Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 28, 201930, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission File Number: 0-15386
0-15386

CERNER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
cern-20200930_g1.jpg
43-1196944
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer Identification No.)
2800 Rockcreek Parkway

North Kansas City,MO64117
(Address of principal executive offices)(Zip Code)

(816) 221-1024
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareCERNThe Nasdaq Stock Market LLC
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 ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
ClassOutstanding at October 21, 2020
Common Stock, $0.01 par value per share306,589,898 shares


Table of Contents
CERNER CORPORATION

TABLE OF CONTENTS
Part I.Financial Information:
ClassItem 1.Financial Statements:Outstanding at October 16, 2019
Common Stock, $0.01 par value per share314,097,410 shares

CERNER CORPORATION

TABLE OF CONTENTS
Part I.Financial Information:
Item 1.Financial Statements:
Condensed Consolidated Balance Sheets as of September 28, 2019 30, 2020 (unaudited) and December 29, 201828, 2019
1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 28, 30, 2020 and September 28, 2019 and September 29, 2018 (unaudited)
2
Condensed Consolidated Statements of Comprehensive Income for the Three and NineNine Months Ended September 30, 2020 and September 28, 2019 and September 29, 2018 (unaudited)
3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September 28, 2019 and September 29, 2018 (unaudited)
4
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2020 and September 28, 28, 2019 and September 29, 2018 (unaudited)
5
Notes to Condensed Consolidated Financial Statements (unaudited)
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
3539
Item 4.
Controls and Procedures
3539
Part II.Other Information:
Item 1A.1.
Risk FactorsLegal Proceedings
3640
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3741
Item 6.
Exhibits
3842
Signatures



Table of Contents
Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2020 (unaudited) and December 28, 2019
(unaudited) and December 29, 2018
(In thousands, except share data)20202019
Assets
Current assets:
Cash and cash equivalents$419,154 $441,843 
Short-term investments473,323 99,931 
Receivables, net1,219,227 1,139,595 
Inventory15,768 23,182 
Prepaid expenses and other397,487 392,073 
Total current assets2,524,959 2,096,624 
Property and equipment, net1,867,600 1,858,772 
Right-of-use assets109,659 123,155 
Software development costs, net991,649 939,859 
Goodwill907,105 883,158 
Intangible assets, net330,837 364,439 
Long-term investments423,315 419,419 
Other assets205,688 209,196 
Total assets$7,360,812 $6,894,622 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$256,449 $273,440 
Deferred revenue320,294 360,025 
Accrued payroll and tax withholdings328,663 245,843 
Other current liabilities196,170 148,140 
Total current liabilities1,101,576 1,027,448 
Long-term debt1,336,018 1,038,382 
Deferred income taxes391,790 377,657 
Other liabilities125,141 133,807 
Total liabilities2,954,525 2,577,294 
Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 372,272,953 shares issued at September 30, 2020 and 367,634,796 shares issued at December 28, 20193,723 3,676 
Additional paid-in capital2,196,127 1,905,171 
Retained earnings6,402,220 5,934,909 
Treasury stock, 65,919,144 shares at September 30, 2020 and 56,723,546 shares at December 28, 2019(4,057,768)(3,407,768)
Accumulated other comprehensive loss, net(138,015)(118,660)
Total shareholders' equity4,406,287 4,317,328 
Total liabilities and shareholders' equity$7,360,812 $6,894,622 
(In thousands, except share data)2019 2018
    
Assets   
Current assets:   
Cash and cash equivalents$496,430
 $374,126
Short-term investments136,266
 401,285
Receivables, net1,154,980
 1,183,494
Inventory23,155
 25,029
Prepaid expenses and other402,247
 334,870
Total current assets2,213,078
 2,318,804
    
Property and equipment, net1,865,924
 1,743,575
Right-of-use assets121,746
 —
Software development costs, net935,170
 894,512
Goodwill844,926
 847,544
Intangible assets, net347,376
 405,305
Long-term investments403,435
 300,046
Other assets205,775
 198,850
    
Total assets$6,937,430
 $6,708,636
    
Liabilities and Shareholders' Equity   
    
Current liabilities:   
Accounts payable$275,916
 $293,534
Current installments of long-term debt and capital lease obligations—
 4,914
Deferred revenue308,444
 399,189
Accrued payroll and tax withholdings264,049
 195,931
Other current liabilities153,187
 69,122
Total current liabilities1,001,596
 962,690
    
Long-term debt1,038,567
 438,802
Deferred income taxes353,711
 336,379
Other liabilities132,289
 42,376
Total liabilities2,526,163
 1,780,247
    
Shareholders' Equity:   
Common stock, $.01 par value, 500,000,000 shares authorized, 366,201,300 shares issued at September 28, 2019 and 362,212,843 shares issued at December 29, 20183,662
 3,622
Additional paid-in capital1,806,939
 1,559,562
Retained earnings5,836,984
 5,576,525
Treasury stock, 52,282,997 shares at September 28, 2019 and 37,905,013 shares at December 29, 2018(3,107,768) (2,107,768)
Accumulated other comprehensive loss, net(128,550) (103,552)
Total shareholders' equity4,411,267
 4,928,389
    
Total liabilities and shareholders' equity$6,937,430
 $6,708,636

See notes to condensed consolidated financial statements (unaudited).

1
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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2020 and September 28, 2019 and September 29, 2018
(unaudited)
 
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
(In thousands, except per share data)2019 2018 2019 2018(In thousands, except per share data)2020201920202019
       
Revenues$1,429,428
 $1,340,073
 $4,250,366
 $4,000,661
Revenues$1,368,673 $1,429,428 $4,110,763 $4,250,366 
Costs and expenses:       Costs and expenses:
Costs of revenue271,778
 230,332
 793,655
 700,393
Costs of revenue231,889 271,778 698,268 793,655 
Sales and client service707,743
 605,946
 2,026,825
 1,830,999
Sales and client service625,402 707,743 1,907,138 2,026,825 
Software development (Includes amortization of $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively; and $53,429 and $155,571 for the three and nine months ended September 29, 2018, respectively)187,526
 172,297
 548,934
 502,192
Software development (Includes amortization of $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively; and $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively)Software development (Includes amortization of $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively; and $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively)186,826 187,526 551,101 548,934 
General and administrative152,321
 102,789
 398,305
 290,547
General and administrative116,816 152,321 391,000 398,305 
Amortization of acquisition-related intangibles21,283
 21,553
 64,809
 65,872
Amortization of acquisition-related intangibles12,789 21,283 43,031 64,809 
       
Total costs and expenses1,340,651
 1,132,917

3,832,528

3,390,003
Total costs and expenses1,173,722 1,340,651 3,590,538 3,832,528 
Gain on sale of businessesGain on sale of businesses216,869 0 216,869 0 
       
Operating earnings88,777
 207,156

417,838

610,658
Operating earnings411,820 88,777 737,094 417,838 
       
Other income, net13,535
 6,943
 44,973
 18,404
Other income, net48,020 13,535 78,247 44,973 
       
Earnings before income taxes102,312
 214,099

462,811

629,062
Earnings before income taxes459,840 102,312 815,341 462,811 
Income taxes(20,377) (44,718) (87,688) (130,323)Income taxes(103,164)(20,377)(176,758)(87,688)
       
Net earnings$81,935
 $169,381

$375,123

$498,739
Net earnings$356,676 $81,935 $638,583 $375,123 
       
Basic earnings per share$0.26
 $0.51
 $1.17
 $1.51
Basic earnings per share$1.17 $0.26 $2.08 $1.17 
Diluted earnings per share$0.26
 $0.51
 $1.16
 $1.49
Diluted earnings per share$1.16 $0.26 $2.07 $1.16 
Basic weighted average shares outstanding315,876
 329,342
 320,282
 330,789
Basic weighted average shares outstanding305,759 315,876 306,759 320,282 
Diluted weighted average shares outstanding319,113
 332,937
 323,361
 334,493
Diluted weighted average shares outstanding308,366 319,113 309,124 323,361 
See notes to condensed consolidated financial statements (unaudited).


2
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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2020 and September 28, 2019 and September 29, 2018
(unaudited)
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
(In thousands)2019 2018 2019 2018(In thousands)2020201920202019
       
Net earnings$81,935
 $169,381
 $375,123
 $498,739
Net earnings$356,676 $81,935 $638,583 $375,123 
Foreign currency translation adjustment and other (net of taxes (benefit) of $(409) and $(413) for the three and nine months ended September 28, 2019; and $(13) and $572 for the three and nine months ended September 29, 2018, respectively)(11,679) (8,907) (9,458) (27,924)
Unrealized loss on cash flow hedge (net of tax benefit of $1,327 and $5,396 for the three and nine months ended September 28, 2019, respectively)(4,037) —
 (16,407) —
Unrealized holding gain on available-for-sale investments (net of taxes of $5 and $286 for the three and nine months ended September 28, 2019; and $181 and $97 for the three and nine months ended September 29, 2018, respectively)14
 553
 867
 297
Foreign currency translation adjustment and other (net of taxes (benefit) of $351 and $688 for the three and nine months ended September 30, 2020; and $(409) and $(413) for the three and nine months ended September 28, 2019, respectively)Foreign currency translation adjustment and other (net of taxes (benefit) of $351 and $688 for the three and nine months ended September 30, 2020; and $(409) and $(413) for the three and nine months ended September 28, 2019, respectively)9,611 (11,679)(1,738)(9,458)
Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $745 and $(5,937) for the three and nine months ended September 30, 2020; and $(1,327) and $(5,396) for the three and nine months ended September 28, 2019, respectively)Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $745 and $(5,937) for the three and nine months ended September 30, 2020; and $(1,327) and $(5,396) for the three and nine months ended September 28, 2019, respectively)2,265 (4,037)(18,050)(16,407)
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(73) and $142 for the three and nine months ended September 30, 2020; and $5 and $286 for the three and nine months ended September 28, 2019, respectively)Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(73) and $142 for the three and nine months ended September 30, 2020; and $5 and $286 for the three and nine months ended September 28, 2019, respectively)(220)14 433 867 
       
Comprehensive income$66,233
 $161,027

$350,125

$471,112
Comprehensive income$368,332 $66,233 $619,228 $350,125 

See notes to condensed consolidated financial statements (unaudited).


3
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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2020 and September 28, 2019 and September 29, 2018
(unaudited)
 Nine Months Ended
(In thousands)20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$638,583 $375,123 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization518,987 509,559 
Share-based compensation expense110,500 73,421 
Provision for deferred income taxes21,554 22,793 
Gain on sale of businesses(216,869)0 
Investment gains(75,834)(24,231)
Changes in assets and liabilities (net of businesses acquired):
Receivables, net(78,695)24,558 
Inventory8,206 1,877 
Prepaid expenses and other(36,664)(75,191)
Accounts payable(60,808)(3,346)
Accrued income taxes33,005 (795)
Deferred revenue(32,071)(89,400)
Other accrued liabilities94,151 61,156 
Net cash provided by operating activities924,045 875,524 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases(238,053)(388,588)
Capitalized software development costs(224,710)(211,284)
Purchases of investments(511,378)(317,979)
Sales and maturities of investments213,309 507,258 
Purchase of other intangibles(29,698)(25,794)
Sale of businesses229,471 0 
Acquisition of businesses, net of cash acquired(35,766)0 
Net cash used in investing activities(596,825)(436,387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance300,000 600,000 
Repayment of long-term debt(2,500)0 
Proceeds from exercise of stock options202,680 188,474 
Payments to taxing authorities in connection with shares directly withheld from associates(22,623)(14,994)
Treasury stock purchases(650,000)(1,020,542)
Dividends paid(166,277)(57,293)
Other(6,807)(8,450)
Net cash used in financing activities(345,527)(312,805)
Effect of exchange rate changes on cash and cash equivalents(4,382)(4,028)
Net increase (decrease) in cash and cash equivalents(22,689)122,304 
Cash and cash equivalents at beginning of period441,843 374,126 
Cash and cash equivalents at end of period$419,154 $496,430 
 Nine Months Ended
(In thousands)2019 2018
    
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net earnings$375,123
 $498,739
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization509,559
 473,748
Share-based compensation expense73,421
 74,348
Provision for deferred income taxes22,793
 16,412
Investment gains(24,231) —
Changes in assets and liabilities:   
Receivables, net24,558
 (250,042)
Inventory1,877
 (9,006)
Prepaid expenses and other(75,191) 162,053
Accounts payable(3,346) 21,762
Accrued income taxes(795) (9,150)
Deferred revenue(89,400) 34,316
Other accrued liabilities61,156
 33,940
    
Net cash provided by operating activities875,524
 1,047,120
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
Capital purchases(388,588) (305,951)
Capitalized software development costs(211,284) (209,122)
Purchases of investments(317,979) (477,156)
Sales and maturities of investments507,258
 454,439
Purchase of other intangibles(25,794) (24,304)
    
Net cash used in investing activities(436,387) (562,094)
    
CASH FLOWS FROM FINANCING ACTIVITIES:   
Long-term debt issuance600,000
 —
Repayment of long-term debt—
 (75,000)
Proceeds from exercise of stock options188,474
 82,001
Payments to taxing authorities in connection with shares directly withheld from associates(14,994) (9,749)
Treasury stock purchases(1,020,542) (345,210)
Dividends paid(57,293) —
Other(8,450) 2,254
    
Net cash used in financing activities(312,805)
(345,704)
    
Effect of exchange rate changes on cash and cash equivalents(4,028) (11,631)
    
Net increase in cash and cash equivalents122,304
 127,691
Cash and cash equivalents at beginning of period374,126
 370,923
    
Cash and cash equivalents at end of period$496,430
 $498,614

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three and nine months ended September 30, 2020 and September 28, 2019 and September 29, 2018
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Loss, Net
(In thousands)SharesAmount
Balance at December 28, 2019367,635 $3,676 $1,905,171 $5,934,909 $(3,407,768)$(118,660)
Exercise of stock options and vests of restricted shares and share units2,543 26 114,050 — — — 
Employee share-based compensation expense— — 35,031 — — — 
Cumulative effect of accounting change (ASU 2016-13)— — — (4,606)— — 
Other comprehensive income (loss)— — — — — (40,703)
Treasury stock purchases— — — — (650,000)— 
Cash dividends declared ($0.18 per share)— — — (55,206)— — 
Net earnings— — — 147,159 — — 
Balance at March 31, 2020370,178 3,702 2,054,252 6,022,256 (4,057,768)(159,363)
Exercise of stock options and vests of restricted shares and share units1,009 10 28,540 — — — 
Employee share-based compensation expense— — 37,549 — — — 
Other comprehensive income (loss)— — — — — 9,692 
Cash dividends declared ($0.18 per share)— — — (55,602)— — 
Net earnings— — — 134,748 — — 
Balance at June 30, 2020371,187 3,712 2,120,341 6,101,402 (4,057,768)$(149,671)
Exercise of stock options and vests of restricted shares and share units1,086 11 37,866 — — — 
Employee share-based compensation expense— — 37,920 — — — 
Other comprehensive income (loss)— — — — — 11,656 
Cash dividends declared ($0.18 per share)— — — (55,858)— — 
Net earnings— — — 356,676 — — 
Balance at September 30, 2020372,273 $3,723 $2,196,127 $6,402,220 $(4,057,768)$(138,015)
 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss, Net
(In thousands)Shares Amount    
            
Balance at December 29, 2018362,213
 $3,622
 $1,559,562
 $5,576,525
 $(2,107,768) $(103,552)
            
Exercise of stock options and vests of restricted shares and share units706
 7
 11,716
 —
 —
 —
            
Employee share-based compensation expense—
 —
 19,860
 —
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 2,958
            
Net earnings—
 —
 —
 166,219
 —
 —
            
Balance at March 30, 2019362,919

3,629

1,591,138

5,742,744

(2,107,768)
(100,594)
            
Exercise of stock options and vests of restricted shares and share units1,777
 18
 108,045
 —
 —
 —
            
Employee share-based compensation expense—
 —
 23,024
 —
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 (12,254)
            
Treasury stock purchases—
 —
 —
 —
 (600,000) —
            
Cash dividends declared ($0.18 per share)—
 —
 —
 (57,682) —
 —
            
Net earnings—
 —
 —
 126,969
 —
 —
            
Balance at June 29, 2019364,696

$3,647

$1,722,207

$5,812,031

$(2,707,768)
$(112,848)
            
Exercise of stock options and vests of restricted shares and share units1,505
 15
 54,195
 —
 —
 —
            
Employee share-based compensation expense—
 —
 30,537
 —
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 (15,702)
            
Treasury stock purchases—
 —
 —
 —
 (400,000) —
            
Cash dividends declared ($0.18 per share)—
 —
 —
 (56,982) —
 —
            
Net earnings—
 —
 —
 81,935
 —
 —
            
Balance at September 28, 2019366,201

3,662

1,806,939

5,836,984

(3,107,768)
(128,550)

See notes to condensed consolidated financial statements (unaudited).

















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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)
For the three and nine months ended September 30, 2020 and September 28, 2019 and September 29, 2018
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Loss, Net
(In thousands)SharesAmount
Balance at December 29, 2018362,213 $3,622 $1,559,562 $5,576,525 $(2,107,768)$(103,552)
Exercise of stock options and vests of restricted shares and share units706 7 11,716 — — — 
Employee share-based compensation expense— — 19,860 — — — 
Other comprehensive income (loss)— — — — — 2,958 
Net earnings— — — 166,219 — — 
Balance at March 30, 2019362,919 3,629 1,591,138 5,742,744 (2,107,768)(100,594)
Exercise of stock options and vests of restricted shares and share units1,777 18 108,045 — — — 
Employee share-based compensation expense— — 23,024 — — — 
Other comprehensive income (loss)— — — — — (12,254)
Treasury stock purchases— — — — (600,000)— 
Cash dividends declared ($0.18 per share)— — — (57,682)— — 
Net earnings— — — 126,969 — — 
Balance at June 29, 2019364,696 3,647 1,722,207 5,812,031 (2,707,768)(112,848)
Exercise of stock options and vests of restricted shares and share units1,505 15 54,195 — — — 
Employee share-based compensation expense— — 30,537 — — — 
Other comprehensive income (loss)— — — — — (15,702)
Treasury stock purchases— — — — (400,000)— 
Cash dividends declared ($0.18 per share)— — — (56,982)— — 
Net earnings— — — 81,935 — — 
Balance at September 28, 2019366,201 $3,662 $1,806,939 $5,836,984 $(3,107,768)$(128,550)
(unaudited)
 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss, Net
(In thousands)Shares Amount    
            
Balance at December 30, 2017359,205
 $3,592
 $1,380,371
 $4,938,866
 $(1,464,099) $(73,382)
            
Exercise of stock options and vests of restricted shares and share units667
 7
 8,331
 —
 —
 —
            
Employee share-based compensation expense—
 —
 24,935
 —
 —
 —
            
Cumulative effect of accounting change (ASU 2014-09)—
 —
 —
 7,600
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 1,896
            
Treasury stock purchases—
 —
 —
 —
 (87,624) —
            
Net earnings—
 —
 —
 160,001
 —
 —
            
Balance at March 31, 2018359,872
 3,599
 1,413,637
 5,106,467
 (1,551,723) (71,486)
            
Exercise of stock options and vests of restricted shares and share units629
 6
 5,962
 —
 —
 —
            
Employee share-based compensation expense—
 —
 24,204
 —
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 (21,169)
            
Treasury stock purchases—
 —
 —
 —
 (200,000) —
            
Net earnings—
 —
 —
 169,357
 —
 —
            
Balance at June 30, 2018360,501
 $3,605
 $1,443,803
 $5,275,824
 $(1,751,723) $(92,655)
            
Exercise of stock options and vests of restricted shares and share units1,366
 14
 58,212
 —
 —
 —
            
Employee share-based compensation expense—
 —
 25,209
 —
 —
 —
            
Other comprehensive income (loss)—
 —
 —
 —
 —
 (8,354)
            
Treasury stock purchases—
 —
 —
 —
 (57,586) —
            
Net earnings—
 —
 —
 169,381
 —
 —
            
Balance at September 29, 2018361,867
 $3,619
 $1,527,224
 $5,445,205
 $(1,809,309) $(101,009)
See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1) Interim Statement Presentation

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Cerner Corporation ("Cerner," the "Company," "we," "us" or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K.
In management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using GAAP. GAAP. These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses.expenses. Actual results could differ from those estimates.

Fiscal Period End

OurPrior to fiscal year 2020, our third fiscal quarter endsended on the Saturday closest to September 30. The third quarter and year-to-date periods for 2019 presented herein consisted of 91 days and 2018 third quarters273 days, respectively, and ended on September 28, 2019.

In December 2019, our Board of Directors approved the change of our fiscal year to a calendar year, commencing with fiscal year 2020. Accordingly, the third quarter and year-to-date periods for 2020 presented herein consisted of 92 days and 277 days, respectively, and ended on September 29, 2018, respectively. 30, 2020.

All references to yearsperiods in these notes to condensed consolidated financial statements represent the respective three or nine months endedperiods described above ending on such dates,September 30, 2020 and September 28, 2019, unless otherwise noted.noted.

Supplemental Disclosures of Cash Flow Information
 Nine Months Ended
(In thousands)20202019
Cash paid during the period for:
Interest (including amounts capitalized of $12,040 and $12,575, respectively)$31,661 $20,756 
Income taxes, net of refunds78,519 65,171 
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases24,499 23,129 
Capital purchases17,395 7,600 
   Nine Months Ended
(In thousands)  2019 2018
Cash paid during the period for:     
Interest (including amounts capitalized of $12,575 and $9,318, respectively)  $20,756
 $15,568
Income taxes, net of refunds  65,171
 (47,462)


Voluntary Separation Benefits

CARES Act
In January 2019, we adopted a voluntary separation plan ("2019 VSP")
Cash flows from operating activities for eligible associates. Generally, the 2019 VSP was availablefirst nine months of 2020 include the impact of $56 million of certain federal payroll taxes related to U.S. associates who met a minimum level of combined age and tenure, excluding, among others, our executive officers. Associates who elected to participatepay cycles in the 2019 VSP received financial benefits commensurate with their tenuresecond and position, along with vacation payout, medical benefits,third quarters of 2020, for which we have deferred remittance to the taxing authority as permitted under the Coronavirus Aid, Relief, and accelerated vestingEconomic Security Act (the "CARES Act"). We expect to continue to defer the remittance of certain share-based payment awards. The irrevocable acceptance period for associates electing to participate in the 2019 VSP ended in April 2019. In the second quarter of 2019, we recorded pre-tax chargessuch payroll taxes for the 2019 VSPremainder of $41 million. Such charges2020, as permitted by the CARES Act, for which the remittances to the taxing authority are to be paid in equal amounts at the end of 2021 and 2022, respectively. At September 30, 2020, these deferred remittances are included in general and administrative expense in our condensed consolidated statements of operations.

In the third quarter of 2019, we offered voluntary separation benefits to certain associates primarily located outside the U.S. The irrevocable acceptance period for associates to accept such offers ended in September 2019. In the third quarter of 2019, we recorded corresponding pre-tax charges of $11 million. Such charges are included in general and administrative expense in our condensed consolidated statements of operations.


Involuntary Separation Benefits

In the third quarter of 2019, we recorded pre-tax charges of $21 million in connection with the involuntary termination of approximately 250 U.S. associates. Such charges are included in general and administrative expense in our condensed consolidated statements of operations. Separation benefits for these associates include cash severance, contribution to a health reimbursement account, career transition assistance, and accelerated vesting of certain share-based payment awards. At September 28, 2019, a liability of $18 million for such obligations is included in accrued"Accrued payroll and tax withholdingswithholdings" in our condensed consolidated balance sheets, which we expect to settle/pay in the fourth quartersheets.
7
Table of 2019.Contents

Contract Termination Costs

In the third quarter of 2019, we recorded pre-tax charges of $60 million in connection with the termination of certain client contracts prior to end of their stated terms, the majority of which was paid in cash. Such charges are included in our domestic operating segment, and presented in sales and client service expense in our condensed consolidated statements of operations. At September 28, 2019, our condensed consolidated balance sheets do not include a liability for any obligations related to such contract terminations.

Purchase Obligations

In July 2019, we entered into an agreement with a certain vendor to purchase $650 million of cloud computing services over an initial 10-year period ending in 2029
.

Accounting Pronouncements Adopted in 2019

2020
Leases.
Credit Losses on Financial Instruments. In the first quarter of 2019,2020, we adopted new lease accounting guidance.guidance regarding impairment assessment for certain financial assets. Refer to Note (7)Notes (3) and (4) for further details.

Callable Debt Securities.Collaborative Arrangements. In March 2017,November 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring the premium be amortized to the earliest call date. Such guidance impacts how premiums are amortized on our available-for-sale investments. We adopted ASU 2017-08 in the first quarter of 2019. Such guidance did not have an impact on our condensed consolidated financial statements and related disclosures.

Accumulated Other Comprehensive Income.In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for "stranded tax effects" resulting from certain U.S. tax reform enacted in December 2017. Such "stranded tax effects" were created when deferred tax assets and liabilities related to items in AOCI were remeasured at the lower U.S. corporate tax rate in the period of enactment. We adopted ASU 2018-02 in the first quarter of 2019, and did not elect to reclassify "stranded tax effects" from AOCI to retained earnings.

Shareholders' Equity.In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification. Such guidance, among other things, extends to interim periods the annual requirement in SEC Regulation S-X, Rule 3-04 to disclose changes in shareholders' equity. Under the requirements in SEC Regulation S-X, Rules 8-03(a)(5) and 10-01(a)(7), as amended by this new guidance, registrants must now analyze changes in shareholders' equity, in the form of a reconciliation, for the current and comparative year-to-date interim periods, with subtotals for each interim period. This guidance is effective for filings submitted on or after November 5, 2018. We have presented a separate condensed consolidated statement of changes in shareholders' equity in this Form 10-Q in order to satisfy this new disclosure requirement.

Recently Issued Accounting Pronouncements

Credit Losses on Financial Instruments.In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how we determine our allowance for estimated uncollectible receivables and evaluate our available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2020, with early adoption permitted in the first quarter of 2019. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures, and we did not early adopt.

Collaborative Arrangements.In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB's newrecent revenue standard (Topic 606). Such guidance clarifies revenue recognition and financial statement presentation for transactions between collaboration participants. We adopted ASU 2018-18 is effective for the Company in the first quarter of 2020. Such guidance did not have an impact on our consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional financial reporting alternatives to reduce the cost and complexity associated with early adoption permitted.the accounting for contracts and hedging relationships affected by reference rate reform, such as the upcoming discontinuance of the London Interbank Offered Rate ("LIBOR"). The standard requires retrospective application toaccommodations within ASU 2020-04 may be applied prospectively from the date we adopted Topic 606,beginning of our 2020 first quarter through December 31, 2017.2022. We are currently evaluating the effect that ASU 2018-18 will2020-04 may have on our consolidated financial statementscontracts that reference LIBOR, specifically, our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and related disclosures, andinterest rate swap. As of the date of this filing, we dohave not expectelected to early adopt.apply any of the provisions of this standard.

(2) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:

Three Months Ended
20202019
(In thousands)Domestic
Segment		International
Segment		TotalDomestic
Segment		International
Segment		Total
Licensed software$159,327 $12,367 $171,694 $144,599 $9,934 $154,533 
Technology resale45,217 1,896 47,113 65,103 5,072 70,175 
Subscriptions87,878 5,529 93,407 85,230 6,674 91,904 
Professional services433,127 46,768 479,895 446,562 60,893 507,455 
Managed services280,827 31,017 311,844 272,933 29,502 302,435 
Support and maintenance219,682 40,296 259,978 227,131 50,163 277,294 
Reimbursed travel4,711 31 4,742 23,705 1,927 25,632 
Total revenues$1,230,769 $137,904 $1,368,673 $1,265,263 $164,165 $1,429,428 

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Three Months EndedNine Months Ended
2019 201820202019
(In thousands)
Domestic
Segment
International
Segment
Total 
Domestic
Segment
International
Segment
Total(In thousands)Domestic SegmentInternational SegmentTotalDomestic SegmentInternational SegmentTotal
   
Licensed software$144,599
$9,934
$154,533
 $132,447
$7,441
$139,888
Licensed software$444,774 $37,114 $481,888 $466,105 $40,018 $506,123 
Technology resale65,103
5,072
70,175
 51,097
9,281
60,378
Technology resale126,042 14,675 140,717 169,112 17,338 186,450 
Subscriptions85,230
6,674
91,904
 73,792
5,323
79,115
Subscriptions260,095 19,749 279,844 246,505 19,460 265,965 
Professional services446,562
60,893
507,455
 400,695
56,030
456,725
Professional services1,295,759 156,564 1,452,323 1,313,701 169,500 1,483,201 
Managed services272,933
29,502
302,435
 278,019
23,981
302,000
Managed services836,242 92,114 928,356 818,818 85,661 904,479 
Support and maintenance227,131
50,163
277,294
 229,202
48,578
277,780
Support and maintenance663,399 144,296 807,695 679,214 151,454 830,668 
Reimbursed travel23,705
1,927
25,632
 22,902
1,285
24,187
Reimbursed travel19,086 854 19,940 68,750 4,730 73,480 
   
Total revenues$1,265,263
$164,165
$1,429,428
 $1,188,154
$151,919
$1,340,073
Total revenues$3,645,397 $465,366 $4,110,763 $3,762,205 $488,161 $4,250,366 


 Nine Months Ended
 2019 2018
(In thousands)
Domestic
Segment
International
Segment
Total 
Domestic
Segment
International
Segment
Total
        
Licensed software$466,105
$40,018
$506,123
 $417,761
$29,334
$447,095
Technology resale169,112
17,338
186,450
 171,135
27,876
199,011
Subscriptions246,505
19,460
265,965
 220,063
18,639
238,702
Professional services1,313,701
169,500
1,483,201
 1,168,079
177,232
1,345,311
Managed services818,818
85,661
904,479
 785,951
69,906
855,857
Support and maintenance679,214
151,454
830,668
 693,217
148,083
841,300
Reimbursed travel68,750
4,730
73,480
 69,108
4,277
73,385
        
Total revenues$3,762,205
$488,161
$4,250,366
 $3,525,314
$475,347
$4,000,661


The following tables present our revenues disaggregated by timing of revenue recognition:
 Three Months Ended
 2019 2018
(In thousands)Domestic
Segment		International
Segment		Total 
Domestic
Segment
International
Segment		Total
        
Revenue recognized over time$1,143,470
$155,017
$1,298,487
 $1,078,029
$137,594
$1,215,623
Revenue recognized at a point in time121,793
9,148
130,941
 110,125
14,325
124,450
        
Total revenues$1,265,263
$164,165
$1,429,428
 $1,188,154
$151,919
$1,340,073


Three Months Ended
20202019
(In thousands)Domestic
Segment		International
Segment		TotalDomestic
Segment		International
Segment		Total
Revenue recognized over time$1,143,515 $132,891 $1,276,406 $1,143,470 $155,017 $1,298,487 
Revenue recognized at a point in time87,254 5,013 92,267 121,793 9,148 130,941 
Total revenues$1,230,769 $137,904 $1,368,673 $1,265,263 $164,165 $1,429,428 
 Nine Months Ended
 2019 2018
(In thousands)Domestic
Segment		International
Segment		Total 
Domestic
Segment
International
Segment		Total
        
Revenue recognized over time$3,403,965
$445,320
$3,849,285
 $3,169,402
$425,991
$3,595,393
Revenue recognized at a point in time358,240
42,841
401,081
 355,912
49,356
405,268
        
Total revenues$3,762,205
$488,161
$4,250,366

$3,525,314
$475,347
$4,000,661


Nine Months Ended
20202019
(In thousands)Domestic SegmentInternational SegmentTotalDomestic SegmentInternational SegmentTotal
Revenue recognized over time$3,410,827 $437,791 $3,848,618 $3,403,965 $445,320 $3,849,285 
Revenue recognized at a point in time234,570 27,575 262,145 358,240 42,841 401,081 
Total revenues$3,645,397 $465,366 $4,110,763 $3,762,205 $488,161 $4,250,366 

Transaction Price Allocated to Remaining Performance Obligations

As of September 28, 2019,30, 2020, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $13.31$13.01 billion of which we expect to recognize 31%approximately 30% of the revenue over the next 12 months and the remainder thereafter.thereafter.

Contract Liabilities

Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. Such amounts are classified in our condensed consolidated balance sheets as deferred revenue."Deferred revenue". During the nine months ended September 28, 2019,30, 2020, we recognized $342$306 million of revenues that were included in our contract liability balance at the beginning of such period.


Significant Customers

A certain customer within our Domestic segment comprised 19% and 12% of our consolidated revenues for the third quarters of 2020 and 2019, respectively; and 17% and 11% for the first nine months of 2020 and 2019, respectively. Amounts due from this same customer comprised 14% of client receivables as of September 30, 2020.

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Table of Contents
(3) Receivables

A summary of net receivables is as follows:
(In thousands)September 30, 2020December 28, 2019
Client receivables$1,370,394 $1,245,670 
Less: Provision for expected credit losses151,167 106,075 
Total receivables, net$1,219,227 $1,139,595 
(In thousands)September 28, 2019 December 29, 2018
    
Client receivables$1,259,584
 $1,237,127
Less: Allowance for doubtful accounts104,604
 64,561
    
Client receivables, net of allowance1,154,980
 1,172,566
    
Current portion of lease receivables (under ASC Topic 840)—
 10,928
    
Total receivables, net$1,154,980
 $1,183,494


A reconciliation of the beginning and ending amount of our provision for expected credit losses is as follows:

(In thousands)
Provision for expected credit losses - balance at December 28, 2019$106,075 
Cumulative effect of accounting change (ASU 2016-13)4,606 
Additions charged to costs and expenses54,636 
Deductions(14,150)
Provision for expected credit losses - balance at September 30, 2020$151,167 

During the first nine months of 20192020 and 2018,2019, we received total client cash collections of $4.09 billion and $4.23 billion, and $3.99 billion, respectively.

Expected Credit Losses


In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides a new impairment model for certain financial assets that is based on expected losses rather than incurred losses. Such guidance impacts how we determine our allowance for estimated uncollectible client receivables. The standard requires use of the modified retrospective (cumulative effect) transition approach as of the beginning of the first reporting period in which the guidance was effective, which for the Company was the first quarter of 2020. Under this transition method, the cumulative effect from prior periods upon applying this new guidance was recognized in our condensed consolidated balance sheets as of December 29, 2019. We did not recast comparative periods.

A summary of such cumulative effect adjustment is as follows:
(In thousands)Increase/(Decrease)
Receivables, net$(4,606)
Retained earnings(4,606)

The cumulative effect adjustment is the result of providing an allowance on unbilled client receivables, for which we have an unconditional right to invoice and receive payment in the future.

Our estimates of expected credit losses for client receivables at both December 29, 2019 and September 30, 2020, were primarily based on historical credit loss experience and adjustments for certain asset-specific risk characteristics (i.e. known client financial hardship or bankruptcy). Exposure to credit losses may increase if our clients are adversely affected by changes in healthcare laws, reimbursement or payor models; economic pressures or uncertainty associated with local or global economic recessions; disruption associated with the COVID-19 pandemic; or other client-specific factors. Although we have historically not experienced significant credit losses, it is possible that there could be an adverse impact from potential adjustments to the carrying amount of client receivables as clients' cash flows are impacted by the COVID-19 pandemic and related economic uncertainty, which may be material.

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(4) Investments

Available-for-sale investments at September 28, 201930, 2020 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$56,855 $— $— $56,855 
Time deposits19,676 — — 19,676 
Commercial Paper1,600 — — 1,600 
Government and corporate bonds1,150 — — 1,150 
Total cash equivalents79,281 — — 79,281 
Short-term investments:
Time deposits21,248 — — 21,248 
Commercial paper259,000 22 (7)259,015 
Government and corporate bonds192,536 559 (35)193,060 
Total short-term investments472,784 581 (42)473,323 
Long-term investments:
Government and corporate bonds91,605 180 (78)91,707 
Total available-for-sale investments$643,670 $761 $(120)$644,311 

(In thousands) Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
         
Cash equivalents:        
Money market funds $140,504
 $—
 $—
 $140,504
Time deposits 59,585
 —
 —
 59,585
Commercial paper 27,400
 —
 —
 27,400
Total cash equivalents 227,489
 —
 —
 227,489
         
Short-term investments:        
Time deposits 5,690
 —
 —
 5,690
Commercial paper 17,750
 13
 (10) 17,753
Government and corporate bonds 104,077
 53
 (29) 104,101
Total short-term investments 127,517
 66
 (39) 127,544
         
Long-term investments:        
Government and corporate bonds 81,431
 78
 (54) 81,455
         
Total available-for-sale investments $436,437

$144

$(93)
$436,488

Available-for-sale investments at December 29, 201828, 2019 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$185,666 $— $— $185,666 
Time deposits64,286 — — 64,286 
Total cash equivalents249,952 — — 249,952 
Short-term investments:
Time deposits2,506 — — 2,506 
Government and corporate bonds83,272 52 (11)83,313 
Total short-term investments85,778 52 (11)85,819 
Long-term investments:
Government and corporate bonds96,186 91 (67)96,210 
Total available-for-sale investments$431,916 $143 $(78)$431,981 
(In thousands) Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
         
Cash equivalents:        
Money market funds $76,471
 $—
 $—
 $76,471
Time deposits 71,461
 —
 —
 71,461
Commercial Paper 10,000
 —
 —
 10,000
Total cash equivalents 157,932

—

—

157,932
         
Short-term investments:        
Time deposits 31,947
 —
 —
 31,947
Commercial paper 75,445
 —
 (91) 75,354
Government and corporate bonds 294,941
 1
 (958) 293,984
Total short-term investments 402,333

1

(1,049)
401,285
         
Long-term investments:        
Government and corporate bonds 18,247
 —
 (55) 18,192
         
Total available-for-sale investments $578,512

$1

$(1,104)
$577,409


We sold available-for-sale investments for proceeds of $181$5 million and $45$181 million during the nine months ended September 28, 201930, 2020 and September 29, 2018,28, 2019, respectively, resulting in insignificant gains/losses in each period.

Other Investments

At September 30, 2020 and December 28, 2019, and December 29, 2018, we had investments in equity investmentssecurities that do not have readily determinable fair values of $314$320 million and $277$314 million, respectively, accounted for in accordance with Accounting Standards Codification Topic ("ASC") Topic 321, Investments-Equity Securities. Such investments are included in long-term investments"Long-term investments" in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments forduring the nine months ended September 30, 2020 and September 28, 2019, and September 29, 2018, respectively.


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At June 30, 2020 and December 28, 2019, we had investments in equity securities with readily determinable fair values of $41 million and $14 million, respectively, accounted for in accordance with ASC 321. Such investments were included in "Short-term investments" in our condensed consolidated balance sheets. Changes in the measurement of such investments favorably impacted "Other income, net" by $49 million and $76 million for the three and nine months ended September 30, 2020, respectively, and $9 million for both the three and nine months ended September 28, 2019. In August 2020, we sold these investments for cash proceeds of $90 million.

At September 30, 2020 and December 28, 2019, we had investments in equity securities reported under the equity method of accounting of $11 million and $9 million, respectively. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets.

Impairment Assessment

We adopted ASU 2016-13 in the first quarter of 2020, which made certain amendments to the model used to assess available-for-sale debt securities for impairment. Such guidance provides that an available-for-sale debt security is impaired if the fair value of the security is less than its amortized cost basis. A determination is made whether the decline in fair value below the amortized cost basis has resulted from a credit loss or other factors, such as market liquidity or changes in interest rates. Impairment related to credit losses is recognized in net earnings, whereas impairment related to other factors is recognized as a component of accumulated other comprehensive loss, net. During the nine months ended September 30, 2020, we did not recognize any impairment on our available-for-sale debt securities through net earnings.

(5) Long-term Debt

The following is a summary of indebtedness outstanding:
(In thousands)September 30, 2020December 28, 2019
Credit agreement loans due May 5, 2024$600,000 $600,000 
Senior notes:
Series 2020-A due March 11, 2030300,000 0 
Series 2015-A due February 15, 2022225,000 225,000 
Series 2015-B due February 14, 2025200,000 200,000 
Other11,662 14,162 
Total indebtedness1,336,662 1,039,162 
Less: debt issuance costs(644)(780)
Long-term debt$1,336,018 $1,038,382 
(In thousands)September 28, 2019 December 29, 2018
    
Credit agreement loans$600,000
 $—
Senior notes425,000
 425,000
Capital lease obligations (under ASC Topic 840)—
 4,914
Other14,162
 14,162
    
  Debt and capital lease obligations1,039,162
 444,076
Less: debt issuance costs(595) (360)
    
  Debt and capital lease obligations, net1,038,567
 443,716
Less: current portion—
 (4,914)
    
  Long-term debt$1,038,567
 $438,802


Credit Agreement

In May 2019, we entered into a First Amendment to our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") with a syndicate of lenders. The Credit Agreement provides for an unsecured revolving credit facility expiring in May 2024, and includes: (a) a revolving credit loan facility of up to $700 million at any time outstanding, and (b) a letter of credit facility of up to $100 million at any time outstanding (which is a sub-facility of the $700 million revolving credit loan facility). The Credit Agreement also includes an accordion feature allowing an increase of the credit facility of up to an additional $300 million ($1 billion in the aggregate) at any time outstanding, subject to lender participation and the satisfaction of specified conditions. Borrowings outstanding under the Credit Agreement are due in May 2024, with prepayment permitted at any time. Proceeds may be used for working capital and general corporate purposes, including but not limited to certain business acquisitions and purchases under our share repurchase programs. The Credit Agreement provides certain restrictions on our ability to borrow, incur liens, sell assets and pay dividends, and contains certain leverage and interest coverage covenants.

Generally, interest on revolving credit loans is payable at a variable rate based on LIBOR, prime, or the U.S. federal funds rate, plus a spread that varies depending on leverage ratios maintained. Unused commitment, letter of credit, and other fees are also payable under the Credit Agreement. As of September 28, 2019,30, 2020, the interest rate on revolving credit loans outstanding under our Credit Agreement was 2.84%0.95% based on LIBOR plus the applicable spread.


As of September 28, 2019, we had outstanding revolving credit loans and letters of credit of $600 million and $30 million, respectively; which reduced our available borrowing capacity to $70 million.

Interest Rate Swap

We are exposed to market risk from fluctuations in the variable interest rates on outstanding indebtedness under our Credit Agreement. In order to manage this exposure, we have entered into an interest rate swap agreement with an initial notional amount of $600 million, to hedge the variability of cash flows associated with such interest obligations through May 2024.obligations. The interest rate swap has an effective start date of May 13, 2019, and is designated as a cash flow hedge, which effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. As ofAt September 30, 2020 and December 28, 2019, this swap was in a net liability position with an aggregate fair value of $22$41 million and $17 million, respectively; which is presented in our condensed consolidated balance sheets in other"Other current liabilities. We classify fair value measurements of our interest rate swap as Level 2, as further described in Note (6).

Our interest rate swap agreement is accounted for in accordance with ASC Topic 815, Derivatives and Hedging. Such agreement is designated as a cash flow hedge and considered to be highly effective under hedge accounting principles. Therefore, the swap agreement is recognized in our condensed consolidated balance sheets as either an asset or liability, measured at fair value. Changes in the fair value of the swap agreement are initially recorded in accumulated other comprehensive loss, net and then subsequently recognized in our condensed consolidated statements of operations in the

periods in which earnings are affected by the hedged item. All cash flows associated with the swap agreement are classified as operating activities in our condensed consolidated statements of cash flowsliabilities".

Series 2020-A Senior Notes

In March 2020, we issued $300 million aggregate principal amount of 2.50% senior unsecured Series 2020-A notes (the "Series 2020-A Notes") due March 11, 2030, pursuant to a Master Note Agreement we entered into in November 2019, and subsequently amended on October 8, 2020 (collectively and as amended, the "2019 Shelf Agreement"). Interest on
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the Series 2020-A Notes is payable semiannually on each March 11 and September 11, commencing September 11, 2020, and the principal balance is due at maturity. The Company may prepay at any time all, or any part of, the outstanding principal amount of the Series 2020-A Notes, subject to the payment of a make-whole amount. The Series 2020-A Notes are subject to the terms of the 2019 Shelf Agreement, which contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. As of the date of this filing, $1.50 billion remains available for sale under the 2019 Shelf Agreement, which is uncommitted and subject to participation by the purchasers.

(6) Fair Value Measurements

We determine fair value measurements used in our consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
 
•Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
•Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
•Level 3 – Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


The following table details our financial assetsinvestments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at September 28, 2019:30, 2020:
(In thousands)    
  
 Fair Value Measurements Using
Description Balance Sheet Classification Level 1 Level 2 Level 3
         
Money market funds Cash equivalents $140,504
 $—
 $—
Time deposits Cash equivalents —
 59,585
 —
Commercial paper Cash equivalents —
 27,400
 —
Time deposits Short-term investments —
 5,690
 —
Commercial paper Short-term investments —
 17,753
 —
Government and corporate bonds Short-term investments —
 104,101
 —
Government and corporate bonds Long-term investments —
 81,455
 —


(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$56,855 $— $0 
Time depositsCash equivalents— 19,676 0 
Commercial paperCash equivalents— 1,600 — 
Government and corporate bondsCash equivalents— 1,150 — 
Time depositsShort-term investments— 21,248 0 
Commercial paperShort-term investments— 259,015 0 
Government and corporate bondsShort-term investments— 193,060 0 
Government and corporate bondsLong-term investments— 91,707 0 

The following table details our financial assetsinvestments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at December 29, 201828, 2019:
:
(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$185,666 $— $0 
Time depositsCash equivalents— 64,286 0 
Time depositsShort-term investments— 2,506 0 
Government and corporate bondsShort-term investments— 83,313 0 
Government and corporate bondsLong-term investments— 96,210 0 
(In thousands)    
    Fair Value Measurements Using
Description Balance Sheet Classification Level 1 Level 2 Level 3
         
Money market funds Cash equivalents $76,471
 $—
 $—
Time deposits Cash equivalents —
 71,461
 —
Commercial Paper Cash equivalents —
 10,000
 —
Time deposits Short-term investments —
 31,947
 —
Commercial paper Short-term investments —
 75,354
 —
Government and corporate bonds Short-term investments —
 293,984
 —
Government and corporate bonds Long-term investments —
 18,192
 —
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Our investments in equity securities with readily determinable fair values accounted for in accordance with ASC 321 were measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such arrangements was based on quoted prices in active markets, reduced by a percentage reflecting a discount for lack of marketability.

Our interest rate swap agreement is measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such agreement is based on the market standard methodology of netting the discounted expected future

variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instrument is held, the derivative is classified as Level 2 in the hierarchy.

We estimate the fair value of our long-term, fixed rate debt using a Level 3 discounted cash flow analysis based on current borrowing rates for debt with similar maturities. We estimate the fair value of our long-term, variable rate debt using a Level 3 discounted cash flow analysis based on LIBOR rate forward curves. The fair value of our long-term debt including current maturities, at September 30, 2020 and December 28, 2019 and December 29, 2018 was approximately $1.07$1.34 billion and $431 million,$1.07 billion, respectively. The carrying amount of such debt at September 30, 2020 and December 28, 2019 was $1.33 billion and December 29, 2018 was $1.03 billion, and $425 million, respectively.

(7) Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which introduces a new accounting model that requires most leases to be reported on the balance sheet. It also establishes disclosure requirements, which are more extensive than those required under prior U.S. GAAP. The standard requires use of the modified retrospective (cumulative effect) transition approach and was effective for the Company in the first quarter of 2019. We selected the effective date of ASU 2016-02 as the date of initial application on transition, as permitted by ASU 2016-02, as amended ("Topic 842"). Under this transition method, the cumulative effect from prior periods upon applying the new guidance to arrangements containing leases was recognized in our condensed consolidated balance sheets as of December 30, 2018. We did not recast comparative periods.

A summary of such cumulative effect adjustment is as follows:
(In thousands)  
Increase /
(Decrease)
    
Right-of-use asset  $129,652
Prepaid expenses and other  3,968
Other current liabilities  22,767
Other liabilities  110,853


Arrangements Containing Leases

(7) Gain on Sale of Businesses
The cumulative effect adjustment above,
Germany and Spain

On July 1, 2020, we sold certain of our business operations, primarily conducted in Germany and Spain, to affiliates of CompuGroup Medical SE & Co. KGaA ("CGM"), as a part of our portfolio management strategy. Such operations included the associates, intellectual property, client contracts, other assets, and liabilities related to our medico®, Selene®, Soarian Health Archive®, and Soarian® Integrated Care solution offerings. We received a sale price of $227 million, which is primarily comprised of arrangements where we are the lessee under operating leasessubject to post-closing adjustments for real estate (office, data center, and warehouse space)working capital and certain dedicated fiber optic lines within our infrastructure. The duration of these agreements ranges from several months to in excess of 20 years. Generally, variable lease payments under these operating lease agreements relate to amounts based on changes to an index or rate (i.e. percentage change in the consumer price index). We do not have any arrangements where we are the lessee, classified as finance leases in our condensed consolidated financial statements.other adjustments.

In addition to the items described above, we also procure hotel stays and rental cars related to associate business travel, and the use of certain equipment for trade shows, client presentations, conferences, and internal meetings. We have made the policy election to classify such arrangements as short-term leases, as defined in Topic 842. As such, we have not recognized lease liabilities and right-of-use assets for such arrangements in our condensed consolidated financial statements. The duration of these arrangements is less than one month. Therefore, we do not disclose any short-term lease expense, as permitted by Topic 842. Expense for such items is recognized on a straight-line basis over the term of such arrangements.

Arrangements in which we are the lessor are not significant to our condensed consolidated financial statements.


Amounts Included in the Condensed Consolidated Financial Statements

The following table presents a summaryreconciliation of lease liability and right-of-use asset amountsthe sale price to the net gain recognized on the disposed business operations which is included in "Gain on sale of businesses" in our condensed consolidated statements of operations:

(In thousands)
Sale price$226,623 
Net assets/(liabilities) removed(7,617)
Transaction expenses(5,573)
Foreign currency1,263 
Gain on sale of businesses$214,696 

The following table presents a reconciliation of the sale price to the cash proceeds received from CGM which are included in "Sale of businesses" in our condensed consolidated statements of cash flows:

(In thousands)
Sale price$226,623 
VAT and other transaction taxes, net(2,142)
Cash received from sale of businesses$224,481 


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Amounts included in our condensed consolidated balance sheets related to the disposed business operations immediately prior to the sale on July 1, 2020 were as of September 28, 2019, under operating lease arrangements where we are the lessee:follows:
(In thousands)    
Description Balance Sheet Classification September 28, 2019
     
Right-of-use asset Right-of-use assets $121,746
Lease liability - current Other current liabilities 30,080
Lease liability - non-current Other liabilities 103,177


(In thousands)Asset/(Liability)
Receivables, net$7,334 
Inventory65 
Prepaid expenses and other5,759 
Property and equipment, net336 
Right-of-use assets554 
Software development costs, net5,532 
Goodwill7,692 
Intangible assets, net3,687 
Accounts payable(1,631)
Deferred revenue(16,655)
Accrued payroll and tax withholdings(4,545)
Other current liabilities(511)
Net assets/(liabilities)$7,617 
Lease liabilities recorded upon the commencement of operating leases during the nine months ended September 28, 2019 were $23 million.

For the three and nine months endedSeptember 28, 2019, operating lease cost was $9 million and $28 million, respectively. Variable lease cost was less than $1 million for both the three and nine months ended September 28, 2019.

Maturity Analysis

Aggregate future payments under operating lease arrangements where we are the lessee (by fiscal year) are as follows:
(In thousands)  Operating Lease Obligations
    
Remainder of 2019  $10,164
2020  32,170
2021  27,677
2022  22,185
2023  15,511
2024 and thereafter  47,394
    
Aggregate future payments  155,101
Impact of discounting  (21,844)
    
Aggregate lease liability at September 28, 2019  $133,257


At September 28, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating lease arrangements where we are the lessee were 7.05 years and 3.7%, respectively.


Prior Periods

Revenue Cycle Outsourcing
Prior
On August 3, 2020, we sold certain of our revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., as a part of our portfolio management strategy. Such operations included the associates, client contracts, certain other assets, and certain liabilities related to our commercial revenue cycle outsourcing services business. A net gain of $2 million was recognized on the disposed business operations and is included in "Gain on sale of businesses" in our condensed consolidated statements of operations. Amounts included in our condensed consolidated balance sheets related to the adoption of Topic 842, we accounted for arrangements where wedisposed business operations immediately prior to the sale on August 3, 2020 were the lessee under operating leases in accordance with ASC Topic 840, Leases. Rent expense for office and warehouse space fornot material to our regional and global offices for the three and nine months ended September 29, 2018 was $8 million and $25 million, respectively. Aggregate minimum future payments under these non-cancelable operating leases as of December 29, 2018, were as follows:condensed consolidated financial statements.
(In thousands)  Operating Lease Obligations
    
2019  $29,739
2020  27,669
2021  22,904
2022  17,240
2023  10,166
2024 and thereafter  17,743
    
   $125,461


(8) Income Taxes

We determine the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our effective tax rate was 18.9%21.7% and 20.7%18.9% for the first nine months of 20192020 and 2018,2019, respectively. The decreaseincrease in the effective tax rate in the first nine months of 20192020 is primarily due to increaseda decrease in net excess tax benefits recognized as a component of income tax expense duein connection with the exercise of stock options and the vesting of restricted share and share unit awards. Also contributing to elevated stock option exercise activity.the increase, are taxes associated with the divestiture transactions that closed in the third quarter of 2020, as further discussed in Note (7).


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(9) Earnings Per Share

A reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:
Three Months Ended
 20202019
 EarningsSharesPer-ShareEarningsSharesPer-Share
(In thousands, except per share data)(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Basic earnings per share:
Income available to common shareholders$356,676 305,759 $1.17 $81,935 315,876 $0.26 
Effect of dilutive securities:
Stock options, non-vested shares and share units— 2,607 — 3,237 
Diluted earnings per share:
Income available to common shareholders including assumed conversions$356,676 308,366 $1.16 $81,935 319,113 $0.26 
 Three Months Ended
 2019 2018
 Earnings Shares Per-Share Earnings Shares Per-Share
(In thousands, except per share data)(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
            
Basic earnings per share:           
Income available to common shareholders$81,935
 315,876
 $0.26
 $169,381
 329,342
 $0.51
Effect of dilutive securities:           
Stock options and non-vested shares—
 3,237
   —
 3,595
  
Diluted earnings per share:           
Income available to common shareholders including assumed conversions$81,935
 319,113
 $0.26
 $169,381
 332,937
 $0.51

For the three months ended September 28, 201930, 2020 and September 29, 2018,28, 2019, options to purchase 7.73.9 million and 13.07.7 million shares of common stock at per share prices ranging from $55.24 to $76.49 and $54.87 to $75.83, and $50.04 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.

 Nine Months Ended
 2019 2018
 Earnings Shares Per-Share Earnings Shares Per-Share
(In thousands, except per share data)(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
            
Basic earnings per share:           
Income available to common shareholders$375,123
 320,282
 $1.17
 $498,739
 330,789
 $1.51
Effect of dilutive securities:           
Stock options and non-vested shares—
 3,079
   —
 3,704
  
Diluted earnings per share:           
Income available to common shareholders including assumed conversions$375,123
 323,361
 $1.16
 $498,739
 334,493
 $1.49


Nine Months Ended
20202019
EarningsSharesPer-ShareEarningsSharesPer-Share
(In thousands, except per share data)(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Basic earnings per share:
Income available to common shareholders$638,583 306,759 $2.08 $375,123 320,282 $1.17 
Effect of dilutive securities:
Stock options, non-vested shares and share units— 2,365 — 3,079 
Diluted earnings per share:
Income available to common shareholders including assumed conversions$638,583 309,124 $2.07 $375,123 323,361 $1.16 

For the nine months ended September 30, 2020 and September 28, 2019, and September 29, 2018, options to purchase 10.14.4 million and 12.710.1 million shares of common stock at per share prices ranging from $52.32 to $76.49 and $51.87 to $75.83, and $50.04 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.


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(10) Share-Based Compensation and Equity

Stock Options

Stock option activity for the nine months endedSeptember 28, 201930, 2020 was as follows:
(In thousands, except per share and term data)Number of
Shares		Weighted-
Average
Exercise 
Price
(Per Share)		Aggregate
Intrinsic 
Value		Weighted-Average 
Remaining
Contractual
Term (Yrs)
Outstanding at beginning of year15,416 $56.36 
Granted3 72.36 
Exercised(4,009)50.67 
Forfeited and expired(228)61.32 
Outstanding as of September 30, 202011,182 58.31 $156,372 5.70
Exercisable as of September 30, 20207,248 $56.87 $111,738 4.85

(In thousands, except per share and term data)
Number of
Shares
 
Weighted-
Average
Exercise 
Price
(Per Share)
 
Aggregate
Intrinsic 
Value
 
Weighted-Average      
Remaining      
Contractual
 Term (Yrs)      
        
Outstanding at beginning of year21,792
 $52.31
    
Granted1,045
 65.53
    
Exercised(4,821) 40.91
    
Forfeited and expired(946) 61.39
    
Outstanding as of September 28, 201917,070
 55.83
 $215,557
 6.24
        
Exercisable as of September 28, 20199,181
 $51.62
 $154,997
 4.76

The weighted-average assumptions used to estimate the fair value, under the Black-Scholes-Merton pricing model, of stock options granted during the nine months ended September 28, 201930, 2020 were as follows:

Expected volatility (%) 25.1%
Expected dividend rate (%) 1%
Expected term (yrs) 7
Risk-free rate (%) 2.4%
Fair value per option $17.58


Expected volatility (%)24.5 %
Expected dividend rate (%)1 %
Expected term (yrs)6
Risk-free rate (%)1.1 %
Fair value per option$16.64 

As of September 28, 2019,30, 2020, there was $112$58 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.832.12 years.


Non-vested Shares and Share Units

Non-vested share and share unit activity for the nine months ended September 28, 201930, 2020 was as follows:
(In thousands, except per share data)Number of SharesWeighted-Average
Grant Date Fair Value Per Share
Outstanding at beginning of year2,634 $65.30 
Granted2,520 69.99 
Vested(946)66.30 
Forfeited(97)67.24 
Outstanding as of September 30, 20204,111 $67.90 
(In thousands, except per share data)Number of Shares 
Weighted-Average
Grant Date Fair Value
Per Share
    
Outstanding at beginning of year882
 $62.82
Granted2,262
 66.47
Vested(394) 67.01
Forfeited(64) 63.01
    
Outstanding as of September 28, 20192,686
 $65.27

As of September 28, 2019,30, 2020, there was $144$223 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.301.96 years.
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Share-Based Compensation Cost

The following table presents total compensation expense recognized with respect to stock options, non-vested shares and share units, and our associate stock purchase plan:
 Three Months EndedNine Months Ended
(In thousands)2020201920202019
Stock option and non-vested share and share unit compensation expense$37,920 $30,537 $110,500 $73,421 
Associate stock purchase plan expense1,367 1,321 4,195 4,612 
Amounts capitalized in software development costs, net of amortization(1,150)(76)(2,971)70 
Amounts charged against earnings, before income tax benefit$38,137 $31,782 $111,724 $78,103 
Amount of related income tax benefit recognized in earnings$7,818 $6,330 $22,452 $14,888 
 Three Months Ended Nine Months Ended
(In thousands)2019 2018 2019 2018
        
Stock option and non-vested share and share unit compensation expense$30,537
 $25,209
 $73,421
 $74,348
Associate stock purchase plan expense1,321
 1,407
 4,612
 4,685
Amounts capitalized in software development costs, net of amortization(76) 266
 70
 587
        
Amounts charged against earnings, before income tax benefit$31,782
 $26,882

$78,103

$79,620
        
Amount of related income tax benefit recognized in earnings$6,330
 $5,615
 $14,888
 $16,483


Treasury Stock

In May 2018,Under our current share repurchase program, which was initially approved by our Board of Directors approved an amendment to our share repurchase program that allowed forin May 2017 and most recently amended in December 2019, the Company is authorized to repurchase up to an aggregate $1.0$3.70 billion of shares of our common stock, excluding transaction costs. In April 2019, our Board of Directors approved a further amendment to this share repurchase program. Under this new amendment, the Company is authorized to repurchase up to an additional $1.2 billion of shares of our common stock, for an aggregate of $2.2 billion, excluding transaction costs. The repurchases are to be effectedeffectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the nine months ended September 28, 2019,30, 2020, we repurchased 14.49.2 million shares for total consideration of $1.0 billion$650 million under the program. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. As of September 28, 2019, $483 million30, 2020, $1.03 billion remains available for repurchase under the amended program.

Dividends
On September 10, 2019,2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on October 9, 201913, 2020 to shareholders of record as of September 25, 2019.2020. On May 29, 2019,21, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on July 26, 201917, 2020 to shareholders of record as of June 18, 2019.5, 2020. On March 19, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on April 17, 2020 to shareholders of record as of April 3, 2020. In connection with the declaration of such dividends, our non-vested shareshares and share units are entitled to dividend equivalents, which will be payable to the holder subject to, and upon vesting of, the underlying awards. Our outstanding stock options are not entitled to dividend or dividend equivalents. At both September 30, 2020 and December 28, 2019, our condensed consolidated balance sheets included liabilities for dividends payable of $56 million, which are included in "Other current liabilities".



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Accumulated Other Comprehensive Loss, Net (AOCI)

The components of AOCI, net of tax, were as follows:
 Foreign currency translation adjustment and otherUnrealized loss on cash flow hedgeUnrealized holding gain (loss) on available-for-sale investmentsTotal
(In thousands)
Balance at December 28, 2019$(106,347)$(12,578)$265 $(118,660)
Other comprehensive income (loss) before reclassifications(20,546)(20,430)(849)(41,825)
Amounts reclassified from AOCI0 1,122 0 1,122 
Balance at March 31, 2020(126,893)(31,886)(584)(159,363)
Other comprehensive income (loss) before reclassifications9,197 (3,205)1,502 7,494 
Amounts reclassified from AOCI0 2,198 0 2,198 
Balance at June 30, 2020(117,696)(32,893)918 (149,671)
Other comprehensive income (loss) before reclassifications9,611 (289)(220)9,102 
Amounts reclassified from AOCI0 2,554 0 2,554 
Balance at September 30, 2020$(108,085)$(30,628)$698 $(138,015)
 Foreign currency translation adjustment and other Unrealized loss on cash flow hedge Unrealized holding gain (loss) on available-for-sale investments Total
(In thousands)   
        
Balance at December 29, 2018$(102,939) $—
 $(613) $(103,552)
Other comprehensive income (loss) before reclassifications2,321
 —
 637
 2,958
Amounts reclassified from AOCI—
 —
 —
 —
        
Balance at March 30, 2019(100,618) —
 24
 (100,594)
        
Other comprehensive income (loss) before reclassifications(100) (12,223) 216
 (12,107)
Amounts reclassified from AOCI—
 (147) —
 (147)
        
Balance at June 29, 2019(100,718) (12,370) 240
 (112,848)
        
Other comprehensive income (loss) before reclassifications(11,679) (4,135) 17
 (15,797)
Amounts reclassified from AOCI—
 98
 (3) 95
        
Balance at September 28, 2019$(112,397) $(16,407) $254
 $(128,550)

 Foreign currency translation adjustment and other Unrealized loss on cash flow hedge Unrealized holding gain (loss) on available-for-sale investments Total
(In thousands)   
        
Balance at December 30, 2017$(72,365) $—
 $(1,017) $(73,382)
Other comprehensive income (loss) before reclassifications2,794
 —
 (898) 1,896
Amounts reclassified from AOCI—
 —
 —
 —
        
Balance at March 31, 2018(69,571) —
 (1,915) (71,486)
        
Other comprehensive income (loss) before reclassifications(21,811) —
 639
 (21,172)
Amounts reclassified from AOCI—
 —
 3
 3
        
Balance at June 30, 2018(91,382) —
 (1,273) (92,655)
        
Other comprehensive income (loss) before reclassifications(8,907) —
 553
 (8,354)
Amounts reclassified from AOCI—
 —
 —
 —
        
Balance at September 29, 2018$(100,289) $—
 $(720) $(101,009)


Foreign currency translation adjustment and otherUnrealized loss on cash flow hedgeUnrealized holding gain (loss) on available-for-sale investmentsTotal
(In thousands)
Balance at December 29, 2018$(102,939)$0 $(613)$(103,552)
Other comprehensive income (loss) before reclassifications2,321 0 637 2,958 
Amounts reclassified from AOCI0 0 0 0 
Balance at March 30, 2019(100,618)0 24 (100,594)
Other comprehensive income (loss) before reclassifications(100)(12,223)216 (12,107)
Amounts reclassified from AOCI0 (147)0 (147)
Balance at June 29, 2019(100,718)(12,370)240 (112,848)
Other comprehensive income (loss) before reclassifications(11,679)(4,135)17 (15,797)
Amounts reclassified from AOCI0 98 (3)95 
Balance at September 28, 2019$(112,397)$(16,407)$254 $(128,550)




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The effects on net earnings of amounts reclassified from AOCI were as follows:
(In thousands)   Three Months Ended Nine Months Ended
AOCI Component Location 2019 2018 2019 2018
           
Unrealized loss on cash flow hedge Other income, net $(122) $—
 $58
 $—
  Income taxes 24
 —
 (9) —
           
  Net of tax (98) —
 49
 —
           
Unrealized holding gain (loss) on available-for-sale investments

 Other income, net 4
 —
 4
 (4)
  Income taxes (1) —
 (1) 1
           
  Net of tax 3
 —
 3
 (3)
           
Total amount reclassified, net of tax   $(95) $—
 $52
 $(3)


(In thousands)Three Months EndedNine Months Ended
AOCI ComponentLocation2020201920202019
Unrealized loss on cash flow hedgeOther income, net$(3,213)$(122)$(7,383)$58 
Income taxes659 24 1,509 (9)
Net of tax(2,554)(98)(5,874)49 
Unrealized holding gain (loss) on available-for-sale investmentsOther income, net0 4 0 4 
Income taxes0 (1)0 (1)
Net of tax0 3 0 3 
Total amount reclassified, net of tax$(2,554)$(95)$(5,874)$52 


(11) Contingencies

We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC Topic 450, Contingencies ("ASC 450"). No less than quarterly, and as facts and circumstances change, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.

As previously disclosed, we continue to be in dispute with Fujitsu Services Limited ("Fujitsu") regarding Fujitsu's obligation to pay amounts to us due upon the termination of a subcontract, including client receivables, in connection with Fujitsu's contract as the prime contractor in the National Health Service ("NHS") initiative to automate clinical processes and digitize medical records in the Southern region of England. The NHS terminated its contract with Fujitsu, which gave rise to the termination of our subcontract with Fujitsu. We filed a request for arbitration with the London Court of International Arbitration on April 22, 2019 seeking damages. On December 30, 2019, Fujitsu filed its Defense and Counterclaim (the "Counterclaim") in response. In its Counterclaim, Fujitsu defends against our claim in full and argues that we are liable to Fujitsu for: (i) £306 million in damages based on our alleged fraudulent misrepresentations inducing Fujitsu to enter into the subcontract; or (ii) alternatively, £173.8 million in damages based on our alleged breaches of the subcontract. We filed our response to Fujitsu's Counterclaim on May 1, 2020, to which they have now responded. We believe that Fujitsu's claims are without merit and will vigorously defend against them, and we continue to believe that we have valid and equitable grounds for recovery of the disputed client receivables; however, there can be no assurances as to the outcome of the dispute. As previously disclosed, we recorded a pre-tax charge of $45 million in the fourth quarter of 2018 to provide an allowance against the disputed client receivables reflecting the uncertainty in collection of such receivables and related litigation risk resulting from the conclusion of the non-binding alternative dispute resolution procedures, which occurred before we filed our request for arbitration. We have not concluded that a loss related to the new claims raised by Fujitsu in the Counterclaim is probable, nor have we accrued a liability related to these claims beyond the previously reported pre-tax charge recorded in the fourth quarter of 2018. Although we believe a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Counterclaim given that the dispute is in the early stages of the arbitration process. Arbitration is currently scheduled to occur in April 2022.
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Cerner Health Services, Inc. ("Cerner HS"), a wholly owned subsidiary of Cerner Corporation, filed a lawsuit in the Chester County, Pennsylvania, Court of Common Pleas against NextGen Healthcare Information Systems, LLC ("NextGen") relating to a dispute arising out of a supplier relationship initially established between Siemens Health Services, Inc. ("Health Services") and NextGen prior to the acquisition of the assets of Health Services by Cerner HS in 2015. In September 2017, the court issued a preliminary injunction to prevent NextGen from refusing to honor certain contractual obligations to support Cerner HS's clients who use NextGen ambulatory EHR solutions. In September 2018, NextGen filed a counterclaim alleging breach of contract and tortious interference but did not specify its damages. In August 2019, NextGen provided an expert report alleging profit disgorgement damages of $135 million or, alternatively, $30.5 million in lost profit damages, but the report did not discuss how our actions allegedly caused NextGen's damages. In December 2019, we deposed NextGen's expert, gaining additional clarity on categories of alleged damages but not on the alleged theories of liability. A jury trial is set to begin on January 25, 2021. We believe NextGen's claims are without merit and will vigorously defend against them; however, there can be no assurances as to the outcome of the dispute. We have not concluded that a loss related to the claims raised by NextGen in its counterclaim is probable, nor have we accrued a liability related to these claims. Although a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss in light of the inherent difficulty of predicting the outcome of litigation generally, the wide range of damages presented by NextGen's expert, and the continued lack of clarity on the causal connection between Cerner Corporation's and Cerner HS's actions and any alleged damages.

The terms of our agreements with our clients generally provide for limited indemnification of such clients against losses, expenses and liabilities arising from third party or other claims based on, among other things, alleged infringement by our solutions of an intellectual property right of third parties or damages caused by data privacy breaches or system interruptions. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include, as applicable, a right to replace or modify an infringing solution. For several reasons, including the lack of a sufficient number of prior indemnification claims relating to IP infringement,data privacy breaches or system interruptions, the inherent uncertainty stemming from such claims, and the lack of a monetary liability limit for such claims under the terms of the corresponding agreements with our clients, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

In addition to commitments and obligations in the ordinary course of business, we are involved in various other legal proceedings and claims that arise in the ordinary course of business, including for example, employment and client disputes and litigation alleging solution and implementation defects, personal injury, intellectual property infringement, violations of law, and breaches of contract and warranties.warranties, and compliance audits by various government agencies. Many of these proceedings are at preliminary stages and many seek an indeterminate amount of damages. At this time, we do not believe the range of potential losses under suchany claims to be material to our condensed consolidated financial statements.

During the three months ended June 29, 2019, we incurred a $20 million pre-tax charge in connection with a client dispute that arose during the same period. The client is continuing to assess the potential for additional damages and claims, and our evaluation of the dispute continues. We have not accrued a reserve for any additional damages or claims at this time because we cannot reasonably determine the probability of a loss and we cannot reasonably estimate the amount of loss, if any. While we can provide no assurances as to the ultimate outcome of this dispute, we believe the amount, if any, we will be required to pay to fully settle this dispute will not have a material adverse impact on our business, results of operations, cash flows or financial condition.

No less than quarterly, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.


(12) Segment Reporting

We have two operating segments, Domestic and International (formerly referred to as Global).International. Revenues are derived primarily from the sale of clinical, financial and administrative information solutions and services. The cost of revenues includes the cost of third-party consulting services, computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Operating expenses incurred by the geographic business segments consist of sales and client service expenses including salaries of sales and client service personnel, expenses associated with our managed services business, marketing expenses, communications expenses and unreimbursed travel expenses. "Other" includes expenses that have not been allocated to the operating segments, such as software development, general and administrative expenses, certain organizational restructuring and other expense, share-based compensation expense, and certain amortization and depreciation. "Other" also includes gains or losses recognized on the divestiture of businesses. Performance of the segments is assessed at the operating earnings level by our chief operating decision maker, who is our Chief Executive Officer. Items such as interest, income taxes, capital expenditures and total assets are managed at the consolidated level and thus are not included in our operating segment disclosures. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.


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The following table presents a summary of our operating segments and other expense for the three and nine months ended September 28, 201930, 2020 and September 29, 2018:28, 2019:
(In thousands)DomesticInternationalOtherTotal
Three Months Ended 2020
Revenues$1,230,769 $137,904 $— $1,368,673 
Costs of revenue219,938 11,951 — 231,889 
Operating expenses566,777 58,626 316,430 941,833 
Total costs and expenses786,715 70,577 316,430 1,173,722 
Gain on sale of businesses0 0 216,869 216,869 
Operating earnings (loss)$444,054 $67,327 $(99,561)$411,820 
(In thousands)Domestic International Other     Total    
        
Three Months Ended 2019       
Revenues$1,265,263
 $164,165
 $—
 $1,429,428
        
Costs of revenue246,634
 25,144
 —
 271,778
Operating expenses639,590
 68,153
 361,130
 1,068,873
Total costs and expenses886,224
 93,297

361,130
 1,340,651
        
Operating earnings (loss)$379,039
 $70,868
 $(361,130) $88,777

(In thousands)DomesticInternationalOtherTotal
Three Months Ended 2019
Revenues$1,265,263 $164,165 $— $1,429,428 
Costs of revenue246,634 25,144 — 271,778 
Operating expenses639,590 68,153 361,130 1,068,873 
Total costs and expenses886,224 93,297 361,130 1,340,651 
Operating earnings (loss)$379,039 $70,868 $(361,130)$88,777 

(In thousands)DomesticInternationalOtherTotal
Nine Months Ended 2020
Revenues$3,645,397 $465,366 $— $4,110,763 
Costs of revenue638,284 59,984 — 698,268 
Operating expenses1,724,545 182,594 985,131 2,892,270 
Total costs and expenses2,362,829 242,578 985,131 3,590,538 
Gain on sale of businesses0 0 216,869 216,869 
Operating earnings (loss)$1,282,568 $222,788 $(768,262)$737,094 


(In thousands)DomesticInternationalOtherTotal
Nine Months Ended 2019
Revenues$3,762,205 $488,161 $— $4,250,366 
Costs of revenue719,119 74,536 — 793,655 
Operating expenses1,817,244 209,580 1,012,049 3,038,873 
Total costs and expenses2,536,363 284,116 1,012,049 3,832,528 
Operating earnings (loss)$1,225,842 $204,045 $(1,012,049)$417,838 


(In thousands)Domestic International Other     Total    
        
Three Months Ended 2018       
Revenues$1,188,154
 $151,919
 $—
 $1,340,073
        
Costs of revenue202,980
 27,352
 —
 230,332
Operating expenses532,958
 67,220
 302,407
 902,585
Total costs and expenses735,938
 94,572
 302,407
 1,132,917
        
Operating earnings (loss)$452,216
 $57,347
 $(302,407) $207,156
22

(In thousands)Domestic International Other     Total    
        
Nine Months Ended 2019       
Revenues$3,762,205
 $488,161
 $—
 $4,250,366
        
Costs of revenue719,119
 74,536
 —
 793,655
Operating expenses1,817,244
 209,580
 1,012,049
 3,038,873
Total costs and expenses2,536,363
 284,116
 1,012,049
 3,832,528
        
Operating earnings (loss)$1,225,842
 $204,045
 $(1,012,049) $417,838

(In thousands)Domestic International Other     Total    
        
Nine Months Ended 2018       
Revenues$3,525,314
 $475,347
 $—
 $4,000,661
        
Costs of revenue617,839
 82,554
 —
 700,393
Operating expenses1,604,297
 209,771
 875,542
 2,689,610
Total costs and expenses2,222,136
 292,325
 875,542
 3,390,003
        
Operating earnings (loss)$1,303,178
 $183,022
 $(875,542) $610,658

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations

The following Management Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Cerner Corporation ("Cerner," the "Company," "we," "us" or "our"). This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements ("Notes") found above. Certain statements in this quarterly report on Form 10-Q contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, as amended, regarding our future plans, objectives, beliefs, expectations, representations and projections. See the end of this MD&A for more information on our forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

statements, and the information in Part II, "Item 1A. Risk Factors" below.
Our
third fiscal quarter ends on the Saturday closest to September 30. The 2019 and 2018third quarters ended on September 28, 2019 and September 29, 2018, respectively.
All references to yearsperiods in this MD&A represent the respective three or nine months ended on such dates, unless otherwise noted. Refer to Note (1) of the Notes for information regarding our fiscal period ends.

Management Overview

Our revenues are primarily derived by selling, implementing, operating and supporting software solutions, clinical content, hardware, and devices and providing services that give health care providers and other stakeholders secure access to clinical, administrative and financial data in real or near-real time, helping them to improve quality, safety and efficiency in the delivery of health care.

Our core strategy is to create organic growth by investing in research and development ("R&D") to create solutions and tech- enabledtech-enabled services for the health care industry. This strategy has driven strong growth over the long-term, as reflected in five- and ten-year compound annual revenue growth rates of 13% and 12%, respectively. This growth has also created an important strategic footprint in health care, with Cerner® solutions in more than 27,500 contracted provider facilities worldwide, including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites. Selling additional solutions and services back into this client base is an important element of our future revenue growth. We are also focused on driving growth by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are looking to replace their current suppliers. We may also supplement organic growth with acquisitions or strategic investments.investments and collaborations.

Cerner's long history of growth has created an important strategic footprint in health care, with Cerner holding more than 25 percent market share in the U.S. acute care electronic health record ("EHR") market and a leading market share in several non-U.S. regions. Foundational to our growth going forward is delivering value to this core client base, including executing effectively on our large U.S. federal contracts and cross-selling key solutions and services in areas such as revenue cycle. We are also investing in platform modernization, with a focus on delivering a software as a service platform that we expect to lower total cost of ownership, improve clinician experience and patient outcomes, and enable clients to accelerate adoption of new functionality and better leverage third-party innovations.

We also expect to drivecontinue driving growth through solutionsby leveraging our HealtheIntent® platform, which is the foundation for established and tech-enabled services that reflect our ongoing abilitynew offerings for both provider and non-provider markets. The EHR-agnostic HealtheIntent platform enables Cerner to innovatebecome a strategic partner with health care stakeholders and expand our reach into health care. Examples of these includehelp them improve performance under value-based contracting. The platform, along with our CareAware® platform, also supports offerings in areas such as long-term care, home care and hospice, rehabilitation, behavioral health, community care, device architecturecare team communications, health systems operations, consumer and devices, Cerner ITWorksSM services, revenue cycle solutionsemployer, and services, and HealtheIntent® population health solutions and services. Finally, we continue to believe there is significant opportunity for growth outside of the United States, with many non-U.S. markets focused on health care information technology as part of their strategy to improve the quality and lower the cost of health care.data-as-a-service.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. SimilarAfter several years of margin compression related to our historyslowing revenue growth, increased mix of growing revenue, our net earnings have increased at compound annual rates of 10% and 13% over the most recent five- and ten-year periods, respectively. We expect to drive earnings growth as we continue to grow our revenue. We also believe we have opportunities to expand our operating margins over time, as discussed further below.

We are also focused on continuing to deliver strong levels of cash flow, which we expect to accomplish by continuing to grow earnings and prudently managing capital expenditures.

Results Overview
Bookings, which reflects the value of executed contracts for software, hardware, professionallow-margin services, and managed services, was $1.65 billion inlower software demand due to the third quarterend of 2019, which is an increase of 4% compared to $1.59 billion in the third quarter of 2018.

Revenuesdirect government incentives for the third quarter of 2019 increased 7% to $1.43 billion, compared to $1.34 billion in the third quarter of 2018. The increase in revenue reflects ongoing demand from new and existing clients for Cerner's solutions and tech-enabled services driven by their needs to keep up with regulatory requirements, adapt to changing reimbursement models, and deliver safer and more efficient care.


Net earnings for the third quarter of 2019 decreased 52% to $82 million, compared to $169 million in the third quarter of 2018. Diluted earnings per share decreased 49% to $0.26, compared to $0.51 in the third quarter of 2018. The overall decrease in net earnings and diluted earnings per share was primarily a result of increased operating expenses, including expenses incurred in connection with our operational improvement initiatives discussed below, partially offset by increased revenues.

We had cash collections of receivables of $1.50 billion in the third quarter of 2019, compared to $1.40 billion in the third quarter of 2018. Days sales outstanding was 74 days for the 2019 third quarter, compared to 78 days for the 2019 second quarter and 82 days for the 2018 third quarter. Operating cash flows for the third quarter of 2019 were $351 million, compared to $338 million in the third quarter of 2018.

Operational Improvement Initiatives

We transitioned toEHR adoption, Cerner implemented a new operating structure in the first quarter of 2019. The Company has beenand introduced other initiatives focused on leveraging the impact of this reorganizationcost optimization and identifying additional efficiencies. Currently, we are focused on reducing operating expenses and generating other efficiencies that are expected to provide longer-term operating margin expansion. We are also considering exiting certain low-margin businesses and being more selective as we consider new business opportunities.process improvement in 2019. To assist in these efforts, we have engaged an outside consulting firm to conduct a review of our operations and cost structure. We have made good progress since we kicked off our transformation in 2019 and expect this progress to be reflected in improved profitability in 2020 and beyond. We are focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our clients.

We are also focused on delivering strong levels of cash flow which we expect to accomplish by continuing to grow earnings and prudently managing capital expenditures. We expect to use future cash flow and debt, as appropriate, to meet our capital allocation objectives, which include investing in our business, potential acquisitions or other strategic investments to drive profitable growth, and returning capital to shareholders through share repurchases and dividends.


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COVID-19

Our business and results of operations for the first nine months of 2020 were impacted by the ongoing Coronavirus disease ("COVID-19") pandemic. It has caused us to modify certain of our business practices, including requiring most of our employees to work remotely; restricting employee travel; developing social distancing plans for our associates; and canceling or postponing in person participation in certain meetings, events and conferences. It is not possible to quantify the full financial impact that the COVID-19 pandemic has had on our results of operations, cash flows, or financial condition, due to the uncertainty surrounding the pandemic, the difficulty inherent in identifying and measuring the various impacts that have or may stem from such an event and the fact that there are no comparable recent events that provide guidance as to how to measure or predict the effect the COVID-19 pandemic may have on our business.However, we believe COVID-19 has impacted, and will continue in the near-term to impact, our business results, primarily, but not limited to, in the following areas:

•Bookings, backlog and revenues – A decline in new business bookings as certain client purchasing decisions and projects are delayed to focus on treating patients, procuring necessary medical supplies, and managing their own organizations through this crisis. This decline in bookings flows through to reduced backlog and lower subsequent revenues.

•Associate productivity – A decline in associate productivity, primarily for our services personnel, as a large amount of work is typically done at client sites, which is being impacted by travel restrictions and our clients' focus on the pandemic. Our clients' focus on the pandemic has also led to pauses on existing projects and postponed start dates for others, which translates into lower professional services revenues and a lower operating margin percentage. We are mitigating this by doing more work remotely than we have in the past, but we cannot fully offset the negative impact.

•Travel – Associate travel restrictions reduce client-related travel, which reduces reimbursed travel revenues and lowers our costs of revenue as a percent of revenues. Such restrictions also reduce non-reimbursable travel, which lowers operating expenses.

•Cash collections - A delay in client cash collections due to COVID-19's impact on national reimbursement processes, and client focus on managing their own organizations' liquidity during this time. This translates to lower cash flows from operating activities, and a higher days sales outstanding metric. Lower cash flows from operating activities may impact how we execute under our capital allocation strategy.

•Capital expenditures - A decline in capital spending as certain capital projects are delayed.

We believe the impact of COVID-19 on our results of operations for the first quarter of 2020 was limited, with the largest impact in the areas of reduced bookings and lower technology resale revenue, due to the mid-March 2020 timing of when we implemented changes to our business practices in response to COVID-19, and the nature of the industry in which we operate. We believe the impact of COVID-19 on our results of operations for the second and third quarters of 2020 was much greater than in the first quarter of 2020 as the pandemic and practices we implemented in mid-March 2020 were ongoing for the full quarter, with the largest impact in the areas of reduced bookings and lower licensed software, technology resale, professional services, and reimbursed travel revenues.

We expect a negative financial impact to continue for the remainder of 2020 and into 2021. However, the impact will be difficult to quantify as there are many factors outside of our control, so any forward looking statements that we make regarding our projections of future financial performance, new solution, services and offering development, and capital allocation plans; cost optimization and operational improvement initiatives; and the expected benefits of our acquisitions, divestitures or other collaborations will all be subject to increased risks, as discussed further below and in Part II, Item 1A of this quarterly report on Form 10-Q. Additionally, we may make further modifications to our operations or business plans that have a negative financial impact as required by government authorities, our clients or as we determine are in the best interests of our associates, clients and business partners. While we expect COVID-19 to have an impact on our results of operations, cash flows, and financial position in the near-term, we believe the nature of our solutions and services offerings will continue to be in demand, regardless of this pandemic. However, the COVID-19 pandemic and related restrictive measures have created significant economic uncertainty and the duration and magnitude of the impact of the pandemic is unknown at this time; therefore, there can be no assurance that the ultimate impact of the pandemic will not adversely affect our future operational and financial performance.

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Operational Improvement Initiatives

The Company has been focused on leveraging the impact of our new operating structure, which was rolled out in the first quarter of 2019, and identifying additional efficiencies in our business. We continue to be focused on reducing operating expenses and generating other efficiencies that are expected to provide longer-term operating margin expansion. We are continuing our portfolio management, which includes ongoing evaluation of our offerings, exiting certain low-margin businesses, and being more selective as we consider new business opportunities. To assist in these efforts, we engaged an outside consulting firm to conduct a review of our operations and cost structure. As part of our portfolio management, we closed on the sale of certain of our business operations, primarily conducted in Germany and Spain, in July 2020, and the sale of certain of our revenue cycle outsourcing business operations in August 2020. We expect to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives. We continue to be focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our clients.

In the near term, we expect to incurcontinue incurring expenses in connection with these efforts. Such expenses may include, but are not limited to, consultant and other professional services fees, employee separation costs, contract termination costs, and other such related expenses. ForExpenses recognized in the first nine months ended September 28, 2019, we recognized $174 million of expenses2020 are primarily related to these efforts,professional services fees and employee separation costs, which are included in operating expenses in our condensed consolidated statements of operations, and discussed further below.operations. We expect to incur additional expenses in connection with these initiatives in future periods, which may be material.material.

Results Overview

Bookings, which reflect the value of executed contracts for software, hardware, professional services and managed services, was $1.47 billion in the third quarter of 2020, which is a decrease of 11% compared to $1.65 billion in the third quarter of 2019.

Revenues for the third quarter of 2020 decreased 4% to $1.37 billion, compared to $1.43 billion in the third quarter of 2019.

Net earnings for the third quarter of 2020 increased 335% to $357 million, compared to $82 million in the third quarter of 2019. Diluted earnings per share increased 346% to $1.16, compared to $0.26 in the third quarter of 2019.

We had cash collections of receivables of $1.43 billion in the third quarter of 2020, compared to $1.50 billion in the third quarter of 2019. Days sales outstanding was 81 days in the third quarter of 2020 and the second quarter of 2020, compared to 74 days for the third quarter of 2019. Operating cash flows for the third quarter of 2020 were $382 million, compared to $351 million in the third quarter of 2019.


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Results of Operations

Three Months Ended September 28, 201930, 2020 Compared to Three Months Ended September 29, 201828, 2019

The following table presents a summary of theour operating information for the third quarters of 20192020 and 2019:
2018:
(In thousands)2020% of
Revenue		2019% of
Revenue		% Change  
Revenues$1,368,673 100 %$1,429,428 100 %(4)%
Costs of revenue231,889 17 %271,778 19 %(15)%
Margin1,136,784 83 %1,157,650 81 %(2)%
Operating expenses
Sales and client service625,402 46 %707,743 50 %(12)%
Software development186,826 14 %187,526 13 %— %
General and administrative116,816 9 %152,321 11 %(23)%
Amortization of acquisition-related intangibles12,789 1 %21,283 1 %(40)%
Total operating expenses941,833 69 %1,068,873 75 %(12)%
Total costs and expenses1,173,722 86 %1,340,651 94 %(12)%
Gain on sale of businesses216,869 16 %— — %
Operating earnings411,820 30 %88,777 6 %364 %
Other income, net48,020 13,535 
Income taxes(103,164)(20,377)
Net earnings$356,676 $81,935 335 %
(In thousands)2019 
% of
Revenue
 2018 
% of
Revenue
 % Change  
          
Revenues$1,429,428
 100% $1,340,073
 100% 7 %
Costs of revenue271,778
 19% 230,332
 17% 18 %
          
Margin1,157,650
 81% 1,109,741
 83% 4 %
          
Operating expenses         
Sales and client service707,743
 50% 605,946
 45% 17 %
Software development187,526
 13% 172,297
 13% 9 %
General and administrative152,321
 11% 102,789
 8% 48 %
Amortization of acquisition-related intangibles21,283
 1% 21,553
 2% (1)%
          
Total operating expenses1,068,873
 75% 902,585
 67% 18 %
          
Total costs and expenses1,340,651
 94% 1,132,917
 85% 18 %
          
Operating earnings88,777
 6% 207,156
 15% (57)%
          
Other income, net13,535
   6,943
    
Income taxes(20,377)   (44,718)    
          
Net earnings$81,935
   $169,381
   (52)%


Revenues & Backlog

Revenues increased 7%decreased 4% to $1.43$1.37 billion in the third quarter of 2019,2020, as compared to $1.34$1.43 billion in the same period of 2018. This increase was2019. The decline in revenues is primarily driven by a $51 million increaseattributable to the following:

•The impact of the ongoing COVID-19 pandemic on our third quarter 2020 operations, with the largest impact in the areas of technology resale, professional services, revenueand reimbursed travel revenues, as further discussed above.

•The third quarter of 2020 includes a $42 million reduction in revenues due to growththe termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019.

•The third quarter of 2020 includes a $22 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain, as further discussed in Note (7) of the Notes. We expect the disposition of such operations to reduce future International Segment revenues by approximately $83 million on an annualized basis.

•The third quarter of 2020 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations, as further discussed in Note (7) of the Notes. We expect the disposition of such operations to reduce future Domestic Segment revenues by approximately $77 million on an annualized basis.

These declines are partially offset by increased implementation activity within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and growththe U.S. Department of Veterans Affairs. In the third quarter of 2020, 19% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to 12% in licensed software revenuethe same period of $15 million as a result of continued demand for our solutions.2019. Refer to Note (2) of the notes to condensed consolidated financial statementsNotes for further information regarding revenues disaggregated by our business models.
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Backlog, which reflects contracted revenue that has not yet been recognized as revenue, was $13.31$13.01 billion in the third quarter of 2019,at September 30, 2020, compared to $14.70$13.71 billion at December 28, 2019. This decline in backlog is primarily attributable to the same perioddivestiture transactions discussed above, along with the impact of 2018. This decrease was primarily driven by the terminationongoing COVID-19 pandemic on our bookings during the first nine months of certain client contracts,2020, as further discussed further below.above. We expect to recognize 31%30% of our backlog as revenue over the next 12 months.

We believe that backlog may not necessarily be a comprehensive indicator of future revenue as certain of our arrangements may be canceled (or conversely renewed) at our clients' option,option; thus contract consideration related to such cancellable periods has been excluded from our calculation of backlog. However, historically our experience has been that such cancellation provisions are rarely exercised. We expect to recognize $882 millionapproximately $1.16 billion of revenue over the next 12 months under currently executed contracts related to such cancellable periods, which is not included in our calculation of backlog.

Costs of Revenue

Costs of revenue as a percent of revenues were 19%17% in the third quarter of 2019,2020, compared to 17%19% in the same period of 2018.2019. The higherlower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party costsresources associated with professional services revenue.

Costs of revenue include the cost of reimbursed travel expense, sales commissions, third party consulting services and subscription content and computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, devices, maintenance, support, and services) carrying different margin rates changes from period to period. Costs of revenue does not include the costs of our client service personnel who are responsible for delivering our service offerings. Such costs are included in sales and client service expense.

Operating Expenses

Total operating expenses increased 18%decreased 12% to $942 million in the third quarter of 2020, compared to $1.07 billion in the same period of 2019.
•Sales and client service expenses as a percent of revenues were 46% in the third quarter of 2019,2020, compared to $90350% in the same period of 2019. These expenses decreased 12% to $625 million in the third quarter of 2020, from $708 million in the same period of 2018.2019. Sales and client service expenses include salaries and benefits of sales, marketing, support, and services personnel, depreciation and other expenses associated with our managed services business, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs. The decrease in sales and client service expenses was primarily driven by an $11 million reduction in associate travel costs, and the third quarter of 2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.

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•Software development expenses as a percent of revenues were 14% in the third quarter of 2020, compared to 13% in the same period of 2019. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle, population health management, and health network solutions. In addition, the third quarter of 2020 includes costs incurred in connection with our efforts to modernize our platforms, with a focus on development of a software as a service platform. A summary of our total software development expense in the third quarters of 2020 and 2019 is as follows:
 Three Months Ended
(In thousands)20202019
Software development costs$198,565 $197,122 
Capitalized software costs(71,525)(65,684)
Capitalized costs related to share-based payments(1,792)(698)
Amortization of capitalized software costs61,578 56,786 
Total software development expense$186,826 $187,526 
 
•
Sales and client service expenses as a percent of revenues were 50%
•General and administrative expenses as a percent of revenues were 9% in the third quarter of 2020, compared to 11% in the same period of 2019. These expenses decreased 23% to $117 million in the third quarter of 2020, from $152 million in the same period of 2019. General and administrative expenses include salaries and benefits for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, depreciation and amortization, transaction gains or losses on foreign currency, expense for share-based payments, certain organizational restructuring and other expense. The decrease in general and administrative expenses is primarily due to a reduction in expenses incurred in connection with our operational improvement initiatives, discussed above. We expect to incur additional expenses in connection with these efforts in future periods, which may be material. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.third quarter of 2019, compared to 45% in the same period of 2018. These expenses increased 17% to $708 million in the third quarter of 2019, from $606 million in the same period of 2018. Sales and client service expenses include salaries and benefits of sales, marketing, support, and services personnel, depreciation and other expenses associated with our managed services business, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs. The increase in sales and client service expenses was primarily driven by a $15 million increase in personnel expenses, inclusive of higher associate benefits costs; and a $60 million charge recognized in the third quarter of 2019 in connection with the termination of certain client contracts prior to the end of their stated terms. We expect the termination of such client contracts to reduce future revenues by approximately $170 million on an annualized basis. We do not expect a significant impact to future operating earnings, as the terminated contacts related to lower margin business.


•
Software development expenses as a percent of revenues were 13% in the
third quarter of both 2019 and 2018. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle and population health solutions. A summary of our total software development expense in the third quarters of 2019 and 2018 is as follows:
 Three Months Ended
(In thousands)2019 2018
    
Software development costs$197,122
 $185,039
Capitalized software costs(65,684) (65,682)
Capitalized costs related to share-based payments(698) (489)
Amortization of capitalized software costs56,786
 53,429
    
Total software development expense$187,526
 $172,297
•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the third quarter of both 2020 and 2019. These expenses decreased 40% to $13 million in the third quarter of 2020, from $21 million in the same period in2019. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business acquisitions. The decrease in amortization of acquisition-related intangibles is primarily due to the impact of certain intangible assets from the Health Services acquisition in February 2015 becoming fully amortized in the first quarter of 2020. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.

•
Gain on Sale of Businesses

The third quarter of 2020 includes a $217 million gain on sale of businesses. Refer to Note (7) of the Notes for further information regarding divestiture transactions that closed during the third quarter of 2020.
General and administrative expenses as a percent of revenues were 11% in the third quarter of 2019, compared to 8% in the same period of 2018. These expenses increased 48% to $152 million in the third quarter of 2019, from $103 million in the same period in 2018. General and administrative expenses include salaries and benefits for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, depreciation and amortization, transaction gains or losses on foreign currency, expense for share-based payments, certain organizational restructuring and other expense. The increase in general and administrative expenses is primarily driven by expenses incurred in the third quarter of 2019 in connection with our operational improvement initiatives discussed above; inclusive of $32 million of charges associated with employee separation benefits, as further discussed in Note (1) of the notes to condensed consolidated financial statements. We expect to incur additional expenses in connection with these efforts in future periods, which may be material.

•
Amortization of acquisition-related intangibles as a percent of revenues was 1% in the third quarter of 2019, compared to 2% in the same period of 2018. These expenses remained relatively flat at $21 million in the third quarter of 2019, and $22 million in the same period of 2018. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business acquisitions.

Non-Operating Items
 
•
•Other income, net was $48 million in the third quarter of 2020, compared to $14 million in the same period of 2019. The third quarter of 2020 includes a $49 million in the third quarter of 2019, compared to $7 million in the same period of 2018. The third quarter of 2019 includes a $9 million unrealized gain recognized on the disposition of one of our equity investments. The third quarter of 2019 includes a $9 million unrealized gain recognized on that same equity investment. The remaining difference is primarily attributable to increased interest expense in the third quarter of 2020, from the $600 million of revolving credit loans we borrowed under our Credit Agreement in May 2019, and the $300 million of Series 2020-A Notes we issued in March 2020.

•Our effective tax rate was 22.4% for the third quarter of 2020, compared to 19.9% for the same period of 2019. The increase in the effective tax rate in the third quarter of 2020 is primarily due to taxes associated with the divestiture transactions that closed in the third quarter of 2020, as further discussed in Note (7) of the Notes. Refer to Note (8) of the Notes for further discussion regarding our effective tax rate.


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•
Our effective tax rate was 19.9% for the third quarter of 2019, compared to 20.9% in the same period of 2018. The decrease in the effective tax rate in the third quarter of 2019 is primarily due to a reduction in unfavorable permanent book versus tax differences in 2019. Refer to Note (8) of the notes to condensed consolidated financial statements for further discussion regarding our effective tax rate.

Operations by Segment

We have two operating segments: Domestic and International (formerly referred to as Global).International. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The International segment includes revenue contributions and expenditures linked to business activity outside the United States, primarily from Australia, Canada, Europe, and the Middle East. Refer to Note (12) of the notes to condensed consolidated financial statementsNotes for further information regarding our reportable segments.


The following table presents a summary of our operating segment information for the third quarters of 20192020 and 2018:
2019:
(In thousands)2019 % of Revenue 2018 % of Revenue % Change  
          
Domestic Segment         
Revenues$1,265,263
 100% $1,188,154
 100% 6%
          
Costs of revenue246,634
 19% 202,980
 17% 22%
Operating expenses639,590
 51% 532,958
 45% 20%
Total costs and expenses886,224
 70% 735,938
 62% 20%
          
Domestic operating earnings379,039
 30%
452,216
 38% (16)%
          
International Segment         
Revenues164,165
 100% 151,919
 100% 8%
          
Costs of revenue25,144
 15% 27,352
 18% (8)%
Operating expenses68,153
 42% 67,220
 44% 1%
Total costs and expenses93,297
 57% 94,572
 62% (1)%
          
International operating earnings70,868
 43% 57,347
 38% 24%
          
Other, net(361,130)   (302,407)   19%
          
Consolidated operating earnings$88,777
   $207,156
   (57)%

(In thousands)2020% of Revenue2019% of Revenue% Change  
Domestic Segment
Revenues$1,230,769 100%$1,265,263 100%(3)%
Costs of revenue219,938 18%246,634 19%(11)%
Operating expenses566,777 46%639,590 51%(11)%
Total costs and expenses786,715 64%886,224 70%(11)%
Domestic operating earnings444,054 36%379,039 30%17%
International Segment
Revenues137,904 100%164,165 100%(16)%
Costs of revenue11,951 9%25,144 15%(52)%
Operating expenses58,626 43%68,153 42%(14)%
Total costs and expenses70,577 51%93,297 57%(24)%
International operating earnings67,327 49%70,868 43%(5)%
Other costs and expenses, net(316,430)(361,130)(12)%
Gain on sale of businesses216,869 — 
Consolidated operating earnings$411,820 $88,777 364%

Domestic Segment

•
Revenues increased 6%
•Revenues decreased 3% to $1.23 billion in the third quarter of 2020, from $1.27 billion in the same period of 2019. The decline in revenues is primarily attributable to the following:

◦The impact of the ongoing COVID-19 pandemic on our third quarter 2020 operations, with the largest impact in the areas of technology resale, professional services, and reimbursed travel revenues, as further discussed above.

◦The third quarter of 2020 includes a $42 million reduction in revenues due to the termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019.

◦The third quarter of 2020 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations, as further discussed in Note (7) of the Notes.

These declines are partially offset by increased implementation activity within our federal business; inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were 18% in the third quarter of 2020, compared to 19% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party resources associated with professional services revenue.
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•Operating expenses as a percent of revenues were 46% in the third quarter of 2020, compared to 51% in the same period of 2019. These expenses decreased 11% to $567 million in the third quarter of 2020, from $640 million in the same period of 2019. The decrease in operating expenses was primarily driven by a $9 million reduction in associate travel costs, and the third quarter of 2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above.

third quarter of 2019, from $1.19 billion in the same period of 2018. This increase was primarily driven by a $46 million increase in professional services revenue due to growth in implementation activity. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

•
Costs of revenue as a percent of revenues were 19% in the third quarter of 2019, compared to 17% in the same period of 2018. The higher costs of revenue as a percent of revenues was primarily driven by higher third-party costs associated with professional services revenue.

•
Operating expenses as a percent of revenues were 51% in the third quarter of 2019, compared to 45% in the same period of 2018. The higher operating expenses as a percent of revenues was primarily driven by the $60 million charge in connection with client contract terminations discussed above.

International Segment

•
Revenues increased 8%
•Revenues decreased 16% to $138 million in the third quarter of 2020, from $164 million in the same period of 2019. The decline in revenues is primarily due to a $22 million reduction from the sale of certain of our business operations primarily conducted in Germany and Spain, as further discussed in Note (7) of the Notes. Additionally, we believe the ongoing COVID-19 pandemic has negatively impacted our third quarter 2020 operations, as further discussed above. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were 9% in the third quarter of 2020, compared to 15% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

•Operating expenses as a percent of revenues were 43% in the third quarter of 2020, compared to 42% in the same period of 2019. These expenses decreased 14% to $59 million in the third quarter of 2020, from $68 million in the same period of 2019. The decrease in operating expenses is primarily due to the sale of certain of our business operations in Germany and Spain, as further discussed in Note (7) of the Notes.

third quarter of 2019, from $152 million in the same period of 2018. This increase was primarily driven by growth in managed services revenue. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

•
Costs of revenue as a percent of revenues were 15% in the third quarter of 2019, compared to 18% in the same period of 2018. The lower costs of revenue as a percent of revenues was primarily driven by a lower mix of technology resale revenue, which carries a higher cost of revenue.

•
Operating expenses remained relatively flat at $68 million in the third quarter of 2019, and $67 million in the same period of 2018.

Other net

Costs and Expenses, Net

Operating resultscosts and expenses not attributed to an operating segment include expenses such as software development, general and administrative expenses, share-based compensation expense, certain amortization and depreciation, certain organizational restructuring and other expense. These expenses increased 19%decreased 12% to $361$316 million in the third quarter of 2019,2020, from $302

$361 million in the same period of 2018.2019. The increasedecrease is primarily due to a reduction in expenses incurred in the third quarter of 2019 in connection with our operational improvement initiatives, discussed above; inclusiveabove.
30
Table of $32 million of charges associated with employee separation benefits, as further discussed in Note (1) of the notesContents

Nine Months Ended September 30, 2020 Compared to condensed consolidated financial statements.

Nine Months Ended September 28, 2019 Compared to Nine Months Ended
September 29, 2018
The following table presents a summary of our operating information for the first nine months of 20192020 and 2018:2019:

(In thousands)2020% of
Revenue		2019% of
Revenue		% Change  
Revenues$4,110,763 100 %$4,250,366 100 %(3)%
Costs of revenue698,268 17 %793,655 19 %(12)%
Margin3,412,495 83 %3,456,711 81 %(1)%
Operating expenses
Sales and client service1,907,138 46 %2,026,825 48 %(6)%
Software development551,101 13 %548,934 13 %— %
General and administrative391,000 10 %398,305 9 %(2)%
Amortization of acquisition-related intangibles43,031 1 %64,809 2 %(34)%
Total operating expenses2,892,270 70 %3,038,873 71 %(5)%
Total costs and expenses3,590,538 87 %3,832,528 90 %(6)%
Gain on sale of businesses216,869 5 %— — %
Operating earnings737,094 18 %417,838 10 %76 %
Other income, net78,247 44,973 
Income taxes(176,758)(87,688)
Net earnings$638,583 $375,123 70 %
(In thousands)2019 
% of
Revenue
 2018 
% of
Revenue
 % Change  
          
Revenues$4,250,366
 100% $4,000,661
 100% 6 %
Costs of revenue793,655
 19% 700,393
 18% 13 %
          
Margin3,456,711
 81% 3,300,268
 82% 5 %
          
Operating expenses         
Sales and client service2,026,825
 48% 1,830,999
 46% 11 %
Software development548,934
 13% 502,192
 13% 9 %
General and administrative398,305
 9% 290,547
 7% 37 %
Amortization of acquisition-related intangibles64,809
 2% 65,872
 2% (2)%
          
Total operating expenses3,038,873
 71% 2,689,610
 67% 13 %
          
Total costs and expenses3,832,528
 90% 3,390,003
 85% 13 %
          
Operating earnings417,838
 10% 610,658
 15% (32)%
          
Other income, net44,973
   18,404
    
Income taxes(87,688)   (130,323)    
          
Net earnings$375,123
   $498,739
   (25)%

Revenues

Revenues increased 6%decreased 3% to $4.25$4.11 billion in the first nine months of 2019,2020, as compared to $4.00$4.25 billion in the same period of 2018. This increase was2019. The decline in revenues is primarily driven by a $138 million increaseattributable to the following:

•The impact of the ongoing COVID-19 pandemic on our operations during the first nine months of 2020, with the largest impact in the areas of licensed software, technology resale, professional services, revenueand reimbursed travel revenues, as further discussed above.

•The first nine months of 2020 includes a $126 million reduction in revenues due to growththe termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019.

•The first nine months of 2020 includes a $22 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain, as further discussed in Note (7) of the Notes.

•The first nine months of 2020 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations, as further discussed in Note (7) of the Notes.

These declines are partially offset by increased implementation activity within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and growththe U.S. Department of Veterans Affairs. In the first nine months of 2020, 17% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to 11% in licensed software revenuethe same period of $59 million as a result of continued demand for our solutions.2019. Refer to Note (2) of the notes to condensed consolidated financial statementsNotes for further information regarding revenues disaggregated by our business models.

Costs of Revenue

Costs of revenue as a percent of revenues were 19%17% in the first nine months of 2019,2020, compared to 18%19% in the same period of 2018.2019. The higherlower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel
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revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party costsresources associated with professional services and support and maintenance revenue.

Operating Expenses

Total operating expenses increased 13%decreased 5% to $3.04$2.89 billion in the first nine months of 2019, as2020, compared to $2.69$3.04 billion in the same period of 2018.2019.
 
•
Sales and client service expenses as a percent of revenues were 48%
•Sales and client service expenses as a percent of revenues were 46% in the first nine months of 2020, compared to 48% in the same period of 2019. These expenses decreased 6% to $1.91 billion in the first nine months of 2020, from $2.03 billion in the same period of 2019. The decrease in sales and client service expenses was primarily driven by a $35 million reduction in associate travel costs; the first nine months of 2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above; and the first nine months of 2019 included a $20 million charge in connection with a client dispute. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.nine months of 2019, compared to 46% in the same period of 2018. These expenses increased 11% to $2.03 billion in the first nine months of 2019, from $1.83 billion in the same period of 2018. The increase in sales and client service expenses was primarily driven by a $64 million increase in personnel expenses, inclusive of hiring of personnel to support growth in professional services revenue; a $21 million increase in bad debt expense related to client receivables; a $60 million charge recognized in the first nine months of 2019 in connection with the termination of certain client contracts prior to the end of their stated terms; and a $20 million charge in connection with a client dispute recognized in the first nine months of 2019. Refer to Note (11) of the notes to condensed consolidated financial statements for further information regarding such client dispute.

•
Software development expenses as a percent of revenues were 13% in the first nine months of both 2019 and 2018. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle and population health solutions. A summary of our total software development expense in the first nine months of 2019 and 2018 is as follows:
 Nine Months Ended
(In thousands)2019 2018
    
Software development costs$591,182
 $555,743
Capitalized software costs(209,458) (207,539)
Capitalized costs related to share-based payments(1,826) (1,583)
Amortization of capitalized software costs169,036
 155,571
    
Total software development expense$548,934
 $502,192

•Software development expenses as a percent of revenues were 13% in the first nine months of both 2020 and 2019. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle, population health management, and health network solutions. In addition, the first nine months of 2020 includes costs incurred in connection with our efforts to modernize our platforms, with a focus on development of a software as a service platform. A summary of our total software development expense in the first nine months of 2020 and 2019 is as follows:
 Nine Months Ended
(In thousands)20202019
Software development costs$592,025 $591,182 
Capitalized software costs(219,879)(209,458)
Capitalized costs related to share-based payments(4,831)(1,826)
Amortization of capitalized software costs183,786 169,036 
Total software development expense$551,101 $548,934 
 
•
General and administrative expenses as a percent of revenues were 9% in the first nine months 2019, compared to 7% in the same period of 2018. These expenses increased 37% to $398 million in the first nine months of 2019, from $291 million in the same period of 2018. The increase in general and administrative expenses is primarily driven by expenses incurred in the first nine months of 2019 in connection with our operational improvement initiatives discussed above; inclusive of $73 million of charges associated with employee separation benefits, as further discussed in Note (1) of the notes to condensed consolidated financial statements.
•General and administrative expenses as a percent of revenues were 10% in the first nine months of 2020, compared to 9% in the same period of 2019. These expenses decreased 2% to $391 million in the first nine months of 2020, from $398 million in the same period of 2019. The decrease in general and administrative expenses includes the impact of the first nine months of 2019 including a $7 million charge to settle disputes with a former vendor. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses. In the first nine months of 2020, general and administrative expenses include $118 million of expenses incurred in connection with our operational improvement initiatives, discussed above, compared to $115 million in the same period of 2019. We expect to incur additional expenses in connection with these efforts in future periods, which may be material.

•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the first nine months of 2020, compared to 2% in the same period of 2019. These expenses decreased 34% to $43 million in the first nine months of 2020, from $65 million in the same period in2019. The decrease in amortization of acquisition-related intangibles is primarily due to the impact of certain intangible assets from the Health Services acquisition in February 2015 becoming fully amortized in the first quarter of 2020. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.
Gain on Sale of Businesses

The first nine months of 2020 includes a $217 million gain on sale of businesses. Refer to Note (7) of the Notes for further information regarding divestiture transactions that closed during the first nine months of 2020.
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•
Amortization of acquisition-related intangibles as a percent of revenues was 2% in the first nine months of both 2019 and 2018. These expenses remained relatively flat at $65 million in the first nine months of 2019, and $66 million in the same period of 2018.

Non-Operating Items
 
•
Other income, net was $45
•Other income, net was $78 million in the first nine months of 2020, compared to $45 million in the same period of 2019. The first nine months of 2020 includes a $76 million gain recognized on the disposition of one of our equity investments. The first nine months of 2019 includes a $9 million unrealized gain recognized on that same equity investment. The first nine months of 2019 also includes a $16 million gain recognized on the disposition of another one of our equity investments. The remaining difference is primarily attributable to increased interest expense in the first nine months of 2020, from the $600 million of revolving credit loans we borrowed under our Credit Agreement in May 2019, and the $300 million of Series 2020-A Notes we issued in March 2020.nine months of 2019, compared to $18 million in the same period of 2018. The first nine months of 2019 includes a $16 million gain recognized on the disposition of one of our equity investments and a $9 million unrealized gain recognized on another one of our equity investments.

•
Our effective tax rate was 18.9% for the first nine months of 2019, compared to 20.7% in the same period of 2018. The decrease in the effective tax rate in the first nine months of 2019 is primarily due to increased excess tax benefits recognized as a component of income tax expense due to elevated stock option exercise activity. Refer to Note (8) of the notes to condensed consolidated financial statements for further discussion regarding our effective tax rate.



•Our effective tax rate was 21.7% for the first nine months of 2020, compared to 18.9% for the same period of 2019. The increase in the effective tax rate in the first nine months of 2020 is primarily due to a decrease in net excess tax benefits recognized as a component of income tax expense in connection with the exercise of stock options and the vesting of restricted share and share unit awards. Also contributing to the increase, are taxes associated with the divestiture transactions that closed in the third quarter of 2020, as further discussed in Note (7) of the Notes. Refer to Note (8) of the Notes for further discussion regarding our effective tax rate.

Operations by Segment

The following table presents a summary of our operating segment information for the first nine months of 20192020 and 2018:2019:

(In thousands)2020% of Revenue2019% of Revenue% Change  
Domestic Segment
Revenues$3,645,397 100%$3,762,205 100%(3)%
Costs of revenue638,284 18%719,119 19%(11)%
Operating expenses1,724,545 47%1,817,244 48%(5)%
Total costs and expenses2,362,829 65%2,536,363 67%(7)%
Domestic operating earnings1,282,568 35%1,225,842 33%5%
International Segment
Revenues465,366 100%488,161 100%(5)%
Costs of revenue59,984 13%74,536 15%(20)%
Operating expenses182,594 39%209,580 43%(13)%
Total costs and expenses242,578 52%284,116 58%(15)%
International operating earnings222,788 48%204,045 42%9%
Other costs and expenses, net(985,131)(1,012,049)(3)%
Gain on sale of businesses216,869 — 
Consolidated operating earnings$737,094 $417,838 76%
(In thousands)2019 % of Revenue 2018 % of Revenue % Change  
          
Domestic Segment         
Revenues$3,762,205
 100% $3,525,314
 100% 7%
          
Costs of revenue719,119
 19% 617,839
 18% 16%
Operating expenses1,817,244
 48% 1,604,297
 46% 13%
Total costs and expenses2,536,363
 67% 2,222,136
 63% 14%
          
Domestic operating earnings1,225,842
 33% 1,303,178
 37% (6)%
          
International Segment         
Revenues488,161
 100% 475,347
 100% 3%
          
Costs of revenue74,536
 15% 82,554
 17% (10)%
Operating expenses209,580
 43% 209,771
 44% —%
Total costs and expenses284,116
 58% 292,325
 61% (3)%
          
International operating earnings204,045
 42% 183,022
 39% 11%
          
Other, net(1,012,049)   (875,542)   16%
          
Consolidated operating earnings$417,838
   $610,658
   (32)%

Domestic Segment
•
Revenues increased 7% to $3.76 billion in the first

nine months of 2019, from $3.53 billion in the same period of 2018. This increase was primarily driven by a $146 million increase in professional services revenue due to growth in implementation activity, and growth in licensed software revenue of $48 million as a result of continued demand for our solutions. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.
•
Costs of revenue as a percent of revenues were 19% in the first nine months of 2019, compared to 18% in the same period of 2018. The higher costs of revenue as a percent of revenues was primarily driven by higher third-party costs associated with professional services revenue.
•
Operating expenses as a percent of revenues were 48% in the first nine months of 2019, compared to 46% in the same period of 2018. The higher operating expenses as a percent of revenues was primarily driven by the $60 million charge in connection with client contract terminations and the $20 million charge in connection with a client dispute, both recognized in the first nine months of 2019 and discussed above.

International Segment
•
Revenues increased 3% to $488 million in the first nine months of 2019, from $475 million in the same period of 2018. This increase was primarily driven by growth in managed services revenue. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.
•
Costs of revenue as a percent of revenues were 15% in the first nine months of 2019, compared to 17% in the same period of 2018. The lower costs of revenue as a percent of revenues was primarily driven by a lower mix of technology resale revenue, which carries a higher cost of revenue.
•
Operating expenses were flat at $210 million in the first nine months of both 2019 and 2018.

Other, net
These expenses increased 16%•Revenues decreased 3% to $1.01$3.65 billion in the first nine months of 2020, from $3.76 billion in the same period of 2019. The decline in revenues is primarily attributable to the following:

◦The impact of the ongoing COVID-19 pandemic on our operations during the first nine months of 2020, with the largest impact in the areas of licensed software, technology resale, professional services, and reimbursed travel revenues, as further discussed above.

◦The first nine months of 2020 includes a $126 million reduction in revenues due to the termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019.

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◦The first nine months of 2020 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations, as further discussed in Note (7) of the Notes.

These declines are partially offset by increased implementation activity within our federal business; inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were 18% in the first nine months of 2020, compared to 19% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

•Operating expenses as a percent of revenues were 47% in the first nine months of 2020, compared to 48% in the same period of 2019. These expenses decreased 5% to $1.72 billion in the first nine months of 2020, from $1.82 billion in the same period of 2019. The decrease in operating expenses was primarily driven by a $27 million reduction in associate travel costs; the first nine months of 2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above; and the first nine months of 2019 included a $20 million charge in connection with a client dispute.

International Segment

•Revenues decreased 5% to $465 million in the first nine months of 2020, from $876$488 million in the same period of 2018.2019. The increasedecline in revenues is primarily due to a $22 million reduction from the sale of certain of our business operations primarily conducted in Germany and Spain, as further discussed in Note (7) of the Notes. Additionally, we believe the ongoing COVID-19 pandemic has negatively impacted our operations for the first nine months of 2020, as further discussed above. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were 13% in the first nine months of 2020, compared to 15% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

•Operating expenses as a percent of revenues were 39% in the first nine months of 2020, compared to 43% in the same period of 2019. These expenses decreased 13% to $183 million in the first nine months of 2020, from $210 million in the same period of 2019. The decrease in operating expenses is primarily due to the sale of certain of our business operations in Germany and Spain, as further discussed in Note (7) of the Notes.

Other Costs and Expenses, net

These expenses decreased 3% to $985 million in the first nine months of 2020, from $1.01 billion in the same period of 2019. The decrease is primarily due to decreased expenses incurred in the first nine months of 2019 in connection with2020 as a result of our operational

improvement initiatives, discussed above; inclusive of $73 million of charges associated with employee separation benefits, as further discussed in Note (1) of the notes to condensed consolidated financial statements.above.

Liquidity and Capital Resources
Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients and the amount we invest in software development, acquisitions, capital expenditures, and our share repurchase and dividend programs.
Our principal sources of liquidity are our cash, cash equivalents, which primarily consist of money market funds commercial paper and time deposits with original maturities of less than 90 days, short-term investments, and borrowings under our Credit Agreement.Agreement and other sources of debt financing. At September 28, 2019,30, 2020, we had cash and cash equivalents of $496$419 million and short-term investments of $136$473 million, as compared to cash and cash equivalents of $374$442 million and short-term investments of $401$100 million at December 29, 2018.28, 2019.

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We maintainhave entered into a $700 million Credit Agreement which expires in May 2024. The Credit Agreementwith a syndicate of lenders that provides for an unsecured $1.00 billion revolving line of credit loan facility, along with a letter of credit facility.facility up to $100 million (which is a sub-facility of the $1.00 billion revolving credit loan facility). We have the ability to increase the maximum capacity to $1$1.20 billion at any time during the Credit Agreement's term, subject to lender participation and the satisfaction of specified conditions. The Credit Agreement expires in May 2024. As of September 28, 2019,30, 2020, we had outstanding revolving credit loans and letters of credit of $600 million and $30 million, respectively; which reduced our available borrowing capacity to $70 million. Refer$370 million under the Credit Agreement.

We have also entered into note purchase agreements pursuant to which we may issue and sell unsecured senior promissory notes to those purchasers electing to purchase. See Note (5) of the notes to condensed consolidated financial statementsNotes for additional information regarding our Credit Agreement.further information.

We believe that our present cash position, together with cash generated from operations, short-term investments and, if necessary,as appropriate, remaining availability under our Credit Agreement and other sources of debt financing, will be sufficient to meet anticipated cash requirements for the next 12 months.
The following table summarizes our cash flows in the first nine months of 20192020 and 2018:2019:
 Nine Months Ended
(In thousands)20202019
Cash flows from operating activities$924,045 $875,524 
Cash flows from investing activities(596,825)(436,387)
Cash flows from financing activities(345,527)(312,805)
Effect of exchange rate changes on cash(4,382)(4,028)
Total change in cash and cash equivalents(22,689)122,304 
Cash and cash equivalents at beginning of period441,843 374,126 
Cash and cash equivalents at end of period$419,154 $496,430 
Free cash flow (non-GAAP)$461,282 $275,652 
 Nine Months Ended
(In thousands)2019 2018
    
Cash flows from operating activities$875,524
 $1,047,120
Cash flows from investing activities(436,387) (562,094)
Cash flows from financing activities(312,805) (345,704)
Effect of exchange rate changes on cash(4,028) (11,631)
Total change in cash and cash equivalents122,304
 127,691
    
Cash and cash equivalents at beginning of period374,126
 370,923
    
Cash and cash equivalents at end of period$496,430
 $498,614
    
Free cash flow (non-GAAP)$275,652
 $532,047

Cash from Operating Activities
Nine Months Ended Nine Months Ended
(In thousands)2019 2018(In thousands)20202019
   
Cash collections from clients$4,233,269
 $3,992,200
Cash collections from clients$4,085,527 $4,233,269 
Cash paid to employees and suppliers and other(3,271,818) (2,976,974)Cash paid to employees and suppliers and other(3,051,302)(3,271,818)
Cash paid for interest(20,756) (15,568)Cash paid for interest(31,661)(20,756)
Cash paid for taxes, net of refunds(65,171) 47,462
Cash paid for taxes, net of refunds(78,519)(65,171)
   
Total cash from operations$875,524
 $1,047,120
Total cash from operations$924,045 $875,524 

Cash flows from operations decreased $172increased $49 million in the first nine months of 20192020 when compared to the same period of 2018,2019, due primarily to net refundsan increase in cash impacting earnings. This increase also includes the impact of $56 million of certain federal payroll taxes related to pay cycles in 2018 along with cash paymentsthe second and third quarters of 2020, for which we have deferred remittance to the taxing authority as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). We expect to continue to defer the remittance of such payroll taxes for the remainder of 2020, as permitted by the CARES Act, for which the remittances to the taxing authority are to be paid in 2019 associated with our operational improvement initiatives discussed above.equal amounts at the end of 2021 and 2022, respectively. Days sales outstanding was 7481 days in the third quarter of 2019, compared to 78 days for2020 and the second quarter of 2019 and 822020, compared to 74 days for the third quarter of 2018.2019.


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Cash from Investing Activities
 Nine Months Ended
(In thousands)20202019
Capital purchases$(238,053)$(388,588)
Capitalized software development costs(224,710)(211,284)
Purchases of investments, net of sales and maturities(298,069)189,279 
Purchases of other intangibles(29,698)(25,794)
Sale of businesses229,471 — 
Acquisition of businesses, net of cash acquired(35,766)— 
Total cash flows from investing activities$(596,825)$(436,387)
 Nine Months Ended
(In thousands)2019 2018
    
Capital purchases$(388,588) $(305,951)
Capitalized software development costs(211,284) (209,122)
Sales and maturities of investments, net of purchases189,279
 (22,717)
Purchases of other intangibles(25,794) (24,304)
    
Total cash flows from investing activities$(436,387) $(562,094)

Cash flows from investing activities consist primarily of capital spending, investment, acquisition, and short-term investmentdivestiture activities.

Our capital spending in the first nine months of 20192020 was driven by capitalized equipment purchases primarily to support growth in our managed services business, investments in a cloud infrastructure to support cloud-based solutions, building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives. Total capital spendingCapital purchases for 2019 isthe remainder of 2020 are expected to exceed 2018continue to be below 2019 levels, primarily driven by spendingreduced purchases to support our facilities requirements, includingreflective of the continuedcompletion of construction on the current phases of our Innovations Campus.Campus in the third quarter of 2020.

Short-term investment activity historically consists of the investment of cash generated by our business in excess of what is necessary to fund operations. The 2020 activity includes the investment of proceeds from the sale of certain business operations in the third quarter of 2020, as discussed below. The 2019 and 2018 activity iswas impacted by excess cash being usedchanges made to execute on our capital allocation strategy, including share repurchases discussed below. Additionally, our investment mix, has changed such that our excess funds arewere more heavily held in cash and cash equivalents versus short-term and long-term investments.

Investment activity also includes the sale of one of our equity investments primarily duein August 2020 for cash proceeds of $90 million. Refer to interest rates currently available on cash deposits.

On October 17, 2019, we entered into a Purchase Agreement to acquire allNote (4) of the issued and outstanding membership interestsNotes for further information regarding this investment.

In the second quarter of AbleVets, LLC,2020, we paid $35 million of purchase price consideration in connection with our acquisition of a Virginia limited liability company ("AbleVets"). AbleVets is a health IT engineering and consulting company specializing in providing cybersecurity cloud and system development solutions for federal organizations. Consideration for this acquisition is expected to total $75clients in the healthcare industry. In the first quarter of 2020, we paid $1 million of purchase price consideration in cash, subject to working capital and certain other adjustments. We expectconnection with our October 2019 acquisition of AbleVets, to close in the fourth quarterLLC, upon finalization of 2019, subject to satisfaction of customary closing conditions.

working capital adjustments. We expect to continue seeking and completing strategic business acquisitions, investments, and relationships that are complementary to our business.

On July 1, 2020, we sold certain of our business operations, primarily conducted in Germany and Spain, for cash proceeds of $224 million. We also sold certain of our revenue cycle outsourcing business operations on August 3, 2020. Refer to Note (7) of the Notes for further information regarding these sales. We expect to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives discussed above.

Cash from Financing Activities
 Nine Months Ended
(In thousands)20202019
Long-term debt issuance$300,000 $600,000 
Repayment of long-term debt(2,500)— 
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)180,057 173,480 
Treasury stock purchases(650,000)(1,020,542)
Dividends paid(166,277)(57,293)
Other(6,807)(8,450)
Total cash flows from financing activities$(345,527)$(312,805)

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 Nine Months Ended
(In thousands)2019 2018
    
Long-term debt issuance$600,000
 $—
Repayment of long-term debt—
 (75,000)
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)173,480
 72,252
Treasury stock purchases(1,020,542) (345,210)
Dividends paid(57,293) —
Other(8,450) 2,254
    
Total cash flows from financing activities$(312,805) $(345,704)
In March 2020, we issued $300 million aggregate principal amount of 2.50% senior unsecured Series 2020-A notes. In May 2019, we borrowed $600 million of revolving credit loans.loans under our Credit Agreement. Refer to Note (5) of the notes to condensed consolidated financial statementsNotes for additionalfurther information regarding our Credit Agreement.these obligations.

In March 2018, we repaid our $75 million floating rate Series 2015-C Notes due February 15, 2022.

We expect tomay incur additional indebtedness in the next 12 months, for which will primarily be dependent on cash flows from operations as well as the amounttiming of business acquisition and timing is yet to be determined.capital allocation activity. The proceeds from such indebtedness are expected towould be deployed in accordance with our current capital allocation strategy, which may include share repurchases and dividend payments (as discussed further below), as well as for general corporate purposes, including acquisitions and investments. The terms and availability of any such debt financing may be impacted by

economic and financial market conditions, as well as our financial condition and results of operations at the time we seek such financing, and there can be no assurances that we willwould be able to obtain such financing on terms that will be acceptable or advantageous to us.

Cash inflows from stock option exercises are dependent on a number of factors, including the price of our common stock, grant activity under our stock option and equity plans, and overall market volatility. We expect net cash inflows from stock option exercises to continue throughout 20192020 based on the number of exercisable options as of September 28, 201930, 2020 and our current stock price.

During the first nine months of 20192020 and 2018,2019, we repurchased 9.2 million shares of our common stock for total consideration of $650 million and 14.4 million shares of our common stock for total consideration of $1.0 billion, and 5.7 million shares of our common stock for total consideration of $345 million, respectively. As of September 28, 2019, $483 million30, 2020, $1.03 billion remains available for repurchase under our currentshare repurchase program. We expect tomay continue to repurchase shares under this program in the next 12 months, which2020, but such repurchases will be dependent on a number of factors, including the price of our common stock. Although we expect to continue to repurchase shares, therestock and other cash flow needs. There is no assurance that we will repurchase up to the full amount remaining under the program.

On September 10,December 12, 2019, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on OctoberJanuary 9, 20192020 to shareholders of record as of September 25,December 27, 2019. On May 29, 2019,March 19, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on April 17, 2020 to shareholders of record as of April 3, 2020. On May 21, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on July 26, 201917, 2020 to shareholders of record as of June 18, 2019.5, 2020. On September 10, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on October 13, 2020 to shareholders of record as of September 25, 2020. Subject to declaration by our Board of Directors, we expect to continue paying quarterly cash dividends as a part of our current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of our Board of Directors and compliance with covenants under our outstanding debt agreements.

The source of funds for such repurchases and dividends may include cash generated from operations, liquidation of investment holdings and other dispositions of assets, and the incurrence of indebtedness. Refer to Note (10) of the notes to condensed consolidated financial statementsNotes for further information regarding our share repurchase and dividend programs.

Free Cash Flow (Non-GAAP)
 Three Months EndedNine Months Ended
(In thousands)2020201920202019
Cash flows from operating activities (GAAP)$381,949 $351,448 $924,045 $875,524 
Capital purchases(71,757)(110,714)(238,053)(388,588)
Capitalized software development costs(73,317)(66,382)(224,710)(211,284)
Free cash flow (non-GAAP)$236,875 $174,352 $461,282 $275,652 
 Three Months Ended Nine Months Ended
(In thousands)2019 2018 2019 2018
        
Cash flows from operating activities (GAAP)$351,448
 $338,454
 $875,524
 $1,047,120
Capital purchases(110,714) (116,957) (388,588) (305,951)
Capitalized software development costs(66,382) (66,171) (211,284) (209,122)
        
Free cash flow (non-GAAP)$174,352
 $155,326
 $275,652
 $532,047

Free cash flow decreased $256increased $186 million in the first nine months of 20192020 compared to the same period in 2018,2019, primarily due to a decrease in cash from operations along with increasedreduced capital expenditures. Free cash flow is a non-GAAP financial measure used by management, along with GAAP results, to analyze our earnings quality and overall cash generation of the business, and for management compensation purposes. We define free cash flow as cash flows from operating activities reduced by capital purchases and capitalized software development costs. The table above sets forth a reconciliation of free cash flow to cash flows from operating activities, which we believe is the GAAP financial measure most directly comparable to free cash flow. The presentation of free cash flow is not meant to be considered in isolation, nor as a substitute for, or superior to, GAAP results, and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with
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our consolidated financial statements prepared in accordance with GAAP. Free cash flow may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe free cash flow is important to enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance, because free cash flow takes into account certain capital expenditures necessary to operate our business.


Contractual Obligations, Commitments and Off Balance Sheet Arrangements

In July 2019 we entered into an agreement with a certain vendor to purchase $650 million of cloud computing services over an initial 10-year period ending in 2029.

Forward Looking Statements

All statements contained in this quarterly report on Form 10-Q that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner's management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words "will," "believe," "plans," "may," "expect," "expected," "anticipated," "mitigate," "strategy," "continue," "opportunities," "future""future," "estimate" or "estimate""predict" or the negative of these words, variations thereof or similar expressions are intended to identify such forward-looking statements. For example, our forward-looking statements include statements regarding our expectations, opportunities or plans for growth; our operational improvement initiatives and the results expected to be realized from those initiatives; our expectations with respect to realizing revenue from backlog; our anticipated expenses, cash requirements and sources of liquidity; the expected impact of the COVID-19 pandemic on our results of operations, financial condition, business and operations; and our capital allocation strategies and plans. These statements involve a number of risks, uncertainties and other factors that could cause or contribute to actual results differing materially, including without limitation: the possibility of significant costs and reputational harm related to product-relatedproduct and services-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities, or those of third parties with whom we have contracted (such as public cloud providers), that could expose us to significant costs and reputational harm; the possibility of increased expenses, exposure to legal claims and regulatory actions and reputational harm associated with a cyberattack or other breach in our IT security or the IT security of third parties on which we rely; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; potentialothers or subject to claims or other risks associated with relying onrelated to open source software in our proprietary software solutions or technology-enabled services;licenses; material adverse resolution of legal proceedings or other claims;claims or reputational harm stemming from negative publicity related to such claims or legal proceedings; risks associated with our internationalglobal operations, including without limitation, greater difficulty in collecting accounts receivable; risks associated with fluctuations in foreign currency exchange rates; changes in tax laws, regulations or guidance that could adversely affect our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; the uncertainty surrounding the impact of the departure of the United Kingdom from the European Union on our global business; risks associated with the unexpected loss or recruitment and retention of key personnel or the failure to successfully develop and execute succession planning to assure transitions of key associates and their knowledge, relationships and expertise; risks related to our dependence on strategic relationships and third party suppliers;suppliers, including any impact to the business of such suppliers resulting from the COVID-19 pandemic; risks inherent with business acquisitions and combinationsor strategic investments and the integration thereof into our business or relatingfailure to disputes involving such acquisitions or combinations;achieve projected synergies; risks associated with volatility and disruption resulting from global economic or market conditions;conditions, including any impact thereon resulting from events such as the COVID-19 pandemic; significant competition and our ability to anticipate or respond quickly respond to market changes, changing technologies and evolving pricing and deployment methods and to bring competitive new solutions, devices, features and services to market in a timely fashion; managing growth in the new markets in which we offer solutions, health care devices or services; long sales cycles for our solutions and services; risks inherent in contracting with government clients, including without limitation, complying with strict compliance and disclosure obligations, navigating complex procurement rules and processes and defending against bid protests; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; changes in accounting standards;impact of the phase-out of the London Interbank Offered Rate (LIBOR) on the interest rates under our financing agreements and the related interest rate swap related to the outstanding indebtedness under our Credit Agreement; the potential for losses resulting from asset impairment charges; changing political, economic, regulatory and judicial influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; non-compliance with laws, government regulation or certain industry initiatives or failure to deliver solutions or services that enable our clients to comply with laws or regulations applicable to their businesses; variations in our quarterly operating results; potential variations in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity;activity, including volatility resulting from the COVID-19 pandemic; inability to manage organizational changeachieve expected operating efficiencies and reduce expenses and costs to the extent currently anticipated;sustain or improve operating expense reductions; risks that Cerner’sCerner's revenue
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growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; risks that our capital allocation programsstrategy will not be fully implemented or enhance long-term shareholder value; and risks that Cerner's business may be negatively affected as a result of future proxy fights or the actions of activist shareholders.shareholders; and the extent to which the COVID-19 pandemic and measures taken in response thereto could adversely affect our financial condition, future bookings and results of operations, including risks associated with the impact of the COVID-19 pandemic on collecting accounts receivable. Additional discussion of these and other risks, uncertainties and factors affecting Cerner's business is contained in our filings with the Securities and Exchange Commission, including those under the caption "Risk Factors" in our latest annual report on Form 10-K and in this quarterly report on Form 10-Q, or in materials incorporated herein or therein by reference. Forward-looking statements are not guarantees of future performance or results. The reader should not place undue reliance on forward-looking statements since the statements speak only as of the date that they are made. Except as required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in our business, results of operations or financial condition over time.


Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.Risk

We are exposed to interest rate risk, primarily changes in LIBOR, related to outstanding revolving credit loans under our Credit Agreement. As of September 28, 2019, the interest rate on revolving credit loans outstanding was 2.84% based on LIBOR plus the applicable spread. In order to manage this exposure, we have entered into an interest rate swap agreement, to hedge the variability of cash flows associated with such interest obligations through May 2024. The interest rate swap effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. Refer to Note (5) of the notes to condensed consolidated financial statements for further information regarding outstanding indebtedness and our interest rate swap agreement.No material changes.

We have global operations, and as a result, we are exposed to market risk related to foreign currency exchange rate fluctuations. Foreign currency fluctuations through September 28, 2019 have not had a material impact on our financial position or operating results. We currently do not use currency hedging instruments, though we actively monitor our exposure to foreign currency fluctuations and may use hedging transactions in the future if management deems it appropriate. We believe most of our global operations are naturally hedged for foreign currency risk as our foreign subsidiaries invoice their clients and satisfy their obligations primarily in their local currencies. There can be no guarantee that the impact of foreign currency fluctuations in the future will not have a material impact on our financial position or operating results.

Item 4. Controls and Procedures.Procedures

a)Evaluation of Disclosure Controls and Procedures.
a)Evaluation of Disclosure Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the "Evaluation Date"). Based upon that evaluation, our CEO and CFO have concluded that, as of the Evaluation Date, our disclosure controls and procedures were designed, and were effective, to provide reasonable assurance that the information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

b)Changes in Internal Control over Financial Reporting.

b)Changes in Internal Control over Financial Reporting.

There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 28, 2019,30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

c)Limitations on Controls.
c)Limitations on Controls.

Our management can provide no assurance that our disclosure controls and procedures or our internal control over financial reporting can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


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Part II. Other Information

Item 1. Legal Proceedings

From time to time, we are involved in litigation which is incidental to our business. There have been no material developments to the legal proceedings previously reported in our 2019 annual report on Form 10-K (the "Form 10-K"), as supplemented by our quarterly reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. In our opinion, no litigation to which we are currently a party is likely to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

Item 1A. Risk Factors.Factors

Other thanFor information regarding risk factors that could affect our business, results of operations, financial condition or future results, see Part I, "Item 1A. Risk Factors" of the Form 10-K. In addition to the risk factors below, there were no material changes duringdisclosed therein, we are supplementing those identified in the quarter fromForm 10-K with the following risk factors previously discussed infactor, as described below. For further information on our forward-looking statements see Part I, Item 1A. Risk Factors in our latest annual2 of this quarterly report on Form 10-K.

10-Q.
Our
The extent to which the COVID-19 pandemic and measures taken in response thereto could materially adversely affect our financial condition, future bookings and results of operations will depend on future developments, which are highly uncertain and are difficult to predict. The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our Solutions and Services and conduct our business results dependoperations. It has caused us to modify our business practices (including requiring most of our employees to work remotely and restricting employee travel, developing social distancing plans for our associates and canceling or postponing in person participation in meetings, events and conferences), and we may take further actions as required by government authorities, our clients or as determined to be in the best interests of our employees, clients and business partners. These measures and our clients' focus on the pandemic have also resulted in delays in marketing, selling and implementing our Solutions and Services. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and our ability to successfully manage ongoing organizational changeperform critical functions could be harmed.

The magnitude and achieve cost savingsduration of the disruption and operating efficiency initiatives. Our Board of Directors has implementedresulting decline in business activity is uncertain. In particular, we have experienced and plans tomay continue to implement initiatives to reduce costs and increase operating efficiencies. There can be no assurance that we will realize, in full or in part, the anticipated benefits of these initiatives. Ourexperience a negative financial goals assume a level of productivity improvement and cost reduction. If we are unable to deliver these expected productivity improvements and reduction in expenses, while continuing to invest in business growth, or if the volume and nature of change overwhelms available resources, our business operations and financial results could be materially and adversely impacted. Our ability to successfully manage and execute these initiatives and realize expected savings and benefits in the amounts and at the times anticipated is important to our business success. Any failure to do so, which could result from our inability to successfully execute organizational change, cost-cutting initiatives and productivity improvement plans, changes in global or regional economic conditions, competition, changes in the industries in which we compete, unanticipated costs or charges, loss of key personnel and other factors described herein, could have a material adverse effect on our businesses, financial condition and results of operations.

Lower than expected revenue growth or shifts in our revenue mix could adversely affect our results of operations. Our revenue growth and mix could vary over timeimpact due to a number of factors, including timing of contracts signing, changeswithout limitation:

•Cerner's efforts and investments in assisting its clients in their response to the pandemic, which includes redirecting development and consulting resources and priorities, and waiving, deferring or reducing fees for COVID-19-related emergency expansions;
•Near-term declines in new business bookings as our clients focus on helping their patients during the crisis, rather than making new or expanded purchasing decisions;
•Longer-term declines in bookings for new Solutions and Services to the extent that the pandemic results in a sustained global or U.S. economic downturn;
•Delays in implementing our Solutions and Services, including delays in the healthpace of our end markets, unexpected client attrition,completion of existing projects, such as the MHS Genesis project with the U.S. Department of Defense and the mixU.S. Department of software, hardware, devices, maintenance, support and services revenues,Veterans Affairs’ Electronic Health Record Modernization project, while client resources are reallocated or dedicated to fighting the COVID-19 pandemic in the United States;
•Supply chain interruptions;
•Financial pressures being put on our clients, which carry different margin rates which can vary from period to period. Our operating results could be harmed by changesmay in revenue mix and costs, together with numerous other factors, including rapid growth in lower margin services business, declines in software, and growth in non-cash expenses, such as amortization and depreciation. Any one of these factors or the cumulative effects of certain of these factors mayturn result in significant fluctuationsa delay in collections or non-payment from our clients; and
•Financial pressures being put on our strategic investments for which we hold an equity interest increases the risk of asset impairment.

Accordingly, we expect the COVID-19 pandemic to have a negative impact on our revenues and results of operations. This variabilityoperations from our 2020 second quarter and unpredictability could result inbeyond. The size and duration of this impact is difficult to predict and forward-looking estimates provided by the Company are subject to the risks discussed herein.

The extent to which the COVID-19 pandemic will impact our failurefinancial condition and results of operations will depend on future developments, which are highly uncertain and difficult to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could decline.

Our business could be negatively affected as a result of any future proxy fight or the actions of activist shareholders. Although our engagement with activist shareholder Starboard Value LP and certain of its affiliates (collectively, "Starboard") was settled as a result of our entry into a cooperation agreement, future proxy contests or related activist activities with Starboard or other activist shareholders could adversely affect our business for a number of reasons,predict, including, but not limited to, the factduration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, its impact on our strategic
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investments, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts to our business as a result of the global or U.S. economic impact and any recession that respondinghas occurred or may occur in the future. There are no comparable recent events that provide guidance as to proxy conteststhe effect the COVID-19 pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.

Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other actions by activist shareholders can be costlycapital markets which has and time-consumingmay continue to impact our stock price. To the extent the COVID-19 pandemic adversely affects our business and can create perceived uncertaintiesfinancial results, it may also have the effect of heightening many of the other risks described under "Risk Factors" in the Form 10-K, such as those described in our risk factors titled "We depend on strategic relationships and third party suppliers and our revenue and operating earnings could suffer if we fail to manage these relationships properly," "Volatility and disruption resulting from global economic or market conditions could negatively affect our business, results of operations and financial condition", "We operate in intensely competitive and dynamic industries, and our ability to successfully compete and continue to grow our business depends on our ability to anticipate or respond quickly to market changes, changing technologies and evolving pricing and deployment methods and to bring competitive new Solutions and Services and features to market in a timely fashion", "Our success depends upon the recruitment and retention of key personnel”, and those under the heading "Risks Related to our future direction and governance that may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and others important to our success. Any future proxy contest or activist activities could also cause our stock price to experience periods of volatility. Further, if a proxy contest or a related settlement results in a change in the composition of our Board of Directors it could, in certain circumstances, give third parties certain rights under our existing contractual obligations, which could adversely affect our business.Common Stock."


The interest rates under our Credit Agreement and related interest rate swap may be impacted by the phase-out of the London Interbank Offered Rate ("LIBOR"). LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rates on loans globally. We generally use LIBOR as a reference rate to calculate interest rates under our Credit Agreement. In 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate ("SOFR"), calculated using short-term repurchase agreements backed by Treasury securities. Whether or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question. If LIBOR ceases to exist, we will need to agree upon a replacement index with the banks under our Credit Agreement and related interest rate swap, and certain of the interest rates under our Credit Agreement may change. The new rates may not be as favorable to us as those in effect prior to any LIBOR phase-out.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds

(c) Issuer Purchases of Equity Securities

The table below provides information with respect to Common Stock purchases by the Company during the third fiscal quarter of 2019.2020.
  Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a)
Period    
June 30, 2019 - July 27, 2019 —
 $—
 —
 $883,346,876
July 28, 2019 - August 24,2019 4,762,581
 70.86
 4,762,581
 545,886,829
August 25, 2019 - September 28, 2019 911,061
 68.52
 911,061
 483,460,421
         
Total 5,673,642
 $70.48
 5,673,642
  

(a)As announced onTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)Approximate Dollar Value of Shares That May 21, 2018, our Board of Directors approved an amendment to our repurchase program that allowed forYet Be Purchased Under the Company to repurchase up to an aggregate of $1.0 billion of shares of our common stock, excluding transaction costs. As announced on April 9, 2019, our Board of Directors approved a further amendment to this share repurchase program, authorizing the Company to repurchase up to an additional $1.2 billion of shares of our common stock, for an aggregate of $2.2 billion, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions,Plans or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the nine months ended Programs (a)
Period
July 1, 2020 - July 31, 2020— $— — $1,033,733,300 
August 1, 2020 - August 31, 2020— — — 1,033,733,300 
September 28, 2019, we repurchased 14.4 million shares for total consideration of $1.0 billion under the program pursuant to Rule 10b5-1 plans. As of1, 2020 - September 28, 2019, $483 million remains available for repurchase under the amended program. Refer to Note (10) of the notes to condensed consolidated financial statements for further information regarding our share repurchase program.30, 2020— — — 1,033,733,300 
Total— $— — 



(a)    Under our current share repurchase program, which was initially approved by our Board of Directors on May 23, 2017 (and announced May 25, 2017) and most recently amended on December 12, 2019 (as announced on December 13, 2019), the Company is authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the nine months ended September 30, 2020, we repurchased 9.2 million shares for total consideration of $650 million under the program pursuant to Rule 10b5-1 plans. As of September 30, 2020, $1.03 billion remains available for repurchase under the program. Refer to Note (10) of the Notes for further information regarding our share repurchase program.


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Item 6. Exhibits

(a)Exhibits
(a)10.1Exhibits
First Amendment to Master Note Agreement dated October 8, 2020, between Cerner Corporation and the Purchasers listed therein, incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed October 9, 2020
31.110.2*
10.3*
Cerner Corporation 2011 Omnibus Equity Incentive Plan - Time Based Restricted Stock Unit Agreement
31.1
Certification of Brent Shafer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2
Certification of Marc G. Naughton pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1
Certification of Brent Shafer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2
Certification of Marc G. Naughton pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF101.LABInline XBRL Taxonomy Extension Labels Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB104Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101.
*Indicates a management contract or compensatory plan or arrangement.


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SIGNATURES

Pursuant to the requirements 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
CERNER CORPORATIONRegistrant
Registrant
Date: October 25, 201929, 2020By:/s/ Marc G. Naughton
Marc G. Naughton
Executive Vice President and Chief
Financial Officer (duly authorized
officer and principal financial officer)