January 22, 2007

VIA EDGAR AND FACSIMILE

Ms. Kathleen Collins
Accounting Branch Chief
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

Re:	Cerner Corporation
	Form 10-K for Fiscal Year Ended December 31, 2005
	Filed March 16, 2006
	Form 8-K Filed on February 2, 2006
	Form 8-K Filed on April 30, 2006
	File No. 000-15386

Dear Ms. Collins:

          Thank you for your time to participate on a teleconference with us on January 17, 2007. We found the discussion very helpful in clarifying the additional information requested by the Staff of the Securities and Exchange Commission.

          On behalf of Cerner Corporation (the “Company”), set forth below are the responses to the previous comment letter dated December 21, 2006, as well as the additional requests you raised on our teleconference.

Your comment from your letter dated December 21, 2006 is as follows:

1. We note your responses to prior comments numbers 1 and 8 relating to your SAB 99 analysis of uncorrected misstatements. We note that in your responses and prior responses that the Company has been unable to conclude whether certain uncorrected misstatements are quantitatively material. It appears from your responses and related attachments (A through C) that certain uncorrected misstatements, either individually, or in the aggregate, are clearly quantitatively material. Explain why the Company can not conclude whether the impact of uncorrected misstatements on quarterly and annual financial statements are not quantitatively material. Further, explain how you considered the impact of uncorrected misstatements on your quarterly financial statements and provide us with your SAB 99 analysis that supports the Company’s conclusions regarding the materiality of these misstatements.

Company Response: As previously discussed, our objective in assessing the uncorrected misstatements was to determine if they were material, both individually and in the aggregate, to the quarterly and annual consolidated financial statements taken as a whole. In doing so, we considered the definition of materiality in the context of whether the judgment of a reasonable

Ms. Kathleen Collins
Accounting Branch Chief
Securities and Exchange Commission
November 24, 2006
Page 2

person relying upon our report would have been changed or influenced by the recording of the misstatements. Our analysis considered both the quantitative as well as the qualitative aspects of the differences, which we believe is consistent with what is prescribed by SAB 99. We did not attempt to conclude on the quantitative or qualitative aspects of the differences in isolation, but rather considered the mix of information in reaching our conclusion. Based on our consideration of all quantitative and qualitative factors, we reached a conclusion that the uncorrected misstatements, both individually and in the aggregate, were not material to our consolidated financial statements taken as a whole. As a result, we do not believe that the uncorrected misstatements are therefore either quantitatively or qualitatively material, notwithstanding the fact that certain errors were large from a dollar standpoint. We also have updated our SAB 99 memo to further reflect information from our discussion on the January 17, 2007 teleconference.

As clarified on our teleconference with you, it is not necessary for us to submit a quarterly SAB 99 analysis at this time.

Staff Request for Other Clarifying Information:

On our teleconference, the Staff requested the following clarifying information. Below are those items with the Company’s response (in bold) to each item.

1.	Information (period and amount) clarifying approximately when the error related to the vacation accrual occurred. The out-of-period accrued vacation adjustment of $3.3 million recorded in the third quarter of 2004 would have affected the following periods, if properly recorded: 2003 pre-tax earnings would have increased by $0.2 million, and pre-tax earnings would have decreased by $0.6 million in 2002, $1.0 million in 2001 and $1.9 million in 2000. We have determined that these uncorrected misstatements are immaterial to each of these periods.
2.	Information to clarify what impact, if any, the unrecorded software amortization adjustments had on bonuses paid to management. This information has been added to our SAB 99 memo contained in Attachment A.
3.	Clarification of communications with the audit committee with respect to unrecorded adjustments for 2003 through 2005, and specifically with respect to the unrecorded amounts related to the software amortization policy difference that were not included on the audit difference listing for 2003 and 2004. This information has been added to our SAB 99 memo contained in Attachment A. The Company’s software amortization policy was discussed with the Audit Committee in 2003 and 2004, however, the specific amount of the software amortization adjustment for those years was not included on the audit difference summary. We would like to clarify that our external auditors, KPMG LLP, considered the materiality and consistency of our amortization policy in their 2003 and 2004 audits even though the differences were not included on the audit difference listing. KPMG policy required engagement teams to include all non-GAAP policy differences above the audit difference posting threshold on the audit difference listing in 2005, whereas this was not required prior to 2005 provided the engagement teams assessed the consistency of the policy applied and whether or not the

Ms. Kathleen Collins
Accounting Branch Chief
Securities and Exchange Commission
November 24, 2006
Page 3

	application of the non-GAAP policy could have a material impact on the financial statements.
4.	Clarification that the differences related to the software amortization policy have been determined to be immaterial both on the rollover and iron curtain methods pursuant to SAB 108. This information has been added to our SAB 99 memo contained in Attachment A.
5.	Clarification that the unrecorded differences did not impact the Company’s Disclosure Controls and Procedures. We confirm that we considered the impact of the unrecorded differences on our Disclosure Controls and Procedures. After considering the items, we concluded they did not have a material impact on our Disclosure Controls and Procedures and they were effective.
6.	Information regarding the detail of the tax adjustments presented previously on Attachment B. We have attached as Attachment B to this response an updated worksheet showing a breakout of the tax effected misstatements by quarter and a reconciliation to the tax adjustment amounts shown previously in Attachment B.
7.	Information about analysts’ expectations on a quarterly basis. The worksheet at Attachment B includes an analysis showing the analyst consensus EPS estimates by quarter versus the actual reported amount by the Company.

*           *           *           *           *

          If you have any questions concerning this letter or if you would like any additional information, please do not hesitate to call me at (816) 201-1989.

Sincerely,
 

     /s/ Marc G. Naughton  

Marc G. Naughton, Senior Vice President 

and Chief Financial Officer 

Attachment A

MEMORANDUM

FOR:      Marc Naughton	FROM:       Scott Siemers
DATE:      January 22, 2007

SUBJECT: MATERIALITY ASSESSMENT FOR IDENTIFIED ERRORS AND UNRECORDED ADJUSTMENTS FOR FISCAL YEARS 2003-2005

Background:

Under SAB 99, Cerner must quantify the impact of all identified errors and unrecorded adjustments including its previous policy to begin amortization of capitalized software beginning on the first day of the year following capitalization. Cerner has prepared this analysis for our annual periods from 2003 through 2005.

As it relates to amortization of capitalized software costs as a result of the non-GAAP policy, Cerner’s net income was over/(under) stated by the amounts shown below.

	Income Stmt
2003	($	850K	)
2004	$	931K
2005	$	1,216K

In addition, Cerner had other identified errors and unrecorded adjustments impacting the income statements in 2003, 2004 and 2005. Combining the other identified errors and unrecorded adjustments with the errors in our non-GAAP policy for the amortization of capitalized software development costs for 2003, 2004 and 2005 results in the following increase/(decrease) to net income respectively:

	Income Stmt
2003	$	1,526K
2004	$	7,052K
2005	$	(5,988K	)

Issue: In 2003, 2004 and 2005, are the identified errors and unrecorded adjustments either individually or in the aggregate material to Cerner’s consolidated financial statements taken as a whole?

Analysis:

The Company considered the quantitative and qualitative factors noted in Staff Accounting Bulletin (SAB) 99, Materiality in assessing the issues.

Quantitatively, Cerner considered the quantitative impacts of error corrections in relation to full year, which review is supported by paragraph 29 of Accounting Principles Board Opinion No. 28, Interim Financial Reporting, which states the following, “In determining materiality for the purpose of reporting the cumulative effect of an accounting change or correction of an error, amounts should be

Attachment A

related to the estimated income for the full fiscal year and also to the effect on the trend of earnings. Changes that are material with respect to an interim period but not material with respect to the estimated income for the full fiscal year or to the trend of earnings should be separately disclosed in the interim period.”

Individual Misstatement Consideration:

Amortization of Capitalized Software Costs

In 2003, 2004 and 2005 Cerner reported net income of $42,791K, $64,648K and $86,251K respectively. Therefore increasing/(decreasing) net income by the impact of the prior software amortization policy $850K, ($931K) and ($1,216K) respectively for 2003, 2004, and 2005) on a rollover basis results in an increase/(decrease) to net income of 2.0%, (1.4%) and (1.4%) for each year. Cerner has concluded that the difference related to the software capitalization is individually immaterial in each year from a quantitative aspect to users of its financial statements. Further qualitative factors considered are noted below.

Effective January 1, 2006, the Company changed its software amortization policy prospectively and began amortization of capitalized costs in conjunction with a software release rather than waiting until the beginning of the next year for releases made subsequent to January 1, 2006. We did this because of the change in our practice of making software releases multiple times each year to less frequent releases. The Company has analyzed this issue under SAB 108 and concluded that under both the rollover and iron curtain methods that the amount of uncorrected misstatements are immaterial and, therefore, will make no adjustment in conjunction with the adoption of SAB 108 for the uncorrected amounts. The Company will continue to amortize amounts capitalized prior to January 1, 2006 under the prior amortization policy. As of December 31, 2006, the pre-tax uncorrected misstatements related to our previous amortization policy would be to reduce pre-tax earnings by $1.2 million under the iron curtain method and to increase pre-tax earnings by $0.7 million under the rollover method, which are expected to be less than 1% of our projected pre-tax earnings for 2006. The cumulative amount of $1.2 million will impact future periods as follows, which also are expected to be immaterial:

2007-overstate pre-tax earnings by $0.7 million
2008-understate pre-tax earnings by ($0.6) million
2009- overstate pre-tax earnings by $0.6 million
2010- overstate pre-tax earnings by $0.5 million

We will continue to assess the impacts of these uncorrected misstatements in each future reporting period.

Vacation Pay Accrual

The vacation pay error was an accumulation of insignificant amounts over a number of years that resulted in an out-of-period correcting entry for all years of $3,346K ($2,066K after-tax) in 2004 or 3.2% of net income for that year. The impact of this out-of-period correcting entry was fully disclosed in our third quarter 2004 Form 10-Q and 2004 Annual Report filed on Form 10-K. We did not observe any significant market reaction as a result of this correction. Further qualitative factors considered are noted below.

Zynx Tax Benefit

The correcting tax entry related to Zynx recorded in 2005 has been analyzed in a separate SAB 99 memo and provided in a previous response to comments by the Staff. The impact of this misstatement and the out-of-period correcting entry was fully disclosed in our third quarter 2005 Form 10-Q and

Attachment A

2005 Annual Report filed on Form 10-K. We did not observe any significant market reaction as a result of this correction. Further qualitative factors considered are noted below.

Aggregate Consideration:

When considering the cumulative impact of all unrecorded adjustments, the resulting impact is to increase/(decrease) net income by 3.6% for 2003, 10.9% for 2004 and (6.9%) for 2005.

The unrecorded adjustments for 2003 were considered quantitatively small. However, we also considered other qualitative factors as noted below under the discussion of SAB 99 qualitative factors.

For 2004, the items having the greatest impact on the aggregate difference of $7,062K is composed of the Zynx tax impact of $4,812K (see separate materiality memo on this item) and the out-of-period vacation accrual impact of $2,066K. The correction of the vacation accrual misstatement was disclosed and recorded in 2004 and had a 3.2% impact individually on net income for 2004. Upon disclosure of the correction of this misstatement in 2004, there was no apparent market reaction to this adjustment. The correction of the Zynx tax misstatement was disclosed and recorded in 2005. The sale of Zynx and the resulting gain on the sale for which the tax benefit error resulted occurred in 2004. At the time the misstatement was discovered in 2005, we had the benefit of hindsight to see how the analysts and investors reacted to the gain itself when it was recorded. This one time gain was basically ignored by the analyst community and investors and there was no apparent market reaction to the transaction itself. Attached are several analysts reports from the third quarter of 2005 which specifically show the tax gain being excluded/ignored by analysts in their discussion of the Company’s financial performance. There also was no apparent market reaction to the disclosing of the correction in 2005. However, we also considered other qualitative factors as noted below and under the discussion of SAB 99 qualitative factors.

We believe the nature of the error is an important consideration in determining materiality because:

• While the sale did not qualify as a discontinued operation, the error relates to a sale transaction that has no continuing impact on our company or financial statements, including our ongoing effective tax rate.

• Transactions like this are rare for the Company so they are viewed as one time items.

• The error related to the tax effect of the sale and had no impact on the negotiations with the buyer in terms of the purchase price or other representations.

For 2005, the item having the greatest impact on 2005 was the correction of the Zynx tax benefit misstatement discussed with respect to 2004 above. However, we also considered other qualitative factors as noted above under the 2004 discussion as well as below under the SAB qualitative factors.

Quantitatively the balance sheet impact of these changes is insignificant. At December 31, 2005, Cerner had total assets of $1,304M, current assets of $652M, and equity of $761M.

Cerner also considered the qualitative aspects of the misstatements noted in SAB 99.

SAB 99 Qualitative Factors

The misstatements arise from items capable of precise measurement as the software amortization misstatement has been calculated for each year and the other items are discrete in nature. The misstatements do not change a loss into income or vise versa. They do not concern a segment or other

Attachment A

portion of Cerner’s business that has been identified as playing a significant role in Cerner’s operations or profitability, but rather relate to the business as a whole. They also do not affect any compliance with regulatory requirements. These errors do not involve the concealment of an unlawful transaction.

The misstatements do not mask or otherwise hide any earnings trend as Cerner’s earnings have grown over the past three years. It is Cerner’s contention that additional disclosure of the misstatements in excess of what has already been discussed in our financial filings will not impact the stock price and that they will be viewed by all users of Cerner’s financial information as immaterial. The largest misstatement (Zynx tax benefit) does not impact the core business. As the software amortization is a non cash item, it also does not change Cerner’s working capital or liquidity position.

A portion of Cerner’s bonuses to executives is computed on EPS. The required threshold levels for management to earn a stated percentage of a target bonus is stated as range of earnings per share. For example, 100% of the bonus would be paid if earnings were between $1.20 and $1.25 per year. If earnings are above $1.25, then management bonuses are paid out at the bonus rate times 120%. Cerner’s performance plan document states:

“The Earnings Per Share Target shall be expressed as a specific target earnings per share for such year for the Company’s common stock on a fully diluted basis, before the after-tax effect of any extraordinary items, the cumulative effect of accounting changes, or other nonrecurring items of income or expense including restructuring charges.”

Management considers software amortization to be a component of earnings which would be included in the Earnings Per Share Target. However, if the software amortization adjustment, which was not recorded in 2003 to 2005, had been recorded in the proper periods, managements’ bonuses would not have changed during any of those periods because the adjustments would not have moved the EPS into a different EPS range.Cerner previously discussed all unrecorded adjustments with its Audit Committee during the period in which they were reported as audit differences except for the 2003 and 2004 software amortization adjustment. The Company’s software amortization policy was discussed with the Audit Committee in 2003 and 2004, however, the specific amount of the software amortization adjustment for those years was not included on the audit difference summary. However, the revised schedules for 2003 and 2004, which include the software amortization differences have been subsequently reviewed with the audit committee. The Committee has reviewed the background information and supporting documentation and discussed these items with Cerner’s external auditors. The Audit Committee was comfortable that these items were immaterial after considering both quantitative and qualitative factors.

Conclusion:

After giving consideration to the quantitative and qualitative factors noted in SAB 99, Cerner believes that the 2003, 2004 and 2005 identified errors and unrecorded adjustments, both individually and in the aggregate, are immaterial to its consolidated financial statements taken as a whole.

EQUITY RESEARCH  
COMPANY UPDATE

Healthcare Information Technology
October 20, 2005

Closing Price:	$	86.59
12-Month Target Price:	NA
52-Week Range:	$	43.18 - $89.26
Market Cap (MM):	$	3,455
Shares O/S (MM):		39.9
Float (MM):		29.7
Shares Short (MM):		12.6
Avg. Vol. (000)		387.8
Book Value/Share:	$	17.43
Dividend/Yield:	$	0.0/0.0	%
Risk Profile:	High

Maxim Group	Revenues ($M)
FYE: December	2004		2005E
1Q	$	218.7	$	262.5A
2Q	$	228.4	$	277.8A
3Q	$	231.1	$	294.6A
4Q	$	248.2	$	309.5
FY	$	926.4	$	1,144.5

Maxim Group	Current		Prior		Current
FYE: December	EPS		EPS		P/E
2004A	$	1.73		—		N/A
2005E	$	2.16	$	2.15		40.1
2006E	$	2.68	$	2.64		32.3

LT Earnings Growth 23%

Maxim Group	Quarterly EPS
FYE: December	2004		2005E
1Q	$	0.33	$	0.43A
2Q	$	0.38	$	0.51A
3Q	$	0.45	$	0.55
4Q	$	0.56	$	0.67
FY	$	1.73	$	2.16

Consensus-First Call	Quarterly EPS
FYE: December	2005E		2006E
1Q	$	0.27A	$	0.59
2Q	$	0.23A	$	0.65
3Q	$	0.55A	$	0.69
4Q	$	0.67	$	0.76
FY	$	2.16	$	2.66

Anthony Vendetti	(212) 895-3802
avendetti@maximgrp.com
Anthony Petrone	(212) 895-3568
apetrone@maximgrp.com

Cerner Corporation	Hold
(CERN — Nasdaq — $86.59)

CERN 3Q05 results (excluding one-time tax benefit) inline with expectations; Operating margin improves, but expansion rate not sufficient to meet long-term goals; Reiterate Hold

Ø	What should investors do now? We continue to recommend that investors have exposure to the secular growth trend of healthcare information technology (HIT). The migration towards a fully automated hospital and complete electronic medical records continues to accelerate on a national level in many geographic regions, most notably in the Unites States and the United Kingdom. However, we would not recommend that investors initiate new positions in shares of CERN since the risk/reward is unfavorable at current levels, in our opinion.
Ø	Flawless execution in the U.K. may be priced into the stock. Since taking the Southern Cluster contract from IDXC, shares of CERN have appreciated approximately 33%. While the contract is positive for CERN, we believe that flawless execution in the Southern Cluster is priced into the stock even though the potential for complications remains high. Failure to meet any of the key milestones put forth by Richard Granger or the absorption of additional expenses could negatively impact the stock, in our opinion.
Ø	Gross margin expansion a key component to operating margin goal, but remains illusive. We believe that gross margin expansion necessary for the company to achieve its lofty operating margin goal of 20% by the end of 2007. However, the company’s gross margin has declined on a year-over-year basis for three consecutive quarters. The decline in overall gross margin over the past several quarters is largely due to a lower system sales gross margin due to greater hardware sales compared to last year. If the company does not realize any meaningful gross margin expansion to offset potentially higher operating expenses associated with the U.K. over the next several quarters it is unlikely that the company will reach its 20% operating goal by the end of 2007, in our opinion.
Ø	Valuation. On a comparable companies analysis approach, CERN currently trades at a premium to its peers (ECLP and IDXC) on an EV/Sales basis and is also selling at a P/E above our projected growth rate for 2005 and 2006. Furthermore, CERN trades at 40.1x our new 2005 estimate of $2.16, which is inline with the industry mean and median multiple range of 40.lx-43.4x. As such, we reiterate our Hold rating.

Maxim Group LLC 405 Lexington Avenue New York, NY 10174 — www.maximgrp.com

SEE PAGES 4 - 6 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

Cerner Corporation (CERN)

     Additional Analysis

Ø	Bookings remain strong. Cerner posted its second consecutive quarter of record new bookings revenue. 3Q05 bookings increased to a $301.1 million (excluding the $149.4 million realized from the initial phase of the Fujitsu contract). Excluding the Fujitsu related bookings, bookings revenue increased 40% YOY from $215.1 million during the same period last year and was up 5.9% sequentially from $284.3 million last quarter. Third quarter bookings were significantly above its guidance of $245-$260 million. We believe that CERN’s presence abroad following the Southern Cluster contract win has contributed to its record increases in bookings revenue. The company has closed two significant contracts since obtaining the Southern Cluster contract; The General Authority for Health Services for the Emirate of Abu Dhabi and The Centre Hospitalier Universitaire (CHU) of Saint Etienne in France.
Ø	What went wrong? CERN’s gross margin decreased both on a sequential and YOY basis during the quarter. The company’s 3Q05 gross margin was 80.4% compared to 83.4% during 3Q04 and 81.0% last quarter. This quarter marked the third consecutive quarter of YOY gross margin compression. The weaker than expected gross margin was once again due to higher hardware sales as a percent of total revenue, which carry a lower margin.
Ø	Summary. Yesterday, after the market close, Cerner reported 3Q05 results inline with our estimates and consensus. The company reported 3Q05 revenue (including reimbursed travel) and pro-forma EPS of $294.6 million and $0.55, respectively, compared to our estimate of $285.6 million and $0.55, and consensus of $287.4 million and $0.55. CERN benefited from a one-time tax benefit of $4.8 million, or $0.12 per share, related to the prior sale of Zynx Health in 1Q04, which was incorrectly recorded as a capital gain. A tax loss was carried back against previously recorded capital gains, resulting in a tax benefit of $4.8 million this quarter.
Ø	Cerner provides 4Q05 guidance and slightly expands 2005 revenue and EPS guidance range. Cerner’s 3Q05 revenue and EPS guidance is $305-$310 million and $0.67-$0.68, compared to consensus of $303.1 million and $0.67. Bookings revenue (excluding the Southern Cluster) for the fourth quarter is expected to be between $300-$315 million. The company slightly expanded its 2005 revenue and EPS guidance range to $1.140-$1.145 billion and $2.16-$2.17, from $1.120-$1.140 billion and $2.13-$2.16, previously, which is in-line with consensus of $1.13 billion and $2.16. CERN issued initial 2006 revenue guidance of $1.30-$1.34 billion, inline with consensus of $1.30 billion, and stated that it is comfortable with current 2006 consensus EPS of $2.66.
Ø	Slightly Raising Estimates. Our new 2005 total revenue and EPS estimates of $1.14 billion and $2.16, up from $1.13 billion and $2.15 previously, reflects slightly better than expected 3Q05 results and a growing backlog. Our new 2006 revenue and EPS estimates of $1.33 billion and $2.68 is up from $1.29 billion and $2.64 previously. Our 2006 GAAP EPS estimate of $2.33 includes a $13.9 million charge related to the expensing of stock options under FAS-123.

Maxim Group LLC

2

Research Notes

Friday, October 21, 2005
Gene Mannheimer (858) 523-2131 gmannheimer@cariscompany.com	Trading Desk (866) 99-CARIS www.cariscompany.com

Cerner (CERN, $3.2B Cap, $86.59, 10/20/05)

Current Investment Rating — Downgrading to 3*/Average from 2*/Above Average

Cerner Meets Consensus Net of Tax Benefit on Higher Revenues; Raising FY05 Estimates; Downgrading to 3/Average on Premium Valuation

• Q3EPS of $0.55 net of one-time tax benefit meets consensus and beats our estimate by $0.01

• Revenue of $294 million beats our estimate of $287 million and consensus of $288 million.

• Record bookings in the amount of $301 million were up 40% year-year.

• Gross margin degradation resulting from disproportionately high hardware sales.

• Management raises FY05 EPS guidance to $2.16-$2.17 from $2.13-$2.16.

• Cerner now trades at 25x our FY07 EPS estimate of $3.42, in line with its growth rate.

• We are downgrading our rating on CERN to 3/Average from 2/Above Average as we believe current prices reflect the Company’s near-midterm performance.

Cerner reported Q3EPS of $0.55 on revenues of $294.6 million, exceeding our estimates of $0.54 on revenues of $287 million. Reported EPS (barely) matched consensus of $0.55 while exceeding revenue consensus of $287.7 million. These results exclude a $4.8 million one-time tax benefit relating to the sales of evidence- based health content subsidiary Zynx which put actual EPS for the quarter at $0.67. We note that EPS would have been $0.55 using a 39.8% tax rate but $0.54 using a 40% tax rate. The results reflect 22% EPS growth and 27.5% revenue growth over the year-ago period.

Record business bookings of $301 million (up 40%) were well ahead of Cerner’s guidance of $245-$260 million. Incremental to this number is $149.4 million of bookings for the initial phase of the Fujitsu project in England’s South cluster, bringing total bookings to $450.5 million. The record bookings lead us to raise our revenue and EPS estimates for FY05 and our FY06 revenue estimate. Our new FY05 EPS estimates are $2.17 on revenues of $1.14 billion, up from $2.15 on $1.13 billion. We are maintaining our FY06 EPS estimates of $2.69 while raising our revenue projection to $1.3 billion, up from $1.25 billion. Some margin pressure ensuing from the recognition of revenue under the UK contract has the impact of essentially freezing our 2006 EPS estimate amid a higher revenue projection.

Results Overview

The quarter was strong across the board — revenues, bookings, backlog and EPS. Organic revenue growth was about 20%, net of $17 million of revenue relating to the VitalWorks acquisition. Revenue growth of system sales was 33%, a significant ramp due in part to a disproportionately high hardware sales quarter that was roughly double the year-ago period. Approximately half of the 21% increase in support and maintenance was related to Vitalworks. For 2006, we are modeling 14% organic revenue growth for Cerner, stemming in part from the addition of approximately $70 million of Fujitsu revenue.

For full disclosure, please see end of report ¹

NASD SIPC

Cerner: CERN

Gross margin of 77.8% was just slightly shy of our 78% estimate, due to a larger hardware component, while operating margins came in just 10 basis points below our 12.7% estimate. We believe the Company is on track to meet its target of 20% operating margin sometime in 2007, exclusive of the Company’s win as sub- contractor to Fujitsu in the Southern cluster of England, where it is replacing IDX (IDXC, NR). As Cerner explained that it is adding revenue equal to the costs that are incurred until all software elements are delivered (expected in 2008), we see the UK contract as compromising margins some in both 2006 and 2007.

As mentioned, new business bookings were a record and Cerner is guiding to another solid quarter for Q4 to a range of $300-315 million, an increase of 25% year-year (again excluding the Fujitsu contract).

Free cash flow was $10 million during the quarter; up from $8.9 million last quarter (excludes a new building purchase). The Company ended the quarter with $134 million in cash and $132 million in long term debt. DSOs were 98, flat sequentially and down 6 days from one year ago.

Cerner converted an additional 233 Millennium applications in the quarter. There are now 4500 live Millennium applications across 900 facilities, and 90 acute care CPOE sites, a modest improvement over last quarter. We believe Cerner’s best opportunities are within its customer base via upgrades of legacy systems, as well as global opportunities.

Competitive Landscape

We continue to view the competitive landscape domestically as a replacement market. Each of Cerner’s main competitors — Eclipsys (ECLP, 2*/Above Average, $16.50, 10/20/05), McKesson (MCK, NR), and Siemens (NR), are attempting to preserve their own client base while migrating their customers to new generation systems. Approximately 26% of Cerner’s contract bookings were new clients, down from 33% last quarter. It is no wonder then that Cerner is looking globally to seek growth opportunities.

We agree with Management’s comment that it will take some time before GE’s “re-packaging” of IDX becomes a threat to Cerner. We do acknowledge however, that IDX under the GE (2*/Above Average, $33.88, 10/20/05, Analyst: Mary Anne Sudol, CFA) umbrella has the potential to be a greater threat than was IDX alone. The key word here is “potential”. We have yet to see GE’s other health care IT acquisitions (ambulatory EMR from Medicalogic, practice management system from Millbrook, and its surgery information system from IPath) become truly integrated to the point of making a splash in the marketplace.

Valuation

At current levels, Cerner is trading at 32 times our FY06 EPS estimate of $2.69, a premium to comps that trade at 28x. Given the Company’s leadership position in the health care IT arena, we can justify a premium.

We are also introducing FY07 estimates of $3.42 on revenues of $1.466 billion. In calculating our estimates, we note that UK and other international revenue has the effect of impeding Cerner’s ability to hit 20% operating margins by 2007, effectively pushing this goal out by one year. Nonetheless, we believe that revenue growth in the low double digits can drive roughly 25% EPS growth, owing to the company’s operational leverage. Consequently we would use a 25x multiple against our FY07 EPS estimate to derive a 12-month target price. At current prices, we view CERN as fairly valued.

Caris & Company new york • san diego • san francisco member nasd/sipc

2

October 20, 2005

HEALTHCARE
Healthcare Technology
Market Weight

Steven P. Halper
212.271.3807
shalper@tweisel.com

Julia Thies
212.271.3735
jthies@tweisel.com

CERN Index	Weighting
S&P SmallCap:		0.613	%
Russell 1000:		0.026	%
Russell 3000:		0.023	%

Please see analyst certification and other important disclosures starting on page 8.

Cerner Corporation—OUTPERFORM

In-Line 3Q EPS, But Bookings Exceptionally Strong

Earnings Update

CERN (10/20/05): $86.59

Key Data

FY

2004

2005

2005 Prv

2006

2006 Prv

52-Week Range:

$

43-$89

EPS

Market Cap. (mn):

$

3,454.7

Q1

$

0.33A

$

0.43A

$

0.43A

NE

NE

Shares Out. (mn):

39.9

Q2

$

0.38A

$

0.51A

$

0.51A

NE

NE

Avg. Daily Vol.:

388,427

Q3

$

0.45A

$

0.55A

$

0.55E

NE

NE

Fiscal Year-End:

31-Dec

Q4

$

0.56A

$

0.68E

$

0.68E

NE

NE

Dividend (Ind. Annual):

NA

Year

$

1.72A

$

2.17E

$

2.16E

$

2.67E

$

2.67E

Yield:

NA

P/E

50.23x

39.97x

32.38x

Debt/Total Capital:

14

%

Revenue (mn)

Price/TTM Sales:

3.2x

Q1

$

218.7A

$

262.5A

$

262.5A

NE

NE

Net Cash/Share:

$

0.56

Q2

$

228.4A

$

277.8A

$

277.8A

NE

NE

Book Value/Share:

$

17.44

Q3

$

231.1A

$

294.6A

$

285.0E

NE

ne

Price/Book Value:

5.0x

Q4

$

248.2A

$

309.7E

$

306.8E

NE

NE

3-5 Year EPS Growth:

30

%

Year

$

926.4A

$

1144.6E

$

1132.1E

$

1346.6E

$

1280.2E

Price Target:

NE

TEV/Sales

3.7x

3.0x

2.5x

Note: Price is as of the close on the date indicated. Any price target displayed in the data box above represents either a specific price target or the midpoint of a range.

Executive Summary

• On Thursday, Cerner reported 3Q05 operating EPS of $0.55 (up 22% y/y), which was in line with our and the consensus estimates. Revenue was slightly above our estimate at 295mn (up 28% y/y). Organic revenue growth was 20%. Hardware was almost twice year-ago levels, which skewed gross margin slightly. The operating margin was 12.6%, which represents a 30bp sequential improvement but a modest year-over-year decline. We are not concerned about the year-over-year decline, given the large hardware contribution, which negatively affects the gross margin.

• Cerner continues to exceed its bookings guidance. New business bookings of $301mn (up 40% y/y) were above guidance which stood at $235-260mn. The company also indicated that Phase I of the Fujitsu contract added another $149mn to bookings, bringing total books to about $450mn. Cerner clearly had a very strong selling quarter, which confirms our thesis that Cerner has great momentum in the U.S. and global markets. The company provided 4Q05 bookings guidance of $300-315mn, suggesting 32% year over year growth. After some slow down in the second half of 2004, Cerner has demonstrated accelerating bookings momentum.

• Cerner’s initial 2006 EPS guidance was in line with consensus at $2.66. Our 2006 EPS estimate of $2.67 assumes 17.5% revenue growth and continued margin expansion, even with about $50-70mn of revenues from the NHS project with no margin. We believe Cerner’s initial 2006 guidance is conservative based on its recent bookings momentum.

• Cerner shares continue to trade below our current fair value range of $95-100. Our current fair value range is based on a 10-year DCF with revenue growth of 7-13%, operating margins improving to 18% over time and a weighted average cost of capital of 10.3%. We reiterate our Outperform investment rating.

Thomas Weisel Partners does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Customers of Thomas Weisee Partners in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.tweisel.com or can call (877) 921-3900 to request a copy of this research. Investors should consider this report as only a single factor in making their investment decision.

Cerner Records Another Solid Quarter

On Thursday, Cerner reported operating EPS of $0.55 versus $0.45 a year ago. GAAP EPS were positively affected by a favorable tax benefit regarding the sale of Zynx Health. GAAP EPS was $0.67, but we will exclude the favorable tax impact from our model. System Sales revenue increased 33% while maintenance, support and services increased 25%. Organic revenue growth was about 20%, representing continued acceleration from 2Q05 levels, which was 14%. The difference relates primarily to the acquisition of Vitalworks, which was completed earlier this year.

Margins Decline Y/Y on Mix

As expected, the gross margin declined year over year because of significant hardware mix compared to a very light hardware quarter in the year-ago period. The gross margin declined from 80.5% in 3Q04 to 77.8%. We had been estimating 78%. Margins have trended in the high 70% range since the middle of 2003.

The operating margin improved sequentially (from 12.3% to 12.6%) but declined year over year, probably because of the hardware mix. Excluding the impact of the NHS project, Cerner continues to improve its operating margins. In 3Q05, installation and client service costs (the company’s largest operating expense) almost reached a six-year low as a percentage of sales at 39.7%. The company’s Bedrock initiative should continue to increase implementation efficiency. Nine clients have tested elements of the Bedrock technology. Bedrock is essentially a layer of technology that helps to implement Cerner’s millennium applications. Expensed R&D, as a percentage of sales increased slightly on sequentially but declined y/y. Expensed R&D during the quarter was 18.3% compared to 18.5% a year ago. G&A, as a percentage of revenue continues to decline as well.

The company has not officially backed off its 20% operating margin target, but its 20% target had assumed 10% revenue growth. Clearly, revenue growth has been and may continue to be above those levels because of hardware. Accordingly, the 20% target may be difficult to achieve while it continues to record 20+% EPS growth. Given our more conservative outlook on margins, our long-term model (which drives our DCF-based current fair value range), assumes operating margins reach 16% in 2008 and 18% in 2009.

Bookings Performance Suggests Momentum

Although we can understand some doubt about Cerner’s ability to improve margins over time, there should be no doubt about Cerner’s ability to grow its bookings. With $301mn of new bookings (excluding the NHS/Fujitsu project), Cerner easily beat its guidance of $235-260mn. On a year-over-year basis, bookings grew 40%. This would be the strongest quarter since 1Q04. Including the NHS/Fujitsu project (of which just a portion was brought into backlog), bookings grew 110% year over year. Looking ahead to 4Q05, Cerner indicated bookings of $300-310mn, representing 32% year-over-year growth. Its bookings guidance does not include any further contribution from the NHS/Fujitsu project. Furthermore, it does not reflect any large deals, which is another quality indicator. Based on our assessment of the Healthcare Technology market, we believe that Cerner continues to gain share.

October 20, 2005	Thomas Weisel Partners LLC
2	Steven P. Halper 212.271.3807

Raises 2005 Guidance and Provides First Outlook for 2006

The company raised 2005 EPS guidance from $2.13-2.16 to $2.16-2.17. We are raising our full-year estimate to $2.17. The company indicated that it was comfortable with 2006 consensus estimates, which stood at $2.66. At this juncture, we are not changing our estimate, which stands at $2.67. We would not be surprised to see Cerner continue to ratchet up its guidance, especially given the strong bookings momentum.

Revenue guidance for 2006 is $1.30-1.34bn and includes $50-70mn of revenue from the NHS/Fujitsu project. That revenue will have no margin associated with it, which will serve as a drag until late 2007 or early 2008. Once all software elements are delivered, Cerner will begin to recognize the remaining value of the contract over the remaining life of the contract. We estimate an additional $300-350 million recognized over a six-year time period with significantly higher contribution margins.

Raises Operating Cash Flow Outlook

Operating cash during the quarter was about $47mn versus $45mn a year ago. DSO were 98 days, which is flat sequentially and down year over. Deferred revenue, which created some controversy in 2Q05, was up sequentially to $88mn. Cerner uses the deferred revenue line as it books third-party financing contracts, in which Cerner receives cash upfront for software and services.

Capital expenditures during the quarter were $22mn (down sequentially as expected) and capitalized software was $15.2mn, or about 26% of total R&D expenditures. Typically, capitalized software has accounted for 30% of total expenditures. Free cash flow was about $10mn.

The company quietly raised its operating cash flow outlook from $180mn to $180-190mn. Free cash flow for 2005 should be about $50mn.

With respect to the balance sheet, the company ended the quarter with $134mn in cash and equivalents and $132mn in debt. The company indicated that it will borrow about $115mn (dominated in British pounds) as a currency hedge for the expected payments from Fujitsu. The company will use $20mn of the proceeds to eliminate a note and then use money from Fujitsu to make payments on the new loan. This is a very cost-effective hedge relative to a typical currency hedge.

Strong Momentum Continues

In our view, Cerner’s 3Q results confirm our positive investment thesis. Cerner has strong bookings and revenue momentum and should continue to improve its margins, resulting in at least 20% EPS growth through the end of the decade. We have not tried to determine the impact of other country-wide electronic health record projects (i.e. France and Australia). The U.S. physician office market is large market as well if the government is successful in driving standards and adoption of technology. With a leading share of hospital-based IT systems and a developing physician strategy, Cerner may itself evolve into a standard for the U.S. Healthcare system.

October 20, 2005	Thomas Weisel Partners LLC
3	Steven P. Halper 212.271.3807

Cerner shares continue to trade below our current fair value range of $95-100. Our current fair value range is based on a 10-year DCF. Over the first nine years, we assume decelerating top-line growth (13% to 7%), which in the early years is certainly conservative based on recent trends. Our operating margin assumptions include 16% in 2008, increasing to 18% in 2009 and remaining at 18% thereafter. We assume flat to slightly lower capital expenditures (including R&D), a long-term growth rate of 6% and a weighted average cost of capital of 10.3%).

We do not believe the shares current valuation reflects the long-term growth outlook and improved levels of profitability that we forecast in our model. Accordingly, we reiterate our Outperform investment rating.

Valuation

Our current fair value estimate for CERN is in the range of $95-100. This estimate is based on our discounted cash flow model, assuming a normalized earnings growth estimate of 6% and a discount rate of 10.3%. There always are risks for any security. In addition to general market and macroeconomic risks, for Cerner, these risks include, among other things, hospital reimbursement pressure, the ability to maintain current growth rates, and competitive threats from other industry participants.

Cerner Corp.
Q3 FY05 Results

	Q3FY05
	Est			Act			Q3 FY04			Exp. Δ			Act Δ			Comments
Revenue
System fees	$	104		$	110		$	83			25.0	%		32.9	%
Support, maintenance, and service	$	172		$	175		$	140			23.0	%		25.0	%
Reimbursed Travel	$	9		$	9		$	8			11.6	%		14.6	%
Total Revenue	$	285		$	295		$	231			23.3	%		27.5	%	20% organic revenue growth
Cost of revenues	$	63		$	65		$	45			39.3	%		45.1	%
Gross Profit	$	222.3		$	229.3		$	186.1			19.5	%		23.3	%
Gross Profit Margin		78.0	%		77.8	%		80.5	%
Installation and client service	$	116.8		$	117.0		$	98.9			18.1	%		18.3	%
Software development	$	48.7		$	54.0		$	42.8			13.8	%		26.0	%
General and administrative	$	19.9		$	21.1		$	14.6			36.2	%		44.4	%
Operating income (EBIT)	$	36.8		$	37.2		$	29.7			24.0	%		25.4	%
Operating Margin		12.9	%		12.6	%		12.8	%							Sequential improvement but down year over year.
Other Income	($	1.3	)	($	1.0	)	($	1.5	)		(18.5	%)		(31.6	%)
PBT	$	35.5		$	36.1		$	28.1			26.3	%		28.5	%
Tax	$	14.1		$	14.4		$	11.2			25.7	%		28.0	%
Rate		39.8	%		39.8	%		40.0	%
Net Income	$	21.4		$	21.8		$	16.9			26.7	%		28.9	%
Shares Out		39.0			39.9			37.7			3.5	%		6.0	%
EPS	$	0.55		$	0.55		$	0.45			22.3	%		21.7	%	In line with our estimate and consensus.

Source: Thomas Weisel Partners Estimates

October 20, 2005	Thomas Weisel Partners LLC
4	Steven P. Halper 212.271.3807

Attachment B

				Q103									Q203									Q303									Q403									YTD 2003
	Q103 As			Unrecorded			Q103 If			Q203 As			Unrecorded			Q203 If			Q303 As			Unrecorded			Q303 If			Q403 As			Unrecorded			Q403 If			YTD2003 As			Unrecorded			YTD 2003
In thousands, except per share data	Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			If Adjusted
Revenues:
System sales		78,594			—			78,594			82,742			—			82,742			80,193			—			80,193			90,820			—			90,820			332,349			—			332,349
Support, maintenance and services		112,932			—			112,932			116,240			—			116,240			118,774			—			118,774			128,849			—			128,849			476,795			—			476,795
Reimbursed travel		6,665			—			6,665			8,713			—			8,713			7,325			—			7,325			7,740			—			7,740			30,443			—			30,443
Total revenues		198,191			—			198,191			207,695			—			207,695			206,292			—			206,292			227,409			—			227,409			839,587			—			839,587
Costs and expenses:
Cost of revenues		48,252			—			48,252			53,096			—			53,096			45,435			—			45,435			47,507			—			47,507			194,290			—			194,290
Cost of system sales
Cost of support, maintenance and services
Cost of reimbursed travel
Sales and client service		88,091			—			88,091			86,646			—			86,646			84,794			—			84,794			93,197			—			93,197			352,728			—			352,728
Software development		37,458			(780	)		36,678			38,457			(355	)		38,102			39,255			(648	)		38,607			41,066			406			41,472			156,236			(1,377	)		154,859
General and administrative		13,142			—			13,142			13,149			—			13,149			15,083			—			15,083			16,862			—			16,862			58,236			—			58,236
Write off of in-process research and development		—			—			—						—			—						—			—						—			—			—			—			—
Total costs and expenses		186,943			(780	)		186,163			191,348			(355	)		190,993			184,567			(648	)		183,919			198,632			406			199,038			761,490			(1,377	)		760,113
Operating earnings		11,248			780			12,028			16,347			355			16,702			21,725			648			22,373			28,777			(406	)		28,371			78,097			1,377			79,474
Other income (expense):
Interest expense, net		(1,846	)		—			(1,846	)		(1,603	)		—			(1,603	)		(1,703	)		—			(1,703	)		(1,865	)		—			(1,865	)		(7,017	)		—			(7,017	)
Other income		16			—			16			127			—			127			24			—			24			(25	)		—			(25	)		142			—			142
Total other income (expense), net		(1,830	)		—			(1,830	)		(1,476	)		—			(1,476	)		(1,679	)		—			(1,679	)		(1,890	)		—			(1,890	)		(6,875	)		—			(6,875	)
Earnings before income taxes		9,418			780			10,198			14,871			355			15,226			20,046			648			20,694			26,887			(406	)		26,481			71,222			1,377			72,599
Income taxes		(3,825	)		(129	)		(3,954	)		(5,928	)		33			(5,895	)		(7,999	)		(79	)		(8,078	)		(10,679	)		324			(10,355	)		(28,431	)		149			(28,282	)
Net earnings		5,593			651			6,244			8,943			388			9,331			12,047			569			12,616			16,208			(82	)		16,126			42,791			1,526			44,317
GAAP — Basic earnings per share		0.08						0.09			0.13						0.13			0.17						0.18			0.23						0.23			0.61						0.63
Basic weighted average shares outstanding		71,118						71,118			70,790						70,790			70,718						70,718			70,989						70,989			70,710						70,710
GAAP — Diluted earnings per share		0.08						0.09			0.13						0.13			0.17						0.17			0.22						0.22			0.59						0.61
Diluted weighted average shares outstanding		73,420						73,420			71,462						71,462			72,730						72,730			73,871						73,871			72,712						72,712
Consensus EPS Estimate Before Reporting Results		0.19									0.12									0.16									0.21

Q104 — Consensus EPS Estimate does not include gain related to sale of Zynx Health Inc.

Q304 — Consensus EPS does not include reduction related to vacation accrual adjustment

Q105 — Consensus EPS does not include reduction related to write-off of acquired in-process R&D related to the acquisition of the medical division of VitalWorks Inc.

Q305 — Consensus EPS does not include increase related to a prior period tax benefit from the carry back of a capital loss generated by the sale of Zynx Health Inc.

Attachment B

				Q104									Q204									Q304									Q404									YTD 2004
	Q104 As			Unrecorded			Q104 If			Q204			Unrecorded			Q204 If			Q304			Unrecorded			Q304			Q404			Unrecorded			Q404			YTD2004 As			Unrecorded			YTD 2004
In thousands, except per share data	Reported			Adjustments			Adjusted			As Reported			Adjustments			Adjusted			As Reported			Adjustments			If Adjusted			As Reported			Adjustments			If Adjusted			Reported			Adjustments			If Adjusted
Revenues:
System sales		84,512			—			84,512			84,853			—			84,853			82,882			—			82,882			99,614			(551	)		99,063			351,861			(551	)		351,310
Support, maintenance and services		127,069			—			127,069			133,949			—			133,949			140,123			—			140,123			141,273			—			141,273			542,414			—			542,414
Reimbursed travel		7,146			—			7,146			9,588			—			9,588			8,062			—			8,062			7,285			—			7,285			32,081			—			32,081
Total revenues		218,727			—			218,727			228,390			—			228,390			231,067			—			231,067			248,172			(551	)		247,621			926,356			(551	)		925,805
Costs and expenses:
Cost of revenues		46,673			(223	)		46,450			50,564			(224	)		50,340			45,013			(224	)		44,789			54,098			(224	)		53,874			196,348			(895	)		195,453
Cost of system sales
Cost of support, maintenance and services
Cost of reimbursed travel
Sales and client service		92,842			—			92,842			94,232			—			94,232			98,919			—			98,919			97,635			—			97,635			383,628			—			383,628
Software development		42,554			(814	)		41,740			42,769			135			42,904			42,837			516			43,353			43,429			1,670			45,099			171,589			1,507			173,096
General and administrative		14,145			—			14,145			14,919			—			14,919			17,942			(3,346	)		14,596			16,321			—			16,321			63,327			(3,346	)		59,981
Write off of in-process research and development		—			—			—			—			—			—			—			—			—			—			—			—			—			—			—
Total costs and expenses		196,214			(1,037	)		195,177			202,484			(89	)		202,395			204,711			(3,054	)		201,657			211,483			1,446			212,929			814,892			(2,734	)		812,158
Operating earnings		22,513			1,037			23,550			25,906			89			25,995			26,356			3,054			29,410			36,689			(1,997	)		34,692			111,464			2,183			113,647
Other income (expense):
Interest expense, net		(2,115	)		—			(2,115	)		(1,792	)		—			(1,792	)		(1,585	)		—			(1,585	)		(660	)		—			(660	)		(6,152	)		—			(6,152	)
Other income		3,014			—			3,014			(174	)		—			(174	)		52			—			52			(284	)		—			(284	)		2,608			—			2,608
Total other income (expense), net		899			—			899			(1,966	)		—			(1,966	)		(1,533	)		—			(1,533	)		(944	)		—			(944	)		(3,544	)		—			(3,544	)
Earnings before income taxes		23,412			1,037			24,449			23,940			89			24,029			24,823			3,054			27,877			35,745			(1,997	)		33,748			107,920			2,183			110,103
Income taxes		(9,283	)		5,835			(3,448	)		(9,626	)		189			(9,437	)		(10,044	)		(945	)		(10,989	)		(14,319	)		(210	)		(14,529	)		(43,272	)		4,869			(38,403	)
Net earnings		14,129			6,872			21,001			14,314			278			14,592			14,779			2,109			16,888			21,426			(2,207	)		19,219			64,648			7,052			71,700
GAAP — Basic earnings per share		0.20						0.28			0.20						0.20			0.20						0.23			0.30						0.28			0.90						0.99
Basic weighted average shares outstanding		71,322						71,322			72,088						72,088			72,506						72,506			72,174						72,174			72,174						72,174
GAAP — Diluted earnings per share		0.19						0.27			0.19						0.19			0.20						0.23			0.29						0.27			0.86						0.95
Diluted weighted average shares outstanding		74,444						74,444			75,020						75,020			75,306						75,306			75,142						75,142			75,142						75,142
Consensus EPS Estimate Before Reporting Results		0.16									0.17									0.22									0.27

Q104 — Consensus EPS Estimate does not include gain related to sale of Zynx Health Inc.

Q304 — Consensus EPS does not include reduction related to vacation accrual adjustment

Q105 — Consensus EPS does not include reduction related to write-off of acquired in-process R&D related to the acquisition of the medical division of VitalWorks Inc.

Q305 — Consensus EPS does not include increase related to a prior period tax benefit from the carry back of a capital loss generated by the sale of Zynx Health Inc.

Attachment B

				Q105									Q205									Q305									Q405									YTD 2005
	Q105 As			Unrecorded			Q105 If			Q205 As			Unrecorded			Q205 If			Q305 As			Unrecorded			Q305 If			Q405 As			Unrecorded			Q405 If			YTD2005 As			Unrecorded			YTD 2005 If
In thousands, except per share data	Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted
Revenues:
System sales		99,942			551			100,493			105,200			—			105,200			110,173			—			110,173			134,419			(949	)		133,470			449,734			(398	)		449,336
Support, maintenance and services		156,001			—			156,001			164,251			—			164,251			175,208			—			175,208			182,204			—			182,204			677,664			—			677,664
Reimbursed travel		6,591			—			6,591			8,364			—			8,364			9,241			—			9,241			9,191			—			9,191			33,387			—			33,387
Total revenues		262,534			551			263,085			277,815			—			277,815			294,622			—			294,622			325,814			(949	)		324,865			1,160,785			(398	)		1,160,387
Costs and expenses:
Cost of revenues		55,408			895			56,303			59,601			—			59,601			65,305			—			65,305			74,371			—			74,371
Cost of system sales																																						171,073			895			171,968
Cost of support, maintenance and services																																						50,226			—			50,226
Cost of reimbursed travel																																						33,387			—			33,387
Sales and client service		110,840			—			110,840			114,291			—			114,291			117,010			—			117,010			124,065			—			124,065			466,206			—			466,206
Software development		49,329			495			49,824			48,702			149			48,851			53,968			663			54,631			59,456			663			60,119			211,455			1,970			213,425
General and administrative		17,922			—			17,922			21,013			—			21,013			21,142			—			21,142			21,543			41			21,584			81,620			41			81,661
Write off of in-process research and development		6,382			—			6,382			—			—			—			—			—			—			—			—			—			6,382			—			6,382
Total costs and expenses		239,881			1,390			241,271			243,607			149			243,756			257,425			663			258,088			279,435			704			280,139			1,020,349			2,906			1,023,255
Operating earnings		22,653			(839	)		21,814			34,208			(149	)		34,059			37,197			(663	)		36,534			46,379			(1,653	)		44,726			140,436			(3,304	)		137,132
Other income (expense):
Interest expense, net		(1,742	)		—			(1,742	)		(1,366	)		—			(1,366	)		(1,358	)		—			(1,358	)		(1,392	)		—			(1,392	)		(5,858	)		—			(5,858	)
Other income		30			—			30			47			—			47			310			—			310			279			—			279			666			—			666
Total other income (expense), net		(1,712	)		—			(1,712	)		(1,319	)		—			(1,319	)		(1,048	)		—			(1,048	)		(1,113	)		—			(1,113	)		(5,192	)		—			(5,192	)
Earnings before income taxes		20,941			(839	)		20,102			32,889			(149	)		32,740			36,149			(663	)		35,486			45,266			(1,653	)		43,613			135,244			(3,304	)		131,940
Income taxes		(8,421	)		537			(7,884	)		(13,086	)		273			(12,813	)		(9,593	)		(4,342	)		(13,935	)		(17,893	)		848			(17,045	)		(48,993	)		(2,684	)		(51,677	)
Net earnings		12,520			(302	)		12,218			19,803			124			19,927			26,556			(5,005	)		21,551			27,373			(805	)		26,568			86,251			(5,988	)		80,263
GAAP — Basic earnings per share		0.17						0.16			0.27						0.27			0.35						0.28			0.36						0.35			1.16						1.08
Basic weighted average shares outstanding		73,480						73,480			74,314						74,314			75,778						75,778			76,757						76,757			74,144						74,144
GAAP — Diluted earnings per share		0.16						0.16			0.25						0.26			0.33						0.27			0.34						0.33			1.10						1.03
Diluted weighted average shares outstanding		76,588						76,588			77,972						77,972			79,794						79,794			80,811						80,810			78,090						78,090
Consensus EPS Estimate Before Reporting Results		0.21									0.25									0.27									0.34

Q104 — Consensus EPS Estimate does not include gain related to sale of Zynx Health Inc.

Q304 — Consensus EPS does not include reduction related to vacation accrual adjustment

Q105 — Consensus EPS does not include reduction related to write-off of acquired in-process R&D related to the acquisition of the medical division of VitalWorks Inc.

Q305 — Consensus EPS does not include increase related to a prior period tax benefit from the carry back of a capital loss generated by the sale of Zynx Health Inc.

Attachment B

Detail of Unrecorded Adjustments

(+ = debit, – = credit)

		'03															'04															'05
		1Q03			2Q03			3Q03			4Q03			2003			1Q04			2Q04			3Q04			4Q04			2004			1Q05			2Q05			3Q05			4Q05			2005
(A)	To adjust for the non-GAAP policy around software capitalization		(780	)		(355	)		(648	)		406			(1,377	)		(814	)		135			516			1,670			1,507			495			149			663			663			1,970
(B)	To properly remove depreciation expense recorded for a fixed asset which was disposed of in 2003		—			—			—			—			—			(142	)		(142	)		(142	)		(142	)		(568	)		—			—			—			—			—
(C)	To properly reduce accrued commissions to account for commissions paid in November		—			—			—			—			—			(81	)		(82	)		(82	)		(82	)		(327	)		—			—			—			—			—
(D)	To properly state accounts receivable as a result of our confirmation procedures (known error of $69k extrapolated across population)		—			—			—			—			—			—			—			—			551			551			—			—			—			—			—
(E)	To properly remove out of period vacation accrual		—			—			—			—			—			—			—			(3,346	)		—			(3,346	)		—			—			—			—			—
(F)	Reversal of prior year entries (b-d above)		—			—			—			—			—			—			—			—			—			—			344			—			—			—			344
(G)	To properly extrapolate error in deferred revenue testing		—			—			—			—			—			—			—			—			—			—			—			—			—			430			430
(H)	To write-off loan of product in the current year due to the Company’s estimate of recoverability		—			—			—			—			—			—			—			—			—			—			—			—			—			519			519
(I)	To properly record cash activity in the December bank reconciliation		—			—			—			—			—			—			—			—			—			—			—			—			—			41			41
(J)			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—
	Total		(780	)		(355	)		(648	)		406			(1,377	)		(1,037	)		(89	)		(3,054	)		1,997			(2,183	)		839			149			663			1,653			3,304
	Tax Effect		298			136			248			(155	)		527			397			34			1,168			(764	)		835			(321	)		(57	)		(254	)		(632	)		(1,264	)
	After Tax Amount		(482	)		(219	)		(400	)		251			(850	)		(640	)		(55	)		(1,886	)		1,233			(1,348	)		518			92			409			1,021			2,040
(K)	To properly record tax benefit on Zynx sale		—			—			—			—			—			(4,812	)		—			—			—			(4,812	)		—			—			4,812			—			4,812
(L)	To properly reverse tax expense which was recorded as an estimate on the sale of Zynx and then reversed in Q4 when client realized the sale would result in a tax loss		—			—			—			—			—			(1,197	)		—			—			1,197			—			—			—			—			—			—
(N)	To properly record the tax effect of book/ tax differences relating to intangibles acquired in stock acquisitions		(169	)		(169	)		(169	)		(169	)		(676	)		(223	)		(223	)		(223	)		(223	)		(892	)		(216	)		(216	)		(216	)		(216	)		(864	)
	Total After-Tax Adjustment		(651	)		(388	)		(569	)		82			(1,526	)		(6,872	)		(278	)		(2,109	)		2,207			(7,052	)		302			(124	)		5,005			805			5,988
	Net Income		5,593			8,943			12,047			16,208			42,791			14,129			14,314			14,779			21,426			64,648			12,520			19,803			26,556			27,372			86,251
	Audit Difference as a % of Net Income		11.6	%		4.3	%		4.7	%		-0.5	%		3.6	%		48.6	%		1.9	%		14.3	%		-10.3	%		10.9	%		-2.4	%		0.6	%		-18.8	%		-2.9	%		-6.9	%
	As a % of Net Income (+=increase):
(A)	- SW Cap		8.6	%		2.5	%		3.3	%		-1.5	%		2.0	%		3.6	%		-0.6	%		-2.2	%		-4.8	%		-1.4	%		-2.4	%		-0.5	%		-1.5	%		-1.5	%		-1.4	%
(K)&(L)	- Zynx		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		42.5	%		0.0	%		0.0	%		-5.6	%		7.4	%		0.0	%		0.0	%		-18.1	%		0.0	%		-5.6	%
(E)	- Vacation		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		14.0	%		0.0	%		3.2	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
(B)+(C)+(D)+(F)+(G)+(H)+(I)+(N)	- All other		3.0	%		1.9	%		1.4	%		1.0	%		1.6	%		2.6	%		2.5	%		2.4	%		0.1	%		1.7	%		0.0	%		1.1	%		0.8	%		-1.4	%		0.0	%
	Tax Effect by Unrecorded Adjustment
	Tax effect of Item A		298			136			248			(155	)		527			311			(52	)		(197	)		(639	)		(576	)		(189	)		(57	)		(254	)		(254	)		(754	)
	Tax effect of Item B		—			—			—			—			—			54			54			54			54			217			—			—			—			—			—
	Tax effect of Item C		—			—			—			—			—			31			31			31			31			125			—			—			—			—			—
	Tax effect of Item D		—			—			—			—			—			—			—			—			(211	)		(211	)		—			—			—			—			—
	Tax effect of Item E		—			—			—			—			—			—			—			1,280			—			1,280			—			—			—			—			—
	Tax effect of Item F		—			—			—			—			—			—			—			—			—			—			(132	)		—			—			—			(132	)
	Tax effect of Item G		—			—			—			—			—			—			—			—			—			—			—			—			—			(164	)		(164	)
	Tax effect of Item H		—			—			—			—			—			—			—			—			—			—			—			—			—			(199	)		(199	)
	Tax effect of Item I		—			—			—			—			—			—			—			—			—			—			—			—			—			(16	)		(16	)
	Tax effect of Item K		—			—			—			—			—			(4,812	)		—			—			—			(4,812	)		—			—			4,812			—			4,812
	Tax effect of Item L		—			—			—			—			—			(1,197	)		—			—			1,197			—			—			—			—			—			—
	Tax effect of Item N		(169	)		(169	)		(169	)		(169	)		(676	)		(223	)		(223	)		(223	)		(223	)		(892	)		(216	)		(216	)		(216	)		(216	)		(864	)
	Total Tax Effect for all items unrecorded		129			(33	)		79			(324	)		(149	)		(5,835	)		(189	)		945			210			(4,869	)		(537	)		(273	)		4,342			(848	)		2,684
	Total Pre Tax Adjustment		(780	)		(355	)		(648	)		406			(1,377	)		(1,037	)		(89	)		(3,054	)		1,997			(2,183	)		839			149			663			1,653			3,304
	After Tax Adjustment Amount		(651	)		(388	)		(569	)		82			(1,526	)		(6,872	)		(278	)		(2,109	)		2,207			(7,052	)		302			(124	)		5,005			805			5,988