SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission File Number 0-15386
CERNER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 43-1196944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
|
2800 Rockcreek Parkway
North Kansas City, Missouri 64117
(816) 221-1024
(Address of principal executive offices, including zip code; Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
At March 15, 2001, there were 34,813,821 shares of Common Stock outstanding, of which 7,559,789 shares were owned by affiliates. The aggregate market value of the outstanding Common Stock of the Registrant held by non-affiliates, based on the average of bid and asked prices of such stock on March 15, 2001, was $1,089,309,592.
Documents incorporated by reference: portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.
PART I
Item 1. Business
Cerner Corporation ("Cerner" or the "Company") is a Delaware corporation incorporated in 1980. The Company's principal offices are located at 2800 Rockcreek Parkway, North Kansas City, Missouri 64117, and its telephone number is (816) 221-1024.
Cerner designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. Cerner implements these solutions as individual, combined or enterprise-wide systems.
Cerner's integrated suite of solutions enable healthcare providers to improve operating effectiveness, reduce costs, reduce medical errors, reduce variances and improve the quality of care as measured by clinical outcomes. Cerner solutions are designed to provide the appropriate health information and knowledge to caregivers, clinicians and consumers and the appropriate management information to healthcare administration on a real-time basis. Cerner solutions allow secure access to data by clinical, administrative and financial users in organized settings of care and by consumers from their home. These solutions can be implemented as a part of an enterprise- wide solution or individually, leveraging the client's existing investment in information technology. Cerner solutions are available as integrated applications managed by its clients or as a service option under the hosted solutions model. Hosted solutions are applications that are provided to clients from Cerner's solutions center in Lee's Summit, Missouri.
Cerner solutions are designed and developed using the Health Network Architecture (Registered)("HNA"), a single information architecture. HNA (Registered) is a unified technology infrastructure for combining clinical and management information applications. HNA allows each participating healthcare organization to access an individual's clinical record at the point of care, to organize it for the specific needs of the physician, nurse, laboratory technician or other care provider on a real-time basis, and to use the information in management decisions to improve theefficiency and productivity of the entire enterprise.
Cerner has developed and is licensing and installing its newest generation of HNA solutions known as "Millennium (Trademark)". See "Cerner's Technology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of HNA Millennium (Registered).
The healthcare delivery industry in the United States is highly fragmented, very complex and remarkably inefficient. While science and medical technology continue to make significant breakthrough progress in dealing with human disease and injury, the management and clinical processes of these complex delivery organizations have made little progress in the past twenty years. Even today, the major clinical workflow depends on manual, paper- based medical record systems augmented by spotty automation. This has resulted in an industry which is economically inefficient and produces significant variances in medical outcomes. In November 1999, the Institute of Medicine released a report called "To Err is Human" indicating that medical error is one of the top ten causes of death in the United States, with up to 96,000 lives lost each year. The industry must address these issues by identifying ways to enhance efficiencies and improve the quality of care.
The healthcare industry has also been buffeted by significant external forces during the 1990's. Managed Care Organizations defined themselves as an intermediary in the flow of funds and exerted pressure on healthcare spending. In 1997, Congress enacted the Balanced Budget Act which reduced Medicare reimbursements to healthcare providers by over $250 billion dollars over a five-year period. The full impact of this legislation hit in 1999, significantly reducing the operating margins of hospitals and physician groups. The healthcare industry has also seen the impact of legislative and employer-led initiatives, such
<PAGE 2
as the Leapfrog Group, an organization of large businesses which recommends that its members not send any of their employees to hospitals that do not use a computerized, physician order-entry system. These pressures have forced healthcare providers to focus on improving their systems and processes.
In order to be competitive in this dynamic marketplace, healthcare enterprises will need to deploy information technology solutions that internally automate the paper-based medical record systems and externally create smart connections between the major participants in healthcare: the consumer, the physician, the hospital and the managed care organization. The emergence of near ubiquitous Internet connectivity will facilitate consumer participation in the healthcare management process.
The complexity of healthcare's information requirements will continue to increase with provider consolidations and the challenging cost containment pressures created by the Balanced Budget Act. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) adds an additional element of uncertainty for healthcare organizations around security and patient confidentiality. The final health data privacy regulations were published in December 2000, and require compliance by April 2003. While many of the rules under HIPAA have not been finalized as yet, the provisions are focused on a centralized and systematic method of access control that Cerner thinks is best met by a single integrated architecture.
Cerner is responding to the changing and increasing needs of the healthcare industry for better information systems by developing HNA Millennium, its latest generation of solutions. See "Cerner's Technology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of HNA Millennium.
Cerner's business and products are organized around a central vision of how healthcare can and should operate. This vision is founded on four steps:
* Automate the core processes of healthcare: eliminate the paper medical record
* Connect the person: create the personal health system
* Structure the knowledge: position every clinical decision as a learning event
* Close the loop: implement evidence-based medicine
These steps describe Cerner's business today and plans for Cerner's business both in 2001 and beyond.
Cerner is dedicated to the elimination of the paper medical record.
Medical care cannot make significant steps forward in quality and consistency without leveraging the power and advantages of information technology. As long as medical information is locked and isolated in a paper record, a physician is cut off from rapid, contextual reference to the vast knowledge available in today's medicine. The elimination of the paper record will lead to improved quality and safety of care, dramatic productivity increases and enhanced documentation.
The electronic recording of medical information will lead to improvements in the quality of care, the safety of patients and reduced costs. By allowing care providers to access a patient's single, longitudinal medical record in real-time, clinicians can view demographic information, medical history, lab results and current conditions and treatment plans along with notes from attending and consulting physicians. Guidelines and pathways sensitive to the person's medical condition and problems will assist the physician in making the "appropriate" decisions on how to diagnose and treat medical conditions. This comprehensive view of a patient's health status allows for better medical decision-making at the point of
care. Online
documentation and physician order entry helps to prevent the
errors in and misinterpretation of documentation and orders,
reducing the costs of duplication and medical error. This
automation also will reduce the time for care delivery and lower
costs.
Once all the steps of care are captured electronically, the enhanced documentation will lead to more efficient healthcare, both in terms of treatment and finance, and will set the stage for data collection that will be the backbone of structuring the knowledge of healthcare. Electronic medical records reduce some of the duplication caused by poor record-keeping. Wasteful duplication is eliminated, redundant tests are not ordered. Also, documentation required for health plan reimbursement is maintained efficiently, reducing claim denials. Finally, electronic record-keeping lays the groundwork of data collection necessary to make dramatic changes in care delivery.
Cerner is dedicated to helping its clients build a personal health system; creating a "new medium" between the person and physician; empowering the individual; and creating a new center to healthcare.
The healthcare system is undergoing fundamental change as the person moves to the center of care delivery. Increasing access to expert knowledge over the Internet and a cultural shift toward more self-direction are combining to move the center of power and control to the person.
With the electronic medical record, persons can access their medical records securely anytime and anywhere they have Internet access. When combined with personalized health content, the consumer gains a better sense of the care they are receiving and the options available to them. They will have better communications with their providers, and can take more ownership of their own health and work to manage it to their satisfaction.
Cerner is dedicated to building systems that treat every clinical decision as a learning event by structuring, storing and studying the content of medicine.
Medicine must have a structure that allows physicians to record treatment and outcomes in such a way as to permit comparability. The basis of this structure is a common nomenclature that can exactly capture the meaning of input from physicians and clinicians. By storing this data and then providing a framework for comparability, physicians can make sense and glean value from the information that is gathered both through automated processes and connected persons. Without a knowledge framework, data collected will provide no real benefit. By building this structure, every encounter with a patient, every piece of new knowledge and information, can be catalogued, measured and analyzed to improve care. This knowledge framework will deliver better standards of care and an improved understanding of medicine.
Cerner is dedicated to building systems that implement evidence- based medicine, dramatically reducing the current average time from the discovery of an improved method to the change in "standard of care" medical practice.
Advances in technology offer great opportunities to healthcare and must be used to practical effect. The knowledge gained must be used to deliver better care faster. The information learned must be applied. Today, patients may wait as long as ten years before new knowledge reaches widespread use. With systems designed to embed evidence-based medicine inside the clinicians' workflow using pathways, guidelines and alerts, physicians can ensure that every medical decision is optimal, based on the best and most recent knowledge available. The results will be better outcomes and reduced variance.
Key elements of the Company's business strategy include the following:
Penetrate the integrated healthcare provider market. ---------------------------------------------------- Large health systems represent a significant component of the healthcare information technology market. These organizations are focused on improving safety and reducing costs through operating efficiencies. Cerner's enterprise-wide process-based, clinical and management systems provide the technology to enable an integrated system to manage healthcare across the system, significantly reduce costs, improve the efficiency of healthcare delivery and maintain and improve the quality of healthcare.
Remain committed to a common architecture.
------------------------------------------ Because Cerner
believes that the constituents in health management need to work
together to benefit defined populations in a community, the
Company has made a commitment to a single unified architecture as
the platform for "fully integrated" health information and
management systems. This platform enables Cerner's process-based
HNA systems to be scaleable on a linear basis, using either
Cerner compatible modules for process-oriented applications or
competitive systems interfaced using open system protocols.
Expand products and services.
---------------------------- Using HNA Millennium,
Cerner intends to continue expanding the range of products and
services offered to providers. These new products and services
will complement the systems currently offered, address the
emerging information needs of clients or employ technological
advances. Cerner believes that major opportunities exist as
providers and managed care organizations reach into new markets
and offer more alternative services to remain competitive. The
Company believes these organizations will find value in having
personal health records and trusted health information accessible
to the individual in the home. In addition, Cerner recognizes the
value of the aggregate database being developed by its broad
client base as a potential means to enable comparative or
normative procedure evaluations as a powerful new tool in the
healthcare industry. The substantial project management, process
redesign, technology integration and training involved in
healthcare systems taking advantage of the opportunities provided
by clinical and management information technology represent a
significant market for the Company's consulting services.
Offer products on a hosted solution basis.
----------------------------------------- The Company
now offers its HNA Millennium applications through its new hosted
solutions delivery option. This option offers information
technology services to clients that include software, computer
hardware, implementation, technical support, wide-area network
(WAN) services and automatic software upgrades. Unlike
traditional software implementations, software delivered through
the hosted solutions delivery option is not installed at the
user's location, but is delivered, operated and maintained in
Cerner's solutions center in a rapidly accelerated implementation
timeframe. Using Cerner hosted solutions, any size organization
can access the same robust clinical applications, architecture
and user-interface advantages that were previously only available
to larger institutions.
The cornerstone of Cerner's technology strategy is HNA, the single architecture around which each of Cerner's information products is developed. This person-centric, single data model, open and highly scaleable architecture allows Cerner to meet the clinical, financial, management and business information
requirements of a healthcare delivery system across the continuum of care. Cerner's newest version of its HNA computing platform is Millennium, the core of which was developed between 1994 and 1999. Millennium uses n-tier client/server technology to optimize distributed computing performance and scalability across multiple client and server platforms. The HNA Millennium architecture and applications were designed and developed to accommodate healthcare specific requirements for mission critical computing and secure access, whether the user is inside the healthcare enterprise or at home via the Internet. HNA Millennium's breadth of focus and functionality are well suited for large-scale and enterprise application technologies for healthcare organizations, including the ability to leverage the Internet for ehealth-related self-service and business-to- business functions.
The value of HNA Millennium to a client organization is the use across a healthcare organization of a single system based on a fully integrated common architecture and database. With its single data model, HNA Millennium provides secure, real-time access to all information across multiple applications, domains, organizations and physical locations, including physician, hospital, nursing, laboratory, pharmacy and consumers, to all of those needing such access, wherever they are located. Given its integrated and open design, HNA Millennium can also provide a centralized repository of clinical and financial transactions to help standardize access and messaging of disparate applications across a health system.
The alternative to a single architectural approach is to use disparate systems based on differing architectures and data structures to automate the care processes across the continuum of care. These disparate systems must be interfaced together and rely on these interfaces to transmit, modify and arrange data exchanged between them, which limits the data's usefulness across multiple systems and inhibits real-time access. In addition, many of these systems lack functional scalability and cannot operate across multiple provider settings or locations within a healthcare organization.
Two overarching capabilities are embedded into the HNA Millennium architecture. First is the person-centric transactions and secure messaging, which consider the breadth of requirements not only of a patient, but also of healthy consumers. Second is healthcare community dynamics, which take into account the flexibility required by the constantly changing relationships between healthcare organizations, physicians and consumers, and the need to maintain complex security and end user preferences based on the context and business attributes of the transaction in a community setting.
Cerner is extending HNA Millennium's reach and scope with the goal of becoming the de facto standard for healthcare information technology. A key element in that effort by Cerner is CernerObjects. Cerner will use CernerObjects to extend HNA Millennium to suppliers, supporting their development efforts and increasing Millennium's market penetration. CernerObjects is a collection of reusable programming elements from Cerner's HNA Millennium architecture. These segments of code, or objects, enable third-party developers to create front-end applications, like Palm or Web browser solutions, that draw upon the data model and proven functionality of HNA Millennium. With CernerObjects, programmers can quickly and efficiently build applications that integrate with Cerner's architecture, reusing existing objects that achieve the tasks they are seeking to replicate. Third- party programmers can avoid the time- and cost-intensive process of writing new code to perform functions Cerner engineers have already developed.
CernerObjects is the mechanism Cerner uses to extend its own applications to the Internet. By licensing the objects library to third parties, Cerner has an excellent opportunity to proliferate the HNA Millennium architecture - as well as the brand, clinical expertise and technical excellence upon which it was built.
Cerner's HNA Millennium platform of products is the only healthcare information system on the market today capable of both retrieving and disseminating clinical and financial information across an entire health system. HNA Millennium includes seven product families dedicated to meeting the automation needs of virtually every segment of the care continuum.
Cerner solutions can be acquired individually or as a fully integrated health information system. Cerner also markets more than 200 product options that complement Cerner's major information systems. In addition, Cerner sells computers and related hardware manufactured by third parties and consulting services to its software licensees.
Cerner's product categories include:
* Enterprise Systems, which automate processes across and throughout the health system enterprise;
* Financial and Operational Management Systems, which automate business operations;
* Decision Support Systems and Knowledge Solutions, which enhance clinical and business processes with information and actions;
* Point of Care Clinical Systems, which automate the care processes within specific domains of health systems;
* Systems for Clinical Centers, which automate the clinical processes within specific departments;
* Personal Health Systems for individuals to manage their own health and connect to the health system; and
* Interface Technologies for connecting other technologies and systems to HNA Millennium.
Cerner's CapStone (Registered) Enterprise Access Management System creates the enterprise-wide master person identifier (EMPI) and automates the identification, eligibility, registration and scheduling processe across hospitals, clinics, physician practices and other care delivery organizations, integrating the health system and incorporating existing systems.
PowerChart (Registered) Electronic Medical Record System is the enterprise clinician's desktop solution for viewing, ordering, documenting and managing care delivery.
The Open Clinical Foundation (Registered) manages clinical information, providing the foundation for the electronic medical record.
The Open Management Foundation (Trademark) stores management information of enterprise financial, operational and process results, creating the foundation for the enterprise-wide management and executive information system.
The Open Agreement Foundation (Trademark) manages health plan contracts and agreements, and member information.
The Open Research Foundation (Trademark) provides open repository storage of clinical and medical information to support medical research.
The ProFit (Trademark) Enterprise Billing and Accounts Receivable System is Cerner's system for revenue accounting, billing and accounts receivable for the entire health system as well as each individual domain or organization. ProFit integrates clinical and financial data and creates a single bill.
PowerVision (Registered) Enterprise Decision Support links comprehensive clinical and financial data and makes it available at the point of care - allowing care to be better managed as it occurs.
The ProFile (Trademark) Health Information Management System helps meet the operations management needs of the health information management (medical records) department and includes functionality for the various chart tracking and completion tasks.
The ProCure (Trademark) Materials Management System automates the business operations around supply chain, materials acquisition and equipment management for the organization.
The ProCare (Trademark) Medical Management System automates medical management for the health system, addressing the areas of utilization, case and risk management, as well as infection control.
The RadNet (Trademark) Radiology Information System addresses the operational and management requirements of radiology departments or services. It allows a department to replace its manual, paper- based system of record-keeping with an efficient computer-based system that integrates with its imaging systems. Cerner also provides image management systems with picture archival and communications systems (PACS) that are fully integrated with Cerner's radiology information systems. Using Cerner's end-to- end, fully integrated radiology information and image management systems, radiologists can improve operational efficiencies and reduce medical error.
Discern Expert (Registered) is an event-driven, rule-based decision support software application that allows users to define clinical and management rules (Alerts (Trademark)) that are applied to event data captured or generated by other applications. It supports both synchronous (real-time, interactive) processing and asynchronous (noninteractive) processing of events. Discern Expert manages the evaluation and display of executable clinical knowledge through either Cerner-developed Alerts, which are licensed separately, or client-developed Alerts.
Discern Explorer (Registered) is a decision support software application integrated with other Cerner HNA Millennium clinical and management information systems that allows users to execute predetermined or ad hoc queries and reports regarding process-related data that is generated by the other applications.
Care Designs (Trademarks) are clinical pathways and protocols that automate the specific plans of care for an individual and operate within Cerner's clinical systems.
The INet (Registered) Intensive Care Management System is designed to automate the entire care process in intensive care settings. It supports chart review and browsing, order management, documentation management and automatic data acquisition.
Cerner's CareNet (Registered) Acute Care Management System is designed to automate the entire care process in acute or institutional settings. The application collects, refines, organizes and evaluates detailed clinical and management data. It enables the entire care team to plan and manage individual activities and plans, as well as measure outcomes and goals.
The CVNet (Registered) Cardiology Information System automates the processes within the cardiology department, supporting the scheduling, ordering, documentation and data capture required by professionals in the cardiology domain.
The SurgiNet (Registered) Surgery Information System is designed to address the needs of the surgical department, including automating the functions of resource and equipment scheduling, inventory management, anesthesia management and operating room management.
The FirstNet(Registered) Emergency Medicine Information System offers patient and provider tracking and an intuitive presentation of patient diagnoses and clinical events for the emergency department. FirstNet provides basic emergency department functionality, including quick admits, tracking, triage and patient history, as well as a graphical reference to patient location and order status.
The PowerChart Office (Trademark) Management System supports the broad range of clinical and business activities that occur within a physician office, clinic or large physician organization. This system ties the office together with other medical entities and automates key care team activities in both primary and specialty care settings.
The ProCall (Registered) Home Care Management System automates the clinical and business processes of home care organizations, such as home health agencies, visiting nurse associations and hospices.
The PathNet (Registered) Laboratory Information System addresses the information management needs of six clinical areas: general laboratory, microbiology, blood bank transfusion services, blood bank donor services, anatomic pathology and Human Leukocyte Antigen. PathNet automates the ordering and reporting of procedures, the production of accurate and timely reports and the maintenance of accessible clinical records.
The RadNet (Registered) Radiology Information System addresses the operational and management requirements of radiology departments or services. It allows a department to replace its manual, paper-based system of record-keeping with an efficient computer-based system that integrates with their imaging systems.
The PharmNet (Registered) Pharmacy Information System provides full integration for rapid pharmacy order entry and support of the clinical pharmacy in either an inpatient or retail setting. PharmNet streamlines medication order entry, enabling the pharmacist or technician to place all types of pharmaceutical orders, and automates dispensing functions.
Cerner's IQHealth (Trademark) facilitates powerful business-to- consumer and business-to-business connections via the Internet. With IQHealth, healthcare organizations can create and brand a "health exchange" in the community to directly connect hospitals, physicians, payers, consumers and others. IQHealth provides the tools to create such local connections as well as health information to improve the quality and safety of care.
IQHealth's Personal Health Record (PHR) is a personal health management tool that gives consumers the ability to build a permanent electronic record in which health information can be securely stored as it accrues over time.
Cerner Multum (Registered) drug database provides caregivers and consumers alike with access to drug information and the ability to perform drug interaction checking to prevent adverse events.
IQHealth's Health Risk Assessments allow organizations to create Web-based surveys to assess individual and community health risks.
Health Connections (Trademark), a 24x7 call center staffed by nurses, provides ready access to accurate health information so that consumers can better manage their health and participate in care decisions.
Health Facts (Registered) is Cerner's comparative data warehouse for benchmarking information and services for subscribers to support their own improvement processes.
The Open Engine Application Gateway System (Trademark) facilitates the exchange of data and assists in the management of interfaces between foreign systems in a network environment. It serves as a toolkit to help write interface code.
The Open Port Interface System (Trademark) represents Cerner's standardized technology for providing reliable foreign system, medical device and other standard interfaces in a timely manner. Message translation and data mapping are done with point-and-click tools and a scripting environment.
Communications protocols are configured via table driven parameters. These sophisticated methodologies result in decreased implementation times and greater client satisfaction.
Cerner commits significant resources to developing new health information system products. As of December 30, 2000, approximately 1,100 employees were engaged full-time in product development activities. Total expenditures for the development and enhancement of the Company's products were approximately $90,694,000, $88,699,000 and $74,159,000 during the 2000, 1999 and 1998 fiscal years, respectively. These figures include both capitalized and noncapitalized portions and exclude amounts amortized for financial reporting purposes.
The Company expects to continue investment and development efforts for its current and future product offerings. As new clinical and management information needs emerge, Cerner intends to enhance its current product lines with new versions released to clients on a periodic basis. In addition, Cerner plans to expand its current product lines by developing additional information systems for clinical, financial, operational and/or consumer use and to continue to support simultaneous use of Cerner's products across multiple facilities, and plans to continue to expand in the global marketplace.
See "Cerner's Technology - Health Network Architecture (HNA) and HNA Millennium" for a discussion of the development of Cerner's latest generation of software products.
The markets for Cerner's information system products include integrated delivery networks, physician groups and networks and their management service organizations, managed care organizations, hospitals, medical centers, free-standing reference laboratories, blood banks, imaging centers, pharmacies, pharmaceutical manufacturers, employer coalitions and public health organizations. To date, a substantial portion of system sales have been in clinical applications in hospital-based provider organizations. Cerner's HNA architecture is highly scaleable, with applications being used in hospitals ranging from under 50 beds to over 2,000 beds and managed care settings with over 2,000,000 members. All HNA Millennium applications are designed to operate on either computers manufactured by Compaq Computer Corporation or IBM's RISC System/6000 AIX (UNIX) platform, thereby allowing Cerner to be price competitive across the full range of size and organizational structure of healthcare providers. The sale of a health information system usually takes approximately nine to eighteen months, from the time of initial contact to the signing of a contract.
The Company is in the process of expanding its sales force in anticipation of increased market demands expected to be created by its HNA Millennium solutions. See "Cerner's Technology - Health Network
Architecture (HNA) and HNA Millennium" for a discussion of the development of Cerner's latest generation of software products.
The Company's executive marketing management is located in its North Kansas City, Missouri, headquarters, while its client representatives are deployed across the United States and globally. In addition to the United States, the Company, through subsidiaries and joint ventures, has sales staff and/or offices in Australia, Belgium, Canada, Germany, Singapore, Malaysia, Saudi Arabia and the United Kingdom. Cerner's consolidated revenues include foreign sales of $25,815,000, $24,001,000 and $17,545,000 for the 2000, 1999 and 1998 fiscal years, respectively. The Company supports its sales force with technical personnel who perform demonstrations of Cerner's products and assist clients in determining the proper hardware and software configurations. The Company's primary direct marketing strategy is to generate sales contacts from its existing client base and through presentations at industry seminars and tradeshows. Cerner attends a number of major tradeshows each year and has begun to sponsor executive conferences, which feature industry experts who address the information system needs of large healthcare organizations.
All of Cerner's clients enter into software maintenance agreements with Cerner for support of their Cerner systems. In addition to immediate software support in the event of problems, these agreements allow these clients the use of new releases of the Cerner products covered by these agreements. Each client has 24-hour access to the client support staff located at Cerner's corporate headquarters. Most of Cerner's clients also enter into hardware maintenance agreements with Cerner. These arrangements normally provide for a fixed monthly fee for specified services. In the majority of cases, Cerner subcontracts hardware maintenance to the hardware manufacturer.
In 1999, Cerner modified its strategy of using regional business centers to provide support for its clients. Due to the increase in the number of Cerner associates working at client sites and the resulting decrease in utilization and cost effectiveness of its regional branch offices, Cerner decided to close or reduce the size of many of its facilities in the United States. Cerner closed its offices in Atlanta, Georgia; Boston, Massachusetts; Irvine, California; and Washington, D.C. in the second quarter of 2000. The expenses for such closings were charged to the fourth quarter of 1999. Additional leased office space was acquired during 2000 as a result of acquisition of businesses in Chesapeake, Virginia; Dallas, Texas; St. Louis, Missouri; and Houston, Texas, and new office space was opened in Washington, D.C. Cerner's offices in Detroit, Michigan and Denver, Colorado remain open.
At December 30, 2000, Cerner had a contract backlog of approximately $439,943,000. Such backlog represents system sales from signed contracts, which had not yet been recognized as revenue. The Company recognizes revenue on a percent of completion basis, based on certain milestone conditions, for its software products. At December 30, 2000, the Company had approximately $91,090,000 of contracts receivable, which represents revenues recognized under the percent of completion method but not yet billable under the terms of the contract. At December 30, 2000, Cerner had a software support and maintenance backlog of approximately $184,360,000. Such backlog represents contracted software support and hardware maintenance services for a period of twelve months. The Company estimates that approximately 55% of the aggregate backlog of $624,303,000 will be recognized as revenue during 2001.
As of March 1, 2001, the Company employed 3,104 associates.
Information under the caption "Factors That May Affect Future Results of Operations, Financial Condition of Business" included in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 is incorporated herein by reference. Such information includes a discussion of various factors that could, among other things, affect the Company's business in the future, including (a) variations in the Company's quarterly operating results; (b) volatility of the Company's stock price; (c) market risk of investments; (d) changes in the healthcare industry; (e) significant competition; (f) the Company's proprietary technology may be subjected to infringement claims or may be infringed upon; (g) possible regulation of the Company's software by the U.S. Food and Drug Administration or other government regulation; (h) the possibility of product- related liabilities; (i) possible failures or defects in the performance of the Company's software; (j) the possibility that the Company's anti-takeover defenses could delay or prevent an acquisition of the Company; and (k) risks and uncertainties related to the Year 2000 transition.
Item 2. Properties
The Company's offices are located in a Company-owned office park in North Kansas City, Missouri, containing approximately 500,000 square feet of useable space. As of December 30, 2000, the Company was using approximately 455,000 square feet and substantially all of the remainder was leased to tenants. The Company also leases office space for its branch offices in Detroit, Michigan; Denver, Colorado; St. Louis, Missouri; Dallas, Texas; Washington, D.C.; Chesapeake, Virginia; Houston, Texas; Sydney, Australia; and Brussels, Belgium.
Item 3. Legal Proceedings
The Company has no material pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the Company during the fourth quarter of the fiscal year ended December 30, 2000.
Item 4A. Executive Officers of the Company
The following table sets forth the names, ages, positions and certain other information regarding the Company's executive officers as of March 27, 2001. Officers are elected annually and serve at the discretion of the board of directors.
Name Age Positions
---- --- ---------
Neal L. Patterson 51 Chairman of the Board of Directors and
Chief Executive Officer
Clifford W. Illig 50 Vice Chairman of the Board of Directors
Earl H. Devanny, III 49 President
Glenn P. Tobin, Ph.D. 39 Executive Vice President and Chief Operating
Officer
Paul M. Black 42 Executive Vice President and Chief Sales
Officer
Jack A. Newman, Jr. 53 Executive Vice President
Douglas M. Krebs 43 Senior Vice President and President of
Cerner International
Stephen M. Goodrich 49 Senior Vice President and Chief Quality
Officer
Richard J. Flanigan, Jr. 41 Senior Vice President and General Manager
|
Stephen D. Garver 40 Senior Vice President and Managing Partner
Marc G. Naughton 46 Vice President and Chief Financial Officer
Stanley M. Sword 39 Vice President and Chief People Officer
Jeffrey A. Townsend 37 Vice President and Chief Engineering
Officer
Randy D. Sims 40 Vice President, Chief Legal Officer and
Secretary
|
Neal L. Patterson has been Chairman of the Board of Directors and Chief Executive Officer of the Company for more than five years. Mr. Patterson also served as President of the Company from March of 1999 until August of 1999.
Clifford W. Illig has been a Director of the Company for more than five years. He also served as Chief Operating Officer of the Company for more than five years until October 1998 and as President of the Company for more than five years until March of 1999. Mr. Illig was appointed Vice Chairman of the Board of Directors in March of 1999.
Earl H. Devanny, III joined the Company in August of 1999 as President. Prior to joining the Company, Mr. Devanny served as president of the ADAC Healthcare Information Systems, Inc. Prior to joining ADAC, Mr. Devanny served as a Vice President of the Company from 1994 to 1997. Prior to that he spent seventeen years with IBM Corporation.
Glenn P. Tobin, Ph.D. joined the Company in April of 1998 as General Manager and Senior Vice President. On October 29, 1998, Dr. Tobin was appointed Executive Vice President and Chief Operating Officer. Prior to joining the Company, Dr. Tobin served as a senior consultant with McKinsey and Co., Inc. for more than five years.
Paul M. Black joined the Company in March of 1994 as a Regional Vice President. He was promoted in June 1998 to Senior Vice President and Chief Sales Officer and to Executive Vice President in September of 2000. Prior to joining Cerner, he spent twelve years with IBM Corporation.
Jack A. Newman, Jr. joined the Company in January of 1996 as Executive Vice President. Prior to joining the Company, he was with KPMG LLP for twenty-two years. Immediately prior to joining Cerner he was National Partner-in-Charge of KPMG's Healthcare Strategy Practice.
Douglas M. Krebs joined the Company in June 1994 as a Regional Vice President. He was promoted to Senior Vice President and Area Manager in April 1999. On February 1, 2000, Mr. Krebs was appointed as President of Cerner International, Inc, a wholly owned subsidiary of the Company. Prior to joining Cerner, he spent fifteen years with IBM Corporation.
Stephen M. Goodrich joined the Company in October 1987 as a project leader in the product organization. In 1992 he was promoted to Vice President and was promoted to Senior Vice President in April 1999. He was named Chief Quality Officer in January of 2000.
Richard J. Flanigan Jr. joined the Company in November 1994 as a Regional Vice President. In 1997, his responsibilities were extended and he was named as General Manager. He was promoted to Senior Vice President in April 2000. Prior to joining Cerner, Mr. Flanigan spent more than thirteen years in sales and management positions at IBM Corporation.
Stephen D. Garver joined the Company in March 1992 as part of Cerner Consulting. In March of 1999 he was named Vice President and Managing Partner and was promoted to Senior Vice President in April
2000. Prior to joining the Company, Mr. Garver spent ten years with Andersen Consulting in a variety of roles within the systems integration practice.
Marc G. Naughton joined the Company in November 1992 as Manager of Taxes. In November 1995 he was named Chief Financial Officer and in February 1996 he was promoted to Vice President.
Stanley M. Sword joined the Company in August 1998 in his current role. Prior to joining Cerner, he served as a client partner in the outsourcing practice of AT&T Solutions and as the Vice President of Organization Development for NCR Corporation. Prior to joining AT&T, Mr. Sword spent ten years with Anderson Consulting in a variety of roles within the systems integration practice.
Jeffrey A. Townsend joined the Company in June 1985. Since that time he has held several positions in the product organization and was promoted to Vice President in February 1997. He was appointed Chief Engineering Officer in March 1998.
Randy D. Sims joined the Company in March 1997 as Vice President and Chief Legal Officer. Prior to joining the Company, Mr. Sims worked at Farmland Industries, Inc. for three years where he served most recently as Associate General Counsel. Prior to Farmland, Mr. Sims was in-house legal counsel at The Marley Company (now a division of United Dominion Industries) for seven years, holding the position of Assistant General Counsel when he left to join Farmland.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
The Company's common stock trades on The NASDAQ Stock Market (Service Mark) under the symbol CERN. The following table sets forth the high, low and last sales prices for the fiscal quarters of 2000 and 1999 as reported by The NASDAQ National Market System. These quotations represent prices between dealers and do not include retail mark-up, mark-down or commissions, and do not necessarily represent actual transactions.
2000 1999
--------------------------------- --------------------------------
High Low Last High Low Last
---- --- ---- ---- --- ----
First quarter 40 7/8 17 7/8 27 27 1/4 12 7/8 15 5/8
Second quarter 32 9/64 19 3/4 27 1/4 23 1/2 12 1/2 19 33/64
Third quarter 48 26 5/16 46 7/16 19 15/16 14 1/4 14 31/32
Fourth quarter 64 7/8 40 1/2 46 1/4 20 3/4 12 15/16 19 11/16
|
At January 31, 2001, there were approximately 1,200 owners of record. To date, the Company has paid no dividends and it does not intend to pay dividends in the foreseeable future. Management believes it is in the stockholders' best interest to reinvest funds in the operation of the business.
Item 6. Selected Financial Data
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(1)(2)(3)(4)(5) (6)(7) (8)
(In thousands, except per
share data)
Statements of Earnings Data:
Revenues $ 404,504 340,197 330,902 245,057 189,107
Operating earnings 25,602 3,698 33,530 22,170 10,601
Earnings before income taxes
and extraordinary item 172,123 302 33,268 24,484 12,902
Extraordinary item - early
extinguishment of debt - (1,395) - - -
Net earnings (loss) 105,265 (1,211) 20,589 15,148 8,251
Earnings per share before
extraordinary item:
Basic 3.08 .01 .63 .46 .25
Diluted 2.96 .01 .61 .45 .25
Earnings (loss) per share:
Basic 3.08 (.04) .63 .46 .25
Diluted 2.96 (.04) .61 .45 .25
Weighted average shares
outstanding:
Basic 34,123 33,623 32,825 32,881 32,729
Diluted 35,603 33,916 33,667 33,668 33,620
Balance Sheet Data:
Working capital $ 186,181 170,053 118,681 156,808 171,204
Total assets 616,411 660,891 436,485 331,781 314,753
Long-term debt, net 102,299 100,000 25,000 30,026 30,000
Stockholders' equity 343,717 378,937 271,143 233,747 230,735
|
(1) Includes a non-recurring investment gain of $120.4 million,
net of $68.3 million tax expense, related to the conversion
of shares of CareInsite common stock to shares of WebMD
common stock. The impact of this non-recurring investment
gain on diluted earnings per share was $3.38 for 2000.
(2) Includes a non-recurring investment loss of $24.5 million,
net of $13.9 million tax benefit, related to the sale of
shares of WebMD common stock. The impact of this
non-recurring investment loss on diluted earnings per share
was ($.69) for 2000.
(3) Includes a non-recurring charge of $6.7 million related to
the write-down of intangible assets associated with the
acquisition of Health Network Ventures, Inc. The impact
of this non-recurring charge on diluted earnings per share
was ($.19) for 2000.
(4) Includes a non-recurring charge of $3.2 million related to
the acquisition of CITATION Computer Systems, Inc. The
impact of this non-recurring charge on diluted earnings
per share was ($.09) for 2000.
(5) Includes a non-recurring charge of $1.0 million, net of
$.7 million tax benefit, related to the acquisition of
ADAC Healthcare Information Systems, Inc. The impact of
this non-recurring charge on diluted earnings per share
was ($.03) for 2000.
(6) Includes a non-recurring charge of $5.8 million, net of
$3.6 million tax benefit, related to the cost in excess of
revenues of completing fixed fee implementation contracts.
The impact of this non-recurring charge on diluted
earnings per share was ($.17) for 1999.
(7) Includes a non-recurring charge of $.9 million, net of $.5
million tax benefit, related to the accrual of branch
restructuring costs. The impact of this non-recurring
charge on diluted earnings per share was ($.03) for 1999.
(8) Includes a non-recurring charge of $3.1 million, net of
$1.9 million tax benefit, related to the acquisition of
Multum Information Services, Inc. The impact of this
non-recurring charge on diluted earnings per share was
($.09) for 1998.
Summary Pro-Forma Financial Data
(Statements of Earnings Data Excluding Non-Recurring Gains,
Losses and Charges)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(1)(2)(3)(4)(5) (6)(7) (8)
(In thousands, except per
share data)
Statements of Earnings Data,
Before Non-recurring Gains,
Losses and Charges:
Revenues $ 404,504 340,197 330,902 245,057 189,107
Operating earnings 37,189 14,505 38,568 22,170 10,601
Earnings before income taxes
and extraordinary item 33,518 11,109 38,306 24,484 12,902
Extraordinary item - early
extinguishment of debt - (1,395) - - -
Net earnings 20,366 5,462 23,687 15,148 8,251
Earnings per share before
extraordinary item:
Basic .60 .20 .72 .46 .25
Diluted .57 .20 .70 .45 .25
Earnings per share:
Basic .60 .16 .72 .46 .25
Diluted .57 .16 .70 .45 .25
Weighted average shares
outstanding:
Basic 34,123 33,623 32,825 32,881 32,729
Diluted 35,603 33,916 33,667 33,668 33,620
Balance Sheet Data:
Working capital $ 186,181 170,053 118,681 156,808 171,204
Total assets 616,411 660,891 436,485 331,781 314,753
Long-term debt, net 102,299 100,000 25,000 30,026 30,000
Stockholders' equity 343,717 378,937 271,143 233,747 230,735
|
(1) Statement of Earnings Data excludes a non-recurring
investment gain of $120.4 million, net of $68.3 million
tax expense, related to the conversion of shares of
CareInsite common stock to shares of WebMD common stock.
The impact of this non-recurring investment gain on diluted
earnings per share was $3.38 for 2000.
(2) Statement of Earnings Data excludes a non-recurring
investment loss of $24.5 million, net of $13.9 million tax
benefit, related to the sale of shares of WebMD common
stock. The impact of this non-recurring investment loss
on diluted earnings per share was ($.69) for 2000.
(3) Statement of Earnings Data excludes a non-recurring charge
of $6.7 million related to the write-down of intangible
assets associated with the acquisition of Health Network
Ventures, Inc. The impact of this non-recurring charge on
diluted earnings per share was ($.19) for 2000.
(4) Statement of Earnings Data excludes a non-recurring charge
of $3.2 million related to the acquisition of CITATION
Computer Systems, Inc. The impact of this non-recurring
charge on diluted earnings per share was ($.09) for 2000.
(5) Statement of Earnings Data excludes a non-recurring charge
of $1.0 million, net of $.7 million tax benefit, related to
the acquisition of ADAC Healthcare Information Systems,
Inc. The impact of this non-recurring charge on diluted
earnings per share was ($.03) for 2000.
(6) Statement of Earnings Data excludes a non-recurring charge
of $5.8 million, net of $3.6 million tax benefit, related
to the cost in excess of revenues of completing fixed fee
implementation contracts. The impact of this non-recurring
charge on diluted earnings per share was ($.17) for 1999.
(7) Statement of Earnings Data excludes a non-recurring charge
of $.9 million, net of $.5 million tax benefit, related to
the accrual of branch restructuring costs. The impact of
this non-recurring charge on diluted earnings per share was
($.03) for 1999.
(8) Statement of Earnings Data excludes a non-recurring charge
of $3.1 million, net of $1.9 million tax benefit, related
to the acquisition of Multum Information Services, Inc.
The impact of this non-recurring charge on diluted earnings
per share was ($.09) for 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Last year, the Company indicated that 2000 would be a more stable, predictable and successful year than 1999. In 2000, the Company set record levels of bookings, revenues and cash flow. The Company continued to expand its product line to more than 37 products at the end of 2000. Over the last 18 months, the Company more than doubled its direct sales force. The Company also created a strategic presence in Europe. Between the new client relationships created through the Company's direct sales efforts and the acquisitions the Company completed in 2000, the Company grew its install base of client relationships by 40%, adding 430 new client relationships, and created 330 HNA Millennium footprints during the year. The Company also signed licensing agreements with over 80 other healthcare information technology companies to use HNA components as key elements of their architecture.
The Company's success reached into new market opportunities, as well. The Company's hosting services became the delivery platform of choice for over $50 million of new bookings in its first year. Many of these clients are community hospitals and represent an expanded market for the Company's products. PowerChart Office, the Company's physician clinical practice solution, is having a significant impact on the way many of the Company's clients practice medicine. ProFit, the Company's new patient accounting solution, completed alpha testing, opening up a market estimated at $3 billion.
The promulgation of new HIPAA (Health Insurance Portability and Accountability Act) regulations and the recent release of the Institute of Medicine's second report on patient safety could combine to create significant pressures to expand the use of information technology in healthcare organizations. While the budgetary pressures created by the Balanced Budget Act of 1997 have subsided, they should continue to stimulate interest in the use of healthcare information technology to improve operational performance. The Company believes that its investment in the HNA Millennium architecture affords a significant competitive advantage. HNA Millennium is the only fully integrated, large scale, enterprise-wide architecture in the industry. It is this integration that the Company expects will be a significant factor in meeting the challenges posed by forces such as HIPAA, patient safety and operational performance.
Year Ended December 30, 2000, Compared to Year Ended January 1, 2000
The Company's revenues increased 19% to $404,504,000 in 2000 from $340,197,000 in 1999. Net earnings, before extraordinary item and non-recurring charges and credits was $20,366,000 in 2000 compared to $6,857,000 in 1999. Non-recurring charges and credits in 2000, as described below, included a realized investment gain and loss, write-off of acquired in-process research and development and a write-down of intangible assets. Non-recurring charges in 1999, as described below, include contract reserves and branch restructuring charges. Including the extraordinary item and non-recurring charges, the Company had earnings of $105,265,000 in 2000 compared to a loss of $1,211,000 in 1999.
Revenues - In 2000, revenues increased due to an increase in system sales and support of installed systems. System sales increased 17% to $263,109,000 in 2000 from $224,510,000 in 1999. The increase in system sales is due to an increase in new contract bookings in 2000 compared to 1999.
Total sales to the installed base in 2000, including new systems, incremental hardware and software, support and maintenance services and discrete services, were 77% of total revenues in 2000 compared to 75% in 1999.
At December 30, 2000, the Company had $439,943,000 in contract backlog and $184,360,000 in support and maintenance backlog, compared to $338,614,000 in contract backlog and $162,798,000 in support and maintenance backlog at the end of 1999.
Support and maintenance revenues increased 22% in 2000 as compared to 1999. These revenues represented 28% of 2000 and 1999 total revenues.
Other revenues increased 23% to $26,497,000 in 2000 from $21,489,000 in 1999. This increase was due primarily to additional revenues derived from subscriptions and services to clients; these increases were $1,765,000 and $2,324,000, respectively. The Company anticipates that other revenues will continue to increase in 2001.
Cost of Revenues - 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. The cost of revenues was 22% of total revenues in 2000, and 25% of total revenues in 1999, excluding a non-recurring charge relating to fixed fee implementation contracts, as described below. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, services and support) components carrying different margin rates changes from period to period. The decrease in the cost of revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware and sublicensed software, which carry a higher cost of revenue percentage.
Included in the 1999 cost of revenues is a charge of $9,449,000, which represents the remaining additional costs in excess of revenues required to complete certain remaining HNA Millennium fixed fee implementation contracts. The Company switched to an hourly fee-for-service implementation model in 1997. Delays in some of the older projects, primarily caused by delays in development of the Company's HNA Millennium products, increased the time required to complete these installations. While the Company originally anticipated these fixed fee implementations would be completed in 1999, in some instances the focus by clients on their internal Y2K projects created a further delay. As a result of the significant implementation work completed in the last half of 1999 and the agreement between the Company and these clients in the fourth quarter as to the scope of work remaining, the Company estimated that the costs to complete certain fixed fee implementation contracts would exceed the remaining revenue by $9,449,000. The Company recognized the impact of these excess costs in the fourth quarter income statement as a non-recurring cost of revenues. $7,148,000 of these additional costs were incurred in 2000, with the remaining costs to be completed in 2001. There were no significant changes in the estimates of the costs to complete in 2000.
Sales and Client Service - Sales and client service expenses include salaries of client service personnel, communications expenses and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, tradeshow costs and advertising costs. These expenses as a percent of total revenues were 42% in 2000 and 41% in 1999, excluding a non- recurring charge related to the closing of five branch offices, as described below. The increase in total sales and client service expenses is attributable to the cost of a larger field sales and services organization and marketing of new products.
Included in 1999 sales and client service expenses is a non- recurring charge related to the closing of five branch offices. In December, 1999, the Company made a decision to close five of its branch offices. The Company created a regional branch structure in 1994 in order to bring associates closer to its clients. The natural evolution of that strategy and the ability to leverage internal information technology infrastructure to create a more virtual workplace has resulted in a significant decrease in utilization of certain regional offices. This led to the decision to close these physical locations. The Company recorded a charge of $1.4 million in the 1999 fourth quarter to provide for the costs of closing these locations, primarily based on estimated lease cancellation fees. All of these costs were paid in 2000. The Company will continue to maintain offices in Denver, Colorado; Detroit, Michigan; St. Louis, Missouri; Dallas, Texas; Washington, D.C.; Chesapeake, Virginia; Houston, Texas; Brussels, Belgium and Sydney, Australia, in addition to the world headquarters in North Kansas City, Missouri.
Software Development - Software development expenses include salaries, documentation and other direct expenses incurred in product development and amortization of software development costs. Total
expenditures for software development, including both capitalized and noncapitalized portions, for 2000 and 1999 were $90,694,000 and $88,699,000, respectively. These amounts exclude amortization. Capitalized software costs were $30,982,000 and $30,192,000 for 2000 and 1999, respectively.
General and Administrative - General and administrative expenses include salaries for corporate, financial, and administrative staffs, utilities, communications expenses and professional fees. These expenses as a percent of total revenues were 7% in 2000 and 8% in 1999.
Write-off of In-Process Research and Development - Write-off of in-process research and development includes one-time expenses resulting from the acquisitions of CITATION Computer Systems, Inc. and ADAC Healthcare Information Systems, Inc., in 2000.
Write-down of Intangible Assets - Write-down of intangible assets is a one-time expense resulting from the decision to discontinue a portion of the Health Network Ventures, Inc. business as more fully described in Note 2 to the Consolidated Financial Statements.
Interest Expense, Net - Net interest expense was $3,671,000 in 2000 compared to $3,396,000 in 1999. The increase is due to an increase in borrowings. On April 15, 1999, the Company completed a $100,000,000 private placement of debt pursuant to a Note Agreement dated April 1, 1999. The Series A Senior Notes, with a $60,000,000 principal amount at 7.14% are payable in five equal annual installments beginning in April 2002. The Series B Senior Notes, with a $40,000,000 principal amount at 7.66% are payable in six equal annual installments beginning April 2004. The proceeds were used to retire the Company's existing $30,000,000 of debt, and the remaining funds are being used for capital improvements and to strengthen the Company's cash position. In connection with the early extinguishment of debt, the Company incurred a $1,395,000, net of taxes, extraordinary loss for a prepayment penalty and write-off of deferred loan costs. The Note Agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets and pay dividends. The Company was in compliance with all covenants at December 30, 2000.
Realized Gain on Exchange of Stock - The Realized gain on exchange of stock is a non-recurring investment gain related to the exchange of CareInsite shares for WebMD shares in 2000.
Realized Loss on Sale of Stock - The realized loss on sale of stock is a non-recurring investment loss related to the sale of a portion of the WebMD shares in 2000.
Income Taxes - The Company's effective tax rate was 39% in 2000 and 1999.
Year Ended January 1, 2000, Compared to Year Ended January 2, 1999
The Company's revenues increased 3% to $340,197,000 in 1999 from $330,902,000 in 1998. Net earnings, before extraordinary item and non-recurring charges were $6,857,000 in 1999 compared to $23,687,000 in 1998. Non-recurring charges in 1999, as described below, included contract reserves and branch restructuring charges. Non-recurring charges in 1998 include acquisition related charges. Including the extraordinary item and non- recurring charges, the Company incurred a loss of $1,211,000 in 1999 compared to earnings of $20,589,000 in 1998.
Revenues - In 1999, revenues increased due to an increase in support of installed systems and other revenues. System sales decreased 9% to $224,510,000 in 1999 from $245,490,000 in 1998. The decrease in system sales was due to a decrease in new contract bookings in 1999 compared to 1998. The Company believes that this decrease was due primarily to delays in purchasing decisions related to Y2K and the Balanced Budget Act of 1997. The sale of additional hardware and software products to the installed client base increased 27% in 1999 as compared to 1998.
Total sales to the installed base in 1999, including new systems, incremental hardware and software, support and maintenance services, and discrete services, were 75% of total revenues in 1999 compared to 69% in 1998. The higher percentage was primarily due to the decrease in system sales to new clients.
At January 1, 2000, the Company had $338,614,000 in contract backlog and $162,798,000 in support and maintenance backlog, compared to $314,965,000 in contract backlog and $153,453,000 in support and maintenance backlog at the end of 1998.
Support and maintenance revenues increased 23% in 1999 as compared to 1998. These revenues represented 28% of 1999 total revenues and 23% of 1998 total revenues. The higher percentage was primarily attributable to the decrease in system sales and an increase in installed systems.
Other revenues increased 148% to $21,489,000 in 1999 from $8,657,000 in 1998. This increase was due primarily to services performed beyond contracted requirements for existing clients.
Cost of Revenues - 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. The cost of revenues was 25% of total revenues in 1999, excluding a non-recurring charge related to fixed fee implementation contracts, as described below, and 27% of total revenues in 1998. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, services and support) components carrying different margin rates changes from period to period. The decrease in the cost of revenue as a percent of total revenues resulted principally from a decrease in the percent of revenue from computer hardware and sublicensed software, which carry a higher cost of revenue percentage.
Included in the 1999 cost of revenues is a charge of $9,449,000, which represents the remaining additional costs in excess of revenues required to complete certain remaining HNA Millennium fixed fee implementation contracts, as further described above.
Sales and Client Service - Sales and client service expenses include salaries of client service personnel, communications expenses, and unreimbursed travel expenses. Also included are sales and marketing salaries, travel expenses, tradeshow costs and advertising costs. These expenses as a percent of total revenues were 41% in 1999, excluding a non-recurring charge related to the closing of five branch offices, as described below, and 35% in 1998. The increase in total sales and client service expenses is attributable to the cost of a larger field sales and services organization and marketing of new products.
Included in 1999 sales and client service expenses is a non- recurring charge related to the closing of five branch offices. In December, 1999, the Company made a decision to close five of its branch offices. The Company created a regional branch structure in 1994 in order to bring associates closer to its clients. The natural evolution of that strategy and the ability to leverage internal information technology infrastructure to create a more virtual workplace has resulted in a significant decrease in utilization of certain regional offices. This led to the decision to close these physical locations. The Company recorded a charge of $1.4 million in the 1999 fourth quarter to provide for the costs of closing these locations, primarily based on estimated lease cancellation fees.
Software Development - Software development expenses include salaries, documentation, and other direct expenses incurred in product development and amortization of software development costs. Total expenditures for software development, including both capitalized and noncapitalized portions, for 1999 and 1998 were $88,699,000 and $74,159,000, respectively. These amounts exclude amortization. Capitalized software costs were $30,192,000 and $25,052,000 for 1999 and 1998, respectively. The increase in aggregate expenditures for software development in 1999 is due to development of HNA Millennium products and development of community care products.
General and Administrative - General and administrative expenses include salaries for corporate, financial, and administrative staffs, utilities, communications expenses and professional fees. These expenses as a percent of total revenues were 8% in 1999 and 1998.
Interest Expense, Net - Net interest expense was $3,396,000 in 1999 compared to $262,000 in 1998. The increase is due to an increase in borrowings. On April 15, 1999, the Company completed a $100,000,000 private placement of debt pursuant to a Note Agreement date April 1, 1999. The Series A Senior Notes, with a $60,000,000 principal amount at 7.14% are payable in five equal annual installments beginning in April 2002. The Series B Senior Notes, with a $40,000,000 principal amount at 7.66% are payable in six equal annual installments beginning April 2004. In connection with the early extinguishment of debt, the Company incurred a $1,395,000 net of taxes, extraordinary loss for a prepayment penalty and write-off of deferred loan costs.
Income Taxes - The Company's effective tax rate was 39% in 1999 and 38% in 1998.
The Company had total cash and cash equivalents of $90,893,000 at the end of 2000 and working capital of $186,181,000, compared to cash and cash equivalents of $75,677,000 at the end of 1999, and working capital of $170,053,000.
The Company generated cash of $53,313,000, $27,389,000 and $5,893,000 from operations in 2000, 1999 and 1998, respectively. Cash flow from operations increased in 2000, due primarily to the increase in net earnings, increased collection of receivables, improved payment terms and record level of conversions. Cash flow from operations increased in 1999, due primarily to increased collection of receivables, improved payment terms and record level of conversions.
Cash used in investing activities consisted primarily of capitalized software development costs of $30,982,000 and $30,192,000 and purchases of capital equipment of $16,154,000 and $14,345,000 in 2000 and 1999, respectively. The Company also made additional investments in affiliates in 2000 of $7,370,000 and completed acquisitions of businesses for $16,829,000. Cash provided from investing activities came primarily from the proceeds of $26,152,000 from the sale of WebMD shares. The major source of cash from financing activities in 2000 was provided by the exercise of common stock options. The major source of cash from financing activities in 1999 was provided by the Company's refinancing of its long-term debt, more fully described in Note 6 to the Consolidated Financial Statements.
Revenues provided under support and maintenance agreements represent recurring cash flows. Support and maintenance revenues increased 22%, 23% and 12%, in 2000, 1999 and 1998, respectively, and the Company expects these revenues to continue to grow as the base of installed systems grows.
The Company's liquidity is influenced by many factors, including the amount and timing of the Company's revenues, its cash collections from its clients as implementation of its products proceed and the amounts the Company invests in software development and capital expenditures. The Company expects to have an increase in its cash position for 2001. The Company believes that its present cash position, together with cash generated from operations, will be sufficient to meet anticipated cash requirements during 2001. The Company has an $18,000,000 line of credit available.
The effects of inflation on the Company's business during 1999 and 2000 were not significant.
During the second quarter of 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133). Statement 133 will be adopted by the Company in the first quarter of 2001. The Company does not anticipate Statement 133 will have a significant impact on its reported earnings per share.
In December of 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 had no impact on the Company's reported earnings per share.
Statements made in this report, the Annual Report to Shareholders
in which this report is made a part, other reports and proxy
statements filed with the Securities and Exchange Commission,
communications to stockholders, press releases and oral
statements made by representatives of the Company that are not
historical in nature, or that state the Company's or management's
intentions, hopes, beliefs, expectations or predictions of the
future, are "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as
amended, and involve risks and uncertainties. The words "could,"
"should," "will be," "will lead," "will assist," "intended,"
"continue," "believe," "may," "expect," "hope," "anticipate,"
"goal," "forecast" and similar expressions are intended to
identify such forward-looking statements. It is important to
note that any such performance, and actual results, financial
condition or business could differ materially from those
expressed in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed below as well as those discussed
elsewhere in reports filed with the Securities and Exchange
Commission. The Company undertakes 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.
Quarterly Operating Results May Vary
------------------------------------- - The Company's quarterly
operating results have varied in the past and may continue to
vary in future periods. Quarterly operating results may vary for
a number of reasons including demand for the Company's products
and services, the Company's long sales cycle, the long
installation and implementation cycle for these larger, more
complex and costlier systems and other factors described in this
section and elsewhere in this report. As a result of healthcare
industry trends and the market for the Company's HNA Millennium
products, a large percentage of the Company's revenues are
generated by the sale and installation of larger, more complex
and costlier systems. The sales process for these systems is
lengthy and involves a significant technical evaluation and
commitment of capital and other resources by the client. The
sale may be subject to delays due to clients' internal budgets
and procedures for approving large capital expenditures and by
competing needs for other capital expenditures and deploying new
technologies or personnel resources. Delays in the expected sale
or installation of these large contracts may have a significant
impact on the Company's anticipated quarterly revenues and
consequently its earnings, since a significant percentage of the
Company's expenses are relatively fixed.
These larger, more complex and costlier systems are installed and implemented over time periods ranging from approximately six months to three years and involve significant efforts both by the Company and the client. In addition, implementation of the Company's HNA Millennium products is a new and evolving process. The Company recognizes revenue upon the completion of standard milestone conditions and the amount of revenue recognized in any quarter depends upon the Company's and the client's ability to meet these project milestones. Delays in meeting these milestone conditions or modification of the contract relating to one or more of these systems could result in a shift of revenue recognition from one quarter to another and could have a material adverse effect on results of operations for a particular quarter. In addition, support payments by clients for the Company's products generally do not commence until the product is in use.
The Company's revenues from system sales historically have been lower in the first quarter of the year and greater in the fourth quarter of the year.
Stock Price May Be Volatile -
------------------------------- The trading price of the
Company's common stock may be volatile. The market for the
Company's common stock may experience significant price and
volume fluctuations in response to a number of factors including
actual or anticipated quarterly variations in operating results,
changes in expectations of future financial performance or
changes in estimates of securities analysts,
governmental regulatory action, healthcare reform measures, client relationship developments and other factors, many of which are beyond the Company's control.
Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of the Company's common stock, regardless of actual operating performance.
Market Risk of Investments
----------------------------- - The Company accounts for its
investments in equity securities which have readily determinable
fair values as available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses
reported, net of tax, as a separate component of accumulated
other comprehensive income. Investments in the common stock of
certain affiliates over which the Company exerts significant
influence are accounted for by the equity method. Investments in
other equity securities are reported at cost. All equity
securities are reviewed by the Company for declines in fair
value. If such declines are considered to be other than
temporary, the cost basis of the individual security is written
down to fair value as a new cost basis, and the amount of the
write-down is included in earnings.
In 1998 and 1999 the Company acquired a 17.5% interest (13,149,259 shares of common stock) in CareInsite, Inc. with a cost basis of $81,804,000. 12,437,500 of these shares were received in 1998 as consideration for the sale of license software, and an additional 711,759 shares were purchased in 1999. The value assigned to the shares acquired in 1998 was $70,000,000 and was based on a methodology which utilized both a comparable company and the expected underlying discounted future cash flows. The Company was also granted, by CareInsite, 1,008,445 common stock warrants with an exercise price of $4.00 per share ("THINC Warrants"). The THINC Warrants were exercisable only in the event that The Health Information Network Connections, LLC ("THINC") exercised warrants granted to them by CareInsite at $4.00 per share. THINC was allowed to exercise their warrants 180 days after the initial public offering of CareInsite. On January 29, 2000 CareInsite completed an acquisition of THINC. As part of that agreement, 806,756 of the Company's 1,008,445 THINC Warrants became immediately exercisable, with the remaining amount forfeited.
On February 13, 2000, CareInsite entered into an agreement to merge with Healtheon/WebMD Corporation ("Merger Agreement"). As part of the Merger Agreement, the Company received 1.3 shares of Healtheon/WebMD Corporation (WebMD) in exchange for each common share of CareInsite held by the Company. The warrants were also converted at the same exchange ratio. The merger of CareInsite and WebMD ("Merger") closed on September 12, 2000. Accordingly, the Company recorded a non-recurring investment gain of $120,362,000, net of tax, as a result of the exchange.
On December 12, 2000, the Company sold 4,273,509 shares of WebMD for $25,641,000. Accordingly, the Company recorded a non- recurring investment loss of $24,539,000, net of tax, as a result of the sale.
At December 30, 2000, the Company owned 12,820,527 shares of common stock of WebMD, which have a cost basis of $192,308,000 and a carrying value of $101,795,000, as these shares are accounted for as available-for-sale. The stock of WebMD held by the Company is registered but is subject to certain lock-up provisions. At December 30, 2000, the Company also holds 1,048,783 warrants of WebMD with an exercise price of $3.08 and a cost basis and carrying value of $13,685,000. The warrants are carried at cost, as they do not have a fair value that is currently available on a securities exchange.
If the Company realizes certain performance metrics related to specified levels of physician usage, WebMD will issue to the Company 3,254,063 shares of common stock at a price of $0.01 per share ("Performance Shares"). The Performance Shares were adjusted at a rate of 1.3 shares of WebMD for each share of CareInsite. The contracted measurement date was February 15, 2001. The Company and WebMD are in discussions regarding the attainment of the Performance Shares. No amounts have been recognized in the consolidated financial statements for the Performance Shares pending completion of the discussions. All physician users of systems of WebMD Corporation or its affiliates shall be included for purposes of determining the specified levels of physician usage.
The Company's policy is to review declines in fair value of its marketable equity securities for declines that may be other than temporary. If the market price of the WebMD common shares does not recover to near the Company's $15.00 per share carrying value in the near term, the Company will record a write-down, through a charge to earnings, to establish a new cost basis in the security reflecting the then current market value.
At December 30, 2000, marketable securities (which consist of money market and commercial paper) of the Company were recorded at cost, which approximates fair value of approximately $91 million, with an overall average return of approximately 5% and an overall weighted maturity of less than 90 days. The marketable securities held by the Company are not subject to price risk as a result of the short-term nature of the investments.
The Company is not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term debt since 100% of its long-term debt is at a fixed rate. To date, the Company has not entered into any derivative financial instruments to manage interest rate risk.
The Company conducts business in several foreign jurisdictions. However, the business transacted is in the local functional currency and the Company does not currently have any material exposure to foreign currency transaction gains or losses. All other business transactions are in U.S. dollars. To date, the Company has not entered into any derivative financial instruments to manage foreign currency risk.
Changes in the Healthcare Industry
---------------------------------- - The healthcare industry is
highly regulated and is subject to changing political, economic
and regulatory influences. For example, the Balanced Budget Act
of 1997 (Public Law 105-32) contains significant changes to
Medicare and Medicaid and began to have its initial impact in
1998 due to limitations on reimbursement, resulting cost
containment initiatives, and effects on pricing and demand for
capital intensive systems. In addition, the issued and pending
rules under the Health Information Portability and Accountability
Act of 1996 (HIPAA), will have a direct impact on the
healthcare industry by requiring identifiers and standardized
transactions/code sets and necessary security and privacy
measures in order to ensure the protection of patient health
information. These factors affect the purchasing practices and
operation of healthcare organizations. Federal and state
legislatures have periodically considered programs to reform or
amend the U.S. healthcare system at both the federal and state
level and to change healthcare financing and reimbursement
systems. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates
or otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their investments or postponing investment
decisions, including investments in the Company's products and
services.
Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for the Company's products and services. As the healthcare industry consolidates, the Company's client base could be eroded, competition for clients could become more intense and the importance of acquiring each client becomes greater.
Significant Competition
----------------------- - The market for healthcare information
systems is intensely competitive, rapidly evolving and subject to
rapid technological change. The Company believes that the
principal competitive factors in this market include the breadth
and quality of system and product offerings, the stability of the
information systems provider, the features and capabilities of
the information systems, the ongoing support for the system and
the potential for enhancements and future compatible products.
Certain of the Company's competitors have greater financial, technical, product development, marketing and other resources than the Company and some of its competitors offer products that it does not offer. The Company's principal existing competitors include Siemens Medical Solutions Health Services Corporation, IDX Systems Corporation, McKesson HBOC, Inc. and Eclipsys Corporation, each of which offers a suite of products that compete with many of the Company's products. There are other competitors that offer a more limited number of competing products.
In addition, the Company expects that major software information systems companies, large information technology consulting service providers and system integrators, Internet-based start-up companies and others specializing in the healthcare industry may offer competitive products or services. The pace of change in the healthcare information systems market is rapid and there are frequent new product introductions, product enhancements and evolving industry standards and requirements. As a result, the Company's success will depend upon its ability to keep pace with technological change and to introduce, on a timely and cost- effective basis, new and enhanced products that satisfy changing client requirements and achieve market acceptance.
In addition, the Company could be subject to intellectual property infringement claims as the number of competitors grows and the functionality of its products overlaps with competitive offerings. These claims, even if not meritorious, could be expensive to defend. If the Company becomes liable to third parties for infringing their intellectual property rights, it could be required to pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the products that contain the infringing intellectual property.
Government Regulation
---------------------- - The United States Food and Drug
Administration (the "FDA") has declared that software products
intended for the maintenance of data used in making decisions
regarding the suitability of blood donors and the release of
blood or blood components for transfusion are medical devices
under the Federal Food, Drug and Cosmetic Act ("Act") and
amendments to the Act. As a consequence, the Company is subject
to extensive regulation by the FDA with regard to its blood bank
software. If other of the Company's products are deemed to be
actively regulated medical devices by the FDA, the Company could
be subject to extensive requirements governing pre- and post-
marketing requirements including premarket notification clearance
prior to marketing. Complying with these FDA regulations would
be time consuming and expensive. It is possible that the FDA may
become more active in regulating computer software that is used
in healthcare.
Following an inspection by the FDA in March of 1998, the Company received a Form FDA 483 (Notice of Inspectional Observations) alleging non-compliance with certain aspects of FDA's Quality System Regulation with respect to the Company's PathNet HNAC Blood Bank Transfusion and Donor products (the "Blood Bank Products"). The Company subsequently received a Warning Letter, dated April 29, 1998, as a result of the same inspection. The Company responded promptly to the FDA and undertook a number of actions in response to the Form 483 and Warning Letter including an audit by a third party of the Company's Blood Bank Products and improvements to Cerner's Quality System. A copy of the third party audit was submitted to the FDA in October of 1998 and, at the request of the FDA, additional information and clarification were submitted to the FDA in January of 1999.
There can be no assurance, however, that the Company's actions taken in response to the Form 483 and Warning Letter will be deemed adequate by the FDA or that additional actions on behalf of the Company will not be required. In addition, the Company remains subject to periodic FDA inspections and there can be no assurances that the Company will not be required to undertake additional actions to comply with the Act and any other applicable regulatory requirements. Any failure by the Company to comply with the Act and any other applicable regulatory requirements could have a material adverse effect on the Company's ability to continue to manufacture and distribute its products. FDA has many enforcement tools including recalls, seizures, injunctions, civil fines and/or criminal prosecutions. Any of the foregoing could have a material adverse effect on the Company's business, results of operations or financial condition.
Product Related Liabilities
----------------------------- - Many of the Company's products
provide data for use by healthcare providers in providing care to
patients. Although no such claims have been brought against the
Company
to date regarding injuries related to the use of its products, such claims may be made in the future. Although the Company maintains product liability insurance coverage in an amount that it believes is sufficient for its business, there can be no assurance that such coverage will prove to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. A successful claim brought against the Company which is uninsured or under-insured could materially harm its business, results of operations or financial condition.
System Errors and Warranties
--------------------------------- - The Company's systems,
particularly the HNA Millennium versions, are very complex. As
with complex systems offered by others, the Company's systems may
contain errors, especially when first introduced. Although the
Company conducts extensive testing, it has discovered software
errors in its products after their introduction. The Company's
systems are intended for use in collecting and displaying
clinical information used in the diagnosis and treatment of
patients. Therefore, users of the Company products have a
greater sensitivity to system errors than the market for software
products generally. The Company's agreements with its clients
typically provide warranties against material errors and other
matters. Failure of a client's system to meet these criteria
could constitute a material breach under such contracts allowing
the client to cancel the contract, or could require the Company
to incur additional expense in order to make the system meet
these criteria. The Company's contracts with its clients
generally limit the Company's liability arising from such claims
but such limits may not be enforceable in certain jurisdictions.
Anti-Takeover Defenses
------------------------ - The Company's charter, bylaws,
shareholders' rights plan and certain provisions of Delaware law
contain certain provisions that may have the effect of delaying
or preventing an acquisition of the Company. Such provisions are
intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of
Directors in connection with any such transaction. These
provisions include (a) a Board of Directors that is staggered
into three classes to serve staggered three-year terms, (b) blank
check preferred stock, (c) supermajority voting provisions, (d)
inability of shareholders to act by written consent or call a
special meeting, (e) limitations on the ability of shareholders
to nominate directors or make proposals at shareholder meetings
and (f) triggering the exercisability of stock purchase rights on
a discriminatory basis, which may invoke extensive economic and
voting dilution of a potential acquirer if its beneficial
ownership of the Company's common stock exceeds a specified
threshold. Certain of these provisions may discourage a future
acquisition of the Company not approved by the Board of Directors
in which shareholders might receive a premium value for their
shares.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information contained under the caption "Factors That May Affect Future Results of Operations, Financial Condition or Business -- Market Risk of Investments" set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes required by this Item are submitted as a separate part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 25, 2001, contains under the caption "Election of Directors" certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference. The information required by Item 10 of Form 10-K as to executive officers is set forth in Item 4A of Part I hereof.
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 25, 2001, contains under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 25, 2001, contains under the caption "Executive Compensation" the information required by Item 11 of Form 10-K and such information is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 25, 2001, contains under the caption "Voting Securities and Principal Holders Thereof" the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 25, 2001, contains under the caption "Certain Transactions" the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements.
(1) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial Statements
Consolidated Balance Sheets - December 30, 2000 and January 1, 2000
Consolidated Statements of Operations - Years Ended December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Statements of Changes In Equity Years Ended December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Statements of Cash Flows Years Ended December 30, 2000, January 1, 2000 and January 2, 1999
Notes to Consolidated Financial Statements
(2) The following financial statement, schedule and independent auditors' report on financial statement schedule of the Registrant for the three-year period ended December 30, 2000 are included herein:
Schedule II - Valuation and Qualifying Accounts,
Independent Auditors' Report on Consolidated
Financial Statement Schedule.
All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
(3) The exhibits required to be filed by this item are set forth below:
Number Description
------ -----------
3(a) Restated Certificate of Incorporation of the
Registrant, (filed as Exhibit 3(i) to Registrant's
Quarterly Report on Form 10-Q for the year ended June
29, 1996 and hereby incorporated by reference).
3(b) Amended and Restated Bylaws, dated March 9, 2001.
4(a) Amended and Restated Rights Agreement, dated as of
March 12, 1999, between Cerner Corporation and UMB
Bank, n.a., as Rights Agents, which includes the Form
of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of Cerner Corporation, as
Exhibit A, and the Form of Rights Certificate, as
Exhibit B (filed as an Exhibit to Registrant's current
report on Form 8-A/A dated March 31, 1999 and
incorporated herein by reference).
|
4(b) Specimen stock certificate (filed as Exhibit 4(a)
to Registrant's Registration Statement on Form S-8
(File No. 33-15156) and hereby incorporated herein by
reference).
4(c) Credit Agreement between Cerner Corporation and
Mercantile Bank dated April 1, 1999 (filed as Exhibit
4(d) to Registrant's Annual Report on Form 10-K for the
year ended January 2, 1999, and hereby incorporated
herein by reference).
10(a) Incentive Stock Option Plan C of Registrant (filed
as Exhibit 10(f) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993, and hereby
incorporated herein by reference).*
10(b) Indemnification Agreements between the Registrant
and Neal L. Patterson, Clifford W. Illig, Gerald E.
Bisbee, Jr., Ph.D. and Thomas C. Tinstman, M.D., (filed
as Exhibit 10(i) to Registrant's Annual report on Form
10-K for the year ended December 31, 1992, and
incorporated herein by reference).*
10(c) Indemnification Agreement between Michael E.
Herman and Registrant (filed as Exhibit 10(i)(a) to
Registrant's Quarterly Report on Form 10-Q for the year
ended June 29, 1996 and hereby incorporated by
reference).*
10(d) Indemnification Agreement between John C.
Danforth, and Registrant (filed as Exhibit 10(i)(b) to
Registrant's Quarterly Report on Form 10-Q for the year
ended June 29, 1996 and hereby incorporated by
reference).*
10(e) Indemnification Agreement between Jeff C.
Goldsmith, Ph.D. and Registrant (filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the year
ended January 1, 2000, and hereby incorporated by
reference).*
10(f) Amended Stock Option Plan D of Registrant as of
December 8, 2000.*
10(g) Amended Stock Option Plan E of Registrant as of
December 8, 2000.*
10(h) Cerner Performance Plan for 2000 (filed as Exhibit
10(i) to Registrant's Annual Report on Form 10-K for
the year ended January 1, 2000, and hereby incorporated
herein by reference).*
10(i) Long-Term Incentive Plan for 1999 (filed as
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(j) Promissory Note of Jack A. Newman, Jr. (filed as
Exhibit 10(m) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(k) Promissory Notes of Earl H. Devanny, III (filed as
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
10(l) Promissory Note of Glenn P. Tobin, Ph.D. (filed as
Exhibit 10(o) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(m) Cerner Corporation Executive Stock Purchase Plan
(filed as Exhibit 4(g) to Registrant's Registration
Statement on Form S-8 (File No. 333-77029) and hereby
incorporated herein by reference).*
|
10(n) Form of Stock Pledge Agreement for Cerner
Corporation Executive Stock Purchase Plan (filed as
Exhibit 4(h) to Registrant's Registration Statement on
Form S-8 (File No. 333-77029) and hereby incorporated
herein by reference).*
10(o) Form of Promissory Note for Cerner Corporation
Executive Stock Purchase Plan (filed as Exhibit 4(i) to
Registrant's Registration Statement on Form S-8 (File
No. 333-77029) and hereby incorporated herein by
reference).*
10(p) Employment Agreement of Earl H. Devanny, III
(filed as Exhibit 10(q) to Registrant's Annual Report
on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(q) Employment Agreement of Glenn P. Tobin, Ph.D.
(filed as Exhibit 10(r) to Registrant's Annual Report
on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(r) Employment Agreement of Stanley M. Sword (filed as
Exhibit 10(s) to Registrant's Annual Report on Form 10-
K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
10(s) Employment Agreement of Jack A. Newman, Jr.*
10(t) Cerner Corporation 2001 Long-Term Incentive Plan F
(filed as Annex I to Registrant's 2001 Proxy Statement
and hereby incorporated by reference).*
10(u) Cerner Corporation 2001 Associate Stock Purchase
Plan (filed as Annex II to Registrant's 2001 Proxy
Statement and hereby incorporated by reference).*
10(v) Qualified Performance-Based Compensation Plan.*
11 Computation of Registrant's Earnings Per Share.
(Exhibit omitted. Information contained in notes to
consolidated financial statements.)
22 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
|
* Management contracts or compensatory plans or arrangements required to be identified by Item 14(a)(3).
(b) Reports on Form 8-K.
Report on Form 8-K was filed on November 22, 2000.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CERNER CORPORATION
Dated: March 30, 2001 By:/s/ Neal L. Patterson
------------------------------
Neal L. Patterson
Chairman of the Board and
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature and Title Date
------------------- ----
/s/Neal L. Patterson March 30, 2001
-------------------------------
Neal L. Patterson, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
/s/Clifford W. Illig March 30, 2001
-------------------------------
Clifford W. Illig, Vice Chairman and Director
/s/Marc G. Naughton March 30, 2001
-------------------------------
Marc G. Naughton, Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/Michael E. Herman March 30, 2001
-------------------------------
Michael E. Herman, Director
/s/Gerald E. Bisbee March 30, 2001
-------------------------------
Gerald E. Bisbee, Jr., Ph.D., Director
/s/John C. Danforth March 30, 2001
-------------------------------
John C. Danforth, Director
/s/Jeff C. Goldsmith March 30, 2001
-------------------------------
Jeff C. Goldsmith, Ph.D., Director
/s/William B. Neaves March 30, 2001
-------------------------------
William B. Neaves, Ph.D., Director
|
The Board of Directors and Stockholders
Cerner Corporation:
We have audited the accompanying consolidated balance sheets of Cerner Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, changes in equity, and cash flows for each of the years in the three-year period ended December 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cerner Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Kansas City, Missouri
January 31, 2001
The management of Cerner Corporation is responsible for the consolidated financial statements and all other information presented in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate to the circumstances, and, therefore, included in the financial statements are certain amounts based on management's informed estimates and judgments. Other financial information in this report is consistent with that in the consolidated financial statements. The consolidated financial statements have been audited by Cerner Corporation's independent certified public accountants and have been reviewed by the audit committee of the Board of Directors.
2000 1999
--------------------------
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 90,893 75,677
Receivables 188,036 161,174
Inventory 2,174 1,262
Prepaid expenses and other 7,393 4,316
---------- ----------
Total current assets 288,496 242,429
Property and equipment, net 82,234 77,938
Software development costs, net 83,276 71,007
Intangible assets 22,227 7,511
Investments 130,626 252,123
Other assets 9,552 9,883
---------- ----------
$ 616,411 660,891
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 20,532 20,261
Current installments of long-term
debt 72 -
Deferred revenue 40,212 21,245
Income taxes 9,718 10,987
Accrued payroll and tax
withholdings 27,338 17,241
Other accrued expenses 4,443 2,642
---------- ----------
Total current liabilities 102,315 72,376
Long-term debt, net 102,299 100,000
Deferred income taxes 57,430 93,578
Deferred revenue 10,650 16,000
Stockholders' Equity:
Common stock, $.01 par value,
150,000,000 shares authorized,
35,967,618 shares issued in 2000
and 34,932,703 shares in 1999 360 349
Additional paid-in capital 192,715 166,735
Retained earnings 230,916 125,651
Treasury stock, at cost (1,201,625
shares in 2000 and 1,201,518 in 1999) (20,799) (20,796)
Accumulated other comprehensive
income:
Foreign currency translation
adjustment (743) 23
Unrealized gain (loss) on
available-for-sale equity securities
(net of deferred tax asset of
$33,036 in 2000 and deferred tax
liability of $59,806 in 1999) (58,732) 106,975
---------- ----------
Total stockholders' equity 343,717 378,937
---------- ----------
Commitments (Note 12)
$ 616,411 660,891
========== ==========
|
See notes to consolidated financial statements.
2000 1999 1998
--------------------------------
(In thousands, except per share data)
Revenues
System sales $ 263,109 224,510 245,490
Support and maintenance 114,898 94,198 76,755
Other 26,497 21,489 8,657
--------------------------------
Total revenues 404,504 340,197 330,902
--------------------------------
Costs and expenses
Cost of revenues 90,118 95,038 89,544
Sales and client service 169,289 141,234 117,107
Software development 78,425 72,663 59,754
General and administrative 29,483 27,564 25,929
Write-off of acquired in-
process research and
development 4,900 - 5,038
Write-down of intangible
assets 6,687 - -
--------------------------------
Total costs and expenses 378,902 336,499 297,372
--------------------------------
Operating earnings 25,602 3,698 33,530
Interest expense, net (3,671) (3,396) (262)
Realized gain on exchange
of stock 188,654 - -
Realized loss on sale of
stock (38,462) - -
--------------------------------
Earnings before income taxes
and extraordinary item 172,123 302 33,268
Income taxes (66,858) (118) (12,679)
--------------------------------
Earnings before extraordinary
item 105,265 184 20,589
Extraordinary item, net of tax - (1,395) -
--------------------------------
Net earnings (loss) $ 105,265 (1,211) 20,589
================================
Basic earnings per share before
extraordinary item $ 3.08 .01 .63
================================
Basic earnings (loss) per share $ 3.08 (.04) .63
================================
Diluted earnings per common
share before extraordinary
item $ 2.96 .01 .61
================================
Diluted earnings (loss) per
common share $ 2.96 (.04) .61
================================
|
See notes to consolidated financial statements.
Accumulated
Additional Treasury other
Common Stock paid-in Retained stock Comprehensive Comprehensive
Shares Amount capital earnings amount income income
------------------------------------------------------------------------------------------
(In thousands)
Balance at January 3, 1998 33,817 $ 338 $ 148,074 106,273 (20,796) (142)
-------------------------------------------------------------------------
Exercise of options 185 2 1,248 - - -
Issuance of common stock
grants as compensation 2 - 44 - - -
Issuance of common stock 670 7 14,867 - - -
Non-employee stock option
compensation expense - - 385 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 621 - - -
Foreign currency
translation adjustment - - - - - (101) (101)
Unrealized loss on
available-for-sale
equity security,
net of deferred tax
benefit of $165 - - - - - (266) (266)
Net earnings - - - 20,589 - - 20,589
------------------------------------------------------------------------------------------
Comprehensive income 20,222
========
Balance at January 2, 1999 34,674 $ 347 165,239 126,862 (20,796) (509)
========================================================================
Exercise of options 257 2 623 - - -
Issuance of common stocks
grants as compensation 2 - 40 - - -
Non-employee stock option
compensation expense - - 239 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 594 - - -
Foreign currency
translation adjustment - - - - - 266 266
Unrealized gain on
available-for-sale
equity securities, net
of deferred tax expense
of $59,971 - - - - - 107,241 107,241
Net loss - - - (1,211) - - (1,211)
------------------------------------------------------------------------------------------
Comprehensive income 106,296
========
Balance at January 1, 2000 34,933 $ 349 166,735 125,651 (20,796) 106,998
========================================================================
Exercise of options 439 5 7,050 - (3) -
Issuance of common stock
grants as compensation 2 - 31 - - -
Acquisition of business 594 6 14,056 - - -
Non-employee stock option
compensation expense - - 229 - - -
Fair value of employee
stock options exchanged in
acquisition of business - - 1,089 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 3,525 - - -
Foreign currency
translation adjustment - - - - - (766) (766)
Unrealized loss on
available-for-sale
equity securities, net
of deferred tax benefit
of $92,842 - - - - - (165,707) (165,707)
Net earnings - - - 105,265 - - 105,265
------------------------------------------------------------------------------------------
Comprehensive income (61,208)
=========
Balance at December 30, 2000 35,968 $ 360 192,715 230,916 (20,799) (59,475)
========================================================================
|
See notes to consolidated financial statements.
2000 1999 1998
------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 105,265 (1,211) 20,589
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 37,988 31,388 25,411
Common stock received as consideration for
sale of license software (6,150) - (70,000)
Realized gain on exchange of stock (188,654) - -
Realized loss on sale of stock 38,462 - -
Write-down of intangible assets 6,687 - -
Non-recurring fixed fee implementation cost - 9,449 -
Non-recurring branch restructure charge - 1,358 -
Extraordinary item, net of tax - 1,395 -
Write-off of acquired in-process research and
development 4,900 - 5,038
Issuance of common stock grants as compensation 31 40 44
Non-employee stock option compensation expense 229 239 385
Equity in losses of affiliates 1,095 423 1,601
Provision for deferred income taxes 67,640 (3,165) 15,816
Tax benefit from disqualifying dispositions of
stock options 3,525 594 621
Loss on disposal of capital equipment 33 478 223
Changes in operating assets and liabilities (net
businesses acquired):
Receivables, net (14,994) 6,200 (39,481)
Inventory 595 1,389 (908)
Prepaid expenses and other (7,025) 844 (3,970)
Accounts payable (3,389) (5,207) 2,620
Accrued income taxes (5,329) 461 (2,334)
Deferred revenue 5,280 (16,676) 45,410
Other current liabilities 7,124 (610) 4,828
------------------------------
Total adjustments (51,952) 28,600 (14,696)
------------------------------
Net cash provided by operating 53,313 27,389 5,893
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital equipment (16,154) (14,345) (20,846)
Purchase of land, buildings, and improvements - - (2,767)
Acquisition of businesses (16,829) - (6,874)
Investment in affiliates (7,370) (13,615) (1,217)
Proceeds from sale of stock of available for
sale securities 26,152 - -
Advances to affiliates 1,000 (1,000) -
Issuance of notes receivable (385) (3,628) -
Repayment of notes receivable 1,152 - -
Capitalized software development costs (30,982) (30,192) (25,052)
------------------------------
Net cash used in investing activities (43,416) (62,662) (56,756)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 99,568 -
Repayment of long-term debt 967) (32,167) (45)
Proceeds from sale of common stock - - 14,874
Proceeds from exercise of options 7,052 625 1,250
------------------------------
Net cash provided by financing activities 6,085 68,026 16,079
------------------------------
Foreign currency translation adjustment (766) 266 (101)
------------------------------
Net increase (decrease) in cash and cash
equivalents 15,216 33,019 (34,885)
Cash and cash equivalents at beginning of year 75,677 42,658 77,543
------------------------------
Cash and cash equivalents at end of year $ 90,893 75,677 42,658
==============================
Supplemental disclosures of cash flow information
Cash paid (received) during the year for:
Interest $ 7,348 5,448 2,504
Income taxes, net of refund 930 1,647 (2,112)
Noncash investing and financing activities
Issuance of common stock for acquisition of
business 14,062 - -
Issuance of notes payable for acquisition of
business 1,385 - -
Addition to paid-in capital for the fair value
of employee stock options exchanged in the
acquisition of business 1,089 - -
|
See notes to consolidated financial statements.
1 Summary of Significant Accounting Policies
(a) Principles of Consolidation - The consolidated financial statements include the accounts of Cerner Corporation and its wholly owned subsidiaries (the Company). All significant intercompany transactions and balances have been eliminated in consolidation.
(b) Nature of Operations - The Company designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. The Company also implements these solutions as individual, combined or enterprise-wide systems.
(c) Revenue Recognition - Revenues are derived primarily from the sale of clinical information systems. The Company also provides project implementation and consulting services. In addition, revenue is generated from servicing installed clinical information systems, which generally includes support of software and maintenance of hardware. The Company also derives revenue from the sale of computer hardware.
Clinical information system sales contracts generally include the licensing of the Company's clinical information system software, project-related services associated with the installation of the systems, and the sale of computer hardware. Clinical information system sales contracts are noncancelable and provide for a right of return only in the event the system fails to meet the published specifications of the software. The Company recognizes revenue from sales of clinical information systems using a percentage-of-completion method based on meeting key milestone events over the term of the contracts in accordance with Statement of Position 97-2, "Software Revenue Recognition".
Revenue associated with project implementation and consulting services is recognized as the services are performed. Revenue from the licensing of additional software is recognized upon installation at the client's site. Revenue from the sale of computer hardware is recognized upon shipment. Revenue from ongoing software support and equipment maintenance is recognized as the services are rendered.
(d) Fiscal Year - The Company's fiscal year ends on the Saturday closest to December 31. Fiscal years 2000, 1999 and 1998 consisted of 52 weeks each. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted.
(e) Software Development Costs - Costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detail program design. Thereafter, all software development costs are capitalized and subsequently reported at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on current and expected future revenue for each product with minimum annual amortization equal to the straight- line amortization over the estimated economic life of the product. The Company is amortizing capitalized costs on a straight-line basis over five years. During 2000, 1999 and 1998, the Company capitalized $30,982,000, $30,192,000 and $25,052,000, respectively, of total software development costs of $90,694,000, $88,699,000 and $74,159,000, respectively. Amortization expense of capitalized software development costs in 2000, 1999 and 1998 was $18,713,000, $14,156,000 and $10,647,000, respectively, and accumulated amortization was $76,411,000, $57,698,000 and $43,542,000, respectively.
(f) Cash Equivalents - Cash equivalents consist of short-term marketable securities with original maturities less than ninety days.
(g) Investments - The Company accounts for its investments in equity securities which have readily determinable fair values as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income. For realized gains and losses on available-for-sale investments, the Company utilizes the specific identification method as the basis to determine cost. Investments in the common stock of certain affiliates over which the Company exerts significant influence are accounted for by the equity
method. Investments in other equity securities are reported at cost. All equity securities are reviewed by the Company for declines in fair value. If such declines are considered to be other than temporary, the cost basis of the individual security is written down to fair value as a new cost basis, and the amount of the write-down is included in earnings.
(h) Inventory - Inventory consists primarily of computer hardware held for resale and is recorded at the lower of cost (first-in, first-out) or market.
(i) Property and Equipment - Property, equipment and leasehold improvements are stated at cost. Depreciation of property and equipment is computed using the straight-line method over periods of 5 to 39 years. Amortization of leasehold improvements is computed using a straight-line method over the lease terms, which range from periods of two to twelve years.
(j) Earnings per Common Share - Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common stockholders 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 the earnings of the Company. A reconciliation of the numerators and the denominators of the basic and diluted per- share computations is as follows:
(In thousands, except per share data)
2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Per- Per- Per-
Earnings Shares Share Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-----------------------------------------------------------------------------------------------------------
Earnings per share before extraordinary item
--------------------------------------------
Basic earnings
per share
Income available
to common stock
holders
$105,265 34,123 $ 3.08 184 33,623 $ .01 20,589 32,825 $ .63
======= ====== =====
Effect of dilutive
securities
Stock options
- 1,480 - 293 - 842
Diluted earnings per share
Income available to common
stockholders including
assumed
conversions
----------------------------------------------------------------------------------------------------
$105,265 35,603 $ 2.96 184 33,916 $ .01 20,589 33,667 $ .61
====================================================================================================
Net earnings (loss) per share
-----------------------------
Basic earnings (loss)
per share
Income available to
common stockholders
$105,265 34,123 $ 3.08 (1,211) 33,623 $ (.04) 20,589 32,825 $ .63
======= ====== =====
Effect of dilutive
securities
Stock options
- 1,480 - 293 - 842
Diluted earnings (loss)
per share
Income available
to common stock
holders including
assumed conversions
------------------------------------------------------------------------------------------------------
$105,265 35,603 $ 2.96 (1,211) 33,916 $ (.04) 20,589 33,667 $ .61
======================================================================================================
|
Options to purchase 521,000, 3,185,000 and 1,652,000 shares of common stock at per share prices ranging from $35.88 to $84.07, $17.50 to $31.00, and $25.00 to $31.00 were outstanding at the end of 2000, 1999 and 1998, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares.
(k) Foreign Currency - Assets and liabilities in foreign currencies are translated into dollars at rates prevailing at the balance sheet date. Revenues and expenses are translated at average rates for the year. The net exchange differences resulting from these translations are reported in accumulated other comprehensive income. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of earnings. The net gain (loss) resulting from foreign currency transactions was ($518,000), $95,000 and ($673,000) in 2000, 1999 and 1998, respectively.
(l) Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
(m) Goodwill - Excess of cost over net assets acquired (goodwill) is being amortized on a straight-line basis over four to eight years. Accumulated amortization was $5,964,000 and $5,387,000 at the end of 2000 and 1999, respectively. The Company assesses the recoverability of goodwill based on forecasted undiscounted future operating cash flows.
(n) Comprehensive Income - Included in comprehensive income for 2000 are reclassification adjustments for the net realized after- tax gain of $95,900,000 related to the exchange for and sale of WebMD stock.
(o) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2 Business Acquisitions
During the three years ended December 30, 2000, the Company completed five acquisitions, which were accounted for under the purchase method of accounting. Pro forma results of operations have not been presented for any of the acquisitions because the effects of these acquisitions were not material to the Company on either an individual or an aggregate basis. Had the acquisitions occurred at the beginning of 1999, pro-forma revenues would have increased by $30,386,000 and $49,797,000 in 2000 and 1999, respectively. The results of operations of each acquisition are included in the Company's consolidated statement of operations from the date of each acquisition.
The amounts allocated to purchased in-process research and development (IPRD) were determined through established valuation techniques in the high-technology computer industry and were expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. Research and development costs to bring the products from the acquired companies to technological feasibility, individually or in the aggregate, are not expected to have a material impact on the Company's future results of operations or cash flows. Amounts allocated to goodwill and other intangibles are amortized on a straight-line basis over five to seven years. The IPRD amounts in the table below are reflected as one-time charges to earnings at the date of acquisition.
Subsequent to the acquisition of Health Network Ventures, Inc., the Company determined that it would discontinue the portion of the business focused on individual physician practice connectivity and transaction processing. As a result of this decision, the Company recorded a non-recurring charge in the second quarter of 2000 in the amount of $6,687,000 related to a write-down of intangible assets.
A summary of the Company's purchase acquisitions for the three years ended December 30, 2000, is included in the following table (in millions, except share amounts):
Entity Name and Description of Business Developed Customer Form of Acquired Date Consideration Goodwill Technology Workforce Base IPRD Consideration --------------------------------------------------------------------------------------------------------------------- Fiscal 2000 Acquisitions --------------------------------------------------------------------------------------------------------------------- ADAC Healthcare Information 11/00 $5.3 $1.4 $3.0 $.4 $1.7 $1.7 $3.9 cash Systems, Inc. (a) $1.4 note payable Image management solutions for radiology departments --------------------------------------------------------------------------------------------------------------------- CITATION Computer 8/00 $17.8 $8.3 $2.7 $1.2 $2.0 $3.2 $2.6 cash Computer Systems, Inc. $14.1 594,000 Systems, Inc. (b) shares of common Market leader in laboratory stock issued systems for small to mid-sized $1.1 vested hospitals options assumed --------------------------------------------------------------------------------------------------------------------- Mitch Cooper & Associates 4/00 $2.0 $2.0 --- --- --- --- $2.0 cash Supply chain re-engineering consulting practice --------------------------------------------------------------------------------------------------------------------- Health Network Ventures, Inc. 4/00 $8.3 $4.2 --- --- --- --- $8.3 cash Provides software solutions that enable transaction processing between providers and other health-related entities --------------------------------------------------------------------------------------------------------------------- Fiscal 1998 Acquisition --------------------------------------------------------------------------------------------------------------------- Multum Information 3/98 $6.9 $1.6 $.5 $.5 --- $5.0 $6.9 cash Systems, Inc. Healthcare industry supplier of drug knowledge databases and intelligent software components designed to improve the quality and cost-effectiveness of medical care --------------------------------------------------------------------------------------------------------------------- |
(a) The acquired in-process research and development is related to HCIS's PACS (Picture Archiving and Communications Systems) product. The PACS product, when integrated with the Company's radiology information system, provides a comprehensive radiology solution, from automating and streamlining the information workflow to complete image management. PACS was approximately 86% complete at the time of the acquisition. When ADAC HCIS was acquired, management projected that PACS would be completed in 3 months at an estimated cost of $150,000. The risks associated with PACS are like any other software development project and include changes in technology and competition. The PACS project was valued using the income approach with the following assumptions: material net cash inflows are expected to commence in 2001; no material changes from historical pricing, margins, or expense levels are anticipated; and, a 20% risk adjusted discount rate was applied to the estimated net cash flows. PACS was approximately 95% complete at the end of 2000.
(b) The acquired in-process research and development is related to CITATION's enhanced versions of the C-LAB and C-COM products. C-LAB addresses the complex information needs of the laboratory's general lab, microbiology, anatomical pathology and blood bank departments with a Windows NT client server solution. C-LAB was approximately 68% complete at the time of the acquisition. When CITATION was acquired, management projected that C-LAB would be completed in 6-9 months at an estimated cost of $700,000. The risks associated with C-LAB are like any other software development project and include changes in technology and competition. The C-LAB project was valued using the income approach with the following assumptions: material net cash inflows are expected to commence in 2001; no
material changes from historical pricing, margins, or expense levels are anticipated; and, a 20% risk adjusted discount rate was applied to the estimated net cash flows. C-LAB was approximately 75% complete at the end of 2000. C-COM is also designed for a Windows NT client server user and works with other information systems in healthcare facilities by providing a central data repository for clinical orders and results. It then allows for routing of the patient information to all care-providing centers throughout the healthcare enterprise. C-COM was approximately 75% complete at the time of the acquisition. When CITATION was acquired, management projected that C-COM would be completed in 3-6 months at an estimated cost of $500,000. The risks associated with C-COM are like any other software development project and include changes in technology and competition. The C-COM project was valued using the income approach with the following assumptions: material net cash inflows are expected to commence in 2001; no material changes from historical pricing, margins, or expense levels are anticipated; and, a 20% risk adjusted discount rate was applied to the estimated net cash flows. C-COM was approximately 85% complete at the end of 2000.
3 Receivables
Receivables consist of accounts receivable and contracts receivable. Accounts receivable represent recorded revenues that have been billed. Contracts receivable represent recorded revenues that are billable by the Company at future dates under the terms of a contract with a client. Billings and other consideration received on contracts in excess of related revenues recognized under the percentage-of-completion method are recorded as deferred revenue. A summary of receivables is as follows:
(In thousands) 2000 1999
-------------------------
Accounts receivable $ 96,946 85,814
Contracts receivable 91,090 75,360
--------- ---------
Total receivables $ 188,036 161,174
========= =========
|
Substantially all receivables are derived from sales and related support and maintenance of the Company's clinical information systems to healthcare providers located throughout the United States and in certain foreign countries. Included in receivables at the end of 2000 and 1999 are amounts due from healthcare providers located in foreign countries of $23,600,000 and $17,704,000, respectively. Consolidated revenues include foreign sales of $25,815,000, $24,001,000 and $17,545,000, during 2000, 1999 and 1998, respectively. Consolidated long-lived assets at the end of 2000 and 1999, include foreign long-lived assets of $649,000 and $638,000, respectively. Revenues and long-lived assets from any one foreign country are not material.
The Company provides an allowance for estimated uncollectible accounts based upon historical experience and management's judgment. At the end of 2000 and 1999 the allowance for estimated uncollectible accounts was $5,999,000 and $4,759,000, respectively.
A summary of property, equipment, and leasehold improvements stated at cost, less accumulated depreciation and amortization, is as follows:
(In thousands) 2000 1999
------------------------
Furniture and fixtures $ 24,004 21,623
Computer and communications equipment 82,769 67,462
Marketing equipment 2,045 1,984
Shop equipment 2,902 -
Leasehold improvements 21,533 16,905
Capital lease equipment 1,104 713
Land, buildings, and improvements 32,437 32,437
------- -------
166,794 141,124
Less accumulated depreciation and
amortization 84,560 63,186
------- -------
Total property and equipment, net $ 82,234 77,938
======= =======
|
5 Investments
Investments consist of the following:
(In thousands) 2000 1999
---------- ----------
Investments in available-for-sale
equity securities $ 194,268 13,057
Plus unrealized holding gain (loss) (91,768) 166,781
--------- ---------
Investment in available-for-sale
equity securities, at fair value 102,500 179,838
Investments in equity securities,
at cost 25,285 69,822
Investments accounted for under
the equity method 2,841 2,463
--------- ---------
Total investments, net $ 130,626 252,123
========= =========
|
In 1998 and 1999 the Company acquired a 17.5% interest (13,149,259 shares of common stock) in CareInsite with a cost basis of $81,804,000. 12,437,500 of these shares were received in 1998 as consideration for the sale of license software, and an additional 711,759 shares were purchased in 1999. The value assigned to the shares acquired in 1998 was $70,000,000 and was based on a methodology which utilized both a comparable company and the expected underlying discounted future cash flows. The Company was also granted, by CareInsite, 1,008,445 common stock warrants with an exercise price of $4.00 per share ("THINC Warrants"). The THINC Warrants were exercisable only in the event that The Health Information Network Connections, LLC ("THINC") exercised warrants granted to them by CareInsite at $4.00 per share. THINC was allowed to exercise their warrants 180 days after the initial public offering of CareInsite. On January 29, 2000 CareInsite completed an acquisition of THINC. As part of that agreement, 806,756 of the Company's 1,008,445 THINC Warrants became immediately exercisable, with the remaining amount forfeited.
On February 13, 2000 CareInsite entered into an agreement to merge with Healtheon/WebMD Corporation ("Merger Agreement"). As part of the Merger Agreement, the Company received 1.3 shares of Healtheon/WebMD Corporation (Web MD) in exchange for each common share of CareInsite held by the Company. The warrants were also converted at the same exchange ratio. The merger of CareInsite and WebMD ("Merger") closed on September 12, 2000. Accordingly, the Company recorded a non-recurring investment gain of $120,362,000, net of tax, as a result of the exchange.
On December 12, 2000, the Company sold 4,273,509 shares of WebMD for $25,641,000. Accordingly, the Company recorded a non- recurring investment loss of $24,539,000, net of tax, as a result of the sale.
At December 30, 2000, the Company owned 12,820,527 shares of common stock of WebMD, which have a cost basis of $192,308,000 and a carrying value of $101,795,000, as these shares are accounted for as available-for-sale. The stock of WebMD held by the Company is registered but is subject to certain lock-up provisions. At December 30, 2000 the Company also holds 1,048,783 warrants of WebMD with an exercise price of $3.08 and a cost basis and carrying value of $13,685,000. The warrants are carried at cost, as they do not have a fair value that is currently available on a securities exchange.
If the Company realizes certain performance metrics related to specified levels of physician usage, WebMD will issue to the Company 3,254,063 shares of common stock at a price of $0.01 per share ("Performance Shares"). The Performance Shares were adjusted at a rate of 1.3 shares of WebMD for each share of CareInsite. The contracted measurement date was February 15, 2001. The Company and WebMD are in discussions regarding the attainment of the Performance Shares. No amounts have been recognized in the consolidated financial statements for the Performance Shares pending completion of the discussions.
6 Indebtedness
The Company has a loan agreement with a bank that provides for a long-term revolving line of credit for working capital purposes. The long-term revolving line of credit is unsecured and requires monthly payments of interest only. Interest is payable at the Company's option at a rate based on prime (9.5% at December 30, 2000) or LIBOR (6.4% at December 30, 2000) plus 1.5%. The interest rate may be reduced by up to .4% if certain net worth ratios are maintained. At December 30, 2000, the Company had no outstanding borrowings under this agreement and had $18,000,000 available for working capital purposes. The agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets, and pay dividends. A commitment fee of 3/10% is payable quarterly on the unused portion of the revolving line of credit.
On April 15, 1999, the Company completed a $100,000,000 private placement of debt pursuant to a Note Agreement dated April 1, 1999. The Series A Senior Notes, with a $60,000,000 principal amount at 7.14% are payable in five equal annual installments beginning in April 2002. The Series B Senior Notes, with a $40,000,000 principal amount at 7.66% are payable in six equal annual installments beginning April 2004. The proceeds were used to retire the Company's existing $30,000,000 of debt, and the remaining funds are being used for proposed capital improvements and to strengthen the Company's cash position. In connection with the early extinguishment of debt, the Company incurred an extraordinary loss for a prepayment penalty and write-off of deferred loan costs of $1,395,000 net of taxes. The note agreement contains certain net worth, current ratio, and fixed charge coverage covenants and provides certain restrictions on the Company's ability to borrow, incur liens, sell assets, and pay dividends. The Company was in compliance with all covenants at December 30, 2000.
The Company also has capital lease obligations and other notes payable amounting to $2,400,000, payable over the next four years.
2001 $ 72
2002 14,243
2003 12,042
2004 18,682
2005 18,666
2006 and thereafter 38,666
-------
$ 102,371
=======
|
The Company estimates the fair value of its long-term, fixed-rate debt using discounted cash flow analysis based on the Company's current borrowing rates for debt with similar maturities. The fair value of the Company's long-term debt is $101,271,000 at December 30, 2000.
7 Interest Income and Expense
A summary of interest income and expense is as follows:
(In thousands) 2000 1999 1998
------------------------------------
Interest income $ 3,645 2,582 2,242
Interest expense (7,316) (5,978) (2,504)
---------- ---------- -----------
Interest expense, net $(3,671) (3,396) (262)
========== ========== ===========
|
8 Stock Options and Warrants
At December 30, 2000, the Company had four fixed stock option plans. Under Stock Option Plan B, the Company could grant to associates options to purchase up to 5,600,000 shares of common stock through November 30, 1993. The options are exercisable at the fair market value on the date of grant for a period determined by the Board of Directors (not more than ten years from the date granted). The options contain restrictions as to transferability and exercisability after termination of employment.
Under Stock Option Plan C, the Company is authorized to grant to associates options to purchase up to 645,000 shares of common stock through May 18, 2003. The options are exercisable at the fair market value on the date of grant for a period determined by the Board of Directors (not more than ten years from the date granted). The options contain restrictions as to transferability and exercisability after termination of employment. The Company has committed not to issue any more stock options under Stock Option Plan C.
Initially under Stock Option Plan D, the Company was authorized to grant to associates, directors, consultants or advisors to the Company options to purchase up to 50,000 shares of common stock through January 1, 2005. Additional shares were approved by the Company's shareholders on May 17, 1994, May 16, 1995 and May 22, 1998, increasing the total authorized to grant to 4,600,000 shares. The options are exercisable at a price (not less than fair market value on the date of grant) and during a period determined by the Stock Option Committee. Options under this plan currently vest over periods of up to ten years and are exercisable for periods of up to 25 years.
Initially, under Stock Option Plan E, the Company was authorized to grant to associates (other than officers subject to the provisions of Section 16(a) of the Securities and Exchange Act of 1934), consultants, or advisors to the Company options to purchase up to 2,000,000 shares of common stock through January 1, 2005. There was a 1,100,000 share increase approved by the Company's Board of Directors on December 8, 2000, increasing the total authorized to grant to 3,100,000 shares. The options are exercisable at a price (not less than fair market value on the date of grant) and during a period determined
The Company has also granted 454,542 other non-qualified stock options under separate agreements to employees and certain third parties. These options are exercisable at a price equal to or greater than the fair market value on the date of grant. These options vest over periods of up to six years and are exercisable for periods of up to ten years. In 2000, the Company granted an additional 350,000 stock options to a third party at an exercise price equal to the fair market value on the date of grant. The options are vested and become exercisable at the earlier of five years or when certain conditions are met.
The Company accounts for associate stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. On December 31, 1995, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in FAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of FAS 123.
A combined summary of the status of the Company's four fixed stock option plans and other stock options at the end of 2000, 1999, and 1998, and changes during these years ended is presented below:
2000 1999 1998
----------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
Fixed Options shares price shares price shares price
----------------------------------------------------------------------------------------
Outstanding at 5,529,995 $ 19.79 5,488,191 $ 20.38 4,179,258 $ 17.74
beginning of
year
Granted 1,684,144 31.50 1,447,246 16.69 1,932,710 24.15
Exercised (455,706) 17.23 (255,747) 4.91 (185,335) 6.88
Forfeited (458,168) 21.13 (1,149,695) 22.40 (438,442) 17.57
----------------------------------------------------------------------------------------
Outstanding at
end of year 6,300,265 $ 22.50 5,529,995 $ 19.79 5,488,191 $ 20.38
========== ========== ==========
Options
exercisable at
year-end 1,458,001 $ 20.97 1,297,147 $ 19.49 1,111,943 $ 15.52
|
The following table summarizes information about fixed and other stock options outstanding at December 30, 2000.
Options outstanding Options exercisable
---------------------------------------------------------------------------- -----------------------------------
Range of Number Weighted-average Number
exercise Outstanding Remaining Weighted-average exercisable Weighted-average
prices At 12/30/00 contractual life exercise price at 12/30/00 exercise price
---------------------------------------------------------------------------- ------------------------------------
$ 1.34-15.00 1,519,018 17.4 years $ 14.20 483,906 $ 17.74
15.13-22.00 1,705,561 12.8 18.83 450,879 19.16
22.06-27.50 1,534,954 10.8 24.75 200,664 24.52
28.00-84.07 1,540,732 12.5 35.44 322,552 32.08
--------- ---------
1.34-84.07 6,300,265 13.4 22.50 1,458,001 20.97
========= =========
|
The per share weighted-average fair value of stock options granted during 2000, 1999 and 1998 was $18.96, $10.88 and $14.97, respectively, on the date of grant using the Black Scholes option- pricing model with the following weighted-average assumptions:
2000 1999 1998
-------------------------------
Expected years until exercise 4.7 8 8
Risk-free interest rate 5.0% 6.9% 5.0%
Expected stock volatility 72.1% 61.3% 58.5%
Expected dividend yield 0% 0% 0%
|
Since the Company applies APB Opinion No. 25 in accounting for its plans, no compensation cost has been recognized for its stock options issued to employees. Had the Company recorded compensation expense based on the fair value at the grant date for its stock options under FAS 123, the Company's net earnings and earnings per share on a diluted basis would have been reduced by approximately $7,527,000 or $.21 per share in 2000, approximately $3,922,000 or $.12 per share in 1999 and approximately $5,929,000 or $.18 per share in 1998.
Pro forma net earnings reflect only options granted since January 1, 1995. Therefore, the full impact of calculating compensation expense for stock options under FAS 123 is not reflected in the pro forma net earnings amounts presented above, because compensation cost is reflected over the options' vesting period of ten years for these options. Compensation expense for options granted prior to January 1, 1995 is not considered.
9 Income Taxes
Income tax expense (benefit) before extraordinary item for the years ended 2000, 1999, and 1998, consists of the following:
(In thousands) 2000 1999 1998
----------------------------
Current:
Federal $ 175 3,514 (1,929)
State (70) 573 (1,061)
Foreign (887) (804) (147)
-------- ------ -------
Total current (782) 3,283 (3,137)
-------- ------ -------
Deferred:
Federal 63,524 (2,891) 13,634
State 4,482 (288) 1,565
Foreign (366) 14 617
-------- ------- ------
Total deferred 67,640 (3,165) 15,816
-------- ------- ------
Total income tax expense $ 66,858 118 12,679
======== ======= ======
|
Income tax benefit attributable to the extraordinary item (early retirement of debt) was $865,000 in 1999. Income tax expense (benefit) allocated to stockholders' equity for unrealized holding gain (losses) on available-for-sale equity securities was ($92,842,000) and $59,971,000 for the years ended 2000 and 1999, respectively.
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of deferred income taxes at the end of 2000 and 1999 relate to the following:
(In thousands) 2000 1999
------------------------
Deferred Tax Assets
Contract reserves $ - 3,615
Acquisition accrual - 1,779
Accrued expenses 6,395 4,669
Separate return net operating losses 12,281 -
Other 1,718 1,637
--------- ----------
Total deferred tax assets 20,394 11,700
--------- ----------
Deferred Tax Liabilities
Unrealized gain on investments (21,975) (59,806)
Software development costs (32,143) (26,812)
Contract and service revenues
and costs (37,930) (23,591)
Depreciation and amortization (2,764) (4,480)
Other (1,446) (5,581)
---------- ---------
Total deferred tax liabilities (96,258) (120,270)
---------- ---------
Net deferred tax liability $ (75,864) (108,570)
========== =========
|
The effective income tax rates for 2000, 1999, and 1998 were 39%, 39%, and 38%, respectively. These effective rates differ from the federal statutory rate of 35% as follows:
(In thousands) 2000 1999 1998
Tax expense at statutory rates $ 60,243 106 11,644
State income tax, net of
federal benefit 2,972 10 1,280
Goodwill 4,225 259 259
Other, net (582) (257) (504)
------- ------- -------
Total income tax expense $ 66,858 118 12,679
======= ======= =======
|
Income taxes payable are reduced by the tax benefit resulting from disqualifying dispositions of stock acquired under the Company's stock option plans. The 2000, 1999, and 1998 benefits of $3,525,000, $594,000, and $621,000, respectively, are treated as increases to additional paid-in capital.
10 Foundations Retirement Plan
The Cerner Corporation Foundations Retirement Plan (the Plan) is established under Section 401(k) of the Internal Revenue Code. All full-time associates are eligible to participate. Participants may elect to make pretax contributions from 1% to 20% of compensation to the Plan, subject to annual limitations determined by the Internal Revenue Service. Participants may direct contributions into mutual funds, a money market fund, or a Company stock fund. The Company makes matching contributions to the Plan, on behalf of participants, in an amount equal to 33% of the first 6% of the participant's contribution. The Company's expense for the plan amounted to $2,532,000, $1,187,000 and $1,005,000 for 2000, 1999 and 1998, respectively.
The Company added a discretionary profit sharing distribution to the Plan in 2000. Distributions are based on attainment of established earnings per share goals for the year. Only participants in the Plan are eligible to receive the profit sharing distribution. For the year ended December 30, 2000, the Company expensed $1,100,000 for discretionary distributions.
11 Related Party Transactions
The Company loaned $160,000 in 2000 and $3,628,000 in 1999, to the Company's senior management under the terms of the Executive Stock Purchase Program ("Program"). The purpose of the Program is to advance the interests of the Company, the Company's senior management, and the Company's shareholders by offering the Company's senior management an incentive to purchase shares of the Company's stock on the open market. Pursuant to the Program, the Company provided Program loans to executives to help finance up to 50% of the total purchase price of the stock purchased. All Program loans have a term of five (5) years, at an interest rate of 5.5%. Principal and interest is not due until the end of the five-year loan term, unless the executive terminates employment. Executives may also elect to pay interest annually. If interest is not paid annually, it will compound annually. All Program loans are secured by the purchased shares and any pledged shares. The balance of these loans at December 30, 2000 was $2,764,000.
12 Commitments
The Company leases space to unrelated parties in its North Kansas City headquarters complex under noncancelable operating leases. Included in other revenues is rental income of $624,000, $1,005,000, and $1,795,000 in 2000, 1999, and 1998, respectively.
The Company is committed under operating leases for office space through September 2005. Rent expense for office and warehouse space for the Company's regional and global offices for 2000, 1999, and 1998 was $1,735,000, $2,226,000, and $1,847,000, respectively. Future minimum lease revenues (in thousands) and aggregate minimum future payments (in thousands) under these noncancelable operating leases are as follows:
Future Future
Minimum Minimum
lease lease
Years revenues commitments
------------------------------------
2001 $ 247 4,407
2002 40 3,449
2003 23 1,829
2004 - 1,316
2005 - 642
|
In December, 1999, the Company made a decision to close five of its branch offices. The Company created a regional branch structure in 1994 in order to bring associates closer to its clients. The natural evolution of that strategy and the ability to leverage internal information technology infrastructure to create a more virtual workplace has resulted in a significant decrease in utilization of certain regional offices. This led to the decision to close these physical locations. The Company recorded a charge of $1.4 million in sales and client service expenses in the 1999 fourth quarter to provide for the costs of closing these locations, primarily based on estimated lease cancellation fees. All of these costs were paid in 2000.
13 Stockholders' Equity
At the end of 2000 and 1999, the Company had 1,000,000 shares of authorized but unissued preferred stock, $.01 par value.
14 Quarterly Results (unaudited)
Selected quarterly financial data for 2000 and 1999 is set forth
below:
(In thousands, except per share data)
Earnings (loss) Basic
before Net earnings Diluted
income taxes and earnings (loss) earnings (loss)
Revenues extraordinary item (loss) per share per share
------------------------------------------------------------------------
1999 quarterly results:
April 1 $ 87,107 3,986 2,392 .07 .07
July 1 (1) 93,502 44 (2,613) (.08) (.08)
September 30 (2)(3) 104,325 195,588 123,336 3.61 3.45
December 30 (4)(5) 119,570 (27,495) (17,850) (.51) (.51)
----------------------------------------------------------------------------------------------------
Total 404,504 172,123 105,265
======= ======= =======
1999 quarterly results:
April 3 86,743 4,543 2,817 .08 .08
July 3 (6) 82,782 428 (1,135) (.03) (.03)
October 2 80,929 1,146 680 .02 .02
January 1 (7) 89,743 (5,815) (3,573) (.11) (.11)
----------------------------------------------------------------------------------------------------
Total 340,197 302 (1,211)
======= ====== =======
|
(1) Includes a non-recurring charge of $6.7 million related to the write-down of intangible assets associated with the acquisition of Health Network Ventures, Inc. The impact of this non-recurring charge on diluted earnings per share was ($.19) for second quarter and for 2000.
(2) Includes a non-recurring charge of $3.2 million related to the acquisition of CITATION Computer Systems, Inc. The impact of this non-recurring charge on diluted earnings per share was ($.09) for the third quarter and for 2000.
(3) Includes a non-recurring investment gain of $120.4 million, net of $68.3 million tax expense, related to the conversion of shares of CareInsite common stock to shares of WebMD common stock. The impact of this non-recurring investment gain on diluted earnings per share was $3.37 for the third quarter and $3.38 for 2000.
(4) Includes a non-recurring charge of $1.0 million, net of $.7 million tax benefit, related to the acquisition of ADAC Healthcare Information Systems, Inc. The impact of this non- recurring charge on diluted earnings per share was ($.03) for the fourth quarter and for 2000.
(5) Includes a non-recurring investment loss of $24.5 million, net of $13.9 million tax benefit, related to the sale of shares of WebMD common stock. The impact of this non-recurring investment loss on diluted earnings per share was ($.67) for the fourth quarter and ($.69) for 2000.
(6) Includes an extraordinary loss on the early extinguishment of debt of $1,395,000, net of taxes of $865,000. The impact of this extraordinary item on diluted earnings per share was ($.01) for the second quarter and for 1999.
(7) See Note 12 regarding a non-recurring charge in the fourth quarter of 1999. The fourth quarter of 1999 also includes an additional non-recurring charge of $5.8 million, net of $3.6 million tax benefit, for contract reserves.
Cerner Corporation Valuation and Qualifying Accounts Schedule II
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
-------------------------------------------------------------------------------------------
For Year Ended
January 2, 1999
Doubtful Accounts
and Sale Allowances $ 1,490,000 $ 1,915,000 $ 0 $ 0 $ 3,405,000
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
-------------------------------------------------------------------------------------------
For Year Ended
January 1, 2000
Doubtful Accounts
and Sale Allowances $ 3,405,000 $ 1,354,000 $ 0 $ 0 $ 4,759,000
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
-------------------------------------------------------------------------------------------
For Year Ended
December 30, 2000
Doubtful Accounts
and Sale Allowances $ 4,759,000 $ 0 $ 1,341,000 $ (101,000) $ 5,999,000
|
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Cerner Corporation:
Under date of January 31, 2001, we reported on the
consolidated balance sheets of Cerner Corporation and
subsidiaries as of December 30, 2000 and January 1, 2000 and
the related consolidated statements of operations, changes in
equity, and cash flows for each of the years in the three-
year period ended December 30, 2000. These consolidated
financial statements and our report thereon are included in
the Company's annual report on Form 10-K for the year 2000.
In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the
related financial statement schedule as listed under Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Kansas City, Missouri
January 31, 2001
BYLAWS
AMENDED AND RESTATED AS OF MARCH 9, 2001
OF
Offices
1. Registered Office and Registered Agent. -------------------------------------- The location of the registered office and the name of the registered agent of the corporation in the State of Delaware shall be as stated in the certificate of incorporation or as determined from time to time by the board of directors and on file in the appropriate public offices of the State of Delaware pursuant to applicable provisions of law.
2. Corporate Offices. ----------------- The corporation may have such other corporate offices and places of business anywhere within or without the State of Delaware as the board of directors may from time to time designate or the business of the corporation may require.
3. Corporate Seal. -------------- The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
4. Place of Meetings. ----------------- All meetings of the stockholders shall be held at the offices of the corporation in the City of North Kansas City, State of Missouri, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.
5.1 An annual meeting of the stockholders of the corporation shall be held on the second Tuesday in May of each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting.
5.2 At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting of the stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in these bylaws, who is entitled to vote at the annual meeting and who complies with the notice procedures set forth in this
Section 5.2. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than one hundred twenty (120) days prior to the date of such meeting (as set forth in subparagraph 5.1); provided however, that in the event that no annual meeting of stockholders was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting or ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. Such stockholder's notice to the Secretary shall set forth (a) a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of such stockholder and the beneficial owner (as such term is defined in Rule 13d-3 as then in effect under the Securities Exchange Act of 1934, as amended (or any successor thereto) (the "Exchange Act")), if any, on whose behalf the proposal is made, (b) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made, the name and address of such stockholder as they appear on the corporation's books, and of such beneficial owner, (c) the class and number of shares of the corporation which are beneficially owned (as such term is defined in Rule 13d-3 as then in effect under the Exchange Act) and of record by such stockholder and such beneficial owner and (d) all other information with respect to each such matter as would have been required to be included in a proxy statement filed pursuant to Regulation 14A as then in effect under the Exchange Act, had proxies been solicited by the board of directors with respect thereto. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this subparagraph 5.2. The presiding officer of an annual meeting of stockholders shall, if the facts warrant, have the power and duty to determine whether the business proposed to be brought before the meeting was not made in accordance with the provisions of this subparagraph 5.2, and if he should so determine, he shall have the power and duty to declare to the meeting that such business not properly brought before the meeting shall be disregarded and not transacted.
5.3 Notwithstanding the foregoing provisions of subparagraph 5.2 and paragraph 18, (a) if any class or series of stock has the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, such directors shall be nominated and elected pursuant to the terms of such class or series of stock, and (b) a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in subparagraph 5.2 or paragraph 18. To the extent subparagraph 5.2 shall be deemed by the board of directors or the Securities and Exchange Commission, or adjudged by a court of competent jurisdiction, to be inconsistent with the rights of stockholders to request inclusion of a proposal in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, such rule shall prevail.
6. Special Meetings. ---------------- Special meetings of the stockholders may be held for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation. Except as otherwise required by law and subject to the rights, if any, of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the stockholders of the corporation may be called only by the chairman of the board, by the president, or by the board of directors pursuant to a resolution approved by a majority of the entire board of directors. At a special meeting of
the stockholders, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting.
The "call" and the "notice" of any such meeting shall be deemed to by synonymous.
7. Voting. ------ At all meetings of stockholders, every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument shall provide for a longer period. Unless otherwise provided by the certificate of incorporation or resolutions adopted by the board of directors in accordance with the General Corporation Law of Delaware, each stockholder shall have one vote for each share of stock entitled to vote at such meeting registered in his name on the books of the corporation. At all meetings of stockholders the voting may be otherwise than by ballot, including the election of directors, except that, unless otherwise provided by the certificate of incorporation, any qualified voter may demand a vote by ballot on any matter, in which event such vote shall be taken by ballot.
8. Quorum. ------ The holders of a majority of the outstanding shares of stock entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of any business, except as otherwise provided by law, by the certificate of incorporation, or by these bylaws. Every decision of a majority in amount of stock of such quorum shall be valid as a corporate act, except in those specific instances in which a larger vote is required by law or by the certificate of incorporation or by these bylaws.
If the holders of a majority of the outstanding shares of stock entitled to vote are not be present in person or represented by proxy at a meeting of stockholders, the holders of a majority of the stock present in person or by proxy at such meeting shall have power successively to adjourn the meeting from time to time to a specified time and place, without notice to anyone other than by announcement at the meeting, until a quorum shall be present in person or by proxy. At such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted which might have been transacted at the original meeting which was adjourned. If the adjournment is for more than thirty (30) days, or if after adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
9. Stock Ledger. ------------ The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list required under paragraph 10 of these bylaws or the books of the corporation, or to vote in person or by proxy at any meeting of the stockholders.
10. Stockholders, Lists. ------------------- The secretary or assistant secretary, who shall have charge of the stock ledger, shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, any may be inspected by any stockholder who is present.
11. Notice. ------ Written or printed notice of each meeting of the stockholders, whether annual or special, stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes thereof, shall be given to each stockholder of record of the corporation entitled to vote at such meeting, either personally or by mail, not less than ten (10) days nor more than sixty (60) days prior to the meeting. If mailed, such notice shall be deemed to be delivered when it is deposited in the United States mail with postage thereon addressed to the stockholder at his address as it appears on the records of the corporation.
12. Stockholder Action; How Taken. ----------------------------- No action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.
13.1 Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his or her absence by the vice chairman of the board, if any, or in his or her absence by the chairman of the executive committee, if any, or in his or her absence by the president, if any, or in his or her absence by an executive vice president, if any, or in his or her absence by a senior vice president, if any, or in his or her absence by a vice president, or in the absence of such designation by a chairman chosen at the meeting by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote thereat. The secretary or in his or her absence an assistant secretary or in the absence of the secretary and all assistant secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.
13.2 The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedure for maintaining order at the meeting and the safety of those present, limitations on participation on such meeting to stockholders of records of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
13.3 The board of directors shall appoint two or more Inspectors of Election to serve at every meeting of the stockholders at which directors are to be elected.
14. Management. ---------- The property, business and affairs of the corporation shall be managed by or under the direction of a board of directors. The number of directors of the corporation (including directors to be elected by the holders of any one or more series of Preferred Stock voting separately as a class or classes) shall be seven (7). As used in these bylaws, the terms "whole board" or "whole board of directors" mean the total number of directors which the corporation would have if there were no vacancies. In addition to the powers and authorities by these bylaws and the certificate of incorporation expressly conferred upon it, the board of directors may exercise all such powers of the corporation, and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders.
15. Classes. ------- The members of the whole board of directors, other than those who may be elected by the holders of any Preferred Stock or series thereof, shall be divided into three (3) classes (to be designated as Class I, Class II and Class III), with the term of office of one class expiring each year. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. Subject to the foregoing, at each annual meeting of stockholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their respective successors shall be elected and qualified or until their respective earlier resignation or removal.
17. Removal of Directors. -------------------- Notwithstanding any other provisions of these bylaws (and notwithstanding the fact that some lesser percentage may be specified by law or these bylaws), any director or the entire board of directors of the corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of eighty percent (80%) or more of the Total Voting Power of the then outstanding shares of Voting Stock, considered for this purpose as one class (for purposes of this paragraph 17, each share of the Voting Stock shall have the number of votes granted to it pursuant to paragraph FOURTH of the corporation's certificate of incorporation). For the purposes of this paragraph 17, (i) the term "Total Voting Power" shall mean the aggregate of all votes of all outstanding shares of Voting Stock; and (ii) the term "Voting Stock" shall mean the shares of all classes of capital stock of the corporation entitled to vote on removal of any director or the entire board of directors in the manner provided in this paragraph 17 (except that if the next succeeding sentence is operative, then the outstanding shares of Preferred Stock shall not be considered "Voting Stock" for
purposes of this paragraph 17). Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the corporation, the foregoing provisions of this paragraph 17 shall not apply with respect to the director or directors elected by such holders of Preferred Stock.
As used in these bylaws, the term "for cause" is hereby exclusively defined and limited to mean conviction of a felony by a court of competent jurisdiction where such conviction is no longer subject to direct appeal, or an adjudication by a court of competent jurisdiction of liability for negligence, or misconduct, in the performance of the director's duty to the corporation in a matter of substantial importance to the corporation, where such adjudication is no longer subject to direct appeal.
18. Notification of Nominations.
--------------------------- Subject to the
rights of holders of Preferred Stock, nominations for the
election of directors may be made by the board of directors
or a proxy committee appointed by the board of directors or
by any stockholder entitled to generally vote in the
election of directors at the meeting of the stockholders at
which directors will be elected. However, any such
stockholder may nominate one or more persons for election as
directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations
has been given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the
corporation not later than (i) with respect to an election
to be held at an annual meeting of stockholders, one hundred
twenty (120) days in advance of the date of such meeting (as
set forth in paragraph 5 of these bylaws), and (ii) with
respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of
business on the seventh (7th) day following the date on
which notice public announcement of the date of such meeting
is first made. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice;
(c) the name and address, as they appear on the
corporation's books, of such stockholder; (d) the class and
number of shares of the corporation which are beneficially
owned (as defined in Rule 13d-3 as then in effect under the
Exchange Act) by the nominating stockholder and each nominee
proposed by such stockholder; (e) a description of all
arrangements or understandings between the nominating
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(f) such other information regarding each nominee proposed
by such stockholder as would have been required to be
included in a proxy statement filed pursuant to Regulation
14A (17 CFR 240.14a-1 et seq.) as then in effect under the
Securities Exchange Act of 1934, as amended, had the nominee
been nominated, or intended to be nominated, by the board of
directors; and (g) the consent of each nominee to serve as a
director of the corporation if so elected. The chairman of
the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
present, (ii) if not so suggested or provided for by resolution of the stockholders or if a quorum shall not be present, at such time and place as shall be consented to in writing by a majority of the newly elected directors, provided that written or printed notice of such meeting shall be given to each of the other directors in the same manner as provided in paragraph 22 of these bylaws with respect to the givingof notice for special meetings of the board except that it shall not be necessary to state the purpose of the meeting in such notice, or (iii) regardless of whether or not the time and place of such meeting shall be suggested or provided for by resolution of the stockholders, at such time and place as shall be consented to in writing by all of the newly elected directors.
Every director of the corporation, upon his election, shall qualify by accepting the office of director, and his attendance at, or his written approval of the minutes of, any meeting of the board subsequent to his election shall constitute his acceptance of such office; or he may execute such acceptance by a separate writing, which shall be placed in the minute book.
20. Regular Meetings. ---------------- Regular meetings of the board of directors may be held without notice at such times and places either within or without the State of Delaware as shall from time to time be fixed by resolution adopted by the whole board of directors. Any business may be transacted at a regular meeting.
21. Special Meetings. ---------------- Special meetings of the board of directors may be called at any time by the chairman of the board, the president, any vice president or the secretary, or by any two (2) or more of the directors. The place may be within or without the State of Delaware as designated in the notice.
22. Notice of Special Meetings. -------------------------- Written or printed notice of each special meeting of the board, stating the place, day and hour of the meeting and the purpose or purposes thereof, shall be mailed to each director addressed to him at his residence or usual place of business at least three (3) days before the day on which the meeting is to be held, or shall be sent to him by telegram, or delivered to him personally, at least two (2) days before the day on which the meeting is to be held. If mailed, such notice shall be deemed to be delivered when it is deposited in the United States mail with postage thereon addressed to the director at his residence or usual place of business. If given by telegraph, such notice shall be deemed to be delivered when it is delivered to the telegraph company. The notice may be given by any officer having authority to call the meeting. "Notice" and "call" with respect to such meetings shall be deemed to be synonymous. Any meeting of the board of directors shall be a legal meeting without any notice thereof having been given if all directors shall be present.
24. Quorum. ------ Unless otherwise required by law, the certificate of incorporation or these bylaws, a majority of the total number of directors shall be necessary at all meetings to constitute a quorum for the transaction of business and, except as may be otherwise provided by law, the certificate of incorporation or these bylaws, the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of the board of directors.
If at least two (2) directors or one third (1/3) of the whole board of directors, whichever is greater, is present at any meeting at which a quorum is not present, a majority of the directors present at such meeting shall have power successively to adjourn the meeting from time to time to a subsequent date, without notice to any director other than announcement at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting which was adjourned.
25. Standing or Temporary Committees.
-------------------------------- The board of
directors may, by resolution or resolutions passed by a
majority of the whole board, designate one (1) or more
committees, each committee to consist of one (1) or more
directors of the corporation. The board may designate one
(1) or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any
meeting of the committee. In the absence or
disqualification of a member of a committee, the member of
members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the
extent provided in the resolution of the board of directors
or in these bylaws, shall have and may exercise all of the
powers and authority of the board of directors in the
management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed
to all papers which may require it; but no such committee
shall have the power or authority of the board of directors
with respect to amending the certificate of incorporation,
adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property
and assets, recommending to the stockholders a dissolution
of the corporation or a revocation of a dissolution,
amending the bylaws of the corporation, declaring a dividend
or making any other distribution to the stockholders,
authorizing the issuance of stock otherwise than pursuant to
the grant or exercise of a stock option under employee stock
option plans of the corporation, or appointing any member of
any committee of the board of directors.
Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. All committees so appointed shall, unless otherwise provided by the board of directors, keep regular minutes of the transactions at their meetings and shall cause them to be recorded in books kept for that purpose in the office of the corporation and shall report the same to the board of directors at its next meeting. The secretary or an assistant secretary of the corporation may act as secretary of the committee if the committee so requests.
26. Compensation. ------------ Unless otherwise restricted by the certificate of incorporation, the board of directors may, by resolution, fix the compensation to be paid directors for serving as directors of the corporation and may, by resolution, fix a sum which shall be allowed and paid for attendance at each meeting of the board of directors and may provide for reimbursement of expenses incurred by directors in attending each meeting; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving his regular compensation therefor. Members of special or standing committees may be allowed similar compensation for attending committee meetings.
27. Resignations. ------------ Any director may resign at any time upon written notice to the corporation. Such resignation shall take effect at the time specified therein or shall take effect upon receipt thereof by the corporation if no time is specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
(b) Indemnification in Derivative Actions. ------------------------------------- The corporation shall indemnify each person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an officer of director of the corporation or is or was serving at the corporation's request as a director or officer of any Other Enterprise against amounts paid in settlement thereof (provided that such settlement and all amounts paid in connection therewith are approved in advance by the corporation in accordance with subparagraph (d) of this paragraph 28, which approval shall not be unreasonably withheld) and all expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding) if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification under this subparagraph (b) shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged liable to the corporation unless and only to the extent that the court in which the action, suit or proceeding is brought determines upon application that, despite the
adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to such indemnification.
(c) Indemnification for Expenses. ---------------------------- Notwithstanding the other provisions of this paragraph 28, to the extent that a person who is or was serving as a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subparagraphs (a) and (b) of this paragraph 28 (including the dismissal of any such action, suit or proceeding without prejudice), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
(e) Advancement of Expenses. ----------------------- Expenses (including attorneys' fees) actually and reasonably incurred by a person who may be entitled to indemnification hereunder in defending an action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to indemnification by the corporation. Notwithstanding the foregoing, no advance shall be made by the corporation if a determination is reasonably and promptly made by (i) the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding for which the advancement is requested, (ii) if a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders, that, based upon the facts known to the board, counsel or stockholders at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interest of the corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the board,
stockholders or independent legal counsel reasonably determines that such person deliberately breached his duty to the corporation or its stockholders.
(f) Non-Exclusivity. --------------- The indemnification and advancement of expenses provided by this paragraph 28 shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, under the certificate of incorporation, bylaws, agreement, vote of stockholders or disinterested directors, policy of insurance or otherwise, both as to action in their official capacity and as to action in another capacity while holding their respective offices, and shall not limit in any way any right which the corporation may have to make additional indemnifications with respect to the same or different persons or classes of persons. The indemnification and advancement of expenses provided by, or granted pursuant to, this paragraph 28 shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, administrators and estate of such a person.
(g) Insurance. --------- Upon resolution passed by the board of directors, the corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this paragraph.
(h) Vesting of Rights. ----------------- The rights granted by this paragraph 28 shall be vested in each person entitled to indemnification hereunder as a bargained-for, contractual condition of such person's acceptance of his election or appointment as a director or officer of the corporation or serving at the request of the corporation as a director of officer of any Other Enterprise and while this paragraph 28 may be amended or repealed, no such amendment or repeal shall release, terminate or adversely affect the rights of such person under this paragraph 28 with respect to any act taken or the failure to take any act by such person prior to such amendment or repeal or with respect to any action, suit or proceeding with respect to such act or failure to act filed after such amendment or repeal.
(i) Definition of the "Corporation". ------------------------------- For purposes of this paragraph 28, references to "the corporation" shall, if and only if the board of directors shall determine, include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers or persons serving at the request of such constituent corporation as a director or officer of any Other Enterprise, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of any Other Enterprise, shall stand in the same position under the provisions of this paragraph 28 with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
(j) Certain Definitions. ------------------- For the purpose of this paragraph 28, references to "Other Enterprises" or "Other Enterprise" shall include without limitation any other corporation, partnership, joint venture, trust or employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "defense" shall include investigations of any threatened, pending or completed action, suit or
proceeding as well as appeals thereof and shall also include any defensive assertion of a cross claim or counterclaim and references to "serving at the request of the corporation" shall include any service as a director or officer of a corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this paragraph 28. For the purpose of this paragraph 28, unless the board of directors of the corporation shall determine otherwise, any director or officer of the corporation who shall serve as an officer or director of any Other Enterprise of which the corporation, directly or indirectly, is a stockholder or creditor, or in which the corporation is in any way interested, shall be presumed to be serving as such director or officer at the request of the corporation. In all other instances where any person shall serve as a director or officer of an Other Enterprise, if it is not otherwise established that such person is or was serving as such director or officer at the request of the corporation, the board of directors of the corporation shall determine whether such person is or was serving at the request of the corporation, and it shall not be necessary to show any actual or prior request for such service, which determination shall be final and binding on the corporation and the person seeking indemnification.
(k) Severability. ------------ If any provision of this paragraph 28 or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable for any reason whatsoever, the remaining provisions of this paragraph 28 and the application of such provisions to other persons or circumstances shall not be affected thereby and to the fullest extent possible the court finding such provision invalid, illegal or unenforceable shall modify and construe the provision so as to render it valid and enforceable as against all persons or entities and to give the maximum possible protection to persons subject to indemnification hereby within the bounds of validity, legality and enforceability. Without limiting the generality of the foregoing, if any officer or director of the corporation or any person who is or was serving at the request of the corporation as a director or officer of any Other Enterprise, is entitled under any provision of this paragraph 28, to indemnification by the corporation for some or a portion of the judgments, amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines or other expenses actually and reasonably incurred by any such person in connection with any threatened, pending or completed action, suit or proceeding (including without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, or administrative, investigative or appellate, but not, however, for all of the total amount thereof, the corporation shall nevertheless indemnify such person for the portion thereof to which such person is entitled.
29. Action without a Meeting. ------------------------ Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or any committee thereof may be taken without a meeting if written consent thereto is signed by all members of the board of directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or
committee.
Officers
--------
30. (a) Officers - Who Shall Constitute.
------------------------------- The
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officers of the corporation shall be a chairman of the board, a president, one or more vice presidents, a secretary, a treasurer, one or more assistant secretaries and one or more assistant treasurers. The board shall elect a president and a secretary at its first meeting after each annual meeting of the stockholders. The
board then, or from time to time, may also elect one or more of the other prescribed officers as it may deem advisable, but need not elect any officers other than a president and a secretary. The board may, if it desires, elect or appoint additional officers and may further identify or describe any one or more of the officers of the corporation.
Officers of the corporation need not be members of the board of directors. Any two (2) or more offices may be held by the same person.
An officer shall be deemed qualified when he enters upon the duties of the office to which he has been elected or appointed and furnishes any bond required by the board; but the board may also require his written acceptance and promise faithfully to discharge the duties of such office.
(b) Term of Office. -------------- Each officer of the corporation shall hold his office at the pleasure of the board of directors or for such other period as the board may specify at the time of his election or appointment, or until his death, resignation or removal by the board, whichever first occurs. In any event, each officer of the corporation who is not reelected or reappointed at the annual election of officers by the board next succeeding his election or appointment shall be deemed to have been removed by the board, unless the board provides otherwise at the time of his election or appointment.
(c) Other Agents. ------------ The board from time to time may also appoint such other agents for the corporation as it shall deem necessary or advisable, each of whom shall serve at the pleasure of the board or for such period as the board may specify, and shall exercise such powers, have such titles and perform such duties as shall be determined from time to time by the board or by an officer empowered by the board to make such determinations.
31. The Chairman of the Board. ------------------------- If a chairman of the board be elected, he shall preside at all meetings of the stockholders and directors at which he may be present and shall have such other duties, powers and authority as may be prescribed elsewhere in these bylaws. The board of directors may delegate such other authority and assign such additional duties to the chairman of the board, other than those conferred by law exclusively upon the president, as it may from time to time determine, and, to the extent permissible by law, the board may designate the chairman of the board as the chief executive officer of the corporation with all of the powers otherwise conferred upon the president of the corporation under paragraph 32 of these bylaws, or it may, from time to time, divide the responsibilities, duties and authority for the general control and management of the corporation's business and affairs between the chairman of the board and the president.
32. The President. ------------- Unless the board otherwise provides, the president shall be the chief executive officer of the corporation with such general executive powers and duties of supervision and management as are usually vested in the office of the chief executive officer of a corporation, and he shall carry into effect all directions and resolutions of the board. The president, in the absence of the chairman of the board or if there be no chairman of the board, shall preside at all meetings of the stockholders and directors.
The president may execute all bonds, notes, debentures, mortgages and other instruments for and in the name of the corporation, may cause the corporate seal to be affixed thereto, and may execute all other instruments for and in the name of the corporation.
Unless the board otherwise provides, the president, or any person designated in writing by him, shall have full power and authority on behalf of this corporation (i) to attend and to vote or take action at any meeting of the holders of securities of corporations in which this corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to being a holder of such securities, and (ii) to execute and deliver waivers of notice and proxies for and in the name of the corporation with respect to any securities held by the corporation.
He shall, unless the board otherwise provides, be ex officio a member of all standing committees.
He shall have such other or further duties and authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors.
If a chairman of the board be elected or appointed and designated as chief executive officer of the corporation, as provided in paragraph 31, of these bylaws, the president shall perform such duties as may be specifically delegated to him by the board of directors or are conferred by law exclusively upon him, and in the absence, disability, or inability or refusal to act of the chairman of the board, the president shall perform the duties and exercise the powers of the chairman of the board.
33. Vice Presidents. --------------- In the absence of the president or in the event of his disability, or inability or refusal to act, any vice president may perform the duties and exercise the powers of the president until the board otherwise provides. Vice presidents shall perform such other duties as the board may from time to time prescribe.
34. Secretary and Assistant Secretaries. ----------------------------------- The secretary shall attend all sessions of the board and all meetings of the stockholders, shall prepare minutes of all proceedings at such meetings and shall preserve them in a minute book of the corporation. He shall perform similar duties for the executive committee and other standing committees when requested by the board or any such committee.
The secretary shall see that all books, records, lists and information, or duplicates, required to be maintained in Delaware, or elsewhere, are so maintained.
The secretary shall keep in safe custody the seal of the corporation, and shall have authority to affix the seal to any instrument requiring a corporate seal and, when so affixed, he shall attest the seal by his signature. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature.
The secretary shall have the general duties, responsibilities and authorities of a secretary of a corporation and shall perform such other duties and have such other responsibility and authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors or the chief executive officer of the corporation, under whose direct supervision he shall be.
In the absence of the secretary or in the event of his disability, or inability or refusal to act, any assistant secretary may perform the duties and exercise the powers of the secretary until the board otherwise provides. Assistant secretaries shall perform such other duties as the board of directors may from time to time prescribe.
35. The Treasurer and Assistant Treasurers. -------------------------------------- The treasurer shall have responsibility for the safekeeping of the funds and securities of the corporation, shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall keep, or cause to be kept, all other books of account and accounting records of the corporation. He shall deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors or by any officer of the corporation to whom such authority has been granted by the board.
He shall disburse, or permit to be disbursed, the funds of the corporation as may be ordered, or authorized generally, by the board, and shall render to the chief executive officer of the corporation and the directors whenever they may require it, an account of all his transactions as treasurer and of those under his jurisdiction, and of the financial condition of the corporation.
He shall perform such other duties and shall have such other responsibility and authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors.
He shall have the general duties, powers and responsibility of a treasurer of a corporation and shall, unless otherwise provided by the board, be the chief financial and accounting officer of the corporation.
If required by the board, he shall give the corporation a bond in a sum and with one or more sureties satisfactory to the board, for the faithful performance of the duties of his office and for the restoration to the corporation, in the case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control which belong to the corporation.
In the absence of the treasurer or in the event of his disability, or inability or refusal to act, any assistant treasurer may perform the duties and exercise the powers of the treasurer. Assistant treasurers shall perform such other duties and have such other authority as the board of directors may from time to time prescribe.
36. Duties of Officers May be Delegated. ----------------------------------- If any officer of the corporation be absent or unable to act, or for any other reason that the board may deem sufficient, the board may delegate, from the time being, some or all of the functions, duties, powers and responsibilities of any officer to any other officer, or to any other agent or employee of the corporation or other responsible person, provided a majority of the whole board concurs.
37. Removal. ------- Any officer or agent elected or appointed by the board of directors, and any employee, may be removed or discharged by the board whenever in its judgment the best interests of the corporation would be served thereby, but such removal or discharge shall be without prejudice to the contract rights, if any, of the person so removed or discharged.
38. Salaries and Compensation. ------------------------- Salaries and compensation of all elected officers of the corporation shall be fixed, increased or decreased by the board of directors, but this power, except as to the salary or compensation of the chairman of the board and the
president, may, unless prohibited by law, be delegated by the board to the chairman of the board or the president, or may be delegated to a committee. Salaries and compensation of all appointed officers, agents and employees of the corporation may be fixed, increased or decreased by the board of directors, but until action is taken with respect thereto by the board of directors, the same may be fixed, increased or decreased by the president or such other officer or officers as may be empowered by the board of directors to do so.
40. Certificates for Shares of Stock. -------------------------------- Certificates for shares of stock shall be issued in numerical order, and each stockholder shall be entitled to a certificate signed by, or in the name of the corporation by, the chairman of the board or the president or a vice president, and by the treasurer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares owned by him. Any of or all the signatures on such certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer, transfer agent or registrar who signed such certificate, or whose facsimile signature shall have been used thereon, had not ceased to be such officer, transfer agent or registrar of the corporation.
41. Transfers of Stock. ------------------ Transfers of stock shall be made only upon the stock transfer books of the corporation, kept at the office of the corporation or of the transfer agent designated to transfer the class of stock, and before a new certificate is issued the old certificate shall be surrendered for cancellation. Until and unless the board appoints some other person, firm or corporation as its transfer agent (and upon the revocation of any such appointment, thereafter until a new appointment is similarly made) the secretary of the corporation shall be the transfer agent of the corporation without the necessity of any formal action of the board, and the secretary, or any person designated by him, shall perform all of the duties thereof.
42. Registered Stockholders. ----------------------- Only registered stockholders shall be entitled to be treated by the corporation as the holders and owners in fact of the shares standing in their respective names, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by applicable federal law or by the laws of Delaware.
43. Lost Certificates. ----------------- The board of directors may direct that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate or certificates to be lost, stolen or destroyed. When authorizing such issue of a replacement certificate or certificates, the board of directors
may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the corporation and its transfer agents and registrars, if any, a bond in such sum as it may direct to indemnify it against any claim that may be made against it with respect to the certificate or certificates alleged to have been lost, stolen or destroyed or with respect to the issuance of such new certificate or certificates.
44. Regulations. ----------- The board of directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, conversion and registration of certificates for shares of stock of the corporation, not inconsistent with the laws of Delaware, the certificate of incorporation of the corporation and these bylaws.
45. Fixing Record Date.
------------------ In order that the
corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate
action in writing without a meeting, if such action is
authorized, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
46. Dividends. --------- Dividends upon the outstanding shares of stock of the corporation, subject to the provisions of the certificate of incorporation and of any applicable law and of these bylaws, may be declared by the board of directors at any meeting. Subject to such provisions, dividends may be paid in cash, in property or in shares of stock of the corporation.
47. Creation of Reserves. -------------------- The directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose or may abolish any such reserve in the manner in which it was created.
48. Depositories. ------------ The moneys of the corporation shall be deposited in the name of the corporation in such bank or banks or other depositories as the board of directors shall designate, and shall be drawn out only by check signed by persons designated by resolution adopted by the board of directors, except that the board of directors may delegate said powers in the manner hereinafter provided in this paragraph 48. The board of directors may by resolution authorize an officer or officers of the corporation to designate any bank or banks or other depositories in which moneys of the corporation may be deposited, and to designate the persons who may sign checks drawn on any particular account or accounts of the corporation, whether created by direct designation of the board of directors or by an authorized officer or officers as aforesaid.
49. Fiscal Year. ----------- The board of directors shall have power to fix and from time to time change the fiscal year of the corporation. In the absence of action by the board of directors, the fiscal year of the corporation shall end each year on the date which the corporation
treated as the close of its first fiscal year, until such time, if any, as the fiscal year shall be changed by the board of directors.
50. Directors, Annual Statement. --------------------------- The board of directors may present at each annual meeting of the stockholders, and when called for by vote of the stockholders shall present to any annual or special meeting of the stockholders, a full and clear statement of the business and condition of the corporation.
51. Books, Accounts and Records. --------------------------- The books, accounts and records of the corporation, except as may be otherwise required by the laws of the State of Delaware, may be kept outside of the State of Delaware, at such place or places as the board of directors may from time to time determine. The board of directors shall determine whether, to what extent and the conditions upon which the books, accounts and records of the corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any book, account or record of the corporation, except as conferred by law or by resolution of the stockholders or directors.
52. Waiver of Notice. ---------------- Whenever any notice is required to be given under the provisions of the statutes of Delaware or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.
53. Contracts. --------- The board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
54. Amendments. ---------- These bylaws may be altered, amended or repealed, or new bylaws may be adopted, in the manner provided in the certificate of incorporation.
55. Business Combinations. --------------------- The corporation shall not be governed by the provisions of Section 203 of the Delaware General Corporation Law.
The undersigned secretary of Cerner Corporation, a Delaware corporation, hereby certifies that the foregoing bylaws are the bylaws of said corporation as amended and as adopted by the directors of the corporation.
Dated: March 9, 2001.
/s/ Randy D. Sims
----------------------------
Randy D. Sims, Secretary
|
CERNER CORPORATION
NONQUALIFIED STOCK OPTION PLAN D
AS AMENDED THROUGH DECEMBER 8, 2000
1. Purpose of Plan. ---------------- The purpose of the Plan is to encourage the employees and directors of Cerner Corporation (the "Company") and its subsidiaries and consultants and advisors to the Company and its subsidiaries to participate in the ownership of the Company, and to provide additional incentive for such persons to promote the success of its business through sharing in the future growth of such business.
2. Effectiveness of Plan. --------------------- The provisions of this Plan shall become effective on the date the Plan is adopted by the Board of Directors of the Company (the "Board of Directors"), and shall govern all options granted hereunder. Nothing in this Plan shall be construed as a modification of any provision of the Cerner Corporation Incentive Stock Option Plan A, the Cerner Corporation Incentive Stock Option Plan B or the Cerner Corporation Incentive Stock Option Plan C.
3. Administration. -------------- This Plan shall be administered by a committee of the Board of Directors consisting of not less than two nor more than five members of the Board of Directors (the "Committee") appointed by the members of the Board of Directors. Subject to the terms, provisions and conditions of the Plan, the Committee shall have exclusive authority (i) to select the persons to whom options shall be granted, (ii) to determine the number of shares subject to each option, (iii) to determine the time or times when options will be granted, (iv) to determine the option price of the shares subject to each option, (v) to determine the time when each option may be exercised, (vi) to fix such other provisions of each option agreement as the Committee may deem necessary or desirable, consistent with the terms of this Plan, and (vii) to determine all other questions relating to the administration of this Plan; provided however, that any grant of an option to one individual in excess of 100,000 shares shall required approval of the Board of Directors.
4. Eligibility. ----------- Options to purchase shares of common stock of the Company ("Cerner Common Stock") shall be granted under this Plan only to directors and employees of the Company or of any of its subsidiaries and to advisors and consultants to the Company and any of its subsidiaries.
5. Shares Subject to the Plan. -------------------------- Options granted under this Plan shall be granted solely with respect to shares of Cerner Common Stock. Subject to any adjustments made pursuant to the provisions of paragraph 10, the aggregate number of shares of Cerner Common Stock which may be issued upon exercise of all the options which may be granted under this Plan shall not exceed 1,300,000. If any option granted under this Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall be added to the number of shares otherwise available for options which may be granted in accordance with the terms of this Plan. The shares to be delivered upon exercise of the options granted under this Plan shall be made available, at the discretion of the Committee, from either the authorized but unissued shares of Cerner Common Stock or any treasury shares of Cerner Common Stock held by the Company.
6. Option Agreement. ---------------- Each option granted under this Plan shall be evidenced by a nonqualified stock option agreement, which shall be signed by an officer of the Company and by the employee to whom the option is granted (the "optionee"). The terms of said nonqualified stock option agreement shall be in accordance with the provisions of this Plan, but it may include such other provisions as may be approved by the Committee. The granting of an option under this Plan shall be deemed to occur on the date on which the nonqualified stock option agreement evidencing such option is executed by the
Company and the optionee. Each nonqualified stock option agreement shall constitute a binding contract between the Company and the optionee, and every optionee, upon the execution of a nonqualified stock option agreement, shall be bound by the terms and restrictions of this Plan and such nonqualified stock option agreement.
7. Option Price. ------------- The price at which shares of Cerner Common Stock may be purchased under an option granted pursuant to this Plan shall be determined by the Committee.
(a) Period--The period during which each option granted under this Plan may be exercised shall be fixed by the Committee at the time such option is granted.
(b) Exercise--Any option granted under this Plan may be exercised by the optionee (or such other person as the Committee may determine), subject to designation by the Committee in the stock option agreement, only by (i) delivering to the Company written notice of the number of shares with respect to which he is exercising his option right, (ii) paying in full the option price of the purchased shares in cash or (iii) by delivery to the Company of that number of shares of Cerner Common Stock having a fair market value on the date of exercise equal to the sum of the exercise price of the options to be exercised or (iv) surrendering on the date of exercise that number of options which, when multiplied by the excess of the fair market value of the stock which is subject to the surrendered options on the date of exercise over the exercise price for said options, results in a product that is equal to the sum of the exercise price of the remaining options being exercised. Subject to the limitations of this Plan and the terms and conditions of the respective stock option agreement, each option granted under this Plan shall be exercisable in whole or in part at such time or times as the Committee may specify in such stock option agreement.
(c) Delivery of certificates--As soon as practicable after receipt by the Company of the notice described in subsection (b), and of payment in full of the option price for all of the shares being purchased pursuant to an option granted under this Plan, a certificate or certificates representing such shares of stock shall be registered in the name of the optionee and shall be delivered to the optionee. However, no certificate for fractional shares of stock shall be issued by the Company notwithstanding any request therefor. Neither any optionee, nor the legal representative, legatee or distributee of any optionee, shall be deemed to be a holder of any shares of stock subject to an option granted under this Plan unless and until the certificate or certificates for such shares have been issued.
(d) Limitations on exercise--The Committee may impose such limitations on the exercise of any specific nonqualified stock option agreement as it deems appropriate.
9. Nontransferability of Options. ----------------------------- No option granted under this Plan shall be transferable or assignable by the optionee other than by will or by the laws of descent and distribution unless expressly permitted under the terms of the stock option agreement or as otherwise permitted by the Stock Option Committee for Stock Option Plan D from time to time.
10. Adjustments Upon Changes in Capitalization. ------------------------------------------ In the event of any change in the capital structure of the Company, including but not limited to a change resulting from a stock dividend, stock split, reorganization, merger, consolidation, liquidation or any combination or exchange of shares, the number of shares of Cerner Common Stock subject to this Plan and the number of such shares subject to each option granted hereunder shall be correspondingly adjusted by the Committee. The option price for
which shares of Cerner Common Stock may be purchased pursuant to an option granted under this Plan shall also be adjusted so that there will be no change in the aggregate purchase price payable upon the exercise of any option.
11. Amendment and Termination of Plan. ----------------------------------- No option shall be granted pursuant to this Plan after January 1, 2005, on which date this Plan will expire except as to options then outstanding, which options shall remain in effect until they have been exercised or have expired. The Committee may at any time before such date amend, modify or terminate the Plan; provided, however, that the Committee may not, without approval of the Shareholders of the Company (i) increase the maximum number of shares of Cerner Common Stock as to which options may be granted pursuant to the Plan, (ii) alter the eligibility requirements for optionees under the Plan or (iii) extend the duration of the Nonqualified Plan. No amendment, modification or termination of this Plan may adversely affect the rights of any optionee under any then outstanding option granted hereunder without the consent of such optionee.
12. Governing Law. -------------- This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Missouri.
1. Purpose of Plan. ---------------- The purpose of the Plan is to encourage the employees (other than officers who are at the time of grant subject to the provisions of Section 16(a)of the Securities and Exchange Act of 1934) of, and consultants and advisors to, Cerner Corporation (the "Company") and its subsidiaries to participate in the ownership of the Company, and to provide additional incentive for such persons to promote the success of its business through sharing in the future growth of such business.
2. Effectiveness of Plan. --------------------- The provisions of this Plan shall become effective on the date the Plan is adopted by the Board of Directors of the Company (the "Board of Directors"), and shall govern all options granted hereunder.
3. Administration. -------------- This Plan shall be administered by a committee of the Board of Directors consisting of not less than two nor more than five members of the Board of Directors (the "Committee") appointed by the members of the Board of Directors. The Committee shall have full power and authority to construe, interpret and administer the Plan, and may from time to time adopt such rules and regulations for carrying out this Plan as it may deem proper and in the best interests of the Company. Subject to the terms, provisions and conditions of the Plan, the Committee shall have exclusive authority (i) to select the persons to whom options shall be granted, (ii) to determine the number of shares subject to each option, (iii) to determine the time or times when options will be granted, (iv) to determine the option price of the shares subject to each option, (v) to determine the time when each option may be exercised, (vi) to fix such other provisions of each option agreement as the Committee may deem necessary or desirable, consistent with the terms of this Plan, and (vii) to determine all other questions relating to the administration of this Plan.
4. Eligibility.
----------- Options to purchase shares of common stock of
the Company ("Cerner Common Stock") shall be granted under this
Plan only to employees of the Company or of any of its
subsidiaries who are not officers subject to the provisions of
Section 16(a) of the Securities and Exchange Act of 1934 at the
time of grant and consultants and advisors to the Company.
5. Shares Subject to the Plan. -------------------------- Options granted under this Plan shall be granted solely with respect to shares of Cerner Common Stock. Subject to any adjustments made pursuant to the provisions of paragraph 10, the aggregate number of shares of Cerner Common Stock which may be issued upon exercise of all the options which may be granted under this Plan shall not exceed 2,000,000. If any option granted under this Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall be added to the number of shares otherwise available for options which may be granted in accordance with the terms of this Plan. The shares to be delivered upon exercise of the options granted under this Plan shall be made available, at the discretion of the Committee, from either the authorized but
unissued shares of Cerner Common Stock or any treasury shares of Cerner Common Stock held by the Company.
6. Option Agreement. ---------------- Each option granted under this Plan shall be evidenced by a stock option agreement, which shall be signed by an officer of the Company and by the optionee to whom the option is granted (the "optionee"). The terms of said stock option agreement shall be in accordance with the provisions of this Plan, but it may include such other provisions as may be approved by the Committee. The granting of an option under this Plan shall be deemed to occur on the date on which the stock option agreement evidencing such option is executed by the Company and the optionee. Each stock option agreement shall constitute a binding contract between the Company and the optionee, and every optionee, upon the execution of a stock option agreement, shall be bound by the terms and restrictions of this Plan and such stock option agreement.
7. Option Price. ------------- The price at which shares of Cerner Common Stock may be purchased under an option granted pursuant to this Plan shall be determined by the Committee.
(a) Period--The period during which each option granted under this Plan may be exercised shall be fixed by the Committee at the time such option is granted.
(b) Exercise--Any option granted under this Plan may be exercised by the optionee (or such other person as the Committee may determine), subject to designation by the Committee in the stock option agreement, only by (i) delivering to the Company written notice of the number of shares with respect to which he is exercising his option right, (ii) paying in full the option price of the purchased shares in cash or (iii) by delivery to the Company of that number of shares of Cerner Common Stock having a fair market value on the date of exercise equal to the sum of the exercise price of the options to be exercised or (iv) surrendering on the date of exercise that number of options which, when multiplied by the excess of the fair market value of the stock which is subject to the surrendered options on the date of exercise over the exercise price for said options, results in a product that is equal to the sum of the exercise price of the remaining options being exercised. Subject to the limitations of this Plan and the terms and conditions of the respective stock option agreement, each option granted under this Plan shall be exercisable in whole or in part at such time or times as the Committee may specify in such stock option agreement.
(c) Delivery of certificates--As soon as practicable after receipt by the Company of the notice described in subsection (b), and of payment in full of the option price for all of the shares being purchased pursuant to an option granted under this Plan, a certificate or certificates representing such shares of stock shall be registered in the name of the optionee and shall be delivered to the optionee. However, no certificate for fractional shares of stock shall be issued by the Company notwithstanding any request therefor. Neither any optionee, nor the legal representative, legatee or distributee of any optionee, shall be deemed to be a holder of any shares
of stock subject to an option granted under this Plan unless and until the certificate or certificates for such shares have been issued.
(d) The Committee shall determine the amount necessary to satisfy and Federal, state and local withholding obligation due on the exercise of all or any part of the options granted hereunder, but in no event shall such amount exceed the amount determined by application of the maximum marginal tax rate in effect under applicable Federal, state and local law. In lieu of providing to the Company cash to satisfy such withholding, the Committee may instruct the Company to withhold said amount from the optionee's compensation or may allow the optionee to elect to satisfy such withholding by directing the Company to retain a number of shares of Cerner Common Stock from the shares of Cerner Common Stock being purchased pursuant to such exercise having a fair market value at the time of exercise equal to the amount to be withheld.
(e) Limitations on exercise--The Committee may impose such limitations on the exercise of any specific stock option agreement as it deems appropriate.
9. Nontransferability of Options. ----------------------------- No option granted under this Plan shall be transferable or assignable by the optionee other than by will or by the laws of descent and distribution unless expressly permitted under the terms of the stock option agreement or as otherwise permitted by the Stock Option Committee for Stock Option Plan E from time to time.
10. Adjustments Upon Changes in Capitalization. ------------------------------------------ In the event of any change in the capital structure of the Company, including but not limited to a change resulting from a stock dividend, stock split, reorganization, merger, consolidation, liquidation or any combination or exchange of shares, the number of shares of Cerner Common Stock subject to this Plan and the number of such shares subject to each option granted hereunder shall be correspondingly adjusted by the Committee. The option price for which shares of Cerner Common Stock may be purchased pursuant to an option granted under this Plan shall also be adjusted so that there will be no change in the aggregate purchase price payable upon the exercise of any option.
11. Amendment and Termination of Plan. ----------------------------------- No option shall be granted pursuant to this Plan after January 1, 2005, on which date this Plan will expire except as to options then outstanding, which options shall remain in effect until they have been exercised or have expired. The Board of Directors may at any time before such date amend, modify or terminate the Plan.
12. Governing Law. ------------- This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Missouri.
CERNER ASSOCIATE EMPLOYMENT AGREEMENT
This Cerner Associate Employment Agreement describes the formal employment relationship between
Jack Newman Jr.
ASSOCIATE (Print Name)
and Cerner Corporation, a Delaware corporation
This Agreement is effective on the 2nd day of January, 1996.
At the time you accepted employment with Cerner, you received an offer letter outlining or confirming the specifics of Cerner's offer of employment to you. The position, terms, compensation, benefits and other provisions of that offer letter represent the initial conditions of your Cerner employment. The offer letter is incorporated into this Agreement as Attachment I. Any amendments or changes to the offer letter are included as part of Attachment II to this Agreement, and supersede the terms in the offer letter. Cerner reserves the right to modify at anytime the conditions of your employment by Cerner.
A. Formation. --------- By signing this Agreement, you represent that every material fact contained in your resume and application for employment with Cerner is true and accurate to the best of your knowledge and belief. You also agree that falsification of your resume or application is grounds for immediate discharge.
B. Type. ---- To the extent permitted by law, your employment relationship with Cerner is "at will", which means that you may resign from Cerner at any time, for any reason, or for no reason at all, and without advance notice (except as described below). It also means that Cerner may terminate your employment at any time, for any legally permitted reason, or for no reason at all, and without advance notice.
C. Resignation and Termination. ---------------------------- You agree to cooperate with Cerner by participating fully in an exit interview in the event you leave the employ of Cerner. You agree to give Cerner written notice of your intention to resign from employment at least ten (10) business days prior to the last day you intend to work at Cerner. To facilitate the provisions of paragraphs 7 and 8 of this agreement, you also agree to report to Cerner, in conjunction with your written notice of intent, the identity of your new employer (if any) and the nature of your proposed duties for that employer. Cerner, however, reserves the right either to accelerate your intended effective termination date to an earlier actual date or to allow your intended effective termination date to stand.
If you resign, however, with fewer than ten
(10) business days notice, or if you actually leave
Cerner's employ prior to expiration of the ten
business days notice period and without the
permission of Cerner, then you agree that (to the
extent permitted by law) no vacation pay, salary or
other compensation otherwise due, from the date of
your resignation notice until the time of your
approved effective termination date, will be owed
or paid to you by Cerner. Failure to provide a two
week notice period may affect your future rehire
ability with Cerner.
If Cerner terminates your employment (and unless the termination was due to your dishonesty, illegal conduct, or breach of Cerner's policy or this Agreement), Cerner will pay you in conjunction with such termination the equivalent of up to two weeks base salary (exclusive of commissions, advances against commissions, bonus and other non- salary compensation and Associate benefits). This provision also applies if you give proper notice as outlined above and Cerner elects to accelerate your effective termination date to a date less than two weeks from the date of your notice.
In the event your termination occurs during a performance period associated with a documented bonus or incentive compensation plan, any final payments to you as a result of your participation in such plan will be determined by the documented procedures of the plan.
Cerner may pay or reimburse you for certain
reasonable costs associated with any relocation
required by Cerner in conjunction with a position
with Cerner pursuant to the terms of Cerner's
published relocation policy, as may be amended from
time to time. In the event that Cerner pays or
reimburses you for any relocation costs, you agree
to repay such sums to Cerner in their entirety if
(i) you voluntarily resign from employment with
Cerner for any reason within two (2) years of the
date your relocation is complete or (ii) Cerner
terminates your employment due to your dishonesty,
illegal conduct, or breach of Cerner policy or this
Agreement within two (2) years of the date your
move is complete. You further agree that Cerner
may, at its discretion, deduct from your
paycheck(s), including your final paycheck, any
such sums required to be repaid under this
provision and that you will repay Cerner any
outstanding balance owed within 30 days of your
employment termination. Regardless of the duration
stated herein, nothing contained in this provision
shall create employment for a definite term or
otherwise modify the parties "at will" relationship
set forth in paragraph 2.B. of this Agreement.
Cerner may pay or reimburse you for certain reasonable costs associated with Other Assistance Programs in which Cerner provides assistance, pursuant to the terms of such Other Assistance Programs' policies, as may be amended from time to time. In the event that Cerner pays or reimburses you for any costs associated with such Other Assistance Programs, you agree to repay such sums to Cerner in their entirety if (i) you voluntarily resign from employment with Cerner for any reason within the time specified in the policy pertaining to applicable program(s), or (ii) Cerner terminates your employment due to your dishonesty, illegal conduct, or breach of Cerner policy or this Agreement within the time specified in the policy pertaining to applicable program(s). You further agree that Cerner may, at its discretion, deduct from your paycheck(s), including your final paycheck, any such sums required to be repaid under this provision and that you will repay Cerner any outstanding balance owed within 30 days of your employment termination. Regardless of the duration stated herein, nothing contained in this provision shall create employment for a definite term or otherwise modify the parties "at will" relationship set forth in paragraph 2.B. of this Agreement.
In the event Cerner terminates your employment, Cerner reserves the right to set the effective date of such termination. Upon your resignation or the termination of your employment, you agree to promptly execute a Termination Statement in the form of Attachment III.
You agree that you will forever maintain the confidentiality of Confidential Information. You will never disclose Confidential Information except to persons who have both the right and need to know it, and then only for the purpose and in the course of performing Cerner duties, or of permitting or assisting in the authorized use of Cerner products and services. In the event your employment with Cerner terminates (voluntarily or involuntarily), you will promptly deliver to Cerner all Confidential Information, including any Confidential Information on any laptop, computer or other communication equipment used by you during your employment with Cerner.
Except for those part-time associates, hired to work less than 40 hours per week, employment at Cerner is a full-time responsibility. As a full-time associate, it is Cerner's expectation that you devote your full time and attention to meet your Cerner responsibilities and that you will not engage in any other employment activities which would detract from or conflict with your ability to carry out your duties at Cerner. If you are a part-time associate, it is Cerner's expectation that you will not engage in other employment activities that would detract from or conflict with your ability to carry out your part-time duties at Cerner.
With respect to New Products and Ideas that you develop, author, or conceive in whole or in part while employed at Cerner, plus for one year thereafter, you agree to keep accurate, complete and timely records of such New Products and Ideas, and will promptly disclose and fully describe such New Products and Ideas in writing to Cerner. You further agree to maintain all information respecting any New Products and Ideas as Confidential Information and shall not disclose such information to any party outside of Cerner without the express written approval of an officer of Cerner.
You agree to assign and transfer to Cerner, without further consideration, your entire right, title and interest in and to all such New Products and Ideas including any patents, copyrights, trade secrets and other proprietary rights in the same. You waive any and all moral rights which you otherwise would have in any New Products and Ideas.
You agree to execute promptly at Cerner's expense, a written assignment of title to Cerner, and all letters (and applications for letters) of patent and copyright, in all countries, for any New Products or Ideas required to be assigned by this Agreement. You also agree to assist Cerner or its nominee in every reasonable way (at Cerner's request and expense, but at no charge to Cerner), both during and after your time of employment at Cerner, in vesting and defending title to the New Products and Ideas in and for Cerner, in any and all countries, including the obtainment and preservation of patents, copyrights, trade secrets and other proprietary rights.
This Section does not apply to your new products and ideas which do not relate directly to the business of Cerner, and which are developed entirely on your own time.
Any and all patented and unpatented inventions, new products and ideas which you made prior to your employment by Cerner are excluded from the scope of this Agreement and are documented on Attachment V, Inventory of Prior Inventions.
For a period of two (2) years after the voluntary or involuntary termination of your employment with Cerner:
A. You will tell any prospective new employer, prior to accepting employment that this Employment Agreement exists.
B. If you have worked for Cerner in a sales capacity, you will not provide services to any Conflicting Organization in connection with the marketing, sale or promotion of any Conflicting Product:
(1) to any person or organization upon whom you called or whose account you supervised on behalf of Cerner any time during the last three (3) years of your employment by Cerner, and
(2) within any Cerner sales territory assigned to you during the last three (3) years of your employment by Cerner.
C. If you have not worked for Cerner in a sales capacity during the last three years of your employment by Cerner, you will not provide services directly or indirectly related to your employment at Cerner to any Conflicting Organization in the United States or in any country in which Cerner has a business interest. However, you may accept employment with a large Conflicting Organization whose business is diversified, and with a portion of its business that is not a Conflicting Organization, provided that Cerner, prior to your acceptance of such employment, shall receive separate written assurances satisfactory to Cerner from such Conflicting Organization and from you that you will not render services directly or indirectly in connection with any Conflicting Product.
D. Notwithstanding the foregoing, nothing
contained in this Paragraph 7 shall prohibit you
(after your termination of employment with Cerner)
from taking a position with a general consulting
organization whose only Conflicting Product is the
provision of consulting services to the healthcare
industry.
E. You agree not, on behalf of yourself or on behalf of any other person, entity, or organization, to employ, solicit for employment, or otherwise seek to employ or retain any Cerner associate or employee, or any employee of a Cerner client company, or in any way assist or facilitate any such employment, solicitation, or retention effort.
If you are unable to obtain employment within three (3) months after termination of your employment at Cerner due solely to the non- competition restrictions imposed on you by Paragraph 7 of this Agreement, the provision of Paragraph 7 shall continue to bind you only so long as Cerner shall make to you monthly payments
equivalent, on an annualized basis, to your average earnings during the last three years of your Cerner employment (or of your average Cerner earnings, if you were employed fewer than 3 years), for each month of such unemployment.
You will, during each month of such unemployment, make conscientious and aggressive efforts to find employment. You will also, within ten days after the end of each calendar month, give Cerner a detailed written account of your efforts to obtain employment. In your monthly written account, you will identify each Conflicting Organization with which you have sought employment.
Cerner shall, at Cerner's option, be relieved of making a monthly payment to you for any month during which you fail to seek employment conscientiously and aggressively, and to account to Cerner as described above.
Cerner is obligated to make such payments to you upon your fulfillment of the conditions set forth above beginning in the 4th month of your unemployment and continuing for the following twenty (20) consecutive months (for a total of 21 monthly payments), unless Cerner gives you:
A. Written permission to accept available employment, or
B. A written release from the non-competition obligations set forth in Paragraph 7 of this Agreement.
You consent and agree to the use of your name, voice and picture (including but not limited to use in still photographs, videotape and film formats, and both during and after your period of employment at Cerner) for advertising, promotional, public relations, and other business purposes (including its and their use in newspapers, brochures, magazines, journals and films or videotapes) by Cerner.
You understand that you may be assigned various items of Cerner property and equipment to help you carry out your Cerner responsibilities. When such property or equipment is issued, you will formally acknowledge receipt of it and will take all reasonable precautions and actions necessary to safeguard and maintain it in normal operating condition. You further agree to accept financial responsibility for damage or wear to the property and equipment you are issued beyond that associated with normal business use. You will notify Cerner immediately of any such damage or loss. If your employment with Cerner terminates (for any reason), you will immediately return to Cerner all property and equipment which you have been issued or which otherwise belongs to Cerner, including any laptops, computer equipment, wireless telephone, pagers and/or other computer or communication devices provided to you by Cerner. You further agree that Cerner may, at its discretion, deduct from your paycheck(s), including your final paycheck, the replacement cost of any such equipment or devices provided to you that are not immediately returned to Cerner upon your termination of employment and you agree to repay Cerner any outstanding balance owed within 30 days of your employment termination.
You understand the importance of both systems and physical security to the daily operations of Cerner and to the protection of business information. You will, therefore, comply with and assist in the vigorous enforcement of all policies, practices, and procedures which may be developed to ensure the integrity of Cerner systems and
facilities. Further, you understand that willful violation of such policies, practices, and procedures may result in termination of your employment.
By accepting employment with Cerner, you represent to Cerner that you are not subject to any non-competition or confidentiality agreements that your employment and activities at Cerner would violate. You also represent and agree that you will not disclose to Cerner, or induce Cerner to use, any proprietary or confidential information belonging to any previous employer or to others.
By signing this Agreement, you agree that the promises you have made in it are of a special nature, and that any breach, violation or evasion by you of the terms of this Agreement will result in immediate and irreparable harm to Cerner. It will also cause damage to Cerner in amounts difficult to ascertain. Accordingly, Cerner shall be entitled to the remedies of injunction and specific performance, as well as to all other legal and equitable remedies which may be available to Cerner.
You agree to indemnify and hold Cerner harmless from and against any damages, liability, actions, suits or other claims arising out of your breach of this Agreement.
This Agreement may not be modified in any respect, except by a written agreement executed by you and Cerner. However, Cerner may from time to time publish and adopt supplementary policies with respect to the subject matter of this Agreement, and you agree that such supplementary policies shall be binding upon you.
Any notice required or permitted to be given pursuant to the terms of the Agreement shall be sufficient if given in writing and if personally delivered by receipted hand delivery to you or to Cerner, or if deposited in the United States Mail, postage prepaid, first class or certified mail, to you at your residence address or to Cerner's Corporate headquarters address or to such other addresses as each party may give the other party notice in accordance with this Agreement.
This Agreement begins as noted above and will continue in perpetuity, even though your employment can be terminated by you or by Cerner as described elsewhere herein.
This Agreement will be governed by, construed, interpreted, and its validity determined, under the laws of the State of Missouri. You and Cerner each hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any Missouri state court or federal court of the United States of America sitting in Kansas City, Missouri and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement.
If any provision of this Agreement is held to be unenforceable, then this Agreement will be deemed amended to the extent necessary to render the otherwise unenforceable provision, and the rest of this Agreement, valid and enforceable.
You hereby acknowledge receipt of a signed counterpart of this Agreement and acknowledge that it is your entire agreement with Cerner concerning the subject matter. This Agreement cancels, terminates, and supersedes any of your previous oral or written understandings or agreements with Cerner or with any officer or representative of Cerner with respect to your employment with Cerner.
This Agreement shall be binding upon Cerner's successors and assigns. This Agreement shall also be binding upon your heirs, spouse, assigns and legal representatives.
***********************************************
This Employment Agreement is executed this 29th day of January, 2001.
/s/Jack A. Newman ------------------------- Associate |
Cerner Corporation
/s/Stanley M. Sword -------------------------- Cerner Human Resources |
APPENDIX A
CERNER CORPORATION and CERNER mean Cerner Corporation, the Delaware corporation. The terms also cover all of Cerner Corporation's parent, subsidiary and affiliate corporations and business enterprises, both presently existing and subsequently created or acquired. Such affiliate corporation may be directly or indirectly controlled by Cerner or related to Cerner by equity ownership.
CLIENT means any actual or potential customer or licensee of Cerner.
CONFIDENTIAL INFORMATION means Cerner, Client and Vendor trade secrets. It also means other Cerner, Cerner Associate, Client, and Vendor information which is not generally known, and is proprietary to Cerner Corporation or to Cerner Associates, Clients, and Vendors. It includes, but is not limited to, research, design, development, installation, purchasing, accounting, marketing, selling, servicing, finance, business systems, business practices, documentation, methodology, procedures, manuals (both internal and user), program listings, source codes, working papers, Client and Vendor lists, marketing and sales materials not otherwise available to the general public, sales activity information, computer programs and software, compensation plans, your personal compensation, performance evaluations, patient information and other client-related data, and all other non-public information of Cerner and its Associates, Clients, and Vendors.
CONFLICTING ORGANIZATION means any person or organization engaged (or about to become engaged) in research, development, installation, marketing, selling, or servicing with respect to a Conflicting Product.
CONFLICTING PRODUCT means any product, process or service which is the same as, similar to, or competes with any Cerner product, process or service with which you worked during the last three years of your employment by Cerner, or about which you have acquired Confidential Information.
NEW PRODUCTS AND IDEAS means discoveries, computer programs, improvements, works of authorship, designs, methods, ideas and products (whether or not they are described in writing, reduced to practice, patentable or copyrightable) which results from any work performed by you for Cerner, or involve the use of any Cerner equipment, supplies, facilities or Confidential Information, or relate directly to the business of Cerner, or relate to Cerner's actual or demonstrably anticipated research or development.
OTHER ASSISTANCE PROGRAMS means programs that Cerner may pay or reimburse you for certain reasonable costs incurred and also provide for Cerner's recovery of such amounts as specified in the policies of such Other Assistance Programs, as may be amended from time to time. Other Assistance Programs include, but are not limited to: tuition assistance, specialty external training, and immigration assistance. Cerner reserves the right to establish future assistance programs and designate such programs as Other Assistance Programs for purposes of inclusion under paragraph 2.C. of this Agreement.
VENDOR means any actual or potential licensor, supplier, contractor, agent, consultant or other purveyor of products or services to Cerner.
Associate's Initials
APPENDIX B
The following documents, if noted, are incorporated as attachments to this Employment Agreement.
Not
Included Included Attachment Description
X I Original Offer Letter
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-------- -------- II Offer Letter Amendments
X III Termination Statement
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X IV Sales Associate Provisions
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-------- -------- V Inventory of Prior Inventions
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I represent that I have complied with all the provisions of the Cerner Associate Employment Agreement entered into between Cerner Corporation and me on the ______________________ day of _______________, __19____, in that:
1. I have not improperly disclosed or otherwise misused any of the Confidential Information covered by such Agreement. I shall continue to comply with all the continuing terms of the Agreement, including but not limited to the non- disclosure and (for the required term) non- compete provisions, and also including but not limited to the reporting of any New Products and Ideas conceived or made by me as covered by the Agreement.
2. I do not have in my possession, nor have I taken with me or failed to return, any records, plans, information, drawings, designs, documents, manuals, formulae, statistics, correspondence, client and vendor lists, specifications, blueprints, reproductions, sketches, notes, reports, proposals, or other documents or materials, or copies of them, or any equipment (including any laptops, computer equipment, wireless telephone, pagers and/or other computer or communication devices provided to you by Cerner), credit cards or other property belonging to Cerner or its Clients or Vendors. I have returned to Cerner (or will return within 10 calendar days or earlier if requested by Cerner) all material and information compiled or received by me during the term of such employment. I have returned (or will return within 10 calendar days or earlie r if requested by Cerner) all Confidential Information, as specified by such Agreement, and all correspondence and other writings. I have returned (or will return within 10 calendar days or earlier if requested by Cerner) all keys and other means of access to Cerner's premises.
3. I understand and agree that, with regard to all provisions of this Agreement relating to non- disclosure, non-solicitation, and confidentiality of information, such provisions shall not cease as of this termination but shall continue in full force and effect in perpetuity or as otherwise indicated within this Agreement. In compliance with the Agreement, I shall continue to preserve as confidential all Confidential Information as defined in the Agreement.
Cerner Corporation
The following provisions are incorporated into this Employment Agreement for all associates who are responsible for sales activities related to Cerner products and certain associates in the Cerner Consulting group.
Should my employment by Cerner Corporation terminate for any reason, I understand and agree that:
1. Cerner reserves the right to offset any advances made to me against commissions or other amounts which I owe to Cerner, against available but unpaid salary, commissions payable, accrued vacation, expense reimbursement, or any other forms of compensation or reimbursement which may be owed to me. Any such offsets will be clearly documented by Cerner before they are processed. In addition, I agree that I will pay to Cerner the amount of any remaining balance owed to Cerner Corporation after the foregoing deductions, within 30 days of the end of my employment.
2. Any commissions to which I might otherwise be entitled will be payable to me only if the associated contract for products or services has been completed and fully executed by both parties, and if all deposit monies related to such contract have been paid in full by the client and received by Cerner prior to my last date of employment, in accordance with the terms of my Cerner Performance Plan. Cerner will not unreasonably delay or withhold execution of such contracts for the purpose of avoiding a commission payment to me, if it would otherwise be due.
3. Commissions, bonuses or other incentive-based compensation which may have accrued but are not payable as of my termination date because of the payment schedule defined for such compensation in the related Cerner Performance Plan will be paid to me according to the provisions of such Plan. Such payment will be subject to the offsets described in item 1 above and will apply only to items otherwise payable within one year following my termination date.
Cerner Corporation
CERNER CORPORATION
PERFORMANCE PLAN
1. Name.
---- The name of the Plan is the Cerner Corporation
Performance Plan (the "Plan").
2. Basic Function. --------------- The Plan provides for payment of quarterly and annual bonuses to select key associates of Cerner Corporation (the "Company") and its subsidiaries, depending upon the financial performance of the Company or certain subsidiaries or business units and/or the job performance of the individual associates in question. Bonuses, if paid, may be paid on a quarterly or annual basis and determined based on the actual performance of the Company or its subsidiaries or business units or on one or more pre-established financial goals or targets. Payments of awards to certain executives are made pursuant to the "Executive Award Feature" (see Section 10).
3. Purpose. ------- The purpose of the Plan is to provide a meaningful incentive on both a quarterly and annual basis to key associates and officers of the Company and to motivate them to assist the Company in achieving ambitious, attainable, short-term goals. Individual payments made under the Plan will vary, depending upon individual performance and, in some cases, operational business unit achievements.
4. Termination; Amendment. ---------------------- The Plan shall continue to be in effect, unless and until terminated by the Compensation Committee of the Board of Directors of the Company. The Plan is subject to the approval of the stockholders of the Company, by the affirmative vote of the holders of a majority of the shares present in person or represented by proxy, and entitled to vote thereon, at a meeting of the stockholders at which a quorum is present or represented. The Plan may be further amended from time to time by the Compensation Committee provided that any amendment which, if effected without the approval of the stockholders of the Company, would result in the loss of an exemption from federal income taxation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), for amounts payable thereunder but would not result in such loss if approved by the stockholders, shall become effective only upon approval thereof by the stockholders of the Company within the meaning of Section 162(m).
5. Administration. -------------- The Plan is administered by the Compensation Committee, which has sole authority to make all discretionary determinations under the Plan. In suitable circumstances, the Compensation Committee may evaluate and use the Company's management's input as well as input and other relevant information from any outside parties it deems appropriate.
6. Participation. ------------- Key associates and officers eligible for participation in the Plan will be determined by the Compensation Committee on a year-to-year basis. Executive officers eligible to receive awards under the Executive Award Feature of the Plan will be identified each year by the Compensation Committee as described in Section 10 below.
7. General Feature; Determination of Annual Targets. ----------------------------------------------------- The Compensation Committee will determine the measure or measures of financial performance and/or the target levels of performance, the attainment of which in any quarter or year will result in the payment of awards to all eligible participants except for those executives covered by the Executive Award Feature. Such determinations on financial performance measures or target levels may be made, and under appropriate circumstances may subsequently be modified, by the Compensation Committee at any time during the Plan year. Alternative performance measures or targets may be established and different target levels may be selected with different general bonus amounts established for each participant. Following the initial determination of performance targets, the Compensation Committee will monitor actual corporate performance throughout each fiscal quarter, and may decide at any time before final quarter or year-end determinations are reached to adjust the earlier target levels as appropriate, for example, to take account of unusual or unanticipated corporate or industry-wide developments. Final determinations of the amounts to be paid to a participant under the general feature of the plan may also be adjusted upward or downward depending upon subjective evaluations by an associate's executive or manager.
8. Performance Measures. --------------------- Measures of financial performance selected by the Compensation Committee on a quarter-to-quarter or year-to-year basis for determination of payments of awards under the general feature of the Plan may include but are not limited to one or more of the following: stock price, earnings per share (with or without extraordinary items), net income (with or without extraordinary items), return on equity, return on assets, profit margins on contract-by-contract basis, reduction of certain accounts receivable or achievement of subsidiary or operating plans. Target performance may be expressed as absolute or average dollar amounts, percentages, changes in dollar amounts or changes in percentages, and may be considered on an institution-alone basis or measured against specified peer groups or companies. Notwithstanding the foregoing, the measures of financial or Company performance for determination of awards payable under the Plan to those executive officers covered under the Executive Award Feature and the calculation of the maximum amount payable and amounts actually paid to such executive officers under the Plan shall be as set forth in the Executive Award Feature of the Plan (see Section 10).
9. Individual Factors. -------------------- The Compensation Committee, in exercising discretion under the Plan on determinations of cash bonuses payable to individuals, may consider particular individual goals as well as subjective factors, including any unique contributions.
10. Executive Award Feature. --------------------------- Notwithstanding any other provision of the Plan to the contrary, any awards under the Plan for any year granted to those individuals identified by the Compensation Committee as Section 16 "insiders" of the Company, within the meaning of Security Exchange Commission Regulations (the "Covered Executives"), for purposes of this Plan, shall be governed by the provisions of this Section 10 for such calendar year.
(i) On or before the ninetieth (90th) day of each calendar year (in the case of annual-based awards or combination of annual and quarterly based awards), or on or before the twelfth (12th) day of each fiscal quarter (in the case of awards based solely on
performance in such fiscal quarter) while the Plan is in effect, the Compensation Committee will (a) identify those individuals who it reasonably believes to be Covered Executives for such calendar year or fiscal quarter, (b) establish in writing the Earnings Per Share Target (as defined below) for such calendar year, (c) establish in writing the Company Operating Margin Target (as defined below) for such quarter or year, (d) establish in writing the Agreement Margin Targets (as defined below) for such quarter or year, and (e) establish in writing any other targets for the Covered Executives as specifically determined by the Compensation Committee and set forth in the Compensation Committee minutes ("Other Targets") (the Earnings Per Share Target, the Company Operating Margin Target, the Agreement Margin Target, and all Other Targets to be referred to collectively as the "Executive Targets"). The Compensation Committee may elect to establish more or less than the above Executive Targets in a given quarter or year provided that any established Executive Target or Targets be established on or before the end of the ninety day or twelve day period set forth above. Due to the Compensation Committee's belief that the disclosure of the Executive Targets would adversely affect the Company, the Compensation Committee, the Covered Executives and all other directors, officers and associates who become aware of such targets shall and will treat such Executive Targets for any year or fiscal quarter as confidential.
(ii) 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.
(iii) The Company Operating Margin Target shall be expressed
as a target percentage reflecting the leverage of the Company's
revenue relative to the expense associated with that revenue.
(iv) The Agreement Margin Targets shall be expressed as a dollar
amount of booking margins on specified types of sales, adjusted
for the costs associated with delivery of the solutions.
(v) If at the end of each fiscal quarter (in the case of quarterly-based performance targets) or at the end of the fiscal year (in the case of annual-based or combination of annual and quarterly based performance targets) any of the Executive Targets established by the Compensation Committee have been met, the maximum amount payable to the Covered Executives in any calendar year shall be as follows: (a) for the Chief Executive Officer, 175% of the Chief Executive Officer's base salary, and (b) for all other executive officers, 150% of such individual's base salary. The Compensation Committee has discretion to reduce the amount of the bonus payable; provided, however, under no circumstances may the Compensation Committee increase the amount of the bonus payment beyond its maximum limit. The amount of the bonus reduction, if any, will depend upon a subjective bonus reduction factor, formally known as an Annual Performance Evaluation (APE) Factor, which will be determined at the Covered Executive's end-of-the-year evaluation. This factor will range from 100% of the
maximum bonus amount for demonstrated distinguished performance to 40% if performance does not satisfy the required standard.
11. Certification. ------------- Prior to any payment to any Covered Executive of any amount accrued under Section 10 of this Plan, the Compensation Committee shall certify in writing that an Executive Target has been satisfied. For purposes of this certification, approved minutes of the Compensation Committee meeting in which the certification is made shall satisfy this Plan certification requirement.
Exhibit 22
SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
---- ----------------------
Cerner Corporation Pty Limited New South Wales (Australia)
Cerner Deutschland GmbH Germany
Cerner FSC, Inc. Barbados
Cerner Health Connections, Inc. Delaware
Cerner Belgium, Inc. Delaware
Cerner HealthWise, Inc. Delaware
Cerner International, Inc. Delaware
Cerner Limited United Kingdom
Cerner Citation, Inc. Delaware
Citation Professional Services, Inc. Delaware
Cerner Properties, Inc. Delaware
Cerner Singapore Limited Delaware
Cerner (Malaysia) Sdn Bnd Malaysia
Cerner Canada Limited Delaware
Cerner Multum, Inc. Delaware
Cerner Investment Corp. Nevada
Cerner Campus Redevelopment Corporation Missouri
Health Network Ventures, Inc. Delaware
Cerner Radiology Information Systems, Inc. Texas
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Independent Auditors' Consent
The Board of Directors
Cerner Corporation:
We consent to incorporation by reference in the Registration Statements (No. 333-77029, No. 33-56868, No. 33-55082, No. 33- 41580, No. 33-39777, No. 33-39776, No. 33-20155, and No. 33- 15156) on Form S-8, Registration Statement No. 33-72756 on Form S-3 and Registration Statement No. 333-40156 on Form S-4 of Cerner Corporation of our reports, dated January 31, 2001, relating to the consolidated balance sheets of Cerner Corporation as of December 30, 2000 and January 1, 2000 and the related consolidated statements of operations, changes in equity, and cash flows and related schedule for each of the years in the three-year period ended December 30, 2000, which reports are included herein.
KPMG LLP
Kansas City, Missouri
March 29, 2001