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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9 INCOME TAXES Income tax expense (benefit) for the years ended 1998, 1997, and 1996, consist of the following: (In thousands) 1998 1997 1996 Current: Federal $ (1,929) 916 1,403 State (1,061) 80 136 Foreign (147) 94 218 Total current (3,137) 1,090 1,757 Deferred: Federal 13,634 7,338 2,553 State 1,565 908 341 Foreign 617 — — Total deferred 15,816 8,246 2,894 Total income tax expense $ 12,679 9,336 4,651 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 1998 and 1997 relate to the following: (In thousands) 1998 1997 Deferred tax assets Acquisition accrual $ 2,033 — Accrued expenses 3,223 2,028 Separate return net operating losses 1,577 1,577 Other 1,076 2,190 Total deferred tax assets 7,909 5,795 Deferred tax liabilities Software development costs (20,695) (15,205) Contract and service revenues and costs (32,255) (23,316) Depreciation and amortization (3,856) (1,577) Other (2,867) (1,645) Total deferred tax liabilities (59,673) (41,743) Net deferred tax liability $ (51,764) (35,948) The effective income tax rates for 1998, 1997, and 1996 were 38%, 38%, and 36%, respectively. These effective rates differ from the federal statutory rate of 35% as follows: (In thousands) 1998 1997 1996 Tax expense at statutory rates $ 11,644 8,569 4,516 State income tax, net of federal benefit 1,280 632 310 Other, net (245) 135 (175) Total income tax expense $ 12,679 9,336 4,651 Income taxes payable are reduced by the tax benefit resulting from disqualifying dispositions of stock acquired under the Company’s stock option plans. The 1998, 1997, and 1996 benefits of $621,000, $521,000, and $260,000, respectively, are treated as increases to additional paid-in capital. C ERNER CORPORATION 12 A NNUAL R EPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10 ASSOCIATE STOCK PURCHASE RETIREMENT PLAN The Cerner Corporation Associate Stock Purchase 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 15% of compensation to the Plan, subject to annual limitations determined by the Internal Revenue Service. Participants may direct contributions into mutual funds, a money market fund, or a Company stock fund. The Company makes matching contributions to the Plan, on behalf of participants, in an amount equal to 20% of the participant’s contribution, limited to an annual maximum of $600 per participant. The Company’s expense for the plan amounted to $1,005,000, $761,000, and $560,000 for 1998, 1997, and 1996, respectively. 11 COMMITMENTS The Company is committed under operating leases for office space through December 2004. Rent expense for office and warehouse space for the Company’s regional and international offices for 1998, 1997, and 1996 was $1,847,000, $1,759,000, and $1,580,000, respectively. Aggregate minimum future payments (in thousands) under these noncancelable leases are as follows: Years 1999 $ 2,438 2000 1,437 2001 935 2002 438 2003 238 2004 171 12 REAL ESTATE LEASE REVENUE The Company leases space to unrelated parties in its Kansas City headquarters complex under noncancelable operating leases. Included in other revenues is rental income of $1,795,000, $1,694,000, and $2,383,000 in 1998, 1997, and 1996, respectively. Future minimum lease revenues (in thousands) under these noncancelable operating leases expiring through 2002 are as follows: Years 1999 $ 685 2000 303 2001 32 2002 26 13 STOCKHOLDERS’ EQUITY At the end of 1998 and 1997, the Company had 1,000,000 shares of authorized but unissued preferred stock, $.01 par value. C ERNER CORPORATION ANNUAL R EPORT 13
Page 1 and 2: (Knowledge + Technology + People) +
Page 3 and 4: Transformations are at the heart of
Page 5 and 6: A letter To Our Shareholders, clien
Page 7 and 8: (Knowledge + Technology + People) +
Page 9 and 10: Building Cerner’s Executive Manag
Page 11 and 12: The State of Healthcare Cerner’s
Page 13 and 14: The remaining question: Can Cerner
Page 15 and 16: GENERAL ELECTRIC AND CERNER thoraci
Page 17 and 18: SEAMLESS ACCESS It is estimated tha
Page 19 and 20: REDUCING ADVERSE DRUG EVENTS Advers
Page 21 and 22: C Creating a Unique Company and Cul
Page 23 and 24: Building strong client relationship
Page 25 and 26: Establishing new boundaries C erner
Page 27 and 28: 1 9 9 8 F i n a n c i a l R e p o r
Page 29 and 30: CONSOLIDATED STATEMENTS OF EARNINGS
Page 31 and 32: CONSOLIDATED STATEMENTS OF CASH FLO
Page 33 and 34: NOTES TO CONSOLIDATED FINANCIAL STA
Page 35 and 36: NOTES TO CONSOLIDATED FINANCIAL STA
Page 37: NOTES TO CONSOLIDATED FINANCIAL STA
Page 41 and 42: MANAGEMENT’S DISCUSSION AND ANALY
Page 49 and 50: INDEPENDENT AUDITORS’ REPORT The
Page 51 and 52: CERNER LEADERSHIP AND CORPORATE INF
Page 53 and 54: KNOWLEDGE SOLUTIONS Clinical Decisi

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