UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission File Number 0-15386
CERNER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 43-1196944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2800 Rockcreek Parkway, Suite 601
Kansas City, Missouri 64117
(816) 221-1024
(Address of principal executive offices, including zip code;
Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
At March 1, 1996, there were 32,542,563 shares of Common
Stock outstanding, of which 7,491,002 shares were owned by
affiliates. The aggregate market value of the outstanding
Common Stock of the Registrant held by non-affiliates, based on
the average of bid and asked prices of such stock on March 1,
1996, was $591,843,128.
Documents incorporated by reference: portions of the
Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.
<PAGE>
PART I
Item 1. Business
General
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Cerner Corporation was incorporated in Missouri in
1980. Through a merger into a wholly-owned Delaware subsidiary
effected in June 1987, Cerner Corporation ("Cerner" or the
"Company") became a Delaware corporation. The Company's
principal offices are located at 2800 Rockcreek Parkway, Kansas
City, Missouri 64117, and its telephone number is
(816) 221-1024.
Cerner designs, develops, markets, installs and
supports member/patient-focused clinical and management
information systems that are capable of being implemented on an
individual, combined or enterprise-wide basis. Cerner systems
are designed to automate the process of healthcare by
accumulating data on care provided to members/patients,
maintaining such data in a member/patient database repository
and providing access to such data for users of clinical
information across a healthcare system. Cerner's systems are
designed and developed using the Health Network Architecture
(''HNA''), a single architecture. HNA is a unified system for
combining clinical and management information applications. HNA
allows each participating facility within an integrated
healthcare enterprise to access an individual's clinical record
at the point of care, to organize it for the specific needs of
the physician, nurse, laboratory technician or other care
provider on a real-time basis, and to use the information in
management decisions to improve the efficiency and productivity
of the location and the entire enterprise.
Healthcare Industry
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The dramatic increase in healthcare costs in the
United States, which historically were based on a fee-for-
service model, has caused significant changes in the healthcare
industry. Managed care organizations and other payers have
developed alternative payment models to control costs, including
procedure-based cost limits, contractually approved providers
and capitation (a fixed monthly fee per member in payment for
all required services). The result has been a continuing shift
of financial risk from the payer to both the physician provider
and the institutional provider (hospitals, clinics, long-term
care, subacute providers and rehabilitative care centers). In
response, institutional providers are aligning with one another
and with physician groups to form Integrated Delivery Systems
(''IDSs''), and IDSs are aligning with payer organizations to
form Integrated Health Organizations (''IHOs''), in each case in
an effort to compete more effectively in the changing healthcare
environment.
The changes occurring in the healthcare industry have
resulted in changes in the needs for clinical and management
information systems by hospitals, physicians, managed care
organizations and Integrated Delivery Systems. Hospitals'
information requirements have become more complex as cost
containment pressures have driven the needs for efficiency and
process automation while the increasing number of relationships
they have with other providers requires additional
sophistication. As physicians combine into a variety of
provider configurations, management structures and incentive
plans, they are increasingly utilizing member/patient focused
information systems to improve quality and efficiency for their
growing practices and physician networks, to develop the data
necessary to compete for contracts with payers and to be able to
share the financial risks of healthcare delivery. Managed care
organizations are increasingly recognizing the value of process-
oriented and clinically-driven information as it relates to
understanding and improving the health of their members.
Information system requirements for IDSs and IHOs encompass many
of the same needs as hospitals, physicians and managed care
organizations. Many IDSs and IHOs are becoming aggressively
involved with institutional providers and physicians in various
relationships where information sharing and process automation
are paramount. Many of these larger, more complex organizations
are seeking closer relationships with suppliers that can provide
comprehensive information systems solutions. Information system
requirements for IDSs and IHOs include integrated process-based
systems for clinical domains, data repositories and applications
for physicians and management teams.
Healthcare Information Systems Industry
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Healthcare information systems are evolving to meet
the needs of a changing marketplace. Initially, computer
systems developed for use in healthcare were financially
oriented, with a focus on the ability to capture charges and
generate patient bills. Beginning in the mid-1960s,
institutional provider organizations began to use clinical
information systems, which automate the activities within
clinical departments, such as laboratory, pharmacy, radiology
and surgery departments, to improve the productivity of
resources and automate the production and use of significant
amounts of clinical information. Individual departments
selected systems based upon specific features on a ''best of
breed'' basis resulting in disparate information systems within
the institutional provider.
More recently, there has been a shift from the
purchase of disparate clinical systems on a ''best of breed''
basis to systems which are able to integrate communication
effectively throughout the healthcare enterprise. The two
principal approaches to meet this need are a common
architecture, in which systems communicate through inherent
design, and point-to-point interfaces, in which systems with
different architectures communicate through interface linkages.
This infrastructure trend also affects the relationship between
the health system and the suppliers of information technology.
The approach of interfacing disparate systems typically involves
multiple system suppliers and the health system must act as the
intermediary and integrator. The common architecture approach
relies more on a strategic relationship with one or very few
suppliers dedicated to implementing a shared vision for the role
of information in the operation of the health system.
The same forces that are causing other healthcare
providers to join together are causing physicians to combine
into larger organizations, including Independent Practice
Associations (''IPAs'') and Preferred Provider Organizations
(''PPOs''). In some cases, such organizations align with IDSs
and IHOs. Cerner believes that such physician groups require
clinical and management information systems that allow them to
participate in the community-wide clinical and management
information systems employed by the IDSs and IHOs.
The Cerner Vision
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As a result of the rapid transformation of the
healthcare industry, Cerner believes that a new center of
healthcare will emerge-the IHO, which is a combination of
payers, physicians and institutional providers, into a single
organization to service a community or defined member
population. IHOs have the capacity to contract with both the
government and employers to provide healthcare services to
member/patients. The focus of the IHO is to be accountable for
the health status of a defined population, with strong financial
incentives to manage health on a preventive or wellness basis
and reduce costs.
Cerner believes that many large IHOs will emerge in
the United States in the next decade. The creation of IHOs
results from the combination of existing payers, physicians and
institutional providers. These IHOs will need to implement
information systems that manage the delivery of care across its
entire community while simultaneously managing the business side
of health management. Only through automating the core process
of healthcare delivery from member enrollment through the
ordering and delivery of care will IHOs be able to actually
manage and measure care. Process automation will enable
healthcare systems interactively to affect the care that is
delivered throughout the entire system at each point of
delivery. Cerner believes that managing these integrated
healthcare systems will require the accumulation and refining of
enormous amounts of process-related data in order to monitor
performance against projected plan and to make informed business
decisions. This process-oriented approach will also provide the
information basis to measure health system performance, in
values known as outcomes, from clinical, functional, process,
member satisfaction and economic perspectives. When all of the
complex clinical processes that comprise care delivery in IHOs
are automated using fully integrated information systems, it
becomes possible to extend automation to the management
processes of healthcare.
Cerner's HNA Approach
- ---------------------
The cornerstone of Cerner's information systems
strategy is HNA, the single architecture around which each of
Cerner's products is developed. This highly scaleable
architecture allows Cerner to meet the clinical and management
information requirements of a healthcare delivery system across
the continuum of care from the physician practice to the IHO.
The value of HNA is the creation of systems that ''intrarelate''
as opposed to being integrated. Most healthcare organizations
are using some form of information technology to manage their
clinical, financial and administrative operations. Typically, a
multitude of systems, operating on differing technology
platforms from various suppliers, are used within a single
organization. These systems rely on a series of interfaces to
transmit information to one another which may inhibit real-time
access to comprehensive patient information. In addition, the
data collected by disparate systems is usually maintained in a
variety of formats, and is indexed or codified using different
approaches, which dilutes the data's usefulness.
Cerner's approach to system design is to first
understand the intricate processes of providing care and then to
design systems that support and streamline those processes.
Cerner's system architecture allows its applications to work
together as one system. Cerner's systems are ''intrarelated'',
which means that they are designed around a single architecture
that automatically organizes and presents information in a
manner relevant to a clinician's decision process. With
''intrarelated'' systems, all caregivers are kept apprised of
each patient's condition, allowing the activities of the care
team to be more carefully and efficiently orchestrated in an
effort to deliver the highest possible quality of care.
Strategy
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Key elements of the Company's business strategy include:
To penetrate the integrated healthcare market. The
transformation of healthcare delivery must deal with the
changing financial model from fee-for-service to fixed or
controlled fee payments for services provided. In order to
accomplish the transition, integrated healthcare systems must
decrease costs generally, utilize fewer resources per patient or
member encounter, decrease the amount of care required by
focusing on preventative measures and increase member
populations by attracting additional members through better
quality healthcare and services. Cerner's process-based,
repository and clinical systems provide the technology to enable
an integrated system to manage healthcare to significantly
reduce costs, improve the efficiency of healthcare delivery and
maintain and improve the quality of healthcare.
To penetrate the physician market. As physicians
combine to form organizations such as IPAs and PPOs, they
require clinical and process-based systems to manage the
member/patient care processes within their own practices. As
such groups align with IDSs and IHOs, they further require
clinical and management information systems that allow them to
share clinical and management processes with these community-
wide systems. Cerner's systems provide the member/patient data
repositories and clinical and management tools required by
physicians in order for them to participate effectively in the
changing healthcare marketplace.
To expand its core business. Cerner expects continued
growth in core business areas, including clinical domain systems
such as PathNet, RadNet and PharmNet, as institutional providers
look to restructure and reengineer these high cost centers
within their IDSs and IHOs. The Company also intends to market
aggressively Cerner clinical and management information systems
and services, such as RadNet and PharmNet, to its existing
client base.
To remain committed to a unified architecture.
Because Cerner believes that the constituents in health
management need to work together to benefit defined populations
in a community, the Company has made a commitment to a single
unified architecture as the platform for fully ''intrarelated''
health information and management systems. This platform
enables Cerner's process-based HNA system to be scaleable on a
linear basis, using either Cerner compatible modules for process-
oriented applications or competitive systems interfaced using
open system protocols. In addition, the HNA system can be
accessed throughout the enterprise at the point of care, which
improves data integrity, allows for coordination of procedures
at multiple locations and enables reliable communication without
delay.
To expand its products and services. Using its HNA
platform, Cerner intends to expand the range of products and
services offered to providers, including IDSs and IHOs, either
through internal development or by acquisitions or joint
ventures. These new products and services will complement the
systems currently offered, address the emerging information
needs of clients or employ technological advances. Cerner
believes that major opportunities exist as IHOs begin to include
service organizations and on-line services to the home,
particularly because the member/patient focus of Cerner's
architecture provides the basis for individual electronic
medical records which can be used throughout a member-focused
health system. In addition, Cerner recognizes the value of the
aggregate database being developed by its broad client base as a
potential means to enable comparative or normative procedure
evaluations as a powerful new tool in the healthcare industry.
Products
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The Company's products include: (i) process-based
systems, which automate clinical care processes throughout and
between entities; (ii) repository systems, which capture, sort,
present and analyze clinical and process related data; and (iii)
clinical domain systems, which automate complex clinical
processes within specific departments or domains. These systems
can be acquired individually or as a fully intrarelated health
information system. The individual systems perform together
even if installed at different times. Cerner also markets over
200 product options that complement Cerner's major information
systems.
Process-based Systems
Cerner's CareNet Care Management System is designed to
automate the entire care process. It collects, refines,
organizes, and evaluates vast amounts of detailed clinical and
management data. CareNet enables the data and information to be
used as executable knowledge. CareNet supports the delivery of
care throughout the enterprise, from acute care settings to
outpatient facilities and ambulatory services. Care teams,
therefore, can not only treat illness but also proactively
manage the health status of a population. CareNet also supports
point-of-care (POC) automation, which enables real-time
documentation, simplifies information management, and drives
enhancements to the delivery of care. It enables the entire
care team to plan and manage individual activities and plans, as
well as measure outcomes and goals. All care team members have
immediate access to clinical and management information and can
customize plans of care for each patient. CareNet heightens
communication, optimizes use of time, and eliminates redundant
data entry-all in real-time.
CareNet consists of five major components: Patient
Management, Order Management, Scheduling Management,
Documentation Management, and Case Management.
Patient Management is the hub of patient
communications and the link between a lifetime of care episodes
across a spectrum of providers in the community. It enables
care providers to transfer and discharge patients electronically
as they are actually moving or leaving. Order Management
simplifies and streamlines the process of order entry, whether
from ad hoc orders or order sets, by communicating orders
electronically. The system warns of contradictions and
eliminates duplicate orders-all from a single screen. Charges
also can be automatically generated at various stages within the
order communication process. Scheduling Management supports
referrals and schedules procedures and appointments for all
providers across all institutions within an organization.
Documentation Management is designed to automate the information
gathering, recording, and reporting activities of the care team.
It eliminates redundant charting and streamlines documentation
by allowing care team members to enter information once and have
it automatically updated throughout the system. Case Management
plans and orchestrates patient care activities throughout the
care delivery cycle. When a clinical guideline or plan of care
is activated, it automatically initiates ordering, scheduling,
and documentation.
Discern Expert is an event-driven, rule-based,
decision support software application integrated with other
Cerner HNA clinical and management information systems. This
tool allows users to define clinical and management rules that
are applied to events accessing data that is captured or
generated by other HNA applications. Discern Expert
accomplishes a variety of tasks, including cost reduction,
resource utilization, quality-assurance and risk management.
The users can define the action to be taken by the system
ranging broadly from sending an alert to the appropriate
caregiver to creation, cancellation or suspension of an active
clinical order.
Repository Systems
Open Clinical Foundation Data Repository (''OCF'') is
a structured repository of clinical information of
members/patients. OCF forms the foundation of Cerner's
electronic medical record functionality. This information can
originate from numerous sources and is maintained in an easily
accessible, standardized format. OCF can be used on a stand-
alone basis, but is significantly more effective when used as
part of the comprehensive HNA solution. For most enterprises in
which the various laboratories and ancillaries cooperatively
share data over the entire enterprise, OCF provides a means of
sorting and retrieving data. With OCF, the amount of on-line
clinical data that are retained in departmental systems can be
significantly reduced. Furthermore, health enterprises can
scale OCF for a particular clinical area's use and integrate it
into an environment containing products from different
suppliers, including competitors. The interface specifications
to OCF are available for use by suppliers who comply with the
interface requirements.
PowerChart is a PC-workstation-based product that
enables care providers to electronically view, organize,
annotate and amend a patient record so that it is presented in a
manner that allows them to navigate through the chart using
patient-provider and encounter relationships. PowerChart gives
healthcare providers structured access to the clinical
information contained electronically in OCF. The format of the
on-line patient chart consists of pages displayed from a
patient's computer-based patient record and information
electronically transmitted from connected systems. Clinicians
are able to browse through pages much the same as with printed
documents. Clinicians can access documents through tables of
contents or search for terms in the document text. The scope of
documents available is limited only by the system interfaces to
OCF.
Open Management Foundation Data Repository (''OMF'')
is a structured repository for process-and activity-related
information useful for management of a healthcare institution.
Information can originate from numerous sources and can be
maintained in an easily accessible, standardized format. OMF
can be scaled for a particular department's use and can be
integrated into an architecture containing products from
different suppliers.
PowerVision is a comprehensive, PC-based health
management information system used to view information in OMF in
much the same manner as PowerChart is used with OCF. This
management access tool presents summary information through a
graphical user interface, making key information available to
all levels of management. PowerVision is equipped with features
that allow the user to pursue ''what if '' and other
investigatory information paths. This enables an executive to
determine the status of the institution in many critical areas,
as well as provides managers with a quick, up-to-the-minute view
of leading business management indicators regarding the
performance of a department, care area or facility.
Open Engine Application Gateway System facilitates the
exchange of data and assists in the management of point-to-point
interfaces between foreign systems and serves as a toolkit to
help clients write interface code.
Clinical Domain Systems
PathNet Laboratory Information System addresses the
information management needs of five clinical areas: general
laboratory, microbiology, blood bank transfusion services, blood
bank donor services and anatomic pathology. PathNet automates
the ordering and reporting of procedures, the production of
accurate and timely reports and the maintenance of accessible
clinical records. PathNet can be interfaced with automated
instruments and databases, allowing for efficient and accurate
transfer of information. PathNet communicates laboratory
information to patient care areas and other information systems.
Cerner attributes PathNet's acceptance to its functional
capability, ease of use and event-level cost accounting, which
allows healthcare managers to better control costs and assess
profitability.
MedNet Internal Medicine Information System is a
family of software products that addresses the clinical
information needs of various internal medicine areas within the
health organization. Introduced as a pulmonary information
system in 1987, MedNet's functionality now serves the
disciplines of cardiology, neuro-diagnostics, rehabilitation
services and nutritional services, as well as many ancillary
areas. Like PathNet, MedNet automates procedure requests,
patient and therapist scheduling and the processing, validation
and presentation of results. The system provides reports on
clinical activity, workload and billing charges by drawing from
the departmental databases.
RadNet Radiology Information System addresses the
operational and management requirements of diagnostic radiation
and radiation oncology departments. It allows a department to
replace its manual, paper-based system of record-keeping with an
efficient computer-based system. RadNet is designed to adapt
easily to the department's existing operations. In addition,
the system addresses such tasks as scheduling patients,
modifying orders, tracking patients, locating films,
transcribing reports, upgrading the quality and content of
reports and reporting on productivity.
PharmNet Pharmacy Information System provides
intrarelation in an HNA environment for rapid pharmacy order
entry and support of the clinical pharmacy in either an
inpatient or outpatient setting. PharmNet streamlines
medication order entry, enabling the pharmacist or technician to
place all types of pharmaceutical orders on one easy-to-use
screen. Dispensing functions also are fully automated.
Medication, intravenous fill lists and medication administration
records are produced automatically or on demand. Charges are
automatically captured at the time the fill list is generated.
Patient profiles and pharmaceutical inventories are maintained
without the intervention of the pharmacist, saving significant
time and resources. Features are designed to address the
special needs of the clinical pharmacy, including on-line order
entry screening for drug-drug interactions, drug-food and drug-
lab interferences, drug-disease states, intravenous
incompatibilities, dose range and therapeutic treatment
duplication. Clinical notes can be recorded on-line and sent to
other clinicians for comment or follow-up.
MSmeds Pharmacy Information System focuses on
automating the pharmacy department. MSmeds was developed by a
company acquired by Cerner in 1993. MSmeds is sold on a stand-
alone basis, but can be interfaced to the Company's HNA
products. Designed to meet the specialized and individual needs
of the pharmacy department, MSmeds incorporates windows, on-line
help, menu and table-driven entry, a built-in system
customization tool, and an application generator. The order
entry application gives the pharmacist fast order entry
capabilities with a high level of quality control. Safeguards
that ensure the integrity of patient therapy include: dose level
checking by 36 parameters, drug warnings, drug-drug interaction
checking and pharmacokinetics. The system generates a number of
reports to assure the appropriateness of drug therapy, including
drug interaction, patients on specific drugs, drug utilization
by therapeutic category and dose checking. On-line storage on
removable disks provides full patient detail for a period of up
to ten years. MSmeds offers the availability of full detail
patient information for drug utilization evaluation, as well as
labor and cost efficiencies. Admission, discharge and transfer,
billing, results display and order entry interfaces are
contained within the system.
SurgiNet Surgery Information System and MRNet Medical
Record Department Information System are scheduled for
commercial release in the first half of 1996. SurgiNet is
intended to address the needs of the surgical department,
including automating the functions of resource and equipment
scheduling, inventory management and operating room management.
MRNet is intended to help meet the operations management needs
of the medical records department and includes functionality for
the various chart tracking and completion tasks commonly
associated with maintaining medical records.
Software Development
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Cerner commits significant resources to developing new
health information system products. As of December 30, 1995,
556 employees were engaged full-time in product development
activities. Total expenditures for the development and
enhancement of the Company's products were approximately
$19,432,000, $26,897,000, and $33,957,000 in 1993, 1994 and
1995, respectively. These figures include the amounts
capitalized and exclude amounts amortized for financial
reporting purposes.
The Company expects to continue investment and
development efforts for its current and future product
offerings. As new clinical and management information needs
emerge, Cerner intends to enhance its current HNA-based product
lines with new versions released to clients on a periodic basis.
In addition, Cerner plans to expand its current product lines by
developing additional information systems for use in clinical
departments and to continue to support simultaneous use of
Cerner's HNA products across multiple facilities. All Cerner
systems are developed under HNA using a proprietary systems
development methodology. This methodology defines and controls
each task throughout the product development cycle and ensures
that current and future products can be fully intrarelated.
The Company is committed to maintaining open
attributes in its system architecture through operability in a
diverse set of technical and application environments. The
Company strives to design its systems to
co-exist with disparate applications developed and supported by
other suppliers. This effort is exemplified by Cerner's Open
Engine, OCF and OMF product lines.
Cerner is developing a new version (referred to as
V500) of its software, which will incorporate a client-server
architecture, a comprehensive graphical user interface and open
systems concepts for relational databases, operating systems,
networks and hardware platforms. Development of V500 began in
the summer of 1993. The Company is committed to maintaining
open attributes in its V500 system architecture. Cerner expects
its V500 applications to run on multiple operating systems,
networks, databases and hardware platforms and to co-exist with
disparate applications developed and supported by other
companies. Cerner expects to begin installation of V500
applications in the third quarter of 1996.
Sales and Marketing
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The market for Cerner's information system products
includes IHOs, IDSs, physician groups and networks, managed care
organizations, hospitals, free-standing reference laboratories,
blood banks, imaging centers and pharmacies. To date, a
substantial portion of system sales have been in clinical
applications in hospital-based provider organizations. Cerner's
architecture is highly scaleable, with applications being used
in hospitals ranging from under 50 beds to over 2,000 beds and
managed care settings with over 2,000,000 members. All current
HNA systems are designed to operate on computers manufactured by
Digital Equipment Corporation (''Digital''). In addition, Open
Engine, PathNet, RadNet and MSmeds are available on IBM's RISC
System/6000 AIX (UNIX) platform. Over time, all HNA
applications will be available on both the Digital and IBM
platforms, thereby allowing Cerner to be price competitive
across the full range of size and organizational structure of
healthcare providers. The sale of a health information system
usually takes approximately nine to fifteen months, from the
time of initial contact to the signing of a contract.
The Company's executive marketing management is
located in its Kansas City, Missouri, headquarters, while its
account representatives are deployed through regional offices
across the United States. The Company, through subsidiaries,
has offices and sales staff in the United Kingdom, Australia,
Germany and Saudi Arabia. The Company supports its sales force
with technical personnel who perform demonstrations of Cerner's
products and assist clients in determining the proper hardware
and software configurations. The Company has developed a
demonstration and presentation facility at its headquarters in
Kansas City, Missouri, called the Cerner Vision Center. This
facility enables the Company to actually demonstrate the
processes automated through HNA and adapt the presentations to
the clients' environments. The Company's primary direct
marketing strategy is to generate sales contacts from its
existing client base and through presentations at industry
seminars and trade shows. Cerner attends a number of major
trade shows each year and has begun to sponsor executive
conferences, which feature industry experts who address the
information system needs of large healthcare organizations.
Consolidated revenues include foreign sales of $8,417,000,
$13,274,000 and $8,823,000 for the years ended December 31, 1993
and 1994, and December 30, 1995, respectively.
Client Services
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Cerner uses a regional strategy to provide the full
range of product and service capabilities to its clients from
eight locations throughout the United States and four
international locations. Each regional center reflects Cerner's
corporate culture and interfaces with the Company's clients on a
regular and highly accessible basis. In this way, Cerner can
provide on-site personnel for the development and management of
systems projects, learn the evolving information needs of
clients based on geographical trends in the healthcare industry,
work with clients in the development of new products and
services and share with clients Cerner's vision of the changing
healthcare delivery market and the role of information systems
in that transformation. The Company has regional offices in
Atlanta, Boston, Dallas, Detroit, Kansas City, Los Angeles,
Seattle and Washington, D.C. and international offices in Luton,
England; Munich, Germany; Riyadh, Saudi Arabia; and Sydney,
Australia. Each regional office is focused on long-term
marketplace development, product marketing, client project
management, long-term client service and client satisfaction for
a group of clients within a specific geographical region.
All of Cerner's clients enter into software
maintenance agreements with Cerner for support of their Cerner
systems. In addition to immediate software support in the event
of problems, these agreements allow these clients the use of new
releases of the Cerner products covered by these agreements.
Each client has 24-hour access to the client support staff
located at Cerner's corporate headquarters. Most of Cerner's
clients also enter into hardware maintenance agreements with
Cerner. These arrangements normally provide for a fixed monthly
fee for specified services. In the majority of cases, Cerner
subcontracts hardware maintenance to the hardware manufacturer.
Backlog
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At December 30, 1995 Cerner had contract backlog of
$77,495,000. Such backlog represents system sales from signed
contracts which have not yet been recognized as revenue. The
Company recognizes revenue on a percent of completion basis,
based on certain milestone conditions, for its software
products. At December 30, 1995, the Company had $48,625,000 of
contracts receivable, which represents revenues recognized under
the percent of completion method but not yet billable under the
terms of the contract. At December 30, 1995, Cerner had a
software support and maintenance backlog of $94,538,000. Such
backlog represents contracted software support and hardware
maintenance services for a period of twelve months.
Item 2. Properties
The Company's offices are located in an office park in
North Kansas City, Missouri. As of December 30, 1995, the
Company was using approximately 482,000 square feet and
substantially all of the remainder was leased to tenants. In
December 1995 the Company completed construction of a
combination child care and fitness facility at the office park
for the use of the Company's employees. The Company believes
that its employees are its most important asset and that this
facility will enable the Company to attract and retain it's
relatively young work force which contains a large number of
married women. The Company also leases office space for its
branch offices in Atlanta, Boston, Dallas, Detroit, Los Angeles,
Seattle and Washington D.C.
Item 3. Legal Proceedings
The Company is not involved in any material pending
litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the
stockholders of the Company during the fourth quarter of the
fiscal year ended December 30, 1995.
Item 4A. Executive Officers of the Company
The following table sets forth the names, ages,
positions and certain other information regarding the Company's
executive officers as of March 1, 1996. Officers are elected
annually and serve at the discretion of the board of directors.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Neal L. Patterson 46 Chairman of the Board of Directors
and Chief Executive Officer
Clifford W. Illig 45 President and Chief Operating
Officer
Charles S. Runnion, III 48 Executive Vice President and
General Manager
David M. Margulies, M.D. 44 Executive Vice President of
Product Engineering
Jeffrey C. Reene 41 Executive Vice President
Jack A. Newman, Jr. 48 Senior Vice President and Managing
Director, Cerner 2000
Thomas C. Tinstman, M.D. 51 Senior Vice President
Alan D. Dietrich 33 Group Vice President and
General Manager
Charles O. Whitcraft 44 Group Vice President of Product
Engineering
Gary W. Willett 51 Group Vice President and Chief
Operating Officer of Cerner
International, Inc.
Marc G. Naughton 41 Vice President and Chief Financial
Officer
</TABLE>
Neal L. Patterson was President, Chairman of the Board
of Directors and Chief Executive Officer of the Company from its
incorporation to May 1987. Since May 1987 he has been Chairman
of the Board of Directors and Chief Executive Officer of the
Company. Mr. Patterson has served as a director of Home Office
Reference Laboratory since August 1988.
Clifford W. Illig was Executive Vice President,
Secretary, Treasurer and Chief Financial Officer and a Director
of the Company from its incorporation to May 1987. From May
1987 to May 1993, he was a Director, President, Chief Operating
Officer and Chief Financial Officer of the Company. Since May
1993, he has been a Director, President and Chief Operating
Officer.
Charles S. Runnion, III joined the Company in July
1989 and since that date has been an Executive Vice President
and Director of the Company. Prior to working at the Company,
he spent fourteen years with the IBM Corporation in a variety of
marketing and management positions.
David M. Margulies, M.D. joined the Company in
February 1991 and since that date has been an Executive Vice
President of the Company. Prior to joining the Company, for
four years, he was Vice President in charge of information
systems at Children's Hospital, a healthcare institution located
in Boston, Massachusetts. During this time Dr. Margulies also
was the Director of the Program in Medical Information Sciences
at Harvard Medical School. Dr. Margulies has served as a
Director of the Company since May 1991.
Jeffrey C. Reene joined the Company in September 1991
as Group Vice President of Client Services. He was promoted to
Executive Vice President in June of 1994. Prior to joining the
Company, he was with Andersen Consulting from July 1978 to
August 1991, being a Partner with Andersen Consulting since
September, 1988.
Jack A. Newman, Jr. joined the Company in January 1996
as Senior Vice President and Managing Director of Cerner 2000.
Prior to joining the Company, he was with KPMG Peat Marwick LLP
for 22 years. Most recently he was National Partner-in-Charge of
of KPMG's Health Care Strategy Practice, leading more than 200
professional and administrative staff members who provided strategy
consulting services to healthcare clients nationwide, including
healthcare systems, physician groups, managed care plans, and other
provider and payor organizations.
Thomas C. Tinstman, M.D. joined the Company in November
1995 and has been a Director of the Company since May 1989. Prior
to joining the Company, Dr. Tinstman was Director of Medical
Informatics with University of Texas Medical Branch in Galveston,
Texas. Prior to that he was a physician in private practice with
Internal Medicine Associates, P.C. in Omaha, Nebraska. From 1977
to January, 1994, Dr. Tinstman served as Assciate Medical Director
of Pulmonary Medical Services at Bishop Clarkson Memorial Hospital
and as Medical Director of the Respiratory Therapy Department of
Midland Hospital, both in Omaha, Nebraska. Dr. Tinstman has served
as a director of Smith-Haynes Trust, Inc. since 1988.
Alan D. Dietrich joined the Company in 1990 as
Director of Business, Planning and Development. In January 1994
he was promoted to Vice President. Prior to joining the
Company, he spent seven years with IBM Corporation.
Charles O. Whitcraft joined the Company as Vice
President of Technology in January 1984. Since that time he has
served in several executive positions dealing with technology
and engineering.
Gary W. Willett joined the Company in April 1990 as
Group Vice President of Client Services and has served in
various executive capacities. Prior to joining the Company, he
spent twenty-one years with IBM Corporation in a variety of
marketing and management positions.
Marc G. Naughton joined the Company in November 1992 as
Manager of Taxes. In November 1995 he was elected Chief Financial
Officer and in February 1996 he was promoted to Vice President.
Prior to joining the Company, he spent nine years with The Marley
Company, a multinational manufacturing company, in a variety of
financial management positions.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
The Company's common stock trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol
CERN. The following table sets forth the high, low, and last
sales prices for the fiscal quarters of 1995 and 1994 as
reported by the Nasdaq National Market System. These quotations
represent prices between dealers and do not include retail mark-
up, mark-down, or commissions, and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
High Low Last High Low Last
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter 24 5/8 20 7/8 24 1/4 24 3/4 19 3/8 20 3/4
Second Quarter 32 7/8 21 30 5/8 22 1/2 11 3/4 13 7/8
Third Quarter 35 3/4 29 3/4 34 1/4 21 3/4 12 7/16 20 7/16
Fourth Quarter 34 1/4 20 20 1/2 22 5/8 18 5/8 22 1/16
</TABLE>
At February 10, 1996, there were approximately 1,300
owners of record. To date, the Company has paid no dividends
and it does not intend to pay dividends in the foreseeable
future. Management believes it is in the stockholders' best
interest to reinvest funds in the operation of the business.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Revenues $ 186,901 155,917 120,572 101,145 77,240
Operating earnings 37,265 33,779 24,330 16,587 8,068
Earnings before income taxes 37,220 32,451 24,120 16,293 7,552
Net earnings 22,521 19,501 14,558 9,932 4,688
Primary earnings per share .72 .66 .50 .35 .17
Primary weighted average shares
outstanding 31,448 29,762 29,158 28,680 26,874
Balance Sheet Data:
Working capital $ 174,064 52,370 42,603 30,522 22,588
Total assets 303,945 156,410 104,910 66,667 56,155
Long-term debt, net 30,104 30,235 10,354 8,310 7,982
Stockholders' equity 221,374 85,777 64,230 38,643 27,517
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
For a more thorough understanding of management's analysis of
results of operations and financial condition, the following
discussion should be read in conjunction with the Letter to
Shareholders and the discussion of the Company's business
operations.
Year Ended December 30, 1995 Compared to Year Ended December 31, 1994
Results of Operations - The Company's revenues increased 20% to
$186,901,000 in 1995, from $155,917,000 in 1994. Net earnings
increased 15% to $22,521,000 in 1995 from $19,501,000 in 1994.
Net earnings from the Company's foreign operations decreased
195% to a loss of $1,867,000 in 1995 from earnings of
$1,973,000 in 1994.
Revenues - In 1995, revenues increased due to an increase in
system sales and support of installed systems. System sales
increased 20% to $129,917,000 in 1995, from $108,322,000 in
1994. This increase in system sales resulted principally from
an increase in installations under HNA contracts and additional
hardware and software sales to the Company's existing client
base. HNA contracts were 42% of total system sales in 1995,
compared to 37% in 1994. The sale of additional hardware and
software products to the installed client base increased 36% in
1995 and 40% in 1994.
The Company has seen a significant increase in the number of
clients who have purchased two or more clinical system units on
their initial contract, or clients from the installed base who
purchase one or more system units subsequent to their initial
contract. Total sales to the installed base in 1995, including
new systems, incremental hardware and software, and recurring
and discrete services, were 71% of total revenues in 1995
compared to 73% in 1994.
At December 30, 1995, the Company had $77,495,000 in contract
backlog and $94,538,000 in support and maintenance backlog,
compared to $57,547,000 in contract backlog and $77,222,000 in
support and maintenance backlog at the end of 1994.
Support and maintenance revenues increased 19% in 1995 compared
to 24% in 1994. These revenues represented 26% of 1995 total
revenues and 27% of 1994 total revenues.
Other revenues increased 22% to $7,633,000 in 1995 from
$6,273,000 in 1994. This increase was due primarily to twelve
months of real estate lease revenues from the rental to outside
tenants as compared to eight months of lease revenues in 1994;
space in the Company's headquarters complex not currently being
utilized by the Company is leased to outside tenants.
Cost of Revenues - The cost of revenues includes the cost of
computer hardware and sublicensed software purchased from
computer and software manufacturers for delivery to clients. It
also includes the cost of hardware maintenance and sublicensed
software support subcontracted to the manufacturers. The cost
of revenues was 28% of total revenues in 1995 and 30% of total
revenues in 1994. Such costs, as a percent of revenues,
typically have varied as the mix of revenue (software, hardware,
and support) components carrying different margin rates changes
from period to period. The decrease in the cost of revenue as a
percent of total revenues resulted principally from an increase
in multiproduct projects which carry a lower cost of revenue
percentage.
Sales and Client Service - Sales and client service expenses
include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are
sales and marketing salaries, tradeshow costs, and advertising
costs. These expenses as a percent of total revenues were 27%
in 1995 compared to 26% in 1994. The increase in total sales
and client service expenses is attributable to the cost of a
larger field sales and services organization and marketing of
new products.
Software Development - Software development expenses include
salaries, documentation, and other direct expenses incurred in
product development and amortization of software development
costs. Total expenditures for software development, including
both capitalized and noncapitalized portions, for 1995 and 1994
were $33,957,000 and $26,897,000, respectively. These amounts
exclude amortization. Capitalized software costs were
$9,210,000 and $8,131,000 for 1995 and 1994, respectively. The
increase in aggregate expenditures for software development in
1995 is due to development of more clinical information system
products to complement the existing product line. The
percentage of costs capitalized is expected to remain fairly
constant as the Company continues to develop new products.
General and Administrative - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses, and professional
fees. These expenses as a percent of total revenues were 9% in
1995 and 8% in 1994.
Interest Expense - Net interest expense was considerably lower
in 1995 than in 1994. This decrease was due primarily to
interest income from investment of the proceeds from the sale
of 3,716,000 new shares of common stock from the August 1995
public offering.
Income Taxes - The Company's effective tax rates were 39.4% and
39.9% for 1995 and 1994, respectively, which were not
significantly different from the combined federal and state
statutory rates.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Results of Operations - The Company's revenues increased 29% to
$155,917,000 in 1994, from $120,572,000 in 1993. Net earnings
increased 34% to $19,501,000 in 1994 from $14,558,000 in 1993.
Net earnings from the Company's foreign operations increased
110% to $1,973,000 in 1994 from $938,000 in 1993.
Revenues - In 1994, revenues increased due to an increase in
system sales and support of installed systems. System sales
increased 29% to $108,322,000 in 1994 from $84,024,000 in 1993.
This increase in system sales resulted principally from an
increase in installations under HNA contracts and additional
hardware and software sales to the Company's existing client
base. HNA contracts were 37% of total system sales in 1994,
compared to 30% in 1993. The sale of additional hardware and
software products to the installed client base increased 40% in
1994 and 9% in 1993.
The Company has seen a significant increase in the number of
clients who have purchased two or more clinical system units on
their initial contract, or clients from the installed base who
purchase one or more system units subsequent to their initial
contract. Total sales to the installed base in 1994, including
new systems, incremental hardware and software, and recurring
and discrete services, were 73% in 1994 compared to 63% in
1993.
At December 31, 1994, the Company had $57,547,000 in contract
backlog and $77,222,000 in support and maintenance backlog,
compared to $42,183,000 in contract backlog and $57,341,000 in
support and maintenance backlog at the end of 1993.
Support and maintenance revenues increased 24% in 1994 and 25%
in 1993. These revenues represented 27% of 1994 total revenues
and 28% of total 1993 total revenues.
Other revenues increased 87% to $6,273,000 in 1994 from
$3,348,000 in 1993. This increase was due primarily to real
estate lease revenues from the rental to outside tenants of
space in the Company's headquarters complex not currently being
utilized by the Company.
Cost of Revenues - The cost of revenues includes the cost of
computer hardware and sublicensed software purchased from
computer and software manufacturers for delivery to clients. It
also includes the cost of hardware maintenance and sublicensed
software support subcontracted to the manufacturers. The cost
of revenues was 30% of total revenues in 1994 and 36% in 1993.
Such costs, as a percent of revenues, typically have varied as
the mix of revenue (software, hardware, and support) components
carrying different margin rates changes from period to period.
The decrease in the cost of revenue as a percent of total
revenues resulted principally from an increase in multiproduct
projects which carry a lower cost of revenue percentage.
Sales and Client Service - Sales and client service expenses
include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are
sales and marketing salaries, tradeshow costs, and advertising
costs. These expenses as a percent of total revenues were 26%
and 23% in 1994 and 1993, respectively. Increases in total
sales and client service expenses are attributable to the cost
of a larger field sales and services organization, marketing of
new products, and international marketing initiatives.
Software Development - Software development expenses include
salaries, documentation, and other direct expenses incurred in
product development and amortization of software development
costs. Total expenditures for software development, including
both capitalized and noncapitalized portions, for 1994 and 1993
were $26,897,000 and $19,432,000, respectively. These amounts
exclude amortization. Capitalized software costs were
$8,131,000 and $6,181,000 for 1994 and 1993, respectively. The
increase in aggregate expenditures for software development in
1994 was due to development of more clinical information system
products to complement the existing product line. The
percentage of costs capitalized should remain fairly constant as
the Company continues to develop new products.
General and Administrative - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses, and professional
fees. These expenses as a percent of total revenues were 8% and
7% for 1994 and 1993, respectively.
Interest Expense - Net interest expense was considerably higher
in 1994 than 1993. This increase in interest expense was due to
financing the $20,000,000 purchase of the Company's headquarters
complex. The financing initially consisted of a term loan for
$17,425,000, with the remainder provided by additional borrowing
under the Company's revolving line of credit. On July 29, 1994,
the Company issued $30,000,000 in Senior Notes bearing an
interest rate of 8.3%. The proceeds of the Senior Notes were
used to repay the term loan and reduce the outstanding
borrowings under the revolving line of credit. The remaining
proceeds will be used for capital improvements to the
headquarters complex. The higher interest expense was offset by
a reduction in the Company's rent expense and an increase in
lease revenues from unrelated parties.
Income Taxes - The Company's effective tax rates were 39.9% and
39.6% for 1994 and 1993, respectively, which were not
significantly different from the combined federal and state
statutory rates.
Quarterly Results
Quarterly Results - The Company's quarterly revenues and net
earnings historically have been variable and cyclical. The
variability is attributable primarily to the number and size of
project milestone events in any fiscal quarter. The Company
expects the fluctuation in quarterly financial results to
continue.
Liquidity and Capital Resources
Liquidity and Capital Resources - The Company's liquidity
position remains strong, with total cash and cash equivalents of
$8,640,000 and short-term investments of $103,478,000 at
December 30, 1995 and working capital of $174,064,000 compared
to cash and cash equivalents of $5,984,000 and short-term
investments of $9,321,000 at December 31, 1994, and working
capital of $52,370,000. During August 1995, the Company sold
3,716,000 shares of common stock in a public offering. The
proceeds of this sale, net of underwriting discounts and
commissions and expenses, were $108,287,000. Prior to the
public offering the Company financed its operations, capital
expenditures (other than the purchase of the Kansas City
headquarters complex and its related capital improvements), and
working capital from internally generated funds and bank
borrowings. The Company has $18,000,000 of long-term, revolving
credit from banks, all of which was available as of December 30,
1995.
On April 19, 1994, the Company purchased its Kansas City
headquarters complex for $20,000,000. The purchase was
initially funded by bank borrowings. The purchase has no
material effect on operating cash flow, since the reduction in
lease payments and increase in net rental income approximates
the debt service payments.
On July 29, 1994, the Company issued $30,000,000 of Senior
Notes, due in 2004. The proceeds were used to repay the bank
borrowings related to the purchase of the Company's headquarters
complex and retire existing debt. The interest is paid
semiannually; principal is due in five equal installments
beginning in 2000.
The Company generated cash of $15,329,000, $18,949,000, and
$15,856,000, from operations in 1995, 1994, and 1993,
respectively. Cash flow from operations in 1994 increased
primarily because of the increase in net earnings and decreased
in 1995 due primarily to an increase in receivables.
Revenues provided under support and maintenance agreements of
the Company represent recurring cash flows. Support and
maintenance revenues increased 19%, 24%, and 25% in 1995, 1994,
and 1993, respectively, and the Company expects these revenues
to continue to grow as the base of installed systems grows.
The Company believes its present cash and cash equivalent
position, together with cash generated from operations and the
current bank borrowing facility, will be sufficient to meet
anticipated cash requirements.
Inflation - The effects of inflation were minimal on the
Company's business.
Recent Accounting Pronouncement - Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123) will require pro forma disclosures
in 1996 of net income and earnings per share as if a new
accounting method based on estimated fair value of employee
stock options had been adopted. The Company has not yet decided
if the optional accounting treatment proposed, Statement 123,
will be adopted.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes required by this
Item are submitted as a separate part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on
May 14, 1996, contains under the caption "Election of Directors"
certain information required by Item 10 of Form 10-K and such
information is incorporated herein by this reference. The
information required by Item 10 of Form 10-K as to executive
officers is set forth in Item 4A of Part I hereof.
The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on
May 14, 1996, contains under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" certain
information required by Item 10 of Form 10-K and such
information is incorporated herein by this reference.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on
May 14, 1996, contains under the caption "Executive
Compensation" the information required by Item 11 of Form 10-K
and such information is incorporated herein by this reference
(except that the information set forth under the following sub
captions is expressly excluded from such incorporation:
"Executive Compensation and Stock Option Committee Report" and
"Company Performance").
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on
May 14, 1996, contains under the caption "Voting Securities and
Principal Holders Thereof" the information required by Item 12
of Form 10-K and such information is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on
May 14, 1996, contains under the caption "Certain Transactions"
the information required by Item 13 of Form 10-K and such
information is incorporated herein by this reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Financial Statements.
(1) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial
Statements
Consolidated Balance Sheets -
December 30, 1995 and December 31, 1994
Consolidated Statements of Earnings -
Years Ended December 30, 1995, and December 31, 1994 and 1993
Consolidated Statements of Stockholders'
Equity - Years Ended December 30, 1995, and December 31,
1994 and 1993
Consolidated Statements of Cash
Flows - Years Ended December 30, 1995, and December 31,
1994 and 1993
Notes to Consolidated Financial Statements
(2) The following financial statement,
schedule and independent auditors' report
on financial statement schedule of the
Registrant for the three-year period ended
December 30, 1995 are included herein:
Schedule II - Valuation and Qualifying Accounts,
Independent Auditors' Report on Consolidated
Financial Statement Schedule.
All other schedules are omitted, as the required
information is inapplicable or the information is presented in
the consolidated financial statements or related notes.
(3) The exhibits required to be filed by
this item are set forth below:
Number Description
- ------ -----------
3(a)(i) Restated Certificate of Incorporation, as amended
through December 31, 1993, (filed as Exhibit 3(a) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 and hereby incorporated by
reference).
3(a)(ii) Amendment to the Restated Certificate of Incorporation
(filed as Exhibit 3(a) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, and
hereby incorporated by reference).
3(b) Bylaws, as amended (filed as Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the six
months ended June 30, 1995, and hereby incorporated by
reference).
4(a) Reference is made to the Restated Certificate of
Incorporation and Bylaws of Registrant described above
under 3(a) and 3(b), respectively.
4(b) Specimen stock certificate (filed as Exhibit 4(a)
to Registrant's Registration Statement on Form S-8
(File No. 33-15156) and hereby incorporated herein by
reference).
4(c) Note Agreement between Cerner Corporation,
Principal Mutual Life Insurance Company, and
Principal National Life Insurance Company dated July
1, 1994, (filed as Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, and hereby incorporated by
reference.
4(d) Credit Agreement between Cerner Corporation,
Cerner Properties, Inc. Mark Twain Kansas Bank, and
Harris Trust & Savings Bank dated April 18, 1994,
(filed as Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1994, and hereby incorporated by reference).
10(a) Employment Agreement, dated January 1, 1990,
between Clifford W. Illig and Registrant (filed as an
Exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, and hereby
incorporated herein by reference).*
10(b) Employment Agreement, dated January 1, 1990,
between Neal L. Patterson and Registrant (filed as an
Exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, and hereby
incorporated herein by reference).*
10(c) Standard Volume Agreement, dated July 6, 1989,
between Digital Equipment Corporation and Registrant
(filed as Exhibit 10(g) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989, and
hereby incorporated herein by reference).
10(d) Incentive Stock Option Plan C of Registrant
(filed as Exhibit 10(f) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, and
hereby incorporated herein by reference).*
10(e) Indemnification Agreements between the Registrant
and Neal L. Patterson, Clifford W. Illig, Gerald E.
Bisbee, Jr., David J. Hart, Thomas C. Tinstman, David
M. Margulies and Charles S. Runnion, III (filed as
Exhibit 10(i) to Registrant's Annual report on Form 10-
K for the year ended December 31, 1992, and
incorporated herein by reference).*
10(f) Amended Non-Qualified Stock Option Plan of
Registrant (filed as Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
July 1, 1995, and hereby incorporated herein by
reference).*
10(g) Employment Agreement dated February 22, 1991,
between Cerner Corporation and David M. Margulies,
M.D. (filed as Exhibit 10(1) to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991, and hereby incorporated herein by reference).*
10(h) Incentive Stock Option Agreement (Non-Standard
Vesting) dated February 22, 1991, between Cerner
Corporation and David M. Margulies, M.D. (filed as
Exhibit 10(m) to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1991, and hereby
incorporated herein by reference).*
10(i) Stock Option Agreement (Non-Qualified-Milestone)
dated February 22, 1991, between Cerner Corporation
and David M. Margulies, M.D. (filed as Exhibit 10(n)
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991, and hereby incorporated
herein by reference).*
10(j) Cerner East Deferred Payout Plan dated March 7,
1991, for the benefit David M. Margulies, M.D. and
Edwin D. Trautman (filed as Exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991, and hereby incorporated
herein by reference).*
10(k) Non-Qualified Stock Option Agreement dated
February 19, 1991, between Cerner Corporation and
David J. Hart (filed as Exhibit 10(q) to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1991, and hereby incorporated herein by
reference).*
10(l) Stock Option Agreement dated May 15, 1990,
between Cerner Corporation and Gerald E. Bisbee, Jr.
(filed as Exhibit 10(r) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991, and
hereby incorporated herein by reference).*
10(m) Stock Option Agreement dated May 15, 1990,
between Cerner Corporation and Thomas C. Tinstman
(filed as Exhibit 10(s) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991, and
hereby incorporated herein by reference).*
10(n) Cerner Performance Plan for 1994 (filed as
Exhibit 10(u) to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1994, and hereby
incorporated herein by reference).*
10(o) Non-Qualified Stock Option Agreement dated July
20, 1994, between the Registrant and Alan E. Dietrich
(filed as Exhibit 10(o) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and
hereby incorporated herein by reference).*
10(p) Incentive Stock Option Agreement dated September
12, 1990, between the Registrant and Alan E. Dietrich
(filed as Exhibit 10(p) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and
hereby incorporated herein by reference).*
10(q) Incentive Stock Option Agreement dated August 22,
1991, between the Registrant and Jeffrey C. Reene
(filed as Exhibit 10(q) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and
hereby incorporated herein by reference).*
10(r) Incentive Stock Option Agreement dated May 15,
1990, between the Registrant and Gary W. Willett
(filed as Exhibit 10(r) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and
hereby incorporated herein by reference).*
10(s) Incentive Stock Option Agreement dated February 27,
1985, between the Registrant and Charles O.
Whitcraft (filed as Exhibit 10(s) to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1994, and hereby incorporated herein by
reference).*
10(t) Incentive Stock Option Agreement dated May 15,
1990, between the Registrant and Charles O. Whitcraft
(filed as Exhibit 10(t) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and
hereby incorporated herein by reference).*
10(u) Non-Qualified Stock Option Agreement between the
Registrant and Michael E. Herman (filed as Exhibit
10(b) to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended July 1, 1995, and hereby
incorporated herein by reference).*
10(v) Non-Qualified Stock Option Agreement between the
Registrant and Clifford W. Illig (filed as Exhibit
10(c) to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended July 1, 1995, and hereby
incorporated herein by reference).*
10(w) Non-Qualified Stock Option Agreement between the
Registrant and Neal L. Patterson (filed as Exhibit
10(d) to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended July 1, 1995, and hereby
incorporated herein by reference).*
10(x) Non-Qualified Stock Option Agreement between the
Registrant and Jack A. Newman, Jr.*
10(y) Non-Qualified Stock Option Agreement between the
Registrant and Thomas C. Tinstman, M.D.*
10(z) Cerner Performance Plan for 1995.*
10(aa) Real Estate Sales Contract dated April 18, 1994,
between Northtown Devco and Cerner Corporation (filed
as Exhibit 10(c) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, and
hereby incorporated herein by reference).
10(bb)(i) Standard Form of Agreement between Owner and
Contractor dated September 1, 1994, between Cerner
Properties, Inc. and J. E. Dunn Construction Company
(filed as Exhibit 10(w)(i) to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, and hereby incorporated herein by reference).
10(bb)(ii) Supplement to General Conditions of the
Contractor for Construction dated September 1, 1994,
between Cerner Properties, Inc. and J. E. Dunn
Construction Company (filed as Exhibit 10(w)(ii) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, and hereby incorporated
herein by reference).
10(bb)(iii) Amendment No. 1 to the Agreement dated October 24,
1994, between Cerner Properties, Inc. and J. E.
Dunn Construction Company (filed as Exhibit 10(w)(iii)
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, and hereby incorporated
herein by reference).
10(cc) Standard Form of Agreement Between Owner and Architect
dated April 29, 1994, between Cerner Properties, Inc.
and The Hollis & Miller Group, Inc. (filed as Exhibit
10(x) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, and hereby
incorporated herein by reference).
11 Computation of Registrant's Earnings Per Share.
22 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
* Management contracts or compensatory plans or arrangements
required to be identified by Item 14(a)(3).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Registrant during
the fourth quarter of the fiscal year ended December 30, 1995.
(c) Exhibits.
The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted
as a separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CERNER CORPORATION
Dated: March 28, 1996 By: /s/Neal L. Patterson
-------------- ---------------------
Neal L. Patterson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signature and Title Date
------------------- ----
/s/Neal L. Patterson March 28, 1996
- ------------------------------ --------------
Neal L. Patterson, Chairman of the Board
and Chief Executive Officer (Principal Executive Officer)
/s/Clifford W. Illig March 28, 1996
- ------------------------------ --------------
Clifford W. Illig, President, Chief
Operating Officer and Director
/s/Marc G. Naughton March 28, 1996
- ------------------------------ --------------
Marc G. Naughton, Principal Financial
and Accounting Officer
/s/David M. Margulies, M.D. March 28, 1996
- ------------------------------ --------------
David M. Margulies, M.D., Director
/s/Michael E. Herman March 28, 1996
- ------------------------------ --------------
Michael E. Herman, Director
<PAGE>
Signature and Title Date
------------------- ----
/s/Gerald E. Bisbee, Jr. March 28, 1996
- ------------------------------ --------------
Gerald E. Bisbee, Jr., Director
/s/Charles S. Runnion, III March 28, 1996
- ------------------------------ --------------
Charles S. Runnion, III, Director
/s/Thomas C. Tinstman, M.D. March 28, 1996
- ------------------------------ --------------
Thomas C. Tinstman, M.D., Director
/s/David J. Hart March 28, 1996
- ------------------------------ --------------
David J. Hart, Director
<PAGE>
Independent Auditors' Report
- ----------------------------------------------------------------
The Board of Directors and Stockholders
Cerner Corporation:
We have audited the accompanying consolidated balance sheets of
Cerner Corporation and subsidiaries as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 30, 1995. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Cerner Corporation and subsidiaries as of December
30, 1995 and December 31, 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 30, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 10, 1996
Management's Report
- ----------------------------------------------------------------
The management of Cerner Corporation is responsible for the
consolidated financial statements and all other information
presented in this report. The financial statements have been
prepared in conformity with generally accepted accounting
principles appropriate in the circumstances, and, therefore,
included in the financial statements are certain amounts based
on management's informed estimates and judgments. Other
financial information in this report is consistent with that in
the consolidated financial statements. The consolidated
financial statements have been audited by Cerner Corporation's
independent certified public accountants and have been reviewed
by the audit committee of the Board of Directors.
<PAGE>
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 8,640 5,984
Short-term investments 103,478 9,321
Receivables 98,154 65,148
Inventory 2,246 2,218
Prepaid expenses and other 4,393 979
------- -------
Total current assets 216,911 83,650
Property and equipment, net 53,693 41,129
Software development costs, net 22,885 18,784
Intangible assets, net 4,414 6,390
Noncurrent receivables 4,097 4,508
Other assets 1,945 1,949
------- -------
$ 303,945 156,410
------- -------
------- -------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 14,932 13,485
Current installments of long-term debt 130 160
Advanced billings 6,162 3,737
Deferred income taxes 13,946 6,652
Accrued payroll and tax withholdings 5,112 4,689
Other accrued expenses 2,565 2,557
------- -------
Total current liabilities 42,847 31,280
Long-term debt, net 30,104 30,235
Deferred income taxes 9,620 9,118
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
33,001,973 shares issued in 1995 and
28,508,614 shares in 1994 330 285
Additional paid-in capital 143,876 30,807
Retained earnings 82,874 60,353
Treasury stock, at cost (513,018 shares in 1995 and 1994 (5,693) (5,693)
Foreign currency translation adjustment (13) 25
-------- --------
Total stockholders' equity 221,374 85,777
------- -------
------- -------
Commitments (Note 11)
$ 303,945 156,410
------- -------
------- -------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Earnings
- -----------------------------------------------------------------------------
For the years ended December 30, 1995, December 31, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
System sales $ 129,917 108,322 84,024
Support and maintenance 49,351 41,322 33,200
Other 7,633 6,273 3,348
------- ------- -------
Total revenues 186,901 155,917 120,572
------- ------- -------
Costs and expenses:
Cost of revenues 52,270 46,426 43,921
Sales and client service 49,889 39,857 28,248
Software development 30,193 22,688 16,000
General and administrative 17,284 13,167 8,073
------- ------- -------
Total costs and expenses 149,636 122,138 96,242
------- ------- -------
Operating earnings 37,265 33,779 24,330
Interest expense, net 45 1,328 210
------- ------- -------
Earnings before income taxes 37,220 32,451 24,120
Income taxes 14,699 12,950 9,562
------- ------- -------
Net earnings $ 22,521 19,501 14,558
------- ------- -------
------- ------- -------
Primary earnings per share $ .72 .66 .50
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Stockholders' Equity
- ----------------------------------------------------------------------------
For the years ended December 30, 1995, December 31, 1994, and 1993
<TABLE>
<CAPTION>
Foreign
Additional Treasury currency
Common Stock paid-in Retained stock translation
Shares Amount capital earnings amount adjustment Total
----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 26,171 $ 261 17,848 26,294 (5,693) (67) 38,643
Exercise of options 1,038 10 980 - - - 990
Issuance of stock grants - - 8 - - - 8
Issuance of stock for acquisition 520 6 6,767 - - - 6,773
Tax benefit from disqualifying
dispositions of stock options - - 3,200 - - - 3,200
Foreign currency translation
adjustment - - - - - 58 58
Net earnings - - - 14,558 - - 14,558
-----------------------------------------------------------------
Balance at December 31, 1993 27,729 277 28,803 40,852 (5,693) (9) 64,230
-----------------------------------------------------------------
Exercise of options 778 6 981 - - - 987
Issuance of stock grants 2 2 23 - - - 25
Tax benefit from disqualifying
dispositions of stock options - - 1,000 - - - 1,000
Foreign currency translation
adjustment - - - - - 34 34
Net earnings - - - 19,501 - - 19,501
-----------------------------------------------------------------
Balance at December 31, 1994 28,509 285 30,807 60,353 (5,693) 25 85,777
-----------------------------------------------------------------
Exercise of options 777 8 1,484 - - - 1,492
Issuance of stock grants - - 10 - - - 10
Common shares sold in public
offering, net of issuance costs 3,716 37 108,250 - - - 108,287
Tax benefit from disqualifying
dispositions of stock options - - 3,325 - - - 3,325
Foreign currency translation
adjustment - - - - - (38) (38)
Net earnings - - - 22,521 - - 22,521
-----------------------------------------------------------------
Balance at December 30, 1995 33,002 $ 330 143,876 82,874 (5,693) (13) 221,374
-----------------------------------------------------------------
-----------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------
For the years ended December 30, 1995, December 31, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,521 19,501 14,558
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,218 10,062 6,434
Issuance of stock as compensation 10 25 8
Provision for deferred income taxes 7,796 8,017 7,500
Tax benefit from disqualifying
dispositions of stock options 3,325 1,000 3,200
Loss on disposal of capital equipment 42 165 --
Changes in assets and liabilities:
Receivables (32,595) (23,221) (13,426)
Inventory (28) (1,194) 821
Prepaid expenses and other (2,263) 1,213 391
Accounts payable 1,447 1,969 2,901
Accrued income taxes -- -- (5,791)
Other current liabilities 2,856 1,412 (740)
--------- --------- --------
Total adjustments (7,192) (552) 1,298
--------- --------- --------
Net cash provided by operating activities 15,329 18,949 15,856
--------- --------- --------
Cash flows from investing activities:
Purchase of capital equipment (10,620) (11,291) (7,078)
Purchase of land, building, and improvements (8,266) (20,939) --
Proceeds on disposal of capital equipment -- 21 --
Capitalized software development costs (9,210) (8,131) (6,181)
Acquisition of business -- -- (585)
--------- --------- --------
Net cash used in investing activities (28,096) (40,340) (13,844)
--------- --------- --------
Cash flows from financing activities:
Net borrowings (payments) under short-term notes payable -- (639) 388
Proceeds from issuance of long-term debt 6,745 50,273 109
Repayment of long-term debt (6,906) (30,743) (511)
Proceeds from public offering, net of expenses 108,287 -- --
Proceeds from exercise of options 1,492 987 990
--------- --------- --------
Net cash provided by financing activities 109,618 19,878 976
--------- -------- --------
Foreign currency translation adjustment (38) 34 58
--------- -------- --------
Net increase (decrease) in cash, cash equivalents, and short-
term investments 96,813 (1,479) 3,046
Cash, cash equivalents, and short-term investments at beginning
of year 15,305 16,784 13,738
--------- -------- --------
Cash, cash equivalents, and short-term investments at end of
year $ 112,118 15,305 16,784
--------- -------- --------
--------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,607 1,110 686
Income taxes, net of refund 4,016 3,574 4,499
Noncash investing and financing activities:
Acquisition of business $ -- -- 6,773
Acquisition of equipment through capital leases -- 386 139
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
- ----------------------------------------------------------------------------
1 Summary of Significant Accounting Policies
(a) Principles of Consolidation - The consolidated financial
statements include the accounts of Cerner Corporation and its
wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(b) Revenue Recognition - Revenues are derived primarily from
the sale of clinical information systems. In addition, revenue
is generated from servicing installed clinical information
systems, which generally include support of software and
maintenance of hardware. The Company also derives revenue from
the sale of computer hardware.
Clinical information system sales contracts are negotiated
separately and generally include the licensing of the Company's
clinical information system software and the sale of computer
hardware. Clinical information system sales contracts are
noncancelable and provide for a right of return only in the
event the system fails to meet the performance criteria set
forth in the contracts. The Company recognizes revenue from
sales of clinical information systems using a percentage-of-
completion method based on meeting key milestone events over the
term of the contracts in accordance with Statement of Position
91-1, "Software Revenue Recognition."
Revenue from the licensing of additional software is recognized
upon installation at the client's site. Revenue from the sale
of computer hardware is recognized upon shipment. Revenue from
ongoing software support and equipment maintenance is recognized
as the services are rendered.
(c) Software Development Costs - Costs incurred internally in
creating computer software products are expensed until
technological feasibility has been established upon completion
of a detail program design. Thereafter, all software
development costs are capitalized and subsequently reported at
the lower of amortized cost or net realizable value.
Capitalized costs are amortized based on current and future
revenue for each product with minimum annual amortization equal
to the straight-line amortization over the estimated economic
life of the product. The Company is amortizing capitalized
costs on a straight-line basis over five years. During the
years ended December 30, 1995, December 31, 1994 and 1993, the
Company capitalized $9,210,000, $8,131,000, and $6,181,000,
respectively, of total software development costs of
$33,957,000, $26,897,000, and $19,432,000, respectively.
Amortization expense of capitalized software development costs
for the years ended December 30, 1995, December 31, 1994, and
1993, was $5,109,000, $3,918,000, and $2,652,000, respectively,
and accumulated amortization was $18,963,000, $13,854,000, and
$9,936,000, respectively.
(d) Inventory - Inventory consists primarily of computer
hardware held for resale and is recorded at the lower of cost
(first-in, first-out) or market.
(e) Property and Equipment - Property, equipment, and leasehold
improvements are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over
periods of 5 to 39 years. Amortization of leasehold
improvements is computed using a straight-line method over the
lease terms, which range from periods of two to five years.
(f) Earnings Per Share - Earnings per share is based on the
weighted average number of common shares and common share
equivalents outstanding. Common share equivalents consist of
shares issuable upon exercise of stock options using the
treasury stock method. The computation of fully diluted
earnings per share reflects additional dilution under the
treasury stock method when the Company's stock price at the end
of a reporting period exceeds the average price. Fully diluted
earnings per share is not materially different from primary
earnings per share. Weighted average shares outstanding
utilized in the computation of primary earnings per share were
31,448,053, 29,762,208, and 29,158,356, and fully diluted
earnings per share were 31,448,053, 29,807,504, and 29,285,798,
for the years ended December 30, 1995, December 31, 1994, and
1993, respectively.
(g) Stock Split - On July 17, 1995, the Company's Board of
Directors declared a two-for-one stock split in the form of a
one hundred percent (100%) stock dividend payable on August 4,
1995, to stockholders of record July 24, 1995. All share and
per share data have been restated for all periods presented
herein to reflect the stock split.
(h) Foreign Currency - Assets and liabilities in foreign
currencies are translated into dollars at rates prevailing at
the balance sheet date. Revenues and expenses are translated at
average rates for the year. The net exchange differences
resulting from these translations are reported in stockholders'
equity. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of
earnings. The net gain (loss) resulting from foreign currency
transactions was $33,000, $107,000, and ($83,000), in 1995,
1994, and 1993, respectively.
(i) Income Taxes - Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
(j) Goodwill - Excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over
eight years. Accumulated amortization was $1,355,000 at
December 30, 1995 and $916,000 at December 31, 1994. The
Company assesses the recoverability of goodwill based on
forecasted undiscounted future operating cash flows.
(k) Reclassifications - Certain prior year amounts have been
reclassified to conform with current year presentation.
(l) Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
2 Acquisition
On November 1, 1993, the Company completed the acquisition of
Megasource, Inc. through the merger of Megasource, Inc. into a
new wholly owned subsidiary of the Company. The Company issued
519,540 shares of common stock, valued at approximately
$6,773,000, in the merger. Megasource, Inc. was engaged in the
design, sale, and support of several clinical information
systems, the most significant of which was its pharmacy system.
The acquisition has been accounted for as a purchase with the
operating results of Megasource, Inc. included in the Company's
consolidated statement of earnings from November 1, 1993. The
Company has determined that the consolidated results of
operations as if the acquisition had occurred at the beginning
of 1993 would have had no material effect on the overall results
of the Company.
3 Cash and Short-term investments
Cash, cash equivalents, and short-term investments consist of
the following:
<TABLE>
<CAPTION>
1995 1994
------------------------
(In thousands)
<S> <C> <C>
Cash and cash equivalents $ 8,640 5,984
Repurchase agreements 916 659
Commercial paper -- 3,982
Variable rate securities 500 500
Fixed rate securities 101,212 3,330
Certificates of deposit 850 850
------- -------
Total cash, cash equivalents, and short-term
investments $ 112,118 15,305
------- -------
------- -------
</TABLE>
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115).
Under Statement 115, debt and marketable equity securities are
classified in one of three categories: trading, available for
sale or held-to-maturity. The Company classifies all of its
investment securities as held-to-maturity. Held-to-maturity
securities are those securities in which the Company has the
positive intent and ability to hold until maturity. Held-to-
maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. There was
no financial statement impact upon adoption of Statement 115.
All cash equivalents and short-term investments held at December
30, 1995 mature within 90 days. The amortized cost of cash
equivalents and short-term investments approximates fair value.
4 Receivables
Receivables consist of accounts receivable and contracts
receivable. Accounts receivable represent recorded revenues
that have been billed. Contracts receivable represent recorded
revenues that are billable by the Company at future dates under
the terms of a contract with a client. Contract receivables
that are not expected to be collected within one year are
classified as noncurrent. Billings on contracts in excess of
related revenues recognized under the percentage of completion
method are recorded as advanced billings. A summary of current
receivables is as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------
(In thousands)
<S> <C> <C>
Current receivables:
Accounts receivable $ 49,529 37,019
Contracts receivable 48,625 28,129
------- -------
Total current receivables $ 98,154 65,148
------- -------
</TABLE>
Substantially all receivables are derived from sales and related
support and maintenance of the Company's clinical information
systems to healthcare providers located throughout the United
States and in certain foreign countries. Included in
receivables at December 30, 1995 and December 31, 1994, are
amounts due from healthcare providers located in foreign
countries of $3,821,000 and $3,777,000 respectively.
Consolidated revenues include foreign sales of $8,823,000,
$13,274,000, and $8,417,000, for the years ended December 30,
1995, December 31, 1994, and 1993, respectively.
The Company provides an allowance for estimated uncollectible
accounts based upon historical experience and management's
judgment. At December 30, 1995 and December 31, 1994 the
estimated allowance for uncollectible accounts was $1,109,000
and $734,000, respectively.
The fair value of the Company's noncurrent receivables is
estimated to be $3,808,000, based on current interest rates
offered to the Company for debt of the same maturities.
5 Property and Equipment
A summary of property, equipment, and leasehold improvements
stated at cost, less accumulated depreciation and amortization,
is as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------
(In thousands)
<S> <C> <C>
Furniture and fixtures $ 13,661 9,942
Computer equipment 22,373 18,163
Marketing equipment 1,240 913
Communications equipment 1,859 1,612
Leasehold improvements 6,105 4,319
Capital lease equipment 600 1,055
Land, building, and improvements 29,213 20,939
------- -------
75,051 56,943
Less accumulated depreciation and amortization 21,358 15,814
------- -------
Total property and equipment, net $ 53,693 41,129
------- -------
------- -------
</TABLE>
6 Indebtedness
The Company has a loan agreement with two banks which provides
for a long-term revolving line of credit for working capital
purposes. The long-term revolving line of credit is unsecured
and requires monthly payments of interest only. Interest is
payable at the Company's option at a rate based on prime (8.5%
at December 30, 1995) or LIBOR plus 1.75% (7.59% at December 30,
1995). The interest rate may be reduced by up to .5% if certain
net worth ratios are maintained. At December 30, 1995, the
Company had no outstanding borrowings under this agreement and
had $18,000,000 available for working capital purposes. The
agreement contains certain net worth, current ratio, and fixed
charge coverage covenants and provides certain restrictions on
the Company's ability to borrow, incur liens, sell assets, and
pay dividends. A commitment fee of 3/16% is payable quarterly
on the unused portion of the revolving line of credit.
The Company also had a loan agreement with two banks that
provided for a term loan of $17,425,000 to fund the $20,000,000
purchase of its Kansas City headquarters complex. On July 29,
1994, the Company issued $30,000,000 of Senior Notes. The note
proceeds were used to repay the term loan, which then
terminated, and reduce borrowings under the revolving line of
credit.
The Senior Notes are payable in five equal annual installments
beginning in August 2000. Interest is payable on February 1 and
August 1 at a rate of 8.3%. The note agreement contains certain
net worth, current ratio, and fixed charge coverage covenants
and provides certain restrictions on the Company's ability to
borrow, incur liens, sell assets, and pay dividends.
The fair value of the Company's Senior Notes is estimated to be
$32,400,000, based on the quoted market prices for similar
issues offered to the Company for debt of the same remaining
maturities. The Company estimates that the fair value of the
long-term portion of capital leases approximates the carrying
value.
Long-term debt is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------
(In thousands)
<S> <C> <C>
Senior Notes, 8.3% due 2004 $ 30,000 30,000
Obligation under capital lease agreements,
interest at 6 - 10%
payable in monthly installments
through August 1997,
secured by equipment 234 395
------- -------
30,234 30,395
Less current installments 130 160
------- -------
Long-term debt, excluding current
installments $ 30,104 30,235
------- -------
------- -------
</TABLE>
Scheduled maturities of long-term debt (in thousands) at
December 30, 1995, are as follows:
Years
------------
1996 $ 130
1997 104
2000 and thereafter 30,000
--------
$ 30,234
--------
--------
7 Interest Income and Expense
A summary of interest income and expense is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
(In thousands)
<S> <C> <C> <C>
Interest income $ 2,380 542 438
Interest expense (2,425) (1,870) (648)
-------- -------- -------
Interest expense, net $ (45) (1,328) (210)
-------- -------- -------
-------- -------- -------
</TABLE>
8 Stock Options
The Company has three incentive stock option plans and a non-
qualified stock option plan. Stock Option Plan A (Plan A) was
approved by the Board of Directors on September 20, 1983, and
expired on September 20, 1993. Stock Option Plan B (Plan B) was
approved by the Board of Directors on November 30, 1983, and
expired on November 30, 1993. Stock Option Plan C (Plan C) was
approved by the Board of Directors on May 18, 1993. Stock
Option Plan D (Plan D), formerly the Non-Qualified Stock Option
Plan, was approved by the Board of Directors on February 19,
1991.
All associate stock options authorized under Plan A were granted
prior to December 31, 1983. Options granted under Plan A were
exercisable through September 20, 1993, at $.19 per share (fair
market value on the date of grant) and contained restrictions as
to transferability and exercisability after termination of
employment. Transactions for associate stock options under Plan
A are summarized as follows:
<TABLE>
<CAPTION>
Number of
shares Exercise Shares
under option price exercisable
---------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1992 238,400 $ .19 238,400
Exercised (238,400) .19
--------- --------- ---------
Outstanding, December 31, 1993,
1994, and December 30, 1995 - $ - -
---------
---------
</TABLE>
Under Plan B, the Company could grant to associates options to
purchase shares of common stock through November 30, 1993. The
options are exercisable at the fair market value on the date of
grant for a period determined by the Board of Directors (not
more than ten years from the date granted). The options contain
restrictions as to transferability and exercisability after
termination of employment. Transactions for associate stock
options under Plan B are summarized as follows:
<TABLE>
<CAPTION>
Number of
shares Exercise Shares
under option price exercisable
-----------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1992 2,895,776 $ .50-12.07 1,634,408
Granted 142,000 8.63-17.56
Canceled (49,200) 1.35-10.69
Exercised (719,162) .50- 2.25
-----------
Outstanding, December 31, 1993 2,269,414 .50-17.56 1,469,334
Canceled (36,800) 1.35
Exercised (697,560) .50- 4.47
-----------
Outstanding, December 31, 1994 1,535,054 .50-17.56 1,129,454
Canceled (20,000) 2.25-17.53
Exercised (549,516) .50-17.56
-----------
Outstanding, December 30, 1995 965,538 $ .50-17.56 797,938
-----------
-----------
</TABLE>
Under Plan C, the Company may grant to associates options to
purchase shares of common stock through May 18, 2003. The
options are exercisable at the fair market value on the date of
grant for a period determined by the Board of Directors (not
more than ten years from the date granted). The options contain
restrictions as to transferability and exercisability after
termination of employment. Transactions for associate stock
options under Plan C are summarized as follows:
<TABLE>
<CAPTION>
Number of
shares Exercise Shares
under option price exercisable
-------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1993 - $ - -
Granted 95,000 12.56-18.88
Canceled (600) 14.13
--------
Outstanding, December 31, 1994 94,400 12.56-18.88 -
Exercised (4,000) 12.56
Canceled (200) 14.13
--------
Outstanding, December 30, 1995 90,200 $ 12.56-18.88 14,000
--------
--------
</TABLE>
Under Plan D, the Company may grant to associates, consultants,
or advisors options to purchase shares of common stock through
January 1, 2000. The options are exercisable at a price and
during a period determined by the Stock Option Committee.
Options under this plan currently vest over periods of up to ten
years.
Transactions under Plan D and other non-qualified stock option
agreements are summarized as follows:
<TABLE>
<CAPTION>
Number of
shares Exercise Shares
under option price exercisable
-----------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1992 584,000 $ 1.25- 1.53 228,000
Exercised (80,000) 1.35
----------
Outstanding, December 31, 1993 504,000 1.25- 1.53 212,000
Granted 315,832 12.56-18.88
Exercised (80,000) 1.35
----------
Outstanding, December 31, 1994 739,832 1.25-18.88 244,000
Granted 1,198,616 18.13-37.75
Canceled (40,000) 1.34
Exercised (223,400) 1.34-19.44
----------
Outstanding, December 30, 1995 1,675,048 $ 1.25-37.75 97,240
----------
----------
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (Statement 123) will require pro
forma disclosures in 1996 of net income and earnings per share
as if a new accounting method based on estimated fair value of
employee stock options had been adopted. The Company has not
yet decided if the optional accounting treatment proposed,
Statement 123, will be adopted.
9 Income Taxes
Income taxes for the years ended December 30, 1995 and December 31,
1994, and 1993, consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,272 3,740 1,767
State 798 692 333
Foreign (167) 501 (38)
------- ------- -------
Total current 6,903 4,933 2,062
------- ------- -------
Deferred:
Federal 6,850 7,043 6,531
State 946 919 969
Foreign -- 55 --
------- ------- -------
Total deferred 7,796 8,017 7,500
------- ------- -------
Total income tax expense $ 14,699 12,950 9,562
------- ------- -------
------- ------- -------
</TABLE>
Included in 1993 deferred income tax expense is approximately
$88,000 resulting from the increase in the statutory tax rate.
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise
to significant portions of deferred income taxes at December 30,
1995 and December 31, 1994, relate to the following:
<TABLE>
<CAPTION>
1995 1994
----------------------
(In thousands)
<S> <C> <C>
Deferred Tax Asset
Separate return net operating losses $ 2,389 --
Other 1,465 2,392
-------- --------
Total deferred tax assets 3,854 2,392
Less valuation allowance (1,189) (404)
-------- --------
Net deferred tax assets 2,665 1,988
-------- --------
Deferred Tax Liability
Software development costs $ (8,090) (6,776)
Contract and service revenues and costs (16,791) (9,840)
Depreciation and amortization (1,187) (789)
Other (163) (353)
-------- --------
Total deferred tax liability (26,231) (17,758)
-------- --------
Net deferred tax liability $ (23,566) (15,770)
-------- --------
-------- --------
</TABLE>
The valuation allowance for 1995 and 1994 was $1,189,000 and
$404,000 respectively. The valuation allowance is attributable
to the continued uncertainty of the future realization of
deferred tax assets generated mainly from losses recorded by
certain foreign operations.
The effective income tax rates for 1995, 1994, and 1993 were
39.4%, 39.9%, and 39.6%, respectively. These effective rates
differ from the federal statutory rate of 35% in 1995, 1994, and
1993 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------
(In thousands)
<S> <C> <C> <C>
Tax expense at statutory rates $ 13,027 11,358 8,442
State income tax, net of federal benefit 1,352 1,047 846
Other, net 320 545 274
------- ------ ------
Total income tax expense $ 14,699 12,950 9,562
------- ------ ------
------- ------ ------
</TABLE>
Income taxes payable at December 30, 1995 and December 31, 1994
and 1993, are reduced by the tax benefit resulting from
disqualifying dispositions of stock acquired under the Company's
stock option plans. The 1995, 1994, and 1993 benefits of
$3,325,000, $1,000,000, and $3,200,000, respectively, are
treated as increases to additional paid-in capital. Income
taxes payable as December 30, 1995 are also reduced by the use
of separate return net operating losses. The 1995 tax benefit
of $431,000 was treated as a reduction in goodwill.
10 Associate Stock Purchase Retirement Plan
The Company established the Cerner Corporation Associate Stock
Purchase Retirement Plan (the Plan) under Section 401(k) of the
Internal Revenue Code. All full-time associates are eligible to
participate. Participants may elect to make pre-tax
contributions from 1% to 15% of compensation to the Plan,
subject to annual limitations determined by the Internal Revenue
Service. Participants may direct contributions into mutual
funds, a money market fund, or a Company stock fund. The
Company makes matching contributions to the Plan, on behalf of
participants, in an amount equal to 20% of the participant's
contribution, limited to a maximum of $600 per participant. The
Company's expense for the plan amounted to $431,000, $316,000,
and $275,000 for 1995, 1994, and 1993, respectively.
11 Commitments
The Company is committed under operating leases for office space
through December 1999 and for computer equipment through
December 1996. Rent expense for office and warehouse space for
the Company's regional and international offices for 1995, 1994,
and 1993 was $1,192,000, $1,721,000, and $2,195,000,
respectively. Lease expense for computer equipment was $68,000,
$328,000, and $323,000, in 1995, 1994, and 1993, respectively.
Aggregate minimum future payments (in thousands) under these
noncancelable leases are as follows:
Years
----------------
1996 $ 1,539
1997 1,502
1998 1,279
1999 531
2000 180
12 Real Estate Lease Revenue
The Company leases space to unrelated parties in its Kansas City
headquarters complex under noncancelable operating leases.
Rental income from January 1, 1995 to December 30, 1995, was
$2,577,000. Future minimum lease revenues (in thousands) under
these noncancelable operating leases expiring through 2000 are
as follows:
Years
----------------
1996 $ 2,040
1997 1,695
1998 1,285
1999 1,018
2000 694
13 Stockholders' Equity
At December 30, 1995 and December 31, 1994, the Company had
1,000,000 shares of authorized but unissued preferred stock,
$.01 par value.
14 Quarterly Results (unaudited)
Selected quarterly financial data for 1995 and 1994 is set forth
below:
<TABLE>
<CAPTION>
Earnings
before Primary
income Net earnings
Revenues taxes earnings per share
-------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1995 Quarterly Results:
April 1 $ 43,192 7,817 4,541 .15
July 1 48,967 10,271 6,184 .21
September 30 41,724 5,775 3,491 .11
December 30 53,018 13,357 8,305 .25
-------- ------- -------
Total $ 186,901 37,220 22,521 .72
-------- ------- -------
-------- ------- -------
1994 Quarterly Results:
March 31 $ 30,515 4,724 3,002 .10
June 30 39,795 8,253 4,903 .17
September 30 40,933 8,387 5,069 .17
December 31 44,674 11,087 6,527 .22
-------- ------- -------
Total $ 155,917 32,451 19,501 .66
-------- ------- -------
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II
Cerner Corporation
Valuation and Qualifying Accounts
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions End of Period
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For Year Ended
December 31, 1994
Doubtful Accounts $ 534,268 $ 0 $ 100,000 $ 434,268
Sales Allowances $ 300,000 $ 0 $ 0 $ 300,000
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions End of Period
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For Year Ended
December 30, 1995
Doubtful Accounts
and Allowances $ 434,268 $ 674,750 $ 0 $ 1,109,018
Sales Allowances $ 300,000 $ 0 $ 300,000 $ 0
</TABLE>
INDEPENDENT AUDITORS' REPORT
----------------------------
ON FINANCIAL STATEMENT SCHEDULE
-------------------------------
The Board of Directors
Cerner Corporation:
Under date of February 10, 1996, we reported on the consolidated
balance sheets of Cerner Corporation and subsidiaries as of December
30, 1995 and December 31, 1994, and the related consolidated
statments of earnings, stockholders' equity and cash flows for each
of the years in the three-year period ended Decmeber 30, 1995. These
consolidated financial statements and our report thereon are included
in the Company's annual report on Form 10-K for the year 1995. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement
schedule as listed in Item 14(a)(2). This financial statement schedule
is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on
our audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information
set forth therein.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 10, 1996
CERNER CORPORATION PLAN D STOCK
OPTION AGREEMENT
THIS AGREEMENT, made and entered into this twenty-ninth day of
December, 1995 (the "Granting Date"), by and between CERNER
CORPORATION, a Delaware corporation (the "Company"), and Jack A.
Newman, Jr. (the "Optionee"),
WITNESSETH:
WHEREAS, the Stock Option Committee of the Board of Directors of
the Company (the "Committee") has determined that the Optionee is
eligible to receive an option to purchase shares of common stock
of the Company under the Company's Non-Qualified Stock Option
Plan (the "Plan");
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and other good and valuable
consideration, the parties hereto do hereby agree as follows:
1. Incorporation of the Plan. A copy of the Plan is
incorporated herein by reference and all of the terms,
conditions and provisions contained therein shall be deemed
to be contained in this Agreement.
2. Grant of Option. Pursuant to the authorization of the
Committee, and subject to the terms, conditions and
provisions contained in this Agreement, the Company hereby
grants to the Optionee an option (the "Option") to purchase
from the Company all or any part of an aggregate of One
Hundred Fifty Thousand (150,000) shares of Cerner Common
Stock at the purchase price of twenty and one half ($20.50)
per share.
The number of shares of common stock subject to the Option
and the purchase price per share shall be appropriately
adjusted to reflect any stock dividends, stock splits, split
ups or combinations of outstanding shares of common stock of
the Company. The date first written above shall be deemed
to be the granting date of this Option.
This Option grant is made in conjunction with the role of
Senior Vice President and Managing Director, Cerner 2000.
The definition and responsibilities of this role will be
based annually on the description incorporated in the then-
current Incentive Plan documentation or comparable document.
Future vesting of shares granted in this Option will be
evaluated as explained in paragraph 4.
3. Exercise in Installments. This option shall become
exercisable in installments ("Installment") as shown on
Exhibit A with the first Installment becoming exercisable
one year following the date of Associate's beginning
employment with Cerner and each subsequent Installment on
each of the succeeding nine anniversary dates of the first
Installment, subject to the vesting provisions of Paragraph 4.
If (i) one person or entity (other than one currently holding,
directly or indirectly, fifteen percent or more of the
Company's outstanding voting securities) acquires direct or
indirect voting control of sixty five percent (65%) or more
of the Company's outstanding voting securities (a "Change of
Control"), or (ii) Neal L. Patterson and Clifford W. Illig
are both no longer with the Company (a "Management Change"),
(a) prior to the First Installment Date, 37,500 option
shares shall become immediately exercisable by the Optionee,
(b) if a Change of Control or Management Change occurs
within the second year following the date of this agreement
then 55,000 option shares shall become immediately
exercisable and (c) if a Change of Control or Management Change
occurs in the third through fifth year following the date
of this agreement then, 75,000 option shares shall become
immediately exercisable.
4. Option Vesting and Termination. The Optionee may purchase
all or any portion of the shares subject to each Installment
at any time on or after the exercise dates set forth on Exhibit A.
This Option shall expire with respect to all shares of
Cerner Common Stock subject hereto at the earlier of (a)
twenty-five (25) years from the date first above written,
(b) Associate reaching the age of seventy (70) years or at
termination of the Associate's employment (other than
retirement of Associate from the Company at or after the age
of sixty-five) with the Company or any of its subsidiaries;
provided, however, that (i) if such termination occurs by
reason of the Optionee's death or disability, the Optionee,
or Optionee's estate, shall have three hundred sixty five
(365) calendar days following such date to exercise this
Option as to the number of shares exercisable on such
termination date and (ii) if such termination occurs by
reason of the Optionee's death or disability or dismissal by
the Company, other than dismissal resulting from a breach by
the Associate of any of the provisions of Associate's
Employment Agreement with the Company, the Associate's
performance of illegal, fraudulent or criminal acts or the
Associate's engaging in willful misconduct or gross
negligence in regard to the performance of Associate's
duties for the Company, this Option shall Vest as to the
shares subject to the next Installment following the date of
such termination and the Optionee, or Optionee's estate,
shall have three hundred sixty five (365) calendar days
following the date of such termination to exercise this
Option as to such shares. Associate shall be deemed to be
disabled if, in the opinion of the Board of Directors of the
company, the Associate has been unable to perform
Associate's assigned duties for a continuous period of one
hundred eighty (180) days.
This Option may be exercised by the Optionee delivering to
the Company a written notice of exercise along with either a
cash payment in the amount of the purchase price for such
shares, shares of Cerner stock having a fair market value
equal to the exercise price or by stating in the written
notice of exercise that the Optionee wishes a "cashless"
exercise. "Cashless" exercise means that only the net
option shares being exercised will be issued by Cerner. The
remainder will be treated as if they were sold at the
current market price in order to satisfy the purchase price
for the exercised shares.
5. Investment Purpose. By accepting this Option, the Optionee
agrees that any and all shares of stock purchased upon the
exercise of this Option will be purchased for investment
purposes, and not with a view to any distribution thereof,
and that each notice of the exercise of any portion of this
Option shall be accompanied by a representation in writing
signed by the Optionee (or by the person or persons entitled
to exercise the Option in the event of the death of the
Optionee) that the shares of stock are being purchased in
good faith for personal investment purposes, and not with a
view to any distribution thereof.
When a registration statement filed with the Securities and
Exchange Commission regarding the shares of common stock
subject to this option agreement becomes effective, the
investment representation contained in this paragraph will
no longer be applicable.
6. Stock Restrictions. The Optionee further agrees that:
(a) Each stock certificate issued pursuant to the
exercise of the Option granted hereby shall bear a legend
to the effect that the shares represented thereby have
not been registered under the Securities Act of 1933, and
may not be transferred except in accordance with the
provisions of this Agreement.
(b) The shares of the stock acquired upon the exercise
of this Option may be transferred, in whole or in part,
only if in the opinion of counsel for the Company such
proposed transfer may be effected without registration
under the Securities Act of 1933 and appropriate state
securities laws or such registration has been effected.
Prior to the transfer of any such shares the holder
thereof shall furnish the Company written notice of the
intention to effect such transfer, which notice shall
include the manner and circumstances of the proposed
transfer and such other matters as the Company may
request.
(c) The Optionee shall promptly comply with any request
by the Company for information concerning any disposition
by the Optionee of any shares acquired pursuant to this
Option which the Company may need in connection with an
income tax return or any other return or report which it
may be required to file with any governmental agency.
7. Notices. Any notices or other communications required or
allowed to be made or given to the Company under the terms
of this Agreement shall be addressed to the Company in care
of its Secretary at its offices at 2800 Rockcreek Parkway,
North Kansas City, Missouri 64117, and any notice to be
given to the Optionee shall be addressed to the Optionee at
the address given beneath the signature hereto. Either
party hereto may from time to time change the address to
which notices are to be sent to such party by giving written
notice of such change to the other party. Any notice
hereunder shall be deemed to have been duly given if and
when addressed as aforesaid, registered and deposited,
postage and registry fee prepaid, in a post office regularly
maintained by the United States Government.
8. Binding Effect and Assignment. This Agreement shall bind
the parties hereto but shall not be assignable by either
party without the express written consent of the other.
9. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officers hereunto duly authorized and its
corporate seal to be hereunto affixed, and the Optionee has
hereunto set hand as of the day and year first above written.
CERNER CORPORATION
By:/s/Neal L. Patterson
------------------------
Neal L. Patterson, Chairman
[CORPORATE SEAL]
ATTEST:
/s/Clifford W. Illig
- ------------------------
Clifford W. Illig, President
/s/Jack A. Newman, Jr.
---------------------------
Optionee (signature)
Address 12325 Catalina
--------------------------
Leawood, Kansas 66209
--------------------------
<PAGE>
EXHIBIT A
Exercise Date Annual Amount of Shares
- ------------- -----------------------
December 29, 1996 10,000
December 29, 1997 12,500
December 29, 1998 15,000
December 29, 1999 17,500
December 29, 2000 20,000
December 29, 2001 20,000
December 29, 2002 20,000
December 29, 2003 12,500
December 29, 2004 12,500
December 29, 2005 10,000
------------
150,000
============
CERNER CORPORATION PLAN D STOCK
OPTION AGREEMENT
THIS AGREEMENT, made and entered into this twelfth day of
January, 1996 (the "Granting Date"), by and between CERNER
CORPORATION, a Delaware corporation (the "Company"), and Thomas
C. Tinstman, M.D. (the "Optionee"),
WITNESSETH:
WHEREAS, the Stock Option Committee of the Board of Directors of
the Company (the "Committee") has determined that the Optionee is
eligible to receive an option to purchase shares of common stock
of the Company under the Company's Non-Qualified Stock Option
Plan (the "Plan");
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and other good and valuable
consideration, the parties hereto do hereby agree as follows:
1. Incorporation of the Plan. A copy of the Plan is
incorporated herein by reference and all of the terms,
conditions and provisions contained therein shall be deemed
to be contained in this Agreement.
2. Grant of Option. Pursuant to the authorization of the
Committee, and subject to the terms, conditions and
provisions contained in this Agreement, the Company hereby
grants to the Optionee an option (the "Option") to purchase
from the Company all or any part of an aggregate of One
Hundred Thousand (100,000) shares of Cerner Common Stock at
the purchase price of eighteen dollars and fifty cents
($18.50) per share.
The number of shares of common stock subject to the Option
and the purchase price per share shall be appropriately
adjusted to reflect any stock dividends, stock splits, split
ups or combinations of outstanding shares of common stock of
the Company. The date first written above shall be deemed
to be the granting date of this Option.
This Option grant is made in conjunction with the role of
Senior Vice President and Member of the Board of Directors,
currently performed by the Optionee as of the granting date.
The definition and responsibilities of this role will be based
annually on the description incorporated in the then-current
Incentive Plan documentation or comparable document. Future
vesting of shares granted in this Option will be evaluated as
explained in paragraph 4. Vesting will be contingent on
continued performance of this role and other factors as determined
by the President and Chairman of the Board of the Company.
3. Exercise in Installments. This Option shall become
exercisable in installments ("Installment") as shown on
Exhibit A with the first Installment becoming exercisable
one year following the date of Associate's permanent
relocation of residency to Kansas City ("First Installment
Date") and each subsequent Installment on each of the
succeeding nine anniversary dates of the first Installment,
subject to the vesting provisions of paragraph 4. In the event
that one person or entity (other than one currently holding,
directly or indirectly, fifteen percent or more of the Company's
outstanding voting securities) acquires direct or indirect
voting control of sixty five percent (65%) or more of the
Company's outstanding voting securities (a "Change of Control")
prior to the First Installment Date, one third of the
nonexercisable Installments (in the order of the Installments)
shall become immediately exercisable, if a Change of Control
occurs within one year following the First Installment Date
two thirds of the nonexercisable Installments (in the order
of the Installments) shall become immediately exercisable and
if a Change of Control occurs after one year following the
First Installment Date all nonexercisable Installments shall
become immediately exercisable.
4. Option Vesting and Termination. The Optionee may purchase
all or any portion of the shares subject to each Installment
listed on Exhibit A at any time on or after the exercise
dates listed on Exhibit A that have become "Vested".
"Vested" means that (a) the Optionee has continued to
perform the role noted in paragraph 2, or an equivalent or
superior role as assigned by the Chairman of the Board and
President of the Company, (b) that the Optionee's
performance in the assigned role has been reviewed by the
President and Chairman of the Board of the Company and such
performance has been deemed satisfactory, and (c) that they
have issued a written statement to the Optionee stating the
amount of shares which are vested at each of the dates set
forth on Exhibit A. All shares subject to this Option shall
become Vested immediately if there occurs a Change of
Control. This Option may not be exercised as to any shares
that do not become Vested.
This Option shall expire with respect to all shares of
Cerner Common Stock subject hereto at the earlier of (a)
twenty-five (25) years from the date first above written,
(b) Associate reaching the age of seventy (70) years or (c)
termination of the Associate's employment (other than
retirement of Associate from the Company at or after the age
of sixty-five) with the Company or any of its subsidiaries;
provided, however, that (i) if such termination occurs by
reason of the Optionee's death or disability, the Optionee,
or Optionee's estate, shall have three hundred sixty five
(365) calendar days following such date to exercise this
Option as to the number of shares exercisable on such
termination date and (ii) if such termination occurs by
reason of the Optionee's death or disability or dismissal by
the Company, other than dismissal resulting from a breach by
the Associate of any of the provisions of Associate's
Employment Agreement with the Company, the Associate's
performance of illegal, fraudulent or criminal acts or the
Associate's engaging in willful misconduct or gross
negligence in regard to the performance of Associate's
duties for the Company, this Option shall Vest as to the
shares subject to the next Installment following the date of
such termination and the Optionee, or Optionee's estate,
shall have three hundred sixty five (365) calendar days
following the date of such termination to exercise this
Option as to such shares. Associate shall be deemed to be
disabled if, in the opinion of the Board of Directors of the
Company, the Associate has been unable to perform
Associate's assigned duties for a continuous period of one
hundred eighty (180) days.
This Option may be exercised by the Optionee delivering to
the Company a written notice of exercise along with either a
cash payment in the amount of the purchase price for such
shares, shares of Cerner stock having a fair market value
equal to the exercise price or by stating in the written
notice of exercise that the Optionee wishes a "cashless"
exercise. "Cashless" exercise means that only the net
option shares being exercised will be issued by Cerner. The
remainder will be treated as if they were sold at the
current market price in order to satisfy the purchase price
for the exercised shares.
5. Investment Purpose. By accepting this Option, the Optionee
agrees that any and all shares of stock purchased upon the
exercise of this Option will be purchased for investment
purposes, and not with a view to any distribution thereof,
and that each notice of the exercise of any portion of this
Option shall be accompanied by a representation in writing
signed by the Optionee (or by the person or persons entitled
to exercise the Option in the event of the death of the
Optionee) that the shares of stock are being purchased in
good faith for personal investment purposes, and not with a
view to any distribution thereof.
When a registration statement filed with the Securities and
Exchange Commission regarding the shares of common stock
subject to this option agreement becomes effective, the
investment representation contained in this paragraph will
no longer be applicable.
6. Stock Restrictions. The Optionee further agrees that:
(a) Each stock certificate issued pursuant to the
exercise of the Option granted hereby shall bear a legend
to the effect that the shares represented thereby have
not been registered under the Securities Act of 1933, and
may not be transferred except in accordance with the
provisions of this Agreement.
(b) The shares of the stock acquired upon the exercise
of this Option may be transferred, in whole or in part,
only if in the opinion of counsel for the Company such
proposed transfer may be effected without registration
under the Securities Act of 1933 and appropriate state
securities laws or such registration has been effected.
Prior to the transfer of any such shares the holder
thereof shall furnish the Company written notice of the
intention to effect such transfer, which notice shall
include the manner and circumstances of the proposed
transfer and such other matters as the Company may
request.
(c) The Optionee shall promptly comply with any request
by the Company for information concerning any disposition
by the Optionee of any shares acquired pursuant to this
Option which the Company may need in connection with an
income tax return or any other return or report which it
may be required to file with any governmental agency.
7. Notices. Any notices or other communications required or
allowed to be made or given to the Company under the terms
of this Agreement shall be addressed to the Company in care
of its Secretary at its offices at 2800 Rockcreek Parkway,
North Kansas City, Missouri 64117, and any notice to be
given to the Optionee shall be addressed to the Optionee at
the address given beneath the signature hereto. Either
party hereto may from time to time change the address to
which notices are to be sent to such party by giving written
notice of such change to the other party. Any notice
hereunder shall be deemed to have been duly given if and
when addressed as aforesaid, registered and deposited,
postage and registry fee prepaid, in a post office regularly
maintained by the United States Government.
8. Binding Effect and Assignment. This Agreement shall bind
the parties hereto but shall not be assignable by either
party without the express written consent of the other.
9. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officers hereunto duly authorized and its
corporate seal to be hereunto affixed, and the Optionee has
hereunto set hand as of the day and year first above written.
CERNER CORPORATION
By: /s/Neal L. Patterson
----------------------------
Neal L. Patterson, Chairman
[CORPORATE SEAL]
ATTEST:
/s/Clifford W. Illig
- -----------------------
Clifford W. Illig, President
/s/Thomas C. Tinstman, M.D.
---------------------------------
Optionee (signature)
Address 10311 Garnett
---------------------------------
Overland Park, Kansas 66214
---------------------------------
<PAGE>
EXHIBIT A
Exercise Date Annual Amount of Shares
- ------------- -----------------------
January 12, 1997 7,000
January 12, 1998 8,500
January 12, 1999 10,000
January 12, 2000 11,500
January 12, 2001 13,000
January 12, 2002 13,000
January 12, 2003 13,000
January 12, 2004 8,500
January 12, 2005 8,500
January 12, 2006 7,000
-----------
100,000
===========
Based on First Installment Date of January 12, 1996 pursuant to
paragraph 3.
EXHIBIT 10(z)
1995 CERNER PERFORMANCE PLANS
TABLE OF CONTENTS
Overview* 1
Rewardable Events Specifications* 2
Plan Administration* 3
Component Plan Descriptions* 4
Sections included
1. Applicable Roles
2. Responsibility/Scope
3. Plan Goals
4. Plan Concepts
5. Incentive Compensation
6. Other Plan Considerations
Rewardable Event Objectives* 5
Glossary of Terms* 6
Appendices 7
1. Payout Computation Examples*
2. Target Bonus Level Matrix
3. Master REO Control Sheet
4. TBL Control Sheet
* denotes those sections distributed to each participant
<PAGE>
Overview (Section 1)
Cerner Performance Plans are intended to provide
additional, performance-based compensation opportunities
to participating associates based on the attainment of
corporate and individual performance goals. The amount
of the compensation available is based on the associate's
role and overall performance evaluation for the year.
Payments under these plans are made on a quarterly basis.
The Plan year for all plans begins April 1 and ends March
31.
This document describes the structure common to all
Cerner Performance Plans. Figure 1 provides a graphical
representation of the architecture of the Plans. All
plans within the performance plan architecture are
assigned to one of the four major organizational units
within Cerner - Product, Client, Functional or
International. Within each group, one or more "Component
Plans" have been defined with specific design elements
common to all participants, such as objectives to be
obtained, the incentives available and the criteria to
participate. Further, the measurements applied within
each Component Plan are determined by the role of the
associate and, for presentation purposes, associate roles
are structured into Staff, Management and Executive
levels. Sections included later in this document define
the specific attributes of the various Component Plans
created under this Master Plan.
CPP OBJECTIVES
Cerner's Performance Plans create, within each
participating associate's total compensation, a variable
component which is based on quantifiable and measurable
indicators related to performance, whether company,
group, team or personal. These Plans are used to
communicate clearly to the participants what is expected
from them relative to the operation of Cerner. Further,
they are intended to incent each associate to attain a
higher level of team and individual performance. The
performance plan approach provides the opportunity for
additional earnings to the individual while also
increasing his or her "motivation" to manage effectively.
All associates are part of a team. Therefore, it is
logical that individual performance as measured by
compensation should be tied to team success. When the
team does well, team associates should be rewarded
commensurately. Likewise, when the team does not
perform, each associate should share in the shortfall.
By tying a portion of total compensation to team success,
each associate will be more focused on how individual
operations and management decisions impact not only
day-to-day results, but also the long-term health of the
organization.
Cerner Performance Plans include elements of both team
and individual performance. The available incentive
amount in each plan and the "factors" which determine how
much incentive is actually earned by each associate are
determined by the component plan tied to the role of each
associate. These "factors" are intended to provide
common incentives to associates across the organization
who are responsible for common goals and objectives. In
addition, each associate directly impacts the actual
incentive paid by the Plans through his or her personal
effectiveness and performance. These factors serve to
directly link overall corporate team performance and
individual payments.
There are two types of incentives available with the CPP
architecture. Rewardable Event incentives are tied to the
attainment of specific, pre-defined goals or objectives which
are unique to each component plan. Marketing Incentives are
earned based on the achievement of specific objectives
related to the marketing of Cerner products and services.
The incentives used in each plan are determined by the roles
associated with the plan. In some cases, both rewardable event
and marketing incentives are used; in others, only rewardable
event incentives apply. These terms are defined in more detail
in the following sections.
ELIGIBILITY
Eligibility to participate in a CPP is determined by the role
of the associate. The effective dates for participation of
eligible associates are as follows:
Associates new to Cerner and participating in a staff-level plan
first plan quarter after three full months of employment
All other participants and plans (including transfers into plan roles)
first plan quarter following employment (or assumption of role)
For participants in plans with marketing incentives, eligibility for
these incentives typically begins effective upon assumption of the
role; rewardable event incentives are tied to the beginning of a
quarter as noted above.
CPP ARCHITECTURE
All CPP plans have in common the elements of:
- Rewardable Events, which define what is important
----
to Cerner's business operations;
- Incentive Compensation Opportunities, which define how much
--------
incentive compensation is available to each associate participating
in a specific plan;
- Annual Performance Evaluation, which is used in most plans
to modify the potential payout available based on the
associate's individual performance
These elements are defined in more detail in the following paragraphs.
Rewardable Events (REs) are objective metrics which are
readily quantifiable and which define specific business
outcomes, goals or targets tied to the annual Operating
Plans of the Company. REs are defined across teams and
are grouped within each component plan to provide a set
of goal measurements unique to the roles of the
associates on the team. The specific objective, or
target, associated with each RE may differ from plan to
plan, even though the definition of the RE remains
constant. REs are generally evaluated on a defined
frequency as a binary decision: the objective is achieved
or it is not. In the case of marketing-related REs as
defined in the following paragraphs, objectives are
typically stated as quarterly or year-to-date targets.
Figure 2, the Rewardable Event Weighting Matrix,
identifies the REs assigned to each Component Plan and
the weighting used within the plan for each RE. Section
2, Rewardable Event Specifications, provides a more
detailed definition of each RE. The references for each
RE are to the associated Component Plan Section and
identify specific measurement techniques,
responsibilities and other unique attributes of each RE.
One subset of REs which requires further discussion is those
which define specific product marketing objectives, or quotas
over a period of time. Objectives are generally established as
"opportunity margin" goals for each specific product group. They
are also typically defined by associate within the component plan
to reflect the overall corporate objectives established by product
and by region. Attainment of these REs is measured monthly and has
both monthly and year-to-date components. Specific rules are defined
elsewhere in this plan document and the associated Component Plan
documentation regarding payment of these incentives.
INCENTIVE COMPENSATION available within CPP is based on
one of two methodologies:
Marketing-related REs have associated with them pre-defined
incentive payments which are available to the associate if
the related objective or target is achieved. These incentives
are defined within the respective component plans.
Incentives related to all other REs are tied to the role of
the associate and the component plan in which he or she
participates and are based on TARGET BONUS LEVEL (TBL). The
TBL is a dollar amount expressed as an annual payout. TBLs
are established for each component plan, for each role in
the component plan and for each associate playing that role.
TBLs are designed to recognize the importance of the role
to Cerner and the associate's relative experience in the role.
As responsibility increases, the potential TBL available
increases. TBLs are defined for each role in a Component Plan
and are documented separately for each participant.
The TBL is factored by the ANNUAL PERFORMANCE EVALUATION (APE), the
third element used in the computation of incentive payments under CPP.
Subjective metrics are considered in the individual annual review
process to determine an APE for each associate. The APE is used
as an adjusting factor applied to the defined TBL within certain
component plans to recognize the associate's personal contribution
to team and corporate objectives. The APE is the result of the careful
evaluation of performance of the associate by his or her manager
and/or group executive.
Performance in role is a major factor in determining the actual
incentive payable under CPP. Performance is considered in the
context of the plan year for which the associate is being evaluated,
not an overall Cerner historical evaluation. It is focused on
performance, not the performer. The APE is related to but not
necessarily the same as the Career Performance Evaluation.
A "pro forma" APE will be developed at the start of the plan year,
separate in some cases from the associate's Career Performance Evaluation,
which is tied to anniversary date. At the end of the plan year,
the "actual" APE is established during a review of performance for the
plan year and will be used as described in the following sections to
adjust the CPP plan payment for the year. The APE is further defined
by the following factors:
Quality
Your ability to develop quality processes,
quality people and a quality organization.
Team Player
Your ability to work within your team and the
larger Cerner team to help Cerner achieve its
objectives.
Enterprise Perspective
Your ability to make decisions and to
participate constructively in the operations
and management processes, acting in the best
interests of Cerner and its clients.
Future Metrics
We will continually evaluate potential metrics
for incorporation into individual Cerner
Performance Plans to ensure that the plans
remain responsive to group and corporate goals.
Annual Performance Evaluation Factor
- ------------------------------------
As noted above, the TBL payable is increased or decreased
based on the associate's APE. The APE will determine the
APE Factor, a multiplier which clearly ties the available
incentive to individual performance for the plan year.
The APE Factor will be multiplied by the TBL to compute
the maximum incentive available. The current factors are
as follows:
<TABLE>
<CAPTION>
Executive Plans All Other Plans
Annual Performance Evaluation APE Factor APE Factor
<S> <C> <C>
9 130% 130%
8 120% 120%
7 95% 95%
6 80% 80%
5 50% 70%
4 25% 50%
3 10% 40%
2 0% 10%
1 0% 0%
</TABLE>
INCENTIVE PAYMENT COMPUTATIONS
Incentive payments are computed differently for each
"class" of incentive.
Marketing Incentives are computed based on the pre-defined
objectives and associated incentives for each.
RE incentives are generally computed by the following
formula:
Quarterly Payment = [% Attainment of Rewardable Events]
x
[ TBL x 25% ]
x
[APE Factor]
where:
- % Attainment of Rewardable Events is the sum of
---------------------------------
the individually-weighted REs credited for the
quarter
- TBL x 25% is the Target Bonus Level for a
---------
specific Component Plan and role, and 25% as a
multiplier computes the quarterly maximum
incentive available;
- APE Factor, or Annual Performance Evaluation
----------
Factor, reflects the associate's personal
performance evaluation for the Plan year.
<TABLE>
1995 REWARDABLE EVENT WEIGHTING MATRIX
Product Group
Executive Mgt SR/Staff Special
----------------- ------------ ---------- -------
Rewardable Events Cycle PGE PLE GSM PLM PGM CMS PLBA ADI
----------------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality
Satisfaction
1 Associate Sat A 20% 10% 10% 10% 10%
2 Client Satisfaction-
External Q 20% 20% 20% 20%
3 Client Satisfaction-
Internal S
4 Project Satisfaction S
5 Product Satisfaction Q/S/A 20% 20%
Service
6 Installation Cycle Q 20% 20%
7 Service Levels Q 30%
Defects
8 Defects Q 20%
Marketing
9 Bookings Q 20% 90% 20%
10 Marketing Incentive M
Financial
11 Billings (Cash Flow) Q 20%
12 Accounts Receivable Q
13 Cost Control -
Expenses Q 25%
14 Cost Control -
Personnel Q 25%
15 Cost Control -
Pers & Exps Q 20% 20%
16 Group Contribution
Margin Q 30%
17 Operating Ratio Q
18 Cash Flow per Share Q
19 EPS-Region Q
20 EPS-Corporate Q 30% 30%
Goals
21 Goal Attainment Q 20% 20% 30% 10% 20% 100%
(2)
Legend
PGE Product Group Executive
PLE Product Line Executive
GSM Group Senior Management
PLM Product Line Management
PGM Product Group Management
CMS Clinical Marketing Specialist
PLBA Product Line Business Analyst
ADI Advanced Development Initiative
Notes:
2) Special plan for selected group staff - see documentation.
</TABLE>
<TABLE>
1995 REWARDABLE EVENT WEIGHTING MATRIX
Client Group
<CAPTION>
Regional Organization
--------------------------------------------------------------
Executive Mgt Sr/Staff
--------------------------- ------------- -----------------
Rewardable Events Cycle CEGM RVP PE BE PhyE RMM CpAe AE CT TA TMS CIS
--------------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality
Satisfaction
1 Associate Sat A 10% 5% 10% 10% 30%
2 Client Satisfaction-
External Q 10% 10% 20% 30% 30% 50% 20% 20% 20%
3 Client Satisfaction-
Internal S
4 Project Satisfaction S 30% 70% 10% 10% 10%
5 Product Satisfaction Q/S/A
Service
6 Installation Cycle Q 15% 15% 15%
7 Service Levels Q
Defects
8 Defects Q
Marketing
9 Bookings Q
10 Marketing Incentive M (1) (1) (1) (1) (1) (1) (1) (1) (1)
Financial
11 Billings (Cash Flow) Q 20% 20% 20% 20% 20%
12 Accounts Receivable Q 20% 15% 15% 15%
13 Cost Control-
Expenses Q 20%
14 Cost Control-
Personnel Q
15 Cost Control-
Pers & Exps Q 15%
16 Group Contribution
Margin Q
17 Operating Ratio Q 20% 30% 40% 50% 20% 20% 20%
18 Cash Flow per share Q
19 EPS-Region Q 25% 80%
20 EPS- Corporate Q 20% 10%
Goals
21 Goal Attainment Q 20% 100%
(3)
Legend
CEGM Client Executive - General Manager
RVP Regional Vice President
PE Project Executive (alt)
BE Branch Executive
PhysE Physician Executive
RMM Regional Marketing Manager
CpAE Account Executive (alt)
AE Account Executive (alt)
CT Client Team (CS,AS,SAS,CAS,TA,SA,SS
SSS,PM,SPM,PA,SPA,AM,SAM)
TA Technology Architect
TMS Technology Marketing Specialist
CIS Contracts Specialist
Notes:
3) Actual weighting varies somewhat from the amounts shown for this plan
</TABLE>
<TABLE>
1995 REWARDABLE EVENT WEIGHTING MATRIX
Client Group
<CAPTION>
Kansas City Organization
--------------------------------------------------
Exec Mgt Sr/Staff
------- ------------------ --------------------
Rewardable Events Cycle PLE/T CGM CTMS CTMP TLS TLP WMR CWT
------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality
Satisfaction
1 Associate Sat A 10% 10% 10%
2 Client Satisfaction-
External Q 10% 20% 40% 20%
3 Client Satisfaction-
Internal S
4 Project Satisfaction S
5 Product Satisfaction Q/S/A
Service
6 Installation Cycle Q 20% 20%
7 Service Levels Q 30% 40% 30%
Defects
8 Defects Q
Marketing
9 Bookings Q 30%
10 Marketing Incentive M (1)
Financial
11 Billings (Cash Flow) Q 30% 20% 50%
12 Accounts Receivable Q
13 Cost Control-
Expenses Q
14 Cost Control-
Personnel Q
15 Cost Control-
Pers & Exps Q 10% 10% 10%
16 Group Contribution
Margin Q
17 Operating Ratio Q
18 Cash Flow per Region Q
19 EPS-Region Q 30%
20 EPS- Corporate Q
Goals
21 Goal Attainment Q 40% 60% 30% 30% 20% 70%
(4) (4)
Legend
PLE/T Product Line Executive/Technologies
CGM Client Group Management
CTMS Cerner Technologies Mgt-Services
CTMP Cerner Technologies Mgt-Products
TLS Team Leader-Services
TLP Team Leader-Products
WMR Worksystem Marketing Representative
CWT Client Worksystem Team
Notes:
4) Goals may include one or more other REs
</TABLE>
<TABLE>
1995 REWARDABLE EVENT WEIGHTING MATRIX
Functional and International Groups
<CAPTION>
Functional International
----------------------------- ------------------------
Executive Mgt/SR/Staff Executive Sr/Staff
--------- ----------------- --------------- --------
Rewardable Events Cycle CE FGE FGM FT CBST IEGM IRE IOM PM
--------- ----------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality
Satisfaction
1 Associate Sat A 20% 20% 10% 10% 10% 10% 10% 15%
2 Client Satisfaction-
External Q 20% 10% 10% 25%
3 Client Satisfaction-
Internal S 20% 10% 10% 10%
4 Project Satisfaction S 40%
5 Product Satisfaction Q/S/A
Service
6 Installation Cycle Q
7 Service Levels Q 10%
Defects
8 Defects Q 10%
Marketing
9 Bookings Q 35%
10 Marketing Incentive Q
Financial
11 Billings (Cash Flow) Q
12 Accounts Receivable Q
13 Cost Control-Expenses Q 15%
14 Cost Control-Personnel Q 15%
15 Cost Control-Pers & Exps Q 10% 10% 10% 15% 20%
16 Group Contribution
Margin Q
17 Operating Ratio Q 40%
18 Cash Flow Per Share Q
19 EPS-Region Q 25% 35%
20 EPS-Corporate Q 60% 30% 10% 10% 20% 10%
Goals
21 Goal Attainment Q 60% 70% 40% 20% 60%
(4) (4) (4)
Legend
Functional
CE Corporate Executive
FGE Functional Group Executive
FGM Functional Group Management
FT Functional Team
CBST CBS Team
International
IEGM International Executive - General Manager
IRE International Region Executive
IOM International Operations Management
PM Project Management
Notes:
4) Goals may include one or more other REs
</TABLE>
<TABLE>
CERNER PERFORMANCE PLANS REWARDABLE EVENT SPECIFICATIONS
<CAPTION>
Rewardable Rewardable Measurement Measurement
Event No. Event Responsibility Methodology Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Associate
Satisfaction Human Resources Based on the annual measurement of overall career
satisfaction of associates as determined by the annual
Associate Survey. Several questions are combined to
develop a composite view of satisfaction, including
both short and long term perspectives.
2 Client
Satisifaction -
External Client Group Based on data obtained via periodic surveys of
each installed client, specifically determined by
the question on the survey asking overall
satisfaction. A satisfaction index is computed by
including all neutral and positive responses in the
numerator and total responses in the denominator.
A The summary of all branches will be added up and
added up and averaged to come up with the total.
B By region.
C The summary of the International branches will be
added up and averaged to come up with the total.
D The branch executive client satisfaction is a
combination of the annual client satisfaction
survey and in-process client satisifaction. The
weighting will be 2x in-process surveys and 1x
annual client survey.
E The summary of all Beckman clients will be added
up and averaged to come up with the total.
3 Client
Satisifaction -
Internal Varies Varies Based on the periodic measurement of the
"satisfaction" of associates with the service
levels provided by the major Functional groups
within Cerner: Administration, CBS, Finance
and Properties. The metric takes into account
both the attainment of defined service objectives
as well as the perception of the services
provided by each group or team.
4 Project
Satisfaction Client Group Based on client survey once on the five-month
anniversary of contract signing and again at
conversion. Surveys will be mailed to the system
manager and the Executive Project Sponsor. (BE
will identify this person and be responsible for
getting the name and address.) Project
satisfaction will be measured on the Executive
Project Sponsor survey only (based on their
response to the overall satisfaction question at
the end of the survey); 100% of the Executive
Sponsor surveys must be returned to achieve the
objective.
5 Product
Satisfaction Product Group Based on survey of specific clients. Determined
by the survey question asking overall satisfaction.
No more than 10% of the clients surveyed can be
dissatisfied for this metric to be met.
6 Installation
Cycle Finance Determined by "wall clock" time from contract
signing to conversion. (I.E. is a standalone
pathnet deal signs in January, 199x, then the net
must be converted by November, 199X. There are
two different cycles: one for standalone Nets and
one for Nets included in HNA. In the future,
productivity measurements need to be factored into
this metric. All contracts signed beginning Q493
will be counted in this metric. Conversion will
be counted based upon the actual client conversion
and having the FSI code installed in the warehouse.
All line items in the contract must be converted
for this metric to be achieved. Installation
timeframes are listed below:
PathNet - Discrete - 10 months
RadNet - Discrete - 9 months
PharmNet - Discrete - 8 months
MedNet - Discrete - 7 months
OCF - Discrete - 12 months
PathNet - HNA - 12 months
RadNet - HNA - 11 months
PharmNet - HNA - 10 months
MedNet - HNA - 9 months
CareNet - HNA - 20 months
ProNet - HNA - 16 months
OCF - HNA - 14 months
PathTrac - 3 months
MSMEDS - 6 months (Note: Will be calculated based
on deals signed July 1, 1994 and after.)
7 Service
Levels Varies Where service levels have been defined for
various services, whether internally or externally,
then attainment of service levels becomes a
rewardable event. For the Client Organization,
levels have been established in the Catalog of
Services.
8 Bookings Finance Based on margin on contract bookings.
A Bookings margin by Net, contract only not add-ons.
B Total contract bookings margin by region.
C Total International contract bookings by country.
D Bookings margin for Beckman, PathNet Worksystems
and RadNet Worksystems.
9 Marketing
Incentive Finance Based on the attainment of pre-defined Marketing
objectives for per deal margin.
10 PIM Process
Quality Product Group This metric is calculated by tracking the number
of PIMs (Product Internal Memorandums) submitted
by each product team within the quarter. Quality
failures are tracked within the quarter. Quality
failures are tracked within the quarter for both
internal product certification failures and PIM
failures occurring at the client site. The total
number of failures occurring within the quarter
are compared to the total number of PIMs
submitted during the same period for each product
team. If the number of failures in the period is
greater than 10% of the total PIM submissions,
the team did not meet their quality goals for the
quarter.
11 Billings
(Cash Flow) Finance Based on margin on invoices sent to clients.
Acceptance billings are counted upon payment
of invoice.
A Billings margin by Region.
B Billings margin for Beckman contracts.
C Billings margin by International region.
D Billings margin for hardware and sublicensed
software.
E Sum of all regions' billings margin, excluding
Beckman, PathNet Worksystems and RadNet
Worksystems.
12 Cost Control -
Expenses Finance Actual expenses by organization must be less
than or equal to budget.
A Total Product Organization expenses excluding
CBS, capitalized software and amortization.
B Expenses related to specific groups within
Functional Organization.
13 Cost Control -
Personnel Finance Actual Personnel cost by organization must be
less than or equal to budget.
A Total Product Organization personnel costs
excluding CBS, capitalized software and
amortization.
B Personnel cost related to specific groups within
Functional Organization.
14 Cost Control
Pers & Expenses Finance Actual expenses and personnel costs combined by
organization must be less than or equal to
budget.
A Total Personnel costs and expenses related to
specific groups within Product Organization.
B Personnel costs and expenses related to specific
groups within Client Organization.
C Personnel costs and expenses related to specific
groups within Functional Organization.
D Personnel costs and expenses related to specific
groups within International Organization.
E Total personnel costs and expenses for the
client services and sales organizations.
15 Group
Contribution
Margin Finance Computed by subtracting all group operations and
group support expenses from the total margin
on revenue. (per the Operating Statement)
A Per Net - Operating Statement.
16 Operating Ratio Finance Computed as the ratio of the net operating margin
divided by the straight-line project margin on
revenue. Operating ratios have the advantage of
flexing expenses based on the amount of margin
being generated. Expenses are actual incurred by
the group on behalf of the group.
A Per Region - Operating ratio.
B International - Operating ratio.
C Beckman and Worksystems
17 EPS - Region Finance Computed by subtracting all unit operating expenses
(Branch, Client and Sales) from the GAAP margin for
each region.
A U.S. by branch
B International by Country (Region)
C U.S. bonus will be divided equally between regions
that associate is responsible for.
D This "region" includes Beckman, PathNet Worksystems
and RadNet Worksystems.
18 EPS - Corporate Finance Measured by the variance over or under the earnings
per share objective for Cerner Consolidated.
19 Goal Attainment Varies Individual goals will be established on a quarterly
basis. There should be no more than five (5) goals
for any associate in a given quarter. Goals must
be mutually established by the associate and
his or her manager and approved by the group V.P.
prior to the start of the applicable quarter.
</TABLE>
PLAN ADMINISTRATION (Section 3)
- -------------------
The following points further clarify the procedures for
computing the incentive payment each quarter.
REWARDABLE EVENT - QUARTERLY VS. YTD MEASUREMENT
As noted in Section I, REs are binary factors: if the
goal is achieved, the factor is applied; if the goal is
not achieved, the factor is not applied. Therefore, if
all goals are met, the multiplier for the target
incentive is 100%, i.e., the maximum available incentive
will be earned.
In most cases, each of these factors is evaluated
quarterly, based on achievement of a year to date goal.
Therefore, it is possible to miss a goal, and the
associated incentive payment, in one quarter and achieve
the year to date goal and incentive in the next.
However, incentive payments do not carry forward. If an
incentive is not earned in the quarter in which it is
available, it will not be available in future quarters,
regardless of goal attainment.
REWARDABLE EVENT - NON-QUARTERLY MEASUREMENTS
Several REs are measured on other than a quarterly basis,
e.g., Associate Satisfaction, Project Satisfaction,
Internal Client Satisfaction. For these REs, the amount
of incentive associated per the weight assigned is "held
back" from the quarterly payments and included, in total,
in the quarter in which the RE is measured.
For example, with a TBL of $6,000 and a Project
Satisfaction RE weighted at 20%, $300 per quarter for
the first three quarters of the Plan year will not be
available. In the fourth quarter, assuming the annual
objective for Project Satisfaction is attained, the
total available incentive for all four quarters of
$1,200 will be paid.
ADVANCE VS. FINAL INCENTIVE PAYMENTS FOR RE INCENTIVES
The incentives payable for each of the first three
quarters in the plan year are considered Advance
Incentive Payments and will be computed using the pro
forma APE for the plan year. For the fourth quarter, the
Final Incentive Payment will be computed using the actual
APE for the plan year. Advance Incentive Payments for
the previous three quarters will be re-computed using
this actual APE. Any differences between the Advance
Incentive Payments and the actual incentive calculation,
either positive or negative, resulting from a change in
the APE will be included with the fourth quarter final
incentive payment. If the net result of all incentives
payable in the fourth quarter is less than zero, the
negative amount will be carried forward for repayment
from future incentives.
PAYMENT CYCLES
Bonus payments for a given quarter will be made by the
15th of the second month of the succeeding quarter.
PLAN PARTICIPATION TERMINATION AND TRANSFERS
If an associate's participation in a Cerner Performance
Plan is terminated due to termination of employment or
transfer to a non-Performance Plan role, the associate
will be entitled to payment for any earned but not paid
amounts. Payments are earned only for completed
quarters; i.e, if participation is terminated in the
middle of a plan quarter, no incentive will be paid for
that quarter. Further, when determining the final amount
to be paid, the associate's APE will be reviewed and
updated as appropriate per normal plan procedures for
end-of-plan-year processing.
If an associate transfers from one Performance Plan-based
role to another, participation in the previous plan will
be "closed out" per normal end-of- plan-year processing
under the provisions of the previous Plan, including
final APE evaluation and RE analysis. Participation in
the new Plan will be effective as of the beginning of the
following quarter. Whenever possible, such transfers
should be coordinated to be effective as of the beginning
of a quarter to avoid partial quarter issues.
Glossary (Section 6)
- --------
Add On Product
Any product which cannot be installed standalone (e.g. CCL,
Rules, CPP, Bar Code Systems, Service Management).
Advance Incentive Payment
Payments made under Cerner Performance Plans for Rewardable
Events for the first three quarters of the plan year are
considered Advance Incentive Payments because they are based
on the Pro Forma APE. All Advance Incentive Payments will
be re-computed at plan year-end using the Actual APE.
Annual Performance Evaluation (APE)
The APE represents assessment of performance during the
current incentive plan year as developed by the responsible
manager and/or group executive. This evaluation will relate
to but not necessarily be the same as the Career Performance
Evaluation. The APE is used to determine the APE Factor,
which applies the APE to the computation of the maximum
available incentive under the applicable incentive plan.
The Pro Forma APE is determined at the beginning of the plan
year and is used to compute Advance Incentive Payments. The
Actual APE is determined retrospectively at the end of the
plan year and is used to compute the Final Incentive Payment,
including any necessary re-calculation of Advance Incentive
Payments.
APE Factor
The APE Factor is determined by the APE and is used to factor
the target incentive to consider the Annual Performance
Evaluation. Like the APE, it will be determined on both a
pro forma and an actual basis.
Attainment Factor
A percentage amount used to derive the incentive amount earned
by an associate. The actual Attainment Percentage determines
what Attainment Factor is used to multiply by the standard
incentive amount to obtain the incentive earned.
Attainment Percentage
A measurement of margin performance (Year-to-date attainment)
divided by a year-to-date marketing objective. This measurement
determines what attainment factor is used to compute the earned
incentive.
Bookings Margin
Bookings Margin equals total bookings revenue less the cost
of hardware and sublicense software. Bookings Margin = Bookings
Revenue - (Hardware Cost + Sublicense Software Cost)
Career Performance Evaluation (CPE)
The CPE is the evaluation developed in conjunction with the
annual performance review and career planning discussion. It
is intended to represent a long term view of performance,
contribution and commitment to Cerner. It may not always be
the same as the APE. Differences will arise based on
particularly challenging assignments, outside issues which
temporarily impact career focus, and significant changes in
responsibility, which typically occur when an associate is
promoted.
Component Plan
The Component Plan defines the unique attributes of a
specific incentive plan for a role or group of roles. These
plans identify the rewardable events which will be used for
the participants, the objectives for each rewardable event,
the weight assigned to each rewardable event, the Target
Bonus Levels for participants, and any other considerations
unique to the component plan.
Enterprise
An opportunity that includes at least ProNet Order Managment
for supporting an enterprise.
Final Incentive Payment
This is the amount of incentive payable at the end of the
plan year, considering achievement of rewardable events
throughout the year and the actual APE for the year.
Marketing Incentives
Those incentives tied to objectives or activities focused
on the marketing process.
Multi-Net
An opportunity that includes more than one 'domain' net
(PathNet, RadNet, Pharmacy, MedNet, SurgiNet, MRNet).
Net Extensions
Any product which is part of a Net but can be installed
standalone (i.e. Blood Bank Transfusion, Microbiology,
Anatomic Pathology).
Opportunity Quality Factor
A measurement of the value of the opportunity based on
the discount from list price.
Opportunity Margin
[Bookings Margin + 12 months of Support Margin (if Support
is undiscounted)] * Opportunity Quality Factor (OQF) =
Opportunity Margin.
Plan Year
The plan year for all CPP component plans is April 1 through
March 31.
Rewardable Events
Rewardable Events are those objective metrics which determine
the incentive payable under the plan. Rewardable events are
pre-defined goals or objectives for specific business
outcomes which have associated with them weights, or
multipliers. These weights are applied to the target
incentive on a binary basis. If the rewardable event goal or
objective is achieved, the associated weight is applied to
the target incentive. If the rewardable event goal or
objective is not achieved, a weight of 0 is applied to the
target incentive. Rewardable Events relate the incentive
available under the plan to the achievement of clearly
defined management goals. Rewardable Events are tied to
objectives focused on projects and operations.
Rewardable Event Objective
The target established for the rewardable event for the
period of measurement, e.g., EPS of $.30 for Q1, Client
Satisfaction of 80% for Q3.
Standalone
An opportunity that includes on 'domain' net.
Support Margin
Support Margin equals 12 months of software support if the
support was not discounted in the deal. If software support
is discounted from the current Cerner Price List, then
Support Margin equals zero. Support Margin continues to be a
component of Deal Margin for the 1994-95 Sales Year.
Target Bonus Level
The Target Bonus Level is the potential amount of bonus
available under the applicable incentive plan for each
performance group for Rewardable Events.
Appendix 1 (Section 7)
EXAMPLES
The following examples illustrate the computation of a
Performance Plan incentive in two scenarios. All dollar
amounts are rounded to the nearest whole dollar.
<TABLE>
Scenario 1 - Plan "A"
Target Bonus Level - $6,000 Pro Forma APE and Factor - 7 (95%)
Actual APE and Factor - 7 (95%) All REs are measured quarterly, with
weights as indicated
<CAPTION>
Rewardable Events Achieved Gross Bonus
RE1 RE2 RE3 RE4 RE5 Bonus Computation Earned
<S> <C> <C> <C> <C> <C> <C> <C>
PQ1 Y Y Y Y Y $6,000x95%x25%x[.10+.20+.25+.25+.20] $1,425
PQ2 Y N N Y Y $6,000x95%x25%x[.10+.00+.00+.25+.20] $ 784
PQ3 Y Y N N Y $6,000x95%x25%x[.10+.20+.00+.00+.20] $ 713
PQ4 Y Y Y Y Y $6,000x95%x25%x[.10+.20+.25+.25+.20] $1,425
------
Total Gross Incentive Earned for Plan Year $4,347
No adjustment was required in PQ4 because the participant's Actual
APE did not change from the Pro Forma APE.
</TABLE>
<TABLE>
Scenario 2-Plan "B"
Target Bonus Level - $4,500 Pro Forma APE and Factor - 6 (80%)
Actual APE and Factor - 7 (95%) RE 1 is measured annually; all
others qtrly, with weights as indicated. Therefore, the weight of 20%
assigned to RE1 results in $180 ($4,500/4 x 80% x 20%) per quarter
being withheld in Q1 through Q3 for evaluation in Q4.
<CAPTION>
Rewardable Events Achieved Gross Bonus
RE1 RE2 RE3 RE4 RE5 Bonus Computation Earned
<S> <C><C> <C> <C> <C> <C> <C>
PQ1 - Y Y Y N $4,500x80%x25%x[.00+.20+.15+.15+.00] $ 450
PQ2 - N Y Y Y $4,500x80%x25%x[.00+.00+.15+.15+.30] $ 540
PQ3 - Y N N Y $4,500x80%x25%x[.00+.20+.00+.00+.30] $ 450
PQ4 - Y N Y Y $4,500x80%x25%x[.00+.20+.00+.15+.30] $ 585
------
Total Gross Incentive Before Year-end Adjustment $2,025
</TABLE>
plus re-computation of all quarters for Actual APE
PQ1 $4,500x95%x25%x[.00+.20+.15+.15+.00] $ 534
PQ2 $4,500x95%x25%x[.00+.00+.15+.15+.30] $ 641
PQ3 $4,500x95%x25%x[.00+.20+.00+.00+.30] $ 534
PQ4 $4,500x95%x25%x[.00+.20+.00+.15+.30] $ 695
net of previous payments ($450+$540+$450+$585) -$2,025 $ 379
------- ------
plus: Re-computation for attainment of annual RE1
PQ1 $4,500x95%x25%x[.20] $ 214
PQ2 $4,500x95%x25%x[.20] $ 214
PQ3 $4,500x95%x25%x[.20] $ 214
PQ4 $4,500x95%x25%x[.20] $ 214
Total $ 856
------
Total Gross Incentive Earned for Plan Year $3,260
------
The year end adjustment created by the change from the
pro forma APE of "6" to the actual APE of "7" resulted in
an additional $379 for Q1 through Q4.
The attainment of the annual rewardable event resulted in
achievement of an incentive payment of $856.
Appendix 2
Patterson - $200,000
Illig - $175,000
<TABLE>
REWARDABLE EVENT OBJECTIVES
<CAPTION>
Rewardable JUN95_Q SEP95_Q DEC95_Q MAR96_Q Measurement
Event Weighting Cycle PP YTD PP YTD PP YTD PP YTD Methodology
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Associate
Satisfaction 20% A N/A N/A N/A 80% 1
(2) Client
Satisfaction -
External 20% Q 65% 65% 70% 95% 2 A
(3) EPS -
Corporate 60% Q 0.40 0.85 1.40 1.80 19
</TABLE>
Runnion - $90,000
Reene - $90,000
Dietrich - $75,000
<TABLE>
REWARDABLE EVENT OBJECTIVES
<CAPTION>
Rewardable JUN95_Q SEP95_Q DEC95_Q MAR96_Q Measurement
Event Weighting Cycle PP YTD PP YTD PP YTD PP YTD Methodology
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Associate
Satisfaction 10% A N/A N/A N/A 80% 1
(2) Client
Satisfaction -
External 10% Q 65% 65% 70% 75% 2A
(3) Cost Control -
Pers & Exps 15% Q 12,166 14,324 36,864 49,890 14E
(4) EPS Region 25% Q 17C
BOS/WDC .21/.26 .40/.46 .66/.74 .85/.95
DET/KCM .20/.35 .41/.64 .70/.94 .94/1.20
ATL/DAL .23/.16 .48/.34 .73/.52 .94/.70
SEA/LAX .12/.17 .27/.37 .41/.55 .56/.69
(5) EPS Corporate 20% Q 0.40 0.85 1.40 1.80 18
(6) Goal Attainment 20% Q * * * * 21
</TABLE>
Willett - $75,000
<TABLE>
REWARDABLE EVENT OBJECTIVES
<CAPTION>
Rewardable JUN95_Q SEP95_Q DEC95_Q MAR96_Q Measurement
Event Weighting Cycle PP YTD PP YTD PP YTD PP YTD Methodology
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Associate
Satisfaction 10% A N/A N/A N/A 85% 1
(2) Client
Satisfaction -
External 10% Q N/A N/A N/A 90% 2C
(3) Cost
Control -
Pers & Exps 15% Q 1,979 3,729 5,512 7,322 14D
(4) EPS - Region 25% Q (0.022) 0.007 0.044 0.095 17B
(5) EPS -
Corporate 20% Q 0.40 0.85 1.40 1.80 18
(6) Goals 20% Q * * * * 19
</TABLE>
Whitcraft - $75,000
Margulies - $90,000
<TABLE>
REWARDABLE EVENT OBJECTIVES
<CAPTION>
Rewardable JUN95_Q SEP95_Q DEC95_Q MAR96_Q Measurement
Event Weighting Cycle PP YTD PP YTD PP YTD PP YTD Methodology
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Associate
Satisfaction 20% A N/A N/A N/A 80% 1
(2) Cost Control -
Expenses 25% Q 1,857 3,685 5,555 7,546 12A
(3) Cost Control -
Personnel 25% Q 6,494 13,424 20,534 27,767 13A
(4) EPS Corporate 30% Q 0.40 0.85 1.40 1.80 18
</TABLE>
<TABLE>
<CAPTION>
Cerner Corporation
Computation of Earnings per Common Share
Fiscal
Years ended
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Net Earnings: $ 22,521,000 $ 19,501,000 $ 14,558,000
============ ============ ============
Weighted average number of
common and common stock
equivalent shares:
Weighted average number of
outstanding common shares 29,844,760 27,651,104 26,286,702
Dilutive effect (excess of
numberof shares issuable
over number of shares assumed
to be repurchased with the
proceeds of exercised options
and converted warrants based
on the average market price
during the period) 1,603,293 2,111,104 2,871,654
----------- ----------- ------------
31,448,053 29,762,208 29,158,356
Earnings per common and common
stock equaivalent shares: $ 0.72 $ 0.66 $ 0.50
============ ============ ============
Weighted average number of common
and common stock equivalent shares
assuming full diluting:
Additional dilutive effect
(reduction in number of shares
assumed to be repurchased with
the proceeds of exercised stock
options and converted warrants
based on the end of the period
market price of the stock, if
higher than the average price) 0 45,296 127,442
------------ ------------ ------------
31,448,053 29,807,504 29,285,798
============ ============ ============
Earnings per common and common
stock equivalent shares assuming
full dilution: $ 0.72 $ 0.66 $ 0.50
============ ============ ===========
</TABLE>
Exhibit 22
SUBSIDIARIES OF REGISTRANT
Cerner Corporation PTY Limited
Cerner Deutschland GmbH
Cerner FSC, Inc.
Cerner Health Connections, Inc.
Cerner Health Facts, Inc.
Cerner Health Resources
Cerner HealthWise, Inc.
Cerner International, Inc.
Cerner Limited
Cerner Performance Logistics, Inc.
Cerner Properties, Inc.
Cerner Singapore Limited
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Cerner Corporation:
We consent to incorporation by reference in the Registration Statements
(No. 33-56868, No.33-55082, No. 33-41580, No. 33-39777, No. 33-39776,
No. 33-20155 and No. 33-15156) on Form S-8 and Registration Statement
No. 33-72756 on Form S-3 of Cerner Corporation of our reports dated
February 10, 1996, relating to the consolidated balance sheets of Cerner
Corporation as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows
and related schedule for each of the years in the three-year period ended
December 30, 1995, which reports appear herein in the 1995 annual report
on Form 10-K of Cerner Corporation.
KPMG Peat Marwick LLP
Kansas City, Missouri
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 8,640,000
<SECURITIES> 103,478,000
<RECEIVABLES> 99,263,000
<ALLOWANCES> 1,109,000
<INVENTORY> 2,246,000
<CURRENT-ASSETS> 216,911,000
<PP&E> 75,051,000
<DEPRECIATION> 21,358,000
<TOTAL-ASSETS> 303,945,000
<CURRENT-LIABILITIES> 42,847,000
<BONDS> 0
<COMMON> 330,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 303,945,000
<SALES> 186,901,000
<TOTAL-REVENUES> 186,901,000
<CGS> 52,270,000
<TOTAL-COSTS> 97,366,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,000
<INCOME-PRETAX> 37,220,000
<INCOME-TAX> 14,699,000
<INCOME-CONTINUING> 22,521,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,521,000
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
