periods. Quarterly operating results may vary for a number of reasons including demand for the Company’s
products and services, the Company’s long sales cycle, the long installation and implementation cycle for these larger, more
complex and costlier systems and other factors described in this section and elsewhere in this report. As a result of healthcare
industry trends and the market for the Company’s HNA Millennium products, a large percentage of the Company’s revenues
are generated by the sale and installation of larger, more complex and costlier systems. The sales process for these systems is
lengthy and involves a signiﬁcant technical evaluation and commitment of capital and other resources by the customer. The
sale may be subject to delays due to customers’ internal budgets and procedures for approving large capital expenditures and
by competing needs for other capital expenditures and deploying new technologies or personnel resources. Delays in the
expected sale or installation of these large contracts may have a signiﬁcant impact on the Company’s anticipated quarterly
revenues and consequently its earnings, since a signiﬁcant percentage of the Company’s expenses are relatively ﬁxed.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

These larger, more complex and costlier systems are installed and implemented over time periods ranging from approximately
nine months to three years and involve signiﬁcant efforts both by the Company and the client. In addition, implementation of
the Company’s Millennium products is a new and evolving process. The Company recognizes revenue upon the completion of
standard milestone conditions and the amount of revenue recognized in any quarter depends upon the Company’s and the
client’s ability to meet these project milestones. Delays in meeting these milestone conditions or modiﬁcation of the contract
relating to one or more of these systems could result in a shift of revenue recognition from one quarter to another and could
have a material adverse effect on results of operations for a particular quarter. In addition, support payments by clients for the
Company’s products do not commence until the product is in use.

The Company’s revenues from system sales historically have been lower in the ﬁrst quarter of the year and greater in the fourth
quarter of the year.

Stock Price May Be Volatile – The trading price of the Company’s common stock may be volatile. The market for the
Company’s common stock may experience signiﬁcant price and volume ﬂuctuations in response to a number of factors
including actual or anticipated quarterly variations in operating results, changes in expectations of future ﬁnancial performance
or changes in estimates of securities analysts, governmental regulatory action, healthcare reform measures, client relationship
developments and other factors, many of which are beyond the Company’s control.

Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular,
has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These
broad market and industry ﬂuctuations may adversely affect the trading price of the Company’s common stock, regardless of
actual operating performance.

Market Risk of Investments – The Company accounts for its investments in equity securities which have readily determinable
fair values as available-for sale. Available-for-sale securities are reported at fair value with unrealized gains and losses reported,
net of tax, as a separate component of accumulated other comprehensive income. Investments in other equity securities are
reported at cost. All equity securities are reviewed by the Company for declines in fair value. If such declines are considered to
be other than temporary, the cost basis of the individual security is written down to fair value as a new cost basis, and the
amount of the write-down is included in earnings.

Included in the Company’s investments is the ownership of 19.9% of the common stock of Synetic Healthcare
Communications, Inc. (SHC). There is no current market for this common stock and it is not accounted for as available-for-sale.
As a result, the stock was valued at $70,000,000 based on a methodology which utilized both a comparable company and the
expected underlying discounted future cash ﬂows. The common stock is subject to certain lock-up provisions. A permanent
impairment in the value of SHC stock would result in a charge to earnings in either the then current or future periods. There
would be no effect on cash ﬂows because the revenue was earned through contractual rights granted in exchange for SHC
stock. An increase in the value of the SHC stock would have no effect on reported earnings. Synetic, Inc., the parent of SHC,
has publicly announced that SHC plans to conduct an initial public offering of its shares. The Company has agreed to purchase
additional SHC shares in that offering which may maintain its proportionate ownership of SHC. The Company has not engaged
in equity swaps or other hedging techniques to manage the equity risk inherent in the SHC shares.

The Company is exposed to market risk from changes in marketable securities (which consist of money market and commercial
paper). At January 2, 1999, marketable securities of the Company were recorded at a fair value of approximately $43 million,
with an overall average return of approximately 5% and an overall weighted maturity of less than 90 days. The marketable
securities held by the Company are not subject to price risk as they are held to maturity.

The Company is not exposed to material future earnings or cash ﬂow exposures from changes in interest rates on long-term
debt since 100% of its long-term debt is at a ﬁxed rate. To date, the Company has not entered into any derivative ﬁnancial
instruments to manage interest rate risk and is currently not evaluating the future use of any ﬁnancial instruments.

The Company conducts business in several foreign jurisdictions. However, the business transacted is in the local functional
currency and the Company does not currently have any material exposure to foreign currency transaction gains or losses. All
other business transactions are in U.S. dollars. To date, the Company has not entered into any derivative ﬁnancial instrument to
manage foreign currency risk and is currently not evaluating the future use of any such ﬁnancial instruments.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Changes in the Healthcare Industry – The healthcare industry is highly regulated and is subject to changing political, economic
and regulatory inﬂuences. For example, The Balanced Budget Act of 1997 (Public Law 105-32) contains signiﬁcant changes to
Medicare and Medicaid and began to have its initial impact in 1998 due to limitations on reimbursement, resulting cost
containment initiatives, and effects on pricing and demand for capital intensive systems. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and state legislatures have periodically considered programs to
reform or amend the U.S. healthcare system at both the federal and state level and to change healthcare ﬁnancing and
reimbursement systems. These programs may contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare
industry participants may respond by reducing their investments or postponing investment decisions, including investments in
the Company’s products and services.

Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These
providers may try to use their market power to negotiate price reductions for the Company’s products and services. As the
healthcare industry consolidates, the Company’s customer base could be eroded, competition for customers could become more
intense and the importance of acquiring each customer becomes greater.

Signiﬁcant Competition – The market for healthcare information systems is intensely competitive, rapidly evolving and subject
to rapid technological change. The Company believes that the principal competitive factors in this market include the breadth
and quality of system and product offerings, the stability of the information systems provider, the features and capabilities of
the information systems, the ongoing support for the system, and the potential for enhancements and future compatible
products.

Certain of the Company’s competitors have greater ﬁnancial, technical, product development, marketing and other resources
than the Company and some of its competitors offer products that it does not offer. The Company’s principle existing
competitors include Shared Medical Systems Corporation, IDX Systems Corporation, McKesson HBOC, Inc. and Eclipsys
Corporation, each of which offers a suite of products that compete with many of the Company’s products. There are other
competitors that offer a more limited number of competing products.

In addition, the Company expects that major software information systems companies, large information technology consulting
service providers and system integrators, Internet-based start-up companies and others specializing in the healthcare industry
may offer competitive products or services. The pace of change in the healthcare information systems market is rapid and there
are frequent new product introductions, product enhancements and evolving industry standards and requirements. As a result,
the Company’s success will depend upon its ability to keep pace with technological change and to introduce, on a timely and
cost-effective basis, new and enhanced products that satisfy changing customer requirements and achieve market acceptance.

Proprietary Technology May Be Subjected to Infringement Claims or May Be Infringed Upon – The Company relies upon a
combination of trade secret, copyright and trademark laws, license agreements, conﬁdentiality procedures, employee
nondisclosure agreements and technical measures to maintain the trade secrecy of its proprietary information. The Company
has not historically ﬁled patent applications or copyrights covering its software technology. As a result, the Company may not
be able to protect against misappropriation of its intellectual property.

In addition, the Company could be subject to intellectual property infringement claims as the number of competitors grows and
the functionality of its products overlaps with competitive offerings. These claims, even if not meritorious, could be expensive
to defend. If the Company becomes liable to third parties for infringing their intellectual property rights, it could be required to
pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the products that
contain the infringing intellectual property.

Government Regulation – The United States Food and Drug Administration (the FDA) has declared that software products that
are 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 1976 Medical Device Amendments to the Federal
Food, Drug and Cosmetic Act and the Safe Medical Devices Act of 1990. 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
medical devices by the FDA, the Company could be subject to extensive requirements governing pre- and post- marketing
conditions, such as device investigation, approval, labeling and manufacturing. Complying with these FDA regulations would
be time consuming, burdensome and expensive. The Company expects that the FDA is likely to become more active in
regulating computer software that is used in healthcare.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following an inspection by the FDA in March of 1998, the Company received a two-item Form FDA 483 (Notice of
Inspectional Observations) containing observations of non-compliance with the Federal Food, Drug and Cosmetic Act (the Act)
with respect to the Company’s PathNet HNA 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. A copy of the third party audit was submitted to the FDA in
October of 1998 and, at the request of the FDA, additional information and clariﬁcation was submitted to the FDA in January
of 1999.

There can be no assurance, however, that the Company’s actions taken in response to the Form 483 and Warning Letter will be
deemed adequate by the FDA or that additional actions on behalf of the Company will not be required. In addition, the
Company remains subject to periodic inspections and there can be no assurances that the Company will not be required to
undertake additional actions to comply with the Act and any other applicable regulatory requirements. Any failure by the
Company to comply with the Act and any other applicable regulatory requirements could have a material adverse effect on the
Company’s ability to continue to manufacture and distribute its products, and in more serious cases, could result in seizure,
recall, injunction and/or civil ﬁnes. Any of the foregoing would have a material adverse effect on the Company’s business,
results of operations or ﬁnancial condition.

Product Related Liabilities – Many of the Company’s products provide data for use by healthcare providers in providing care to
patients. Although no such claims have been brought against the Company to date regarding injuries related to the use of its
products, such claims may be made in the future. Although the Company maintains product liability insurance coverage in an
amount that it believes is sufﬁcient for its business, there can be no assurance that such coverage will prove to be adequate or
that such coverage will continue to remain available on acceptable terms, if at all. A successful claim brought against the
Company which is uninsured or under-insured could materially harm its business, results of operations or ﬁnancial condition.

Year 2000 – The following statements are a “Year 2000 Readiness Disclosure” within the meaning of the Year 2000
Information and Readiness Disclosure Act. Computer programs that use two digits to identify a year may fail or create errors in
the year 2000, leading to system failures or miscalculations causing disruptions to the operations of the user. The Company has
conducted a Year 2000 review of its operations focusing on the Company’s products and their use by its clients, the computers,
operating systems and data bases used in conjunction with its products and the Company’s internal operations.

The Company’s software products currently being marketed are Year 2000 compliant. The costs incurred to make the
Company’s current versions compliant have occurred in the ordinary course of software development and enhancement and
have not been material. All of the Company’s clients using older versions of its software products are entitled to upgrade to the
compliant versions with no charge for the compliant version. However, some have elected not to do so for a variety of reasons.
The Company is working with the clients who wish to upgrade to address Year 2000 issues. These clients have either been
upgraded to compliant versions or are scheduled to be upgraded to compliant versions of the Company’s software by August
1999. The Company is assisting those clients to upgrade using electronic access from the Company’s facilities without charge.
If the client desires on-site assistance, the Company is assessing its normal charges. These services are being conducted in the
ordinary course of the Company’s business by its employees, and the costs to the Company are not expected to be material.
The Company is also engaged in many projects to implement its products at client sites. These projects require efforts both by
the Company and its clients. For some of these clients, these projects constitute their solution to Year 2000 issues.
Substantially all of these projects are planned to be completed by September 1999. The Company is working with its clients, or
the clients are working independently, on contingency plans for Year 2000 issues where there is a reasonable likelihood the
project may not be completed by the end of 1999.

As clients and potential customers focus on efforts to update their current systems, they may elect to delay capital investments
in information systems in order to focus their capital budgets on the expenditures necessary to bring their existing systems into
Year 2000 compliance. As a result, the Company may not achieve expected sales revenues and its business, ﬁnancial condition
and results of operations could be materially adversely affected.

The Company believes that its internal third-party software applications, operating systems and telephone systems are Year
2000 compliant. The Company did have some internally developed software applications that required upgrading to be Year
2000 compliant. These upgrades were done internally and have been completed. The Company has also replaced some older
computers and operating systems that were not Year 2000 compliant in the normal course of infrastructure maintenance.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The suppliers of the computers, operating systems and data bases necessary to operate the current versions of the Company’s
software products have indicated to the Company that those products either are Year 2000 compliant or they would be by the
end of 1999. The Company has conducted tests of such computers, operating systems and databases with its products now
being marketed and currently has no reasonable cause to believe that the Company’s products are not Year 2000 compliant
when operated with such computers, operating systems and databases. However, in operation at clients’ sites, the Company’s
software products interchange data with many third party systems through interfaces that may be unique to the client or the
third party system. Such interfaces or data interchanged may contain inaccuracies or such data may not be in a format that
allows the Company’s system to correctly identify the date. There can be no assurance that the Company will not be subject to
claims that result from the failure of third party systems or their related interfaces to be Year 2000 compliant. These claims,
even if not meritorious, could be expensive to defend.

Although the Company believes its Year 2000 review and the actions it has taken and plans to take in response to the review
are appropriate, there can be no assurance that the review identiﬁed all possible issues or that all identiﬁed issues will be
satisfactorily resolved. A material failure of the Company’s internal systems to be Year 2000 compliant, a material failure in
suppliers of the computers, operating systems and databases used in conjunction with the Company’s products to be Year 2000
compliant or a material delay in client projects related to Year 2000 issues could have a material adverse effect on the
Company’s business, results of operations or ﬁnancial condition.

System Errors and Warranties – The Company’s systems, particularly the 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 contract with its clients generally limit the Company’s liability arising from such claims but such limits may not
be enforceable in certain jurisdictions.

Anti-Takeover Defenses – The Company’s charter, bylaws, shareholders’ rights plan and certain provisions of Delaware law
contain certain provisions that may have the effect of delaying or preventing an acquisition of the Company. Such provisions
are intended to encourage any person interested in acquiring the Company to negotiate with and obtain the approval of the
Board of Directors in connection with any such transaction. These provisions include (i) a Board of Directors that is staggered
into three classes to serve staggered three-year terms, (ii) blank check preferred stock, (iii) supermajority voting provisions, (iv)
inability of stockholders to act by written consent or call a special meeting, (v) limitations on the ability of stockholders to
nominate directors or make proposals at stockholder meetings, and (vi) triggering the exercisability of stock purchase rights on a
discriminatory basis, which may invoke extensive economic and voting dilution of a potential acquirer if its beneﬁcial ownership
of the Company’s common stock exceeds a speciﬁed threshold. Certain of these provisions may discourage a future acquisition
of the Company not approved by the Board of Directors in which shareholders might receive a premium value for their shares.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders
Cerner Corporation:

We have audited the accompanying consolidated balance sheets of Cerner Corporation and subsidiaries as of January 2, 1999
and January 3, 1998, and the related consolidated statements of earnings, changes in equity, and cash ﬂows for each of the
years in the three-year period ended January 2, 1999. These consolidated ﬁnancial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An audit
also includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as evaluating the
overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects, the ﬁnancial
position of Cerner Corporation and subsidiaries as of January 2, 1999 and January 3, 1998, and the results of their operations
and their cash ﬂows for each of the years in the three-year period ended January 2, 1999, in conformity with generally
accepted accounting principles.

Kansas City, Missouri
February 3, 1999

MANAGEMENT’S REPORT

The management of Cerner Corporation is responsible for the consolidated ﬁnancial statements and all other information
presented in this report. The ﬁnancial statements have been prepared in conformity with generally accepted accounting
principles appropriate to the circumstances, and, therefore, included in the ﬁnancial statements are certain amounts based on
management’s informed estimates and judgments. Other ﬁnancial information in this report is consistent with that in the
consolidated ﬁnancial statements. The consolidated ﬁnancial statements have been audited by Cerner Corporation’s
independent certiﬁed public accountants and have been reviewed by the audit committee of the Board of Directors.

C E R N E R C O R P O R A T I O N

A N N U A L R E P O R T

SELECTED FINANCIAL DATA

(In thousands, except per share data)

Statement of Earnings Data:
Revenues
Operating earnings
Earnings before income taxes
Net earnings
Earnings per share:

Basic
Diluted

Weighted average shares outstanding:

Basic
Diluted

Balance Sheet Data:
Working capital
Total assets
Long-term debt, net
Stockholders’ equity

1998(1)

1997

1996

1995

1994

330,902
38,568
38,306
23,687

245,057
22,170
24,484
15,148

189,107
10,601
12,902
8,251

186,901
37,265
37,220
22,521

155,917
33,779
32,451
19,501

.72
.70

.46
.45

.25
.25

.75
.72

.71
.66

32,825
33,667

32,881
33,668

32,729
33,620

29,845
31,448

27,651
29,762

118,681
436,485
25,000
271,143

156,808
331,781
30,026
233,747

171,204
314,753
30,000
230,735

174,064
303,945
30,104
221,374

52,370
156,410
30,235
85,777

(1)1998 Statement of Earnings Data excludes acquisition related charges.

COMMON STOCK INFORMATION

The Company’s common stock trades on The Nasdaq Stock Market SM under the symbol CERN. The following table sets forth
the high, low, and last sales prices for the ﬁscal quarters of 1998 and 1997 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.

High

24 9/16
29 15/16
317/16
27 1/16

1998

Low

19 1/16
20 7/8
22
20 1/2

Last

High

2115/16
27 7/8
225/8
26 3/4

16 1/4
221/8
327/8
301/2

1997

Low

131/4
117/8
20 3/4
20 1/4

Last

131/4
213/8
25
22

First quarter
Second quarter
Third quarter
Fourth quarter

At February 3, 1999, there were approximately 1,300 owners of record. To date, the Company has paid no dividends and it
does not intend to pay dividends in the foreseeable future. Management believes it is in the stockholders’ best interest to
reinvest funds in the operation of the business.

A N N U A L R E P O R T

C E R N E R C O R P O R A T I O N

CERNER LEADERSHIP AND CORPORATE INFORMATION

BOARD OF DIRECTORS

Neal L. Patterson
Chairman of the Board, President
& Chief Executive Ofﬁcer
Cerner Corporation

John C. Danforth
Partner
Bryan Cave LLP
St. Louis, MO

Thomas A. McDonnell
President & Chief Executive
Ofﬁcer
DST Systems Inc.
Kansas City, MO

Thomas C. Tinstman, M.D.
Senior Vice President &
Chief Medical Ofﬁcer
Cerner Corporation

Michael E. Herman
Chairman, Investment
Committee
The Kauffman Foundation
President, Kansas City Royals
Baseball Club
Kansas City, MO

Clifford W. Illig
Vice Chairman
Cerner Corporation

Gerald E. Bisbee Jr., Ph.D.
Chairman & Chief Executive
Ofﬁcer
ReGen Biologics Inc.
Redwood City, CA

MANAGEMENT

Executive Ofﬁcers &
Corporate Management

Client Organization

Product Organization

Robert C. Dieterle
Senior Vice President,
General Manager & Interim Chief
Information Ofﬁcer

Marvin G. Pember
Senior Vice President &
General Manager

Jeffrey A. Townsend
Vice President & Chief
Engineering Ofﬁcer

David P. McCallie Jr., M.D.
Vice President Medical
Informatics & Chief Scientist

Neal L. Patterson
Chairman of the Board, President
& Chief Executive Ofﬁcer

Paul M. Black
Senior Vice President &
Chief Sales Ofﬁcer

Clifford W. Illig
Vice Chairman

Glenn P. Tobin, Ph.D.
Executive Vice President &
Chief Operating Ofﬁcer

Marc G. Naughton
Vice President &
Chief Financial Ofﬁcer

Jack A. Newman Jr.
Executive Vice President

Stanley M. Sword
Vice President & Chief People
Ofﬁcer

Randy D. Sims
Vice President, Chief Legal
Counsel & Secretary

Thomas C. Tinstman, M.D.
Senior Vice President &
Chief Medical Ofﬁcer

Douglas M. Krebs
Senior Vice President &
Area Manager

Richard J. Flanigan Jr.
Vice President &
Area Manager

Alan D. Dietrich
Senior Vice President

Cerner Consulting

Stephen D. Garver
Vice President & Managing
Partner

Paul J. Sinclair
Vice President, Senior Partner &
North American Operations
Ofﬁcer

Robert J. Campbell
Vice President of Learning

Client Services Organization

Stephen M. Goodrich
Senior Vice President

Annual Meeting of
Shareholders

The annual meeting will be
held at 10:00 a.m. on May 28,
1999, at the Cerner Associate
Center, located on the Cerner
campus at 2901 Rockcreek
Parkway, Kansas City, Missouri.
A formal notice of the meeting,
with a proxy statement and
proxy form, will be mailed to
each shareholder in April 1999.

Annual Report/10-K Report

Publications of interest to
current and potential Cerner
investors are available upon
written request or via Cerner’s
Web site at www.cerner.com.
These include annual and
quarterly reports and the Form
10-K ﬁled with the Securities
and Exchange Commission.

Such requests should
be made to:

Administrator of
Shareholder Relations
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, MO
64117-2551

Inquiries of an administrative
nature relating to shareholder
accounting records, stock trans-
fer, change of address, and
miscellaneous shareholder
requests should be directed to
the
transfer agent and registrar,
UMB Bank, at (816) 860-7786.

Transfer Agent and Registrar

Securities Transfer Division
UMB Bank
P.O. Box 410064
Kansas City, MO 64141-0064
(816) 860 7786

Stock Listings

Cerner Corporation’s common
stock trades on The Nasdaq
Stock MarketSM under the
symbol CERN.

Independent Accountants

KPMG LLP
Kansas City, MO

Legal Counsel

Stinson, Mag & Fizzell
Kansas City, MO

C e r n e r S o l u t i o n s & S e r v i c e s

E N T E R P R I S E S O L U T I O N S
CapStone™
Health organizations solutions for
creating enterprisewide master person
identiﬁcation (EMPI), referrals, registra-
tion, and scheduling; and health plan
member eligibility and coverage
information

PowerChart™
The electronic medical record, including
charts, ﬂow sheets, ordering, and
clinical documentation

ePowerChart
The Internet web-enabled
version of PowerChart

PowerLink™
Connection solutions for
connecting physicians to payers
and health systems for referrals,
authorization, claims, eligibility, clinical
information, and reporting

PowerVision
Manager's desktop for managerial
accounting information and decision
support

E N T E R P R I S E R E P O S I T O R I E S
Open Person Foundation™
Open, person-centric EMPI repository
for enterprisewide person/patient
identiﬁcation and reconciliation that
creates the foundation for integrating
the person throughout all clinical and
ﬁnancial systems

Open Clinical Foundation®
Open repository to manage clinical
information providing the foundation
for the electronic medical record

Open Management Foundation™
Open repository to store management
information of enterprise ﬁnancial,
operational and process results, creating
the foundation for the enterprisewide
management and executive information
system

C L I N I C A L S O L U T I O N S
Patient Care Systems

CareNet®
Care team workﬂow automation that
includes task management, order entry,
clinical documentation, care planning
and coordination, and chart viewing

INet™
Automated clinical information system
for intensive and critical care units with
high levels of real-time patient
monitoring equipment

ProVide™
Physician ofﬁce workﬂow management
systems for clinical, business, and
support needs, including electronic
medical records, care plans, registration
orders, clinical documentation,
scheduling, and billing

Open Outcomes Foundation™
Open repository to store clinical,
medical, process, economic, and
satisfaction outcomes results creating
the foundation for an enterprisewide
outcomes management system

Open Agreement Foundation™
Open repository to manage health plan
contracts and agreements, and member
information

eProVide™
Web-enabled version of ProVide with
expanded Internet functionality

ProCall®
Home care workﬂow and management
system that seamlessly integrates
clinical and ﬁnancial information from
all venues of home care while meeting
stringent regulatory requirements

C L I N I C A L I N F O R M A T I O N S Y S T E M S f o r C A R E R E S O U R C E C E N T E R S
FirstNet™
Emergency care information system
that provides customized and
automated patient and provider
tracking, patient and medical
assessment charting, and clinical
and management reporting

SurgiNet®
Surgery information system that
enables booking of multiple resources,
checking scheduling conﬂicts, and
patient scheduling

RadNet®
Clinical radiology information system
that automates departmental
operations including patient
registration, order entry, exam
tracking, ﬁlm tracking, transcription,
electronic signatures, and report
distribution

ProLink™
Call center system for triage and
disease management centers that
assists with demand management,
patient education, medication and
treatment plan compliance monitoring,
and physican ofﬁce answering and
scheduling services

CVNet™
Clinical cardiology information system
that automates and integrates clinical
and business processes

PathNet®
Laboratory information system that
automates the clinical and management
processes of the entire laboratory
including microbiology, anatomic
pathology, HLA, blood bank services,
outreach services, and lab management

PharmNet®
Clinical pharmacy information system
that automates the medication process
across the continuum of care

I M A G E M A N A G E M E N T S Y S T E M S
ProView™
Clinical image viewer and document
management system

Document Imaging
Integrated enterprise document storage
and management

F I N A N C I A L , O P E R A T I O N A L , a n d M A N A G E M E N T S Y S T E M S
ProFit™
Enterprise billing and accounts
receivable system

Managed Care Systems

ProForm™
Enterprise ﬁnancial/operational decision
support for performance proﬁling,
productivity analysis, and executive
key indicator dashboard

ProCare™
Enterprise decision support for medical
management, including performance
proﬁling of providers, clinics, and
hospitals

ProFile™
Health information management
department system for medical records
storage, tracking, and accessing

ProCost™
Enterprise cost management, including
cost analysis, cost accounting, variance
tracking and integration with overall
decision support solutions

ProCure™
Automated materials management
system integrated into the clinical
processes

ProTrack™
Automated equipment management
system integrated into the clinical
processes

ProRate™
Managed care system for membership
and eligibility tracking, claims
processing, and contract
management

The SHC system
Connects payers, providers, and
physicians to perform electronic
commerce and a set of managed
care and clinical transactions

K N O W L E D G E S O L U T I O N S
Clinical Decision Support Systems

PowerNote™
Automates the creation of clinical
documentation using Structured Care
Designs across the various care settings
within an integrated or disparate health
system

Discern Expert®
Built-in expert rule-based event monitor
to perform clinical and management
alerts

Discern Dialogue™
Built-in point of care expert system
providing real-time, interactive
guidelines and reminders

Discern Explorer®
Versatile tool for performing ad hoc or
pre-deﬁned queries and reports against
the HNA Millennium data model

C O M M U N I T Y H E A L T H S E R V I C E S
Personal Health Systems

IQ HealthSM
Personal health assessments and
interventions to promote self-care
and health maintenance

Vitality™
Personal health management software
to access and maintain health records,
wellness plans, and information

S Y S T E M I N T E G R A T I O N S O L U T I O N S
Interface Technologies

Open Engine Application
Gateway System™
Foreign system interface and
communication services

Open Port Interface System™
Foreign system and medical device
interfaces

C E R N E R C O N S U L T I N G S E R V I C E S
Implementation Services
Provides on-site technical resources and
implementation personnel for project
management, database design,
installation, and readiness testing

Learning Services
Supports client education needs from
computer-based training for clinical
end-users of Cerner systems to
hands-on learning labs for system
installers and support specialists

C E R N E R T E C H N O L O G I E S
Computer and Network
Equipment
Designer and provider of technology
infrastructure for large system
integration projects

Licensed Software
System integration services and
provider of operating systems,
databases, and other software
components

Executable Knowledge, Knowledge-Bases and Content

MediSource™
Integrates comprehensive drug infor-
mation with information technology
to provide person-centric clinical, drug
utilization review, and clinical decision
support

Care Designs™
Domain-speciﬁc encounter pathways
that support real-time structured clinical
documentation, assessments, and plans
of care

Cerner Knowledge Index™
A standard and ﬂexible data dictionary
used to assign unique identiﬁers to, and
map and express the relationships
between, the following types of
reference content: clinical concepts,
terms, medications, diagnostic and
treatment procedures, and billing and
diagnosis classiﬁcation schemes

Insights™
Real-time, actionable alerts that present
patient-speciﬁc and situation-speciﬁc
information

Health Facts™
Comparative data for benchmarking
and process improvement

Internet-Based Systems

Vitality.com
Internet-based system for Vitality

IQRx.com
Physician, pharmacist and consumer
portal to medication information and
services for physicians, pharmacists,
and consumers

IQHealth.com
Consumer and physician portal to
health and medical information and
services

Cerner Health Connections™
Disease management and triage
telecare services

Technical Services
Offers technical architecture design,
readiness assessments, and overall
enterprise system management to
ensure system and network
organization and performance

Beneﬁts Realization Services
Consultants to assist clients with
change management, process redesign,
operational improvement, and
evidence-based care management

CERNER CORPORATION
2800 Rockcreek Parkway
Kansas City, MO 64117-2551
(816) 221 1024
(816) 474 1742 (Fax)
http://www.cerner.com

U N I T E D S T A T E S

SOUTHWEST REGION
Cerner Corporation
Century Centre
2603 Main Street, Suite 700
Irvine, CA 92614-6232
(714) 250 1024

GREAT LAKES REGION
Cerner Corporation
28333 Telegraph Road, Suite 500
Southﬁeld, MI 48034-1903
(248) 357 1818

MIDWEST REGION
Cerner Corporation
2702 Rockcreek Parkway, Suite 200
Kansas City, MO 64117-2534
(816) 474 2055

NORTHEAST REGION
Cerner Corporation
One New England Executive Park
Burlington, MA 01803-5005
(617) 270 0340

SOUTH CENTRAL REGION
Cerner Corporation
8235 Douglas, Suite 1000
Dallas, TX 75225-6010
(214) 706 6400

MID-ATLANTIC REGION
Cerner Corporation
2201 Cooperative Way, Suite 301
Herndon, VA 22071-3024
(703) 925 4500

SOUTHEAST REGION
Cerner Corporation
800 Mount Vernon Highway
Suite 400
Atlanta, GA 30328
(678) 443 0000

C E R N E R I S R E P R E S E N T E D B Y

S I E M E N S H E A LT H S E RV I C E S

I N T H E F O L L O W I N G L O C AT I O N :

GERMANY
Siemens Health Services GmbH & Co. KG
Henkestrasse 127
91052 Erlangen
Germany
+49 9131 84 2438

I N T E R N A T I O N A L

AUSTRALIA
Cerner Corporation Pty. Ltd.
Level 10, 52 Alfred Street
Milsons Point, New South Wales
2061
Australia
+61 2 9925 0988

MALAYSIA
Cerner Malaysia Sdn Bhd
c/o Team Vantage Sdn Bhd
3rd Floor, Wisma Awal
171 Jalan Raja Muda Abdul Aziz
50300 Kuala Lumpur
Malaysia
+60 3 291 9139

SAUDI ARABIA
Cerner Arabia Ltd.
P.O. Box 62433
Riyadh 11585
Kingdom of Saudi Arabia
+966 1 460 0510

SINGAPORE
Cerner Singapore Ltd.
30 Bideford Road
# 03-02 Thongsia Building
Singapore 229922
+65 734 3566

99-001