Cerner
Annual Report 2011

Plain-text annual report

2011 ANNUAL REPORT wellness smart condition management continuous availability accountability proven innovation vision partnership connectivity secure 30+ years quality mobile millennium+ fast R&D person-centric physician value unify efficiency productivity systemic change meaningful use engagement culture of health leadership personalized prevention transparency easy medical home intuitive evidence-based population health integrate proactive A N N UA L R E P O R T 2 01 1 1 2 4 5 7 15 23 25 33 42 44 45 46 60 60 Table of Contents: Annual Report 2011 Board of Directors Leadership Letter to Our Shareholders Appendix: Cerner’s Business Model and Financial Assessment Form 10-K Business and Industry Overview Risk Factors Properties Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Exhibits Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Changes in Shareholders’ Equity Notes to Consolidated Financial Statements 63 64 70 72 73 74 75 76 Basis of Presentation, Nature of Operations and Summary of Significant Accounting Policies 76 82 Business Acquisitions 85 Cash and Investments 85 Fair Value Measurements 86 Receivables 88 Property and Equipment 88 Goodwill and Other Intangible Assets 89 Software Development Costs 90 Indebtedness 91 Hedging Activities 91 Interest Income 92 Income Taxes 94 Earnings Per Share 94 Share Based Compensation and Equity 97 Foundations Retirement Plan 97 Related Party Transactions 98 Commitments 98 Segment Reporting 100 Quarterly Results 100 Subsequent Events 101 102 Stock Price Performance Graph Corporate Information 3 TABLe OF COnTenTS : AnnuAL RePORT 2011 Board of Directors neal L. Patterson Chairman of the Board, Chief Executive Officer and President, Cerner Corporation Clifford W. Illig Vice Chairman, Cerner Corporation Gerald e. Bisbee Jr., Ph.D. Co-founder, Chairman and Chief Executive Officer, The Health Management Academy Former Chairman, Chief Executive Officer and President, ReGen Biologics, Inc., 1998-September 2011 Denis A. Cortese, M.D. Emeritus President and Chief Executive Officer, Mayo Clinic Foundation Professor, Arizona State University School of Health Management and Policy Director of Arizona State University’s Health Care Delivery & Policy Program President of the Healthcare Transformation Institute The Honorable John C. Danforth Partner, Bryan Cave LLP Ambassador to the United Nations, July 2004–January 2005 U.S. Senator - Missouri, 1976-1995 Linda M. Dillman Chief Information Officer, QVC, Inc. Senior Vice President of Enterprise Services/Global Functions IT, Hewlett-Packard Company, August 2009-January 2012 Executive Vice President of Benefits and Risk Management, Wal-Mart Stores, Inc., April 2006- July 2009 Executive Vice President and Chief Information Officer, Wal-Mart Stores, Inc., August 2002-April 2006 William B. neaves, Ph.D. President Emeritus and Director, The Stowers Institute for Medical Research William D. Zollars Former Chairman, Chief Executive Officer and President, YRC Worldwide, November 1999-July 2011 BOARD OF DIReCTORS 4 Leadership Cerner executive Cabinet neal L. Patterson ▪ Chairman of the Board, Chief Executive Officer and President Clifford W. Illig ▪ Vice Chairman Zane M. Burke ▪ Executive Vice President, Client Organization Marc G. naughton ▪ Executive Vice President and Chief Financial Officer Michael R. nill ▪ Executive Vice President and Chief Operating Officer Jeffrey A. Townsend ▪ Executive Vice President and Chief of Staff Paul n. Gorup ▪ Senior Vice President and Chief of Innovation Matthew J. Swindells ▪ Managing Director and Senior Vice President, Global Consulting Julia M. Wilson ▪ Senior Vice President and Chief People Officer Cerner executive Management Don D. Bisbee ▪ Senior Vice President, DeviceWorks Stephen W. eckman ▪ Senior Vice President, Physician Experience ed L. enyeart ▪ Senior Vice President, Finance Richard J. Flanigan ▪ Senior Vice President, Employer Services and Research William e. Graff ▪ Senior Vice President, CernerWorks Infrastructure John B. Landis ▪ Senior Vice President, Client Operations Max A. Reinig ▪ Senior Vice President, Physician Solutions Development Farrell L. Sanders ▪ Senior Vice President, Cerner ITWorks Kent C. Scheuler ▪ Senior Vice President, Managed Services David W. Sides ▪ Senior Vice President, Worldwide Consulting Randy D. Sims ▪ Senior Vice President, Chief Legal Officer and Secretary Shellee K. Spring ▪ Senior Vice President, PowerWorks Michael R. Battaglioli ▪ Vice President and Chief Accounting Officer Joanne M. Burns ▪ Vice President, Cerner Corporation and CIO, Tiger Institute Robert J. Campbell ▪ Vice President and Chief Learning Officer Richard W. Heise ▪ Vice President, Revenue Cycle Kimberly K. Hlobik ▪ Vice President, Lighthouse Gay M. Johannes ▪ Vice President and Chief Quality Officer eva L. Karp ▪ Vice President and General Manager, EMR Business Unit Allan O. Kells ▪ Vice President, Investor Relations Lisa A. McDermott ▪ Vice President, Lighthouse Catherine e. Mueller ▪ Vice President, Client Experience J. Randall nelson ▪ Vice President, Life Sciences Clay A. Patterson ▪ Vice President and Managing Director, Community Health Michael C. neal ▪ Senior Vice President, Cerner Corporation and President, Pacific John T. Peterzalek ▪ Senior Vice President, Cerner Corporation and President, Atlantic Sam P. Pettijohn ▪ Senior Vice President, Investor Owned Clients Alan C. Fowles ▪ Vice President and Managing Director, Europe Marcos Garcia ▪ Vice President and General Manager, Spain Scott A. Schmidt ▪ Vice President and General Manager, Australia Robert J. Shave ▪ Vice President, Cerner Corporation and President, Cerner Canada Greg G. White ▪ Vice President and Managing Director, Middle East Talbott G. Young ▪ Vice President, Global Strategy Holger Cordes ▪ General Manager, Germany Amanda J. Green ▪ Managing Director, Ireland Chad Haynes ▪ Managing Director, Southeast Asia Client Organization Intellectual Property Organization Douglas S. Mcnair, M.D., Ph.D. ▪ President, Cerner Math Ryan R. Hamilton ▪ Vice President, Intellectual Property Development Cheryl A. Hertel ▪ Vice President, Global Care Delivery Strategy J. Bryan Ince ▪ Vice President, Australia IP Strategy David P. McCallie, Jr., M.D. ▪ Vice President, Medical Informatics Rama nadimpalli ▪ Vice President and General Manager, Cerner India 5 CeRneR LeADeRSHIP Cerner’s Long-Term Performance The table below offers a view of our growth over the past 10 years and since our initial public offering in 1986. While every quarter and year is important—and we are the first to scrutinize their passing—there are a number of insights that come only from reviewing longer intervals. Before we review 2011, we invite you to study Cerner’s long-term performance. e n i L p o T Bookings Revenue Domestic Revenue Global Revenue Revenue Backlog Operating Margin1 e Operating Earnings1 n i L m o t t o B Net Earnings1 Earnings Per Share1 t Total Assets e e h S e c n a a B l Cash and Investments Days Sales Outstanding Total Debt Equity h s a C t n e m t s e v n I t e k r a M w Operating Cash Flow o F l Free Cash Flow t h Capital Expenditures w o r G n R&D Spending Associate Headcount i Market Capitalization e Cerner Stock Price c n a m r o f r e P Nasdaq Composite Index S&P 500 Index 1986 2001 2011 Compound Annual Growth Rates Previous Decade 2001-2011 Since Going Public 1986-2011 $18 $17 $17 $0.2 $11 $3 14.8% $2 $0.03 $26 $8 161 $1 $16 $1 -$1 $1 $2 $525 $2,724 $561 $2,203 $539 $1,894 $22 $309 $788 $6,107 $61 $489 10.9% 22.2% $34 $325 $0.23 $1.87 $712 $3,000 $108 $1,134 130 83 $119 $127 $395 $2,311 $65 $1 $26 $114 $546 $359 $105 $291 149 3,952 9,901 $0.49 $12.48 $61.25 $45 349 242 $1,840 $10,687 1,950 2,605 1,148 1,258 18% 15% 13% 30% 23% 23% 25% 23% 15% 27% -4% 1% 19% 24% 82% 15% 10% 10% 17% 19% 3% 1% 22% 21% 21% 34% 29% 23% 23% 19% 21% 22% -3% 21% 22% 29% NM 20% 22% 18% 21% 24% 8% 7% Notes Dollars are in millions except Earnings Per Share and stock prices. Free Cash Flow represents cash flows from operating activities less capital purchases and capitalized software development costs. NM=Not Meaningful, because free cash flow was negative in 1986. 1Operating margin, net earnings, earnings per share, and free cash flow reflect adjustments compared to results reported on a Generally Accepted Accounting Principles (GAAP) basis in our 2011 Form 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Non-GAAP results are used by management along with GAAP results to analyze our business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes. Please see the appendix to this letter for a reconciliation of these items to GAAP results. CeRneR’S L OnG-TeRM PeRFORMAnCe 6 A Letter to our Shareholders, Clients and Associates: 2011 was a year of substantial growth for Cerner. We exceeded our plan and had records on top of records, growing the top line of this “startup” (still and always our view) 19% to $2.2 billion in revenues and expanding operating earnings and earnings per share 27% and 26%, respectively. We generated $359 million of free cash flow and ended the year with more than $1.1 billion of cash and investments on the balance sheet. During the year, we added 1,700 net new associates to our workforce and secured property for an additional campus. Shareholders were rewarded during 2011 with an almost 30% rise in stock price to $61.25 on December 31, 2011. While there were some disappointments in 2011, it is hard to criticize these results. These numbers reflect a busy organization of more than 10,000 associates working worldwide in a very complex industry, many times breaking new ground, daily facing tough challenges — and, in most cases, generating impressive outcomes. Cerner’s long-term performance continues to be stellar and rivals almost any company over the past two decades. We like the fact that most of our gains come from organic growth driven by our core vision and innovation. In 2011, we split Cerner’s stock 2-for-1, the fifth such split since our initial public offering in December of 1986. Had you invested $10,000 in the market in 1986 and had compound annual returns equal to the NASDAQ Composite Index (8%), your investment would be worth about $75,000 at the close of 2011. However, if you had invested the same $10,000 in Cerner then, it would have been worth more than $1.2 million. Another interesting scenario would be if you had begun investing in Cerner stock through our 401k plan when the program started in 1987, annually making the maximum contribution. Under such a scenario, and taking into account Cerner’s match and profit sharing contributions that are paid in Cerner stock, today you would have over $8 million in your account.2 Of course, financial advisors wouldn’t recommend concentrating a retirement account in a single stock! In the next section, we highlight some facts from 2011, but our ultimate objective in this annual letter is to share with you our thoughts about today’s unprecedented health care environment, our 2012 imperatives and our ongoing work to generate the new waves that will carry Cerner into the digital years and decades ahead. 2The maximum yearly contribution ranged from $7,000 in 1987 to $16,500 in 2011, plus allowable “catch-up” contributions starting at $2,000 in 2002 and continuing to $5,500 today. $8 million includes approximately $1 million in Cerner match and profit sharing. 7 LeTTeR FROM CeRneR LeADeRSHIP 2011 HIGHLIGHTS Here are some mileposts that, added to the records already mentioned, help mark our progress over the last year. Some of these are quantitative, others are qualitative, but we believe they all help tell the Cerner 2011 story. • Demand was strong in almost all of our offerings of software and services focused on increasing the efficiency and quality of health care delivery. We set an all-time record for bookings of $2.7 billion, and we closed the year with a backlog of $6.1 billion, another record. • This activity was led by the electronic health record (EHR)3 business in the United States. In the always-competitive marketplace, with demand enhanced by the U.S. federal EHR incentive programs designed to stimulate “Meaningful Use” of electronic records, 32% of our bookings in 2011 came from new clients, reflecting the strong competitiveness of our solutions and services. • Cerner’s physician practice EHR had its best year ever, with bookings growing 60% in 2011. The marketplace is shifting to companies with an effective architecture that addresses the entire continuum of health care from physician office to acute care and beyond. • In 2011, we also saw our managed services initiatives begin to contribute in a significant way. As health care organizations increase their investments in automating all of their clinical and administrative processes, they also increase their dependence on and expectations of the IT infrastructure. Gradually over the past two decades, we have added offerings to satisfy our clients’ growing need for greater technical skills to realize all of the benefits of their investments. 2011 was an important year for some newer additions to “The Works”—ITWorks, RevWorks, DeviceWorks and CommunityWorks—all initiatives designed to add layers of value to an existing digital health care infrastructure or extend the benefits of the infrastructure to places it historically would not have reached. o We signed three new Cerner ITWorksSM IT service two new Cerner partnership contracts and RevWorksSM revenue process management contracts in 2011; we ended 2011 with nine ITWorks clients and four RevWorks clients. Each of these contracts creates a strategic alignment between Cerner and our clients, as well as a source of high quality revenue. o 2011 was also a breakthrough year for our Cerner DeviceWorks business as our clients’ interest in using Cerner as a single source for connecting and integrating health care devices to EHR-based workflows increased. More device manufacturers looked for a closer relationship with Cerner, recognizing the value of deep integration of their products into our Cerner Millennium platform as well as our strategic relationships with clients. o Cerner CommunityWorks also had a record year. CommunityWorks is our software-as-a-service (SaaS) offering for small hospitals. We leverage our application hosting and services capabilities to reach these hospitals with a full suite of plug-and- play clinicals and financials at a competitive price, without costly installation and implementation. We anticipate all of the emerging “Works” service offerings will thrive in the era of digitized health and be an important part of Cerner for years to come. • Despite a challenging global economy and a slow start to the year, our global business finished the year strong with 35% revenue growth in the fourth quarter, bringing full-year growth to 7%. We are rapidly becoming the premier global EHR supplier and this year reached our highest-ever level of Millennium adoption outside of the U.S., with 239,000 unique users at 400 sites across 17 countries in four languages. 1979 1982 1984 1986 Neal Patterson, Paul Gorup, and Cliff Illig leave Arthur Andersen & Co. to form their own company PathNet® is installed in the lab at St. John Medical Center in Tulsa, Oklahoma Cerner secures $1.5 million venture capital funding from First Chicago Capital Corporation Cerner goes public on NASDAQ (CERN) $17 million of revenue 149 associates 3A note: EHR is the term that has gradually replaced the more traditionally used EMR, perhaps prematurely. In the 30-plus-year history of Cerner, we have seen an evolution in terminology as capabilities have increased. First there were paper-based medical records (MRs). Then there were EMRs, with the E standing for Electronic. One could argue that the E should have stood for Enterprise, since the records were digitized and united across departments for the first time, but limited to a single health care delivery enterprise. In this era, EMR also became synonymous with the IT solutions that provided the capability A LeTTeR TO OuR SHAReHOLDeRS, CLI enTS AnD ASSOCIATeS : to digitize medical records. As talk of interoperability increased, the aspirational concept of electronic health records (EHRs) arose, which (originally, at least) referred to the ability for a person to own the important subset of EMR data pertaining to their own health, which could be shared between disparate health care providers and organizations. In recent years, widespread prospective government use of the term EHR in place of EMR has led to its pervasive use; we accept it even though it is, in our view, a bit premature in light of its original intended meaning. LeTTeR FROM CeRneR LeADeRSHIP 8 • A growing number of Cerner clients have now reached the topmost levels in the HIMSS Analytics EMR Adoption Model, an industry standard. Stage 6 signifies almost complete automation of the medical record and puts hospital clients in the top 5% of hospitals worldwide for EMR adoption, and Stage 7 signifies the ideal of a completely paperless environment. Now more than 100 Cerner clients are at Stage 6 or higher, ranging from a 25-bed Critical Access Hospital in rural America to the only Stage 6 hospital in the Middle East to the first non-English HIMSS Stage 6 hospital at Marina Salud in Spain. • In January of 2012, Thomson Reuters released its list of the “Top 15 Health Systems in the United States,” as determined by strict performance, outcomes and safety criteria. Six of the nation’s top 15 health systems are Cerner clients, more than any other industry competitor on the list. The honor belongs to our clients, not us, but we are proud that so many of the nation’s top health systems trust us as their IT partner. Great performance, great clients, good trends. At times it helps just to reflect on some of the things we have accomplished. Now, let’s examine the environment and look ahead at what is to come. THe D YnAMIC envIROnMenT OF HeALTH CARe AnD InFORMATIOn TeCHnOLOGY Cerner lives at the intersection of health care delivery and information technology, arguably the two most dynamic sectors in our economies and societies. Over the past few decades, health care spending burgeoned to become the largest portion of the national spend of most Western countries. In the few large economies where health care is not number one, there are huge social pressures to make it so. There are complex forces and simple math that have created this reality. For the past 50 years, growth in health care has outpaced the growth of economies, resulting in health care becoming an ever-greater percentage of the gross domestic product (GDP). In the U.S., for example, we tend to think of military spending as high at 4.7% of the GDP (2010). Is it startling, then, to know that health care spending in the same year accounted for 17.9% of all dollars spent in the U.S.? Health care is also the largest element in U.S. federal and state budgets. There are thick books devoted to explaining this fact and hypothesizing a solution. The sizes of the federal deficits probably make this the decade when the U.S. and many other nations commit to a permanent strategy. Worldwide, there is tremendous political, social and fiscal pressure to reduce the rise in the cost of health care while increasing access to care and improving safety and quality, which are conflicting goals in the short term. It is widely accepted that the “health reform” bill passed in the first half of President Obama’s term dealt with access only. Its actual impact is subject to both judicial and political variables. The decade we are in is being shaped by forces such as aging populations, sedentary lifestyles, and the growth of chronic conditions, as well as positive forces like increased consumerism and new medical and technological breakthroughs. Based on these, it is inevitable that demand for health care will grow even if economic growth slows. Few policymakers will state it so clearly, but at some point, society and governments will be faced with a choice: either ration health care or make major systemic improvements to the way health care works. lever latter. Our is dedicated to the is Cerner information technology. During our 33 years, the sphere of information technology has increased in capacity and capability. Its adoption and acceptance in much of society is nearly ubiquitous. Platforms, architectures, connectivity and devices have changed rapidly and radically during our history, continuously 1987 1990 1992 1993 Cerner listed as one of Inc. magazine’s 100 fastest-growing companies Revenues surpass $50 million 2 for 1 stock split (May 12) 2 for 1 stock split (March 1) Cerner Vision Center opens Revenues surpass $100 million 9 LeTTeR FROM CeRneR LeADeRSHIP redefining the possible. This increasing potential, matched against the huge need for health care to make a fundamental change, will continue to create an exciting decade ahead. Understanding the forces at work, the need at hand and the potential in IT drives much of the innovation that occurs at Cerner. With the broader imperative always in mind, we still must focus on specific near-term objectives. In 2012, we are dedicated to three clear priorities, which we call corporate imperatives. The first is to support our clients in the huge nationwide march toward defined and measureable standards of IT utilization, so- called “Meaningful Use.” The second is to create a new industry standard for physician productivity and the physician experience of using HIT. And the third is to advance the New Middle by powering population health management. We believe achieving each of these will bring us closer to our long-term objective of systemically transforming health care with our clients. MeAnI nGFuL uSe: A W Ave OF ADOPTIOn After decades of evolution, the entire health care provider industry of hospitals and doctors in the United States is moving in cadence to implement electronic health records and achieve Meaningful Use, a progressive, multi-stage, national standard of HIT adoption. Health care organizations that do not have EHRs are getting them, and those that do have EHRs are synchronously adopting advanced features and standards that hold the promise of future nationwide interoperability, payment reform and more. Cerner is highly engaged in supporting our clients in this historic window as the U.S. government aggressively moves to stimulate widespread adoption of EHRs. This unparalleled wave of adoption is being driven by the $35 billion Health Information Technology for Economic and Clinical Health (HITECH) funding provision of the American Recovery and Reinvestment Act of 2009, which authorizes the Centers for Medicare and Medicaid Services (CMS), the largest single payor for health care in the U.S., to make incentive payments to doctors and hospitals after they can demonstrate that they can meet defined standards of EHR use. The term “Meaningful Use” comes from the HITECH Act and refers to a set of standards measuring how health care organizations use their information technology in clinical practice. The detailed definition of Meaningful Use, developed through CMS rule making, is being rolled out in three stages over a period of time from 2010 until 2016, laying out progressively rigorous adoption and utilization targets. At each step along the way, corresponding EHR certification regulations are being issued by the federal Office of the National Coordinator Information Technology (ONC). In order to pass each stage, hospitals and eligible providers (physicians) must undergo a robust attestation process demonstrating the extent of their use of a certified EHR before they receive their substantial incentive payments. for Health There are three stages of Meaningful Use, broadly defined by the ONC as the following: • Stage 1 began in 2011 and is the entry point for all health care providers – This is a sweeping step that focuses on capturing and structuring data electronically rather than on paper. It includes adoption of a certified EHR, which must include computerized physician order entry (CPOE) for all medication orders entered by clinicians, plus drug interaction checking, charting of vital signs, keeping medication and problem lists, demographic information and more. In this stage, Meaningful Use “consists of transferring data to EHRs and being able to share information, including electronic copies and visit summaries for patients.” • Stage 2 is in proposed rule stage now and is to be implemented in 2014 – This stage focuses on “new standards such as online access 1994 1995 1999 2000 2001 1,000 associates 2 for 1 stock split (August 7) HNA Millennium® Phase 1 is completed 3,000 associates Revenues surpass $500 million Cerner makes Fortune list of “Best 100 Companies to Work For” LeTTeR FROM CeRneR LeADeRSHIP 10 for patients to their health information, and electronic health information exchange between providers.” In industry parlance, this correlates to functioning personal health records (PHRs) and interoperability. • Stage 3 is anticipated to be implemented in 2016 – This stage will focus on “demonstrating that the quality of health care has been improved.” Prior to Meaningful Use, the health care industry was on a more gradual, meandering path to becoming digitized. We are now in a window that will see all of health care irrevocably moved into a digital domain. We keep a running list of clients who have attested to Meaningful Use on our public website. By the end of 2012, we expect more than 85% of hospitals that are eligible for Meaningful Use incentives and are utilizing Cerner as their core EHR will have attested and received government incentive payments for Stage 1. It is becoming clear to us that not every company in our sector will be able to keep up with the technological requirements of Meaningful Use. The U.S. federal agenda is splitting our HIT industry into winners and losers. We have very little doubt where Cerner will stand. PuTTInG P HYSICIAn P RODuCTIvITY FROnT AnD CenTeR The working person at the center of all this change is the doctor. Compared to physicians in the past, today’s doctors see more patients in less time and do so in an era of ever-expanding knowledge coming from new research about biology and pharmacology, all while adapting to a new digital medium that produces more evidence and information than was ever available in the past. As the macro shift toward digitization of health care has occurred, the pressure on physicians to be more productive has mounted. Today, most physicians are paid based on the number of patients they see daily. Their tools of choice have historically been extremely lightweight—the clipboard, voice, pen and paper. However, these tools are limited by memory, training, experience and access to information. The Meaningful Use tsunami is forcing a profound change, moving them toward pen-and- paperless practice that incorporates evidence-based support for their decisions. At the end, the change will be good for patients, who will get control of their own personal health information, but the process of change can be difficult for physicians, who have precious little time to experiment with and adapt to new methods of doing work. Moreover, the move to IT is only part of the change today’s physicians will see in their lifetimes. The future also holds disruptive changes in the form of outcome-based payment models that will increase the transparency of individual physicians’ decisions and results. To be a physician at this time is to have uncertainty and doubt about all of these changes. For health care to be transformed, physicians must be able to win. In 2012, Cerner is putting physician productivity and the overall physician experience front and center. We believe there is a convergence occurring in the fundamental pressures on physicians, the sophistication of our current architecture and the hardening of a powerful class of technologies, including cloud computing and mobile devices such as tablets and phones. This fall, we plan to release PowerChart+ Touch, the first of a new generation of physician applications designed to help physicians win the battle with their daily environment. Our mantra is fast, easy, smart. • Fast: Extraordinarily fast, combining enterprise platform knowledge with the power of the secure Cerner CloudSM. • easy: Seductively easy to use, with fluency that rivals the pen. • Smart: Intuitively smart, contextually aware of the physician’s specialty and venue and the patient’s condition. 2002 4,000 associates 2003 2004 2005 Cerner and Atos Origin awarded U.K. National Health Services Choose and Book contract Cerner celebrates 25th anniversary Revenues surpass $1 billion Cerner ranks third among software companies in The Wall Street Journal’s Top 50 Returns over a five-year period Cerner signs contract with Fujitsu for southern region of NHS Connecting for Health program in England 5,000 associates Nearly 7,000 associates 11 LeTTeR FROM CeRneR LeADeRSHIP Our intent is to set a new industry standard for physician productivity and the physician experience. Somewhat in parallel, we have announced a new generation of our architecture, called Millennium+, which is designed to take advantage of our robust enterprise platform and also the cloud-based extensions and versatile platforms we have steadily grown over the past decade. As we build out these application ecosystems around the physician, the cloud element will create a considerable change in how software is developed, deployed and operated by our clients, whether on the desktop, tablet or smartphone. It also adds another layer of information, merging all relevant and available clinical, financial, operational and environmental information into a metadata layer that will redefine concepts of data and how systems interoperate. It is an evolution which will create major differences, most of which will be instantly perceived as improvements. We plan to lead in this new era. One AT A TIMe, unTIL We ARe THe P OPuLATIOn Our previous two objectives are well underway, with tremendous momentum worldwide in automating the care system. These transformations will impact one physician and one patient at a time, multiplied by millions. The next step is to develop the system capabilities to manage the health of a population. With very few exceptions, all developed countries are seeing their populations aging, with genetic trends of sedentary predispositions, unhealthy lifestyles and personal choices combining to create epidemics of chronic conditions like obesity, diabetes, hypertension, asthma and heart failure. Today’s system of episodic, fee-for-service care is characterized by waiting until a condition advances to the point of definite illness and complications to initiate costly and less effective treatment. We believe information technology will play a key role in a revolution to promote and manage health by predicting what will happen in the future and creating lower cost interventions, engagement and changes today that can prevent harmful, costly outcomes tomorrow. As individuals and as providers, this is the care we have been waiting for. As individuals, none of us wants to get sick and become a patient, and none of us wants to receive one-size-fits-all treatment. Information technology will help create personalized health care by applying predictive models to our lives and helping our physicians create a true “health plan” for us to live by in order to achieve the healthiest, fullest lives possible. As providers, population health management means serving patients with more precision. It means preventing potentially avoidable complications (PACs) by developing prescriptive personalized health plans and applying preventative care to keep more people in a state of health, delaying and possibly preventing or reversing the effects of chronic disease, and using acute care as the last resort only when other care has failed. It is a model in harmony with the heart and mission of health care providers worldwide. It sounds good, but there is a hitch. There is no business model for health. Perversely, our current system of care dictates that doctors and hospitals get paid when we experience illness, not when we remain healthy. The institutions that benefit when we do not need health care are the payors—employers, governments and insurance companies—but they are poorly organized to effect changes that promote health across populations. In the U.S., where the payment incentives are perhaps the least aligned, early work has begun with voluntary programs to create Accountable Care Organizations, through which health systems are rewarded for keeping healthy people healthy and delivering higher quality and lower cost care to a defined population. Once a business model is created, the correct alignment of incentives will open up significant new opportunities for Cerner. From this work, we expect the concept of a 2006 2007 2 for 1 stock split (Jan. 10) Revenues surpass $1.5 billion Introduced CareAware® device architecture and line of devices Cerner signs contract with BT for London region of NHS program First Cerner Millennium® site in France Opened Cerner Healthe Clinic at World Headquarters Shipped first production units of RxStation® medication dispensing devices; 25 clients purchase CareAware iBus™ device connectivity Delivered new Cerner ProVision® PACS Workstation Opened new Data Center at World Headquarters Signed first clients in Spain and Egypt; opened office in Dublin, Ireland Acquired Etreby Computer Company (retail pharmacy solutions) 2008 Free Cash Flow surpasses $100 million Smart Semi, a mobile hospital room of the future, introduced and made 93 stops, hosting nearly 9,000 client attendees Signed first agreement for the Smart Room Expanded footprint in Middle East with signing of Ministry of Health in United Arab Emirates Signed first hosted client in France Signed first client in Latin America LeTTeR FROM CeRneR LeADeRSHIP 12 “medical home,” a team of skilled professionals that help actualize an individual’s health plan, to more fully evolve. But we are not waiting to get started. Here is a taste of where we have come from and what we are doing now. uSInG BIG D ATA TO S TAY HeALTHY Data is one of the byproducts of digitizing an industry, and highly contextual EHR data has value like a natural resource. At Cerner, each of our clients has access to powerful information in the form of their own organization’s longitudinal EHR data. But we have long believed there is an even greater power in aggregating certain types of data across clients. Since 1996, we have offered a multi-client data warehouse called Health Facts®. It is a HIPAA compliant, de- identified research database that is populated by the EHR data of participating clients and is open to their use. In this decade, we are taking our work to another level, developing the capability to gather and analyze data from all systems, Cerner and non-Cerner, including non-EHR sources such as financial, claims and operational data. One example of our work in population health in 2012 is a predictive model that can be run across a defined population to identify individuals at risk of developing complications from their diabetes and then notifying those individuals and their authorized care teams with specific risk information and interventions before the conditions and complications occur. Another example, which we mentioned in this letter last year, is a method of identifying individuals who might be developing deadly sepsis infections and alerting their authorized care team, enabling physicians to save lives that might otherwise have been lost. At the same time we are developing predictive models, we are also planning into integration tomorrow’s cloud-enabled their workflows. Millions of private, predictive, real-time interventions must occur if we are to bend the cost curve in health care downward while improving quality. We believe there is no company better positioned than Cerner to help health care organizations to do this. One last note about cost. In a January 2009 white paper, I (Neal) proposed an ABCD plan for driving $500 billion in annual savings from the U.S. health care system using information technology to Automate the current health care system, Base treatment decisions on evidence, Coordinate care across fragmented elements in our current system and Disrupt the current payment methods.4 In late 2009, Thomson Reuters research seemingly provided further evidence for my hypothesis, estimating that $700 billion of wasteful spending could be eliminated annually from our U.S. health care system, without reducing the quality of care provided, by remediating “administrative system inefficiencies, provider inefficiency and errors, lack of care coordination, unwarranted use, preventable conditions and avoidable care, and fraud and abuse.”5 While their research did not focus on how to solve these problems, our publicly stated belief for more than 10 years has been that information technology is the only tool capable of systemically eliminating error, variance, waste, delay and friction from the health care system. Eliminating 20-40% of the cost of our more than $2.5 trillion health care system is a staggering amount of opportunity. At Cerner, we believe if a business model for preserving health could be activated, it could unleash dramatic and systemic improvement. Cerner with its clients will lead the way. A healthier population will occur one physician and one person at a time. The sum of the parts makes the whole. In aggregate, it becomes population health. 4See the January 2009 Cerner industry brief: The ABCs of systemic healthcare reform: A plan for driving $500 billion in annual savings out of the U.S. healthcare system. 5See the October 2009 Thomson Reuters white paper, Where can $700 billion in waste be cut annually? 2009 2010 Cerner Celebrates 30th Anniversary American Recovery & Reinvestment Act becomes law and includes $35 billion in incentives for the adoption of healthcare IT First two Cerner ITWorksSM contracts signed University of Missouri and Cerner create Tiger Institute for Health Innovation Announced acquisition of IMC Health Care Cerner clients connect with HHS and CDC to fight spread of influenza Introduced uCern™ and uDevelop™ platforms and opened uCern Store Cerner added to NASDAQ 100 Index Announced new mission statement, “To contribute to the systemic improvement of healthcare delivery and the health of communities” Introduced Healthe Intent™ cloud-based platform Patient Protection and Affordable Care Act becomes law in an effort to reform how healthcare is delivered in the U.S. Announced agreement with CareFusion to better integrate medical devices and electronic health records Fisher-Titus Medical Center and Magruder Hospital partner with Cerner to become first all-digital, smart hospitals in the U.S. First two Cerner RevWorksSM contracts signed Cerner honored as one of the best employers for healthy lifestyles by The National Business Group on Health Neal Patterson recognized by Forbes as one of “America’s Best-Performing Bosses” for providing shareholders with the “biggest bang for the buck” 2011 2 for 1 stock split (June 27) Acquired Resource Systems (long-term care solutions) Acquired Clairvia (workforce management solutions) Revenue and Bookings surpass $2 billion Introduced new logo and tagline: Health care is too important to stay the same.TM Launched Cerner SkyboxSM suite of cloud services Signed 1st QualityWorks client Cerner associates shed more than 20,000 pounds during Slimdown Throwdown weight-loss competition Cerner clients begin receiving stimulus funds related to achieving Meaningful Use Cerner added to S&P 500 index 8,000 associates 13 LeTTeR FROM CeRneR LeADeRSHIP COnCL uSIOn We are making history, creating the information foundation for transformed health care. Sometimes it is hard to see because we are in the middle of the chaos created by the change. We are literally digitizing the content of an entire industry—and not just any industry, but the largest part of our economy, health care. Health care is too important not to change. This is going to be a fast-paced year in an amazing decade; the most dynamic decade for health care in the modern era. I have often said that the secret of success is being in the right place at the right time with the right stuff. It sounds lucky, but it’s actually hard work. In 2012, there can be no doubt that the intersection of health care and IT is the right place to be. We have a tremendous amount of work to accomplish this year. If we execute, this should be another great decade for Cerner. Sincerely, NEAL L. PATTERSON FOUNDER Chairman, Chief Executive Officer & President CLIFFORD W. ILLIG FOUNDER Vice Chairman PAUL N. GORUP FOUNDER Senior Vice President & Chief of Innovation JEFFREY A. TOWNSEND Executive Vice President & Chief of Staff MICHAEL R. NILL Executive Vice President & Chief Operating Officer ZANE M. BURKE Executive Vice President Client Organization MARC G. NAUGHTON Executive Vice President & Chief Financial Officer JULIA M. WILSON Senior Vice President & Chief People Officer LeTTeR FROM CeRneR LeADeRSHIP 14 Appendix: Cerner’s Business Model and Financial Assessment InTRODuCTIOn This appendix is our annual discussion of our business model and financial performance. Note that some of the results in this discussion reflect adjustments compared to results reported on a Generally Accepted Accounting Principles (GAAP) basis in our annual report on Form 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead may be used along with GAAP results as a supplemental measure of financial performance. Non- GAAP results are used by management along with GAAP results to analyze our business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes. Please see the end of this appendix for a reconciliation of non-GAAP financial measures to GAAP results. THe CeRneR BuSIneSS MODeL The core of our business model is the creation of intellectual property (IP) in the form of software and other types of digital content. Our software is bundled with other technologies and services to create complete clinical and business solutions for health care providers. In short, we build it, sell it, deliver it, run it and support it for health care provider organizations around the world (“it” in this context refers to the solutions Cerner creates for health care organizations). Below is a graphical representation of our business model showing a top-to-bottom flow of how we convert new business opportunities and our backlog into revenue and earnings. At the top of our model is our Sales Pipeline of potential future business opportunities we have identified in the marketplace. Our pipeline has increased substantially over the past several years, reflecting a strong market for our solutions as providers invest in health care information technology (HCIT) to meet regulatory requirements, comply with government reimbursement requirements, and qualify for incentives. Sales Pipeline New Contract Bookings: $2.7 billion Contract Backlog: $5.4 billion Support Contracts Support Backlog: $706 million Licensed Software $325M System Sales Technology $245M Total 2011 Revenue = $2,203M Services, Support & Maintenance Subscriptions/ Transactions $136M Professional Services $550M Managed Services $351M Support & Maintenance $551M Note: Total Revenue includes $45M of reimbursed travel revenue x87% x13% $284M $31M x56% $77M x30% $162M x31% $109M x76% $419M Contribution Margin % Total 2011 Contribution Margin = $1,082M (49% of Revenue) Contribution Margin $ Less Indirect Costs R & D 13% of revenue ($278M) SG & A 14% of revenue ($315M) ($593M) Operating Margin + D&A = $489M, 22% $213M EBITDA $702M 32% Less: Taxes & Net Int. Exp./Other Income Taxes ($174M) Net Interest Exp./Other Income $10M ($164M) Net Earnings $325M ÷ 174M Shares Earnings Per Share $1.87 15 APPenDIX During each quarter, we sign new contracts to deliver our solutions to clients. These contract signings are reported as new Contract Bookings and become part of our contract backlog. A typical new contract will impact our revenues in the current quarter and for the next several quarters, or even years, depending on how the licenses, technology, subscriptions/ transactions, managed services, and professional services are delivered. For longer term contracts, such as for our Remote Hosting, ITWorks, and RevWorks offerings, contract lengths are typically more than 5 years. Almost all of our client contracts will also contain provisions for Support Contracts in which Cerner agrees to provide a broad set of services that support our clients’ use of our solutions in demanding clinical settings. This support includes addressing technical issues related to our software and providing access to future releases of licensed software. We also provide support and maintenance agreements for third party software and hardware that we resell to our clients. Continuing with our top-down business model flow, the value of the new contract bookings and support into our Contract Backlog and contracts rolls Support Backlog, respectively. Even though almost all of our systems are in service for decades, our reported Support Backlog only includes the expected value for one year of support revenue for all of our client support contracts. We report the value of these backlogs because we believe they are important to our shareholders’ ability to interpret the overall health of our business. Our total backlog (signed contracts with unrecognized revenues and one year of support for all support contracts) ended 2011 at $6.1 billion and has grown at healthy compounded annual rates of 21%, 18% and 23% over the past 3, 5 and 10 years. toward At the core of our business model are our various revenue streams and the contribution each stream makes the profitability of Cerner. The contribution is stated as the recognized revenue less the direct cost to produce that revenue. On our business model graphic, we have depicted six revenue categories that roll into the two revenue line items on our income statement. Licensed Software, Technology, and Subscriptions/Transactions make up the System Sales line of our income statement, and Professional Services, Managed Services, and Support & Maintenance make up the Services, Support & Maintenance line. Here is a description of each revenue stream: Subscription/ Transactions 6% 2011 Revenue Mix Professional Services 25% Managed Services 16% Technology Resale 11% Licensed Software 15% Support & Maintenance 25% Travel 2% • Licensed Software. We develop and license IP (our architectures, application software, executable and referential knowledge, data and algorithms) to our clients. Our standard license is perpetual—providing our clients permanent rights to use the software they purchase. This approach contrasts with the approach of many of our competitors who are always trying to sell “upgrades” to their clients. We believe our approach is part of the reason we have so many long-term client relationships—some lasting over three decades. We recognize revenues from licensed software as we achieve pre-defined client engagement milestones, such as delivery and installation of our software. In 2011, this type of revenue represented 15% of our total revenues with a profit contribution of 87%. Revenues from licensed software grew 21% in 2011 compared to 2010. •Technology. We bundle licensed software with other companies’ IP (e.g., that of HP, IBM, Microsoft, Oracle) in the form of sublicenses to create complete technology solutions for our clients. We also resell bundled computer equipment (hardware) from technology companies to create a completely functional system. More recently, we have begun to resell medical devices for a growing list of medical device companies, and this part of our business has shown strong growth since it was launched in 2007. Technology revenue increased 39% in 2011, as growth in device resale offset flat results in traditional hardware resale and sublicensed software. We recognize revenues from technology resale as the equipment is delivered to our clients. In 2011, these revenues represented 11% of our total revenue with a profit contribution of 13%. Even at lower margins than the rest of our businesses, technology resale is valuable to Cerner as it is a driver of other high margin, high visibility revenue, such as technical services, sublicensed software support, and equipment maintenance. APPenDIX 16 •Subscriptions/Transactions. Another method by which we provide IP is based on a subscription model that has a periodic usage charge. This is the primary way we package and provide medical knowledge, which changes frequently based on research and can be updated independently from the software in which it is embedded. Also included in this category of revenue is our Electronic Data Interchange (EDI) transaction revenue. EDI is the electronic transfer of data between health care providers and payers. Subscription and transaction revenue streams are generally recognized monthly, and in 2011 they grew 28% and represented 6% of our total revenues with a profit contribution of 56%. •Professional Services. We provide a wide range of professional services to assist our clients in the implementation of our information systems in their organizations. These services are in the form of project management, technical and application expertise, clinical process optimization and education and training of our clients’ workforce to assist in the design and implementation of our systems. We recognize revenues associated with these consulting activities as they are provided to our clients. In 2011, these revenues increased 21% due to increased implementation activity. Professional services represented 25% of our total 2011 revenue, and the profit contribution for this business model was 30%. We have also expanded our services offerings with the launch of Cerner RevWorksSM, which includes solutions and services to help health care organizations improve their revenue cycle functions. We signed two new RevWorks contracts in 2011 and had a total of four contracted clients as of the end of 2011. •Managed Services. Under our CernerWorksSM suite of solutions, we offer a set of technical services that include Remote Hosting, Application Management Services, Operational Management Services, and Disaster Recovery. Remote Hosting is the largest of these offerings, and it involves Cerner buying the necessary equipment, installing it in one of our data centers, and operating the entire system on the client’s behalf. The revenues for this service and our charge for the equipment are recognized monthly as we provide the services. Most of our clients still choose to own their own software license, so that portion of the revenue is unchanged. We own the equipment rather than selling it upfront to the client, which impacts the technology resale portion of revenue. Managed Services revenue grew 20% in 2011 and represented 16% of our total revenue with the profit contribution increasing from 29% to 31%. Additionally, in 2009, we launched an extension of our CernerWorks solutions, our Cerner ITWorksSM solutions, which further strategic involves alignment with clients, including Cerner taking on more of our clients’ IT functions. This initiative is off to a good start with nine contracted clients as of the end of 2011. Cerner ITWorks contracts impact other business models in addition to Managed Services, such as Professional Services and Support. •Support & Maintenance. The final business model is comprised of the ongoing support and maintenance services we provide after our systems are in use by our client organizations. Almost all of our clients contract for these services. Clients with support contracts get 24x7 access to our Immediate Response Center, which serves as our “emergency room”, as well as access to a very knowledgeable base of associates in our SolutionWorks organization for less urgent issues. In addition, our clients’ support payments give them ongoing access to the latest releases of our IP. We also provide support for sublicensed software and maintenance for third party hardware. In 2011, support and maintenance revenues grew 6%. This revenue stream represented 25% of total revenue with a profit contribution of 76% (note that this profit contribution does not include a charge for research and development, which is treated as an indirect expense). The revenue categories discussed above add up to 98% of total revenue. The remaining 2% is revenue from reimbursed travel expenses related to our associates traveling to client locations. This revenue contributes no margin as it is simply a pass-through of our client-related travel expenses that are billed to our clients and required to be reported as revenue. The two large indirect expenses in our business model are the costs of our Research and Development (R&D), which was equal to 13% of revenue in 2011, and the indirect portion of Selling, General and Administrative (SG&A) activities, which represented 14% of revenue in 2011. We have a long history of investing heavily in R&D and using that investment to systematically expand our target markets to create organic growth. We expect to invest more than $1 billion in R&D over the next four years as we continue to build on the industrial strength of our Cerner 17 APPenDIX Millennium® architecture and add new solutions and enhancements such as Millennium+TM, which extends the enterprise platform to the secure Cerner Cloud and delivers a new user experience by providing personalized, intuitive and relevant clinical workflows. While we believe these expected levels of investment are unmatched in our industry, we still expect to grow R&D slower than revenue, resulting in operating leverage. Similarly, we expect to take advantage of our scalable business infrastructure to allow us to grow SG&A spending slower than our revenue growth rate. We expect this leverage to help improve operating margins without impacting our ability to develop and deliver new solutions to our clients. In 2011, our operating margin of $489 million was 22.2% of revenue, an increase of 140 basis points compared to 2010. The remaining items in our business model are taxes and net interest expense and other income, which totaled $164 million in 2011, leaving $325 million of net earnings, or $1.87 of earnings per share. ASSeSSMenT OF 2011 FInAnCIAL ReSuLTS We continued to focus on three key financial objectives in 2011: growing the top line, expanding operating margins and generating free cash flow. In 2012, we again expect double-digit top-line growth. In the U.S., we expect continued strong demand for our solutions both inside and outside our current client base as health care providers invest in solutions and services to meet regulatory and reimbursement requirements and to qualify for incentives. Innovative new solutions and services that we have introduced in the last few years are also expected to make a meaningful contribution to top-line growth in the coming years. Additionally, we expect our global business to continue to grow as the global economy strengthens and governments invest in HCIT in an effort to improve quality and control the cost of care. For more information on our growth strategy, refer to the Cerner Vision and Growth Strategy section in Part 1, Item 1 of our annual report on Form 10-K. Expanding Operating Margins In February of 2004, we mapped out our path from the 2003 level of 9% operating margins to our target of 20%. We have made very good progress and surpassed our target since then, and our operating margin was 22.2% in 2011. The following graph and table detail our margin expansion since 2003. Operating Margin Operating Margin Growing the Top Line Cerner has delivered strong revenue growth over the long term. Both our new business bookings and revenue have grown at more than 14% compound annual rates over the past 10 years. In 2011, we grew our new business bookings 37%, to a record $2.72 billion. Revenue grew 19% in 2011, to a record $2.20 billion. Looking at revenue by geographic segment, domestic revenue increased 21% and global revenue increased 7% in 2011. 23% 21% 19% 17% 15% 13% 11% 9% '03 '04 '05 '06 '07 '08 '09 '10 '11 2003 2004 2005 2006 2007 2008 2009 2010 2011 Contribution Margin Licensed Software Technology Resale Subscription/Transaction Professional Services Managed Services Support & Maintenance Total Contribution Margin Indirect Costs % of Revenue R&D SG&A Total 89% 17% 10% 15% 18% 53% 41% 19% 13% 31% 88% 20% 12% 23% 20% 57% 45% 19% 14% 33% 85% 13% 37% 27% 25% 62% 46% 18% 15% 33% 84% 11% 43% 27% 25% 65% 46% 18% 15% 32% 89% 12% 49% 29% 25% 69% 47% 17% 15% 32% 88% 12% 50% 29% 26% 72% 48% 16% 15% 31% 88% 11% 52% 28% 28% 74% 50% 16% 16% 32% 87% 11% 52% 30% 29% 76% 50% 14% 15% 29% 87% 13% 56% 30% 31% 76% 49% 13% 14% 27% Operating Margin 9.3% 12.4% 12.6% 13.4% 15.1% 16.6% 18.5% 20.8% 22.2% APPenDIX 18 Highlights of the margin expansion drivers include: •expanding Margins in Subscriptions/Transactions. This business model has had good recent growth in revenue and profitability has also increased as the fixed costs associated with supporting it are spread over a higher revenue base. •Improving Professional Services margins. We have leveraged tools and methodologies to make our implementation processes more efficient, predictable, and profitable. •Improving Managed Services Margins. As we have grown our remote hosting business, we have increased profitability through scale and by transitioning to newer, less expensive technologies. •Increase profitability of Support & Maintenance. As we have continued to harden the Cerner Millennium platform, our incremental cost to support each additional client has declined, leading to increased margins on Support and Maintenance. .•Leverage R&D investments. We have leveraged our significant R&D investment by growing R&D slower than our top-line growth rate, while still maintaining levels of R&D investment and innovation. Efficiencies from our operations in India have also contributed to our ability to control the rate of R&D growth. industry-leading •Leverage Sales, General, and Administrative expenses. We have built a scalable business infrastructure that has allowed us to keep our SG&A spending growth rate lower than our top- line growth rate in recent years. We expect to continue to drive margin expansion going forward through ongoing efficiencies across our business models and additional leverage of R&D investments and SG&A expenses. A key point regarding our margin expansion is that we have accomplished it while our business model has transitioned to more visible and recurring revenue components. For example, in 2003, approximately 61% of our revenue (before reimbursed travel) came from what we consider visible or recurring sources such as Professional Services, Managed Services, Subscriptions/Transactions, and Support & Maintenance. In 2011, 74% of our revenue came from these sources. Similarly, Contribution Margin from recurring or visible sources increased from 45% to 71%. 100% 80% 60% 40% 20% 0% 26% 29% 39% 61% 74% 55% 45% 71% 2003 2011 Revenue 2003 2011 Contribution Margin Non-recurring Recurring and Visible earnings Growth Strong revenue growth and margin expansion drove adjusted net earnings growth of 28% in 2011. Our 3-, 5-, and 10-year compound annual earnings growth rates of 21%, 23%, and 25%, respectively, reflect our ability to drive long-term earnings growth. Going forward, our top-line growth strategies coupled with continued focus on productivity enhancements and margin expansion position us well for continued strong earnings growth. 19 APPenDIX Generating Cash Flow A healthy business generates cash flow. Perhaps our most significant improvement in recent years has been in our cash flow performance. 2011 was a record year for cash performance, with $546 million of operating cash flow and $359 million of free cash flow (operating cash flow less capital expenditures and capitalized software). Operating cash flow increased 20% in 2011 and free cash flow increased 31%. We expect capital expenditures to increase in 2012 compared to 2011, which will have some impact on free cash flow growth, but we still expect to generate strong free cash flow. Stock Price Operating Cash Flow Free Cash Flow At Cerner, we manage the company, not the stock price. In the short-term, the stock price can be influenced by many factors beyond our control, but we believe that in the long-term it will closely reflect the quality of our decisions. We believe it is important for our shareholders that we focus on delivering strong long- term results, but we also understand the importance of delivering consistently against short-term targets. 2011 was a choppy year for the stock market as worldwide economic growth was lower than expected. The NASDAQ Composite Index ended the year down 2% and the S&P 500 ended the year basically unchanged. Cerner’s stock price increased 29% in 2011, reflecting our delivery of strong results. When measuring our stock performance over the 5-, 10- and 20-year periods using compound annual growth rates, the returns are 22%, 17%, and 24%, respectively. These returns are significantly greater than the returns over the same time frames for the NASDAQ Composite Index (2%, 3%, and 8%) and S&P 500 (-2%, 1%, 6%). s n o i l l i M n I s ’ $ $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 ($50) '03 '04 '05 '06 '07 '08 '09 '10 '11 *FCF = Operating CF less Capital Expenditures and Capitalized Software Reconciliation of 2011 GAAP Results to non-GAAP Results* ($ in millions except earnings Per Share) GAAP Operating earnings Share-based compensation expense Adjusted Operating earnings GAAP net earnings Share-based compensation expense Income tax benefit of share-based compensation Adjusted net earnings (non-GAAP) Reconciliation of GAAP Operating Cash Flow to non-GAAP Free Cash Flow Cash flows from operating activities Capital purchases Capitalized software development costs Free cash flow (FCF) *More detail on these adjustments and management’s use of Non-GAAP results is in our 2011 annual report on Form 10-K and our current reports on Form 8-K. APPenDIX 20 Operating earnings $ $ 460 29 489 net earnings $ 307 29 (11) $ 325 Operating Margin % 20.9% 22.2% Diluted earnings Per Share $ 1.76 0.17 (0.06) $ 1.87 Cash Flow $ 546 (104) (83) $ 359 A N N UA L R E P O R T 2 01 1 FO R M 1 0 - K 21 22 UNITED  STATES   SECURITIES  AND  EXCHANGE  COMMISSION   WASHINGTON,  D.C.  20549   FORM  10-­‐K         ANNUAL  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE   SECURITIES  EXCHANGE  ACT  OF  1934   For  the  fiscal  year  ended:  December  31,  2011   OR   TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE   SECURITIES  EXCHANGE  ACT  OF  1934   For  the  transition  period  from  ____________  to  ____________                               Commission  file  number:    0-­‐15386   CERNER  CORPORATION    (Exact  name  of  registrant  as  specified  in  its  charter)   Delaware   (State  or  other  jurisdiction  of   incorporation  or  organization)   2800  Rockcreek  Parkway   North  Kansas  City,  MO   (Address  of  principal  executive  offices)   43-­‐1196944   (I.R.S.  Employer   Identification  No.)   64117   (Zip  Code)   (816)  221-­‐1024   (Registrant’s  telephone  number,  including  area  code)   Securities  registered  pursuant  to  Section  12(b)  of  the  Act:   Title  of  each  class   Common  Stock,  $0.01  par  value  per  share   Name  of  each  exchange  on  which  registered   The  NASDAQ  Stock  Market  LLC    Securities  registered  pursuant  to  Section  12(g)  of  the  Act:    None   Indicate  by  check  mark  if  the  registrant  is  a  well-­‐known  seasoned  issuer,  as  defined  in  Rule  405  of  the  Securities   Act.   Yes  [X]   No    [      ]   Indicate  by  check  mark  if  the  registrant  is  not  required  to  file  reports  pursuant  to  Section  13  or  Section  15(d)  of  the   Act.   Yes  [    ]   No    [X]   Indicate  by  check  mark  whether  the  registrant  (1)  has  filed  all  reports  required  to  be  filed  by  Section  13  or  15(d)  of   the  Securities  Exchange  Act  of  1934  during  the  preceding  12  months  (or  for  such  shorter  period  that  the  registrant   was  required  to  file  such  reports),  and  (2)  has  been  subject  to  such  filing  requirements  for  the  past  90  days.     Yes  [X]   No    [      ]   Indicate  by  check  mark  whether  the  registrant  has  submitted  electronically  and  posted  on  its  corporate  Web  site,  if   any,   every   Interactive   Data   File   required   to   be   submitted   and   posted   pursuant   to   Rule   405   of   Regulation   S-­‐T   (§232.405   of   this   chapter)   during   the   preceding   12   months   (or   for   such   shorter   period   that   the   registrant   was   required  to  submit  and  post  such  files).   Yes  [X]   No    [      ]   23                                                                                                         Indicate  by  check  mark  if  disclosure  of  delinquent  filers  pursuant  to  Item  405  of  Regulation  S-­‐K  (§229.405  of  this   chapter)   is   not   contained   herein,   and   will   not   be   contained,   to   the   best   of   registrant's   knowledge,   in   definitive   proxy  or  information  statements  incorporated  by  reference  in  Part  III  of  this  Form  10-­‐K  or  any  amendment  to  this   Form  10-­‐K.    [    ]   Indicate  by  check  mark  whether  the  registrant  is  a  large  accelerated  filer,  an  accelerated  filer,  a  non-­‐accelerated   filer,   or   a   smaller   reporting   company.     See   the   definitions   of   “large   accelerated   filer,”   “accelerated   filer”   and   “smaller  reporting  company”  in  Rule  12b-­‐2  of  the  Exchange  Act.   Large  accelerated  filer  [X]            Accelerated  filer  [      ]   Non-­‐accelerated  filer  [      ]   Smaller  reporting  company  [    ]   Indicate  by  check  mark  whether  the  registrant  is  a  shell  company  (as  defined  in  Rule  12b-­‐2  of  the  Exchange  Act).   Yes  [      ]   No  [X]   As  of  July  1,  2011,  the  aggregate  market  value  of  the  registrant’s  common  stock  held  by  non-­‐affiliates  of  the   registrant  was  $9,192,865,609  based  on  the  closing  sale  price  as  reported  on  the  NASDAQ  Global  Select  Market.     Indicate   the   number   of   shares   outstanding   of   each   of   the   issuer’s   classes   of   common   stock,   as   of   the   latest   practicable  date.   Class   Common  Stock,  $0.01  par  value  per  share   Outstanding  at  February  9,  2012   169,683,053  shares   DOCUMENTS  INCORPORATED  BY  REFERENCE   Document   Parts  Into  Which   Incorporated   Proxy  Statement  for  the  Annual  Shareholders’  Meeting  to  be  held  May  18,  2012  (Proxy   Statement)     Part  III   24                                                                                                               PART  I.   Item  1.  Business   Overview   Cerner  Corporation  started  doing  business  in  1980,  and  it  was  organized  as  a  Delaware  corporation  in  1986.  Unless  the   context   otherwise   requires,   references   in   this   report   to   “Cerner,”   the   “Company,”   “we,”   “us”   or   “our”   mean   Cerner   Corporation  and  its  subsidiaries.     Our  corporate  headquarters  are  located  at  2800  Rockcreek   Parkway,  North  Kansas  City,  Missouri  64117.  Our  telephone   number  is  816.221.1024.  Our  Web  site  address,  which  we  use  to  communicate  important  business  information,  can  be   accessed  at:  www.cerner.com.    We  make  our  annual  report  on  Form  10-­‐K,  quarterly  reports  on  Form  10-­‐Q,  current  reports   on   Form   8-­‐K   and   all   amendments   to   those   reports   available   free   of   charge   on   or   through   this   Web   site   as   soon   as   reasonably   practicable   after   such   material   is   electronically   filed   with   or   furnished   to   the   Securities   and   Exchange   Commission  (SEC).   Cerner’s  mission  is  to  contribute  to  the  systemic  improvement  of  health  care  delivery  and  the  health  of  communities.  We   are  a  leading  supplier  of  health  care  information  technology  (HCIT)  solutions,  services,  devices  and  hardware.    Our  solutions   optimize  processes  and  help  eliminate  errors,  variance  and  waste  for  health  care  organizations  ranging  from  single-­‐doctor   practices  to  entire  countries,  for  the  pharmaceutical  and  medical  device  industries,  and  for  the  field  of  health  care  as  a   whole.  These  solutions  are  licensed  by  approximately  9,300  facilities  around  the  world,  including  more  than  2,650  hospitals;   3,750   physician   practices;   40,000   physicians;   500   ambulatory   facilities,   such   as   laboratories,   ambulatory   centers,   cardiac   facilities,  radiology  clinics  and  surgery  centers;  800  home  health  facilities;  40  employer  sites  and  1,600  retail  pharmacies.   We  design  and  develop  most  of  our  software  solutions  on  the  unified  Cerner  Millennium®  architecture,  a  person-­‐centric   computing  framework,  which  combines  clinical,  financial  and  management  information  systems.  This  architecture  allows   providers   to   securely   access   an   individual’s   electronic   health   record   (EHR)   at   the   point   of   care,   and   it   organizes   and   proactively  delivers  information  to  meet  the  specific  needs  of  physicians,  nurses,  laboratory  technicians,  pharmacists,  front-­‐   and  back-­‐office  professionals  and  consumers.    We  have  also  created  the  Healthe  IntentTM  platform,  a  cloud-­‐based  platform   that  enables  a  new  generation  of  solutions  to  leverage  the  increasing  amount  of  data  being  captured  as  the  health  care   industry  is  digitized.    On  the  Healthe  Intent  platform,  we  are  building  solutions  based  on  sophisticated,  statistical  algorithms   that  are  intended  to  help  providers  predict  and  improve  outcomes,  control  costs,  and  improve  quality.   We  also  offer  a  broad  range  of  services,  including  implementation  and  training,  remote  hosting,  operational  management   services,   revenue   cycle   services,   support   and   maintenance,   health   care   data   analysis,   clinical   process   optimization,   transaction  processing,  employer  health  centers,  employee  wellness  programs  and  third  party  administrator  (TPA)  services   for  employer-­‐based  health  plans.   In  addition  to  software  and  services,  we  offer  a  wide  range  of  complementary  hardware  and  devices,  both  directly  from   Cerner  and  as  a  reseller  for  third  parties.   25                 The  following  table  presents  our  consolidated  revenues  by  major  solutions  and  services  and  by  segment,  as  a  percentage  of   total  revenues:   Revenues  by  Solutions  &  Services System  sales Support  and  maintenance Services Reimbursed  travel Revenues  by  Segment Domestic Global For  the  Years  Ended 2010 2009 2011 32% 25% 41% 2% 100% 86% 14% 100% 30% 28% 40% 2% 100% 84% 16% 100% 30% 29% 39% 2% 100% 84% 16% 100% Health  Care  and  Health  Care  IT  Industry   We   believe   there   are   several   factors   that   are   favorable   for   the   HCIT   industry   over   the   next   decade.   With   the   Centers  for  Medicare  and  Medicaid  Services  (CMS)  estimating  United  States  health  care  spending  at  $2.7  trillion  in   2011,  or  17.7  percent  of  Gross  Domestic  Product  (GDP),  and  projecting  it  to  be  19.8  percent  of  GDP  by  2020,  we   believe   the   growing   cost   of   our   health   care   system   is   unsustainable.     We   also   believe   the   intelligent   use   of   information   systems   can   help   reduce   costs   while   also   improving   health   outcomes.     Further,   most   United   States   health   care   providers   recognize   that   they   must   invest   in   HCIT   to   meet   regulatory   requirements,   comply   with   government  reimbursement  requirements,  and  qualify  for   incentives.    The  importance  of  HCIT  in  facilitating  this   compliance  along  with  the  benefits  of  improving  safety,  efficiency  and  reducing  costs,  leads  to  investments  in  HCIT   being  viewed  as  more  strategic  than  many  other  capital  purchases.     The  broad  recognition  that  HCIT  is  essential  to  helping  control  health  care  costs  and  improve  quality  contributed  to   the  inclusion  of  HCIT  incentives  in  the  American  Recovery  and  Reinvestment  Act  (ARRA).  The  Health  Information   Technology   for   Economic   and   Clinical   Health   (HITECH)   provisions   within   ARRA   include   more   than   $35   billion   in   incentives  for  health  care  organizations  to  modernize  operations  through  “meaningful  use”  of  HCIT.  Hospitals  and   physicians   that   met   the   meaningful   use   criteria   of   the   ARRA   began   receiving   incentive   funds   in   2011,   and   the   incentive  programs  are  contributing  to  increased  demand  for  HCIT  solutions  and  services  in  the  United  States.   Another   element   in   the   United   States   marketplace   is   the   shift   away   from   fee-­‐for-­‐service   or   volume-­‐based   reimbursement  and  towards  value-­‐based  or  outcomes-­‐based  reimbursement.    Payers,  including  health  insurance   companies   and   federal   and   state   governments,   are   implementing   programs   to   link   reimbursement   to   quality   measurements   and   outcomes,   and   this   alignment   creates   significant   financial   motivation   for   HCIT   adoption.     Within  our  current  client  base,  we  estimate  that  there  could  be  $3  billion  of  annual  reimbursement  at  risk  tied  to   Value   Based   Purchasing,   Medicare   30-­‐day   readmission   rules,   and   quality   reporting   requirements   beginning   in   2013,  and  we  estimate  this  amount  grows  to  an  estimated  $5  billion  at  risk  by  2017.    In  order  to  comply  with  these   programs,  we  believe  our  clients  will  need  to  expand  their  data  analytics  and  reporting  capabilities  through  the  use   of  HCIT  solutions  and  services.       In  recent  years,  we  have  also  seen  a  shift  in  the  U.S.  marketplace  towards  a  preference  for  a  single  platform  across   inpatient  and  ambulatory  settings.  The  number  of  physicians  employed  by  hospitals  has  increased  significantly  as   hospitals  have  acquired  physician  groups  in  order  to  ensure  a  consistent  stream  of  referrals,  and  health  systems   are  recognizing  the  benefit  of  a  single  patient  record  across  the  hospital  and  the  physician  office.    Cerner  is  well   positioned   to   benefit   from   this   shift   due   to   our   unified   Cerner   Millennium   platform   across   our   inpatient   and   ambulatory  solutions,  our  large  footprint  in  United  States  hospitals  and  physician  practices  and  our  proven  ability   to  deliver  value  to  our  clients.     26               Outside   the   United   States,   the   economic   downturn   of   the   last   few   years   has   impacted   and   could   continue   to   impact  our  results  of  operations.  However,  we  believe  long-­‐term  revenue  growth  opportunities  outside  the  United   States   remain   significant   because   other   countries   are   also   focused   on   controlling   health   care   spending   while   improving   the   efficiency   and   quality   of   care   that   is   delivered,   and   many   of   these   countries   recognize   HCIT   as   an   important  piece  of  the  solution  to  these  issues.   In   summary,   we   believe   the   fundamental   value   proposition   of   HCIT   remains   strong.   The   HCIT   industry   will   likely   benefit   as   health   care   providers   and   governments   continue   to   recognize   that   these   solutions   and   services   contribute  to  safer,  more  efficient  health  care.   Cerner  Vision  and  Growth  Strategy   For   more   than   30   years   Cerner   has   been   executing   its   vision   to   make   health   care   safer   and   more   efficient.   We   started   with   the   foundation   of   digitizing   paper   processes   and   now   offer   what   we   believe   to   be   the   most   comprehensive  array  of  solutions,  services,  hardware,  and  devices  to  the  health  care  industry.    Since  our  company   began,  we  have  been  committed  to  transformational  change  in  the  vital  task  of  keeping  people  well.  Now  more   than   ever,   our   focus   is   on   developing   the   innovations   that   will   help   improve   the   entire   health   care   system.   Ultimately,  we  believe  health  care  is  personal  and  nothing  matters  more  than  our  health  and  our  families.    As  a   result,  we  believe  health  care  is  too  important  to  stay  the  same,  and  we  are  focused  on  changing  the  way  people:   Use  and  share  information     • We  empower  providers  to  base  decisions  on  the  best  clinical  evidence.     • We  coordinate  care  across  traditionally  fragmented  health  care  systems.     • We   provide   clinical   organizations   with   reliability,   flexibility   and   continuous   innovation   available   through   cloud-­‐based  intelligence.     • We  provide  contextually  relevant  information  to  the  right  people  at  the  right  time.     Pay  for  health  and  care     • We  believe  IT  investment  must  be  matched  with  innovative  payment  models  that  are  easier  to  navigate.     • We  are  replacing  the  current,  claims-­‐based  system  with  streamlined  electronic  payments.     • We  develop  ways  to  reward  people  and  their  providers  for  proactively  achieving  positive  health  goals.     Think  about  health     • We  empower  people  to  actively  engage  in  their  health  by  providing  them  with  a  standards-­‐based,  lifetime   personal  health  record.     • We  are  replacing  the  reactive  “sick  care”  model  with  a  proactive,  personalized  plan  for  health.     Our  vision  has  always  guided  our  large  investments  in  research  and  development,  which  have  created  strong  levels   of   organic   growth   throughout   our   history.     Our   proven   ability   to   innovate   has   led   to   what   we   believe   to   be   industry-­‐leading  solution  and  device  architectures  and  an  unmatched  breadth  and  depth  of  solutions  and  services.     We  believe  these  strengths  position  us  well  to  gain  market  share  in  the  United  States  during  a  period  of  expected   strong  demand  driven  by  the  HITECH  provisions  of  ARRA  and  the  nation’s  focus  on  improving  the  efficiency  and   quality  of  health  care.    We  also  have  a  strong  global  brand  and  a  presence  in  more  than  25  countries  and  believe   we  have  a  good  opportunity  to  gain  market  share  outside  of  the  United  States.     In   addition   to   growth   through   gaining   market   share,   we   have   a   significant   opportunity   to   grow   revenues   by   expanding   our   solution   footprint   in   existing   clients.     There   is   opportunity   to   expand   penetration   of   our   core   solutions,  such  as  EHRs  and  computerized  physician  order  entry,  and  increase  penetration  of  our  broad  range  of   complementary   solutions   that   can   be   offered   into   our   existing   client   base.     Examples   include   women’s   health,   anesthesiology,   imaging,   clinical   process   optimization,   critical   care,   medical   devices,   device   connectivity,   emergency  department,  revenue  cycle  and  surgery.   Additionally,   we   have   introduced   services   in   recent   years   that   are   targeted   at   capturing   a   larger   percent   of   our   clients’   existing   IT   spending.     These   services   leverage   our   proven   operational   capabilities   and   the   success   of   our   27                 CernerWorksSM  managed  services  business,  where  we  have  demonstrated  the  ability  to  improve  our  clients’  service   levels   at   a   cost   that   is   at   or   below   amounts   they   were   previously   spending.     One   of   these   services   is   Cerner   ITWorksSM,   a   suite   of   solutions   and   services   that   improve   the   ability   of   hospital   IT   departments   to   meet   their   organization’s  needs  while  also  creating  a  closer  alignment  between  Cerner  and  our  clients.    A  second  example  is   Cerner  RevWorksSM,  which  includes  solutions  and  services  to  help  health  care  organizations  improve  their  revenue   cycle  functions.       We  have  made  good  progress  over  the  past  several  years  at  reducing  the  total  cost  of  ownership  of  our  solutions,   which  expands  our  end  market  opportunities  by  allowing  us  to  offer  lower-­‐cost,  higher-­‐value  solutions  and  services   to   smaller   community   hospitals,   critical   access   hospitals   and   physician   practices.   For   example,   our   CommunityWorksTM  offering  leverages  a  shared  instance  of  the  Cerner  Millennium  platform  across  multiple  clients,   which  decreases  the  total  cost  of  ownership  for  these  clients.     We   also   expect   to   drive   growth   over   the   course   of   the   next   decade   through   initiatives   outside   the   core   HCIT   market.     For   example,   we   offer   clinic,   pharmacy,   wellness   and   third-­‐party   administrator   services   directly   to   employers.    These  offerings  have  been  shaped  by  what  we  have  learned  from  changes  we  have  implemented  at   Cerner   over   the   past   five   years.   We   have   removed   our   third-­‐party   administrator   and   become   self-­‐administered,   launched  an  on-­‐site  clinic  and  pharmacy,  incorporated  biometric  measurements  for  our  population,  realigned  the   economic   incentives   for   associates   in   our   health   plan,   and   implemented   a   data-­‐driven   wellness   management   program.     We   also   had   a   very   successful   weight   loss   competition   that   led   to   over   20,000   pounds   of   weight   loss   across  our  associate  base.    These  changes  have  had  a  significant  impact  on  the  health  of  our  associates  and  have   allowed  us  to  do  what  all  employers  want  to  do  -­‐  reduce  health  care  costs.    We  believe  incorporating  this  success   into   our   employer   services   offerings   positions   us   well   in   a   substantial   addressable   market   of   over   8,000   U.S.   employers  with  over  1,000  employees.     As   discussed   below,   another   opportunity   for   future   growth,   and   a   significant   area   of   investment   for   Cerner,   is   leveraging  the  vast  amounts  of  data  being  created  as  the  health  care  industry  is  digitized.       Healthe  Intent  and  The  New  Middle   Over  the  last  several  years,  we  have  been  focused  on  developing  networks  in  order  to  better  meet  the  needs  of   our   clients   and   the   patients   they   serve.     At   Cerner,   we   define   a   network   as   a   common   platform   of   learning   and   improvements  from  which  all  our  clients  can  benefit.     One  area  where  coordinating  information  across  the  fragmented  delivery  system  is  gaining  traction  is  our  Cerner   Network  and  Health  Information  Exchange  (HIE)  offerings,  which  create  better  clinical  integration  and  coordination   of  care  by  facilitating  secure  electronic  flow  of  data  between  hospitals,  physician  practices,  and  other  stakeholders,   regardless  of  the  EHR  system  being  used.    At  the  end  of  2011,  nearly  100  million  clinical  and  financial  transactions   were  being  sent  across  the  network  each  month.   A  key  element  of  our  strategy  for  improving  the  coordination  and  quality  of  care  is  our  Healthe  Intent  platform,  a   cloud-­‐based  platform  that  we  expect  to  be  the  basis  for  many  future  offerings.    The  Healthe  Intent  platform  is  a   smart  metadata  layer  that  sits  above  existing  EHR  systems  and  is  designed  to  contain  data  from  any  EHR  along  with   claims  data,  medical  evidence,  and  research  that  can  facilitate  more  proactive  care.    This  design  also  allows  us  to   “future   proof”   our   clients   so   they   can   quickly   adapt   to   the   increasing   use   of   quality   standards,   performance   measures   and   eventually   managing   the   health   of   populations.     We   foresee   that   information   management   will   become  an  increasing  priority  for  our  clients  and  in  the  market  more  widely,  and  we  believe  our  cloud-­‐based  data   management   solutions   and   services,   our   expertise   in   managing   large   datasets   for   research   and   our   access   to   granular,   real-­‐time   clinical   information   puts   us   in   a   unique   position   to   innovate   at   a   pace   to   meet   the   dynamic   requirements   ahead.     We   believe   we   are   quickly   approaching   an   environment   where   reporting   about   what   has   already   happened   is   too   late,   as   the   intervention   must   occur   real   time,   with   embedded   and   proactive   decision   support.   In  2010,  we  launched  Healthe  Intent  Chart  Search,  our  first  solution  on  the  Healthe  Intent  platform,  and  to  date   more   than   100   clients   have   signed   up   to   implement   this   capability.       Healthe   Intent   Chart   Search   leverages   knowledge  of  the  clinical  meanings  of  words  located  within  the  EHR  as  well  as  the  context  in  which  those  words   28               occur   to   create   algorithms   that   identify   and   rank   the   most   important   information   contextually.     This   capability   allows  the  physician  to  efficiently  search  through  a  patient’s  health  record  and  identify  relevant  information  in  a   matter   of   seconds.     In   the   coming   years,   we   believe   the   Healthe   Intent   platform   will   continue   to   evolve   in   sophistication  to  the  point  where  it  can  anticipate  and  determine  the  clinical  intent  based  on  the  behavior  of  the   specific  user,  the  history  of  the  patient  and  the  context  of  prior  actions.   The   Healthe   Intent   platform   also   provides   the   ability   to   apply   sophisticated,   statistical   algorithms   against   contextual   clinical   activity   to   recommend   clinical   action.     For   example,   our   first   national   Health   Agent   is   an   intelligent   mechanism   developed   in   collaboration   with   clients,   which   can   assist   in   detecting   the   conditions   that   indicate  a  patient  may  be  developing  Sepsis,  a  potentially  fatal  condition  in  which  the  bloodstream  is  overwhelmed   by  bacteria.    Nearly  750,000  Americans  are  affected  by  Sepsis  each  year.    Client  use  of  this  algorithm  has  resulted   in  significant  reductions  in  Sepsis  mortality  rates  in  our  clients’  patients,  and  having  this  capability  deployed  in  the   cloud  allows  us  to  demonstrate  the  speed  at  which  new  capabilities  and  evidence  can  be  deployed  to  our  clients.   As  we  continue  to  evolve  the  Healthe  Intent  platform,  we  believe  it  will  contribute  to  major  changes  in  the  current   health  care  system.    We  envision  a  New  Middle  that  will  enhance  care  and  reduce  friction  by  facilitating  the  sharing   of   relevant   clinical   and   financial   information   among   payers,   consumers   and   providers.   In   this   New   Middle,   consumers  would  have  a  personal  health  record,  giving  them  ready  access  to  information  on  both  the  price  and   quality  of  the  care  they  receive.  This  record  would  have  the  consumer’s  complete  medical  history  and  a  predictive   model  of  future  needs  based  on  his  or  her  unique  genetic  code.  Armed  with  this  information,  consumers  would   have  financial  incentives  to  focus  on  controlling  chronic  conditions  and  reducing  the  impact  of  future  maladies.     With   more   complete   patient   information,   providers   could   focus   on   proactive   health   engagement   rather   than   reactive  sick  care.  Through  this  New  Middle,  providers  could  communicate  instantly  with  the  rest  of  the  patient’s   care   team,   and   they   would   receive   immediate   point-­‐of-­‐service   payments   for   the   delivery   of   appropriate   care   rather  than  waiting  weeks  or  months  while  claims  work  through  the  reimbursement  process.     Lastly,  we  believe  the  New  Middle  could  provide  the  segments  of  our  society  that  pay  for  health  care—employers   and  governments—a  health  system  with  less  variance,  cost  and  waste  while  maximizing  the  quality  of  care  for  all   of  us.   Software  Development     We   commit   significant   resources   to   developing   new   health   information   system   solutions   and   services.   As   of   the   end   of   2011,   approximately   2,700   associates   were   engaged   in   research   and   development   activities.   Total   expenditures  for  the  development  and  enhancement  of  our  software  solutions  were  approximately  $290.6  million,   $284.8  million  and  $285.2  million  during  the  2011,  2010  and  2009  fiscal  years,  respectively.  These  figures  include   both  capitalized  and  non-­‐capitalized  portions  and  exclude  amounts  amortized  for  financial  reporting  purposes.     As  discussed  above,  continued  investment  in  research  and  development  remains  a  core  element  of  our  strategy.   This  will  include  ongoing  enhancement  of  our  core  solutions  and  development  of  new  solutions  and  services.   Sales  and  Marketing       The   markets   for   Cerner   HCIT   solutions,   health   care   devices   and   services   include   integrated   delivery   networks,   physician   groups   and   networks,   managed   care   organizations,   hospitals,   medical   centers,   free-­‐standing   reference   laboratories,   home   health   agencies,   blood   banks,   imaging   centers,   pharmacies,   pharmaceutical   manufacturers,   employers,   governments   and   public   health   organizations.   The   majority   of   our   sales   are   sales   of   clinical   solutions   and   services   to   hospital   and   health   systems,   but   the   Cerner   Millennium   architecture   is   highly   scalable   and   organizations   ranging   from   several-­‐doctor   physician   practices,   to   community   hospitals,   to   complex   integrated   delivery   networks,   to   local,   regional   and   national   government   agencies   use   our   Cerner   Millennium   solutions   and   services.     As  previously  discussed,  we  have  focused  on  reducing  the  total  cost  of  ownership  of  our  systems,  which  allows  us   to   be   price   competitive   across   the   full   size   and   organizational   structure   range   of   health   care   providers.   Sales   to   large  health  systems  typically  take  approximately  nine  to  18  months,  while  the  sales  cycle  is  often  shorter  when   29                   selling   to   smaller   hospitals   and   physician   practices.     In   some   instances,   the   HITECH   provisions   of   ARRA   have   shortened  the  sales  process  due  to  the  timeline  required  for  hospitals  to  qualify  for  stimulus  incentives.   Our   executive   marketing   management   is   located   at   our   Innovation   Campus   in   Kansas   City,   Missouri,   while   our   client   representatives   are   deployed   across   the   United   States   and   globally.   In   addition   to   the   United   States,   through   our   subsidiaries,  we  have  sales  associates  and/or  offices  giving  us  a  presence  in  more  than  25  countries.     We  support  our  sales  force  with  technical  personnel  who  perform  demonstrations  of  Cerner  solutions  and  services  and   assist  clients  in  determining  the  proper  hardware  and  software  configurations.  Our  primary  direct  marketing  strategy  is  to   generate  sales  contacts  from  our  existing  client  base  and  through  presentations  at  industry  seminars  and  tradeshows.  We   market   the   PowerWorks®   solutions,   offered   on   a   subscription   basis,   directly   to   the   physician   practice   market   using   telemarketing,   channel   partners   and   through   existing   acute   care   clients   that   are   looking   to   extend   Cerner   solutions   to   affiliated  physicians.  We  attend  a  number  of  major  tradeshows  each  year  and  sponsor  executive  user  conferences,  which   feature  industry  experts  who  address  the  HCIT  needs  of  large  health  care  organizations.   Client  Services       Substantially  all  of  Cerner's  HCIT  software  solutions  clients  enter  into  software  support  agreements  with  us  for  maintenance   and  support  of  their  Cerner  systems.  In  addition  to  immediate  software  support  in  the  event  of  problems,  these  agreements   allow  clients  to  access  new  releases  of  the  Cerner  solutions  covered  by  support  agreements.  Each  client  has  24-­‐hour  access   to   the   client   support   team   located   at   our   world   headquarters   in   North   Kansas   City,   Missouri   and   our   global   support   organizations  in  England  and  Ireland.   Most   clients   who   buy   hardware   through   Cerner   also   enter   into   hardware   maintenance   agreements   with   us.   These   arrangements   normally   provide   for   a   fixed   monthly   fee   for   specified   services.   In   the   majority   of   cases,   we   utilize   subcontractors   to   meet   our   hardware   maintenance   obligations.   We   also   offer   a   set   of   managed   services   that   include   remote  hosting,  operational  management  services  and  disaster  recovery.   Backlog     At  the  end  of  2011,  we  had  a  contract  backlog  of  approximately  $5.4  billion  as  compared  to  approximately  $4.3  billion  at   the   end   of   2010.   Such   backlog   represents   system   sales   and   services   from   signed   contracts   that   have   not   yet   been   recognized  as  revenue.    At  the  end  of  2011,  we  had  $81.8  million  of  contracts  receivable  compared  to  $139.9  million  at  the   end  of  2010,  which  represents  revenues  recognized  but  not  yet  billable  under  the  terms  of  the  contract.    At  the  end  of  2011,   we   had   a   software   support   and   maintenance   backlog   of   approximately   $705.7   million   as   compared   to   approximately   $654.9   million   at   the   end   of   2010.     Such   backlog   represents   contracted   software   support   and   hardware   maintenance   services  for  a  period  of  12  months.  We  estimate  that  approximately  30  percent  of  the  aggregate  backlog  at  the  end  of  2011   of  $6.1  billion  will  be  recognized  as  revenue  during  2012.     Competition   The  market  for  HCIT  solutions,  devices  and  services  is  intensely  competitive,  rapidly  evolving  and  subject  to  rapid   technological  change.  Our  principal  competitors  in  the  health  care  solutions  and  services  market  include:  Allscripts   Healthcare  Solutions,  Inc.,  Computer  Programs  and  Systems,  Inc.  (CPSI),  Epic  Systems  Corporation,  GE  Healthcare   Technologies,   Healthcare   Management   Systems,   Inc.   (HMS),   Healthland,   Inc.,   Computer   Sciences   Corporation   (iSoft),   Keane,   Inc.,   McKesson   Corporation,   Medical   Information   Technology,   Inc.   (Meditech),   Siemens   Medical   Solutions   Health   Services   Corporation,   and   Quadramed   Corporation,   each   of   which   offers   a   suite   of   software   solutions  that  compete  with  many  of  our  software  solutions  and  services.   Other   competitors   focus   on   only   a   portion   of   the   market   that   we   address.   For   example,   competitors   such   as   Accenture  plc,  Affiliated  Computer  Services  (ACS),  Cap  Gemini  S.  A.,  Computer  Task  Group,  Inc.  (CTGHS),  Dell,  Inc.,   Deloitte  Consulting  LLP,  Hewlett-­‐Packard  Company,  IBM  Corporation  and  maxIT  Healthcare  LLC  offer  HCIT  services   that   compete   directly   with   some   of   our   service   offerings.   AmazingCharts.com,   Inc.,   Athenahealth,   Inc.,   eClinicalWorks  LLC,  e-­‐MDs,  Inc.,  Greenway  Medical  Technologies,  MED3000,  Inc.,  Quality  Systems,  Inc.,  Sevocity  (a   division  of  Conceptual  MindWorks,  Inc.)  and  Vitera  Healthcare  Solutions  (formerly  Sage  Software  Healthcare  LLC)   offer   solutions   to   the   physician   practice   market   but   do   not   currently   have   a   significant   presence   in   the   health   systems  and  independent  hospital  market.   30                 Cerner  partners  with  third  parties  as  a  reseller  of  devices  and  markets  its  own  competing  proprietary  health  care   devices.     We   view   our   principal   competitors   in   the   health   care   device   market   to   include:   API   Healthcare,   CapsuleTech,   Inc.,   CareFusion   Corporation,   GE   Healthcare   Technologies,   iSirona,   LLC,   McKesson   Corporation   and   Omnicell,  Inc.    We  view  our  principal  competitors  in  the  health  care  revenue  cycle  transactions  market  to  include:   Accretive  Health,  Inc.,  Capario,  Inc.,  Emdeon  Corporation,  McKesson  Corporation,  MedAssets,  Inc.,  Optum,  Inc.,  SSI   Group,   Inc.   and   3M   Company   with   almost   all   of   these   competitors   being   substantially   larger   or   having   more   experience  and  market  share  than  us  in  their  respective  markets.   In   addition,   we   expect   that   major   software   information   systems   companies,   large   information   technology   consulting   service   providers   and   system   integrators,   start-­‐up   companies,   managed   care   companies   and   others   specializing  in  the  health  care  industry  may  offer  competitive  software  solutions,  devices  or  services.  The  pace  of   change   in   the   HCIT   market   is   rapid   and   there   are   frequent   new   software   solutions,   devices   or   services   introductions,   enhancements   and   evolving   industry   standards   and   requirements.   We   believe   that   the   principal   competitive  factors  in  this  market  include  the  breadth  and  quality  of  solution  and  service  offerings,  the  stability  of   the  solution  provider,  the  features  and  capabilities  of  the  information  systems  and  devices,  the  ongoing  support   for   the   systems   and   devices   and   the   potential   for   enhancements   and   future   compatible   software   solutions   and   devices.   Number  of  Employees  (Associates)   At  the  end  of  2011,  we  employed  approximately  9,900  associates  worldwide.   Operating  Segments   in   Item   7   Information   about   our   operating   segments,   which   are   geographically   based,   may   be   found   “Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations”  below  and  in  Note  (18)   to  the  consolidated  financial  statements.   Executive  Officers  of  the  Registrant   The  following  table  sets  forth  the  names,  ages,  positions  and  certain  other  information  regarding  the  Company’s   executive  officers  as  of  February  9,  2012.    Officers  are  elected  annually  and  serve  at  the  discretion  of  the  Board  of   Directors.       Name   Age     Positions   Neal  L.  Patterson     Clifford  W.  Illig   Marc  G.  Naughton   Michael  R.  Nill   Randy  D.  Sims   Jeffrey  A.  Townsend     Julia  M.  Wilson   Zane  M.  Burke     62   61   56   47   51   48   49   46   Chairman  of  the  Board  of  Directors,  Chief  Executive  Officer     and  President   Vice  Chairman  of  the  Board  of  Directors   Executive  Vice  President  and  Chief  Financial  Officer   Executive  Vice  President  and  Chief  Operating  Officer   Senior  Vice  President,  Chief  Legal  Officer  and  Secretary   Executive  Vice  President  and  Chief  of  Staff   Senior  Vice  President  and  Chief  People  Officer   Executive  Vice  President  -­‐  Client  Organization   Neal   L.   Patterson   has   been   Chairman   of   the   Board   of   Directors   and   Chief   Executive   Officer   of   the   Company   for   more  than  five  years.    Mr.  Patterson  has  served  as  President  of  the  Company  since  July  2010,  a  position  he  also   held  from  March  of  1999  until  August  of  1999.   31                                                                                                                   Clifford   W.   Illig   has   been   a   Director   of   the   Company   for   more   than   five   years.     He   previously   served   as   Chief   Operating  Officer  of  the  Company  until  October  1998  and  as  President  of  the  Company  until  March  of  1999.    Mr.   Illig  was  appointed  Vice  Chairman  of  the  Board  of  Directors  in  March  of  1999.   Marc  G.  Naughton  joined  the  Company  in  November  1992  as  Manager  of  Taxes.    In  November  1995  he  was  named   Chief  Financial  Officer  and  in  February  1996  he  was  promoted  to  Vice  President.    He  was  promoted  to  Senior  Vice   President  in  March  2002  and  promoted  to  Executive  Vice  President  in  March  2010.     Michael   R.   Nill   joined   the   Company   in   November   1996.   Since   that   time   he   has   held   several   positions   in   the   Technology,   Intellectual   Property   and   CernerWorks   Client   Hosting   Organizations.   He   was   promoted   to   Vice   President   in   January   2000,   promoted   to   Senior   Vice   President   in   April   2006   and   promoted   to   Executive   Vice   President  and  named  Chief  Engineering  Officer  in  February  2009.  Mr.  Nill  was  appointed  Chief  Operating  Officer  in   May  2011.   Randy  D.  Sims  joined  the  Company  in  March  1997  as  Vice  President  and  Chief  Legal  Officer  and  was  promoted  to   Senior  Vice  President  in  March  2011.    Prior  to  joining  the  Company,  Mr.  Sims  worked  at  Farmland  Industries,  Inc.   for  three  years  where  he  last  served  as  Associate  General  Counsel.    Prior  to  Farmland,  Mr.  Sims  was  in-­‐house  legal   counsel  at  The  Marley  Company  for  seven  years,  holding  the  position  of  Assistant  General  Counsel  when  he  left  to   join  Farmland.   Jeffrey   A.   Townsend   joined   the   Company   in   June   1985.     Since   that   time   he   has   held   several   positions   in   the   Intellectual  Property  Organization  and  was  promoted  to  Vice  President  in  February  1997.    He  was  appointed  Chief   Engineering  Officer  in  March  1998,  promoted  to  Senior  Vice  President  in  March  2001,  named  Chief  of  Staff  in  July   2003  and  promoted  to  Executive  Vice  President  in  March  2005.     Julia   M.   Wilson   joined   the   Company   in   November   1995.     Since   that   time,   she   has   held   several   positions   in   the   Functional  Group  Organization.    She  was  promoted  to  Vice  President  and  Chief  People  Officer  in  August  2003  and   to  Senior  Vice  President  in  March  2007.   Zane  Burke  joined  the  Company  in  September  1996.    Since  that  time,  he  has  held  a  variety  of  client-­‐facing  sales,   implementation   and   support   roles,   including   Corporate   Controller   and   Vice   President   of   Finance.     He   was   promoted  to  President  of  the  Company’s  West  region  in  2002  and  U.S.  General  Manager  for  client  relationships  in   2007.    He  was  further  promoted  to  Executive  Vice  President  -­‐  Client  Organization  in  May  2011.   32                   Item  1A.    Risk  Factors   Risks  Related  to  Cerner  Corporation   We  may  incur  substantial  costs  related  to  product-­‐related  liabilities.    Many  of  our  software  solutions,  health  care   devices   or   services   (including   life   sciences/research   services)   are   intended   for   use   in   collecting,   storing   and   displaying   clinical   and   health   care-­‐related   information   used   in   the   diagnosis   and   treatment   of   patients   and   in   related  health  care  settings  such  as  admissions,  billing,  etc.    We  attempt  to  limit  by  contract  our  liability;  however,   the  limitations  of  liability  set  forth  in  the  contracts  may  not  be  enforceable  or  may  not  otherwise  protect  us  from   liability  for  damages.  We  may  also  be  subject  to  claims  that  are  not  covered  by  contract,  such  as  a  claim  directly  by   a   patient.   Although   we   maintain   liability   insurance   coverage   in   an   amount   that   we   believe   is   sufficient   for   our   business,  there  can  be  no  assurance  that  such  coverage  will  cover  any  particular  claim  that  has  been  brought  or   that  may  be  brought  in  the  future,  prove  to  be  adequate  or  that  such  coverage  will  continue  to  remain  available  on   acceptable  terms,  if  at  all.    A  successful  material  claim  or  series  of  claims  brought  against  us,  if  uninsured  or  under-­‐ insured,  could  materially  harm  our  business,  results  of  operations  and  financial  condition.    Product-­‐related  claims,   even  if  not  successful,  could  damage  our  reputation,  cause  us  to  lose  existing  clients,  limit  our  ability  to  obtain  new   clients,   divert   management’s   attention   from   operations,   result   in   significant   revenue   loss,   create   potential   liabilities  for  our  clients  and  us  and  increase  insurance  and  other  operational  costs.   We  may  be  subject  to  claims  for  system  errors  and  warranties.  Our  software  solutions  and  health  care  devices  are   very  complex  and  may  contain  design,  coding  or  other  errors,  especially  when  first  introduced.    It  is  not  uncommon   for  HCIT  providers  to  discover  errors  in  software  solutions  and/or  health  care  devices  after  their  introduction.    Our   software   solutions   and   health   care   devices   are   intended   for   use   in   collecting,   storing,   and   displaying   clinical   and   health  care-­‐related  information  used  in  the  diagnosis  and  treatment  of  patients  and  in  related  health  care  settings   such  as  admissions,  billing,  etc.    Therefore,  users  of  our  software  solutions  and  health  care  devices  have  a  greater   sensitivity  to  errors  than  the  market  for  software  products  and  devices  generally.    Our  client  agreements  typically   provide   warranties   concerning   material   errors   and   other   matters.     Should   a   client's   Cerner   software   solution   and/or  health  care  device  fail  to  meet  these  warranties  or  lead  to  faulty  clinical  decisions  or  injury  to  patients,  it   could  1)  constitute  a  material  breach  under  the  client  agreement,  allowing  the  client  to  terminate  the  agreement   and  possibly  obtain  a  refund  and/or  damages,  or  might  require  us  to  incur  additional  expense  in  order  to  make  the   software  solution  or  health  care  device  meet  these  criteria  or  2)  subject  us  to  claims  or  litigation  by  our  clients  or   clinicians  or  directly  by  the  patient.    Additionally,  such  failures  could  damage  our  reputation  and  could  negatively   affect  future  sales.    Our  client  agreements  generally  limit  our  liability  arising  from  such  claims  but  such  limits  may   not  be  enforceable  in  certain  jurisdictions  or  circumstances.  Although  we  maintain  liability  insurance  coverage  in   an  amount  that  we  believe  is  sufficient  for  our  business,  there  can  be  no  assurance  that  such  coverage  will  cover   any  particular  claim  that  has  been  brought  or  that  may  be  brought  in  the  future,  prove  to  be  adequate  or  that  such   coverage  will  continue  to  remain  available  on  acceptable  terms,  if  at  all.    A  successful  material  claim  or  series  of   claims  brought  against  us,  if  uninsured  or  under-­‐insured,  could  materially  harm  our  business,  results  of  operations   and  financial  condition.       We  may  experience  interruption  at  our  data  centers  or  client  support  facilities.    We  perform  data  center  and/or   hosting  services  for  certain  clients,  including  the  storage  of  critical  patient  and  administrative  data.    In  addition,  we   provide   support   services   to   our   clients   through   various   client   support   facilities.     We   have   invested   in   reliability   features   such   as   multiple   power   feeds,   multiple   backup   generators   and   redundant   telecommunications   lines,   as   well   as   technical   (such   as   multiple   overlapping   security   applications,   access   control   and   other   countermeasures)   and   physical   security   safeguards,   and   structured   our   operations   to   reduce   the   likelihood   of   disruptions.   Periodic   risk   assessments   are   conducted   to   ensure   additional   risks   are   identified   and   appropriately   mitigated.     However,   complete   failure   of   all   local   public   power   and   backup   generators,   impairment   of   all   telecommunications   lines,   a   concerted  denial  of  service  cyber-­‐attack,  a  significant  data  breach,  damage  (environmental,  accidental,  intentional   or   pandemic)   to   the   buildings,   the   equipment   inside   the   buildings   housing   our   data   centers,   the   client   data   contained   therein   and/or   the   personnel   trained   to   operate   such   facilities   could   cause   a   disruption   in   operations   and  negatively  impact  clients  who  depend  on  us  for  data  center  and  system  support  services.  We  offer  our  clients   disaster   recovery   services   for   additional   fees   to   protect   clients   from   isolated   data   center   failures,   leveraging   our   multiple  data  center  facilities,  however  only  a  small  percentage  of  our  hosted  clients  choose  to  contract  for  these   services.       Any   interruption   in   operations   at   our   data   centers   and/or   client   support   facilities   could   damage   our   33         reputation,  cause  us  to  lose  existing  clients,  hurt  our  ability  to  obtain  new  clients,  result  in  significant  revenue  loss,   create  potential  liabilities  for  our  clients  and  us  and  increase  insurance  and  other  operating  costs.   Our   proprietary   technology   may   be   subject   to   claims   for   infringement   or   misappropriation   of   intellectual   property   rights   of   others,   or   may   be   infringed   or   misappropriated   by   others.     We   rely   upon   a   combination   of   license   agreements,   confidentiality   policies   and   procedures,   employee   nondisclosure   agreements,   confidentiality   agreements  with  third  parties  and  technical  security  measures  to  maintain  the  confidentiality,  exclusivity  and  trade   secrecy  of  our  proprietary  information.    We  also  rely  on  trademark  and  copyright  laws  to  protect  our  intellectual   property  rights  in  the  United  States  and  abroad.    We  continue  to  develop  our  patent  portfolio  of  United  States  and   global   patents,   but   these   patents   do   not   provide   comprehensive   protection   for   the   wide   range   of   solutions   and   services   offered   by   us.   Despite   our   protective   measures   and   intellectual   property   rights,   we   may   not   be   able   to   adequately   protect   against   theft,   copying,   reverse-­‐engineering,   misappropriation,   infringement   or   unauthorized   use  or  disclosure  of  our  intellectual  property,  which  could  have  an  adverse  effect  on  our  competitive  position.   In   addition,   we   are   routinely   involved   in   intellectual   property   infringement   or   misappropriation   claims   and   we   expect  this  activity  to  continue  or  even  increase  as  the  number  of  competitors,  patents  and  patent  enforcement   organizations  in  the  HCIT  market  increases,  the  functionality  of  our  software  solutions  and  services  expands,  the   use  of  open-­‐source  software  increases  and  we  enter  new  geographies  and  new  markets  such  as  health  care  device   innovation,   health   care   transactions   and   life   sciences.     These   claims,   even   if   not   meritorious,   are   expensive   to   defend  and  are  often  times  incapable  of  prompt  resolution.    If  we  become  liable  to  third  parties  for  infringing  or   misappropriating   their   intellectual   property   rights,   we   could   be   required   to   pay   a   substantial   damage   award,   develop  alternative  technology,  obtain  a  license  and/or  cease  using,  selling,  offering  for  sale,  licensing,  importing,   implementing  and  supporting  the  solutions,  devices  and  services  that  violate  the  intellectual  property  rights.   We  may  become  subject  to  legal  proceedings  that  could  have  a  material  adverse  impact  on  our  financial  position   and  results  of  operations.    From  time  to  time  and  in  the  ordinary  course  of  our  business,  we  and  certain  of  our   subsidiaries   may   become   involved   in   various   legal   proceedings.     All   such   legal   proceedings   are   inherently   unpredictable   and   the   outcome   can   result   in   excessive   verdicts   and/or   injunctive   relief   that   may   affect   how   we   operate  our  business  or  we  may  enter  into  settlements  of  claims  for  monetary  damages.    Future  court  decisions   and   legislative   activity   may   increase   our   exposure   to   litigation   and   regulatory   investigations.     In   some   cases,   substantial  non-­‐economic  remedies  or  punitive  damages  may  be  sought.   We   are   subject   to   risks   associated   with   our   non-­‐U.S.   operations.     We   market,   sell   and   service   our   solutions,   devices   and   services   globally.     We   have   established   offices   around   the   world,   including   in   the   Americas,   Europe,   the  Middle  East  and  the  Asia  Pacific  region.    We  will  continue  to  expand  our  non-­‐U.S.  operations  and  enter  new   global  markets.    This  expansion  will  require  significant  management  attention  and  financial  resources  to  develop   successful  direct  and  indirect  non-­‐U.S.  sales  and  support  channels.    Our  business  is  generally  transacted  in  the  local   functional  currency.    In  some  countries,  our  success  will  depend  in  part  on  our  ability  to  form  relationships  with   local  partners.    There  is  a  risk  that  we  may  sometimes  choose  the  wrong  partner.    For  these  reasons,  we  may  not   be  able  to  maintain  or  increase  non-­‐U.S.  market  demand  for  our  solutions,  devices  and  services.   Non-­‐U.S.  operations  are  subject  to  inherent  risks,  and  our  future  results  could  be  adversely  affected  by  a  variety  of   uncontrollable  and  changing  factors.    These  include,  but  are  not  limited  to:   • Greater  difficulty  in  collecting  accounts  receivable  and  longer  collection  periods   • Difficulties  and  costs  of  staffing  and  managing  non-­‐U.S.  operations   • • • Unfavorable  or  volatile  foreign  currency  exchange  rates   • The  impact  of  global  economic  conditions   Effects  of  sovereign  debt  conditions,  including  budgetary  constraints   Legal   compliance   costs   and/or   business   risks   associated   with   our   global   operations   where:   i)   local   laws   and  customs  differ  from  those  in  the  United  States  or  ii)  risk  is  heightened  with  respect  to  laws  prohibiting   improper   payments   and   bribery,   including   without   limitation   the   U.S.   Foreign   Corrupt   Practices   Act   and   similar  regulations  in  foreign  jurisdictions   Certification,  licensing  or  regulatory  requirements     • 34             • Unexpected  changes  in  regulatory  requirements   • • Changes  to  or  reduced  protection  of  intellectual  property  rights  in  some  countries   Inability   to   obtain   necessary   financing   on   reasonable   terms   to   adequately   support   non-­‐U.S.   operations   and  expansion   Potentially  adverse  tax  consequences  and  difficulties  associated  with  repatriating  cash  generated  or  held   abroad  in  a  tax-­‐efficient  manner   • Trade  protection  measures   Export  control  regulations   Service  provider  and  government  spending  patterns   • Different  or  additional  functionality  requirements  or  preferences   • • • • Natural  disasters,  war  or  terrorist  acts   • • • Labor  disruptions  that  may  occur  in  a  country   Poor  selection  of  a  partner  in  a  country   Political  conditions  which  may  impact  sales  or  threaten  the  safety  of  associates  or  our  continued  presence   in  these  countries   Our   failure   to   effectively   hedge   exposure   to   fluctuations   in   foreign   currency   exchange   rates   could   unfavorably   affect  our  performance.    We  currently  utilize  a  non-­‐derivative  instrument  to  hedge  our  exposure  to  fluctuations  in   certain   foreign   currency   exchange   rates.   This   instrument   may   involve   elements   of   market   risk   in   excess   of   the   amounts   recognized   in   the   Consolidated   Financial   Statements.   For   additional   information   about   risk   on   financial   instruments,   see   Item  7A   “Quantitative   and   Qualitative   Disclosures   about   Market   Risk.”     Further,   our   financial   results  from  non-­‐U.S.  operations  may  be  negatively  affected  if  we  fail  to  execute  or  improperly  hedge  our  exposure   to  currency  fluctuations.   We   are   subject   to   tax   legislation   in   numerous   countries;   tax   legislation   initiatives   or   challenges   to   our   tax   positions   could   adversely   affect   our   results   of   operations   and   financial   condition.     We   are   a   global   corporation   with   a   presence   in   more   than   25   countries.     As   such,   we   are,   or   in   the   future   could   be,   subject   to   tax   laws,   regulations   and   policies   of   the   United   States   federal,   state   and   local   governments   and   of   other   country   jurisdictions.  From  time  to  time,  various  legislative  initiatives  may  be  proposed  that  could  adversely  affect  our  tax   positions  and/or  our  tax  liabilities.  There  can  be  no  assurance  that  our  effective  tax  rate  or  tax  payments  will  not   be   adversely   affected   by   these   initiatives.   In   addition,   United   States   federal,   state   and   local,   as   well   as   other   countries’  tax  laws  and  regulations,  are  extremely  complex  and  subject  to  varying  interpretations.  There  can  be  no   assurance  that  our  tax  positions  will  not  be  challenged  by  relevant  tax  authorities  or  that  we  would  be  successful  in   any  such  challenge,  which  could  result  in  double  taxation,  penalties  and  interest  payments.   Our   success   depends   upon   the   recruitment   and   retention   of   key   personnel.     To   remain   competitive   in   our   industries,   we   must   attract,   motivate   and   retain   highly   skilled   managerial,   sales,   marketing,   consulting   and   technical   personnel,   including   executives,   consultants,   programmers   and   systems   architects   skilled   in   the   HCIT,   health  care  devices,  health  care  transactions  and  life  sciences  industries  and  the  technical  environments  in  which   our  solutions,  devices  and  services  are  needed.    Competition  for  such  personnel  in  our  industries  is  intense  in  both   the  United  States  and  abroad.    Our  failure  to  attract  additional  qualified  personnel  to  meet  our  needs  could  have  a   material  adverse  effect  on  our  prospects  for  long-­‐term  growth.    Our  success  is  dependent  to  a  significant  degree   on   the   continued   contributions   of   key   management,   sales,   marketing,   consulting   and   technical   personnel.     The   unexpected  loss  of  key  personnel  could  have  a  material  adverse  impact  on  our  business  and  results  of  operations,   and   could   potentially   inhibit   development   and   delivery   of   our   solutions,   devices   and   services   and   market   share   advances.       We  depend  on  third  party  suppliers  and  our  revenue  and  gross  margin  could  suffer  if  we  fail  to  manage  suppliers   properly.    We  license  or  purchase  intellectual  property  and  technology  (such  as  software,  hardware  and  content)   from   third   parties,   including   some   competitors,   and   incorporate   such   third   party   software,   hardware   and/or   content  into  or  sell  or  license  it  in  conjunction  with  our  solutions,  devices  and  services.  We  depend  on  some  of  the   third  party  software,  hardware  and/or  content  in  the  operation  and  delivery  of  our  solutions,  devices  and  services.     For  instance,  we  currently  depend  on  Microsoft  and  IBM  technologies  for  portions  of  the  operational  capabilities   of  our  Millennium  solutions.    Our  remote  hosting  business  also  relies  on  a  single  or  a  limited  number  of  suppliers   35       for   certain   functions   of   this   business,   such   as   Oracle   database   technologies,   CITRIX   technologies   and   Cisco   networking   technologies.     Additionally,   we   rely   on   Hewlett   Packard   and   IBM   for   our   hardware   technology   platforms.   Most  of  the  third  party  software  licenses  we  have  expire  within  one  to  five  years,  can  be  renewed  only  by  mutual   consent  and  may  be  terminated  if  we  breach  the  terms  of  the  license  and  fail  to  cure  the  breach  within  a  specified   period   of   time.     Most   of   these   third   party   software   licenses   are   non-­‐exclusive;   therefore,   our   competitors   may   obtain  the  right  to  use  any  of  the  technology  covered  by  these  licenses  and  use  the  technology  to  compete  directly   with  us.       If  any  of  the  third  party  suppliers  were  to  change  product  offerings,  cease  actively  supporting  the  technologies,  fail   to   update   and   enhance   the   technologies   to   keep   pace   with   changing   industry   standards,   encounter   technical   difficulties   in   the   continuing   development   of   these   technologies,   significantly   increase   prices,   terminate   our   licenses  or  supply  contracts,  suffer  significant  capacity  constraints  or  suffer  significant  disruptions,  we  would  need   to   seek   alternative   suppliers   and   incur   additional   internal   or   external   development   costs   to   ensure   continued   performance  of  our  solutions,  devices  and  services.  Such  alternatives  may  not  be  available  on  attractive  terms,  or   may  not  be  as  widely  accepted  or  as  effective  as  the  intellectual  property  or  technology  provided  by  our  existing   suppliers.   If   the   cost   of   licensing,   purchasing   or   maintaining   the   third   party   intellectual   property   or   technology   significantly  increases,  our  gross  margin  levels  could  significantly  decrease.  In  addition,  interruption  in  functionality   of   our   solutions,   devices   and   services   as   a   result   of   changes   in   third   party   suppliers   could   adversely   affect   our   commitments  to  customers,  future  sales  of  solutions,  devices  and  services,  and  negatively  affect  our  revenue  and   gross  margins.   We  intend  to  continue  strategic  business  acquisitions,  which  are  subject  to  inherent  risks.  In  order  to  expand  our   solutions,   device   offerings   and   services   and   grow   our   market   and   client   base,   we   may   continue   to   seek   and   complete   strategic   business   acquisitions   that   we   believe   are   complementary   to   our   business.   Acquisitions   have   inherent  risks  which  may  have  a  material  adverse  effect  on  our  business,  financial  condition,  operating  results  or   prospects,  including,  but  not  limited  to:  1)  failure  to  successfully  integrate  the  business  and  financial  operations,   services,   intellectual   property,   solutions   or   personnel   of   an   acquired   business   and   to   maintain   uniform   standard   controls,  policies  and  procedures;  2)  diversion  of  management’s  attention  from  other  business  concerns;  3)  entry   into   markets   in   which   we   have   little   or   no   direct   prior   experience;   4)   failure   to   achieve   projected   synergies   and   performance   targets;   5)   loss   of   clients   or   key   personnel;   6)   incurrence   of   debt   and/or   assumption   of   known   and   unknown  liabilities;  7)  write-­‐off  of  software  development  costs,  goodwill,  client  lists  and  amortization  of  expenses   related   to   intangible   assets;   8)   dilutive   issuances   of   equity   securities;   and,   9)   accounting   deficiencies   that   could   arise   in   connection   with,   or   as   a   result   of,   the   acquisition   of   an   acquired   company,   including   issues   related   to   internal  control  over  financial  reporting  and  the  time  and  cost  associated  with  remedying  such  deficiencies.    If  we   fail  to  successfully  integrate  acquired  businesses  or  fail  to  implement  our  business  strategies  with  respect  to  these   acquisitions,  we  may  not  be  able  to  achieve  projected  results  or  support  the  amount  of  consideration  paid  for  such   acquired  businesses.   We  could  suffer  losses  due  to  asset  impairment  charges.    We  test  our  goodwill  for  impairment  during  the  second   quarter  every  year,  and  on  an  interim  date  should  events  or  changes  in  circumstances  indicate  the  carrying  value   of  goodwill  may  not  be  recoverable  in  accordance  with  provisions  of  ASC  350,  Intangibles  –  Goodwill  and  Other.     Declines   in   business   performance   or   other   factors   could   cause   the   fair   value   of   a   reporting   unit   to   be   revised   downward   and   could   result   in   a   non-­‐cash   impairment   charge.     This   could   materially   affect   our   reported   net   earnings.   The  ongoing  uncertainty  in  global  economic  conditions  could  negatively  affect  our  business,  results  of  operations   and   financial   condition.     Although   certain   indices   and   economic   data   have   shown   signs   of   stabilization   in   the   United  States  and  certain  global  markets,  there  can  be  no  assurance  that  these  improvements  will  be  broad-­‐based   or  sustainable,  nor  is  it  clear  how,  if  at  all,  they  will  affect  the  markets  relevant  to  us.    As  a  result,  our  operating   results  may  be  impacted  by  the  health  of  the  global  economy.    Continued  adverse  economic  conditions  may  lead   to  slowdowns  or  declines  in  client  spending  which  could  adversely  affect  our  business  and  financial  performance.     Our   business   and   financial   performance,   including   new   business   bookings   and   collection   of   our   accounts   receivable,   may   be   adversely   affected   by   current   and   future   economic   conditions   (including   a   reduction   in   the   36           availability  of  credit,  higher  energy  costs,  rising  interest  rates,  financial  market  volatility  and  lower  than  expected   economic   growth)   that   cause   a   slowdown   or   decline   in   client   spending.   Reduced   purchases   by   our   clients   or   changes  in  payment  terms  could  adversely  affect  our  revenue  growth  and  cause  a  decrease  in  our  cash  flow  from   operations.     Bankruptcies   or   similar   events   affecting   clients   may   cause   us   to   incur   bad   debt   expense   at   levels   higher  than  historically  experienced.    Further,  an  ongoing  global  financial  crisis  may  also  limit  our  ability  to  access   the   capital   markets   at   a   time   when   we   would   like,   or   need,   to   raise   capital,   which   could   have   an   impact   on   our   ability  to  react  to  changing  economic  and  business  conditions.    Accordingly,  if  the  global  financial  crisis  and  current   economic   downturn   continues   or   worsens,   our   business,   results   of   operations   and   financial   condition   could   be   materially  and  adversely  affected.   Risks   Related   to   the   Health   Care   Information   Technology,   Health   Care   Device   and   Health   Care   Transaction   Industry   The  health  care  industry  is  subject  to  changing  political,  economic  and  regulatory  influences.    For  example,  the   Health  Insurance  Portability  and  Accountability  Act  of  1996  (as  modified  by  The  Health  Information  Technology  for   Economic  and  Clinical  Health  Act  (HITECH)  provisions  of  the  ARRA)  (HIPAA)  continues  to  have  a  direct  impact  on   the   health   care   industry   by   requiring   national   provider   identifiers   and   standardized   transactions/code   sets   and   necessary   security   and   privacy   measures   in   order   to   ensure   the   appropriate   level   of   privacy   of   protected   health   information.  These  regulatory  factors  affect  the  purchasing  practices  and  operation  of  health  care  organizations.   Many   health   care   providers   are   consolidating   to   create   integrated   health   care   delivery   systems   with   greater   market  power.    These  providers  may  try  to  use  their  market  power  to  negotiate  price  reductions  for  our  solutions   and   services.     As   the   health   care   industry   consolidates,   our   client   base   could   be   eroded,   competition   for   clients   could  become  more  intense  and  the  importance  of  landing  new  client  relationships  becomes  greater.   The   Patient   Protection   and   Affordable   Care   Act,   which   was   amended   by   the   Health   Care   and   Education   Reconciliation   Act   of   2010,   became   law   in   2010.     This   comprehensive   health   care   reform   legislation   included   provisions   to   control   health   care   costs,   improve   health   care   quality,   and   expand   access   to   affordable   health   insurance.    This  health  care  reform  legislation  could  include  changes  in  Medicare  and  Medicaid  payment  policies   and  other  health  care  delivery  administrative  reforms  that  could  potentially  negatively  impact  our  business  and  the   business   of   our   clients.   Because   the   administrative   rules   implementing   health   care   reform   under   the   legislation   have  not  yet  been  finalized,  the  impact  of  the  health  care  reform  legislation  on  our  business  is  unknown,  but  there   can  be  no  assurances  that  health  care  reform  legislation  will  not  adversely  impact  either  our  operational  results  or   the   manner   in   which   we   operate   our   business.   Health   care   industry   participants   may   respond   by   reducing   their   investments  or  postponing  investment  decisions,  including  investments  in  our  solutions  and  services.   The  health  care  industry  is  highly  regulated  at  the  local,  state  and  federal  level.    The  impact  of  this  regulation  on   us  is  direct,  to  the  extent  that  we  are  ourselves  subject  to  these  laws  and  regulations,  and  is  also  indirect  because,   in   a   number   of   situations,   even   though   we   may   not   be   directly   regulated   by   specific   health   care   laws   and   regulations,  our  solutions  and  services  must  be  capable  of  being  used  by  our  clients  in  a  way  that  complies  with   those  laws  and  regulations.    There  is  a  significant  and  wide-­‐ranging  number  of  regulations  both  within  the  United   States   and   abroad,   such   as   regulations   in   the   areas   of   health   care   fraud,   e-­‐prescribing,   claims   processing   and   transmission,  medical  devices,  the  security  and  privacy  of  patient  data  and  interoperability  standards,  that  may  be   directly  or  indirectly  applicable  to  our  operations  and  relationships  or  the  business  practices  of  our  clients.   Health  Care  Fraud.  Federal  and  state  governments  continue  to  enhance  regulation  of  and  increase  their  scrutiny   over   practices   involving   health   care   fraud   affecting   health   care   providers   whose   services   are   reimbursed   by   Medicare,  Medicaid  and  other  government  health  care  programs.  Our  health  care  provider  clients  are  subject  to   laws   and   regulations   on   fraud   and   abuse   which,   among   other   things,   prohibit   the   direct   or   indirect   payment   or   receipt   of   any   remuneration   for   patient   referrals,   or   arranging   for   or   recommending   referrals   or   other   business   paid  for  in  whole  or  in  part  by  these  federal  or  state  health  care  programs.    Federal  enforcement  personnel  have   substantial   funding,   powers   and   remedies   to   pursue   suspected   or   perceived   fraud   and   abuse.   The   effect   of   this   government  regulation  on  our  clients  is  difficult  to  predict.    Many  of  the  regulations  applicable  to  our  clients  and   that  may  be  applicable  to  us,  including  those  relating  to  marketing  incentives  offered  in  connection  with  medical   device   sales,   are   vague   or   indefinite   and   have   not   been   interpreted   by   the   courts.   They   may   be   interpreted   or   37           applied  by  a  prosecutorial,  regulatory  or  judicial  authority  in  a  manner  that  could  broaden  their  applicability  to  us   or  require  our  clients  to  make  changes  in  their  operations  or  the  way  in  which  they  deal  with  us.  If  such  laws  and   regulations  are  determined  to  be  applicable  to  us  and  if  we  fail  to  comply  with  any  applicable  laws  and  regulations,   we  could  be  subject  to  civil  and  criminal  penalties,  sanctions  or  other  liability,  including  exclusion  from  government   health  programs,  which  could  have  a  material  adverse  effect  on  our  business,  results  of  operations  and  financial   condition.       E-­‐Prescribing.    The  use  of  our  solutions  by  physicians  for  electronic  prescribing,  electronic  routing  of  prescriptions   to   pharmacies   and   dispensing   is   governed   by   federal   and   state   laws.     States   have   differing   prescription   format   requirements,  which  we  have  programmed  into  our  solutions.    In  addition,  in  November  2005,  the  Department  of   Health  and  Human  Services  announced  regulations  by  Centers  for  Medicare  and  Medicaid  Services  (CMS)  related   to  “E-­‐Prescribing  and  the  Prescription  Drug  Program”  (E-­‐Prescribing  Regulations).    These  E-­‐Prescribing  Regulations   were   mandated   by   the   Medicare   Prescription   Drug,   Improvement,   and   Modernization   Act   of   2003.     The   E-­‐ Prescribing  Regulations  set  forth  standards  for  the  transmission  of  electronic  prescriptions.    These  standards  are   detailed  and  significant,  and  cover  not  only  transactions  between  prescribers  and  dispensers  for  prescriptions  but   also   electronic   eligibility,   benefits   inquiries,   drug   formulary   and   benefit   coverage   information.     Our   efforts   to   provide  solutions  that  enable  our  clients  to  comply  with  these  regulations  could  be  time-­‐consuming  and  expensive.       Claims   Transmissions.     Our   solutions   are   capable   of   electronically   transmitting   claims   for   services   and   items   rendered  by  a  physician  to  many  patients’  payers  for  approval  and  reimbursement,  which  claims  are  governed  by   federal  and  state  laws.    Federal  law  provides  civil  liability  to  any  person  that  knowingly  submits  a  claim  to  a  payer,   including   Medicare,   Medicaid   and   private   health   plans,   seeking   payment   for   any   services   or   items   that   have   not   been   provided   to   the   patient.     Federal   law   may   also   impose   criminal   penalties   for   intentionally   submitting   such   false   claims.     We   have   policies   and   procedures   in   place   that   we   believe   result   in   the   accurate   and   complete   transmission  of  claims,  provided  that  the  information  given  to  us  by  our  clients  is  also  accurate  and  complete.    The   HIPAA  security,  privacy  and  transaction  standards,  as  discussed  below,  also  have  a  potentially  significant  effect  on   our  claims  transmission  services,  since  those  services  must  be  structured  and  provided  in  a  way  that  supports  our   clients’   HIPAA   compliance   obligations.   In   connection   with   these   laws,   we   may   be   subjected   to   federal   or   state   government   investigations   and   possible   penalties   may   be   imposed   upon   us,   false   claims   actions   may   have   to   be   defended,   private   payers   may   file   claims   against   us   and   we   may   be   excluded   from   Medicare,   Medicaid   or   other   government-­‐funded   health   care   programs.     Any   investigation   or   proceeding   related   to   these   laws   may   have   a   material  adverse  impact  on  our  results  of  operations.   Regulation   of   Medical   Devices.     The   United   States   Food   and   Drug   Administration   (the   FDA)   has   determined   that   certain  of  our  solutions  are  medical  devices  that  are  actively  regulated  under  the  Federal  Food,  Drug  and  Cosmetic   Act  (Act)  and  amendments  to  the  Act.    Other  countries  have  similar  regulations  in  place  related  to  medical  devices,   that  now  or  may  in  the  future  apply  to  certain  of  our  solutions.    If  other  of  our  solutions  are  deemed  to  be  actively   regulated  medical  devices  by  the  FDA  or  similar  regulatory  agencies  in  countries  where  we  do  business,  we  could   be   subject   to   extensive   requirements   governing   pre-­‐   and   post-­‐marketing   activities   including   pre-­‐market   notification  clearance.    Complying  with  these  medical  device  regulations  on  a  global  perspective  is  time  consuming   and   expensive,   and   could   be   subject   to   unanticipated   and   significant   delays.   Further,   it   is   possible   that   these   regulatory  agencies  may  become  more  active  in  regulating  software  and  medical  devices  that  are  used  in  health   care.  If  we  are  unable  to  obtain  the  required  regulatory  approvals  for  any  such  solutions  or  medical  devices,  our   short  to  long  term  business  plans  for  these  solutions  and/or  medical  devices  could  be  delayed  or  canceled.   There   have   been   ten   FDA   inspections   at   various   Cerner   sites   since   1998.     Inspections   conducted   at   our   world   headquarters  in  1999  and  2010,  and  our  prior  Houston,  Texas  facility  in  2002,  each  resulted  in  the  issuance  of  an   FDA  Form  483  observation  to  which  we  responded  promptly.    The  FDA  has  taken  no  further  action  with  respect  to   the   Form   483   observations   that   were   issued   in   1999,   2002   and   2010.     The   remaining   seven   FDA   inspections,   including   inspections   at   our   world   headquarters   in   2006   and   2007,   resulted   in   no   issuance   of   a   Form   483.     We   remain   subject   to   periodic   FDA   inspections   and   we   could   be   required   to   undertake   additional   actions   to   comply   with  the  Act  and  any  other  applicable  regulatory  requirements.    Our  failure  to  comply  with  the  Act  and  any  other   applicable  regulatory  requirements  could  have  a  material  adverse  effect  on  our  ability  to  continue  to  manufacture   and   distribute   our   solutions   and   devices.     The   FDA   has   many   enforcement   tools   including   recalls,   product   corrections,   seizures,   injunctions,   refusal   to   grant   pre-­‐market   clearance   of   products,   civil   fines   and/or   criminal   38       prosecutions.    Any  of  the  foregoing  could  have  a  material  adverse  effect  on  our  business,  results  of  operations  and   financial  condition.   Security   and   Privacy   of   Patient   Information.     Federal,   state,   local   and   foreign   laws   regulate   the   confidentiality   of   patient  records  and  the  circumstances  under  which  those  records  may  be  released.  These  regulations  govern  both   the   disclosure   and   use   of   confidential   patient   medical   record   information   and   require   the   users   of   such   information   to   implement   specified   security   and   privacy   measures.   United   States   regulations   currently   in   place   governing   electronic   health   data   transmissions   continue   to   evolve   and   are   often   unclear   and   difficult   to   apply.   Laws   in   non-­‐U.S.   jurisdictions   may   have   similar   or   even   stricter   requirements   related   to   the   treatment   of               patient  information.   In  the  United  States,  HIPAA  regulations  require  national  standards  for  some  types  of  electronic  health  information   transactions   and   the   data   elements   used   in   those   transactions,   security   standards   to   ensure   the   integrity   and   confidentiality   of   health   information   and   standards   to   protect   the   privacy   of   individually   identifiable   health   information.   Covered   entities   under   HIPAA,   which   include   health   care   organizations   such   as   our   clients,   our   employer   clinic   business   model   and   our   claims   transmission   services,   are   required   to   comply   with   the   privacy   standards,   the   transaction   regulations   and   the   security   regulations.     Moreover,   the   recently   enacted   HITECH   provisions   of   ARRA,   and   associated   regulatory   requirements,   extend   many   of   the   HIPAA   obligations,   formerly   imposed  only  upon  covered  entities,  to  business  associates  as  well.    As  a  business  associate  of  our  clients  who  are   covered  entities,  we  were  in  most  instances  already  contractually  required  to  ensure  compliance  with  the  HIPAA   regulations  as  they  pertain  to  handling  of  covered  client  data.  However,  the  extension  of  these  HIPAA  obligations   to  business  associates  by  law  has  created  additional  liability  risks  related  to  the  privacy  and  security  of  individually   identifiable  health  information.     Evolving  HIPAA  and  HITECH-­‐related  laws  or  regulations  in  the  U.S.  and  data  privacy  and  security  laws  or  regulations   in  non-­‐U.S.  jurisdictions  could  restrict  the  ability  of  our  clients  to  obtain,  use  or  disseminate  patient  information.   This   could   adversely   affect   demand   for   our   solutions   if   they   are   not   re-­‐designed   in   a   timely   manner   in   order   to   meet  the  requirements  of  any  new  interpretations  or  regulations  that  seek  to  protect  the  privacy  and  security  of   patient  data  or  enable  our  clients  to  execute  new  or  modified  health  care  transactions.  We  may  need  to  expend   additional  capital,  software  development  and  other  resources  to  modify  our  solutions  and  devices  to  address  these   evolving  data  security  and  privacy  issues.  Furthermore,  our  failure  to  maintain  confidentiality  of  sensitive  personal   information  in  accordance  with  the  applicable  regulatory  requirements  could  damage  our  reputation  and  expose   us  to  breach  of  contract  claims  (although  we  contractually  limit  liability,  when  possible  and  where  permitted),  fines   and  penalties.   interoperable   with   other   Interoperability   Standards.     Our   clients   are   concerned   with   and   often   require   that   our   software   solutions   and   health   care   devices   be   forces   or   governmental/regulatory   authorities   could   create   software   interoperability   standards   that   would   apply   to   our   solutions,   and   if   our   software   solutions   and/or   health   care   devices   are   not   consistent   with   those   standards,   we   could  be  forced  to  incur  substantial  additional  development  costs  to  conform.    The  Certification  Commission  for   Healthcare   Information   Technology   (CCHIT)   has   developed   a   comprehensive   set   of   criteria   for   the   functionality,   interoperability   and   security   of   various   software   modules   in   the   HCIT   industry.     CCHIT,   however,   continues   to   modify  and  refine  those  standards.    Achieving  CCHIT  certification  is  becoming  a  competitive  requirement,  resulting   in  increased  software  development  and  administrative  expense  to  conform  to  these  requirements.     third   party   HCIT   suppliers.     Market   ARRA   Meaningful   Use   Program.     Various   federal,   state   and   non-­‐U.S.   government   agencies   are   also   developing   standards   that   could   become   mandatory   for   systems   purchased   by   these   agencies.   For   example,   ARRA   requires   “meaningful   use   of   certified   electronic   health   record   technology”   by   health   care   providers   in   order   to   receive   incentive   payments.   implementation   issued   that   specifications   and   establish   the   certification   standards   for   qualifying   electronic   health   record   technology.     Nevertheless,  these  standards  and  specifications  are  subject  to  interpretation  by  the  entities  designated  to  certify   such   technology.   While   a   combination   of   our   solutions   have   been   certified   as   meeting   the   initial   standards   for   certified   health   record   technology,   the   regulatory   standards   to   achieve   certification   will   continue   to   evolve   over   time.     We   may   incur   increased   development   costs   and   delays   in   delivering   solutions   if   we   need   to   upgrade   our     Regulations   have   been   initial   standards   and   identify   39 software   and   health   care   devices   to   be   in   compliance   with   these   varying   and   evolving   standards.     In   addition,   delays   in   interpreting   these   standards   may   result   in   postponement   or   cancellation   of   our   clients’   decisions   to   purchase  our  solutions.    If  our  software  solutions  and  health  care  devices  are  not  compliant  with  these  evolving   standards,  our  market  position  and  sales  could  be  impaired  and  we  may  have  to  invest  significantly  in  changes  to   our  software  solutions  and  health  care  devices,  although  we  do  not  expect  such  costs  to  be  significant  in  relation   to  the  overall  development  costs  for  our  solutions.       We   operate   in   intensely   competitive   and   dynamic   industries,   and   our   ability   to   successfully   compete   and   continue   to   grow   our   business   depends   on   our   ability   to   respond   quickly   to   market   changes   and   changing   technologies   and   to   bring   competitive   new   solutions,   devices,   features   and   services   to   market   in   a   timely   fashion.     The   market   for   health   care   information   systems,   health   care   devices   and   services   to   the   health   care   industry  is  intensely  competitive,  dynamically  evolving  and  subject  to  rapid  technological  and  innovative  changes.     Development  of  new  proprietary  technology  or  services  is  complex,  entails  significant  time  and  expense  and  may   not  be  successful.    We  cannot  guarantee  that  we  will  be  able  to  introduce  new  solutions,  devices  or  services  on   schedule,   or   at   all,   nor   can   we   guarantee   that   errors   will   not   be   found   in   our   new   solution   releases,   devices   or   services   before   or   after   commercial   release,   which   could   result   in   solution,   device   or   service   delivery   redevelopment  costs  and  loss  of,  or  delay  in,  market  acceptance.       Certain  of  our  competitors  have  greater  financial,  technical,  product  development,  marketing  and  other  resources   than   us   and   some   of   our   competitors   offer   software   solutions   that   we   do   not   offer.     Our   principal   existing   competitors  are  set  forth  above  under  Part  I,  Item  1  Competition.     In   addition,   we   expect   that   major   software   information   systems   companies,   large   information   technology   consulting  service  providers  and  system  integrators,  start-­‐up  companies  and  others  specializing  in  the  health  care   industry  may  offer  competitive  software  solutions,  devices  or  services.    We  face  strong  competition  and  often  face   downward  price  pressure,  which  could  adversely  affect  our  results  of  operations  or  liquidity.    Additionally,  the  pace   of   change   in   the   health   care   information   systems   market   is   rapid   and   there   are   frequent   new   software   solution   introductions,  software  solution  enhancements,  device  introductions,  device  enhancements  and  evolving  industry   standards   and   requirements.     There   are   a   limited   number   of   hospitals   and   other   health   care   providers   in   the   United   States   HCIT   market   and   in   recent   years,   the   health   care   industry   has   been   subject   to   increasing   consolidation.     As   the   industry   consolidates,   costs   fall,   technology   improves,   and   market   factors   continue   to   compel  investment  by  health  care  organizations  in  solutions  and  services  like  ours,  market  saturation  in  the  United   States  may  change  the  competitive  landscape  in  favor  of  larger,  more  diversified  competitors  with  greater  scale.  If   we   are   unable   to   recognize   these   changes   in   a   timely   manner,   or   we   are   too   inflexible   to   rapidly   adjust   our   business  models,  our  growth  ambitions  and  financial  results  could  be  negatively  affected  materially.     Risks  Related  to  Our  Stock   Our  quarterly  operating  results  may  vary,  which  could  adversely  affect  our  stock  price.    Our  quarterly  operating   results   have   varied   in   the   past   and   may   continue   to   vary   in   future   periods,   including:   variations   from   guidance,   expectations  or  historical  results  or  trends.    Quarterly  operating  results  may  vary  for  a  number  of  reasons  including   demand   for   our   solutions,   devices   and   services,   the   financial   condition   of   our   current   and   potential   clients,   our   long  sales  cycle,  potentially  long  installation  and  implementation  cycles  for  larger,  more  complex  and  higher-­‐priced   systems,  accounting  policy  changes  and  other  factors  described  in  this  section  and  elsewhere  in  this  report.    As  a   result  of  health  care  industry  trends  and  the  market  for  our  Cerner  Millennium  solutions,  a  large  percentage  of  our   revenues  are  generated  by  the  sale  and  installation  of  larger,  more  complex  and  higher-­‐priced  systems.    The  sales   process  for  these  systems  is  lengthy  and  involves  a  significant  technical  evaluation  and  commitment  of  capital  and   other   resources   by   the   client.     Sales   may   be   subject   to   delays   due   to   changes   in   clients'   internal   budgets,   procedures  for  approving  large  capital  expenditures,  competing  needs  for  other  capital  expenditures,  additions  or   amendments   to   governing   federal,   state   or   local   regulations,   availability   of   personnel   resources   and   by   actions   taken  by  competitors.    Delays  in  the  expected  sale,  installation  or  implementation  of  these  large  systems  may  have   a   significant   impact   on   our   anticipated   quarterly   revenues   and   consequently   our   earnings,   since   a   significant   percentage  of  our  expenses  are  relatively  fixed.     40           Revenue   recognized   in   any   quarter   may   depend   upon   our   and   our   clients’   abilities   to   meet   project   milestones.     Delays  in  meeting  these  milestone  conditions  or  modification  of  the  project  plan  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.       Our   revenues   from   system   sales   historically   have   been   lower   in   the   first   quarter   of   the   year   and   greater   in   the   fourth  quarter  of  the  year,  primarily  as  a  result  of  clients’  year-­‐end  efforts  to  make  all  final  capital  expenditures  for   the  then-­‐current  year.   Our  sales  forecasts  may  vary  from  actual  sales  in  a  particular  quarter.    We  use  a  “pipeline”  system,  a  common   industry  practice,  to  forecast  sales  and  trends  in  our  business.    Our  sales  associates  monitor  the  status  of  all  sales   opportunities,  such  as  the  date  when  they  estimate  that  a  client  will  make  a  purchase  decision  and  the  potential   dollar  amount  of  the  sale.    These  estimates  are  aggregated  periodically  to  generate  a  sales  pipeline.    We  compare   this   pipeline   at   various   points   in   time   to   evaluate   trends   in   our   business.     This   analysis   provides   guidance   in   business   planning   and   forecasting,   but   these   pipeline   estimates   are   by   their   nature   speculative.     Our   pipeline   estimates  are  not  necessarily  reliable  predictors  of  revenues  in  a  particular  quarter  or  over  a  longer  period  of  time,   partially  because  of  changes  in  the  pipeline  and  in  conversion  rates  of  the  pipeline  into  contracts  that  can  be  very   difficult  to  estimate.    A  negative  variation  in  the  expected  conversion  rate  or  timing  of  the  pipeline  into  contracts,   or   in   the   pipeline   itself,   could   cause   our   plan   or   forecast   to   be   inaccurate   and   thereby   adversely   affect   business   results.    For  example,  a  slowdown  in  information  technology  spending,  adverse  economic  conditions,  new  federal,   state   or   local   regulations   directly   related   to   our   industry   or   a   variety   of   other   factors   can   cause   purchasing   decisions  to  be  delayed,  reduced  in  amount  or  cancelled,  which  would  reduce  the  overall  pipeline  conversion  rate   in  a  particular  period  of  time.    Because  a  substantial  portion  of  our  contracts  are  completed  in  the  latter  part  of  a   quarter,   we   may   not   be   able   to   adjust   our   cost   structure   quickly   enough   in   response   to   a   revenue   shortfall   resulting  from  a  decrease  in  our  pipeline  conversion  rate  in  any  given  fiscal  quarter.     The   trading   price   of   our   common   stock   may   be   volatile.     The   market   for   our   common   stock   may   experience   significant   price   and   volume   fluctuations   in   response   to   a   number   of   factors   including   actual   or   anticipated   variations  in  operating  results,  rumors  about  our  performance  or  solutions,  devices  and  services,  announcements   of   technological   innovations   or   new   services   or   products   by   our   competitors   or   us,   changes   in   expectations   of   future   financial   performance   or   estimates   of   securities   analysts,   governmental   regulatory   action,   health   care   reform  measures,  client  relationship  developments,  economic  conditions  and   changes  occurring  in  the  securities   markets  in  general  and  other  factors,  many  of  which  are  beyond  our  control.    For  instance,  our  quarterly  operating   results  have  varied  in  the  past  and  may  continue  to  vary  in  future  periods,  due  to  a  number  of  reasons  including   demand   for   our   solutions,   devices   and   services,   the   financial   condition   of   our   current   and   potential   clients,   our   long  sales  cycle,  potentially  long  installation  and  implementation  cycles  for  larger,  more  complex  and  higher-­‐priced   systems,  accounting  policy  changes  and  other  factors  described  herein.    As  a  matter  of  policy,  we  do  not  generally   comment  on  our  stock  price  or  rumors.   Furthermore,   the   stock   market   in   general,   and   the   markets   for   software,   health   care   devices,   other   health   care   solutions   and   services   and   information   technology   companies   in   particular,   have   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  our  common  stock,  regardless  of  actual  operating   performance.   Our   Directors   have   authority   to   issue   preferred   stock   and   our   corporate   governance   documents   contain   anti-­‐ takeover  provisions.    Our  Board  of  Directors  has  the  authority  to  issue  up  to  1,000,000  shares  of  preferred  stock   and  to  determine  the  preferences,  rights  and  privileges  of  those  shares  without  any  further  vote  or  action  by  the   shareholders.    The  rights  of  the  holders  of  common  stock  may  be  harmed  by  rights  granted  to  the  holders  of  any   preferred  stock  that  may  be  issued  in  the  future.     In   addition,   some   provisions   of   our   Certificate   of   Incorporation   and   Bylaws   could   make   it   more   difficult   for   a   potential  acquirer  to  acquire  a  majority  of  our  outstanding  voting  stock.  These  include  provisions  that  provide  for  a   classified  board  of  directors,  prohibit  shareholders  from  taking  action  by  written  consent  and  restrict  the  ability  of   shareholders   to   call   special   meetings.     We   are   also   subject   to   provisions   of   Delaware   law   that   prohibit   us   from   41         engaging  in  any  business  combination  with  any  interested  shareholder  for  a  period  of  three  years  from  the  date   the  person  became  an  interested  shareholder,  unless  certain  conditions  are  met,  which  could  have  the  effect  of   delaying  or  preventing  a  change  of  control.     Factors  that  May  Affect  Future  Results  of  Operations,  Financial  Condition  or  Business     Statements   made   in   this   report,   the   Annual   Report   to   Shareholders   of   which   this   report   is   made   a   part,   other   reports   and   proxy   statements   filed   with   the   Securities   and   Exchange   Commission   (SEC),   communications   to   shareholders,  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,   plans,   goals   or   predictions  of  future  events  or  performance,  may  constitute  “forward-­‐looking  statements”  within  the  meaning  of   Section  27A  of  the  Securities  Act  of  1933,  as  amended  and  Section  21E  of  the  Securities  Exchange  Act  of  1934,  as   amended  (the  Exchange  Act).    Forward-­‐looking  statements  can  often  be  identified  by  the  use  of  forward-­‐looking   terminology,   such   as     “could,”   “should,”   “will,”   “intended,”   “continue,”   “believe,”   “may,”   “expect,”   “hope,”   “anticipate,”  “goal,”  “forecast,”  “plan,”  “guidance”  or  “estimate”  or  the  negative  of  these  words,  variations  thereof   or   similar   expressions.     Forward-­‐looking   statements   are   not   guarantees   of   future   performance   or   results.     They   involve  risks,  uncertainties  and  assumptions.    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  in  this   Item  1A.  Risk  Factors  and  elsewhere  herein  or  in  other  reports  filed  with  the  SEC.    Other  unforeseen  factors  not   identified  herein  could  also  have  such  an  effect.    We  undertake  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.   Item  1B.  Unresolved  Staff  Comments   None.   Item  2.    Properties   Our  properties  consist  mainly  of  owned  and  leased  office  and  data  center  facilities.     Our  United  States  corporate  world  headquarters  are  located  in  a  Company-­‐owned  office  park  (the  Headquarters   Campus)  in  North  Kansas  City,  Missouri.  The  Headquarters  Campus  and  three  other  nearby  locations,  collectively   contain   approximately   2.22   million   gross   square   feet   of   useable   space   situated   on   278   acres   of   land.   The   Headquarters   Campus   and   the   nearby   properties   primarily   house   office   space,   but   also   include   space   for   other   business  needs,  such  as  our  Healthe  Clinic  and  our  Headquarters  Campus  data  centers.   Company  owned  office  space,  known  as  the  Innovation  Campus,  houses  associates  from  our  intellectual  property   organization  and  consists  of  790,000  gross  square  feet  of  useable  space  located  in  Kansas  City,  Missouri.   Our  Cerner-­‐operated  data  center  facilities,  which  are  used  to  provide  remote  hosting,  disaster  recovery  and  other   services  to  our  clients,  are  located  at  the  Headquarters  Campus  and  a  leased  facility  in  Lee’s  Summit,  Missouri.   As   of   the   end   of   2011,   we   leased   additional   office   space   in   Beverly   Hills   and   Garden   Grove,   California;   Denver,   Colorado;  Jacksonville,  Florida;  Lenexa,  Kansas;  Waltham,  Massachusetts;  Minneapolis  and  Rochester,  Minnesota;   Columbia,  Lee’s  Summit  and  Kansas  City,  Missouri;  Durham,  North  Carolina;  Concord,  Ohio;  and  Vienna  and  Falls   Church,   Virginia.   Globally,   we   also   leased   office   space   in:   Brisbane,   Sydney   and   Melbourne,   Australia;   Toronto,   Canada;   Santiago,   Chile;   Cairo,   Egypt;   London,   England;   Paris,   France;   Herzogenrath   and   Idstein,   Germany;   Bangalore,  India;  Dublin,  Ireland;  Kuala  Lumpur,  Malaysia;  Riyadh,  Saudi  Arabia;  Singapore;  Madrid,  Spain;  Doha,   Qatar;  and  Abu  Dhabi  and  Dubai,  United  Arab  Emirates.         42                       Item  3.    Legal  Proceedings   We  are  not  a  party  to  and  none  of  our  property  is  subject  to  any  material  pending  legal  proceedings,  other  than   ordinary  routine  litigation  incidental  to  our  business.     Item  4.    Removed  and  Reserved   43         PART  II     Item  5.    Market  for  the  Registrant’s  Common  Equity  and  Related  Stockholder  Matters  and  Issuer  Purchases  of   Equity  Securities       Our   common   stock   trades   on   The   NASDAQ   Global   Select   MarketSM   under   the   symbol   CERN.     The   following   table   sets  forth  the  high,  low  and  last  sales  prices  for  the  fiscal  quarters  of  2011  and  2010  as  reported  by  The  Nasdaq   Stock  Market®.       2011  (a) 2010  (a) High Low Last High   Low Last First  Quarter Second  Quarter Third  Quarter Fourth  Quarter $           56.45 62.54 72.88 69.97 $           47.18 54.46 54.93 55.75 $           56.45 62.54 68.52 61.25 $           45.36 45.79 42.52 48.08 $           37.83 37.50 36.43 42.36 $           42.87 38.05 42.52 47.37 (a)  Sales  prices  have  been  retroactively  adjusted  to  give  effect  to  the  stock  split,  as  further  described  in  Note  1              to  the  consolidated  financial  statements. At  February  9,  2012,  there  were  approximately  992  owners  of  record.    To  date,  we  have  paid  no  cash  dividends   and  we  do  not  intend  to  pay  cash  dividends  in  the  foreseeable  future.    We  believe  it  is  in  the  shareholders'  best   interest  for  us  to  reinvest  funds  in  the  operation  of  the  business.   In   March   2008,   our   Board   of   Directors   authorized   a   stock   repurchase   program   for   $45   million   of   our   Common   Stock.   As   of   December   31,   2011,   $17   million   remains   available   under   the   authorized   program.     There   were   no   shares  purchased  by  us  under  the  program  during  the  quarter  or  the  year  ended  December  31,  2011.     The   following   table   provides   information   with   respect   to   Common   Stock   purchases   by   the   Company   during   the   fourth  fiscal  quarter  of  2011:   Period October  2,  2011  -­‐  October  29,  2011 October  30,  2011  -­‐  November  26,  2011 November  27,  2011  -­‐  December  31,  2011 Total Total  Number   of  Shares   Purchased  (a) 2,356 -­‐ -­‐ 2,356 Average  Price   Paid  per  Share $                             69.32 -­‐ -­‐ 69.32 $                             Total  Number  of   Shares  Purchased   as  Part  of  Publicly   Announced  Plans   or  Programs -­‐ -­‐ -­‐ -­‐ Approximate   Dollar  Value  of   Shares  That  May   Yet  Be  Purchased   Under  the  Plans   or  Programs -­‐ -­‐ -­‐ (a) All of the shares presented on the table above were originally granted to employees as restricted stock pursuant to our Long-­‐Term Incentive Plan F. The Long-­‐Term Incentive Plan F provides for the withholding of shares to satisfy minimum tax obligations due upon the vesting of restricted stock, and pursuant to the Long-­‐Term Incentive Plan F, the shares reflected above were relinquished by employees in exchange for our agreement to pay federal  and  state  withholding  obligations  resulting  from  the  vesting  of  the  Company's  restricted  stock. See  Part  III,  Item  12  for  information  relating  to  securities  authorized  for  issuance  under  our  equity  compensation   plans.   44                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Item  6.    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,  excl.  current  installments Cerner  Corporation  stockholders'  equity 2011 (1) 2010 (1)(2) 2009 (1)(2) 2008 (1)(2)(3) 2007 (1)(2)(4)(5)(6) $   2,203,153 459,798 469,694 306,627 $   1,850,222 359,333 362,212 237,272 $   1,671,864 292,006 292,681 193,465 $   1,676,028 278,885 281,431 188,658 $   1,519,877 204,083 203,967 127,125 1.82 1.76 1.44 1.39 1.19 1.15 1.17 1.13 0.80 0.76 168,634 173,867 164,916 170,847 161,963 167,764 161,097 166,869 158,790 166,435 $   1,063,593 3,000,358 86,821 2,310,681 $           840,129 2,422,790 67,923 1,905,297 $           788,232 2,148,567 95,506 1,580,678 $           517,650 1,880,988 111,370 1,311,009 $           530,441 1,689,956 177,606 1,132,428 (1) Includes  share-­‐based  compensation  expense  recognized.    The  impact  of  including  this  expense  is  as  follows:     (In  thousands  except  share  data) 2011 2010 2009 2008 2007 Total  stock-­‐based  compensation  expense $                             29,479 $                             24,903 $                             16,842 $                             15,144 $                             16,189 Amount  of  related  income  tax  benefit (11,256) (9,329) (6,274) (5,641) (6,030) Net  impact  on  earnings $                             18,223 $                             15,574 $                             10,568 $                                   9,503 $                             10,159 Decrease  to  diluted  earnings  per  share  (2) $                                         0.11 $                                         0.09 $                                         0.06 $                                         0.06 $                                         0.06 (2) All  share  and  per  share  data  have  been  retroactively  adjusted  to  give  effect  to  the  stock  split,  as  further  described  in  Note  1  to   the  consolidated  financial  statements.   (3) (4) (5) (6) Includes  expense  related  to  a  settlement  with  a  third  party  provider  of  software  related  to  the  use  of  the  third  party’s  software   in  our  remote  hosting  business.    The  settlement  included  compensation  for  the  use  of  the  software  for  periods  prior  to  2008  as   well  as  compensation  for  licenses  of  the  software  for  future  use  for  existing  and  additional  clients  through  January  2009.    Of   the   total   settlement   amount,   we   determined   that   $5.0   million   should   have   been   recorded   in   prior   periods,   primarily   2005   through  2007.    Based  on  this  valuation,  2008  results  include  an  increase  of  $8.0  million  to  sales  and  client  service  expense,  a   decrease  of  $5.0  million  to  net  earnings,  and  a  decrease  of  $0.03  to  diluted  earnings  per  share  that  are  attributable  to  prior   periods.       Includes   a   $3.1   million   tax   benefit   recorded   in   2007   related   to   periods   prior   to   2007.     The   tax   benefit   relates   to   the   over-­‐ expensing   of   state   income   taxes,   which   resulted   in   an   increase   to   diluted   earnings   per   share   of   $0.02   in   the   year   ended   December  29,  2007.       Includes  a  research  and  development  write-­‐off  related  to  the  RxStation®  medication  dispensing  devices.    In  connection  with   production   and   delivery   of   the   RxStation   medication   dispensing   devices,   we   reviewed   the   accounting   treatment   for   the   RxStation  line  of  devices  and  determined  that  $8.6  million  of  research  and  development  activities  for  the  RxStation  medication   dispensing   devices   that   should   have   been   expensed   was   incorrectly   capitalized.     The   impact   of   this   charge   is   a   $5.4   million   decrease,  net  of  a  $3.2  million  tax  benefit,  in  net  earnings  and  a  decrease  to  diluted  earnings  per  share  of  $0.03  in  the  year   ended  December  29,  2007.      $2.1  million  of  this  $5.4  million  after  tax  amount  recorded  in  2007  related  to  periods  prior  to  2007.   Includes  an  adjustment  to  correct  the  amounts  previously  reported  for  the  second  quarter  of  2007  for  a  previously  disclosed   out-­‐of-­‐period  tax  item  relating  to  foreign  net  operating  losses.    The  effect  of  this  adjustment  increases  tax  expense  for  the  year   ended  December  29,  2007,  by  $4.2  million  and  increases  January  1,  2005  retained  earnings  (Shareholders’  Equity)  by  the  same   amount.   45                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Item  7.   Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations   The  following  Management  Discussion  and  Analysis  (MD&A)  is  intended  to  help  the  reader  understand  our  results   of   operations   and   financial   condition.   This   MD&A   is   provided   as   a   supplement   to,   and   should   be   read   in   conjunction  with,  our  financial  statements  and  the  accompanying  notes  to  the  financial  statements  (Notes).     Our  fiscal   year   ends   on   the   Saturday   closest   to   December   31.     Fiscal  years  2011,  2010  and  2009  consisted  of  52   weeks   and   ended   on   December   31,   2011,   January   1,   2011   and   January   2,   2010,   respectively.     All   references   to   years  in  this  MD&A  represent  fiscal  years  unless  otherwise  noted.     Management  Overview   Our   revenues   are   primarily   derived   by   selling,   implementing   and   supporting   software   solutions,   clinical   content,   hardware,   devices   and   services   that   give   health   care   providers   secure   access   to   clinical,   administrative   and   financial  data  in  real  time,  allowing  them  to  improve  quality,  safety  and  efficiency  in  the  delivery  of  health  care.     Our  fundamental  strategy  centers  on  creating  organic  growth  by  investing  in  research  and  development  (R&D)  to   create  solutions  and  services  for  the  health  care  industry.    This  strategy  has  driven  strong  growth  over  the  long-­‐ term,  as  reflected  in  five-­‐  and  ten-­‐year  compound  annual  revenue  growth  rates  of  10%  or  more.    This  growth  has   also  created  an  important  strategic  footprint  in  health  care,  with  Cerner  solutions  licensed  by  approximately  9,300   facilities  around  the  world,  including  more  than  2,650  hospitals;  3,750  physician  practices;  40,000  physicians;  500   ambulatory   facilities,   such   as   laboratories,   ambulatory   centers,   cardiac   facilities,   radiology   clinics   and   surgery   centers;   800   home   health   facilities;   40   employer   sites   and   1,600   retail   pharmacies.     Selling   additional   solutions   back  into  this  client  base  is  an  important  element  of  our  future  revenue  growth.    We  are  also  focused  on  driving   growth   through   market   share   expansion   by   strategically   aligning   with   health   care   providers   that   have   not   yet   selected  a  supplier  and  by  displacing  competitors  in  health  care  settings  that  are  looking  to  replace  their  current   supplier.       We   expect   to   drive   growth   through   new   initiatives   and   services   that   reflect   our   ongoing   ability   to   innovate   and   expand  our  reach  into  health  care.  Examples  of  these  include  our  CareAware®  health  care  device  architecture  and   devices,  Cerner  Healthe™  employer  services,  Cerner  ITWorksSM  services,  Cerner  RevWorksSM  services,  and  solutions   on   our   Healthe   Intent   platform.     Finally,   we   believe   there   is   significant   opportunity   for   growth   outside   of   the   United  States,  with  many  non-­‐U.S.  markets  focused  on  HCIT  as  part  of  their  strategy  to  improve  the  quality  and   lower  the  cost  of  health  care.     Beyond  our  strategy  for  driving  revenue  growth,  we  are  also  focused  on  earnings  growth.    Similar  to  our  history  of   growing   revenue,   our   net   earnings   have   increased   at   compound   annual   rates   of   more   than   20%   over   the   most   recent  five-­‐  and  ten-­‐year  periods.    We  expect  to  drive  continued  earnings  growth  through  ongoing  revenue  growth   coupled   with   margin   expansion,   which   we   expect   to   achieve   through   efficiencies   in   our   implementation   and   operational  processes  and  by  leveraging  R&D  investments  and  controlling  general  and  administrative  expenses.     We  are  also  focused  on  continuing  to  deliver  strong  levels  of  cash  flow,  which  we  expect  to  do  by  continuing  to   grow  earnings  and  prudently  managing  capital  expenditures.       Results  Overview   The  Company  delivered  strong  levels  of  bookings,  revenues,  earnings  and  cash  flows  in  2011.     New   business   bookings   revenue   in   2011,   which   reflects   the   value   of   executed   contracts   for   software,   hardware,   professional  services  and  managed  services,  was  $2.7  billion,  which  is  an  increase  of  37%  compared  to  $2.0  billion   in   2010.   Our   2011   revenues   increased   19%   to   $2.2   billion   compared   to   $1.9   billion   in   2010.   The   year-­‐over-­‐year   increase   in   revenue   reflects   improved   economic   conditions   and   demand   driven   by   the   stimulus   incentives.   As   discussed  in  the  “Health  Care  and  Health  Care  IT  Industry”  under  Part  1,  Item  1,  we  believe  the  HITECH  incentives   46                           and  the  nation’s  focus  on  improving  the  efficiency  and  quality  of  health  care  will  create  a  period  of  increased  HCIT   demand  in  the  United  States.   Our  2011  net  earnings  increased  29%  to  $306.6  million  compared  to  $237.3  million  in  2010.    Diluted  earnings  per   share  increased  27%  to  $1.76  compared  to  $1.39  in  2010.    The  2011  and  2010  net  earnings  and  diluted  earnings   per  share  reflect  the  impact  of  stock-­‐based  compensation  expense.    The  effect  of  these  expenses  reduced  the  2011   net  earnings  and  diluted  earnings  per  share  by  $18.2  million  and  $0.11,  and  the  2010  earnings  and  diluted  earnings   per  share  by  $15.6  million  and  $0.09,  respectively.  The  growth  in  net  earnings  and  diluted  earnings  per  share  was   driven  primarily  by  strong  revenue  growth  and  continued  progress  with  our  margin  expansion  initiatives,  including   efficiencies  in  our  implementation  and  operational  processes,  leveraging  R&D  investments  and  controlling  general   and  administrative  expenses.  With  our  full-­‐year  2011  operating  margin  at  20.9%,  we  achieved  our  long  term  goal   of  20%  operating  margins  in  2011.   We   had   cash   collections   of   receivables   of   $2.2   billion   in   2011   compared   to   $1.9   billion   in   2010.     Days   sales   outstanding  decreased  to  83  days  for  the  2011  fourth  quarter  compared  to  87  days  for  the  2011  third  quarter  and   the  2010  fourth  quarter,  reflecting  an  improvement  in  cash  collections.    Operating  cash  flows  for  2011  were  strong   at  $546.3  million  compared  to  $456.4  million  in  2010,  with  the  growth  driven  by  cash  collections  from  clients.   Health  Care  Information  Technology  Market  Outlook   We  have  provided  a  detailed  assessment  of  the  health  care  information  technology  market  under  “Health  Care  and   Health  Care  IT  Industry”  in  Part  I,  Item  1.   47             Results  of  Operations   Fiscal  Year  2011  Compared  to  Fiscal  Year  2010   (In  thousands)   Revenues System  sales Support  and  maintenance Services Reimbursed  travel Total  revenues Costs  of  revenue Costs  of  revenue Total  margin Operating  expenses Sales  and  client   Software  development   General  and  administrative   Total  operating  expenses 2011 %  of Revenue %  of 2010 Revenue %  Change $           706,714 550,554 901,193 44,692 2,203,153 32% 25% 41% 2% 100% $           550,792 517,494 749,483 32,453 1,850,222 441,672 1,761,481 20% 80% 320,356 1,529,866 869,962 286,801 144,920 1,301,683 39% 13% 7% 59% 767,152 272,851 130,530 1,170,533 30% 28% 40% 2% 100% 17% 83% 42% 15% 7% 64% 81% 19% 28% 6% 20% 38% 19% 38% 15% 13% 5% 11% 11% 17% 28% Total  costs  and  expenses   1,743,355 79% 1,490,889 Operating  earnings 459,798 21% 359,333 Interest  income  (expense),  net Other  income  (expense),  net Income  taxes 9,850 46 (163,067) 3,439 (560) (124,940) Net  earnings $           306,627 $           237,272 29% Revenues  &  Backlog   Revenues  increased  19%  to  $2.2  billion  in  2011,  as  compared  to  $1.9  billion  in  2010.       • • • System  sales,  which  include  revenues  from  the  sale  of  licensed  software,  software  as  a  service,  technology   resale   (hardware,   devices   and   sublicensed   software),   deployment   period   licensed   software   upgrade   rights,  installation  fees,  transaction  processing,  and  subscriptions,  increased  28%  to  $706.7  million  in  2011   from   $550.8   million   in   2010.   The   increase   in   system   sales   was   driven   by   strong   increases   in   licensed   software,  technology  resale,  and  subscriptions.   Support  and  maintenance  revenues  increased  6%  to  $550.6  million  in  2011  compared  to  $517.5  million  in   2010.   This   increase   is   attributable   to   continued   success   at   selling   Cerner   Millennium   applications   and   implementing  them  at  client  sites.  We  expect  support  and  maintenance  revenues  will  continue  to  grow  as   the  base  of  installed  Cerner  Millennium  systems  grow.     Services   revenue,   which   includes   professional   services,   excluding   installation,   and   managed   services,   increased  20%  to  $901.2  million  in  2011  compared  to  $749.5  million  in  2010.  This  increase  was  driven  by   growth  in  CernerWorksSM  managed  services  as  a  result  of  continued  demand  for  our  hosting  services  and   an   increase   in   professional   services   due   to   increased   implementation   activities   and   growth   in   Cerner   ITWorks  services.   48                                                                                                                                                                                                                                                                                                                                                                                                                                                             Contract  backlog,  which  reflects  new  business  bookings  that  have  not  yet  been  recognized  as  revenue,  increased   26%  in  2011  compared  to  2010.    This  increase  was  driven  by  growth  in  new  business  bookings  during  the  past  four   quarters,  including  continued  strong  levels  of  managed  services  and  ITWorks  bookings  that  typically  have  longer   contract  terms.       A  summary  of  our  total  backlog  for  2011  and  2010  follows:   (In  thousands) Contract  backlog Support  and  maintenance  backlog Total  backlog Costs  of  Revenue   2011 2010 $                     $                     5,401,427 705,744 6,107,171 $                     $                     4,285,267 654,913 4,940,180 Cost  of  revenues  was  20%  of  total  revenues  in  2011,  as  compared  to  17%  of  total  revenues  in  2010.   The  higher   cost  of  revenues  as  a  percent  of  revenue  was  primarily  driven  by  a  higher  mix  of  technology  resale,  which  carries  a   higher  cost  of  revenue,  and  a  slightly  higher  level  of  third  party  consulting  costs.    The  cost  of  revenues  includes  the   cost  of  reimbursed  travel  expense,  sales  commissions,  third  party  consulting  services  and  subscription  content,  and   computer   hardware,   devices   and   sublicensed   software   purchased   from   manufacturers   for   delivery   to   clients.     It   also   includes   the   cost   of   hardware   maintenance   and   sublicensed   software   support   subcontracted   to   the   manufacturers.     Such   costs,   as   a   percent   of   revenues,   typically   have   varied   as   the   mix   of   revenue   (software,   hardware,  devices,  maintenance,  support,  services  and  reimbursed  travel)  carrying  different  margin  rates  changes   from   period   to   period.     Costs   of   revenues   does   not   include   the   costs   of   our   client   service   personnel   who   are   responsible   for   delivering   our   service   offerings   or   any   other   internal   costs   of   revenue;   rather,   such   costs   are   included  in  sales  and  client  service  expense.   Operating  Expenses   Total  operating  expenses  increased  11%  in  2011  to  $1.3  billion  as  compared  to  $1.2  billion  in  2010.       • • Sales  and  client  service  expenses  as  a  percent  of  total  revenues  were  39%  in  2011,  as  compared  to  42%  in   2010.   These   expenses   increased   13%   to   $870.0   million   in   2011,   from   $767.2   million   in   2010.     Sales   and   client   service   expenses   include   salaries   of   sales   and   client   service   personnel,   depreciation   and   other   expenses   associated   with   our   CernerWorks   managed   service   business,   communications   expenses,   unreimbursed  travel  expenses,  expense  for  share-­‐based  payments,  sales  and  marketing  salaries  and  trade   show   and   advertising   costs.   The   increase   in   these   expenses   was   primarily   attributable   to   growth   in   the   managed   services   business   and   a   higher   level   of   professional   services   expenses.     The   decrease   as   a   percent  of  revenue  reflects  ongoing  efficiencies  in  our  implementation  and  operational  processes.   Software  development  expenses  as  a  percent  of  revenue  were  13%  in  2011,  as  compared  to  15%  in  2010.   These   expenses   increased   5%   in   2011   to   $286.8   million,   from   $272.9   million   in   2010.     Expenditures   for   software   development   in   2011   reflect   continued   development   and   enhancement   of   the   Cerner   Millennium   platform   and   software   solutions   and   investments   in   new   growth   initiatives.   Although   these   expenses  increased  in  2011,  the  reduction  as  a  percent  of  revenue  reflects  our  ongoing  efforts  to  control   spending   relative   to   revenue   growth.   Because   of   the   strong   platform   we   have   built,   we   are   able   to   continue   advancing   our   solutions   and   investing   in   new   solutions   without   large   increases   in   spending.   A   summary  of  our  total  software  development  expense  in  2011  and  2010  is  as  follows:   49                                                                                   (In  thousands) Software  development  costs Capitalized  software  costs Capitalized  costs  related  to  share-­‐based  payments Amortization  of  capitalized  software  costs Total  software  development  expense For  the  Years  Ended 2011 2010 $                           $                           290,645 (81,417) (1,525) 79,098 286,801 284,836 (79,631) (1,348) 68,994 272,851 $                           $                           • General   and   administrative   expenses   as   a   percent   of   total   revenues   were   7%   in   2011   and   2010.   These   expenses   increased   11%   to   $144.9   million   in   2011   from   $130.5   million   in   2010.     General   and   administrative   expenses   include   salaries   for   corporate,   financial   and   administrative   staff,   utilities,   communications   expenses,   professional   fees,   the   transaction   gains   or   losses   on   foreign   currency   and   expense  for  share-­‐based  payments.  An  increase  in  corporate  personnel  costs  accounted  for  the  majority   of   the   overall   increase   in   general   and   administrative   expenses,   as   we   have   increased   such   personnel   to   support  our  overall  revenue  growth.   Non-­‐Operating  Items   • Net  interest  income  was  $9.9  million  in  2011,  compared  with  net  interest  income  of  $3.4  million  in  2010.     Interest  income  increased  to  $15.2  million  in  2011  from  $10.3  million  in  2010,  due  primarily  to  growth  in   investments   and   related   increase   in   investment   returns.   Interest   expense   decreased   to   $5.3   million   in   2011  from  $6.9  million  in  2010,  due  to  payments  on  our  long-­‐term  debt.     • Our  effective  tax  rate  was  35%  in  2011,  as  compared  to  34%  in  2010.  The  increase  is  attributable  to  the   mix  of  domestic  and  foreign  earnings.     Operations  by  Segment   We   have   two   operating   segments,   Domestic   and   Global.   The   Domestic   segment   includes   revenue   contributions   and   expenditures   associated   with   business   activity   in   the   United   States.   The   Global   segment   includes   revenue   contributions  and  expenditures  linked  to  business  activity  in  Argentina,  Aruba,  Australia,  Austria,  Canada,  Cayman   Islands,   Chile,   China   (Hong   Kong),   Egypt,   England,   France,   Germany,   Guam,   India,   Ireland,   Italy,   Japan,   Malaysia,   Morocco,  Puerto  Rico,  Qatar,  Saudi  Arabia,  Singapore,  Spain,  Sweden,  Switzerland  and  the  United  Arab  Emirates.     50                                                                                                                                                                                                                                     The  following  table  presents  a  summary  of  our  operating  segment  information  for  the  years  ended  2011  and  2010:   (In  thousands)   Domestic  Segment Revenues Costs  of  revenue Operating  expenses Total  costs  and  expenses Domestic  operating  earnings Global  Segment Revenues Costs  of  revenue Operating  expenses Total  costs  and  expenses Global  operating  earnings 2011 %  of Revenue %  of 2010 Revenue %  Change $         1,894,454 100% $         1,562,563 100% 387,466 439,465 826,931 1,067,523 20% 23% 44% 56% 272,385 417,181 689,566 872,997 17% 27% 44% 56% 308,699 100% 287,659 100% 54,206 126,997 181,203 127,496 18% 41% 59% 41% 47,971 124,546 172,517 115,142 17% 43% 60% 40% 21% 42% 5% 20% 22% 7% 13% 2% 5% 11% 17% 28% Other,  net (735,221) (628,806) Consolidated  operating  earnings   $               459,798 $               359,333 Domestic  Segment   • Revenues   increased   21%   to   $1.9   billion   in   2011   from   $1.6   billion   in   2010.   This   increase   was   driven   by   growth   across   all   business   models,   with   particular   strength   in   licensed   software,   technology   resale,   professional  services  and  managed  services.   • Cost   of   revenues   increased   to   20%   of   revenues   in   2011,   compared   to   17%   in   2010.   The   higher   cost   of   revenues  as  a  percent  of  revenue  was  primarily  driven  by  a  higher  mix  of  technology  resale,  which  carries   a  high  cost  of  revenue,  and  an  increase  in  third  party  consulting  costs.   • Operating  expenses  increased  5%  to  $439.5  million  in  2011,  from  $417.2  million  in  2010,  due  primarily  to   growth  in  managed  services  and  professional  services  expense.   Global  Segment   • Revenues  increased  7%  to  $308.7  million  in  2011  from  $287.7  million  in  2010.    Global  revenues  increased   due   to   an   increase   in   licensed   software   and   managed   services   revenue,   which   was   partially   offset   by   a   decrease   in   professional   services   and   technology   resale   revenue.   The   global   comparisons   were   also   impacted  by  a  change  in  certain  contract  accounting  estimates  during  the  first  quarter  of  2010.   • Cost   of   revenues   was   18%   and   17%   of   revenues   in   2011   and   2010,   respectively.     The   higher   cost   of   revenues  in  2011  was  primarily  driven  by  an  increase  in  third  party  professional  services  costs.   • Operating   expenses   increased   2%   to   $127.0   million   in   2011,   from   $124.5   million   in   2010,   primarily   to   support  our  revenue  growth.         51                                                                                                                                                                                                                                                                                                                                                                                                       Other,  net   Operating   results   not   attributed   to   an   operating   segment   include   expenses,   such   as   software   development,   marketing,   general   and   administrative,   stock-­‐based   compensation   and   depreciation.   These   expenses   increased   17%  to  $735.2  million  in  2011  from  $628.8  million  in  2010.  This  increase  was  primarily  due  to  increased  costs  in   software   development,   increased   corporate   and   development   personnel   costs,   increased   stock   compensation   costs,  and  growth  in  other  professional  services.     Fiscal  Year  2010  Compared  to  Fiscal  Year  2009   (In  thousands)   Revenues System  sales Support  and  maintenance Services Reimbursed  travel Total  revenues Costs  of  revenue Costs  of  revenue Total  margin Operating  expenses Sales  and  client   Software  development   General  and  administrative   Total  operating  expenses Total  costs  and  expenses   Operating  earnings Interest  income  (expense),  net Other  income  (expense),  net Income  taxes Net  earnings Revenues  &  Backlog   %  of %  of 2010 Revenue 2009 Revenue %  Change $                       550,792 30% $                       504,561 517,494 749,483 32,453 28% 40% 2% 493,193 643,678 30,432 30% 29% 39% 2% 1,850,222 100% 1,671,864 100% 320,356 1,529,866 767,152 272,851 130,530 1,170,533 1,490,889 359,333 3,439 (560) (124,940) 17% 83% 42% 15% 7% 64% 81% 19% 281,198 1,390,666 700,639 271,051 126,970 1,098,660 1,379,858 292,006 308 367 (99,216) 17% 83% 42% 16% 8% 66% 83% 17% 9% 5% 16% 7% 11% 14% 10% 9% 1% 3% 7% 8% 23% $                       237,272 $                       193,465 23% Revenues  increased  11%  to  $1.9  billion  in  2010,  compared  to  $1.7  billion  in  2009.       • • System  sales  increased  9%  to  $550.8  million  in  2010  from  $504.6  million  in  2009.  The  increase  in  system   sales  was  driven  by  a  strong  increase  in  licensed  software  and  technology  resale.   Support  and  maintenance  revenues  increased  5%  to  $517.5  million  in  2010  compared  to  $493.2  million  in   2009.   This   increase   was   attributable   to   continued   success   at   selling   Cerner   Millennium   applications   and   implementing  them  at  client  sites.     52                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   • Services   revenue   increased   16%   to   $749.5   million   in   2010   compared   to   $643.7   million   in   2009.   This   increase  was  driven  by  growth  in  CernerWorksSM  managed  services  as  a  result  of  continued  demand  for   our  hosting  services  and  an  increase  in  professional  services  due  to  increased  implementation  activities.   Contract  backlog  increased  19%  in  2010  compared  to  2009.    This  increase  was  driven  by  growth  in  new  business   bookings  during  2010,  including  continued  strong  levels  of  managed  services  bookings  that  typically  have  longer   contract  terms.       A  summary  of  our  total  backlog  for  2010  and  2009  follows:   (In  thousands) Contract  backlog Support  and  maintenance  backlog Total  backlog Costs  of  Revenue   2010 2009 $                     $                     4,285,267 654,913 4,940,180 $                     $                     3,591,026 620,616 4,211,642 Cost  of  revenues  remained  flat  at  17%  of  total  revenues  in  2010  and  2009.   Operating  Expenses   Total  operating  expenses  increased  7%  in  2010  to  $1.2  billion  as  compared  to  $1.1  billion  in  2009.       • • Sales   and   client   service   expenses   as   a   percent   of   total   revenues   were   42%   in   2010   and   2009.   These   expenses  increased  9%  to  $767.2  million  in  2010,  from  $700.6  million  in  2009.    The  increase  was  primarily   attributable  to  growth  in  the  managed  services  business,  a  higher  level  of  professional  services  expenses   and  an  increase  in  bad  debt  expense.   Software  development  expenses  as  a  percent  of  revenue  were  15%  in  2010,  as  compared  to  16%  in  2009.   These   expenses   increased   1%   in   2010   to   $272.9   million,   from   $271.1   million   in   2009.     Expenditures   for   software   development   in   2010   reflect   continued   development   and   enhancement   of   the   Cerner   Millennium   platform   and   software   solutions   and   investments   in   new   growth   initiatives.   Although   these   expenses  increased  in  2010,  the  reduction  as  a  percent  of  revenue  reflects  our  ongoing  efforts  to  control   spending  relative  to  revenue  growth.  A  summary  of  our  total  software  development  expense  in  2010  and   2009  is  as  follows:   (In  thousands) Software  development  costs Capitalized  software  costs Capitalized  costs  related  to  share-­‐based  payments Amortization  of  capitalized  software  costs Total  software  development  expense For  the  Years  Ended 2010 2009 $                           $                           284,836 (79,631) (1,348) 68,994 272,851 285,187 (76,876) (871) 63,611 271,051 $                           $                           • General  and  administrative  expenses  as  a  percent  of  total  revenues  were  7%  in  2010,  as  compared  to  8%   in  2009.  These  expenses  increased  3%  to  $130.5  million  in  2010  from  $127.0  million  in  2009.    The  overall   increase  in  general  and  administrative  expenses  was  driven  by  a  net  transaction  loss  on  foreign  currency   of   $0.9   million   in   2010   compared   to   a   gain   of   $4.0   million   in   2009.   Additionally,   increased   corporate   personnel   costs   were   offset   by   a   decrease   in   amortization   expense   driven   by   certain   intangible   assets   being  fully  amortized  at  the  end  of  2009.   53                                                                                                                                                                                                                                                                                                                       Non-­‐Operating  Items   • Net  interest  income  was  $3.4  million  in  2010,  compared  with  net  interest  income  of  $0.3  million  in  2009.     Interest  income  increased  to  $10.3  million  in  2010  from  $8.8  million  in  2009,  due  primarily  to  growth  in   investments   and   an   increase   in   investment   returns.   Interest   expense   decreased   to   $6.9   million   in   2010   from  $8.5  million  in  2009,  due  to  payments  on  our  long-­‐term  debt.     • Our  effective  tax  rate  was  34%  in  2010  and  2009.  There  were  no  material  changes  impacting  the  effective   tax  rate  between  2010  and  2009.     Operations  by  Segment   We   have   two   operating   segments,   Domestic   and   Global.   The   Domestic   segment   includes   revenue   contributions   and   expenditures   associated   with   business   activity   in   the   United   States.   The   Global   segment   includes   revenue   contributions   and   expenditures   linked   to   business   activity   in   Aruba,   Australia,   Austria,   Belgium,   Canada,   Cayman   Islands,   Chile,   China   (Hong   Kong),   Egypt,   England,   France,   Germany,   India,   Ireland,   Malaysia,   Puerto   Rico,   Saudi   Arabia,  Singapore,  Spain,  Sweden,  Switzerland  and  the  United  Arab  Emirates.   The  following  table  presents  a  summary  of  our  operating  segment  information  for  the  years  ended  2010  and  2009:   (In  thousands)   Domestic  Segment Revenues Costs  of  revenue Operating  expenses Total  costs  and  expenses Domestic  operating  earnings Global  Segment Revenues Costs  of  revenue Operating  expenses Total  costs  and  expenses Global  operating  earnings Other,  net 2010 %  of Revenue 2009 %  of Revenue %  Change $               1,562,563 100% $               1,398,715 100% 272,385 417,181 689,566 872,997 17% 27% 44% 56% 240,847 372,370 613,217 785,498 17% 27% 44% 56% 287,659 100% 273,149 100% 47,971 124,546 172,517 115,142 17% 43% 60% 40% 40,351 130,256 170,607 102,542 15% 48% 62% 38% (628,806) (596,034) 12% 13% 12% 12% 11% 5% 19% -­‐4% 1% 12% 5% 23% Consolidated  operating  earnings   $                       359,333 $                       292,006 Domestic  Segment   • Revenues   increased   12%   to   $1.6   billion   in   2010   from   $1.4   billion   in   2009.   This   increase   was   driven   by   growth  across  all  lines  of  business  with  the  strongest  growth  in  licensed  software,  managed  services  and   professional  services.   • Cost  of  revenues  remained  flat  at  17%  of  revenues  in  both  2010  and  2009.   • Operating  expenses  increased  12%  to  $417.2  million  in  2010,  from  $372.4  million  in  2009,  due  primarily  to   growth  in  managed  services  expense,  professional  services  expense  and  bad  debt  expense.   54                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Global  Segment   • Revenues  increased  5%  to  $287.7  million  in  2010  from  $273.1  million  in  2009.    This  increase  was  driven  by   improved   licensed   software,   technology   resale   and   support   revenue,   mostly   from   United   Kingdom   and   the  Middle  East  region,  slightly  offset  by  a  decline  from  France.  A  change  in  estimates  for  certain  contracts   that  rely  on  estimates  as  part  of  contract  accounting  also  contributed  to  the  increase.   • Cost   of   revenues   was   17%   and   15%   of   revenues   in   2010   and   2009,   respectively.     The   higher   cost   of   revenues  in  2010  was  driven  by  the  increase  in  technology  resale,  which  carries  a  higher  cost  of  revenue.   • Operating  expenses  decreased  4%  to  $124.5  million  in  2010,  from  $130.3  million  in  2009,  primarily  due  to   a  decrease  in  personnel-­‐related  professional  services  expense,  partially  offset  by  an  increase  in  bad  debt   expense.         Other,  net   Operating   results   not   attributed   to   an   operating   segment   include   expenses,   such   as   software   development,   marketing,  general  and  administrative,  stock-­‐based  compensation  and  depreciation.  These  expenses  increased  5%   to  $628.8  million  in  2010  from  $596.0  million  in  2009.  This  increase  was  primarily  due  to  growth  in  corporate  and   development  personnel  costs,  stock  compensation  cost  and  foreign  currency  transaction  gains  and  losses.     Liquidity  and  Capital  Resources   Our  liquidity  is  influenced  by  many  factors,  including  the  amount  and  timing  of  our  revenues,  our  cash  collections   from  our  clients,  and  the  amount  we  invest  in  software  development,  acquisitions  and  capital  expenditures.     Our   principal   sources   of   liquidity   are   our   cash,   cash   equivalents,   which   consist   of   money   market   funds,   time   deposits  and  bonds  with  original  maturities  of  less  than  90  days  and  short-­‐term  investments.    At  the  end  of  2011,   we  had  cash  and  cash  equivalents  of  $243.1  million  and  short-­‐term  investments  of  $531.6  million,  as  compared  to   cash  and  cash  equivalents  of  $214.5  million  and  short-­‐term  investments  of  $356.5  million  at  the  end  of  2010.     Approximately   19%   of   our   aggregate   cash,   cash   equivalents,   and   short-­‐term   investments   at   December   31,   2011,   were   held   outside   of   the   United   States.   As   a   part   of   our   business   strategy,   we   plan   to   indefinitely   reinvest   the   earnings   of   our   foreign   operations;   however,   should   the   earnings   of   our   foreign   operations   be   repatriated,   we   would  accrue  and  pay  tax  on  such  earnings,  which  may  be  material.   Additionally,  we  maintain  a  multi-­‐year  revolving  credit  facility,  which  provides  an  unsecured  revolving  line  of  credit   for   working   capital   purposes.     Interest   is   payable   at   a   rate   based   on   prime   or   LIBOR   plus   a   spread   that   varies   depending   on   the   net   worth   ratios   maintained.   The   agreement     provides   certain   restrictions   on   our   ability   to   borrow,   incur   liens,   sell   assets   and   pay   dividends   and   contains   certain   net   worth,   current   ratio   and   fixed   charge   coverage  covenants,  which  as  of  the  end  of  2011,  we  were  in  compliance  with.    As  of  the  end  of  2011,  we  had  no   outstanding   borrowings   under   this   agreement;   however,   we   had   $16.8   million   of   outstanding   letters   of   credit,   which  reduced  our  available  borrowing  capacity  to  $73.2  million.     We  believe  that  our  present  cash  position,  together  with  cash  generated  from  operations,  short-­‐term  investments   and,  if  necessary,  our  available  line  of  credit,  will  be  sufficient  to  meet  anticipated  cash  requirements  during  2012.   55                             The  following  table  provides  details  about  our  cash  flows  in  2011,  2010  and  2009:   (In  thousands) Cash  flows  from  operating  activities Cash  flows  from  investing  activities Cash  flows  from  financing  activities Effect  of  exchange  rate  changes  on  cash Total  change  in  cash  and  cash  equivalents Cash  and  cash  equivalents  at  beginning  of  period 2011 For  the  Years  Ended 2010 2009 $                   546,294 (565,091) 48,853 (1,421) 28,635 214,511 $                   456,444 (520,896) 34,841 2,399 (27,212) 241,723 $                   347,291 (394,321) 16,770 1,489 (28,771) 270,494 Cash  and  cash  equivalents  at  end  of  period $                   243,146 $                   214,511 $                   241,723 Free  cash  flow  (non-­‐GAAP) $                   358,557 $                   273,154 $                   138,279 Cash  Flows  from  Operating  Activities   (In  thousands) Cash  collections  from  clients Cash  paid  to  employees  and  suppliers  and  other Cash  paid  for  interest Cash  paid  for  taxes,  net  of  refund Total  cash  from  operations 2011 For  the  Years  Ended 2010 2009 $           2,211,361 (1,543,414) (5,786) (115,867) 546,294 $                   $           $           1,900,145 (1,315,077) (6,887) (121,737) 456,444 1,780,127 (1,377,139) (8,583) (47,114) 347,291 $                   $                   Cash   flows   from   operations   increased   $89.9   million   in   2011   compared   to   2010   and   $109.2   million   in   2010   compared   to   2009   primarily   due   to   increased   cash   collections   from   clients.     During   2011,   2010   and   2009,   we   received   total   client   cash   collections   of   $2.21   billion,   $1.90   billion   and   $1.78   billion,   respectively,   of   which   approximately  3%,  4%  and  3%,  respectively,  were  received  from  third  party  client  financing  arrangements  and  non-­‐ recourse   payment   assignments. Days   sales   outstanding   decreased   to   83   days   for   the   2011   fourth   quarter   compared   to   87   days   for   the   2011   third   quarter   and   the   2010   fourth   quarter,   reflecting   our   improved   cash   collections.     Revenues   provided   under   support   and   maintenance   agreements   represent   recurring   cash   flows.     Support   and   maintenance   revenues   increased   6%   in   2011   and   5%   in   2010,   and   we   expect   these   revenues   to   continue  to  grow  as  the  base  of  installed  Cerner  Millennium  systems  grows.   Cash  Flows  from  Investing  Activities   (In  thousands) Capital  purchases Capitalized  software  development  costs Purchases  of  investments,  net  of  maturities Other,  net Total  cash  flows  from  investing  activities 2011 For  the  Years  Ended 2010 2009 $               $               $               (104,795) (82,942) (291,393) (85,961) (565,091) (102,311) (80,979) (312,340) (25,266) (520,896) (131,265) (77,747) (169,295) (16,014) (394,321) $               $               $               Cash  flows  from  investing  activities  consist  primarily  of  capital  spending  and  our  short-­‐term  investment  activities.   Capital   spending   consists   of   capitalized   equipment   purchases   primarily   to   support   growth   in   our   CernerWorks   managed   services   business,   building   and   improvement   purchases   to   support   our   facilities   requirements   and   56                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           capitalized  spending  to  support  our  ongoing  software  development  initiatives.  Capital  spending  in  2012  is  expected   to  increase  from  our  2011  levels;  however,  we  still  expect  strong  levels  of  free  cash  flow.   Short-­‐term  investment  activity  consists  of  the  investment  of  cash  generated  by  our  business  in  excess  of  what  is   necessary   to   fund   operations.     We   expect   to   continue   such   short-­‐term   investment   activity   in   2012   as   we   expect   strong  levels  of  free  cash  flow.     In   addition,   during   2011   we   completed   our   acquisitions   of   Resource   Systems,   Inc.   and   Clairvia,   Inc.   for   approximately  $28.1  million  and  $37.2  million,  net  of  cash  acquired,  respectively.    During  2010,  we  completed  our   acquisition  of  IMC  Health  Care,  Inc.  for  approximately  $14.5  million,  net  of  cash  acquired.    We  expect  to  continue   seeking  and  completing  strategic  business  acquisitions  that  are  complementary  to  our  business.   Cash  Flows  from  Financing  Activities   (In  thousands) Repayment  of  long-­‐term  debt Cash  from  option  exercises  (incl.  excess  tax  benefits) Other,  net Total  cash  flows  from  financing  activities 2011 For  the  Years  Ended 2010 2009 $                     $                     $                     (25,701) 75,333 (779) 48,853 (27,625) 60,950 1,516 34,841 (32,352) 47,234 1,888 16,770 $                       $                       $                       Our  primary  financing  obligations  are  long-­‐term  debt  repayments.  In  the  fourth  quarter  of  2009,  we  commenced   payment   on   the   first   of   seven   equal   annual   installments   on   our   5.54%   Great   Britain   Pound   denominated   Note   Agreement,  as  well  as  on  the  first  of  four  equal  annual  installments  on  our  6.42%  Series  B  Senior  Notes.  Based  on   debts  currently  outstanding  and  current  exchange  rates,  we  expect  our  debt  repayments  to  equal  $24.3  million  in   2012  and  $14.4  million  per  year  from  2013  through  2015.     Cash  inflows  from  stock  option  exercises  are  dependent  on  a  number  of  factors,  including  the  price  of  our  common   stock,  grant  activity  under  our  stock  option  and  equity  plans,  and  overall  market  volatility.    We  expect  cash  inflows   from  stock  option  exercises  to  continue  in  2012  based  on  the  number  of  exercisable  options  at  the  end  of  2011   and  our  current  stock  price.   Free  Cash  Flow   (In  thousands) Ca s h  fl ows  from  opera ti ng  a cti vi ti es  (GAAP) Ca pi ta l  purcha s es Ca pi ta l i zed  s oftwa re  devel opment  cos ts Free  ca s h  fl ow  (non-­‐GAAP) 2011 For  the  Years  Ended 2010 2009 $                     $                     $                     546,294 (104,795) (82,942) 358,557 456,444 (102,311) (80,979) 273,154 $                     $                     $                     347,291 (131,265) (77,747) 138,279 Free   Cash   Flow   increased   $85.4   million   in   2011   as   compared   to   2010,   which   we   believe   reflects   continued   strengthening  of  our  earnings  quality.  Free  Cash  Flow  is  a  non-­‐GAAP  financial  measure  used  by  management  along   with  GAAP  results  to  analyze  our  earnings  quality  and  overall  cash  generation  of  the  business.  The  presentation  of   Free   Cash   Flow   is   not   meant   to   be   considered   in   isolation,   as   a   substitute   for,   or   superior   to,   GAAP   results   and   investors   should   be   aware   that   non-­‐GAAP   measures   have   inherent   limitations   and   should   be   read   only   in   conjunction  with  our  consolidated  financial  statements  prepared  in  accordance  with  GAAP.    Free  Cash  Flow  may   also  be  different  from  similar  non-­‐GAAP  financial  measures  used  by  other  companies  and  may  not  be  comparable   to  similarly  titled  captions  of  other  companies  due  to  potential  inconsistencies  in  the  method  of  calculation.      We   believe  Free  Cash  Flow  is  important  to  enable  investors  to  better  understand  and  evaluate  our  ongoing  operating   results   and   allows   for   greater   transparency   in   the   review   of   our   overall   financial,   operational   and   economic   57                                                                                                                                                                                                                                                                                                                                                       performance   because   free   cash   flow   takes   into   account   the   capital   expenditures   necessary   to   operate   our   business.   Contractual  Obligations,  Commitments  and  Off  Balance  Sheet  Arrangements   The  following  table  represents  a  summary  of  our  contractual  obligations  and  commercial  commitments  at  the  end   of  2011,  except  short-­‐term  purchase  order  commitments  arising  in  the  ordinary  course  of  business.   (In  thousands) 2012 2013 2014 2015 2016 2017  and   thereafter Total Payments  due  by  period Balance  sheet  obligations (a): Long-­‐term  debt  obligations $   24,286 $   14,421 $   14,421 $   14,420 $                           -­‐ $                             -­‐ $         67,548 Interest  on  long-­‐term   debt   3,822 2,397 1,598 798 -­‐ Capital  lease  obligations 15,436 12,742 11,829 11,858 7,130 Interest  on  capital  lease        obligations Off  balance  sheet  obligations: 1,787 1,363 936 720 555 -­‐ -­‐ -­‐ 8,615 58,995 5,361 Operating  lease  obligations 23,807 22,141 18,701 12,896 8,249 46,232 132,026 Purchase  obligations 16,167 19,010 7,513 3,411 198 8,299 54,598 Total $   85,305 $   72,074 $   54,998 $   44,103 $   16,132 $       54,531 $   327,143 (a) At the end of 2011, liabilities for unrecognized tax benefits were $14.6 million. It is reasonably possible that these unrecognized tax benefits will decrease by $9.0 million to $12.0 million in the next 12 months as the result of the settlement of ongoing tax audits. We  have  no  off  balance  sheet  arrangements  as  defined  in  Regulation  S-­‐K.    The  effects  of  inflation  on  our  business   during  2011,  2010  and  2009  were  not  significant.   Recent  Accounting  Pronouncements     Refer   to   Note   (1)   of   the   notes   to   consolidated   financial   statements   for   information   regarding   recently   issued   accounting  pronouncements.   Critical  Accounting  Policies   We   believe   that   there   are   several   accounting   policies   that   are   critical   to   understanding  our   historical   and   future   performance,   as   these   policies   affect   the   reported   amount   of   revenue   and   other   significant   areas   involving   our   judgments   and   estimates.   These   significant   accounting   policies   relate   to   revenue   recognition,   software   development,  potential  impairments  of  goodwill,  and  income  taxes.    These  policies  and  our  procedures  related  to   these  policies  are  described  in  detail  below  and  under  specific  areas  within  this  MD&A.    In  addition,  Note  (1)  to  the   consolidated  financial  statements  expands  upon  discussion  of  our  accounting  policies.   Revenue  Recognition   We   recognize   revenue   within   our   multiple   element   arrangements,   including   software   and   software-­‐related   services,   using   the   residual   method.     Key   factors   in   our   revenue   recognition   model   are   our   assessments   that   installation   services   are   essential   to   the   functionality   of   our   software   whereas   implementation   services   are   not;   and  the  length  of  time  it  takes  for  us  to  achieve  the  delivery  and  installation  milestones  for  our  licensed  software.     58                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   If   our   business   model   were   to   change   such   that   implementation   services   are   deemed   to   be   essential   to   the   functionality  of  our  software,  the  period  of  time  over  which  our  licensed  software  revenue  would  be  recognized   would  lengthen.    We  generally  recognize  revenue  from  the  sale  of  our  licensed  software  over  two  key  milestones,   delivery   and   installation,   based   on   percentages   that   reflect   the   underlying   effort   from   planning   to   installation.     Generally,  both  milestones  are  achieved  in  the  quarter  the  contracts  are  executed.    If  the  period  of  time  to  achieve   our   delivery   and   installation   milestones   for   our   licensed   software   were   to   lengthen,   our   milestones   would   be   adjusted  and  the  timing  of  revenue  recognition  for  our  licensed  software  could  materially  change.     We   also   recognize   revenue   for   certain   projects   using   the   percentage   of   completion   method.     Our   revenue   recognition  is  dependent  upon  our  ability  to  reliably  estimate  the  direct  labor  hours  to  complete  a  project  which   generally  can  span  several  years.    We  utilize  our  historical  project  experience  and  detailed  planning  process  as  a   basis   for   our   future   estimates   to   complete   current   projects.   Significant   delays   in   completion   of   the   projects,   unforeseen   cost   increases   or   penalties   could   result   in   significant   reductions   to   revenue   and   margins   on   these   contracts.  The  actual  project  results  can  be  significantly  different  from  the  estimated  results.  When  adjustments   are  identified  near  or  at  the  end  of  a  project,  the  full  impact  of  the  change  in  estimate  is  recognized  in  that  period.   This  can  result  in  a  material  impact  on  our  results  for  a  single  reporting  period.   Software  Development  Costs   Costs   incurred   internally   in   creating   computer   software   solutions   and   enhancements   to   those   solutions   are   expensed  until  completion  of  a  detailed  program  design,  which  is  when  we  determine  that  technological  feasibility   has   been   established.   Thereafter,   all  software   development   costs   are   capitalized   until   such   time   as   the   software   solutions  and  enhancements  are  available  for  general  release,  and  the  capitalized  costs  subsequently  are  reported   at  the  lower  of  amortized  cost  or  net  realizable  value.       Net   realizable   value   is   computed   as   the   estimated   gross   future   revenues   from   each   software   solution   less   the   amount   of   estimated   future   costs   of   completing   and   disposing   of   that   product.     Because   the   development   of   projected   net   future   revenues   related   to   our   software   solutions   used   in   our   net   realizable   value   computation   is   based   on   estimates,   a   significant   reduction   in   our   future   revenues   could   impact   the   recovery   of   our   capitalized   software  development  costs.    We  historically  have  not  experienced  significant  inaccuracies  in  computing  the  net   realizable  value  of  our  software  solutions  and  the  difference  between  the  net  realizable  value  and  the  unamortized   cost   has   grown   over   the   past   three   years.     We   expect   this   trend   to   continue   in   the   future.     If   we   missed   our   estimates  of  net  future  revenues  by  up  to  10%,  the  amount  of  our  capitalized  software  development  costs  would   not  be  impaired.       Capitalized  costs  are  amortized  based  on  current  and  expected  net  future  revenue  for  each  software  solution  with   minimum   annual   amortization   equal   to   the   straight-­‐line   amortization   over   the   estimated   economic   life   of   the   software  solution.    We  are  amortizing  capitalized  costs  over  five  years.    The  five-­‐year  period  over  which  capitalized   software  development  costs  are  amortized  is  an  estimate  based  upon  our  forecast  of  a  reasonable  useful  life  for   the   capitalized   costs.     Historically,   use   of   our   software   programs   by   our   clients   has   exceeded   five   years   and   is   capable  of  being  used  a  decade  or  more.       We   expect   that   major   software   information   systems   companies,   large   information   technology   consulting   service   providers   and   systems   integrators   and   others   specializing   in   the   health   care   industry   may   offer   competitive   products   or   services.     The   pace   of   change   in   the   HCIT   market   is   rapid   and   there   are   frequent   new   product   introductions,   product   enhancements   and   evolving   industry   standards   and   requirements.     As   a   result,   the   capitalized  software  solutions  may  become  less  valuable  or  obsolete  and  could  be  subject  to  impairment.   Goodwill   Goodwill  is  not  amortized  but  is  evaluated  for  impairment  annually  or  whenever  there  is  an  impairment  indicator.     All  goodwill  is  assigned  to  a  reporting  unit,  where  it  is  subject  to  an  annual  impairment  test  based  on  fair  value.     We  assess  goodwill  for  impairment  in  the  second  quarter  of  each  fiscal  year  and  evaluate  impairment  indicators  at   each   quarter   end.     We   assessed   our   goodwill   for   impairment   in   the   second   quarters   of   2011   and   2010   and   concluded  that  goodwill  was  not  impaired.  In  each  respective  year,  the  fair  values  of  each  of  our  reporting  units   exceeded  their  carrying  amounts  by  a  significant  margin.    We  used  a  discounted  cash  flow  analysis  utilizing  Level  3   inputs,  to  determine  the  fair  value  of  the  reporting  units  for  all  periods.  Goodwill  amounted  to  $211.8  million  and   59             $161.4  million  at  the  end  of  2011  and  2010,  respectively.    If  future  anticipated  cash  flows  from  our  reporting  units   that   recognized   goodwill   do   not   materialize   as   expected,   our   goodwill   could   be   impaired,   which   could   result   in   significant  charges  to  earnings.           Income  Taxes   We  make  a  number  of  assumptions  and  estimates  in  determining  the  appropriate  amount  of  expense  to  record  for   income  taxes.    These  assumptions  and  estimates  consider  the  taxing  jurisdictions  in  which  we  operate  as  well  as   current   tax   regulations.     Accruals   are   established   for   estimates   of   tax   effects   for   certain   transactions,   business   structures   and   future   projected   profitability   of   our   businesses   based   on   our   interpretation   of   existing   facts   and   circumstances.     If   these   assumptions   and   estimates   were   to   change   as   a   result   of   new   evidence   or   changes   in   circumstances,   the   change   in   estimate   could   result   in   a   material   adjustment   to   the   consolidated   financial   statements.   We  have  discussed  the  development  and  selection  of  these  critical  accounting  estimates  with  the  Audit  Committee   of  our  Board  of  Directors  and  the  Audit  Committee  has  reviewed  our  disclosure  contained  herein.   Item  7A.    Quantitative  and  Qualitative  Disclosures  about  Market  Risk   We  use  a  foreign-­‐currency  denominated  debt  instrument  to  reduce  our  foreign  currency  exposure  in  the  U.K.    As   of  the  end  of  2011,  we  designated  all  of  our  Great  Britain  Pound  (GBP)  denominated  long-­‐term  debt  (37.1  million   GBP)  as  a  net  investment  hedge  of  our  U.K.  operations.    Because  the  borrowing  is  denominated  in  pounds,  we  are   exposed   to   movements   in   the   foreign   currency   exchange   rate   between   the   U.S.   dollar   (USD)   and   the   GPB.   We   estimate  that  a  hypothetical  10%  change  in  the  foreign  currency  exchange  rate  between  the  USD  and  GBP  would   have  impacted  the  unrealized  loss,  net  of  related  income  tax  effects,  of  the  net  investment  hedge  recognized  in   other   comprehensive   income   in   2011   by   approximately   $3.6   million.   Please   refer   to   Notes   (9)   and   (10)   to   the   Consolidated   Financial   Statements   for   a   more   detailed   discussion   of   the   foreign-­‐currency   denominated   debt   instrument.   Item  8.    Financial  Statements  and  Supplementary  Data   The  Financial  Statements  and  Notes  required  by  this  Item  are  submitted  as  a  separate  part  of  this  report.   Item  9.    Changes  in  and  Disagreements  with  Accountants  on  Accounting  and  Financial  Disclosure   N/A   Item  9.A.  Controls  and  Procedures     a) Evaluation  of  disclosure  controls  and  procedures.    The  Company’s  Chief  Executive  Officer  (CEO)  and  Chief   Financial   Officer   (CFO)   have   evaluated   the   effectiveness   of   the   Company’s   disclosure   controls   and   procedures   (as   defined   in   the   Exchange   Act   Rules   13a-­‐15(e)   and   15d-­‐15(e))   as   of   the   end   of   the   period   covered  by  this  Annual  Report  (the  Evaluation  Date).    They  have  concluded  that,  as  of  the  Evaluation  Date   and  based  on  the  evaluation  of  these  controls  and  procedures  required  by  paragraph  (b)  of  Exchange  Act   Rule  13a-­‐15  or  15d-­‐15,  these  disclosure  controls  and  procedures  were  effective  to  ensure  that  material   information  relating  to  the  Company  and  its  consolidated  subsidiaries  would  be  made  known  to  them  by   others  within  those  entities  and  would  be  disclosed  on  a  timely  basis.    The  CEO  and  CFO  have  concluded   that  the  Company’s  disclosure  controls  and  procedures  are  designed,  and  are  effective,  to  give  reasonable   assurance  that  the  information  required  to  be  disclosed  by  the  Company  in  reports  that  it  files  under  the   Exchange   Act   is   recorded,   processed,   summarized   and   reported   within   the   time   period   specified   in   the   rules   and   forms   of   the   SEC.     They   have   also   concluded   that   the   Company’s   disclosure   controls   and   procedures  are  effective  to  ensure  that  information  required  to  be  disclosed  in  the  reports  that  are  filed   or   submitted   under   the   Exchange   Act   are   accumulated   and   communicated   to   the   Company’s   management  to  allow  timely  decisions  regarding  required  disclosure.     60                     b) There   were   no   changes   in   the   Company’s   internal   controls   over   financial   reporting   during   the   three   months   ended   December   31,   2011,   that   have   materially   affected,   or   are   reasonably   likely   to   materially   affect,  its  internal  controls  over  financial  reporting.   c)   The   Company’s   management,   including   its   Chief   Executive   Officer   and   Chief   Financial   Officer,   have   concluded   that   our   disclosure   controls   and   procedures   and   internal   control   over   financial   reporting   are   designed   to   provide   reasonable   assurance   of   achieving   their   objectives   and   are   effective   at   that   reasonable   assurance   level.     However,   the   Company’s   management   can   provide   no   assurance   that   our   disclosure  controls  and  procedures  or  our  internal  control  over  financial  reporting  can  prevent  all  errors   and  all  fraud  under  all  circumstances.    A  control  system,  no  matter  how  well  conceived  and  operated,  can   provide   only   reasonable,   not   absolute,   assurance   that   the   objectives   of   the   control   system   are   met.   Further,  the  design  of  a  control  system  must  reflect  the  fact  that  there  are  resource  constraints,  and  the   benefits  of  controls  must  be  considered  relative  to  their  costs.  Because  of  the  inherent  limitations  in  all   control   systems,   no   evaluation   of   controls   can   provide   absolute   assurance   that   all   control   issues   and   instances  of  fraud,  if  any,  within  the  Company  have  been  or  will  be  detected.    The  design  of  any  system  of   controls  also  is  based  in  part  upon  certain  assumptions  about  the  likelihood  of  future  events,  and  there   can  be  no  assurance  that  any  design  will  succeed  in  achieving  its  stated  goals  under  all  potential  future   conditions;  over  time,  controls  may  become  inadequate  because  of  changes  in  conditions,  or  the  degree   of  compliance  with  policies  or  procedures  may  deteriorate.  Because  of  the  inherent  limitations  in  a  cost-­‐ effective  control  system,  misstatements  due  to  error  or  fraud  may  occur  and  not  be  detected.   61     Management’s  Report  on  Internal  Control  over  Financial  Reporting   The   Company’s   management   is   responsible   for   establishing   and   maintaining   adequate   internal   control   over   financial   reporting   (as   defined   in   Rule   13a-­‐15(f)   under   the   Securities   Exchange   Act   of   1934,   as   amended).     The   Company’s  management  assessed  the  effectiveness  of  the  Company’s  internal  control  over  financial  reporting  as   of  December  31,  2011.    In  making  this  assessment,  the  Company’s  management  used  the  criteria  set  forth  by  the   Committee   of   Sponsoring   Organizations   of   the   Treadway   Commission   (COSO)   in   its   Internal   Control-­‐Integrated   Framework.    The  Company’s  management  has  concluded  that,  as  of  December  31,  2011,  the  Company’s  internal   control  over  financial  reporting  is  effective  based  on  these  criteria.    The  Company’s  independent  registered  public   accounting   firm   that   audited   the   consolidated   financial   statements   included   in   this   annual   report   has   issued   an   audit   report   on   the   effectiveness   of   the   Company’s   internal   control   over   financial   reporting,   which   is   included   herein  under  “Report  of  Independent  Registered  Public  Accounting  Firm.”   Item  9.B.  Other  Information   N/A   PART  III   Item  10.    Directors,  Executive  Officers  and  Corporate  Governance   The  information  required  by  this  Item  10  regarding  our  Directors  will  be  set  forth  under  the  caption  “Election  of   Directors”  in  our  Proxy  Statement  in  connection  with  the  2012  Annual  Shareholders’  Meeting  scheduled  to  be  held   May  18,  2012,  and  is  incorporated  in  this  Item  10  by  reference.    The  information  required  by  this  Item  10  regarding   Family  Relationships  between  our  Executive  Officers  will  be  set  forth  under  the  caption  “Certain  Transactions”  in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’   Meeting   scheduled   to   be   held   May   18,   2012,   and   is   incorporated   in   this   Item   10   by   reference.     The   information   required   by   this   Item   10   concerning   compliance  with  Section  16(a)  of  the  Securities  Exchange  Act  of  1934  will  be  set  forth  under  the  caption  “Section   16(a)   Beneficial   Ownership   Reporting   Compliance”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’  Meeting  scheduled  to  be  held  May  18,  2012,  and  is  incorporated  in  this  Item  10  by  reference.     The   information   required   by   this   Item   10   concerning   our   Code   of   Business   Conduct   and   Ethics   will   be   set   forth   under   the   caption   “Code   of   Business   Conduct   and   Ethics”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’   Meeting   scheduled   to   be   held   May   18,   2012,   and   is   incorporated   in   this   Item   10   by   reference.    The  information  required  by  this  Item  10  concerning  our  Audit  Committee  and  our  Audit  Committee   financial  expert  will  be  set  forth  under  the  caption  “Audit  Committee”  in  our  Proxy  Statement  in  connection  with   the  2012  Annual  Shareholders’  Meeting  scheduled  to  be  held  May  18,  2012,  and  is  incorporated  in  this  Item  10  by   reference.   There  have  been  no  material  changes  to  the  procedures  by  which  security  holders  may  recommend  nominees  to   our  Board  of  Directors  since  our  last  disclosure  thereof.  The  names  of  our  executive  officers  and  their  ages,  titles   and  biographies  are  incorporated  by  reference  under  the  caption  “Executive  Officers  of  the  Registrant”  under  Part   I  above.   Item  11.    Executive  Compensation   The   information   required   by   this   Item   11   concerning   our   executive   compensation   will   be   set   forth   under   the   caption   “Compensation   Discussion   and   Analysis”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’  Meeting  scheduled  to  be  held  May  18,  2012,  and  is  incorporated  in  this  Item  11  by  reference.    The   information  required  by  this  Item  11  concerning  Compensation  Committee  interlocks  and  insider  participation  will   be   set   forth   under   the   caption   “Compensation   Committee   Interlocks   and   Insider   Participation”   in   our   Proxy   Statement  in  connection  with  the  2012  Annual  Shareholders’  Meeting  scheduled  to  be  held  May  18,  2012,  and  is   incorporated   in   this   Item   11   by   reference.     The   information   required   by   this   Item   11   concerning   Compensation   Committee  report  will  be  set  forth  under  the  caption  “Compensation  Committee  Report”  in  our  Proxy  Statement  in   62                     connection  with  the  2012  Annual  Shareholders’  Meeting  scheduled  to  be  held  May  18,  2012  and  is  incorporated  in   this  Item  11  by  reference.       Item  12.    Security  Ownership  of  Certain  Beneficial  Owners  and  Management  and  Related  Stockholder  Matters   The   information   required   by   this   Item   12   will   be   set   forth   under   the   caption   "Voting   Securities   and   Principal   Holders  Thereof"  in  our  Proxy  Statement  in  connection  with  the  2012  Annual  Shareholders’  Meeting  scheduled  to   be  held  May  18,  2012,  and  is  incorporated  in  this  Item  12  by  reference.     The   following   table   provides   information   about   our   common   stock   that   may   be   issued   under   our   equity   compensation  plans  as  of  December  31,  2011:   Plan  Category Equi ty  compens a ti on  pl a ns  a pproved  by  s ecuri ty  hol ders   (3) Equi ty  compens a ti on  pl a ns  not  a pproved  by  s ecuri ty  hol ders Tota l Securities  to  be  issued   upon  exercise  of   outstanding  options   and  rights  (1) 13,163,070 -­‐ 13,163,070 Weighted   average   exercise  price   per  share  (2) $                           23.78 -­‐ Securities   available  for   future  issuance 9,674,292 -­‐ 9,674,292 (1)  Includes  grants  of  stock  options,  time-­‐based  and  performance-­‐based  restricted  stock. (2)  Includes  weighted-­‐average  exercise  price  of  outstanding  stock  options  only. (3)  Includes  the  Stock  Option  Plan  D,  Stock  Option  Plan  E,  2001  Long-­‐Term  Incentive  Plan  F,  2004  Long-­‐Term  Incentive  Plan  G  and   2011  Omnibus  Equity  Incentive  Plan.  As  of  December  31,  2011,  all  new  grants  are  to  be  made  under  the  2011  Omnibus  Equity   Incentive  Plan,  as  the  previous  plans  are  no  longer  active. All  other  information  required  by  this  Item  is  incorporated  by  reference  from  the  Proxy  Statement  under  the   section  entitled  “Principal  Security  Ownership  and  Certain  Beneficial  Owners.”     Item  13.    Certain  Relationships  and  Related  Transactions,  and  Director  Independence   The  information  required  by  this  Item  13  concerning  our  transactions  with  related  parties  will  be  set  forth  under   the   caption   “Certain   Transactions”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’   Meeting   scheduled   to   be   held   May   18,   2012,   and   is   incorporated   in   this   Item   13   by   reference.     The   information   required   by   this   Item   13   concerning   director   independence   will   be   set   forth   under   the   caption   “Meetings   of   the   Board   and   Committees”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’   Meeting   scheduled  to  be  held  May  18,  2012,  and  is  incorporated  in  this  Item  13  by  reference.   Item  14.    Principal  Accountant  Fees  and  Services         The   information   required   by   this   Item   14   will   be   set   forth   under   the   caption   “Relationship   with   Independent   Registered   Public   Accounting   Firm”   in   our   Proxy   Statement   in   connection   with   the   2012   Annual   Shareholders’   Meeting  scheduled  to  be  held  May  18,  2012,  and  is  incorporated  in  this  Item  14  by  reference.   63                                                                                                                                                                                                                                                                               PART  IV   Item  15.    Exhibits  and  Financial  Statement  Schedules   (a)   Financial  Statements  and  Exhibits.       (1)   Consolidated  Financial  Statements:   Reports  of  Independent  Registered  Public  Accounting  Firm   Consolidated  Balance  Sheets  -­‐   As  of  December  31,  2011  and  January  1,  2011       Consolidated  Statements  of  Operations  -­‐   Years  Ended  December  31,  2011,  January  1,  2011,  and  January  2,  2010   Consolidated  Statements  of  Cash  Flows  -­‐   Years  Ended  December  31,  2011,  January  1,  2011,  and  January  2,  2010   Consolidated  Statements  of  Changes  in  Shareholders’  Equity  -­‐   Years  Ended  December  31,  2011,  January  1,  2011,  and  January  2,  2010   Notes  to  Consolidated  Financial  Statements   (2)        The  following  financial  statement  schedule  and  Report  of  Independent  Registered  Public  Accounting   Firm  of  the  Registrant  for  the  three-­‐year  period  ended  December  31,  2011  are  included  herein:   Schedule  II  -­‐  Valuation  and  Qualifying  Accounts,  Report  of  Independent  Registered  Public       Accounting  Firm   All  other  schedules  are  omitted,  as  the  required  information  is  inapplicable  or  the  information  is     presented  in  the  consolidated  financial  statements  or  related  notes.   (3)        See  the  Index  to  Exhibits  immediately  following  the  signature  page  of  this  Annual  Report  on                      Form  10-­‐K.     64                                                                                                           SIGNATURES   Pursuant  to  the  requirements  of  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934,  the  registrant  has  duly   caused  this  report  to  be  signed  on  its  behalf  by  the  undersigned,  thereunto  duly  authorized.   Date:  February  15,  2012   CERNER  CORPORATION   By:/s/Neal  L.  Patterson   Neal  L.  Patterson   Chairman  of  the  Board,  Chief  Executive  Officer   and  President   Pursuant   to   the   requirements   of   the   Securities   Exchange   Act   of   1934,   this   report   has   been   signed   below   by   the   following  persons  on  behalf  of  the  registrant  and  in  the  capacities  and  on  the  dates  indicated:   Signature  and  Title   Date   /s/Neal  L.  Patterson   Neal  L.  Patterson,  Chairman  of  the  Board,    Chief  Executive  Officer  and  President      (Principal  Executive  Officer)     /s/Clifford  W.  Illig     Clifford  W.  Illig,  Vice  Chairman  and  Director   /s/Marc  G.  Naughton   Marc  G.  Naughton,  Executive  Vice  President  and    Chief  Financial  Officer  (Principal  Financial  Officer)   /s/Michael  R.  Battaglioli   Michael  R.  Battaglioli,  Vice  President  and    Chief  Accounting  Officer   /s/Gerald  E.  Bisbee,  Jr.   Gerald  E.  Bisbee,  Jr.,  Ph.D.,  Director   /s/Denis  A.  Cortese,  M.D.     Denis  A.  Cortese,  M.D.,  Director   /s/John  C.  Danforth   John  C.  Danforth,  Director     /s/Linda  M.  Dillman   Linda  M.  Dillman,  Director   /s/William  B.  Neaves   William  B.  Neaves,  Ph.D.,  Director   /s/William  D.  Zollars   William  D.  Zollars,  Director   65 February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012   February  15,  2012                                                                                                                                                                                                                                                                                           Exhibit   Number   3(a)   3(b)   3(c)   4(a)   4(b)   INDEX  TO  EXHIBITS     Incorporated  by  Reference   Exhibit  Description   Form   Exhibit(s)   Filing  Date   SEC  File  No./Film   No.   Filed   Herewith   10-­‐K   3(a)   3/18/2004   0-­‐15386/04677199   8-­‐K   3.1  &  3.2   6/1/2011   8-­‐K   3.2   3/15/2011   10-­‐K   8-­‐K   4(a)   99.1   2/28/2007   0-­‐15386/08646565   02/13/2012   0-­‐15386/12599122   Second  Restated  Certificate  of   Incorporation  of  the  Registrant,   dated  December  5,  2003   Certificates  of  Amendment  to  the   Second  Restated  Certificate  of   Incorporation   Amended  &  Restated  Bylaws   dated  September  16,  2008  (as   amended  March  31,  2010  and   March  9,  2011)   Specimen  stock  certificate   Amended  and  Restated  Credit   Agreement  dated  as  of  February   10,  2012,  among  Cerner   Corporation  and  U.S.  Bank   National  Association,  Bank  of   America,  N.A.,  Commerce  Bank,   UMB  Bank,  N.A  and  RBS  Citizens,   N.A.   4(c)     Note  Agreement,  dated  April  1,   8-­‐K   4(e)   4/23/1999   0-­‐15386/99599441   1999,  among  Cerner  Corporation,   Principal  Life  Insurance  Company,   Principal  Life  Insurance  Company,   on  behalf  of  one  or  more  separate   accounts,  Commercial  Union  Life   Insurance  Company  of  America,   Nippon  Life  Insurance  Company  of   America,  John  Hancock  Mutual   Life  Insurance  Company,  John   Hancock  Variable  Life  Insurance   Company,  and  Investors  Partner   Life  Insurance  Company     Note  Purchase  Agreement,  dated   December  15,  2002,  among   Cerner  Corporation,  as  issuer,  and   John  Hancock  Life  Insurance   Company,  John  Hancock  Variable   Life  Insurance  Company,  John   Hancock  Insurance  Company  of   Vermont,  Sunamerica  Life   Insurance  Company,  Woodmen  of   the  World  Life  Insurance  Society   and  Beneficial  Life  Insurance   Company,  as  purchasers     4(d)   10-­‐K   10(x)   3/12/2003   0-­‐15386/03599957   66                                                                                                                               4(e)   10(a)  *   10(b)*   10(c)*   10(d)*   10(e)*   10(f)*   10(g)*   10(h)*   10(i)*   10(j)*   10(k)*   10(l)*     Note  Purchase  Agreement,  dated   November  1,  2005,  among  Cerner   Corporation,  as  issuer,  and  AIG   Annuity  Insurance  Company,   American  General  Life  Insurance   Company  and  Principal  Life   Insurance  Company,  as   purchasers   2006  Form  of  Indemnification   Agreement  for  use  between  the   Registrant  and  its  Directors   2010  Form  of  Indemnification   Agreement  for  use  between  the   Registrant  and  its  Directors  and   Section  16  Officers   Amended  &  Restated  Executive   Employment  Agreement  of  Neal  L.   Patterson  dated  January  1,  2008   Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F   Cerner  Corporation  2004  Long-­‐ Term  Incentive  Plan  G  (as   amended  on  December  3,  2007)   Cerner  Corporation  2011   Omnibus  Equity  Incentive  Plan   Cerner  Corporation  2001   Associate  Stock  Purchase  Plan  as   Amended  and  Restated  March  1,   2010  and  May  27,  2011   Cerner  Corporation  Qualified   Performance-­‐Based   Compensation  Plan  (as  Amended   and  Restated)  dated  May  28,  2010   Form  of  2010  Executive   Performance  Agreement   Cerner  Corporation  Executive   Deferred  Compensation  Plan  as   Amended  &  Restated  dated   January  1,  2008   Cerner  Corporation  2005   Enhanced  Severance  Pay  Plan  as   Amended  &  Restated  dated   August  15,  2010   Exhibit  A  Severance  Matrix,   effective  April  1,  2011  to  the   Cerner  Corporation  2005   Enhanced  Severance  Pay  Plan  as   Amended  &  Restated  dated   August  15,  2010   8-­‐K   99.1   11/7/2005   0-­‐15386/051183275   10-­‐K   10(a)   2/28/2007   0-­‐15386/07658265   8-­‐K   99.1   6/3/2010   10-­‐K   10(c)   2/27/2008   DEF  14A   Annex  I   4/16/2001   0-­‐15386/1603080   10-­‐K   10(g)   2/27/2008   DEF  14A   Annex  I   4/19/2011   DEF  14A   Annex  II   4/19/2011   DEF  14A   Annex  I   4/16/2010   8-­‐K   99.1   4/6/2010   10-­‐K   10(k)   2/27/2008   10-­‐Q   10(a)   10/29/2010   10-­‐Q   10(a)   4/29/2011   67                                                                                                                                                             10(m)*   10(n)*   10(o)*   10(p)*   10(q)*   10(r)*   10(s)*   Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F   Nonqualified  Stock  Option   Agreement   Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F   Nonqualified  Stock  Option  Grant   Certificate   Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F  Director   Restricted  Stock  Agreement   Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F   Nonqualified  Stock  Option   Director    Agreement     Cerner  Corporation  2001  Long-­‐ Term  Incentive  Plan  F   Performance-­‐Based  Restricted   Stock  Agreement  for  Section  16   Officers   Cerner  Corporation  2004  Long-­‐ Term  Incentive  Plan  G   Nonqualified  Stock  Option  Grant   Certificate   Aircraft  Time  Sharing  Agreements   between  Cerner  Corporation  and   Neal  L.  Patterson  and  Clifford  W.   Illig  both  dated  February  7,  2007   10-­‐K   10(v)   3/17/2005   0-­‐15386/05688830   10-­‐Q   10(a)   11/10/2005   0-­‐15386/051193974   10-­‐K   10(x)   10-­‐K   10(w)   3/17/2005   0-­‐15386/05688830   3/17/2005   0-­‐15386/05688830   8-­‐K   99.1   6/4/2010   10-­‐K   10(q)   2/27/2008   8-­‐K   10.2  &  10.3   2/9/2007   0-­‐15386/07598012   10(t)*     Notice  of  Change  of  Aircraft   10-­‐K   10(t)   2/22/2010   Provided  Under  Time  Sharing   Agreements  from  Cerner   Corporation  to  Neal  L.  Patterson   and  Clifford  W.  Illig,  both  notices   dated  December  28,  2009   Interparty  Agreement,  dated   January  19,  2010,  among  Kansas   Unified  Development,  LLC,   OnGoal,  LLC  and  Cerner   Corporation   Computation  of  Registrant's   Earnings  Per  Share.  (Exhibit   omitted.    Information  contained   in  notes  to  consolidated  financial   statements.)   Subsidiaries  of  Registrant   Consent  of  Independent   Registered  Public  Accounting  Firm   Certification  of  Neal  L.  Patterson   pursuant  to  Section  302  of   Sarbanes-­‐Oxley  Act  of  2002   10(u)   11   21   23   31.1   8-­‐K   99.1   1/22/2010   X   X   X   68                                                                                                                                                                             X   X   X   31.2   32.1   32.2   Certification  of  Marc  G.  Naughton   pursuant  to  Section  302  of   Sarbanes-­‐Oxley  Act  of  2002   Certification  pursuant  to  18  U.S.C.   Section  1350,  as  adopted   pursuant  to  Section  906  of   Sarbanes-­‐Oxley  Act  of  2002   Certification  pursuant  to  18  U.S.C.   Section  1350,  as  adopted   pursuant  to  Section  906  of   Sarbanes-­‐Oxley  Act  of  2002   101.INS†   XBRL  Instance  Document     101.SCH†   101.CAL†   101.LAB†   101.PRE†   101.DEF†   XBRL  Taxonomy  Extension   Schema  Document   XBRL  Taxonomy  Extension   Calculation  Linkbase  Document   XBRL  Taxonomy  Extension  Labels   Linkbase  Document   XBRL  Taxonomy  Extension   Presentation  Linkbase  Document   XBRL  Taxonomy  Extension   Definition  Linkbase  Document   ____________________________   *  Indicates  a  management  contract  or  compensatory  plan  or  arrangement  required  to  be  identified  by  Part  IV,  Item  15(a)(3).     † XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. 69                                                                                                         Report  of  Independent  Registered  Public  Accounting  Firm   The  Board  of  Directors  and  Shareholders   Cerner  Corporation:   We  have  audited  Cerner  Corporation’s  (the  Corporation)  internal  control  over  financial  reporting  as  of  December   31,   2011,   based   on   criteria   established   in   Internal   Control   –   Integrated   Framework   issued   by   the   Committee   of   Sponsoring  Organizations  of  the  Treadway  Commission  (COSO).  The  Corporation’s  management  is  responsible  for   maintaining   effective   internal   control   over   financial   reporting   and   for   its   assessment   of   the   effectiveness   of   internal  control  over  financial  reporting,  included  in  the  accompanying  Management’s  Report  on  Internal  Control   over   Financial   Reporting,   appearing   in   Item  9A.   Our   responsibility   is   to   express   an   opinion   on   the   Corporation’s   internal  control  over  financial  reporting  based  on  our  audit.   We   conducted   our   audit   in   accordance   with   the   standards   of   the   Public   Company   Accounting   Oversight   Board   (United  States).  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about   whether   effective   internal   control   over   financial   reporting   was   maintained   in   all   material   respects.   Our   audit   included  obtaining  an  understanding  of  internal  control  over  financial  reporting,  assessing  the  risk  that  a  material   weakness  exists,  and  testing  and  evaluating  the  design  and  operating  effectiveness  of  internal  control  based  on  the   assessed   risk.   Our   audit   also   included   performing   such   other   procedures   as   we   considered   necessary   in   the   circumstances.  We  believe  that  our  audit  provides  a  reasonable  basis  for  our  opinion.   A   company’s   internal   control   over   financial   reporting   is   a   process   designed   to   provide   reasonable   assurance   regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in   accordance   with   generally   accepted   accounting   principles.   A   company’s   internal   control   over   financial   reporting   includes   those   policies   and   procedures   that   (1)  pertain   to   the   maintenance   of   records   that,   in   reasonable   detail,   accurately  and  fairly  reflect  the  transactions  and  dispositions  of  the  assets  of  the  company;  (2)  provide  reasonable   assurance  that  transactions  are  recorded  as  necessary  to  permit  preparation  of  financial  statements  in  accordance   with  generally  accepted  accounting  principles,  and  that  receipts  and  expenditures  of  the  company  are  being  made   only  in  accordance  with  authorizations  of  management  and  directors  of  the  company;  and  (3)  provide  reasonable   assurance   regarding   prevention   or   timely   detection   of   unauthorized   acquisition,   use,   or   disposition   of   the   company’s  assets  that  could  have  a  material  effect  on  the  financial  statements.   Because   of   its   inherent   limitations,   internal   control   over   financial   reporting   may   not   prevent   or   detect   misstatements.   Also,   projections   of   any   evaluation   of   effectiveness   to   future   periods   are   subject   to   the   risk   that   controls   may   become   inadequate   because   of   changes   in   conditions,   or   that   the   degree   of   compliance   with   the   policies  or  procedures  may  deteriorate.   In   our   opinion,   Cerner   Corporation   maintained,   in   all   material   respects,   effective   internal   control   over   financial   reporting  as  of  December  31,  2011,  based  on  criteria  established  in  Internal  Control  –  Integrated  Framework  issued   by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission.   We   also   have   audited,   in   accordance   with   the   standards   of   the   Public   Company   Accounting   Oversight   Board   (United  States),  the  consolidated  balance  sheets  of  Cerner  Corporation  and  subsidiaries  as  of  December  31,  2011   and  January  1,  2011,  and  the  related  consolidated  statements  of  operations,  changes  in  shareholders’  equity,  and   cash   flows   for   each   of   the   years   in   the   three-­‐year   period   ended   December   31,   2011,   and   our   report   dated   February  15,  2012  expressed  an  unqualified  opinion  on  those  consolidated  financial  statements.   /s/KPMG  LLP   Kansas  City,  Missouri   February  15,  2012   70                   Report  of  Independent  Registered  Public  Accounting  Firm   The  Board  of  Directors  and  Shareholders   Cerner  Corporation:   We   have   audited   the   accompanying   consolidated   balance   sheets   of   Cerner   Corporation   and   subsidiaries   (collectively,   the  Corporation)   as   of   December   31,   2011   and   January  1,   2011,   and   the   related   consolidated   statements  of  operations,  changes  in  shareholders’  equity,  and  cash  flows  for  each  of  the  years  in  the  three-­‐year   period   ended   December   31,   2011.   These   consolidated   financial   statements   are   the   responsibility   of   the   Corporation’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   the   standards   of   the   Public   Company   Accounting   Oversight   Board   (United  States).  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about   whether  the  financial  statements  are  free  of  material  misstatement.  An  audit  includes  examining,  on  a  test  basis,   evidence  supporting  the  amounts  and  disclosures  in  the  financial  statements.  An  audit  also  includes  assessing  the   accounting   principles   used   and   significant   estimates   made   by   management,   as   well   as   evaluating   the   overall   financial  statement  presentation.  We  believe  that  our  audits  provide  a  reasonable  basis  for  our  opinion.   In  our  opinion,  the  consolidated  financial  statements  referred  to  above  present  fairly,  in  all  material  respects,  the   financial   position   of   Cerner   Corporation   and   subsidiaries   as   of   December   31,   2011   and   January  1,  2011,   and   the   results  of  their  operations  and  their  cash  flows  for  each  of  the  years  in  the  three-­‐year  period  ended  December  31,   2011,  in  conformity  with  U.S.  generally  accepted  accounting  principles.   We   also   have   audited,   in   accordance   with   the   standards   of   the   Public   Company   Accounting   Oversight   Board   (United  States),  Cerner  Corporation’s  internal  control  over  financial  reporting  as  of  December  31,  2011,  based  on   criteria   established   in   Internal   Control   –   Integrated   Framework   issued   by   the   Committee   of   Sponsoring   Organizations   of   the   Treadway   Commission   (COSO),   and   our   report   dated   February  15,   2012   expressed   an   unqualified  opinion  on  the  effectiveness  of  Cerner  Corporation’s  internal  control  over  financial  reporting.   /s/KPMG  LLP   Kansas  City,  Missouri   February  15,  2012   71                       CERNER  CORPORATION  AND  SUBSIDIARIES CONSOLIDATED  BALANCE  SHEETS As  of  December  31,  2011  a nd  Ja nua ry  1,  2011 (In  thousands,  except  share  data) As s ets Current  a s s ets : Ca s h  a nd  ca s h  equi va l ents Short-­‐term  i nves tments Recei va bl es ,  net Inventory Prepa i d  expens es  a nd  other Deferred  i ncome  ta xes ,  net Tota l  current  a s s ets Property  a nd  equi pment,  net Softwa re  devel opment  cos ts ,  net Goodwi l l Inta ngi bl e  a s s ets ,  net Long-­‐term  i nves tments Other  a s s ets Tota l  a s s ets Li a bi l i ti es  a nd  Sha rehol ders '  Equi ty Current  l i a bi l i ti es : Accounts  pa ya bl e Current  i ns ta l l ments  of  l ong-­‐term  debt Deferred  revenue Accrued  pa yrol l  a nd  ta x  wi thhol di ngs   Other  a ccrued  expens es Tota l  current  l i a bi l i ti es Long-­‐term  debt  a nd  other  obl i ga ti ons Deferred  i ncome  ta xes  a nd  other  l i a bi l i ti es Deferred  revenue Tota l  l i a bi l i ti es Sha rehol ders '  Equi ty: Cerner  Corpora ti on  s ha rehol ders '  equi ty: Common  s tock,  $.01  pa r  va l ue,  250,000,000  s ha res   a uthori zed,  169,565,856  s ha res  i s s ued  a t  December  31, 2011  a nd  166,478,570  i s s ued  a t  Ja nua ry  1,  2011 Addi ti ona l  pa i d-­‐i n  ca pi ta l Reta i ned  ea rni ngs                Accumul a ted  other  comprehens i ve  l os s ,  net Tota l  Cerner  Corpora ti on  s ha rehol ders '  equi ty Noncontrol l i ng  i nteres t Tota l  s ha rehol ders '  equi ty 2011 2010 $               243,146 531,635 563,209 23,296 94,232 46,795 1,502,313 488,996 248,750 211,826 75,366 359,324 113,783 $               214,511 356,501 476,905 11,036 83,272 3,836 1,146,061 498,829 244,848 161,374 38,468 264,467 68,743 $         3,000,358 $         2,422,790 $                   85,545 39,722 153,139 109,227 51,087 438,720 86,821 150,229 13,787 689,557 $                   65,035 24,837 109,351 86,921 19,788 305,932 67,923 126,215 17,303 517,373 1,696 723,490 1,597,462 (11,967) 2,310,681 1,665 616,988 1,290,835 (4,191) 1,905,297 120 120 2,310,801 1,905,417 Tota l  l i a bi l i ti es  a nd  s ha rehol ders ’  equi ty $         3,000,358 $         2,422,790 See  notes  to  consolidated  financial  statements. 72                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               CERNER  CORPORATION  AND  SUBSIDIARIES CONSOLIDATED  STATEMENTS  OF  OPERATIONS For  the  yea rs  ended  December  31,  2011,  Ja nua ry  1,  2011  a nd  Ja nua ry  2,  2010 (In  thousands,  except  per  share  data) Revenues : Sys tem  s a l es Support,  ma i ntena nce  a nd  s ervi ces Rei mburs ed  tra vel Tota l  revenues Cos ts  a nd  expens es : Cos t  of  s ys tem  s a l es Cos t  of  s upport,  ma i ntena nce  a nd  s ervi ces Cos t  of  rei mburs ed  tra vel Sa l es  a nd  cl i ent  s ervi ce Softwa re  devel opment (Incl udes  a morti za ti on  of     $79,098,  $68,994  a nd  $63,611,  res pecti vel y) Genera l  a nd  a dmi ni s tra ti ve 2011 For  the  Years  Ended 2010 2009  $              706,714                1,451,747                          44,692    $              550,792                1,266,977                          32,453    $              504,561                1,136,871                          30,432                2,203,153                1,850,222                1,671,864                      296,561                      100,419                          44,692                      869,962                      286,801                      221,055                          66,848                          32,453                      767,152                      272,851                      186,626                          64,140                          30,432                      700,639                      271,051                      144,920                      130,530                      126,970   Tota l  cos ts  a nd  expens es              1,743,355                1,490,889                1,379,858   Opera ti ng  ea rni ngs                    459,798                      359,333                      292,006   Other  i ncome  (expens e): Interes t  i ncome,  net Other  i ncome  (expens e),  net                            9,850                                        46                              3,439                                (560)                                  308                                    367   Tota l  other  i ncome,  net                            9,896                              2,879                                    675   Ea rni ngs  before  i ncome  ta xes   Income  ta xes                    469,694                  (163,067)                    362,212                  (124,940)                    292,681                      (99,216) Net  ea rni ngs  $              306,627    $              237,272    $              193,465   Ba s i c  ea rni ngs  per  s ha re  $                          1.82    $                          1.44    $                          1.19   Di l uted  ea rni ngs  per  s ha re  $                          1.76    $                          1.39    $                          1.15   Ba s i c  wei ghted  a vera ge  s ha res  outs ta ndi ng                    168,634                      164,916                      161,963   Di l uted  wei ghted  a vera ge  s ha res  outs ta ndi ng                    173,867                      170,847                      167,764   See  notes  to  consolidated  financial  statements. 73                 CERNER  CORPORATION  AND  SUBSIDIARIES CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS For  the  yea rs  ended  December  31,  2011,  Ja nua ry  1,  2011  a nd  Ja nua ry  2,  2010 (In  thousands) CASH  FLOWS  FROM  OPERATING  ACTIVITIES: Net  ea rni ngs Adjus tments  to  reconci l e  net  ea rni ngs  to  net  ca s h  provi ded  by opera ti ng  a cti vi ti es : Depreci a ti on  a nd  a morti za ti on Sha re-­‐ba s ed  compens a ti on  expens e Provi s i on  for  deferred  i ncome  ta xes Cha nges  i n  a s s ets  a nd  l i a bi l i ti es  (net  of  bus i nes s es  a cqui red): Recei va bl es ,  net Inventory Prepa i d  expens es  a nd  other Accounts  pa ya bl e Accrued  i ncome  ta xes Deferred  revenue Other  a ccrued  l i a bi l i ti es Net  ca s h  provi ded  by  opera ti ng  a cti vi ti es CASH  FLOWS  FROM  INVESTING  ACTIVITIES: Ca pi ta l  purcha s es Ca pi ta l i zed  s oftwa re  devel opment  cos ts Purcha s es  of  i nves tments Ma turi ti es  of  i nves tments Purcha s e  of  other  i nta ngi bl es Acqui s i ti on  of  bus i nes s es ,  net  of  ca s h  a cqui red Net  ca s h  us ed  i n  i nves ti ng  a cti vi ti es CASH  FLOWS  FROM  FINANCING  ACTIVITIES: Proceeds  from  s a l e  of  future  recei va bl es Repa yment  of  l ong-­‐term  debt Proceeds  from  exces s  ta x  benefi ts  from  s tock  compens a ti on Proceeds  from  exerci s e  of  opti ons Conti ngent  cons i dera ti on  pa yments  for  a cqui s i ti on  of  bus i nes s Net  ca s h  provi ded  by  fi na nci ng  a cti vi ti es Effect  of  excha nge  ra te  cha nges  on  ca s h  a nd  ca s h  equi va l ents Net  i ncrea s e  (decrea s e)  i n  ca s h  a nd  ca s h  equi va l ents Ca s h  a nd  ca s h  equi va l ents  a t  begi nni ng  of  peri od For  the  Years  Ended 2010 2009 2011 $             306,627 $             237,272 $             193,465 212,556 27,919 (22,113) (128,979) (12,329) 9,974 17,504 26,053 33,792 75,290 546,294 (104,795) (82,942) (1,083,274) 791,881 (20,620) (65,341) (565,091) -­‐ (25,701) 36,433 38,900 (779) 48,853 (1,421) 28,635 214,511 193,337 23,723 30,362 (17,370) 188 35,378 30,812 (42,651) (24,618) (9,989) 456,444 (102,311) (80,979) (803,832) 491,492 (10,780) (14,486) (520,896) 1,516 (27,625) 26,226 34,724 -­‐ 34,841 2,399 (27,212) 241,723 189,603 15,786 (4,141) (46,599) 290 (26,350) (53,417) 29,263 28,127 21,264 347,291 (131,265) (77,747) (266,776) 97,481 (12,485) (3,529) (394,321) 1,888 (32,352) 17,445 29,789 -­‐ 16,770 1,489 (28,771) 270,494 Ca s h  a nd  ca s h  equi va l ents  a t  end  of  peri od $             243,146 $             214,511 $             241,723 Suppl ementa l  di s cl os ures  of  ca s h  fl ow  i nforma ti on Ca s h  pa i d  duri ng  the  yea r  for: Interes t Income  ta xes ,  net  of  refund Summa ry  of  a cqui s i ti on  tra ns a cti ons : Fa i r  va l ue  of  net  ta ngi bl e  a s s ets  (l i a bi l i ti es )  a cqui red  (a s s umed) Fa i r  va l ue  of  i nta ngi bl e  a s s ets  a cqui red Fa i r  va l ue  of  goodwi l l Les s :  Fa i r  va l ue  of  conti ngent  l i a bi l i ty  pa ya bl e Les s :  Fa i r  va l ue  of  worki ng  ca pi ta l  s ettl ement  pa ya bl e Ca s h  pa i d  for  a cqui s i ti ons Ca s h  a cqui red Net  ca s h  us ed See  notes  to  consolidated  financial  statements. 74 $                     5,786 115,867 $                     6,887 121,737 $                     8,583 47,114 $                   $                     (8,464) 32,264 50,751 (5,235) (939) 68,377 (3,036) 65,341 1,069 5,076 11,290 (1,725) -­‐ 15,710 (1,224) 14,486 -­‐ $                                     -­‐ 3,529 -­‐ -­‐ 3,529 -­‐ 3,529 $                     $                 $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 CERNER  CORPORATION  AND  SUBSIDIARIES CONSOLIDATED  STATEMENTS  OF  CHANGES  IN  SHAREHOLDERS'  EQUITY Common  Stock Shares Amount Additional Paid-­‐in Capital Accumulated   Other Retained   Earnings Comprehensive Comprehensive Income  (Loss) Income  (Loss) (In  thousands) Balance  at  January  3,  2009 Exercise  of  stock  options 160,507 3,043 $             1,605 31 $                           462,283 29,758 $                           860,098 -­‐ $                               (12,977) Employee  stock  option   compensation  expense Employee  stock  option   compensation  net  excess  tax   benefit Foreign  currency  translation   adjustments  and  other Net  earnings Comprehensive  Income -­‐ -­‐ -­‐ -­‐ 15,786 20,906 -­‐ -­‐ -­‐ -­‐ -­‐ 9,723 $                                       9,723 193,465 193,465 $                           203,188 Balance  at  January  2,  2010 Exercise  of  stock  options 163,550 2,929 1,636 29 528,733 34,695 1,053,563 -­‐ (3,254) Employee  stock  option   compensation  expense Employee  stock  option   compensation  net  excess  tax   benefit Foreign  currency  translation   adjustments  and  other Net  earnings Comprehensive  Income -­‐ -­‐ -­‐ -­‐ Balance  at  January  1,  2011 Exercise  of  stock  options 166,479 3,087 1,665 31 Employee  stock  option   compensation  expense Employee  stock  option   compensation  net  excess  tax   benefit Foreign  currency  translation   adjustments  and  other Net  earnings Comprehensive  Income 23,723 29,837 -­‐ -­‐ 616,988 38,869 27,919 39,714 -­‐ -­‐ -­‐ 237,272 (937) $                                             (937) 237,272 $                           236,335 1,290,835 (4,191) 306,627 (7,776) $                                     (7,776) 306,627 $                           298,851 Balance  at  December  31,  2011 169,566 $             1,696 $                           723,490 $                   1,597,462 $                               (11,967) See  notes  to  consolidated  financial  statements. 75                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Notes  to  Consolidated  Financial  Statements   (1)    Basis  of  Presentation,  Nature  of  Operations  and  Summary  of  Significant  Accounting  Policies   Basis  of  Presentation     The   consolidated   financial   statements   include   all   the   accounts   of   Cerner   Corporation   and   its   subsidiaries.   All   significant  intercompany  transactions  have  been  eliminated  in  consolidation.     The  consolidated  financial  statements  were  prepared  using  accounting  principles  generally  accepted  in  the  United   States.  These  principles  require  us  to  make  estimates  and  assumptions  that  affect  the  reported  amounts  of  assets   and   liabilities,   the   disclosure   of   contingent   assets   and   liabilities   and   the   reported   amounts   of   revenues   and   expenses.  Actual  results  could  differ  from  those  estimates.   Our  fiscal  year  ends  on  the  Saturday  closest  to  December  31.    Fiscal  years  2011,   2010   and   2009  consisted  of  52   weeks  and  ended  on  December  31,  2011,  January  1,  2011  and  January  2,  2010,  respectively.  All  references  to  years   in  these  notes  to  consolidated  financial  statements  represent  fiscal  years  unless  otherwise  noted.   On  May  27,  2011,  the  Board  of  Directors  of  the  Company  approved  a  two-­‐for-­‐one  split  of  our  common  stock  in  the   form  of  a  one  hundred  percent  (100%)  stock  dividend,  which  was  distributed  on  June  24,  2011  to  shareholders  of   record   as   of   June   15,   2011.   In   connection   with   the   stock   split,   treasury   shares   previously   reflected   in   the   consolidated   balance   sheets   were   utilized   to   settle   a   portion   of   the   distribution.   Our   consolidated   financial   statements  have  been  retroactively  restated  to  reflect  the  stock  split  for  all  periods  presented,  which  resulted  in  a   reclassification   increasing   common   stock   $0.8   million,   reducing   additional   paid-­‐in   capital   $28.8   million,   and   reducing   treasury   stock   $28.0   million   at   January   3,   2009.     All   share   and   per   share   data   have   been   retroactively   adjusted  for  all  periods  presented  to  reflect  the  stock  split  including  the  use  of  treasury  shares,  as  if  the  stock  split   had  occurred  at  the  beginning  of  the  earliest  period  presented.     Under  the  terms  of  our  outstanding  equity  awards,  the  stock  split  increased  the  number  of  shares  of  our  common   stock   issuable   upon   exercise   or   vesting   of   such   awards   in   proportion   to   the   stock   split   ratio   and   caused   a   proportionate  decrease  in  the  exercise  price  of  such  awards  to  the  extent  they  were  stock  options.   Nature  of  Operations     We  design,  develop,  market,  install,  host  and  support  health  care  information  technology,  health  care  devices  and   content   solutions   for   health   care   organizations   and   consumers.     We   also   provide   a   wide   range   of   value-­‐added   services,  including  implementing  solutions  as  individual,  combined  or  enterprise-­‐wide  systems;  hosting  solutions  in   our   data   center;   and   clinical   process   optimization   services.   Furthermore,   we   provide   fully–automated   on-­‐site   employer  health  clinics  and  third  party  administrator  health  plan  services  for  employers.       Summary  of  Significant  Accounting  Policies   (a) Revenue  Recognition  –  We  recognize  software  related  revenue  in  accordance  with  the  provisions  of  ASC  985-­‐ 605,  Software  –  Revenue  Recognition  and  non-­‐software  related  revenue  in  accordance  with  ASC  605,  Revenue   Recognition.    In  general,  revenue  is  recognized  when  all  of  the  following  criteria  have  been  met:   • Pervasive  evidence  of  an  arrangement  exists;   • Delivery  has  occurred  and  been  accepted  by  the  client;   • Our  fee  is  fixed,  determinable  and,   • Collection  of  the  revenue  is  probable   The  following  are  our  major  components  of  revenue:     76                           • • System  sales  –  includes  the  licensing  of  computer  software,  software  as  a  service,  deployment  period   upgrades,   installation,   content   subscriptions,   transaction   processing   and   the   sale   of   computer   hardware  and  sublicensed  software;   Support,  Maintenance  and  Service  –  includes  software  support  and  hardware  maintenance,  remote   hosting  and  managed  services,  training,  consulting  and  implementation  services;       • Reimbursed   Travel   –   includes   reimbursable   out-­‐of-­‐pocket   expenses   (primarily   travel)   incurred   in   connection  with  our  client  service  activities.   We  provide  for  several  models  of  procurement  of  our  information  systems  and  related  services.  The  predominant   model   involves   multiple   deliverables   and   includes   a   perpetual   software   license   agreement,   project-­‐related   installation   services,   implementation   and   consulting   services,   software   support   and   either   hosting   services   or   computer  hardware  and  sublicensed  software,  which  requires  that  we  allocate  revenue  to  each  of  these  elements.   Allocation  of  Revenue  to  Multiple  Element  Arrangements   Revenue   earned   on   software   arrangements   involving   multiple-­‐elements   is   generally   required   to   be   allocated   to   each   element   based   on   the   relative   fair   values   of   those   elements   if   fair   values   exist   for   all   elements   of   the   arrangement.    Since  we  do  not  have  vendor  specific  objective  evidence  (VSOE)  of  fair  values  on  all  the  elements   within  our  multiple  element  arrangements,  we  recognize  revenue  using  the  residual  method.   Under   the   residual   method,   revenue   is   recognized   in   a   multiple-­‐element   arrangement   when   vendor-­‐specific   objective   evidence   of   fair   value   exists   for   all   of   the   undelivered   elements   in   the   arrangement   (i.e.   professional   services,  software  support,  hardware  maintenance,  remote  hosting  services,  hardware  and  sublicensed  software),   but   does   not   exist   for   one   or   more   of   the   delivered   elements   in   the   arrangement   (i.e.   licenses   for   software   solutions   including   project-­‐related   installation   services).     We   allocate   revenue   to   each   undelivered   element   in   a   multiple-­‐element  arrangement  based  on  the  element’s  respective  fair  value,  with  the  fair  value  determined  by  the   price   charged   when   that   element   is   sold   separately.     Specifically,   we   determine   the   fair   value   of   the   software   support,   hardware   maintenance,   sublicensed   software   support,   remote   hosting,   subscriptions   and   software   as   a   service  portions  of  the  arrangement  based  on  the  substantive  renewal  price  for  these  services  charged  to  clients;   professional   services   (including   training   and   consulting)   portion   of   the   arrangement,   other   than   installation   services,  based  on  hourly  rates  which  we  charge  for  these  services  when  sold  apart  from  a  software  license;  and,   the   hardware   and   sublicensed   software,   based   on   the   prices   for   these   elements   when   they   are   sold   separately   from   the   software.     The   residual   amount   of   the   fee   after   allocating   revenue   to   the   fair   value   of   the   undelivered   elements   is   attributed   to   the   licenses   for   software   solutions,   including   project-­‐related   installation   services.     If   evidence  of  the  fair  value  cannot  be  established  for  the  undelivered  elements  of  a  license  agreement,  the  entire   amount   of   revenue   under   the   arrangement   is   deferred   until   these   elements   have   been   delivered   or   objective   evidence  can  be  established.       For   certain   arrangements,   revenue   for   software,   implementation   services   and,   in   certain   cases,   support   services   for   which   VSOE   fair   value   cannot   be   established   are   accounted   for   as   a   single   unit   of   accounting.   The   revenue   recognized  from  these  single  units  of  accounting  are  typically  allocated  and  classified  as  system  sales  and  support,   maintenance   and   services.   If   available,   the   VSOE   fair   value   of   the   services   provides   the   basis   for   support,   maintenance  and  services  allocation  and  the  remaining  residual  consideration  provides  the  basis  for  system  sales   revenue   allocations.   In   cases   where   VSOE   fair   value   of   the   services   cannot   be   established,   revenue   is   classified   based  on  the  nature  of  related  costs  incurred.  The  following  table  details  these  revenue  classification  allocations   for  these  single  units  of  accounting  arrangements:     (In  millions) System  Sales Support,  maintenance  and  services For  the  Years  Ended 2010 2009 2011 $               23.3 97.5 $               17.5 88.1 $               18.1 60.4 77                                                                               Revenue  Recognition  Models  for  Each  Element   We   provide   project-­‐related   installation   services   when   licensing   our   software   solutions,   which   include   project-­‐ scoping   services,   conducting   pre-­‐installation   audits   and   creating   initial   environments.     We   have   deemed   installation   services   to   be   essential   to   the   functionality   of   the   software,   and   therefore   recognize   the   software   license   over   the   software   installation   period   using   the   percentage   of   completion   method.   We   measure   the   percentage   of   completion   based   on   output   measures   which   reflect   direct   labor   hours   incurred,   beginning   at   software   delivery   and   culminating   at   completion   of   installation.     The   installation   services   process   length   is   dependent  upon  client  specific  factors  and  generally  occurs  in  the  same  period  the  contracts  are  executed  but  can   extend  over  a  longer  period  of  time.   We  provide  implementation  and  consulting  services.    These  services  vary  depending  on  the  scope  and  complexity   requested  by  the  client.    Examples  of  such  services  may  include  database  consulting,  system  configuration,  project   management,   testing   assistance,   network   consulting,   post   conversion   review   and   application   management   services.    Except  for  limited  arrangements  where  our  software  requires  significant  modifications  or  customization,   implementation   and   consulting   services   generally   are   not   deemed   to   be   essential   to   the   functionality   of   the   software,  and  thus  do  not  impact  the  timing  of  the  software  license  recognition.  However,  if  software  license  fees   are   tied   to   implementation   milestones,   then   the   portion   of   the   software   license   fee   tied   to   implementation   milestones   is   deferred   until   the   related   milestone   is   accomplished   and   related   fees   become   billable   and   non-­‐ forfeitable.    Implementation  fees  are  recognized  over  the  service  period,  which  may  extend  from  nine  months  to   three  years  for  multi-­‐phased  projects.   Remote  hosting  and  managed  services  are  marketed  under  long-­‐term  arrangements  generally  over  periods  of  five   to   10   years.     These   services   are   typically   provided   to   clients   that   have   acquired   a   perpetual   license   for   licensed   software   and   have   contracted   with   us   to   host   the   software   in   our   data   center.     Under   these   arrangements,   the   client  generally  has  the  contractual  right  to  take  possession  of  the  licensed  software  at  any  time  during  the  hosting   period  without  significant  penalty  and  it  is  feasible  for  the  client  to  either  run  the  software  on  its  own  equipment   or  contract  with  another  party  unrelated  to  us  to  host  the  software.    Additionally,  these  services  are  not  deemed   to  be  essential  to  the  functionality  of  the  licensed  software  or  other  elements  of  the  arrangement  and  as  such,  we   allocate   a   portion   of   the   services   fee   to   the   software   and   recognize   it   once   the   client   has   the   ability   to   take   possession   of   the   software.   The   remaining   services   fee   in   these   arrangements,   as   well   as   the   services   fees   for   arrangements  where  the  client  does  not  have  the  contractual  right  or  the  ability  to  take  possession  of  the  software   at  any  time,  is  generally  recognized  ratably  over  the  hosting  service  period.   We  also  offer  our  solutions  on  a  software  as  a  service  model,  making  available  time  based  licenses  for  our  software   functionality  and  providing  the  software  solutions  on  a  remote  processing  basis  from  our  data  centers.    The  data   centers   provide   system   and   administrative   support   as   well   as   processing   services.     Revenue   on   software   and   services  provided  on  a  software  as  a  service  or  term  license  basis  is  combined  and  recognized  on  a  monthly  basis   over  the  term  of  the  contract.    We  capitalize  related  direct  costs  consisting  of  third  party  costs  and  direct  software   installation   and   implementation   costs   associated   with   the   initial   set   up   of   a   software   as   a   service   client.     These   costs  are  amortized  over  the  term  of  the  arrangement.   Software   support   fees   are   marketed   under   annual   and   multi-­‐year   arrangements   and   are   recognized   as   revenue   ratably   over   the   contracted   support   term.     Hardware   and   sublicensed   software   maintenance   revenues   are   recognized  ratably  over  the  contracted  maintenance  term.   Subscription  and  content  fees  are  generally  marketed  under  annual  and  multi-­‐year  agreements  and  are  recognized   ratably  over  the  contracted  terms.   Hardware  and  sublicensed  software  sales  are  generally  recognized  when  delivered  to  the  client,  when  title  and  risk   of  loss  have  transferred  to  the  client.   78                   The  sale  of  equipment  under  sales-­‐type  leases  is  recorded  as  system  sales  revenue  at  the  inception  of  the  lease.     Sales-­‐type   leases   also   produce   financing   income,   which   is   included   in   system   sales   revenue   and   is   recognized   at   consistent  rates  of  return  over  the  lease  term.   Where  we  have  contractually  agreed  to  develop  new  or  customized  software  code  for  a  client  as  a  single  element   arrangement,  we  utilize  percentage  of  completion  accounting,  labor-­‐hours  method.     Payment  Arrangements   Our  payment  arrangements  with  clients  typically  include  an  initial  payment  due  upon  contract  signing  and  date-­‐ based  licensed  software  payment  terms  and  payments  based  upon  delivery  for  services,  hardware  and  sublicensed   software.   Revenue   recognition   on   support   payments   received   in   advance   of   the   services   being   performed   are   deferred  and  classified  as  either  current  or  long  term  deferred  revenue  depending  on  whether  the  revenue  will  be   earned  within  one  year.     We   have   periodically   provided   long-­‐term   financing   options   to   creditworthy   clients   through   third   party   financing   institutions   and   have   directly   provided   extended   payment   terms   to   clients   from   contract   date.     These   extended   payment  term  arrangements  typically  provide  for  date  based  payments  over  periods  ranging  from  12  months  up  to   seven  years.    As  a  significant  portion  of  the  fee  is  due  beyond  one  year,  we  have  analyzed  our  history  with  these   types  of  arrangements  and  have  concluded  that  we  have  a  standard  business  practice  of  using  extended  payment   term   arrangements   and   a   long   history   of   successfully   collecting   under   the   original   payment   terms   for   arrangements   with   similar   clients,   product   offerings,   and   economics   without   granting   concessions.     Accordingly,   we  consider  the  fee  to  be  fixed  and  determinable  in  these  extended  payment  term  arrangements  and,  thus,  the   timing  of  revenue  is  not  impacted  by  the  existence  of  extended  payments.   Some  of  these  payment  streams  have  been  assigned  on  a  non-­‐recourse  basis  to  third  party  financing  institutions.     We  account  for  the  assignment  of  these  receivables  as  sales.    Provided  all  revenue  recognition  criteria  have  been   met,   we   recognize   revenue   for   these   arrangements   under   our   normal   revenue   recognition   criteria,   and   if   appropriate,  net  of  any  payment  discounts  from  financing  transactions.     (b)    Cash  Equivalents  –  Cash  equivalents  consist  of  short-­‐term  marketable  securities  with  original  maturities  less   than  90  days.     (c)     Investments   –   Our   short-­‐term   investments   are   primarily   invested   in   time   deposits,   commercial   paper,   government  and  corporate  bonds.    Our  long-­‐term  investments  are  primarily  invested  in  government  and  corporate   bonds  with  maturities  of  less  than  two  years.    Investment  securities  which  we  have  the  ability  and  intent  to  hold   until   maturity   are   classified   as   held-­‐to-­‐maturity   investments   and   are   stated   at   amortized   cost.   Investment   securities  which  are  bought  and  held  principally  for  the  purpose  of  selling  them  in  the  near  term  are  classified  as   trading  securities  and  are  stated  at  fair  market  value  with  changes  recorded  through  earnings.     Premiums  are  amortized  and  discounts  are  accreted  over  the  life  of  the  security  as  adjustments  to  interest  income   for  our  held-­‐to-­‐maturity  investments.  Interest  income  is  recognized  when  earned.     Refer  to  Note  (3)  and  Note  (4)  for  a  description  of  these  assets  and  their  fair  value.     (d)      Concentrations  –  Substantially  all   of  our  cash  and  cash  equivalents  and  short-­‐term  investments  are  held  at   four  major  financial  institutions.    The  majority  of  our  cash  equivalents  consist  of  money  market  funds.    Deposits   held  with  banks  may  exceed  the  amount  of  insurance  provided  on  such  deposits.    Generally  these  deposits  may  be   redeemed  upon  demand.       As   of   the   end   of   2011,   we   had   significant   concentration   of   receivables   owed   to   us   by   Fujitsu   Services   Limited,   which  are  currently  in  dispute.  Refer  to  Note  (5)  for  additional  information.     (e)     Inventory   –   Inventory   consists   primarily   of   computer   hardware,   sublicensed   software   held   for   resale   and   RxStation  medication  dispensing  units.    Inventory  is  recorded  at  the  lower  of  cost  (first-­‐in,  first-­‐out)  or  market.   79                         (f)       Property   and   Equipment   –   We   account   for   property   and   equipment   in   accordance   with   ASC   360,   Property,   Plant,   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  one  to  50  years.    Amortization   of   leasehold   improvements   is   computed   using   a   straight-­‐line   method   over   the   shorter   of   the   lease   terms   or   the   useful  lives,  which  range  from  periods  of  one  to  15  years.   (g)    Software  Development  Costs  –  Software  development  costs  are  accounted  for  in  accordance  with  ASC  985-­‐20,   Costs   of   Software   to   be   Sold,   Leased   or   Marketed.   Software   development   costs   incurred   internally   in   creating   computer  software  products  are  expensed  until  technological  feasibility  has  been  established  upon  completion  of   a   detailed   program   design.     Thereafter,   all   software   development   costs   incurred   through   the   software’s   general   release   date   are   capitalized   and   subsequently   reported   at   the   lower   of   amortized   cost   or   net   realizable   value.     Capitalized   costs   are   amortized   based   on   current   and   expected   future   revenue   for   each   software   solution   with   minimum   annual   amortization   equal   to   the   straight-­‐line   amortization   over   the   estimated   economic   life   of   the   solution.    We  amortize  capitalized  software  development  costs  over  five  years.   (h)     Goodwill   –   We   account   for   goodwill   under   the   provisions   of   ASC   350,   Intangibles   –   Goodwill   and   Other.   Goodwill  is  not  amortized  but  is  evaluated  for  impairment  annually  or  whenever  there  is  an  impairment  indicator.   Based   on   these   evaluations,   there   was   no   impairment   of   goodwill   in   2011,   2010   or   2009.   Refer   to   Note   (7)   for   more  information  of  Goodwill  and  other  intangible  assets.     (i)   Contingencies   –   We   accrue   estimates   for   resolution   of   any   legal   and   other   contingencies   when   losses   are   probable   and   estimable,   in   accordance   with   ASC   450,   Contingencies.   We   currently   have   no   material   pending   litigation.   The  terms  of  our  software  license  agreements  with  our  clients  generally  provide  for  a  limited  indemnification  of   such  intellectual  property  against  losses,  expenses  and  liabilities  arising  from  third  party  claims  based  on  alleged   infringement   by   our   solutions   of   an   intellectual   property   right   of   such   third   party.   The   terms   of   such   indemnification  often  limit  the  scope  of  and  remedies  for  such  indemnification  obligations  and  generally  include  a   right  to  replace  or  modify  an  infringing  solution.  To  date,  we  have  not  had  to  reimburse  any  of  our  clients  for  any   losses   related   to   these   indemnification   provisions   pertaining   to   third   party   intellectual   property   infringement   claims.  For  several  reasons,  including  the  lack  of  prior  indemnification  claims  and  the  lack  of  a  monetary  liability   limit  for  certain  infringement  cases  under  the  terms  of  the  corresponding  agreements  with  our  clients,  we  cannot   determine  the  maximum  amount  of  potential  future  payments,  if  any,  related  to  such  indemnification  provisions.   From   time   to   time   we   are   involved   in   routine   litigation   incidental   to   the   conduct   of   our   business,   including   for   example,   employment   disputes   and   litigation   alleging   solution   defects,   personal   injury,   intellectual   property   infringement,  violations  of  law  and  breaches  of  contract  and  warranties.    We  believe  that  no  such  routine  litigation   currently  pending  against  us,  if  adversely  determined,  would  have  a  material  adverse  effect  on  our  consolidated   financial  position,  results  of  operations  or  cash  flows.   (j)    Derivative  Instruments  and  Hedging  Activities  –  We  account  for  our  hedging  activities  in  accordance  with  ASC   815,   Derivatives   and   Hedging.     Historically,   our   use   of   hedging   instruments   has   primarily   been   to   hedge   foreign   currency  denominated  assets  and  liabilities.    We  record  all  hedging  instruments  on  our  Consolidated  Balance  Sheet   at   fair   value.    For   hedging   instruments   that   are   designated   and   qualify   as   a   net   investment   hedge,   the   effective   portion  of  the  gain  or  loss  on  the  hedging  instrument  is  reported  in  the  foreign  currency  translation  component  of   other   comprehensive   income   (loss).    Any   ineffective   portion   of   the   gain   or   loss   on   the   hedging   instrument   for   a   cash  flow  hedge  or  net  investment  hedge  is  recorded  in  the  results  of  operations  immediately.  Refer  to  Note  (10)   for  more  information  on  our  hedging  activities.   (k)     Income   Taxes   –   Income   taxes   are   accounted   for   in   accordance   with   ASC   740,   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   80                 which   those   temporary   differences   are   expected   to   be   recovered   or   settled.   Refer   to   Note   (12)   for   additional   information  regarding  income  taxes.   (l)    Earnings  per  Common  Share  Basic  earnings  per  share  (EPS)  excludes  dilution  and  is  computed,  in  accordance   with  ASC  260,  Earnings  Per  Share,    by  dividing  income  available  to  common  shareholders  by  the  weighted-­‐average   number  of  common  shares  outstanding  for  the  period.    Diluted  EPS  reflects  the  potential  dilution  that  could  occur   if   securities   or   other   contracts   to   issue   stock   were   exercised   or   converted   into   common   stock   or   resulted   in   the   issuance   of   common   stock   that   then   shared   in   our   earnings.     Refer   to   Note   (13)   for   additional   details   of   our   earnings  per  share  computations.     (m)  Accounting  for  Share-­‐based  payments  –  We  recognize  all  share-­‐based  payments  to  associates,  directors  and   consultants,  including  grants  of  stock  options,  restricted  stock  and  performance  shares,  in  the  financial  statements   as   compensation   cost   based   on   their   fair   value   on   the   date   of   grant,   in   accordance   with   ASC   718,   Stock   Compensation.    This   compensation   cost   is   recognized   over   the   vesting   period   on   a   straight-­‐line   basis   for   the   fair   value  of  awards  that  actually  vest.    Refer  to  Note  (14)  for  a  detailed  discussion  of  share-­‐based  payments.   (n)   Foreign   Currency   –   In   accordance   with   ASC   830,   Foreign   Currency   Matters,   assets   and   liabilities   of   non-­‐U.S.   subsidiaries   whose   functional   currency   is   the   local   currency   are   translated   into   U.S.   dollars   at   exchange   rates   prevailing  at  the  balance  sheet  date.    Revenues  and  expenses  are  translated  at  average  exchange  rates  during  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  operations.   (o)   Collaborative   Arrangements   –   In   accordance   with   ASC   808,   Collaborative   Arrangements,   third   party   costs   incurred  and  revenues  generated  by  arrangements  involving  joint  operating  activities  of  two  or  more  parties  that   are   each   actively   involved   and   exposed   to   risks   and   rewards   of   the   activities   are   classified   in   the   consolidated   statements   of   operations   on   a   gross   basis   only   if   we   are   determined   to   be   the   principal   participant   in   the   arrangement.  Otherwise,  third  party  revenues  and  costs  generated  by  collaborative  arrangements  are  presented   on  a  net  basis.  Payments  between  participants  are  recorded  and  classified  based  on  the  nature  of  the  payments.   (p)  Recent  Accounting  Pronouncements   Recently  Adopted  Accounting  Pronouncements   ASU  2009-­‐13   In  October  2009,  the  Financial  Accounting  Standards  Board  (FASB)  issued  Accounting  Standard  Update  (ASU)  2009-­‐ 13   —Multiple-­‐Deliverable   Revenue   Arrangements   (ASU   2009-­‐13).   ASU   2009-­‐13   requires   a   vendor   to   allocate   revenue   to   each   unit   of   accounting   in   many   arrangements   involving   multiple   deliverables   based   on   the   relative   selling   price   of   each   deliverable.   It   also   changes   the   level   of   evidence   of   standalone   selling   price   required   to   separate  deliverables  by  allowing  a  vendor  to  make  its  best  estimate  of  the  standalone  selling  price  of  deliverables   when  more  objective  evidence  of  selling  price  is  not  available.     We   adopted   ASU   2009-­‐13   for   all   new   and   materially   modified   arrangements   on   a   prospective   basis   beginning   January   2,   2011.   We   have   reviewed   the   primary   accounting   literature   related   to   the   elements   that   typically   get   bundled   into   our   arrangements   and   determined   that   the   majority   of   the   elements   fall   into   two   different   accounting   units.   One   unit   is   comprised   of   software   and   software-­‐related   elements   which   include   our   licensed   software,   licensed   software   support,   application   services   provider,   subscriptions,   professional   services,   remote   hosting,   sublicensed   software   and   sublicensed   software   support.   The   second   unit   of   accounting   is   non-­‐software   elements,  which  include  hardware  and  hardware  maintenance.   The  majority  of  our  multiple-­‐element  arrangements  do  not  contain  both  software  and  non-­‐software  deliverables   such  as  hardware  and  thus  are  not  impacted  by  the  new  guidance.  For  our  arrangements  that  are  impacted  by  ASU   2009-­‐13,   we   determined   fair   value   based   upon   vendor-­‐specific   objective   evidence   (VSOE),   if   it   existed,   and   in   81                 instances  where  VSOE  did  not  exist  (primarily  for  our  licensed  software),  we  determined  fair  value  based  upon  the   estimated   selling   price   concept.   The   application   of   this   concept   relies   primarily   on   historical   pricing   and   management  guidance  for  similarly  sized  arrangements.   The  adoption  of  ASU  2009-­‐13  did  not  result  in  a  material  change  in  the  timing  of  revenue  recognition  due  to  the   small  number  of  arrangements  executed  with  both  software  and  non-­‐software  deliverables  and  the  existence  of   VSOE  for  most  of  our  business  models.     ASU  2009-­‐14    In  October  2009,  the  FASB  issued  ASU  2009-­‐14  —Certain  Revenue  Arrangements  That  Include  Software  Elements   (ASU   2009-­‐14).   Under   ASU   2009-­‐14,   tangible   products   containing   software   components   and   non-­‐software   components   that   function   together   to   deliver   the   tangible   product’s   essential   functionality   are   no   longer   within   the  scope  of  the  software  revenue  guidance  in  ASC  985-­‐605.  We  adopted  the  amendment  provisions  of  ASU  2009-­‐ 14   on   January   2,   2011;   the   adoption   of   this   standard   did   not   have   material   impact   on   the   timing   of   revenue   recognition.   Recently  Issued  Accounting  Pronouncements  Not  Yet  Adopted   In  June  2011,  the  FASB  issued  ASU  2011-­‐05  —Presentation  of  Comprehensive  Income  (ASU  2011-­‐05).  ASU  2011-­‐05   requires   an   entity   to   present   the   total   of   comprehensive   income,   the   components   of   net   income,   and   the   components  of  other  comprehensive  income  either  in  a  single  continuous  statement  of  comprehensive  income  or   in   two   separate   but   consecutive   statements.   ASU   2011-­‐05   eliminates   the   option   to   present   the   components   of   other  comprehensive  income  as  part  of  the  statement  of  changes  in  equity.  ASU  2011-­‐05  is  effective  for  us  in  the   first  quarter  of  2012  and  is  required  to  be  applied  retrospectively.  The  adoption  of  this  standard  is  not  expected  to   have  a  material  effect  on  our  consolidated  financial  statements.   In  September  2011,  the  FASB  issued  ASU  2011-­‐08  —Testing  for  Goodwill  Impairment  (ASU  2011-­‐08).  ASU  2011-­‐08   amends  existing  guidance  by  giving  an  entity  the  option  to  first  assess  qualitative  factors  to  determine  whether  it  is   more  likely  than  not  that  the  fair  value  of  a  reporting  unit  is  less  than  the  carrying  amount.  The  more-­‐likely-­‐than-­‐ not  threshold  is  defined  as  having  a  likelihood  of  more  than  50  percent.  If  an  entity  determines  that  it  is  more  likely   than  not  that  the  fair  value  of  a  reporting  unit  is  less  than  its  carrying  amount,  then  it  is  necessary  to  perform  the   two-­‐step   goodwill   impairment   test,   as   currently   prescribed   by   ASC   Topic   350.   Otherwise,   the   two-­‐step   goodwill   impairment   test   is   not   required.   ASU   2011-­‐08   is   effective   for   us   in   2012.   The   adoption   of   this   standard   is   not   expected  to  have  a  material  effect  on  our  consolidated  financial  statements.   (2)    Business  Acquisitions     Clairvia,  Inc.   On  October  17,  2011,  we  purchased  the  net  assets  of  Clairvia,  Inc.  into  Cerner  Corporation.    Clairvia  is  a  developer   of   health   care   workforce   management   solutions,   including  Care   Value   Management™   and   Physician   Scheduler™.   The  Care  Value  Management  suite  will  be  integrated  into  our  broader  cloud-­‐based  and  interoperability  platforms,   Cerner   Healthe   Intent™   and   CareAware®,   which   will   allow   us   to   offer   a   comprehensive   suite   of   resource   management  solutions.   Consideration  for  the  acquisition  of  Clairvia  was  $38.3  million,  which  was  paid  in  cash.  The  final  allocation  of  the   purchase   price   to   the   estimated   fair   values   of   the   identified   tangible   and   intangible   assets   acquired,   net   of   liabilities  assumed,  is  summarized  below:   82                 (In  thousands) Tangible  assets  and  liabilities Current  assets Property  and  equipment Current  liabilities Total  net  tangible  liabilities  acquired Intangible  assets Customer  relationships Existing  technologies Non-­‐compete  agreements Trade  names Total  intangible  assets  acquired Goodwill Total  purchase  price Allocation  Amount $                                   3,260 93 (3,764) (411) 6,810 6,060 740 450 14,060 24,621 38,270 $                               The   fair   values   of   the   acquired   intangible   assets   were   estimated   by   applying   the   income   approach.   Such   estimations  required  the  use  of  inputs  that  were  unobservable  in  the  market  place  (Level  3),  including  a  discount   rate  that  we  estimated  would  be  used  by  a  market  participant  in  valuing  these  assets,  projections  of  revenues  and   cash  flows,  and  client  attrition  rates.  See  Note  (4)  for  further  information  about  the  fair  value  level  hierarchy.     The  goodwill  of  $24.6  million  arising  from  the  acquisition  consists  largely  of  the  synergies  and  economies  of  scale,   including  the  value  of  the  assembled  workforce,  expected  from  combining  the  operations  of  Cerner  and  Clairvia.   All   of   the   goodwill   was   allocated   to   our   Domestic   operating   segment   and   is   expected   to   be   deductible   for   tax   purposes.   Identifiable   intangible   assets   are   being   amortized   over   a   weighted-­‐average   period   of   seven   years.   The   operating  results  of  Clairvia  were  combined  with  our  operating  results  subsequent  to  the  purchase  date  of  October   17,   2011.   Pro-­‐forma   results   of   operations,   assuming   this   acquisition   was   made   at   the   beginning   of   the   earliest   period  presented,  have  not  been  presented  because  the  effect  of  this  acquisition  was  not  material  to  our  results.     Resource  Systems,  Inc.   On  May  23,  2011,  we  completed  the  purchase  of  100%  of  the  outstanding  common  shares  of  Resource  Systems,   Inc.,   developer   of   the   CareTracker®   point-­‐of-­‐care   electronic   documentation   system   primarily   used   within   skilled   nursing   and   assisted   living   facilities.   Cerner   believes   that   there   is   significant   market   opportunity   for   information   technology   solutions   in   the   long-­‐term   care   market   as   the   U.S.   population   ages   and   life   expectancy   continues   to   increase.     Consideration  for  the  acquisition  of  Resource  Systems  is  expected  to  total  $36.3  million  consisting  of  up-­‐front  cash   plus   additional   contingent   consideration,   which   is   payable   if   we   achieve   certain   revenue   milestones   through   the   quarters  ending  June  30,  2012  and  December  29,  2012  and  bookings  milestones  through  the  quarters  ending  June   30,   2012   and   June   29,   2013   from   the   clients   acquired   from   Resource   Systems.   We   valued   the   contingent   consideration   at   $5.2   million   based   on   a   probability-­‐weighted   assessment   of   potential   contingent   consideration   payment  scenarios.  The  final  allocation  of  the  purchase  price  to  the  estimated  fair  values  of  the  identified  tangible   and  intangible  assets  acquired,  net  of  liabilities  assumed,  is  summarized  below:     83                                                                                                                                                                                                                                                                                                                                                                                                 (In  thousands) Tangible  assets  and  liabilities Current  assets Property  and  equipment Current  liabilities Deferred  tax  liabilities Total  net  tangible  liabilities  acquired Intangible  assets Customer  relationships Existing  technologies Non-­‐compete  agreements Total  intangible  assets  acquired Goodwill Total  purchase  price Allocation  Amount $                                   5,249 209 (6,803) (6,708) (8,053) 11,204 6,401 599 18,204 26,130 36,281 $                               The  fair  values  of  the  acquired  intangible  assets  and  the  contingent  consideration  were  estimated  by  applying  the   income  approach.  Such  estimations  required  the  use  of  inputs  that  were  unobservable  in  the  market  place  (Level   3),   including   a   discount   rate   that   we   estimated   would   be   used   by   a   market   participant   in   valuing   these   assets,   projections   of   revenues   and   cash   flows,   probability   weighting   factors   and   client   attrition   rates.   See   Note   (4)   for   further  information  about  the  fair  value  level  hierarchy.     The  goodwill  of  $26.1  million  arising  from  the  acquisition  consists  largely  of  the  synergies  and  economies  of  scale,   including  the  value  of  the  assembled  workforce,  expected  from  combining  the  operations  of  Cerner  and  Resource   Systems.  All  of  the  goodwill  was  allocated  to  our  Domestic  operating  segment  and  is  not  expected  to  be  deductible   for   tax   purposes.   Identifiable   intangible   assets   are   being   amortized   over   five   years.   The   operating   results   of   Resource  Systems  were  combined  with  our  operating  results  subsequent  to  the  purchase  date  of  May  23,  2011.   Pro-­‐forma   results   of   operations,   assuming   this   acquisition   was   made   at   the   beginning   of   the   earliest   period   presented,  have  not  been  presented  because  the  effect  of  this  acquisition  was  not  material  to  our  results.     IMC  Health  Care,  Inc.   On  January  4,  2010,  we  completed  the  purchase  of  100%  of  the  outstanding  common  shares  of  IMC  Health  Care,   Inc.   (IMC),   a   provider   of   employer   sponsored   on-­‐site   health   centers.   The   acquisition   of   IMC   expanded   our   employer   health   initiatives,   such   as   on-­‐site   employer   health   centers,   occupational   health   services   and   wellness   programs.  Consideration  for  this  transaction  was  $16.6  million,  which  was  primarily  paid  in  cash.     The   allocation   of   the   purchase   price   to   the   estimated   fair   value   of   the   identified   tangible   and   intangible   assets   acquired  and  liabilities  assumed  resulted  in  goodwill  of  $11.3  million  and  $5.1  million  in  intangible  assets,  of  which   $4.1  million  was  related  to  the  value  of  established  customer  relationships.   The  goodwill  was  allocated  to  our  Domestic  operating  segment  and  is  expected  to  be  deductible  for  tax  purposes.   The   other   identifiable   intangible   assets   are   being   amortized   over   five   years.     The   operating   results   of   IMC   were   combined   with   our   operating   results   subsequent   to   the   purchase   date   of   January   4,   2010.     Pro-­‐forma   results   of   operations  have  not  been  presented  because  the  effect  of  this  acquisition  was  not  material  to  our  results.     84                                                                                                                                                                                                                                                                                                                                                                           (3)    Cash  and  Investments   Our  cash,  cash  equivalents  and  investment  securities  consisted  of  the  following:   (In  thousands) Cash  and  cash  equivalents: Cash Money  market  funds Time  deposits Total  cash  and  cash  equivalents Short-­‐term  investments Time  deposits Commercial  paper Government  and  corporate  bonds Auction  rate  securities Total  short-­‐term  investments Long-­‐term  investments Time  deposits Government  and  corporate  bonds Other Total  long-­‐term  investments 2011 2010 $           $           111,869 123,919 7,358 243,146 $         170,274 44,237 -­‐ $         214,511 $               67,632 23,250 440,753 -­‐ $           531,635 $               41,764 44,500 251,787 18,450 356,501 $         $               19,579 337,245 2,500 $                           -­‐ 264,467 -­‐ $           359,324 $         264,467 All  of  our  short-­‐term  and  long-­‐term  investments  are  classified  as  held-­‐to-­‐maturity  securities  and  are  stated  at  their   amortized  cost  which  approximates  fair  value,  except  for  our  auction  rate  securities,  which  are  classified  as  trading   and   stated   at   fair   value,   and   our   other   long-­‐term   investments,   which   are   stated   at   cost.   In   January   2011,   all   outstanding  auction  rate  securities  were  called  by  the  issuer  at  par  value.  Refer  to  Note  (4)  for  details  of  the  fair   value  measurements  within  the  fair  value  hierarchy  of  these  financial  assets.     We  regularly  review  investment  securities  for  impairment  based  on  both  quantitative  and  qualitative  criteria  that   include  the  extent  to  which  cost  exceeds  fair  value,  the  duration  of  any  market  decline,  our  intent  and  ability  to   hold   to   maturity   or   until   forecasted   recovery,   and   the   financial   health   of   and   specific   prospects   for   the   issuer.   Unrealized  losses  that  are  other  than  temporary  are  recognized  in  earnings.       (4)    Fair  Value  Measurements   We  determine  fair  value  measurements  used  in  our  consolidated  financial  statements  based  upon  the  price  that   would   be   received   to   sell   an   asset   or   paid   to   transfer   a   liability   in   an   orderly   transaction   between   market   participants   at   the   measurement   date.   The   fair   value   hierarchy   distinguishes   between   (1)  market   participant   assumptions  developed  based  on  market  data  obtained  from  independent  sources  (observable  inputs)  and  (2)  an   entity’s   own   assumptions   about   market   participant   assumptions   developed   based   on   the   best   information   available  in  the  circumstances  (unobservable  inputs).  The  fair  value  hierarchy  consists  of  three  broad  levels,  which   gives  the  highest  priority  to  unadjusted  quoted  prices  in  active  markets  for  identical  assets  or  liabilities  (Level  1)   and  the  lowest  priority  to  unobservable  inputs  (Level  3).  The  three  levels  of  the  fair  value  hierarchy  are  described   below:     • • Level   1   –   Valuations   based   on   quoted   prices   in   active   markets   for   identical   assets   or   liabilities   that   the   entity  has  the  ability  to  access.   Level  2  –  Valuations  based  on  quoted  prices  for  similar  assets  or  liabilities,  quoted  prices  in  markets  that   are   not   active,   or   other   inputs   that   are   observable   or   can   be   corroborated   by   observable   data   for   substantially  the  full  term  of  the  assets  or  liabilities.   85                                                                                                                                                                                                                                                                                                                   • Level   3   –   Valuations   based   on   inputs   that   are   supported   by   little   or   no   market   activity   and   that   are   significant  to  the  fair  value  of  the  assets  or  liabilities.   The  following  table  details  our  financial  assets  measured  at  fair  value  within  the  fair  value  hierarchy  at  the  end  of   2011  and  2010:   (In  thousands) Description Balance  Sheet  Classification 2011 Fair  Value  Measurements  Using Level  2 Level  3 Level  1 2010 Fair  Value  Measurements  Using Level  2 Level  3 Level  1 Money  market  funds Cash  equivalents $     123,919 $                             -­‐ $                           -­‐ $             44,237 $                               -­‐ $                               -­‐ Time  deposits Cash  equivalents Time  deposits Short-­‐term  investments Commercial  paper Short-­‐term  investments Government  and              corporate  bonds Short-­‐term  investments Auction  rate  securities Short-­‐term  investments Time  deposits Long-­‐term  investments Government  and              corporate  bonds Long-­‐term  investments Other Long-­‐term  investments -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ 7,358 67,632 23,250 440,753 -­‐ 19,579 337,245 -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ 2,500 -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ 41,764 44,500 251,787 18,450 -­‐ 264,467 -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ Refer  to  Note  (3)  for  a  comprehensive  description  of  these  assets.  Our  auction  rate  securities  have  historically  been   classified   as   Level   3   assets   within   the   fair   value   hierarchy,   as   their   valuation   required   substantial   judgment   and   estimation  of  factors  that  were  not  currently  observable  in  the  market  due  to  the  lack  of  trading  in  the  securities.     At  the  end  of  2010,  we  transferred  our  auction  rate  securities  classified  as  Level  3  to  Level  2  based  on  observable   inputs,   as   all   outstanding   auction   rate   securities   were   subsequently   called   at   par   value   by   the   issuer   in   January   2011.   The   table   below   presents   the   activity   of   our   assets   stated   at   fair   value   in   our   consolidated   balance   sheets   using   significant  unobservable  inputs  (Level  3):   (In  thousands) Beginning  balance Redemptions  at  par Transfers  out  of  Level  3  to  Level  2 Ending  balance (5)      Receivables   2010 $                       94,550 (76,100) (18,450) $                                     -­‐ Receivables   consist   of   accounts   receivable,   contracts   receivable,   and   the   current   portion   of   amounts   due   under   sales-­‐type  leases.    Accounts  receivable  represent  recorded  revenues  that  have  been  billed.    Contracts  receivable   represent   recorded   revenues   that   are   billable   by   us   at   future   dates   under   the   terms   of   a   contract   with   a   client.     Billings   and   other   consideration   received   on   contracts   in   excess   of   related   revenues   recognized   are   recorded   as   deferred  revenue.      Substantially  all  receivables  are  derived  from  sales  and  related  support  and  maintenance  and   professional  services  of  our  clinical,  administrative  and  financial  information  systems  and  solutions  to  healthcare   providers  located  throughout  the  United  States  and  in  certain  non-­‐U.S.  countries.     86                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   We  perform  ongoing  credit  evaluations  of  our  clients  and  generally  do  not  require  collateral  from  our  clients.    We   provide   an   allowance   for   estimated   uncollectible   accounts   based   on   specific   identification,   historical   experience   and  our  judgment.    Provisions  for  losses  on  uncollectible  accounts  for  2011,  2010,  and  2009  totaled  $11.4  million,   $9.9  million  and  $3.1  million,  respectively.   A  summary  of  receivables,  net  is  as  follows:   (In  thousands) Gross  accounts  receivable Less:  Allowance  for  doubtful  accounts Accounts  receivable,  net  of  allowance Contracts  receivable Current  portion  of  lease  receivables 2011 2010 $                   496,706 24,270 472,436 81,776 8,997 $                   352,554 15,550 337,004 139,901 -­‐ Total  receivables,  net $                   563,209 $                   476,905 Lease   receivables   represent   our   net   investment   in   sales-­‐type   leases   resulting   from   the   sale   of   certain   medical   devices  to  our  clients.  The  components  of  our  net  investment  in  sales-­‐type  leases  are  as  follows:   (In  thousands) Minimum  lease  payments  receivable Less:  Unearned  income Total  lease  receivables Less:  Long-­‐term  receivables  included  in  other  assets 2011 2010 $                       60,695 5,347 -­‐ $                                             -­‐ 55,348 46,351 -­‐ -­‐ Current  portion  of  lease  receivables $                           8,997 $                                     -­‐ Future   minimum   lease   payments   to   be   received   under   existing   sales-­‐type   leases   for   the   next   five   years   are   as   follows:   (In  thousands) 2012 2013 2014 2015 2016 $                         10,355 14,120 13,164 13,042 9,779   During   the   second   quarter   of   2008,   Fujitsu   Services   Limited’s   (Fujitsu)   contract   as   the   prime   contractor   in   the   National  Health  Service  (NHS)  initiative  to  automate  clinical  processes  and  digitize  medical  records  in  the  Southern   region  of  England  was  terminated  by  the  NHS.    This  had  the  effect  of  automatically  terminating  our  subcontract  for   the   project.     We   are   in   dispute   with   Fujitsu   regarding   Fujitsu’s   obligation   to   pay   the   amounts   comprised   of   accounts   receivable   and   contracts   receivable   related   to   that   subcontract,   and   we   are   working   with   Fujitsu   to   resolve  these  issues  based  on  processes  provided  for  in  the  contract.    Part  of  that  process  requires  resolution  of   disputes  between  Fujitsu  and  the  NHS  regarding  the  contract  termination.    As  of  December  31,  2011,  it  remains   unlikely  that  the  matter  will  be  resolved  in  the  next  12  months.  Therefore,  these  receivables  have  been  classified   as  long-­‐term  and  represent  the  majority  of  other  long-­‐term  assets  at  the  end  of  2011  and  2010.  While  the  ultimate   collectability   of   the   receivables   pursuant   to   this   process   is   uncertain,   management   believes   that   it   has   valid   and   equitable  grounds  for  recovery  of  such  amounts  and  that  collection  of  recorded  amounts  is  probable.       87                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               During   2011   and   2010,   we   received   total   client   cash   collections   of   $2.2   billion   and   $1.9   billion,   respectively,   of   which   $68.2   million   and   $66.6   million   were   received   from   third   party   arrangements   with   non-­‐recourse   payment   assignments.   (6)      Property  and  Equipment   A  summary  of  property,  equipment  and  leasehold  improvements  stated  at  cost,  less  accumulated  depreciation  and   amortization,  is  as  follows:     (In  thousands) Depreciable  Lives  (Yrs) 2011 2010 Furniture  and  fixtures Computer  and  communications  equipment Leasehold  improvements Capital  lease  equipment Land,  buildings  and  improvements Other  equipment 5 1 1 3 12 3 -­‐         -­‐         -­‐         -­‐         -­‐         -­‐         12 5 15 5 50 20 $                       61,499 741,547 163,794 5,914 207,069 383 $                       57,763 660,741 164,498 5,914 195,193 564 1,180,206 1,084,673 Less  accumulated  depreciation  and  leasehold  amortization 691,210 585,844 Total  property  and  equipment,  net $                   488,996 $                   498,829 Depreciation  and  leasehold  amortization  expense  for  2011,  2010  and  2009  was  $117.9  million,  $111.4  million  and   $104.6  million,  respectively.   (7)      Goodwill  and  Other  Intangible  Assets   Goodwill  is  tested  for  impairment  annually  or  whenever  there  is  an  impairment  indicator.    All  goodwill  is  assigned   to  a  reporting  unit,  where  it  is  subject  to  an  impairment  test  based  on  fair  value  using  Level  3  inputs  as  defined  in   the  fair  value  hierarchy.  Refer  to  Note  (4)  -­‐  Fair  Value  Measurements  for  the  definition  of  the  levels  in  the  fair  value   hierarchy.    The  inputs  used  to  calculate  the  fair  value  included  the  projected  cash  flows  and  discount  rates  that  we   estimated  would  be  used  by  a  market  participant.  Our  most  recent  annual  test  of  goodwill  impairment  indicated   that  goodwill  was  not  impaired.  The  fair  values  of  each  of  our  reporting  units  exceeded  their  carrying  amounts  by  a   significant  margin.       The  changes  in  the  carrying  amounts  of  goodwill  were  as  follows:   (In  thousands) Beginning  Balance 2011 2010 $                     161,374 $                     151,479 Goodwill  acquired  and  earnout  payments  for  prior  acquisitions 51,100 11,290 Foreign  currency  translation  adjustment  and  other Ending  Balance (648) 211,826 $                     (1,395) 161,374 $                     88                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Our  intangible  assets  subject  to  amortization  are  amortized  on  a  straight-­‐line  basis,  and  are  summarized  as  follows:   (In  thousands) Purchased  software Customer  lists Patents Other Total Intangible  assets,  net 2011 2010 Gross  Carrying Amount Accumulated   Amortization Gross  Carrying Amount Accumulated   Amortization $             94,963 77,513 10,298 11,460 194,234 $         $           55,305 58,259 2,997 2,307 118,868 $       $             70,864 59,556 9,128 4,491 144,039 $         $           48,085 54,241 2,365 880 105,571 $       $           75,366 $           38,468 Amortization  expense  for  2011,  2010  and  2009  was  $14.7  million,  $12.0  million  and  $20.4  million,  respectively.   Estimated  aggregate  amortization  expense  for  each  of  the  next  five  years  is  as  follows  for  the  year  ended:   (In  thousands) 2012 2013 2014 2015 2016 $                         17,277 15,323 13,703 11,307 6,842   (8)      Software  Development  Costs   Information  regarding  our  software  development  costs  is  included  in  the  following  table:   (In  thousands) Software  development  costs Capitalized  software  development  costs Amortization  of  capitalized  software  development  costs Total  software  development  expense For  the  Years  Ended 2010 2009 2011 $           $           $           290,645 (82,942) 79,098 286,801 284,836 (80,979) 68,994 272,851 285,187 (77,747) 63,611 271,051 $           $           $           Accumulated  amortization  as  of  the  end  of  2011  and  2010  was  $621.9  million  and  $543.2  million,  respectively.       89                                                                                                                                                                                                                                                                                                                                                                                                     (9)      Indebtedness   The  following  is  a  summary  of  indebtedness  outstanding:   (In  thousands) Note  a greement,  5.54% Seni or  Notes ,  Seri es  B,  6.42% Ca pi ta l  l ea s e  obl i ga ti ons Other  obl i ga ti ons Les s :  current  porti on 2011 2010 $                           $                           57,683 9,750 58,995 115 126,543 (39,722) 86,821 72,438 19,500 250 572 92,760 (24,837) 67,923 $                           $                           In   November   2005,   we   completed   a   £65.0   million   unsecured   private   placement   of   debt   at   5.54%   pursuant   to   a   Note   Agreement.     The   Note   Agreement   is   payable   in   seven   equal   annual   installments,   which   commenced   November   2009.   The   proceeds   were   used   to   repay   the   outstanding   amount   under   our   credit   facility   and   for   general  corporate  purposes.    The  Note  Agreement  contains  certain  net  worth  and  fixed  charge  coverage  covenants   and  provides  certain  restrictions  on  our  ability  to  borrow,  incur  liens,  sell  assets  and  pay  dividends.    We  were  in   compliance  with  all  covenants  at  the  end  of  2011.   In   December   2002,   we   completed   a   $60.0   million   unsecured   private   placement   of   debt   pursuant   to   a   Note   Agreement.    The  Series  A  Senior  Notes,  with  a  $21.0  million  principal  amount  at  5.57%  were  paid  in  full  in  2008.     The   Series   B   Senior   Notes,   with   a   $39.0   million   principal   amount   at   6.42%,   are   payable   in   four   equal   annual   installments,  which  commenced  December  2009.    The  proceeds  were  used  to  repay  the  outstanding  amount  under   our  credit  facility  and  for  general  corporate  purposes.    The  Note  Agreement  contains  certain  net  worth  and  fixed   charge   coverage   covenants   and   provides   certain   restrictions   on   our   ability   to   borrow,   incur   liens,   sell   assets   and   pay  dividends.    We  were  in  compliance  with  all  covenants  at  the  end  of  2011.       Minimum  annual  payments  under  existing  capital  lease  obligations  and  maturities  of  indebtedness  at  the  end  of   2011  are  as  follows:   Capital  Lease  Obligations Minimum Lease Payments Less Interest Principal Amount  of Principal Indebtedness Total $                             17,223 $                                 1,787 $                             15,436 $                             24,286 $                             39,722 14,105 12,765 12,578 7,685 1,363 936 720 555 12,742 11,829 11,858 7,130 14,421 14,421 14,420 -­‐ 27,163 26,250 26,278 7,130 $                             64,356 $                                 5,361 $                             58,995 $                             67,548 $                         126,543 (In  thousands) 2012 2013 2014 2015 2016 Tota l We  estimate  the  fair  value  of  our  long-­‐term,  fixed-­‐rate  debt  using  a  level  3  discounted  cash  flow  analysis  based  on   our   current   borrowing   rates   for   debt   with   similar   maturities.     The   fair   value   of   our   long-­‐term   debt   was   approximately  $72.6  million  and  $99.6  million  at  the  end  of  2011  and  2010,  respectively.   We  maintain  a  multi-­‐year  revolving  credit  facility,  which  provides  an  unsecured  revolving  line  of  credit  for  working   capital  purposes.    Interest  is  payable  at  a  rate  based  on  prime  or  LIBOR  plus  a  spread  that  varies  depending  on  the   net  worth  ratios  maintained.  The  agreement  provides  certain  restrictions  on  our  ability  to  borrow,  incur  liens,  sell     90                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   assets  and  pay  dividends  and  contains  certain  net  worth,  current  ratio  and  fixed  charge  coverage  covenants,  which   as   of   the   end   of   2011,   we   were   in   compliance   with.     As   of   the   end   of   2011,   we   had   no   outstanding   borrowings   under   this   agreement;   however,   we   have   $16.8   million   of   outstanding   letters   of   credit,   which   reduced   our   available  borrowing  capacity  to  $73.2  million.     (10)    Hedging  Activities   We  designated  all  of  our  Great  Britain  Pound  (GBP)  denominated  long-­‐term  debt  as  a  net  investment  hedge  of  our   U.K.   operations.     The   objective   of   the   hedge   is   to   reduce   our   foreign   currency   exposure   in   our   U.K.   subsidiary   investment.  Changes  in  the  exchange  rate  between  the  United  States  Dollar  (USD)  and  GBP,  related  to  the  notional   amount  of  the  hedge,  are  recognized  as  a  component  of  other  comprehensive  income,  to  the  extent  the  hedge  is   effective.     The   following   table   represents   the   fair   value   of   the   net   investment   hedge   included   within   the   Consolidated   Balance   Sheet   and   the   unrealized   gain,   net   of   related   income   tax   effects,   on   the   net   investment   hedge  recognized  in  comprehensive  income:     (In  thousands) Derivatives  Designated Net  i nves tment  hedge Net  i nves tment  hedge Tota l  net  i nves tment  hedge Balance  Sheet  Classification Short-­‐term  l i a bi l i ti es Long-­‐term  l i a bi l i ti es (In  thousands) Derivatives  Designated Net  i nves tment  hedge Net  i nves tment  hedge Tota l  net  i nves tment  hedge Balance  Sheet  Classification Short-­‐term  l i a bi l i ti es Long-­‐term  l i a bi l i ti es (11)      Interest  Income   A  summary  of  interest  income  and  expense  is  as  follows:   Fair  Value $                                       $                                       14,421 43,262 57,683 Fair  Value $                                       $                                       14,488 57,950 72,438 2011 2010 Net  Unrealized  Gain   133 $                                                 1,381 1,514 $                                           Net  Unrealized  Gain $                                                 445 1,416 1,861 $                                           (In  thousands) Interes t  i ncome Interes t  expens e Interes t  i ncome,  net 2011 For  the  Years  Ended 2010 2009 $                           15,191 (5,341) $                           10,347 (6,908) $                               8,801 (8,493) $                               9,850 $                               3,439 $                                     308 91                                                                                                                                                                                                                                                                                                                           (12)      Income  Taxes   Income  tax  expense  (benefit)  for  2011,  2010  and  2009  consists  of  the  following:   (In  thousands) Current: Federa l Sta te Forei gn Tota l  current  expens e Deferred: Federa l Sta te Forei gn Tota l  deferred  expens e  (benefi t) 2011 For  the  Years  Ended 2010 2009 $                       162,288 19,061 3,831 185,180 $                           85,106 10,355 (883) 94,578 $                           90,992 8,350 4,015 103,357 (15,927) (5,410) (776) (22,113) 22,297 4,038 4,027 30,362 (1,545) 845 (3,441) (4,141) Tota l  i ncome  ta x  expens e $                       163,067 $                       124,940 $                           99,216 Temporary  differences  between  the  financial  statement  carrying  amounts  and  tax  basis  of  assets  and  liabilities  that   give  rise  to  significant  portions  of  deferred  income  taxes  at  the  end  of  2011  and  2010  relate  to  the  following:   (In  thousands) Deferred  ta x  a s s ets Accrued  expens es Sepa ra te  return  net  opera ti ng  l os s es Sha re  ba s ed  compens a ti on Contra ct  a nd  s ervi ce  revenues  a nd  cos ts Other Tota l  deferred  ta x  a s s ets Deferred  ta x  l i a bi l i ti es Softwa re  devel opment  cos ts Contra ct  a nd  s ervi ce  revenues  a nd  cos ts Depreci a ti on  a nd  a morti za ti on Other Tota l  deferred  ta x  l i a bi l i ti es 2011 2010 $                           18,597 16,757 26,462 25,022 5,410 92,248 $                           11,707 15,882 23,514 -­‐ 482 51,585 (91,267) -­‐ (85,746) (4,029) (181,042) (85,692) (3,884) (67,438) (3,048) (160,062) Net  deferred  ta x  l i a bi l i ty $                         (88,794) $                     (108,477) At  the  end  of  2011,  we  had  net  operating  loss  carry-­‐forwards  subject  to  Section  382  of  the  Internal  Revenue  Code   for  Federal  income  tax  purposes  of  $8.3  million  that  are  available  to  offset  future  Federal  taxable  income,  if  any,   through   2020.     We   had   net   operating   loss   carry-­‐forwards   from   non-­‐U.S.   jurisdictions   of   $1.7   million   that   are   available  to  offset  future  taxable  income,  if  any,  through  2024  and  $35.9  million  that  are  available  to  offset  future   taxable   income,   if   any,   with   no   expiration.   In   addition,   we   had   a   deferred   tax   asset   for   state   net   operating   loss   carryforwards  of  $1.0  million  which  are  available  to  offset  future  taxable  income,  if  any,  through  2031.    We  expect   to  fully  realize  all  these  net  operating  loss  carry-­‐forwards  in  future  periods.   At  the  end  of  2011,  we  have  not  provided  tax  on  the  cumulative  undistributed  earnings  of  our  foreign  subsidiaries   of  approximately  $58  million,  because  it  is  our  intention  to  reinvest  these  earnings  indefinitely.    If  these  earnings   were  distributed,  we  would  be  subject  to  U.S.  taxes  and  foreign  withholding  taxes,  net  of  U.S.  foreign  tax  credits   which  may  be  available.  The  calculation  of  this  unrecognized  deferred  tax  liability  is  complex  and  not  practicable.   92                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   The  effective  income  tax  rates  for  2011,  2010,  and  2009  were  35%,  34%,  and  34%,  respectively.    These  effective   rates  differ  from  the  Federal  statutory  rate  of  35%  as  follows:   (In  thousands) Ta x  expens e  a t  s ta tutory  ra tes Sta te  i ncome  ta x,  net  of  federa l  benefi t Pri or  peri od  a djus tments Ta x  credi ts Unrecogni zed  ta x  benefi t Perma nent  di fferences Other,  net Tota l  i ncome  ta x  expens e 2011 For  the  Years  Ended 2010 2009 $                       $                       $                       164,393 11,439 (1,911) (5,520) 102 (2,472) (2,964) 163,067 126,744 10,151 (541) (10,568) 7,501 (4,629) (3,718) 124,940 102,438 6,658 2,310 (5,150) (5,581) (1,200) (259) 99,216 $                       $                       $                           The   2011   beginning   and   ending   amounts   of   accrued   interest   related   to   unrecognized   tax   benefit   positions   were   $0.4   million   and   $0.9   million,   respectively.     We   classify   interest   and   penalties   as   income   tax   expense   in   our   consolidated  statement  of  operations.    No  accrual  for  tax  penalties  was  recorded  at  the  end  of  the  year.   The   2011   tax   expense   amount   included   $1.9   million   of   tax   benefits   related   to   foreign   operating   losses   and   prior   period   tax   returns.     The   2010   tax   expense   amount   includes   $0.5   million   of   tax   benefits   related   to   prior   period   foreign  operating  losses.  The  2009  tax  expense  amount  includes  $2.3  million  expense  related  to  adjustments  from   prior  period  tax  returns.  These  differences  accumulated  over  several  years  and  the  impact  to  any  one  of  the  prior   periods  is  not  material.   During   2009,   the   Internal   Revenue   Service   (IRS)   completed   its   examination   of   our   2007   income   tax   return   and   refund  claim  related  to  our  foreign  tax  credit  for  the  2004,  2005  and  2006  income  tax  returns.    We  decreased  our   unrecognized  tax  benefits  by  $8.0  million  primarily  due  to  the  settlement  of  the  2007  IRS  audit.    During  2010,  the   IRS  commenced  its  examination  of  our  2009  and  2008  income  tax  returns.    We  also  have  certain  state  and  foreign   income  tax  returns  under  examination.   As   of   the   end   of   2011,   the   total   amount   of   unrecognized   tax   benefits,   including   interest,   was   $14.6   million,   of   which   $14.2   million   will   benefit   the   effective   tax   rate   if   recognized.   It   is   reasonably   possible   that   these   unrecognized  tax  benefits  will  decrease  by  $9.0  million  to  $12.0  million  in  the  next  12  months  as  the  result  of  the   settlement  of  ongoing  tax  audits.   A  reconciliation  of  the  beginning  and  ending  amount  of  unrecognized  tax  benefit  is  presented  below:   (In  thousands) 2011 2010 2009 $                           $                               $                           14,100 540 -­‐ -­‐ 14,640 6,599 -­‐ 7,501 -­‐ 14,100 12,440 (7,961) 2,379 (259) 6,599 $                           $                           $                               Unrecogni zed  ta x  benefi t  -­‐  begi nni ng  ba l a nce Gros s  decrea s es -­‐  ta x  pos i ti ons  i n  pri or  peri ods Gros s  i ncrea s es -­‐  current-­‐peri od  ta x  pos i ti ons Settl ements Unrecogni zed  ta x  benefi t  -­‐  endi ng  ba l a nce 93                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 (13)      Earnings  Per  Share   Basic   earnings   per   share   (EPS)   excludes   dilution   and   is   computed   by   dividing   income   available   to   common   shareholders  by  the  weighted-­‐average  number  of  common  shares  outstanding  for  the  period.    Diluted  EPS  reflects   the  potential  dilution  that  could  occur  if  securities  or  other  contracts  to  issue  stock  were  exercised  or  converted   into  common  stock  or  resulted  in  the  issuance  of  common  stock  that  then  shared  in  our  earnings.    A  reconciliation   of  the  numerators  and  the  denominators  of  the  basic  and  diluted  per-­‐share  computations  are  as  follows:   2011 2010 2009 Earnings (Numerator) Shares (Denominator) Per-­‐Share Amount Earnings (Numerator) Shares (Denominator) Per-­‐Share Amount Earnings (Numerator) Shares (Denominator) Per-­‐Share Amount (In  thousands,  except  per  share  data) Basic  earnings  per  share: Income  available  to  common   stockholders $           306,627 168,634 $                 1.82 $           237,272 164,916 $                 1.44 $           193,465 161,963 $                 1.19 Effect  of  dilutive  securities: Stock  options Diluted  earnings  per  share: Income  available  to  common   stockholders  including   assumed  conversions 5,233 5,931 5,801 $           306,627 173,867 $                 1.76 $           237,272 170,847 $                 1.39 $           193,465 167,764 $                 1.15 Options   to   purchase   2.1   million,   1.2   million   and   3.6   million   shares   of   common   stock   at   per   share   prices   ranging   from   $39.36   to   $68.45,   $29.11   to   $45.96   and   $19.32   to   $68.43,   were   outstanding   at   the   end   of   2011,   2010   and   2009,  respectively,  but  were  not  included  in  the  computation  of  diluted  earnings  per  share  because  they  were  anti-­‐ dilutive.       (14)      Share  Based  Compensation  and  Equity   Stock  Option  and  Equity  Plans   As  of  the  end  of  2011,  we  had  five  fixed  stock  option  and  equity  plans  in  effect  for  associates  and  directors.  This   includes  one  plan  from  which  we  could  issue  grants,  the  Cerner  Corporation  2011  Omnibus  Equity  Incentive  Plan   (the  Omnibus  Plan);  and  four  plans  from  which  no  new  grants  are  permitted,  but  some  awards  remain  outstanding   (Plans  D,  E,  F,  and  G).     Under   the   Omnibus   Plan,   we   are   authorized   to   grant   to   associates   and   directors   up   to   8.0   million   shares   of   common  stock  awards,  plus  up  to  2.0  million  shares  of  common  stock  awards  that  were  available  under  the  Cerner   Corporation  2004  Long  Term  Incentive  Plan  G  (Plan  G)  at  May  27,  2011,  the  time  the  Omnibus  Plan  was  approved   by   our   shareholders.     Awards   under   the   Omnibus   Plan   may   consist   of   stock   options,   stock   appreciation   rights,   restricted   stock,   restricted   stock   units,   performance   shares,   performance   units,   performance   grants   and   bonus   shares.     At   the   end   of   2011,   9.7   million   shares   remain   available   for   awards.     Stock   options   granted   under   the   Omnibus  Plan  are  exercisable  at  a  price  not  less  than  fair  market  value  on  the  date  of  grant.    Stock  options  under   the  Omnibus  Plan  typically  vest  over  a  period  of  five  years  and  are  exercisable  for  periods  of  up  to  10  years.   Stock  Options   The  fair  market  value  of  each  stock  option  award  is  estimated  on  the  date  of  grant  using  a  lattice  option-­‐pricing   model.    The  pricing  model  requires  the  use  of  the  following  estimates  and  assumptions:   • Expected  volatilities  under  the  lattice  model  are  based  on  an  equal  weighting  of  implied  volatilities  from   traded  options  on  our  shares  and  historical  volatility.    We  use  historical  data  to  estimate  the  stock  option   exercise  and  associate  departure  behavior  used  in  the  lattice  model;  groups  of  associates  (executives  and   non-­‐executives)  that  have  similar  historical  behavior  are  considered  separately  for  valuation  purposes.       94                                                                                                                                                                                                                                                                                                                       • • The   expected   term   of   stock   options   granted   is   derived   from   the   output   of   the   lattice   model   and   represents  the  period  of  time  that  stock  options  granted  are  expected  to  be  outstanding;  the  range  given   below  results  from  certain  groups  of  associates  exhibiting  different  post-­‐vesting  behaviors.     The   risk-­‐free   rate   is   based   on   the   zero-­‐coupon   U.S.   Treasury   bond   with   a   term   equal   to   the   contractual   term  of  the  awards.     The  weighted-­‐average  assumptions  used  to  estimate  the  fair  market  value  of  stock  options  are  as  follows:   2011 2010 2009 Expected  vol a ti l i ty  (%) 35.7 -­‐ 39.7 39.0 -­‐ 41.7 45.2 -­‐ 51.5 Expected  term  (yrs ) Ri s k-­‐free  ra te  (%) 7.9 -­‐ 8.9 9.3 -­‐ 9.7 9.3 -­‐ 9.6 2.2 2.9 3.8 A   combined   summary   of   the   stock   option   activity   of   our   five   fixed   stock   option   and   equity   plans   is   presented   below:   (In  thousands,  except  share  and  per  share  data) 2011  Options Outs ta ndi ng  a t  begi nni ng  of  yea r Gra nted Exerci s ed Forfei ted  a nd  Expi red Weighted-­‐   Average Remaining Contractual Term Aggregate Intrinsic     Value Weighted-­‐   Average Exercise Price $                   18.87 58.81 14.11 35.53 Number  of     Shares 14,752,610 1,474,510 (2,795,216) (522,502) Outs ta ndi ng  a t  end  of  yea r 12,909,402 $                   23.78 $           483,941 Opti ons  exerci s a bl e  a t  the  end  of  the  yea r 8,405,514 $                   14.93 $           389,353 6.19 5.21 (In  thousands,  except  for  grant  date  fair  value) 2011 For  the  Years  Ended 2010 2009 Wei ghted-­‐a vera ge  gra nt  da te  fa i r  va l ues $                             28.89 $                             22.42 $                             13.98 Tota l  i ntri ns i c  va l ue  of  opti ons  exerci s ed $                     117,601 $                         88,876 $                         63,465 Ca s h  recei ved  from  exerci s e  of  s tock  opti ons $                         38,900 $                         34,724 $                         29,789 Ta x  benefi t  rea l i zed  upon  exerci s e  of  s tock  opti ons $                         44,908 $                         33,802 $                         23,654 As  of  the  end  of  2011,  there  was  $65.7  million  of  total  unrecognized  compensation  cost  related  to  stock  options   granted  under  all  plans.    That  cost  is  expected  to  be  recognized  over  a  weighted-­‐average  period  of  3.02  years.       Non-­‐vested  Shares   Non-­‐vested   shares   are   valued   at   fair   market   value   on   the   date   of   grant   and   will   vest   provided   the   recipient   has   continuously  served  on  the  Board  of  Directors  through  such  vesting  date  or,  in  the  case  of  an  associate,  provided   that  performance  measures  are  attained.    The  expense  associated  with  these  grants  is  recognized  over  the  period   from  the  date  of  grant  to  the  vesting  date,  when  achievement  of  the  performance  condition  is  deemed  probable.     95                                                                                                                                                                                             A   summary   of   our   non-­‐vested   restricted   stock   compensation   arrangements   granted   under   all   plans   is   presented   below:   Non-­‐vested  shares Outs ta ndi ng  a t  begi nni ng  of  yea r Gra nted Ves ted Forfei ted Outs ta ndi ng  a t  end  of  yea r 2011 Weighted-­‐Average Grant  Date Fair  Value $                                             41.12 54.07 41.61 45.68 47.75 Number  of  Shares 222,000 163,200 (41,532) (90,000) 253,668 (In  thousands,  except  for  grant  date  fair  value) Wei ghted  a vera ge  gra nt  da te  fa i r  va l ues for  s ha res  gra nted  duri ng  the  yea r 2011 For  the  Years  Ended 2010 2009 $                               54.07 $                               41.09 $                               28.26 Tota l  fa i r  va l ue  of  s ha res  ves ted  duri ng  the  yea r 2,527 1,147 923 As  of  the  end  of  2011,  there  was  $7.1  million  of  total  unrecognized  compensation  cost  related  to  non-­‐vested  share   awards   granted   under   all   plans.     That   cost   is   expected   to   be   recognized   over   a   weighted-­‐average   period   of   1.61   years.       Associate  Stock  Purchase  Plan     We  established  an  Associate  Stock  Purchase  Plan  (ASPP)  in  2001,  which  qualifies  under  Section  423  of  the  Internal   Revenue  Code.    Each  individual  employed  by  us  and  associates  of  our  United  States  based  subsidiaries,  except  as   provided  below,  are  eligible  to  participate  in  the  Plan  (Participants).    The  following  individuals  are  excluded  from   participation:  (a)  persons  who,  as  of  the  beginning  of  a  purchase  period  under  the  Plan,  have  been  continuously   employed  by   us  or  our  domestic  subsidiaries  for  less  than  two  weeks;  (b)  persons  who,  as  of  the  beginning  of  a   purchase  period,  own  directly  or  indirectly,  or  hold  options  or  rights  to  acquire  under  any  agreement  or  Company   plan,   an   aggregate   of   5%   or   more   of   the   total   combined   voting   power   or   value   of   all   outstanding   shares   of   all   classes  of  Company  Common  Stock;  and,  (c)  persons  who  are  customarily  employed  by  us  for  less  than  20  hours   per  week  or  for  less  than  five  months  in  any  calendar  year.    Participants  may  elect  to  make  contributions  from  1%   to   20%   of   compensation   to   the   ASPP,   subject   to   annual   limitations   determined   by   the   Internal   Revenue   Service.       Participants   may   purchase   Company   Common   Stock   at   a   15%   discount   on   the   last   business   day   of   the   option   period.     The   purchase   of   our   Common   Stock   is   made   through   the   ASPP   on   the   open   market   and   subsequently   reissued   to   the   associates.     The   difference   of   the   open   market   purchase   and   the   participant’s   purchase   price   is   being  recognized  as  compensation  expense.   96                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Share  Based  Compensation  Cost   Our  stock  option  and  non-­‐vested  share  awards  qualify  for  equity  classification.    The  costs  of  our  ASPP,  along  with   participant   contributions,   are   recorded   as   a   liability   until   open   market   purchases   are   completed.   The   amounts   recognized   in   the   consolidated   statements   of   operations   with   respect   to   stock   options,   non-­‐vested   shares   and   ASPP  are  as  follows:   (In  thousands) Stock  opti on  a nd  non-­‐ves ted  s ha re  compens a ti on  expens e As s oci a te  s tock  purcha s e  pl a n  expens e Amounts  ca pi ta l i zed  i n  s oftwa re  devel opment  cos ts ,  net  of              a morti za ti on Amounts  cha rged  a ga i ns t  ea rni ngs ,  before  i ncome  ta x  benefi t For  the  Years  Ended 2010 2009 2011 $                   27,919 2,180 $                   23,723 1,692 $                   15,786 1,318 (620) 29,479 $                   (512) 24,903 $                   (262) 16,842 $                   Amount  of  rel a ted  i ncome  ta x  benefi t  recogni zed  i n  ea rni ngs $                   11,256 $                       9,329 $                       6,274 Amendment  to  Certificate  of  Incorporation   On  March  9,  2011,  the  Board  of  Directors  of  the  Company  adopted  resolutions  to  amend  and  on  May  27,  2011,  the   shareholders  of  the  Company  approved  the  proposals  to  amend  the  Second  Restated  Certificate  of  Incorporation   of  the  Company  dated  December  5,  2003  to:  i)  increase  the  number  of  Authorized  Shares  of  Common  Stock  from   150,000,000  to  250,000,000  and  ii)  to  eliminate  the  Series  A  Preferred  Stock.   Preferred  Stock   As  of  the  end  of  2011  and  2010,  we  had  1.0  million  shares  of  authorized  but  unissued  preferred  stock,  $0.01  par   value.       (15)      Foundations  Retirement  Plan   The   Cerner   Corporation   Foundations   Retirement   Plan   (the   Plan)   was   established   under   Section   401(k)   of   the   Internal  Revenue  Code.    All  associates  age  18  and  older  and  who  are  not  a  member  of  an  excluded  class  are  eligible   to  participate.    Participants  may  elect  to  make  pretax  contributions  from  1%  to  80%  of  eligible  compensation  to   the   Plan,   subject   to   annual   limitations   determined   by   the   Internal   Revenue   Service.   Participants   may   direct   contributions  into  mutual  funds,  a  stable  value  fund,  a  Company  stock  fund,  or  a  self-­‐directed  brokerage  account.     We  have  a  first  tier  discretionary  match  that  is  made  on  behalf  of  participants  in  an  amount  equal  to  33%  of  the   first  6%  of  the  participant's  salary  contribution.    Our  first  tier  discretionary  match  expenses  for  the  Plan  amounted   to  $10.5  million,  $8.9  million  and  $8.7  million  for  2011,  2010  and  2009,  respectively.   We   added   a   second   tier   discretionary   match   to   the   Plan   in   2000.     Contributions   are   based   on   attainment   of   established  earnings  per  share  goals  for  the  year  or  the  established  financial  metric  for  the  Plan.    Only  participants   who  defer  2%  of  their  paid  base  salary,  are  actively  employed  as  of  the  last  day  of  the  Plan  year  and  are  employed   before   October   1st   of   the   Plan   year   are   eligible   to   receive   the   discretionary   match   contribution.     For   the   years   ended   2011,   2010   and   2009   we   expensed   $10.5   million,   $8.9   million   and   $2.0   million   for   the   second   tier   discretionary  distributions,  respectively.         (16)      Related  Party  Transactions   From  July  1994  until  August  2008   we  leased  an  airplane  from  PANDI,  Inc.  (PANDI),  a  company  owned  by  Neal  L.   Patterson  and  Clifford  W.  Illig,  our  Chairman  of  the  Board  and  CEO  and  Vice  Chairman  of  the  Board,  respectively.   The  airplane  was  used  principally  by  us  for  client  development  and  support  and  business  development  activities.     97                                                                                                                                                                                           On  August  14,  2008,  PANDI  sold  the  airplane  to  a  third  party  and  the  lease  agreement  with  us  was  terminated.   Following   the   sale   of   the   airplane,   PANDI   undertook   a   complete   accounting   of   the   actual   financing,   operation,   depreciation   and   maintenance   costs   of   the   airplane   during   the   14   year   time   period   that   we   leased   the   airplane   from   PANDI.   Following   the   due   diligence   efforts   by   a   committee   comprised   of   the   independent   members   of   the   Board  of  Directors,  during  2009  we  were  authorized  to  and  paid  PANDI  the  sum  of  $1.4  million.   (17)      Commitments   Leases   We   are   committed   under   operating   leases   primarily   for   office   space   and   computer   equipment   through   October   2027.    Rent  expense  for  office  and  warehouse  space  for  our  regional  and  global  offices  for  2011,  2010  and  2009   was  $17.6  million,  $20.5  million  and  $16.6  million,  respectively.    Aggregate  minimum  future  payments  under  these   non-­‐cancelable  operating  leases  are  as  follows:   (In  thousands) 2012 2013 2014 2015 2016 2017  a nd  therea fter Tota l : Operating  Lease   Obligations $                                 23,807 22,141 18,701 12,896 8,249 46,232 132,026 $                             Purchase  Obligations   We   have   purchase   commitments   with   various   vendors   through   2019.   These   commitments   represent   non-­‐ cancellable  commitments  primarily  to  provide  ongoing  support,  maintenance  and  service  to  our  clients.  Aggregate   future  payments  under  these  commitments  are  as  follows:   (In  thousands) 2012 2013 2014 2015 2016 2017  a nd  therea fter Tota l : Purchase   Obligations $                                 16,167 19,010 7,513 3,411 198 8,299 54,598 $                                 (18)      Segment  Reporting   We  have  two  operating  segments,  Domestic  and  Global.    Revenues  are  derived  primarily  from  the  sale  of  clinical,   financial   and   administrative   information   systems   and   solutions.     The   cost   of   revenues   includes   the   cost   of   third   party   consulting   services,   computer   hardware   and   sublicensed   software   purchased   from   computer   and   software   manufacturers  for  delivery  to  clients.    It  also  includes  the  cost  of  hardware  maintenance  and  sublicensed  software   support  subcontracted  to  the  manufacturers.    Operating  expenses  incurred  by  the  geographic  business  segments   consist  of  sales  and  client  service  expenses  including  salaries  of  sales  and  client  service  personnel,  communications   expenses  and  unreimbursed  travel  expenses.    Performance  of  the  segments  is  assessed  at  the  operating  earnings   level   and,   therefore,   the   segment   operations   have   been   presented   as   such.     “Other”   includes   revenues   not   generated  by  the  operating  segments  and  expenses  that  have  not  been  allocated  to  the  operating  segments,  such   as   software   development,   marketing,   general   and   administrative,   share-­‐based   compensation   expense   and   98                                                                                                                                                                                                                                                                                                                                                                                                                               depreciation.  We  manage  our  operating  segments  to  the  operating  earnings  level.  Items  such  as  interest,  income   taxes,  capital  expenditures  and  total  assets  are  managed  at  the  consolidated  level  and  thus  are  not  included  in  our   operating  segment  disclosures.   Accounting  policies  for  each  of  the  reportable  segments  are  the  same  as  those  used  on  a  consolidated  basis.    The   following  table  presents  a  summary  of  the  operating  information  for  2011,  2010  and  2009.   (In  thousands) 2011 Revenues Operating  Segments Domestic Global Other Total $         1,894,454 $               308,699 $                                       -­‐ $         2,203,153 Cos t  of  revenues Opera ti ng  expens es Tota l  cos ts  a nd  expens es 387,466 439,465 826,931 54,206 126,997 181,203 -­‐ 735,221 735,221 441,672 1,301,683 1,743,355 Opera ti ng  ea rni ngs  (l os s ) $         1,067,523 $               127,496 $             (735,221) $               459,798 (In  thousands) 2010 Revenues Operating  Segments Domestic Global Other Total $         1,562,563 $               287,659 $                                       -­‐ $         1,850,222 Cos t  of  revenues Opera ti ng  expens es Tota l  cos ts  a nd  expens es 272,385 417,181 689,566 47,971 124,546 172,517 -­‐ 628,806 628,806 320,356 1,170,533 1,490,889 Opera ti ng  ea rni ngs  (l os s ) $               872,997 $               115,142 $             (628,806) $               359,333 (In  thousands) 2009 Revenues Operating  Segments Domestic Global Other Total $         1,398,715 $               273,149 $                                       -­‐ $         1,671,864 Cos t  of  revenues Opera ti ng  expens es Tota l  cos ts  a nd  expens es 240,847 372,370 613,217 40,351 130,256 170,607 -­‐ 596,034 596,034 281,198 1,098,660 1,379,858 Opera ti ng  ea rni ngs  (l os s ) $               785,498 $               102,542 $             (596,034) $               292,006 99                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 (19)      Quarterly  Results  (unaudited)   Selected  quarterly  financial  data  for  2011  and  2010  is  set  forth  below:   (In  thousands,  except  per  share  data) Revenues Earnings   Before  Income   Taxes Net  Earnings Basic  Earnings   Per  Share Diluted   Earnings  Per   Share 2011  quarterly  results: Fi rs t  Qua rter Second  Qua rter Thi rd  Qua rter Fourth  Qua rter $               491,664 $                   95,710 $                   64,556 $                           0.38 $                           0.37 524,223 571,640 615,626 110,853 123,167 139,964 72,044 78,835 91,192 0.43 0.47 0.54 0.42 0.45 0.52 Tota l $         2,203,153 $               469,694 $               306,627 2010  quarterly  results: Fi rs t  Qua rter Second  Qua rter Thi rd  Qua rter Fourth  Qua rter $               431,337 $                   77,363 $                   50,286 $                           0.30 $                           0.29 456,001 462,683 500,201 86,278 94,084 104,487 55,477 60,872 70,637 0.34 0.37 0.43 0.33 0.36 0.41 Tota l $         1,850,222 $               362,212 $               237,272 (20)      Subsequent  Events   Revolving  Credit  Facility   In   February   2012,   we   amended   our   multi-­‐year   revolving   credit   facility   to,   among   other   things,   increase   the   maximum  borrowing  capacity  to  $100.0  million  and  extend  the  maturity  date  to  February  2017.    Costs  incurred  in   connection  with  this  amendment  were  not  material.         Unrecognized  Tax  Benefits   We  expect  to  recognize  a  tax  benefit  ranging  from  $9.0  million  to  $12.0  million  in  the  first  quarter  of  2012,  based   on  a  settlement  reached  with  tax  authorities.   100                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Stock Price Performance Graph The following graph presents a comparison for the five-year period ended December 31, 2011 of the performance of the Common Stock of the Company with the NASDAQ Composite Index (US Companies) (as calculated by The Center for Research in Security Prices)and the NASDAQ Computer/Data Processing Group (as calculated by The Center for Research in Security Prices): Comparison of 5 Year Cumulative Total Return $300 $200 $100 $0 12/06 12/07 12/08 12/09 12/10 12/11 Cerner Corporation Nasdaq Computer and Data Processing Index Nasdaq Stock Market (US Companies) The above comparison assumes $100 was invested on December 31, 2006, in Common Stock of the Company and in each of the foregoing indices and assumes reinvestment of dividends. The results of each component issuer of each group are weighted according to such issuer’s stock market capitalization at the beginning of each year. 101 Corporate Information AnnuAL SHAReHOLDeRS ’ MeeTI nG The Annual Shareholders’ Meeting will be held at 10:00 a.m. local time on May 18, 2012, in The Cerner Round Auditorium in the Cerner Vision Center, located on the Cerner campus at 2850 Rockcreek Parkway, North Kansas City, Missouri, 64117. A formal notice of the Meeting, with a Proxy Statement and Proxy Card, will be available, to each shareholder of record, in April 2012. AnnuAL RePORT/FORM 10-K 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. Written requests should be made to: Cerner Corporation Investor Relations 2800 Rockcreek Parkway North Kansas City, MO 64117-2551 Inquiries of an administrative nature relating to shareholder accounting records, stock transfer, change of address and miscellaneous shareholder requests should be directed to the transfer agent and registrar, Computershare Trust Company, at 1-800-884-4225. TRAnSFeR A GenT AnD ReGISTRAR Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 1-800-884-4225 STOCK LISTI nGS Cerner Corporation’s common stock trades on The NASDAQ Stock Market LLC under the symbol CERN. InDeP enDenT A CCOunTAnTS KPMG LLP Kansas City, MO 102 World Headquarters Cerner Worldwide 2800 Rockcreek Parkway Kansas City, MO USA 64117 816.221.1024 www.cerner.com Worldwide Australia Canada Chile France Germany India Ireland Malaysia Saudi Arabia Singapore Spain United Arab Emirates United Kingdom 

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