e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vhz2FzPtMmn1lITpwGq8JbQs4KJGKVXe7Z3Dh7WzAia7uiZpfmPAyEXVqW5EyVGR zpWOhwBOSSHmVtwFLJc3TQ== 0000950123-10-041993.txt : 20100430 0000950123-10-041993.hdr.sgml : 20100430 20100430165321 ACCESSION NUMBER: 0000950123-10-041993 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20100403 FILED AS OF DATE: 20100430 DATE AS OF CHANGE: 20100430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERNER CORP /MO/ CENTRAL INDEX KEY: 0000804753 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 431196944 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15386 FILM NUMBER: 10788340 BUSINESS ADDRESS: STREET 1: 2800 ROCKCREEK PKWY-STE 601 CITY: KANSAS CITY STATE: MO ZIP: 64117 BUSINESS PHONE: 8162211024 MAIL ADDRESS: STREET 1: 2800 ROCKCREEK PKWY STREET 2: DROP 1624 CITY: KANSAS CITY STATE: MO ZIP: 64117 10-Q 1 c57785e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


(X)		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended April 3, 2010

OR

( )		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 0-15386

CERNER CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		43-1196944
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		Number)

2800 Rockcreek Parkway
North Kansas City, Missouri 64117
(816) 201-1024

(Address of Principal Executive Offices, including zip code;
registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer [X]		Accelerated filer [ ]	Non-accelerated filer [ ] (Do not check if a smaller reporting company)			Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

There were 82,207,736 shares of Common Stock, $.01 par value, outstanding at April 21, 2010.

CERNER CORPORATION AND SUBSIDIARIES

I N D E X


Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of April 3, 2010 (unaudited) and January 2, 2010	1

	Condensed Consolidated Statements of Operations for the three months ended April 3, 2010 and April 4, 2009 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2010 and April 4, 2009 (unaudited)	3

	Notes to Condensed Consolidated Financial Statements (unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4.	Controls and Procedures	19

Part II.	Other Information:	20

Item 6.	Exhibits	20
EX-10.A
EX-10.B
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of April 3, 2010 (unaudited) and January 2, 2010



(In thousands, except share data)	2010			2009

Assets
Current assets:
Cash and cash equivalents	$	240,207		$	241,723
Short-term investments		368,707			317,113
Receivables, net		423,035			461,411
Inventory		10,106			11,242
Prepaid expenses and other		89,985			106,791
Deferred income taxes		7,903			8,055

Total current assets		1,139,943			1,146,335

Property and equipment, net		515,609			509,178
Software development costs, net		237,516			233,265
Goodwill		161,547			151,479
Intangible assets, net		39,107			33,719
Other assets		69,981			74,591


Total assets	$	2,163,703		$	2,148,567


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	41,075		$	36,893
Current installments of long-term debt		26,995			25,014
Deferred revenue		128,149			137,095
Accrued payroll and tax withholdings		67,938			80,093
Other accrued expenses		40,435			79,008

Total current liabilities		304,592			358,103

Long-term debt		90,807			95,506
Deferred income taxes and other liabilities		102,696			98,372
Deferred revenue		19,828			15,788

Total Liabilities		517,923			567,769


Stockholders’ Equity:
Cerner Corporation stockholders’ equity:
Common stock, $.01 par value, 150,000,000 shares authorized, 82,951,532 shares issued at April 3, 2010 and 82,564,708 shares issued at January 2, 2010		829			826
Additional paid-in capital		578,900			557,545
Retained earnings		1,103,849			1,053,563
Treasury stock		(28,002	)		(28,002	)
Accumulated other comprehensive loss, net		(9,916	)		(3,254	)

Total Cerner Corporation stockholders’ equity		1,645,660			1,580,678

Noncontrolling interest		120			120


Total stockholders’ equity		1,645,780			1,580,798


Total liabilities and stockholders’ equity	$	2,163,703		$	2,148,567

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended April 3, 2010 and April 4, 2009
(unaudited)


	Three Months Ended
(In thousands, except per share data)	2010			2009

Revenues:
System sales	$	116,951		$	100,189
Support, maintenance and services		307,045			283,828
Reimbursed travel		7,341			8,305


Total revenues		431,337			392,322


Costs and expenses:
Cost of system sales		44,828			41,564
Cost of support, maintenance and services		15,915			15,662
Cost of reimbursed travel		7,341			8,305
Sales and client service		187,593			173,353
Software development (Includes amortization of $15,838 and $13,049, respectively)		66,779			64,736
General and administrative		33,225			26,722


Total costs and expenses		355,681			330,342


Operating earnings		75,656			61,980

Other income (expense):
Interest income (expense), net		1,783			(321	)
Other income (expense), net		(76	)		204


Total other income (expense), net		1,707			(117	)


Earnings before income taxes		77,363			61,863
Income taxes		(27,077	)		(21,033	)


Net earnings	$	50,286		$	40,830


Basic earnings per share	$	0.61		$	0.51

Diluted earnings per share	$	0.59		$	0.49

Basic weighted average shares outstanding		81,957			80,333

Diluted weighted average shares outstanding		85,105			82,857

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended April 3, 2010 and April 4, 2009
(unaudited)


	Three Months Ended
(In thousands)	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	50,286		$	40,830
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		44,804			42,727
Share-based compensation expense		5,150			3,702
Provision for deferred income taxes		3,743			3,539

Changes in assets and liabilities (net of businesses acquired):
Receivables, net		34,045			32,120
Inventory		1,115			(2,537	)
Prepaid expenses and other		17,114			(3,500	)
Accounts payable		5,813			(5,109	)
Accrued income taxes		(32,667	)		(13,688	)
Deferred revenue		(3,182	)		386
Other accrued liabilities		(20,718	)		(644	)

Net cash provided by operating activities		105,503			97,826


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases		(32,108	)		(43,173	)
Capitalized software development costs		(20,516	)		(18,288	)
Purchases of investments		(110,522	)		(18,859	)
Maturities of investments		57,391			45,106
Purchase of other intangibles		(2,233	)		(1,969	)
Acquisition of businesses, net of cash acquired		(14,486	)		(3,529	)

Net cash used in investing activities		(122,474	)		(40,712	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of future receivables		1,516			101
Long-term debt repayments		(219	)		(98	)
Proceeds from excess tax benefits from stock compensation		7,627			952
Proceeds from exercise of options		7,616			2,861

Net cash provided by financing activities		16,540			3,816


Effect of exchange rate changes on cash		(1,085	)		(6,244	)

Net (decrease) increase in cash and cash equivalents		(1,516	)		54,686
Cash and cash equivalents at beginning of period		241,723			270,494


Cash and cash equivalents at end of period	$	240,207		$	325,180


Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	72		$	-
Income taxes, net of refund	$	56,313		$	30,241

Summary of acquisition transactions:
Fair value of tangible assets acquired	$	2,126		$	-
Fair value of intangible assets acquired		5,076			-
Fair value of goodwill		11,290			3,529
Fair value of current liabilities assumed		(1,057	)		-
Fair value of contingent liability payable		(1,725	)		-

Cash paid for acquisition		15,710			3,529
Cash acquired		(1,224	)		-

Net cash used	$	14,486		$	3,529

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Statement Presentation

The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K.

In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using accounting principles generally accepted in the United States (GAAP). These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Our first fiscal quarter ends on the Saturday closest to March 31. The 2010 and 2009 first quarters ended on April 3, 2010 and April 4, 2009, respectively. All references to years in these notes to condensed consolidated financial statements represent the three months ended of the first fiscal quarter, respectively, unless otherwise noted.

Recently Adopted Accounting Pronouncements

On January 3, 2010 we adopted Accounting Standards Update (ASU) 09-16, Accounting for Transfers of Financial Assets, which among other things creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. The adoption of ASU 09-16 did not have a material impact on our consolidated financial statements.

In January 2010, ASU 10-06, Improving Disclosures about Fair Value Measurements, was issued and amends ASC 820, Fair Value Measurements and Disclosures. This ASU requires disclosures of transfers into and out of Levels 1 and 2, more detailed roll forward reconciliations of Level 3 recurring fair value measurements on a gross basis, fair value information by class of assets and liabilities, and descriptions of valuation techniques and inputs for Level 2 and 3 measurements. We adopted ASU 10-06 during the first quarter 2010, which did not have a material impact on our consolidated financial statements.

On February 24, 2010, ASU 10-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements, was issued, which amends ASC 855-10 to eliminate contradictions between the requirements of U.S. GAAP and the SEC’s filing rules. The amendments also discharge the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements. ASU 10-09 is effective upon issuance and did not have a material impact on our consolidated financial statements.

(2) Acquisitions

On January 4, 2010, we completed the purchase of 100% of the outstanding common shares of IMC Health Care, Inc. (IMC), a provider of employer sponsored on-site health centers. The acquisition of IMC expanded our employer health initiatives, such as on-site employer health centers, occupational health services and wellness programs. Consideration for this transaction was $15.7 million in cash plus additional contingent consideration, which is payable if we achieve certain revenue milestones during the fiscal year 2010 from the clients acquired from IMC. We valued the contingent consideration at $1.7 million based on a probability-weighted assessment of potential contingent consideration payment scenarios ranging up to $2.5 million. The allocation of the purchase price to the estimated fair values of the identified tangible and intangible assets acquired, net of liabilities assumed, is summarized below:


(in thousands)
	Allocation Amount

Tangible assets and liabilities
Current assets	$	1,862
Property and Equipment		264
Current liabilities		(1,057	)

Total net tangible assets acquired		1,069
Intangible assets
Customer relationships		4,073
Non-compete agreements		1,003

Total intangible assets acquired		5,076
Goodwill		11,290

Total purchase price	$	17,435

The fair values of the acquired intangible assets and the contingent consideration were estimated by applying the income approach. Such estimations required the use of inputs that were unobservable in the market place (Level 3), including a discount rate that we estimated would be used by a market participant in valuing these assets, projections of revenues and cash flows, probability weighting factors and customer attrition rates. See Note 3 for further information about the fair value level hierarchy.

The goodwill was allocated to our Domestic operating segment and is expected to be deductible for tax purposes. The intangible assets are being amortized over five years. The operating results of IMC were combined with our operating results subsequent to the purchase date of January 4, 2010. Pro-forma results of operations have not been presented because the effect of this acquisition was not material to our results.

(3) Fair Value Measurements

We determine fair value measurements used in our condensed consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

	•		Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

	•		Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

	•		Level 3 – Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table details our financial assets measured at fair value within the fair value hierarchy:


(In thousands)		April 3, 2010						January 2, 2010
	Balance Sheet	Fair Value Measurements Using						Fair Value Measurements Using
Description	Classification	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Money market funds	Cash equivalents	$	15,322	$	-	$	-	$	80,242	$	-	$	-
Time deposits	Cash equivalents		-		15,240		-		-		8,523		-
Corporate bonds	Cash equivalents		-		-		-		-		8,194		-
Time deposits	Short-term investments		-		29,917		-		-		37,784		-
Commercial paper	Short-term investments		-		12,964		-		-		19,987		-
Government and corporate bonds	Short-term investments		-		237,676		-		-		164,792		-
Auction rate securities	Short-term investments		-		-		80,126		-		-		85,203
Put-like feature	Short-term investments		-		-		8,024		-		-		9,347

Our auction rate securities have been classified as Level 3 assets within the fair value hierarchy, as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities. If different assumptions were used for the various inputs to the valuation, including, but not limited to, assumptions involving the estimated holding periods for the auction rate securities, the estimated cash flows over those estimated lives, and the estimated discount rates, including the liquidity discount rate, applied to those cash flows, the estimated fair value of these investments could be significantly higher or lower than the fair value we determined.

The table below presents the activity of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Three Months Ended
(In thousands)	2010			2009

Beginning balance	$	94,550		$	105,300
Redemptions at par		(6,400	)		(5,700	)
Unrealized gain on auction rate securities included in earnings		1,323			6,290
Unrealized loss on put-like feature included in earnings		(1,323	)		(6,290	)

Ending balance	$	88,150		$	99,600

We classify our long-term, fixed rate debt as a long-term liability on the balance sheet and estimate the fair value using a Level 3 discounted cash flow analysis based on our current borrowing rates for debt with similar maturities. The fair value of our long-term debt, including current maturities, was approximately $120.8 million at April 3, 2010.

(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 us at future dates under the terms of a contract with a client. Billings and other consideration received on contracts in excess of related revenues recognized are recorded as deferred revenue. Substantially all receivables are derived from sales and related support and maintenance and professional services of our clinical, administrative and financial information systems and solutions to healthcare providers located throughout the United States and in certain non-U.S. countries.

We perform ongoing credit evaluations of our clients and generally do not require collateral from our clients. We provide an allowance for estimated uncollectible accounts based on specific identification, historical experience and our judgment. Provisions for losses on uncollectible accounts for the first three months of 2010 and 2009 totaled $5.6 million and $0.7 million, respectively. A summary of net receivables is as follows:


	April 3, 2010		January 2, 2010

(In thousands)
Gross accounts receivable	$	319,751	$	342,992
Less: Allowance for doubtful accounts		21,787		16,895

Accounts receivable, net of allowance		297,964		326,097

Contracts receivable		125,071		135,314


Total receivables, net	$	423,035	$	461,411

During the second quarter of 2008, Fujitsu Services Limited’s (Fujitsu) contract as the prime contractor in the National Health Service (NHS) initiative to automate clinical processes and digitize medical records in the Southern region of England was terminated by the NHS. This had the effect of automatically terminating our subcontract for the project. We are in dispute with Fujitsu regarding Fujitsu’s obligation to pay the amounts comprised of accounts receivable and contracts receivable related to that subcontract, and we are working with Fujitsu to resolve these issues based on processes provided for in the contract. Part of that process requires resolution of disputes between Fujitsu and the NHS regarding the contract termination. As of April 3, 2010, it remains unlikely that the matter will be resolved in the next 12 months. Therefore these receivables have been classified as long-term and represent the significant majority of other long-term assets as of the first quarter ended April 3, 2010. While the ultimate collectability of the receivables pursuant to this process is uncertain, we believe that we have valid and equitable grounds for recovery of such amounts and that collection of recorded amounts is probable.

During the first three months of 2010 and 2009, we received total client cash collections of $483.7 million and $457.7 million, respectively, of which $18.7 million and $10.2 million were received from third party arrangements with non-recourse payment assignments.

(5) Income Taxes

We determine the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes we make a cumulative adjustment. We classify interest and penalties associated with unrecognized tax benefits as income tax expense in our Condensed Consolidated Statements of Operations.

The Company’s effective tax rate was 35% for the first quarter of 2010 and 34% for the first quarter of 2009. This increase is primarily due to the research and development tax credit not being extended for the 2010 tax year.

During the first quarter of 2010, the Internal Revenue Service commenced its examination of the 2008 income tax return. We do not believe this examination will have a material effect on our financial position, results of operations or liquidity.

Other than the aforementioned matter, we do not anticipate any settlements of the remaining unrecognized tax benefits within the next 12 months.

(6) Earnings Per Share

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


	Three Months Ended
	2010						2009
	Earnings		Shares		Per-Share		Earnings		Shares		Per-Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

(In thousands, except per share data)
Basic earnings per share:
Income available to common stockholders	$	50,286		81,957	$	0.61	$	40,830		80,333	$	0.51
Effect of dilutive securities:
Stock options		-		3,148				-		2,524

Diluted earnings per share:
Income available to common stockholders including assumed conversions	$	50,286		85,105	$	0.59	$	40,830		82,857	$	0.49

Options to purchase 0.2 million and 3.1 million shares of common stock at per share prices ranging from $58.21 to $85.51 and $33.63 to $136.86 were outstanding at the three months ended April 3, 2010 and April 4, 2009, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

(7) Share-Based Compensation

On March 12, 2010 approximately 115,000 stock options were granted to executive officers and other executive level associates under our Long-Term Incentive Plan F. These awards will vest 40% on March 12, 2012, and 20% will vest on March 12, 2013, 2014 and 2015. The fair value of each of these awards was $44.89 per award. Total compensation expense related to these awards is $5.1 million, which is expected to be recognized over a period of 5 years.

The following table presents the total compensation expense recognized in the condensed consolidated statements of operations with respect to stock options, nonvested shares and Associate Stock Purchase Plan shares:


	Three Months Ended
(In thousands)	2010			2009

Stock option and non-vested share compensation expense	$	5,150		$	3,692
Associate stock purchase plan expense		401			293
Amounts capitalized in software development costs, net of amortization		(44	)		(65	)

Amounts charged against earnings, before income tax benefit	$	5,507		$	3,920


Amount of related income tax benefit recognized in earnings	$	2,051		$	1,460

As of April 3, 2010, there was $48.4 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.99 years.

(8) Comprehensive Income

Total comprehensive income, which includes net earnings, foreign currency translation adjustments, and gains and losses from a hedge of our net investment in the United Kingdom (U.K.), amounted to $43.6 million and $35.6 million for the three months ended April 3, 2010 and April 4, 2009, respectively. None of the items within comprehensive income, including net earnings, relate to non-controlling interests.

As of April 3, 2010, we designated all of our Great Britain Pound (GBP) denominated long-term debt as a net investment hedge of our U.K. operations. The objective of the hedge is to reduce our foreign currency exposure in the U.K. subsidiary investment. Changes in the exchange rate between the United States Dollar (USD) and GBP, related to the notional amount of the hedge, are recognized as a component of accumulated other comprehensive income (loss), to the extent the hedge is effective.

The following table represents the fair value of the net investment hedge included within the Condensed Consolidated Balance Sheets and the related unrealized gain or loss, net of related income tax effects:


(In thousands)						Net Unrealized Gain (Loss)
	Balance Sheet	Fair Value				For the Three Months Ended
Derivatives designated	Classification	April 3, 2010		January 2, 2010		2010		2009

Net investment hedge	Short-term liabilities	$	14,120	$	15,015	$	562	$	(171	)
Net investment hedge	Long-term liabilities		70,599		75,075		2,808		(1,024	)

Total net investment hedge		$	84,719	$	90,090	$	3,370	$	(1,195	)

We recognize foreign currency transaction gains and losses within the Condensed Consolidated Statements of Operations as a component of general and administrative expenses. We realized a foreign currency loss of $0.02 million and a gain of $5.5 million during the three months ended April 3, 2010 and April 4, 2009, respectively.

(9) Contingencies

The terms of our software license agreements with our clients generally provide for a limited indemnification of such intellectual property against losses, expenses and liabilities arising from third party claims based on alleged infringement by our solutions of an intellectual property right of such third party. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include a right to replace or modify an infringing solution. To date, we have not had to reimburse any of our clients for any losses related to these indemnification provisions pertaining to third party intellectual property infringement claims. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the terms of the corresponding agreements with our clients, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

From time to time we are involved in routine litigation incidental to the conduct of our business, including for example, employment disputes and litigation alleging solution defects, intellectual property infringement, violations of law and breaches of contract and warranties. We believe that no such routine litigation currently pending against us, if adversely determined, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

(10) Segment Reporting

We have two operating segments, Domestic and Global. Revenues are derived primarily from the sale of clinical, financial and administrative information systems and solutions. The cost of revenues includes the cost of third party consulting services, computer hardware and sublicensed software purchased from computer and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Operating expenses incurred by the geographic business segments consist of sales and client service expenses including salaries of sales and client service personnel, communications expenses and unreimbursed travel expenses. Performance of the segments is assessed at the operating earnings level and, therefore, the segment operations have been presented as such. “Other” includes expenses such as software development, marketing, general and administrative, share-based compensation expense and depreciation that have not been allocated to the operating segments. It is impractical for us to track assets by geographical business segment.

Accounting policies for each of the reportable segments are the same as those used on a consolidated basis. The following table presents a summary of the operating information for the first quarters of 2010 and 2009.


	Operating Segments

(In thousands)	Domestic		Global		Other			Total

Three months ended 2010
Revenues	$	355,315	$	76,022	$	—		$	431,337


Cost of revenues		61,241		6,843		—			68,084
Operating expenses		104,723		29,713		153,161			287,597

Total costs and expenses		165,964		36,556		153,161			355,681


Operating earnings (loss)	$	189,351	$	39,466	$	(153,161	)	$	75,656


	Operating Segments

(In thousands)	Domestic		Global		Other			Total

Three months ended 2009
Revenues	$	323,173	$	69,149	$	—		$	392,322


Cost of revenues		54,462		11,069		—			65,531
Operating expenses		89,777		32,361		142,673			264,811

Total costs and expenses		144,239		43,430		142,673			330,342


Operating earnings (loss)	$	178,934	$	25,719	$	(142,673	)	$	61,980


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Cerner Corporation (Cerner, the Company, we, us or our). This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the financial statements (Notes) found above.

Our first fiscal quarter ends on the Saturday closest to March 31. The 2010 and 2009 first quarters ended on April 3, 2010 and April 4, 2009, respectively. All references to years in these notes to consolidated financial statements represent the respective three months ended of the first fiscal quarters, unless otherwise noted.

Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute “forward looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the Act). Forward-looking statements can often be identified by the use of forward-looking terminology, such as “could,” “should,” “will,” “intended,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” “guidance” or “estimate” or the negative of these words, variations thereof or similar expressions. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including: the possibility of product-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; risks associated with our non-U.S. operations; risks associated with our ability to effectively hedge exposure to fluctuations in foreign currency exchange rates; the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the United States and non-U.S. countries; risks associated with our recruitment and retention of key personnel; risks related to our reliance on third party suppliers; risks inherent with business acquisitions; changing political, economic and regulatory influences; government regulation; significant competition and market changes; risks associated with the ongoing adverse financial market environment and uncertainty in global economic conditions; variations in our quarterly operating results; potential inconsistencies in our sales forecasts compared to actual sales; volatility in the trading price of our common stock; the authority of our Board of Directors to issue preferred stock and anti-takeover provisions contained in our corporate governance documents; and, other risks, uncertainties and factors discussed elsewhere in this Form 10-Q, in our other filings with the Securities and Exchange Commission or in materials incorporated therein by reference. Forward looking statements are not guarantees of future performance or results. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

Management Overview

Our revenues are primarily derived by selling, implementing and supporting software solutions, clinical content, hardware, healthcare devices and services that give healthcare providers secure access to clinical, administrative and financial data in real time, allowing them to improve the quality, safety and efficiency in the delivery of healthcare. We implement the healthcare solutions as stand-alone, combined or enterprise-wide systems. Cerner Millennium^® software solutions can be managed by our clients or in our data center via a managed services model.

Our fundamental strategy centers on creating organic growth by investing in research and development (R&D) to create solutions and services for the healthcare industry. This strategy has driven strong growth over the long-term, as reflected in five- and ten-year compound annual revenue growth rates of 13% or more. This growth has also created a very strategic footprint in healthcare, with Cerner^® solutions licensed by over 8,500 facilities, including approximately 2,300 hospitals; 3,400 physician practices with over 30,000 physicians; 600 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 700 home health facilities; and 1,500 retail pharmacies. Selling additional solutions back into this client base is an important element of our future revenue growth. We are also focused on driving growth through market share expansion by replacing competitors in healthcare settings that are looking to replace their current healthcare information technology (HIT) partners or those who have not yet strategically aligned with a supplier. We expect the Health Information Technology for Economic and Clinical Health (HITECH) provisions in the American Recovery and Reinvestment Act (ARRA) will create a period of increased demand within the United States during which we believe we can gain additional market share. We also expect to drive growth through new initiatives and services that reflect our ongoing ability to innovate and expand our reach into healthcare. Examples of these include our CareAware^® healthcare device architecture and devices, Healthe employer services, Cerner ITWorks^SM services, Cerner RevWorks^SM services, physician practice solutions and solutions and services for the pharmaceutical market. Finally, we are focused on selling our solutions and services outside of the United States. Many non-U.S. markets have a low penetration of HIT solutions and their governing bodies are in many cases focused on HIT as part of their strategy to improve the quality and lower the cost of healthcare.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. Similar to our history of growing revenue, our net earnings have increased at more than 20% compound annual rates over five- and ten-year periods. We believe we can continue driving strong levels of earnings growth while also leveraging key areas to create operating margin expansion. The primary areas of opportunity for margin expansion include:

	•		becoming more efficient at implementing our software by leveraging implementation tools and methodologies we have developed that can reduce the amount of effort required to implement our software;

	•		leveraging our investments in R&D by addressing new market that do not require significant incremental R&D but can contribute significantly to revenue growth; and

	•		leveraging our scalable business infrastructure to reduce the rate of increase in general and administrative spending to below our revenue growth rate.

We are also focused on increasing cash flow by growing earnings, reducing the use of working capital and controlling capital expenditures.

Healthcare Information Technology Market

The lingering downturn in the worldwide economy has impacted almost all industries. While healthcare is not immune to economic cycles, we believe it is more resilient than most segments of the economy. The impact of the current economic conditions on our existing and prospective clients has been mixed. Some organizations are doing well operationally, but others face challenges such as higher levels of uninsured patients and Medicaid payments being impacted by the weakened financial condition of state governments.

We believe the result of these challenges is that healthcare organizations are focusing on strategic spending that generates a return on their investment. Because HIT solutions play an important role in healthcare by improving safety, efficiency and reducing cost, they are often viewed as more strategic than other potential purchases. Most healthcare providers also recognize that they must invest in HIT to meet regulatory, compliance and government reimbursement requirements.

Overall, while the economy has certainly impacted and could continue to impact our business, we believe there are several macro trends that are favorable for the HIT industry. One example is the need to curb the growth of United States healthcare spending, which analysts from the Centers for Medicare and Medicaid Services estimate at $2.5 trillion or 17.3 percent of Gross Domestic Product in 2009. In the United States, politicians and policymakers agree that the growing cost of our healthcare system is unsustainable. Leaders of both parties say the intelligent use of information systems will improve health outcomes and, correspondingly, drive down costs. They cite a 2005 study by RAND Corp., which estimated that the widespread adoption of HIT in the United States could cut healthcare costs by $162 billion annually.

In 2009, the broad recognition that HIT is essential to helping control healthcare costs contributed to the inclusion of HIT incentives in the ARRA. The HITECH provisions within ARRA include more than $35 billion to incent healthcare organizations to modernize operations through the acquisition and wide-spread use of HIT. We believe ARRA could represent the single biggest United States HIT opportunity in our 30 years as a company. With our large footprint in United States hospitals and physician practices, together with our proven ability to deliver value, we believe the Company is well-positioned to benefit from these incentives over the next several years.

Another dynamic in the United States marketplace is broader federal healthcare reform and uncertainty about how the legislation will impact the industry. While this creates some near-term uncertainty for healthcare providers, we believe HIT continues to be viewed as a transformational agent that is essential in all scenarios of reform.

Outside of the United States, the economy has impacted and could continue to impact our results in almost all regions. However, we believe revenue growth opportunities outside the United States remain significant because other countries are also grappling with increased healthcare spending, safety concerns and inefficient care, and many of these countries recognize HIT as an important part of the solution to these issues.

In summary, while the current economic environment has impacted our business, the fundamental value proposition of HIT remains strong. The HIT industry will likely benefit as healthcare providers and governments continue to recognize that these solutions and services contribute to safer, more efficient healthcare.

Results Overview

The Company delivered strong levels of bookings, earnings and cash flows in the first quarter of 2010. New business bookings revenue, which reflects the value of executed contracts for software, hardware and professional services and managed services, was $404.9 million in the first quarter of 2010, which was an increase of 22% compared to $332.8 million in the first quarter of 2009. Revenues for the first quarter of 2010 increased 10% to $431.3 million compared to $392.3 million in the year-ago quarter. The year-over-year increase in revenue in the first quarter reflects slightly better economic conditions and some early demand driven by the stimulus incentives provided by the HITECH provisions within the ARRA.

First quarter 2010 net earnings were $50.3 million and diluted earnings per share were $0.59. First quarter 2009 net earnings were $40.8 million and diluted earnings per share were $0.49. First quarter 2010 and 2009 net earnings and diluted earnings per share reflect the impact of shared-based compensation expense. Share-based compensation expense reduced first quarter 2010 net earnings and diluted earnings per share by $3.5 million and $0.04, respectively, and first quarter 2009 earnings and diluted earnings per share by $2.5 million and $0.03, respectively.

The growth in net earnings and diluted earnings per share was driven primarily by improved revenue growth and continued progress with our margin expansion initiatives, particularly leveraging R&D investments and controlling sales and client services expenses. Our first quarter 2010 operating margin was 17.5%, which is 170 basis points higher than the year-ago quarter and reflects continued progress towards our long-term goal of achieving 20% operating margins.

We had strong cash collections of receivables of $483.7 million in the first quarter of 2010 compared to $457.7 million in the first quarter of 2009. Days sales outstanding decreased to 89 days in the first quarter of 2010 compared to 90 days in the fourth quarter 2009 and 102 days in the first quarter of 2009. The majority of the year-over-year decline is driven by the reclassification of our Fujitsu receivable to other long term assets during the fourth quarter of 2009, which is not included in our days sales outstanding calculation. Operating cash flows for the first quarter of 2010 were strong at $105.5 million compared to $97.8 million in the first quarter of 2009.

Results of Operations

The following table presents a summary of the operating information for the first quarters of 2010 and 2009:



				% of						% of
(in thousands)	2010			Revenue			2009			Revenue			% Change


Revenues
System sales	$	116,951			27	%	$	100,189			26	%		17	%
Support and maintenance		127,106			29	%		124,493			32	%		2	%
Services		179,939			42	%		159,335			41	%		13	%
Reimbursed travel		7,341			2	%		8,305			2	%		-12	%

Total revenues		431,337			100	%		392,322			100	%		10	%

Costs of revenue
Costs of revenue		68,084			16	%		65,531			17	%		4	%

Total margin		363,253			84	%		326,791			83	%		11	%

Operating expenses
Sales and client		187,593			43	%		173,353			44	%		8	%
Software development		66,779			15	%		64,736			17	%		3	%
General and administrative		33,225			8	%		26,722			7	%		24	%

Total operating expenses		287,597			67	%		264,811			67	%		9	%


Total costs and expenses		355,681			82	%		330,342			84	%		8	%


Operating earnings		75,656			17.5	%		61,980			15.8	%		22	%

Interest income (expense), net		1,783						(321	)
Other income (expense), net		(76	)					204
Income taxes		(27,077	)					(21,033	)


Net earnings	$	50,286					$	40,830						23	%

Revenues & Backlog

Revenues increased 10% to $431.3 million for the first quarter 2010 from $392.3 million for the same period in 2009.

	•		System sales, which include revenues from the sale of software, technology resale (hardware and sublicensed software), deployment period licensed software upgrade rights, installation fees, transaction processing and subscriptions, increased 17% to $117.0 million for the first quarter of 2010 from $100.2 million for the same period in 2009. The increase in system sales was driven by a strong increase in licensed software, partially offset by a decline in technology resale revenue.

	•		Support and maintenance revenues increased 2% to $127.1 million during the first quarter of 2010 from $124.5 million during the same period in 2009. The increase is attributable to growth in Cerner Millennium applications for which support billing has been initiated.

	•		Services revenue, which includes professional services excluding installation, and managed services, increased 13% to $179.9 million from $159.3 million for the same period in 2009. This increase is driven by growth in CernerWorks^SM managed services as a result of continued demand for our hosting services and an increase in professional services due to increased implementation activities.

Contract backlog, which reflects new business bookings that have not yet been recognized as revenue, increased 24% in the first quarter of 2010 compared to the same period in 2009. This increase was driven by growth in new business bookings during the past four quarters, including continued strong levels of managed services bookings that typically have longer contract terms. A summary of our total backlog follows:


	Three Months Ended
(In thousands)	2010		2009


Contract backlog	$	3,698,991	$	2,980,990
Support and maintenance backlog		625,751		584,270

Total backlog	$	4,324,742	$	3,565,260

Costs of Revenue

Cost of revenues was 16% of total revenues in the first quarter of 2010, as compared to 17% in the same period of 2009. The cost of revenues includes the cost of reimbursed travel expense, third party consulting services and subscription content, computer hardware and sublicensed software purchased from hardware and software manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, maintenance, support, services and reimbursed travel) carrying different margin rates changes from period to period. Costs of revenues does not include the costs of our client service personnel who are responsible for delivering our service offerings, such costs are included in sales and client service expense.

Operating Expenses

Total operating expenses increased 9% to $287.6 million in the first quarter of 2010, compared with $264.8 million for the same period in 2009. Share-based compensation expense recognized impacted expenses as indicated below:


	Three Months Ended
(In thousands)	2010		2009



Sales and client service expenses	$	2,368	$	1,709
Software development expense		1,406		1,150
General and administrative expenses		1,733		1,061

Total stock-based compensation expense	$	5,507	$	3,920

	•		Sales and client service expenses as a percent of total revenues were 43% in the first quarter of 2010 as compared to 44% in the same period of 2009. These expenses increased 8% to $187.6 million in the first quarter of 2010, from $173.4 million in the same period of 2009. Sales and client service expenses include salaries of sales and client service personnel, depreciation and other expenses associated with our CernerWorks managed service business, communications expenses, unreimbursed travel expenses, expense for share-based payments, sales and marketing salaries and trade show and advertising costs. The increase was primarily attributable to growth in the managed services business and an increase in bad debt expense.

	•		Software development expense increased 3% to $66.8 million for the first quarter of 2010 compared to $64.7 million for the same period in 2009. The small amount of the increase reflects our ongoing efforts to control spending growth relative to revenue growth. A summary of our total software development expense is as follows:


	Three Months Ended
(In thousands)	2010			2009


Software development costs	$	71,457		$	69,975
Capitalized software costs		(20,282	)		(18,114	)
Capitalized costs related to share-based payments		(234	)		(174	)
Amortization of capitalized software costs		15,838			13,049

Total software development expense	$	66,779		$	64,736

•

General and administrative expenses as a percent of total revenues were 8%, in the first quarter of 2010, as compared to 7% for the same period in 2009. These expenses increased 24% to $33.2 million in the first quarter of 2010, from $26.7 million for the same period in 2009. General and administrative expenses include salaries for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, transaction gains or losses on foreign currency and expense for share based payments. We recorded a net transaction loss on foreign currency of $0.02 million and a net transaction gain on foreign currency of $5.5 million in the first quarters of 2010 and 2009, respectively, which accounted for the majority of the overall increase in general and administrative expenses.

Non-Operating Items

	•		Net interest income was $1.8 million in the first quarter of 2010 compared to net interest expense of $0.3 million in the first quarter of 2009. Interest income increased to $3.7 million in the first quarter of 2010 from $1.7 million for the same period in 2009, due primarily to growth in investments and an increase in investment returns. Interest expense decreased to $1.9 million in the first quarter of 2010 from $2.1 million for the same period in 2009, due primarily to long-term debt payments made in the fourth quarter of 2009.

	•		Other income was $0.1 million in the first quarter of 2010, compared to expense of $0.2 million for the same period in 2009. Other income and expense in the first quarters 2010 and 2009 includes offsetting unrealized gains and losses included in earnings related to our auction rate securities and put-like settlement feature in the amounts of $1.3 million and $6.3 million, respectively. Refer to Liquidity and Capital Resources within this MD&A and Note 3 of the notes to condensed consolidated financial statements for additional information on our auction rate securities.

	•		Our effective tax rate was 35% for the first quarter of 2010 and 34% for the first quarter of 2009. This increase is primarily due to the research and development tax credit not being extended for the 2010 tax year.

Operations by Segment

We have two operating segments, Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, Belgium, Canada, Cayman Islands, Chile, China (Hong Kong), Egypt, England, France, Germany, India, Ireland, Malaysia, Puerto Rico, Saudi Arabia, Singapore, Spain, Sweden, Switzerland and the United Arab Emirates.

The following table presents a summary of the operating information for the first quarters of 2010 and 2009:



(in thousands)	2010			% of Revenue		2009			% of Revenue		% Change

Domestic Segment
Revenues	$	355,315			100%	$	323,173			100%		10%
Costs of revenue		61,241			17%		54,462			17%		12%
Operating expenses		104,723			29%		89,777			28%		17%

Total costs and expenses		165,964			47%		144,239			45%		15%


Domestic operating earnings		189,351			53%		178,934			55%		6%


Global Segment
Revenues		76,022			100%		69,149			100%		10%
Costs of revenue		6,843			9%		11,069			16%		-38%
Operating expenses		29,713			39%		32,361			47%		-8%

Total costs and expenses		36,556			48%		43,430			63%		-16%


Global operating earnings		39,466			52%		25,719			37%		53%


Other, net		(153,161	)				(142,673	)				7%


Consolidated operating earnings	$	75,656				$	61,980					22%

Domestic Segment

	•		Revenues increased 10% to $355.3 million in the first quarter of 2010 from $323.2 million the same period in 2009. This increase was driven by growth in licensed software, managed services and professional services.

	•		Cost of revenues remained flat at 17% of revenues in the first quarter of 2010, compared to the same period in 2009.

	•		Operating expenses increased 17% to $104.7 million in the first quarter of 2010, from $89.8 million in the same period in 2009, due primarily to growth in managed services and bad debt expense.

Global Segment

	•		Revenues increased 10% to $76.0 million in the first quarter of 2010 from $69.1 million in the same period in 2009. This increase was driven by improved licensed software and support revenue, mostly from the United Kingdom and Middle East regions, as well as a change in estimates for certain contracts that rely on estimates as part of contract accounting.

	•		Cost of revenues was 9% of revenues in the first quarter of 2010, compared with 16% in the same period of 2009. The lower cost of revenues in the first quarter of 2010 was driven by a decrease in technology resale, which carries a higher cost of revenue.

	•		Operating expenses decreased 8% to $29.7 million for the first quarter of 2010, from $32.4 million in the same period in 2009, primarily due to a decrease in professional services expense.

Other, net

Operating results not attributed to an operating segment include expenses, such as software development, marketing, general and administrative, stock-based compensation and depreciation. These expenses increased 7% to $153.2 million in the first quarter of 2010 from $142.7 million in the same period in 2009. This increase was primarily due to growth in corporate personnel costs, as well as the previously discussed impact of foreign currency transaction gains and losses.

Liquidity and Capital Resources

Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients and the amounts we invest in software development, acquisitions and capital expenditures.

Our principal sources of liquidity are our cash, cash equivalents (which consist of money market funds), time deposits and bonds with original maturities of less than 90 days and short-term investments. At April 3, 2010, we had cash of $209.6 million, cash equivalents of $30.6 million and short-term investments of $368.7 million compared to cash of $144.8 million, cash equivalents of $97.0 million and short-term investments of $317.1 million at January 2, 2010.

Additionally, we maintain a $90 million, multi-year revolving credit facility, which provides an unsecured revolving line of credit for working capital purposes. Interest is payable at a rate based on prime or LIBOR plus a spread that varies depending on the net worth ratios maintained. The agreement contains certain net worth, current ratio and fixed charge coverage covenants and provides certain restrictions on our ability to borrow, incur liens, sell assets and pay dividends. The current agreement expires on May 31, 2013. As of April 3, 2010, we had no outstanding borrowings under this agreement and were in compliance with all covenants.

We believe that our present cash position, together with cash generated from operations, short-term investments and, if necessary, our available lines of credit, will be sufficient to meet anticipated cash requirements during 2010.

In February and March 2008, liquidity issues in the global credit markets resulted in the progressive failure of auctions representing all the auction rate securities held by us. During the fourth quarter of 2008, we entered into a settlement agreement with the investment firm that sold us the auction rate securities. Under the terms of the settlement agreement, we received the right to redeem the securities at par value during a period from mid-2010 through mid-2012. The settlement is in effect a put-like instrument with a fair value generally equal to the difference between the auction rate securities’ fair value and par value. In the fourth quarter of 2009, these securities were reclassified to short term investments based on our intention to exercise the put-like settlement feature and redeem the securities

within the next year. At April 3, 2010, we held auction rate securities with a par value of $88.2 million and an estimated fair value of $80.1 million.

We anticipate that any future changes in the fair value of the put-like feature will be offset by the changes in the fair value of the related auction rate securities with no material net impact to the Condensed Consolidated Statements of Operations. We do not expect the auction failures to impact our ability to fund our working capital needs, capital expenditures or other business requirements.

The following table provides details about our cash flows in the first quarters of 2010 and 2009:


	Three Months Ended
(In thousands)	2010			2009


Cash flows from operating activities	$	105,503		$	97,826
Cash flows from investing activities		(122,474	)		(40,712	)
Cash flows from financing activities		16,540			3,816
Effect of exchange rate changes on cash		(1,085	)		(6,244	)

Total change in cash and cash equivalents	$	(1,516	)	$	54,686


Free cash flow (non-GAAP)	$	52,879		$	36,365

Cash from Operating Activities

Cash flow from operations increased in the first three months of 2010 as compared to the same period of 2009 due primarily to the increase in cash impacting earnings, slightly offset by a decrease in cash provided by working capital. During the first three months of 2010 and 2009, we received total client cash collections of $483.7 million and $457.7 million, respectively, of which 4% and 2%, respectively, were received from third party client financing arrangements and non-recourse payment assignments. Days sales outstanding decreased to 89 days for the first quarter of 2010 compared to 90 days in the fourth quarter 2009 and 102 days in the first quarter of 2009. The majority of this year-over-year decline is driven by the reclassification of our Fujitsu receivable to other long-term assets during the fourth quarter of 2009, which is not included in our days sales outstanding calculation. Revenues provided under support and maintenance agreements represent recurring cash flows. Support and maintenance revenues increased 2% in the first three months of 2010 compared to the first three months of 2009. We expect these revenues to continue to grow as the base of installed Cerner Millennium systems grows.

Cash from Investing Activities


	Three Months Ended
(In thousands)	2010			2009


Capital purchases	$	(32,108	)	$	(43,173	)
Capitalized software development costs		(20,516	)		(18,288	)
Purchases of investments, net of maturities		(53,131	)		26,247
Acquisition of businesses, net of cash acquired		(14,486	)		(3,529	)
Other, net		(2,233	)		(1,969	)

Total cash flows from investing activities	$	(122,474	)	$	(40,712	)

Cash flows from investing activities consist primarily of capital spending and our short-term investment activities. Capital spending consists of capitalized equipment purchases primarily to support growth in our CernerWorks managed services business, capitalized land, building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives. Capital spending in 2010 is expected to approximate our 2009 levels.

In addition, during the first quarter 2010, we completed our acquisition of IMC Health Care, Inc. for approximately $14.5 million, net of the cash acquired.

Cash from Financing Activities


	Three Months Ended
(In thousands)	2010			2009

Long-term debt repayments	$	(219	)	$	(98	)
Cash from option exercises (incl. excess tax benefits)		15,243			3,813
Other, net		1,516			101

Total cash flows from financing activities	$	16,540		$	3,816

Our primary financing obligations are long-term debt repayments. In the fourth quarter of 2009, we commenced payment on the first of seven equal annual installments on our 5.54% Great Britain Pound denominated Note Agreement as well as on the first of four equal annual installments on our 6.42% Series B Senior Notes. Based on debts currently outstanding and current exchange rates, we expect our debt repayments to approximate $25 million per year through 2012 and approximately $15 million per year from 2013 through 2016.

Free Cash Flow


	Three Months Ended
(In thousands)	2010			2009

Cash flows from operating activities	$	105,503		$	97,826
Capital purchases		(32,108	)		(43,173	)
Capitalized software development costs		(20,516	)		(18,288	)

Free cash flow (non-GAAP)	$	52,879		$	36,365

Free Cash Flow increased $16 million in the first three months of 2010 as compared to the same period in 2009, which we believe reflects continued strengthening of our earnings quality. Free Cash Flow is a non-GAAP financial measure used by management along with GAAP results to analyze its earnings quality and overall cash generation of the business. The presentation of Free Cash Flow is not meant to be considered in isolation, as a substitute for, or superior to, GAAP results and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Free Cash Flow may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe Free Cash Flow is important to enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review of our overall financial, operational and economic performance.

Recent Accounting Pronouncements


Item 3.		Quantitative and Qualitative Disclosures about Market Risk

No material changes.


Item 4.		Controls and Procedures

	a)		Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by the Quarterly Report (the Evaluation Date). They have concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities and would be disclosed on a timely basis. The CEO and CFO have concluded that the Company’s disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the SEC. They have also concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act are accumulated and communicated to the Company’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure.

	b)		There were no changes in the Company’s internal controls over financial reporting during the three months ended April 3, 2010 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

	c)		The Company’s management, including its CEO and CFO, has concluded that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at that reasonable assurance level. However, the Company’s management can provide no assurance that our disclosure controls and procedures or our internal control over financial reporting can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II. Other Information


Item 6.		Exhibits

(a)

Exhibits

	10(a)		Cerner Corporation 2001 Associate Stock Purchase Plan as Amended and Restated March 1, 2010.

	10(b)		Cerner Corporation 2005 Enhanced Severance Pay Plan as Amended and Restated April 1, 2010.

	31.1		Certification of Neal L. Patterson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Marc G. Naughton, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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 Registrant
April 30, 2010	By:	/s/Marc G. Naughton
Date		Marc G. Naughton
		Chief Financial Officer (duly authorized officer and principal financial officer)

EX-10.A 2 c57785exv10wa.htm EX-10.A exv10wa

Exhibit 10(a)

CERNER CORPORATION
2001 Associate Stock Purchase Plan
(Amended and Restated March 1, 2010)

SECTION 1. PURPOSE OF PLAN

The Cerner Corporation 2001 Associate Stock Purchase Plan (the “Plan”) is designed to encourage and assist associates of Cerner Corporation (“Cerner” or “Company”), including all associates of Cerner U.S. based subsidiaries, to acquire an equity interest in Cerner through the purchase of shares of Cerner common stock, par value $.01 per share (“Common Stock”). This Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”).

SECTION 2. ADMINISTRATION OF THE PLAN

The Plan shall be administered by Cerner’s Board of Directors (the “Board”) or by a committee of the Board (the “Committee”) appointed by the Board and serving at its pleasure (the Board or any such Committee being herein referred to as the “Administrator”). Until such time as the Board shall determine otherwise, the Compensation Committee of the Board shall serve as Administrator. The Administrator shall have full power and authority, not inconsistent with the express provisions of the Plan, to administer and interpret the Plan, including the authority to:

	(i)		grant options and authorize the issuance of shares;

	(ii)		make and amend all rules, regulations, guidelines, procedures and policies for administering the Plan;

	(iii)		decide all questions and settle all disputes that may arise in connection with the Plan;

	(iv)		appoint persons and entities to act as designated representatives on the Administrator’s behalf in administering the Plan pursuant to its provisions (in which case the term “Administrator” as used herein shall include such persons or entities to the extent of such appointment);

	(v)		establish accounts with a person or entity appointed pursuant to (iv) above (“Custodian”) to hold Common Stock purchased under the Plan (“Stock Account”);

	(vi)		cause Cerner to enter into a written agreement with the Custodian setting forth the terms and conditions upon which Stock Accounts shall be governed (“Custodial Agreement”); and

	(vii)		require Participants to hold shares of Common Stock under the Plan in Stock Accounts (in which case each Participant’s decision to participate in the Plan shall constitute the appointment of such Custodian as custodial agent for the purpose of holding such shares) until such time as shall be specified in the Custodial Agreement.

All interpretations, decisions and determinations made by the Administrator shall be binding on all persons concerned.

SECTION 3. NATURE AND NUMBER OF SHARES

The Common Stock subject to issuance under the terms of the Plan shall be authorized but unissued shares or previously issued shares reacquired and held by the Company. The aggregate number of shares that may be issued under the Plan shall not exceed 2,000,000 (reflecting the January 2006 2 for 1 stock split) shares of Common Stock.

In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, exchange of shares, merger, consolidation, offering of rights or other similar change in the capital structure of the Company, the Board or the Committee may make such adjustment, if any, as it deems appropriate in the number, kind and purchase price of the shares available for purchase under the Plan and in the maximum number of shares which may be issued under the Plan.

SECTION 4. ELIGIBILITY

Each individual employed by Cerner, including associates employed by its U.S. based subsidiaries (“Associate”), except as provided below, shall be eligible to participate in the Plan. The following individuals shall be excluded from participation:

(a) Persons who, as of the date of grant of an Option, have been continuously employed by Cerner for less than two (2) weeks;

(b) Persons who, immediately upon the grant of an Option, own directly or indirectly, or hold options or rights to acquire under any agreement or Company plan, an aggregate of five percent (5%) or more of the total combined voting power or value of all outstanding shares of all classes of Cerner Common Stock; and

(c) Persons who are customarily employed by the Company for less than twenty (20) hours per week or for not more than five (5) months in any calendar year.

SECTION 5. ENROLLMENT AND WITHDRAWAL

Each eligible Associate may enroll or re-enroll in the Plan as of the first day of any Option Period (as hereinafter defined) after the Associate first becomes eligible to participate. To enroll, an Associate must properly complete an enrollment form (including a payroll deduction authorization) in a form and manner acceptable to the Administrator and submit it to the Company, or use such other means to enroll as is authorized by the Administrator, within the time period before the commencement of such Option Period as the Administrator may prescribe. Participation in the Plan is voluntary. A “Participant” shall be an Associate enrolled in the Plan.

A Participant will automatically be enrolled in all future Option Periods unless the Participant withdraws from the Plan. If a Participant withdraws from the Plan, he or she will cease to be a Participant and may only participate in future Option Periods if he or she re-enrolls in the Plan. Any Participant may withdraw from the Plan by notifying the Company in writing, via electronic designation on the third party administrator’s website, or any other manner permitted by the Administrator during the Option Period provided that such notification is at least three (3) business days prior to the Purchase Date (as defined below). Upon such a withdrawal, the entire amount contributed to the Plan by the Participant (and not yet used to purchase Common Stock) will be refunded without interest as soon as administratively practicable. In the event that a Participant notifies the Company within the three (3) day period prior to the Purchase Date, the Participant will be withdrawn from participating in the next following Option Period.

SECTION 6. GRANT OF OPTIONS

Unless changed by the Board or the Committee, the Plan will be implemented by four (4) annual offerings of the Company’s Common Stock each calendar year (the “Option Periods”). In

each year that the Plan is in effect, the first Option Period will begin on January 1 and end on March 31, the second Option Period will begin on April 1 and end on June 30, the third Option Period will begin on July 1 and end on September 30, and the fourth Option Period will begin on October 1 and end on December 31.

Each person who is a Participant on the first day of an Option Period (the “Grant Date”) will as of such day be granted an option for the Option Period (the “Option”). Such Option will be for the purchase of a maximum number of shares of Common Stock to be determined by dividing (i) the balance credited to the Participant’s Payment Account (as defined in Section 7(b)) during such Option Period by means of payroll deduction (or such other means deemed acceptable by the Administrator) as of the Purchase Date (as determined under Section 8 below), by (ii) the purchase price per share of the Common Stock as determined under Section 8.

In no event shall a Participant be entitled to purchase, for any Option Period, more than the lesser of (i) the number of shares obtained by dividing $25,000 by the fair market value of a share of Common Stock on the Grant Date for such Option Period, or (ii) the maximum number of shares permitted to be purchased under Section 7(c) below.

The Administrator will reduce, on a substantially proportionate basis, the number of shares of Common Stock receivable by each Participant upon exercise of his or her Option for an Option Period in the event that the number of shares then available under the Plan is otherwise insufficient, and will return to Participant without interest any remaining unused balance in the Participant’s Payment Account as soon as administratively practicable.

SECTION 7. METHOD OF PAYMENT

(a) Form of Payment. Payment for shares shall be made in installments through after-tax payroll deductions during the Option Period, with such deductions taken from pay periods paid during the Option Period, or in such other form of payment deemed acceptable by the Administrator.

Subject to Section 18 and to the limits below and in Section 8, each Participant may elect through payroll withholding during the Option Period (or such other means deemed acceptable by the Company) to have credited to his or her Payment Account an amount not less than one percent (1%) and not greater than twenty percent (20%) of Compensation (as defined below); provided that the Administrator from time to time before an enrollment date may establish limits other than those herein described for all purchases to occur during the relevant Option Period.

For purposes of the Plan, “Compensation” shall mean all compensation paid to the Participant by the Company and currently includible in his or her income, including variable compensation (such as commissions, bonuses or other short-term incentive payments), overtime, and other amounts includible in the general definition of compensation provided in Treasury Regulation §1.415-2(d)(1), plus any amount that would be so included but for the fact that it was contributed to (a) a qualified plan pursuant to an elective deferral under Section 401(k) of the Code, (b) a nonqualified deferred compensation plan, and/or (c) a cafeteria plan on a before-tax basis pursuant to an election under Section 125 of the Code, but not including (i) payments under stock option plans (including any amount of income recognized upon the exercise of a stock option) and other employee benefit plans or other amounts excluded from the definition of compensation provided in the Treasury Regulations under Section 415 of the Code, and (ii) reimbursements or other expense allowances, fringe benefits (cash and

noncash), moving expenses, payments of benefits under nonqualified deferred compensation plans, and welfare benefits.

A Participant may decrease the rate of withholding on a prospective basis effective as to future pay periods within an Option Period by giving written or electronic notice (in a form acceptable to the Administrator) to the Company not less than two (2) weeks prior to the desired effective date of such decrease. During the applicable enrollment period before an upcoming Option Period, a Participant may increase the rate of withholding by giving written or electronic notice (in a form acceptable to the Administrator) to the Company during such enrollment period; provided, however, that such an increase in withholding shall be effective for the upcoming future Option Period(s) only.

(b) Accounts. A “Payment Account” means the book entry account maintained by the Company or Administrator to record the amount of Participant’s payments made pursuant to Section 7(a) and any cash amount carried forward from an Option Period to the Grant Date for the next Option Period pursuant to Section 9. All payments by each Participant shall be credited to such Participant’s Payment Account pending the purchase of Common Stock in accordance with the provisions of the Plan. All such amounts in the Payment Account shall be assets of the Company and may be used by the Company for any corporate purpose. No interest will be paid on amounts credited to a Participant’s Payment Account.

(c) Limits on Purchase. In no event shall the rights of any Participant to purchase shares (under this Plan and under any other stock purchase plans of Cerner which are intended to qualify under Section 423 of the Code) accrue at a rate that exceeds $25,000 per calendar year as measured by the fair market value of such shares (determined in the case of each such share as of the Grant Date of the related Option). For purposes of administering this accrual limitation, the Administrator shall limit purchases under the Plan as follows:

(i) The number of shares which may be purchasable by a Participant during his or her first Option Period during a calendar year may not exceed a number of shares determined by dividing $25,000 by the Fair Market Value of a Share on the Grant Date for that Option Period.

(ii) The number of shares which may be purchasable by a Participant during any subsequent Option Period during the same calendar year (if any) shall not exceed the number of Shares determined by performing the calculation below:

(A) First, for each previous Option Period during the same calendar year, the number of Shares purchased by the Participant during such previous Option Period shall be multiplied by the Fair Market Value of a Share on the respective Grant Date for such same previous Option Period.

(B) Second, the sum of all amounts calculated under (A) above (for all Option Periods) shall be calculated.

(D) Fourth, the amount determined under (C) above shall be divided by the Fair Market Value of a Share on the Grant Date for such subsequent Option Period (for which the maximum number of Shares purchasable is being determined by this calculation) occurs. The quotient thus obtained shall be the maximum

number of Shares which may be purchased by any Participant for such subsequent Option Period.

SECTION 8. PURCHASE PRICE

The purchase price of Common Stock issued pursuant to the exercise of an Option shall be eighty-five (85%) of the fair market value of Common Stock on the last trading day of the Option Period (the “Purchase Date”).

Fair market value shall mean the closing price of Common Stock as reported on the Nasdaq Stock Market or other national securities exchange on which the Common Stock is then principally traded or, if that measure of price is not available, on a composite index of such exchanges or, if that measure of price is not available, in a national market system for securities. In the event that there are no sales of Common Stock on any such exchange or market on the Purchase Date, the fair market value of the Common Stock shall be deemed to be the closing sales price on the next preceding day on which Common Stock is sold on any such exchange or market. In the event that the Common Stock is not listed on any such market or exchange on the Purchase Date, a reasonable valuation of the fair market value of the Common Stock on such dates shall be made by the Administrator.

SECTION 9. AUTOMATIC EXERCISE OF OPTIONS; STOCK TRANSFER RESTRICTIONS

If an Associate is a Participant in the Plan on a Purchase Date, he or she will be deemed to have exercised the Option granted to him or her for the period ending on that Purchase Date. Upon such exercise, the Company will apply the balance of the Participant’s Payment Account to the purchase of the number of whole shares of Common Stock determined under Section 6 and, as soon as practicable thereafter, will issue and deliver said whole shares to the Participant (unless Stock Accounts are established by the Administrator pursuant to Section 2 of the Plan). Any cash remaining in the Participant’s Payment Account shall either be carried forward to the next Grant Date (without interest) and become a part of the Payment Account for the Option Period to which such next Grant Date applies, or, upon written request of the Participant to the Administrator, be paid to Participant without interest (unless Stock Accounts are established by the Administrator pursuant to Section 2 of the Plan).

Notwithstanding anything herein to the contrary, Cerner’s obligation to issue and deliver whole shares of Common Stock under the Plan will be subject to the approval required by any governmental authority in connection with the authorization, issuance, sale or transfer of said shares, to any requirements of any national securities exchange applicable thereto, and to compliance by Cerner with other applicable legal requirements in effect from time to time.

This Plan is intended to satisfy the requirements of Section 423 of the Code. A Participant will not obtain the benefits of this provision of the Code if such Participant disposes of shares of Common Stock acquired pursuant to the Plan within two (2) years from the Grant Date or within one (1) year from the date such Common Stock is purchased by the Participant, whichever is later.

Additionally, any shares of Common Stock issued under the Plan may not be sold, transferred or assigned for a period of one (1) year after the date issued. Each certificate representing shares of Common Stock issued under this Plan during such one (1) year period shall bear the following legend:

“The Shares represented by this certificate may not be sold, transferred or assigned, and the issuer shall not be required to give effect to any attempted sale,

transfer or assignment, until a date that is more than one (1) year after the date of issuance of this certificate.”;

or such other legend as shall be approved by the Administrator.

SECTION 10. TERMINATION OF EMPLOYMENT

Subject to Section 11, upon the termination of a Participant’s employment with the Company for any reason, the Participant’s Payment Account balance shall be frozen to future accruals and the Participant shall be withdrawn from Plan participation and cease to be a Participant. Upon the cessation of participation, any Option held by the Participant under the Plan shall be treated as follows: (i) the Participant may give written notice to the Administrator within three (3) business days after the Participant’s termination (so long as there is at least three (3) business days remaining before the Purchase Date) of his/her desire to cancel his/her Option under the Plan, in which case the Participant’s Payment Account balance will be returned to Participant; or, (ii) if no such notice is received by Participant, or if there are less than three (3) business days remaining before the Purchase Date when the written request is made, then the Option will be exercised on the next Purchase Date. In the case of death of the Participant, the Participant’s Payment Account shall be refunded in accordance with Section 11, without interest, as soon as administratively practicable and the Participant will have no further rights under the Plan.

SECTION 11. DEATH OF A PARTICIPANT

As soon as administratively feasible after the death of a Participant, any Common Stock and/or cash credited to the Participant under the Plan shall be delivered to the Participant’s executor, administrator or other legal representative of the Participant’s estate. Such delivery and payment shall relieve the Company of further liability to the deceased Participant or his/her estate with respect to the Plan.

SECTION 12. ASSIGNMENT

Except as provided in Section 11 above, a Participant’s Option, funds, securities, rights or other property held for the account of a Participant shall not be sold, pledged, assigned, transferred, or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, or similar process. Any attempted sale, pledge, assignment, transfer, hypothecation or other disposition of an Option, or levy of attachment or similar process upon the Option not specifically permitted herein shall be null and void and without effect. A Participant’s right to purchase shares under the Plan shall be exercisable during the Participant’s lifetime only by the Participant. If this provision is violated, the Participant’s election to purchase Common Stock shall terminate and the only obligation of the Company remaining under the Plan will be to refund to the Participant the amount then credited to his or her Payment Account and deliver to Participant any whole shares of Common Stock credited to him or her under any Stock Account.

SECTION 13. DISSOLUTION, MERGER AND CONSOLIDATION

Upon the dissolution or liquidation of the Company, or upon a merger or consolidation of the Company in which the Company is not the surviving corporation, each Option granted hereunder shall expire as of the effective date of such transaction; provided, however, that the Administrator shall give at least 30 days’ written notice of such event to each Participant during which time he or she shall have a right to exercise his or her wholly or partially unexercised Option

and, subject to earlier exercise pursuant to Section 9, each Option shall be exercisable after receipt of such written notice and prior to the effective date of such transaction.

SECTION 14. EQUAL RIGHTS AND PRIVILEGES

All eligible Associates shall have equal rights and privileges with respect to the Plan so that the Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provisions of the Code and related regulations. Any provision of the Plan that is inconsistent with Section 423 or any successor provision of the Code shall without further act of amendment by the Company be reformed to comply with the requirements of Section 423. This Section 14 shall take precedence over all other provisions of the Plan.

SECTION 15. RIGHTS AS STOCKHOLDER

A Participant shall have no rights as a stockholder under an Option until he or she becomes a stockholder as herein provided. A Participant will become a stockholder with respect to shares for which payment has been completed as provided in Section 8 as of the close of business on the Purchase Date for the Option Period.

SECTION 16. MODIFICATION AND TERMINATION OF THE PLAN

The Board or the Committee may terminate the Plan at any time. The Board, the Committee or one of its appointed delegates may at any time and from time to time amend the Plan in any manner permitted by law. No amendment shall be effective unless within one (1) year after it is adopted, the amendment is approved by Cerner’s shareholders in the manner prescribed under the Treasury Regulations under Section 423 of the Code, if such amendment would:

	(i)		increase the number of shares reserved for purchase under the Plan, unless such increase is by reason of any change in the capital structure of the Company referred to in Section 3 hereof;

	(ii)		change the designation of corporations or other entities whose employees may be offered Options under the Plan, except as permitted under Treasury Regulations §1.423-2(c)(4);

	(iii)		materially modify the requirements as to eligibility for participation in the Plan; or

	(iv)		materially increase the benefits accruing to Participants under the Plan.

In the event the Plan is terminated, the Board or Committee may elect to terminate all outstanding Options either immediately or upon completion of the purchase of shares on the next Purchase Date, unless the Board has determined that the right to make all such purchases shall expire on some other designated date occurring prior to the next Purchase Date. If Options are terminated prior to expiration, all funds contributed to the Plan that have not been used to purchase shares shall be returned without interest to the Participants.

SECTION 17. BOARD AND SHAREHOLDER APPROVAL; EFFECTIVE DATE

This Plan was adopted by the Board on March 9, 2001. The Effective Date of the Plan is May 25, 2001, which was the date this Plan was approved by the shareholders of Cerner Corporation.

SECTION 18. RETIREMENT PLAN HARDSHIP DISTRIBUTIONS

In the event that a Participant has received a hardship distribution under the Cerner Corporation Foundations Retirement Plan, such Participant shall be prohibited from making payments under Section 7 of this Plan for a period of at least six (6) months (or, if the applicable required suspension period under the applicable 401(k) laws relating to hardship distributions from qualified 401(k) plans require a longer or shorter suspension period, such shorter or longer period) after the Participant’s receipt of the hardship distribution,.

SECTION 19. OTHER PROVISIONS

Options and other documentation under the Plan shall contain such other provisions as the Administrator shall deem advisable, provided that no such provision shall conflict with the express terms of the Plan.

SECTION 20. USE OF FUNDS.

All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose. The Company shall not be obligated to segregate such payroll deductions.

SECTION 21. ERISA

This Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974.

SECTION 22. EFFECT OF PLAN

The Provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Associate participating in the Plan, including, without limitation, such Associate’s estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Associate.

SECTION 23. WITHHOLDING TAXES

Upon the exercise of any Option under the Plan, the Company shall have the right to require the Associate to remit to the Company an amount sufficient to satisfy all federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for shares of Common Stock.

SECTION 24. EMPLOYMENT RIGHTS

Nothing contained in the provisions of the Plan shall be construed to give to any individual the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge any Associate at any time.

SECTION 25. GOVERNING LAW

The Law of the State of Missouri will govern all matters relating to this Plan except to the extent superseded by the federal laws of the United States.

EX-10.B 3 c57785exv10wb.htm EX-10.B exv10wb

Exhibit 10(b)

CERNER CORPORATION

2005 ENHANCED SEVERANCE PAY PLAN

As Amended and Restated on January 1, 2008 (for I.R.C. § 409A) and on April 1, 2010

SECTION 1. Introduction.

(a) Purpose. Cerner Corporation and its United States-based wholly-owned subsidiaries (“Cerner”) value the contributions of their Associates and take measures to create and maintain a productive and fulfilling work environment. However, Cerner recognizes that business needs, an Associate’s work performance or other reasons may require termination of employment. At any point during an Associate’s employment, Cerner may choose to terminate the employment relationship.

Because employment with Cerner is at-will, Cerner has no obligation to compensate any Associate upon termination from his or her employment other than as may be provided in that Associate’s Cerner Associate Employment Agreement or as specifically set forth in this 2005 Enhanced Severance Pay Plan (“Plan”). Cerner values its Associates and is interested in helping to mitigate the financial hardship caused by business conditions or other factors necessitating a termination.

(b) Overview. Generally, this Plan provides enhanced Severance Benefits to Associates upon either a (i) “Non-CIC Severance” or (ii) “CIC Severance”, as such terms are defined herein. Cerner expressly reserves the right to amend or terminate this Plan, or the benefits provided hereunder, at any time; provided, however, that no such amendment or termination shall occur with respect to the CIC Severance Benefits after the occurrence of a Change in Control.

SECTION 2. Definitions.

Certain capitalized terms used herein are defined parenthetically throughout this Plan and/or defined in this Section 2.

(a) Associate. “Associate” means an employee of Cerner.

(b) Beneficial Ownership. “Beneficial Ownership”, “Beneficial Owner” or “Beneficially Own” shall have the same meaning as such terms are used in Rule 13d-3 of the Exchange Act.

(d) Cause. “Cause” means an Eligible Associate’s (i) material breach of his/her Employment Agreement or material neglect of his/her duties and responsibilities

thereunder, (ii) fraud against Cerner, (iii) misappropriation of Cerner’s assets, (iv) embezzlement from Cerner, (v) theft from Cerner, (vi) acts resulting in the arrest and indictment for a crime involving drug abuse, violence, dishonesty or theft or (vii) act or failure to take any action that results in a violation of the Sarbanes-Oxley Act of 2002, or any related statutes, laws or regulations.

(e) Change in Control. “Change in Control” means:

(i)The acquisition by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Exchange Act) of Beneficial Ownership of thirty-five percent (35%) or more of either: (A) the then outstanding shares of common stock of Cerner Corporation (the “Outstanding Cerner Common Stock”), or (B) the combined voting power of the then outstanding voting securities of Cerner Corporation entitled to vote generally in the election of the Board’s directors (the “Outstanding Cerner Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (X) any acquisition directly from Cerner, (Y) any acquisition by Cerner or (Z) any acquisition by any Associate benefit plan (or related trust) sponsored or maintained by Cerner Corporation or any corporation controlled by Cerner; or

(ii)Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Board director subsequent to the date hereof whose appointment or election, or nomination for election by Cerner’s shareholders, was approved by a vote of at least a majority of the Board directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Board directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Cerner (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Cerner Common Stock and Outstanding Cerner Voting Securities immediately prior to such Business Combination Beneficially Own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of Cerner Corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Cerner or all or substantially all of Cerner’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Cerner Common Stock and Outstanding Cerner Voting Securities, as the case may be, (B) no Person (excluding any Associate benefit plan (or related trust) of Cerner or such

corporation resulting from such Business Combination) Beneficially Owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of Cerner Corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(iv)Approval by the shareholders of Cerner Corporation of a complete liquidation or dissolution of Cerner.

(f) CIC Protected Period. “CIC Protected Period” means the period beginning on the effective date of a Change in Control and ending on the one-year anniversary of such effective date.

(g) CIC Severance. “CIC Severance” means, at any time during the CIC Protected Period, an Eligible Associate’s termination of employment with Cerner (or its successor), that that also qualifies as a separation from service under Section 409A of the Code, due to (i) Cerner’s (or its successor’s) termination without Cause of the Eligible Associate’s employment, or (ii) the Eligible Associate’s resignation for Good Reason.

(h) CIC Severance Benefits. “CIC Severance Benefits” means those severance benefits set forth in Section 4(b) that, provided an Eligible Associate is entitled to receive such benefits in accordance with Section 3, the Eligible Associate receives following a CIC Severance.

(i) CIC Week of Severance Pay. A “CIC Week of Severance Pay” means an Eligible Associate’s: (i) regular weekly base rate of pay in effect on the effective date of a CIC Severance (prior to any reductions taken for payroll taxes, income tax withholdings, elective deferrals made to or in connection with Cerner’s Associate benefit plans or Executive Deferred Compensation Plan, and excluding any overtime, bonuses, commissions, premium pay, benefits, expense reimbursements, etc.), plus (ii) the average annual cash bonus the Associate had received from Cerner during the three (3) years preceding the CIC Severance (prior to any reductions taken for payroll taxes, income tax withholdings, elective deferrals made to or in connection with Cerner’s Associate benefit plans or Executive Deferred Compensation Plan, and excluding any overtime, bonuses, commissions, premium pay, benefits, expense reimbursements, etc.), divided by 52 weeks. For example, a CIC Week of Severance Pay for an Eligible Associate whose: (i) annual base salary (excluding the pay and benefits listed above) is $52,000, and (ii) whose average annual cash bonus received during the three (3) years preceding the CIC Severance is $15,600, would be $1,000 ($52,000/52 weeks) plus $300 ($15,600/52 weeks), equaling a CIC Week of Severance Pay of $1,300. Cerner’s cash bonus plan currently pays a bonus, if earned, following each fiscal quarter of Cerner. When calculating the average annual cash bonus, the actual cash bonus paid to the Associate (or earned but not yet paid for the most recent full fiscal quarter preceding the CIC Severance) for the twelve (12) consecutive full Cerner fiscal quarters immediately preceding the CIC Severance shall be included in the calculation of the Associate’s average annual cash bonus for the three (3) years preceding the

CIC Severance. If the Associate has not been employed by Cerner for twelve (12) consecutive full Cerner fiscal quarters immediately prior to the CIC Severance, the average annual cash bonus received by such Associate shall be calculated based on the number of consecutive full fiscal quarters the Associate has been employed by Cerner immediately prior to the CIC Severance and adjusted to equal a yearly average. For avoidance of all doubt, the calculation of average annual cash bonus shall not include any sales commissions or similar payments received by an Associate based on individual sales or contracts signed with Cerner clients.

(j) COBRA. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(k)Code. “Code” means the Internal Revenue Code of 1986, as amended.

(l) Eligible Associate. “Eligible Associate” means an individual who: (i) is a permanent, full-time salaried Associate on the U.S. payroll of Cerner, as determined by Cerner’s employment records; and (ii) has entered into an Employment Agreement. The determination of whether an Associate is an Eligible Associate shall be made by the Plan Administrator, in its sole discretion, and such determination shall be binding and conclusive on all persons. In no event shall part-time Associates, interns or independent contractors be Eligible Associates.

(m)Employment Agreement. “Employment Agreement” means an Eligible Associate’s then current Cerner Associate Employment Agreement with Cerner.

(n) Exchange Act. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(o) Excess Severance Benefits. “Excess Severance Benefits” means any Severance Benefits that exceed the limit provided in Treas. Reg. Section 1.409A-1(b)(9)(iii).

(p) Good Reason. “Good Reason” means, without an Eligible Associate’s express written consent: (i) a material adverse change in the Eligible Associate’s authority, duties or job responsibilities (except for such subordination in duties and job responsibilities as may normally be required due to Cerner’s change from an independent business entity to a subsidiary or division of another corporate entity); or (ii) a reduction of 5% or more to an Eligible Associate’s annual salary and cash bonus opportunity in effect prior to the Change in Control; provided, however, the Eligible Associate must provide notice to Cerner (or its successors) within 30 days after the adverse change or reduction and must give Cerner (or its successors) at least 30 days to remedy the event or condition. In no event will an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by Cerner (or its successors) constitute Good Reason.

(q) Non-CIC Severance. “Non-CIC Severance” means at any time, other than during a CIC Protected Period, an Eligible Associate’s termination of employment with Cerner, that also qualifies as a separation from service under Section 409A of the Code, by Cerner, other than for Cause, due to reorganization, restructuring, unsatisfactory work performance (other than where such unsatisfactory work performance is deliberate), or for other reasons as determined by the Plan Administrator in its sole discretion to constitute a Non-CIC Severance. Without limitation, the following events and reasons shall not constitute a Non-CIC Severance:

(i) death;

(ii) disability;

(iii) voluntary resignation (regardless of the circumstances surrounding the Eligible Associate’s decision to resign);

(iv) retirement;

(v) discharge by Cerner for any other work related reason other than redundancy or unsatisfactory work performance (including, without limitation, absenteeism, misconduct, refusal to transfer to an equivalent position that does not require relocation, failure to return to work after an approved leave of absence, insubordination, violation of Cerner’s rules or policies, dishonesty, deliberate unsatisfactory performance, etc.);

(vi) entering military duty;

(vii)CIC Severance; or

(viii)Termination for Cause.

(r) Non-CIC Severance Benefits. “Non-CIC Severance Benefits” means those severance benefits set forth in Section 4(a) that, provided an Eligible Associate is entitled to receive such benefits in accordance with Section 3, the Eligible Associate receives following a Non-CIC Severance.

(s) Plan Administrator. “Plan Administrator” means the person or entity specified as such in Section 7.

(t) Role Level. “Role Level” means an Eligible Associate’s designated category of employment as specified by Cerner’s current employment classification hierarchy. In the event Cerner changes its hierarchy structure, the Role Levels specified in this Plan shall refer to the equivalent Role Level under any new classification scheme.

(u)Severance Benefits. “Severance Benefits” means either CIC Severance Benefits or Non-CIC Severance Benefits.

(v)Specified Associate. “Specified Associate” means an Associate that would be a “specified employee” as defined in Section 409A(a)(2)(B)(i) of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder.

(w)Week of Severance Pay. “Week of Severance Pay” means an Eligible Associate’s regular weekly base rate of pay in effect on the effective date of a Non-CIC Severance (prior to any reductions taken for payroll taxes, income tax withholdings, elective deferrals made to or in connection with Cerner’s Associate benefit plans or Executive Deferred Compensation Plan, and excluding any overtime, bonuses, commissions, premium pay, benefits, expense reimbursements, etc.). For example, a Week of Severance Pay for an Eligible Associate

whose annual base salary as of the Non-CIC Severance (excluding the pay and benefits listed above) is $52,000, would be $1,000 ($52,000/52 weeks).

(x) Year of Service. “Year of Service” means, with respect to an Eligible Associate, each period of twelve (12) consecutive months of full-time employment by Eligible Associate with Cerner beginning with the Associate’s full-time employment commencement date with Cerner and ending with the day preceding the anniversary of such date in the next and all succeeding years. No partial Years of Service shall be credited under this Plan nor will prorated Severance Benefits be paid for any fractional Year of Service.

SECTION 3. Entitlement for Severance Benefits

(a) Entitlement. Subject to the exceptions set forth below in Section 3(b), an Eligible Associate shall be entitled to receive either the Non-CIC Severance Benefits or the CIC Severance Benefits described below in Section 4, upon experiencing a Non-CIC Severance or CIC Severance, respectively, and provided that the following conditions are satisfied:

(i) The Eligible Associate’s termination of employment with Cerner must have constituted either a CIC Severance or Non-CIC Severance. In no event shall an Associate’s leave during one of Cerner’s recognized leave programs constitute a termination of employment event under this Plan,

(ii) Following or in connection with the Eligible Associate’s termination of employment, the Eligible Associate must comply with all transition assistance requests of Cerner, to Cerner’s satisfaction, such as aiding in the location of files and documents, returning all Cerner property and repaying any amounts owed Cerner, and

(iii) With respect to and in connection with a Non-CIC Severance only, the Eligible Associate has, after the Eligible Associate’s termination of employment, properly executed and delivered to Cerner a Severance and Release Agreement with Cerner that provides for an irrevocable and complete release of all present and future claims by Eligible Associate.

(b) Exceptions to Severance Entitlement. An Eligible Associate will not receive Severance Benefits under this Plan in the following circumstances, as determined in the Plan Administrator’s sole discretion:

(i) The Eligible Associate’s Associate Employment Agreement (or amendments or supplement thereto) provides that none of the benefits provided under this Plan or any other broad-based Cerner severance plan or policy shall apply to such Associate. In such a case, such Associate’s severance benefits, if any, shall be governed by the terms of such Associate Employment Agreement (as amended or supplemented).

(ii) The Associate breaches the terms and conditions of his/her Cerner Associate Employment Agreement (including, without limitation, violating the non-competition provisions thereof).

(iii) With respect to Non-CIC Severance Benefits only: (a) the Eligible Associate’s employment termination is in connection with the sale, divesture or other disposition

of the stock or assets of any subsidiary, division or other operating unit of Cerner or any of its subsidiaries (“Operating Unit”) (or part thereof) which does not constitute a Change in Control (a “Transaction”), and the Eligible Associate is offered continued employment, or continues in employment, with the divested Operating Unit (or part thereof) or the purchaser of the stock or assets of the Operating Unit (or part thereof), or one of such purchaser’s affiliates (the “Post-Transaction Employer”), as the case may be, on terms and conditions that would not constitute Good Reason, and (b) Cerner obtains an agreement from the Post-Transaction Employer, enforceable by the Eligible Associate, to provide (or Cerner agrees to provide) severance pay, if the Eligible Associate accepts the offered employment or continues in employment with the Post-Transaction Employer or its affiliates following the Transaction, at least equal to the severance pay set forth in Section 4(a) payable upon a Non-CIC Severance termination of the Eligible Associate’s employment with the Post-Transaction Employer or its affiliates within the six (6) month period following the Transaction. For purposes of this Section 3(b)(iii), the term “Good Reason” shall have the meaning ascribed to it in this Plan, but the term “Cerner” as it is used in such definition shall be deemed to refer to the Post-Transaction Employer employing the Eligible Associate after the Transaction. For avoidance of doubt, in the circumstances described in the first sentence of this Section 3(b)(iii), the Eligible Associate shall not be entitled to receive Non-CIC Severance Benefits under Section 4(a) whether or not the Eligible Associate accepts the offered employment or continues in employment. Except as to separate severance benefits Cerner may itself expressly agree to in writing to provide in connection with a Transaction (as contemplated by subpart (b) of the first sentence of this Section 3(b)(iii)), the provisions of this Section 3(b)(iii) do not create any entitlement to Severance Benefits from Cerner in any circumstances whatsoever and are to be construed solely as a limitation on such entitlement in the circumstances herein set forth.

SECTION 4. Severance Benefits.

(a) Non-CIC Severance Benefits: If the termination of an Eligible Associate’s employment constitutes a Non-CIC Severance, Cerner shall pay the Eligible Associate an amount of severance pay based on the Eligible Associate’s Role Level and Years of Service with Cerner as of the effective date of such termination. The amount of such severance pay shall be equal to: (i) a Week of Severance Pay for such Eligible Associate multiplied by (ii) that number set forth in a severance matrix, adopted periodically by management, outlining the severance benefits to which Eligible Associates shall be entitled (“Severance Matrix”). The Severance Matrix shall be attached hereto as Exhibit A, and dated to reflect the most recent adoption date by management.

(b) CIC Severance Benefits. If the termination of an Eligible Associate’s employment constitutes a CIC Severance, Cerner shall pay the Eligible Associate an amount of severance pay based on the Eligible Associate’s Role Level and Years of Service with Cerner as of the effective date of such termination. The amount of such CIC Severance Benefits shall be equal to: (i) a CIC Week of Severance Pay for such Eligible Associate multiplied by (ii) that number set forth in the current Severance Matrix, multiplied by 1.5.

(i) Except with respect to Excess Severance Benefits, in the event of a Non-CIC Severance that occurs before any Change in Control, Non-CIC Severance Benefits shall be paid in a lump sum or, if the Plan Administrator elects, as salary continuation (without interest) on regularly scheduled paydays of Cerner for the applicable severance period or some other method, but in no event shall payments continue beyond the last day of the second calendar year following the calendar year the Non-CIC Severance occurs.

(ii) Subject to Section 4(c)(v) below, in the event of a CIC Severance, CIC Severance Benefits shall be paid in a lump sum as soon as practicable within 90 days of the CIC Severance.

(iii)Subject to Section 4(c)(v) below, in the event of a Non-CIC Severance that occurs after any Change in Control, Non-CIC Severance Benefits shall be paid in a lump sum as soon as practicable within 90 days of the Non-CIC Severance.

(iv)Subject to Section 4(c)(v) below, all Excess Severance Benefits shall be paid in a lump sum as soon as practicable within 90 days of the CIC Severance or Non-CIC Severance.

(v) If the Associate receiving any Severance Payment under this Plan is a Specified Associate, then any payment that the Associate would otherwise have been paid under Section 4(c)(ii), (iii) or (iv) above shall be paid on the first day of the seventh month following the CIC or Non-CIC Severance.

(vi)Any Severance Benefits, including Excess Severance Benefits, that are subject to the offset provisions of Section 6(c) of the Plan will be paid at the time and in the form the Company determines would allow payment of such offset benefits to comply with Code section 409A.

(d) Withholding. All Severance Benefits made under this Plan will be subject to applicable withholding for federal, state and local taxes. If any Eligible Associate is indebted to Cerner at his or her termination date, Cerner reserves the right to offset any Severance Benefits under this Plan by the amount of such indebtedness.

SECTION 5. Employment.

(a) No Modification of Associate Employment Agreements. This Plan shall not modify any terms of an Eligible Associate’s Employment Agreement, including but not limited to the type of employment relationship, the Associate’s obligations and continuing obligations set forth therein.

(b) Limitation on Associate Rights. This Plan shall not give any Associate the right to be retained in the service of Cerner or interfere with or restrict the right of Cerner to terminate the employment of any Associate.

(c) Changed Decisions. Cerner has the right to cancel or reschedule the effective date of an Eligible Associate’s employment termination. An Eligible Associate will not be eligible for any Severance Benefits under this Plan if the Eligible Associate’s employment termination is canceled by Cerner, or if the Eligible Associate is offered an opportunity to return to work or have his or her employment reinstated with Cerner.

SECTION 6. Relation to Other Benefits and Pay

(a) COBRA. Associates and their dependents covered under one or more of Cerner’s group health plans may be eligible for continuation coverage pursuant to the federal COBRA law. This Plan does not provide Associates or their dependents with any greater right to continuation coverage than what the federal COBRA law requires.

(b) Other Benefit Plans. Eligibility, coverage and benefits under other Cerner benefit plans (e.g., any group life, disability, accidental death, retirement, stock plans, etc.) are governed by the terms of those respective plans. This Plan does not provide Associates or their beneficiaries and dependents with any greater eligibility, coverage or benefits than what such plans provide.

(c) Offset of Benefits. Except as may otherwise be specifically provided for in an Associate’s Employment Agreement, the amount of any Severance Benefits paid under this Plan is in lieu of, and not in addition to, any other severance an Eligible Associate may otherwise be entitled to receive from Cerner, including under a Cerner Associate Employment Agreement or other document. Notwithstanding the payment provisions of Section 4(c) and subject to the immediately preceding sentence, the Company may, at its sole option and discretion, pay other severance benefits according to the time and form specified in the plan or agreement to which the other severance benefit applies, if the Company determines that doing so would allow both this Plan and the other plan or agreement to operate in compliance with Code section 409A.

(d) Integration with Other Payments. Severance Benefits paid under this Plan are not intended to duplicate benefits such as pay-in-lieu of notice, severance pay, workers compensation wage replacement, disability pay, or similar benefits or pay under other benefit plans, severance programs, employment agreements, transaction documents or applicable laws, such as the WARN Act. In the event such other pay or benefits is payable to an Eligible Associate, Severance Benefits under this Plan will be reduced accordingly or, alternatively, pay or benefits previously paid under this Plan will be treated as having been paid to satisfy other pay or benefit obligations. In either case, the Plan Administrator, in its sole discretion, will determine how to apply this provision and may override other provisions in the Plan in doing so. This provision, however, shall not preclude an otherwise Eligible Associate from receiving any payments under a Cerner Performance Plan (CPP) or any pay for accrued vacation under Cerner’s separate CPP or vacation policy, as may be amended from time-to-time. CPP and pay for accrued vacation, if any, shall be paid pursuant to the terms of those separate plans or policies.

(e) Reemployment. If an Eligible Associate is reemployed by Cerner while Severance Benefits are still payable under the Plan, all such Severance Benefits will cease, except as otherwise specified by the Plan Administrator, in its sole discretion.

SECTION 7. Plan Administration.

(a) Plan Administrator. The Plan is administered by Cerner, which is the Plan Administrator under the Employee Retirement Income Security Act of 1974 (“ERISA”). It is the responsibility of the Plan Administrator to ensure that the Plan is administered in accordance with its terms. It is also the responsibility of the Plan Administrator to explain any rights and benefits that an Eligible Associate may have under the Plan and to answer any questions which an Eligible Associate may have. The Plan Administrator maintains all documents which comprise the Plan and annual filings, if any, which are prepared for the Plan. If you have any questions regarding the Plan, you should review these available documents. The Plan Administrator may, but is not required to, adopt rules and regulations of uniform applicability in its interpretation and implementation of the Plan. The Plan Administrator may require each Eligible Associate to submit, in such form as it shall deem reasonable and acceptable, proof of any information which the Plan Administrator finds necessary or desirable for the proper administration of the Plan.

(b) Exclusive Discretion. The Plan Administrator has full and complete discretionary authority to determine eligibility for benefits under the Plan and to construe and interpret the terms of the Plan. In making any decision or resolving any disputes, Cerner shall have full and complete discretionary authority to (i) construe and interpret the provisions of the Plan and to determine the right of any person to any interest in or eligibility for any benefit under the Plan, and (ii) make any and all factual determinations necessary to determine the right of any person to any interest in or eligibility for any benefit under the Plan; and, no person shall be entitled to any benefit or interest under this Plan if Cerner decides in its discretion that there is no entitlement to that benefit or interest. Decisions of Cerner shall be final, binding and conclusive upon all parties.

SECTION 8. Amendment or Termination

Cerner, acting through its Chief Executive Officer, Chief Financial Officer, Chief Legal Officer or Chief People Officer, has the right, in its nonfiduciary capacity, to amend the Plan or to terminate it at any time, prospectively or retroactively, for any reason or no reason, without notice, including discontinuing or eliminating benefits; provided, however, that no such amendment or termination shall affect the right to any unpaid benefit of any Eligible Associate whose termination date has occurred prior to such amendment or termination of the Plan and provided further that no amendment or termination shall occur with respect to the CIC Severance Benefits after the occurrence of a Change in Control.

SECTION 9. Claims and Appeal Procedure

(a) Initial Claim. If benefits under this Plan become due, the Plan Administrator will notify you as to the amount of benefits you are entitled to, the duration of such benefit, the time the benefit is to commence and other pertinent information concerning your benefit. If you have been denied a benefit under the Plan, or if you feel that the benefit which has been given to you is not accurate, you may file a claim with the Plan Administrator. If a claim for benefit is denied by the Plan Administrator, the Plan Administrator shall provide you with written or electronic notification of any adverse benefit determination within ninety (90)

days after receipt of the claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written or electronic notice indicating the special circumstances and the date by which a final decision is expected to be rendered shall be furnished to you. In no event shall the period of extension exceed one hundred eighty (180) days after receipt of the claim. The notice of denial of the claim shall set forth:

(i) The specific reason or reasons for the adverse determination;

(ii) Reference to the specific plan provisions on which the determination is based;

(iii)A description of any additional material or information necessary for you to perfect the claim, and an explanation of why such material or information is necessary; and

(iv)A description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of your right to bring a civil action under ERISA section 502(a) following an adverse benefit determination on review.

You (or your duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Plan Administrator. If you fail to appeal such action to the Plan Administrator in writing within the prescribed period of time described in the next section, the Plan Administrator’s adverse determination shall be final, binding and conclusive.

(b) Appeal. In the event of an adverse benefit determination, you may appeal the adverse determination by giving written notice to the Plan Administrator within 60 days after receipt of the notice of adverse benefit determination. The Plan Administrator may hold a hearing or otherwise ascertain such facts as it deems necessary and shall render a decision which shall be binding upon both parties. The appeal procedure shall:

(i) Provide you at least 60 days following receipt of a notification of an adverse benefit determination within which to appeal the determination;

(ii) Provide you the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits;

(iii)Provide that you shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to your claim for benefits; and

(iv)Provide for a review that takes into account all comments, documents, records, and other information submitted by you relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

The decision of the Plan Administrator shall be made within sixty (60) days after the receipt by the Plan Administrator of the notice of appeal, unless special circumstances

require an extension of time for processing, in which case a decision of Cerner shall be rendered as soon as possible but not later than one hundred twenty (120) days after receipt of the request for review. If such an extension of time is required, written or electronic notice of the extension shall be furnished to you prior to the commencement of the extension. The decision of the Plan Administrator shall be provided in written or electronic form to you and shall include the following:

(i) The specific reason or reasons for the adverse determination;

(ii) Reference to the specific plan provisions on which the benefit determination is based;

(iii) A statement that you are entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to your claim for benefits. Whether a document, record, or other information is relevant to a claim for benefits shall be determined by reference to DOL Regulation Section 2560.503-1 (m)(8); and

(iv) A statement describing any voluntary appeal procedures offered by the Plan and your right to obtain the information about such procedures, and a statement of your right to bring an action under ERISA section 502(a).

SECTION 10. Statement of ERISA Rights

The following statement is required by federal statute. Certain portions of this statement may not apply to your particular situation or to this Plan.

(a) Information About This Plan and Your Benefits. If you become a participant in the Cerner Corporation Enhanced Severance Pay Plan you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan participants shall be entitled to:

	•		Examine, without charge, at the Plan Administrator’s office and at other specified locations, the Plan documents and, if any, copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions.

	•		Obtain copies of all Plan documents and other plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies.

	•		Receive a summary of the Plan’s annual financial report, if one is required to be prepared. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report if an annual report is required to be filed with the Department of Labor.

(b) Prudent Actions by Plan Fiduciaries. In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the

employee benefit plan. The people who operate your plan, called “fiduciaries” of the plan, have a duty to do so prudently and in the interest of you and other plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.

(c) Enforce Your Rights. If your claim for a Plan benefit is denied in whole or in part you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that plan fiduciaries misuse the plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

(d) Assistance with Your Questions. If you have any questions about this Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest office of the Employee Benefits and Security Administration, U.S. Department of Labor, listed in your telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits and Security Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

SECTION 11. Additional Information

(a) Name and Address of Plan Sponsor and Plan Administrator. The name and address of the Plan Sponsor and the Plan Administrator is:

Cerner Corporation
2800 Rockcreek Parkway
North Kansas City, MO 64117
EIN: 43-1196944
Telephone: (816) 201-1024

(b) Type of Administration. The Plan is administered by Cerner Corporation.

(d) Plan Year. The Plan Year ends on December 31.

(e) Agent For Service of Legal Process. Service of legal process may be made upon the Plan Sponsor (which is also the Plan Administrator) at the above address.

(f) Plan Costs. Plan costs are paid by Cerner. The Plan is funded out of Cerner’s general assets.

(g)Insurance. Benefits provided by this Plan are not insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA because the insurance provisions under ERISA are not applicable to the Plan.

SECTION 12. Governing Law.

This Plan is an “employee welfare benefit plan” within the meaning of Section 3(1) of ERISA and it shall be interpreted, administered, and enforced in accordance with that law. To the extent that state law is applicable, the statutes and common law of the State of Missouri, excluding any that mandate the use of another jurisdiction’s laws, shall apply. Without limiting the generality of this Section 12, it is intended that the Plan comply with Section 409A of the Code, and, in the event that this Plan is determined to be a “deferred compensation plan” within the meaning of Section 409A(d)(1) of the Code, Cerner shall, as necessary, adopt such conforming amendments as are necessary to comply with Section 409A of the Code.

SECTION 13. Basis of Payments to and From the Plan

The Plan shall be unfunded, and all cash payments under the plan shall be paid only from the general assets of Cerner.

SECTION 14. Limitation on IRC Section 280G Parachute Payments

In the event that any Severance Benefit payment to be made under this Plan would cause an Eligible Associate to be liable for any excise tax under Code section 4999(a), the aggregate amount of such Severance Benefit shall be reduced by the minimal amount necessary such that the Eligible Associate is no longer subject to such excise tax. Any determination or calculation made by Cerner relating to this Section 14, including, but not limited to, any calculation of an Eligible Associate’s “base amount” as defined in Code section 280G(b)(3), or an Eligible Associate’s anticipated “parachute payment,” as defined in Code section 280G(b)(2), shall be final, conclusive and binding on the Eligible Associate.

SECTION 15. Construction.

Where the context so indicates, the singular will include the plural and vice versa. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Unless the context clearly indicates to the contrary, a reference to a statute or document shall be construed as referring to any subsequently enacted, adopted, or executed counterpart.

Severance Matrix



Years of Service	Less than 2 years		>2, less than 5		>5, less than 10		> 10
Role Level	Severance Weeks		Severance Weeks		Severance Weeks		Severance Weeks
Executive Cabinet/Executive Officers / EVP		16		24		36		52
Senior Vice President		13		20		30		42
Vice President		10		16		24		32
Senior Director		8		14		21		28
Director		6		12		18		24
Levels 2 and 3 (Managers/Senior Managers)		4		8		12		16
Levels 4 and 5 (Senior Staff)		3		6		9		12
Levels 6 and 7 (Staff)		2		4		6		8

Page 1 of 1

EX-31.1 4 c57785exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION

I, Neal L. Patterson, certify that:

1. I have reviewed this report on Form 10-Q of Cerner Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: April 30, 2010
	/s/Neal L. Patterson
	Neal L. Patterson
	Chief Executive Officer

EX-31.2 5 c57785exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION

I, Marc G. Naughton, certify that:

1. I have reviewed this report on Form 10-Q of Cerner Corporation;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: April 30, 2010
	/s/Marc G. Naughton
	Marc G. Naughton
	Chief Financial Officer

EX-32.1 6 c57785exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010 (the Report) by Cerner Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/s/Neal L. Patterson
	Neal L. Patterson, Chairman of the Board
	and Chief Executive Officer April 30, 2010

A signed original of this written statement required by Section 906 has been provided to Cerner Corporation and will be retained by Cerner Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 7 c57785exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010 (the Report) by Cerner Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/s/Marc G. Naughton
	Marc G. Naughton, Executive Vice President
	and Chief Financial Officer April 30, 2010

-----END PRIVACY-ENHANCED MESSAGE-----

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