The ABCs of systemic healthcare reform - Cerner Corporation

dispensing devices. Included in 2007 software development expense is $8.6 million of research and development
activities for the RxStation medical dispensing device. $3.4 million of this amount recorded in 2007 is related to
periods prior to 2007. A summary of the Company’s total software development expense in 2008 and 2007 is as
follows:
• General and administrative expenses as a percent of total revenues were 7% in 2008 and 2007. These expenses
increased 6% to $113,049,000 in 2008 from $107,152,000 in 2007. This increase was due primarily to the growth
of the Company’s core business and increased presence in the global market. General and administrative expenses
include salaries for corporate, financial and administrative staff, utilities, communications expenses, professional fees,
the transaction gains or losses on foreign currency and expense for share-based payments. The Company recorded a
net transaction gain on foreign currency of $9,858,000 and $3,691,000 in 2008 and 2007, respectively.
Net interest income was $3,056,000 in 2008, compared with net interest income of $1,269,000 in 2007. Interest income
increased to $13,604,000 in 2008 from $13,206,000 in 2007, due primarily to higher returns received from our investments
in auction rate securities. Interest expense decreased to $10,548,000 in 2008 from $11,937,000 in 2007, due primarily to a
reduction in long-term debt.
Other expense was $510,000 in 2008, compared to other expense of $1,385,000 in 2007. As a result of the Company
entering into a settlement agreement with an investment firm relating to auction rate securities, Other expense in 2008
includes the recognition of a gain of $19,860,000 for a put-like feature. This gain was offset by the recognition of an otherthan-temporary
impairment loss recorded on the Company’s auction rate securities due to a reclassification of these securities
from available-for-sale to trading.
The Company’s effective tax rate was 33% and 38% in 2008 and 2007, respectively. This decrease is primarily due to a higher
than normal rate in 2007. The increase in the effective rate in 2007 was primarily due to recognition of a valuation allowance
in the third quarter of 2007 on certain of the Company’s foreign tax loss carryforwards. Such additional tax expense in 2007
was partially offset by a tax benefit for adjustments relating to prior periods. The tax rate for 2008 was slightly lower than
normal due to strong income levels from global regions that have lower tax rates.
During the second quarter of 2007, the Company determined that due to a change in circumstances in the quarter, it is more
likely than not that certain tax operating loss carry-forwards in a non-U.S. jurisdiction would not be realized resulting in the
recognition of a valuation allowance totaling approximately $7,982,000. The 2007 valuation allowance was used in 2008 to
offset a reduction in the operating loss carry-forward for the non-U.S. jurisdiction.
Tax expense for 2007 and 2008 include benefits of approximately $3,125,000 and $2,879,000, respectively, for corrections
relating to prior periods.
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