The ABCs of systemic healthcare reform - Cerner Corporation

interest rates regularly reset every 7-35 days under an auction system. Due to the lack of availability of observable market
quotes on the Company’s investment portfolio of auction rate securities, the Company utilizes valuation models including those
that are based on discounted cash flow streams, including assessments of counterparty credit quality, default risk underlying
the security, discount rates and overall capital market liquidity. The valuation is subject to uncertainties that are difficult to
predict.
A considerable amount of judgment and estimation is applied in the valuation of auction rate securities. In addition, the
Company also applies judgment in determining whether the marketable securities are other-than-temporarily impaired. The
Company typically considers the severity and duration of the decline, future prospects of the issuer and the Company’s ability
and intent to hold the security to recovery.
Goodwill
The Company accounts for its goodwill under the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets.” As a result, goodwill and intangible assets with indefinite lives are not amortized but are
evaluated for impairment annually or whenever there is an impairment indicator. All goodwill is assigned to a reporting unit,
where it is subject to an annual impairment test based on fair value. The Company assesses goodwill for impairment in the
second quarter of each fiscal year and evaluates impairment indicators at each quarter end. The Company assessed its
goodwill for impairment in the second quarters of 2008 and 2007 and concluded that no goodwill was impaired. The Company
used a discounted cash flow analysis to determine the fair value of the reporting units for all periods. Goodwill amounted to
$146,666,000 and $143,924,000 at January 3, 2009 and December 29, 2007, respectively. If future, anticipated cash flows
from the Company’s reporting units that recognized goodwill do not materialize as expected the Company’s goodwill could be
impaired, which could result in significant write-offs.
Income Taxes
In 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of
SFAS No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold
and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. Management makes a number
of assumptions and estimates in determining the appropriate amount of expense to record for income taxes. These
assumptions and estimates consider the taxing jurisdiction in which the Company operates as well as current tax regulations.
Accruals are established for estimates of tax effects for certain transactions, business structures and future projected
profitability of the Company’s businesses based on management’s interpretation of existing facts and circumstances. If these
assumptions and estimates were to change as a result of new evidence or changes in circumstances the change in estimate
could result in a material adjustment to the consolidated financial statements. The Company adopted FIN 48 effective at the
beginning of 2007. The adoption of FIN 48 did not have a material impact on Cerner’s consolidated financial position. See Note
11 to the consolidated financial statements for additional disclosures related to FIN 48.
Our management has discussed the development and selection of these critical accounting estimates with the Audit Committee
of our Board of Directors and the Audit Committee has reviewed the Company's disclosure contained herein.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At January 3, 2009, the Company had a £65,000,000 ($94,556,000 at January 3, 2009) note payable outstanding through a
private placement with an interest rate of 5.54%. The note is payable in seven equal installments beginning in November 2009.
Because the borrowing is denominated in pounds, the Company is exposed to movements in the foreign currency exchange rate
between the U.S. dollar and the Great Britain pound. The note was entered into for other than trading purposes. Beginning in
2006, at the beginning of each quarterly period, the Company designated a portion (between £60 million and £63 million during
the year) of its debt (£65 million) that is denominated in Great Britain Pounds, to hedge its net investment in a subsidiary in
England. During 2007 and 2008 the Company designated all £65 million of its debt that is denominated in Great Britain
Pounds.
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
N/A
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