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
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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