~~0000804753us-gaap:TreasuryStockMember2021-01-012021-03-31~~

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: ~~June~~September 30, 2021

☐ 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

CERNER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

43-1196944

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

2800 Rock Creek Parkway

North Kansas City,

64117

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CERN	The 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.


Class						Outstanding at ~~July 26,~~October 25, 2021
Common Stock, $0.01 par value per share						~~295,585,810~~294,222,760 shares

Table of Contents

CERNER CORPORATION

TABLE OF CONTENTS


Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of ~~June~~September 3 0 ,30, 2021 (unaudited) and December 31, 2020	1

	Condensed Consolidated Statements of Operations for the Three and ~~and S~~ixNine Months Ended ~~June~~Sept e mber 3 0 ,30, 2021 and ~~June~~Se ptember 3 0 ,30, 2020 (unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~June~~Septembe r 3 0 ,30, 2021 and Sept ember ~~June~~ 3 0 ,30, 2020 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 3 0 ,30, 2021 and ~~June~~September 3 0 ,30, 2020 (unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and ~~and Six~~Nine Months Ended ~~June~~Sept ember 3 0 ,30, 2021 and ~~June~~September 3 0 ,30, 2020 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	67

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2122

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3637

Item 4.	Controls and Procedures	3637

Part II.	Other Information:

Item 1.	Legal Proceedings	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3738

Item 6.	Exhibits	3839

Signatures

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of ~~June~~September 30, 2021 (unaudited) and December 31, 2020


(In thousands, except share data)	(In thousands, except share data)	2021		2020		(In thousands, except share data)	2021		2020

Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	246,404	$	615,615	Cash and cash equivalents	$	459,540	$	615,615
Short-term investments	Short-term investments	638,488		442,473		Short-term investments	322,634		442,473
Receivables, net	Receivables, net	1,237,230		1,168,712		Receivables, net	1,219,849		1,168,712
Inventory	Inventory	20,168		23,027		Inventory	25,389		23,027
Prepaid expenses and other	Prepaid expenses and other	398,510		401,160		Prepaid expenses and other	412,744		401,160
Total current assets	Total current assets	2,540,800		2,650,987		Total current assets	2,440,156		2,650,987

Property and equipment, net	Property and equipment, net	1,768,617		1,804,083		Property and equipment, net	1,717,630		1,804,083
Right-of-use assets	Right-of-use assets	95,666		104,536		Right-of-use assets	89,619		104,536
Software development costs, net	Software development costs, net	1,001,440		1,009,349		Software development costs, net	1,008,440		1,009,349
Goodwill	Goodwill	1,129,699		914,520		Goodwill	1,126,843		914,520
Intangible assets, net	Intangible assets, net	492,547		329,249		Intangible assets, net	476,067		329,249
Long-term investments	Long-term investments	497,350		510,220		Long-term investments	488,454		510,220
Other assets	Other assets	194,983		198,152		Other assets	195,951		198,152

Total assets	Total assets	$	7,721,102	$	7,521,096	Total assets	$	7,543,160	$	7,521,096

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity

Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	332,959	$	235,755	Accounts payable	$	311,196	$	235,755
Current installments of long-term debt	Current installments of long-term debt	225,000		0		Current installments of long-term debt	225,000		—
Deferred revenue	Deferred revenue	429,219		393,293		Deferred revenue	438,063		393,293
Accrued payroll and tax withholdings	Accrued payroll and tax withholdings	332,513		309,814		Accrued payroll and tax withholdings	344,879		309,814
Other current liabilities	Other current liabilities	223,203		229,764		Other current liabilities	232,187		229,764
Total current liabilities	Total current liabilities	1,542,894		1,168,626		Total current liabilities	1,551,325		1,168,626

Long-term debt	Long-term debt	1,611,154		1,336,069		Long-term debt	1,611,205		1,336,069
Deferred income taxes	Deferred income taxes	389,018		376,035		Deferred income taxes	389,843		376,035
Other liabilities	Other liabilities	151,552		157,799		Other liabilities	150,884		157,799
Total liabilities	Total liabilities	3,694,618		3,038,529		Total liabilities	3,703,257		3,038,529

Shareholders' Equity:	Shareholders' Equity:					Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 376,935,912 shares issued at June 30, 2021 and 373,224,832 shares issued at December 31, 2020		3,769		3,732
Common stock, $0.01 par value, 500,000,000 shares authorized, 378,558,251 shares issued at September 30, 2021 and 373,224,832 shares issued at December 31, 2020						Common stock, $0.01 par value, 500,000,000 shares authorized, 378,558,251 shares issued at September 30, 2021 and 373,224,832 shares issued at December 31, 2020	3,785		3,732
Additional paid-in capital	Additional paid-in capital	2,509,545		2,288,806		Additional paid-in capital	2,598,853		2,288,806
Retained earnings	Retained earnings	6,546,615		6,475,551		Retained earnings	6,656,679		6,475,551
Treasury stock, 77,455,570 shares at June 30, 2021 and 67,371,686 shares at December 31, 2020		(4,914,718)		(4,164,718)
Treasury stock, 82,216,073 shares at September 30, 2021 and 67,371,686 shares at December 31, 2020						Treasury stock, 82,216,073 shares at September 30, 2021 and 67,371,686 shares at December 31, 2020	(5,289,718)		(4,164,718)
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(118,727)		(120,804)		Accumulated other comprehensive loss, net	(129,696)		(120,804)
Total shareholders' equity	Total shareholders' equity	4,026,484		4,482,567		Total shareholders' equity	3,839,903		4,482,567

Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	7,721,102	$	7,521,096	Total liabilities and shareholders' equity	$	7,543,160	$	7,521,096

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
(In thousands, except per share data)	(In thousands, except per share data)	2021		2020		2021		2020		(In thousands, except per share data)	2021		2020		2021		2020

Revenues	Revenues	$	1,456,755	$	1,330,349	$	2,844,533	$	2,742,090	Revenues	$	1,467,976	$	1,368,673	$	4,312,509	$	4,110,763
Costs and expenses:	Costs and expenses:									Costs and expenses:
Costs of revenue	Costs of revenue	261,325		211,963		491,981		466,379		Costs of revenue	251,111		231,889		743,092		698,268
Sales and client service	Sales and client service	731,077		645,087		1,353,253		1,281,736		Sales and client service	651,010		625,402		2,004,263		1,907,138
Software development (Includes amortization of $65,247 and $130,097 for the three and six months ended June 30, 2021, respectively; and $61,197 and $122,208 for the three and six months ended June 30, 2020, respectively)		241,600		178,955		433,927		364,275
Software development (Includes amortization of $66,222 and $196,319 for the three and nine months ended September 30, 2021, respectively; and $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively)										Software development (Includes amortization of $66,222 and $196,319 for the three and nine months ended September 30, 2021, respectively; and $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively)	202,663		186,826		636,590		551,101
General and administrative	General and administrative	156,307		134,332		268,672		274,184		General and administrative	121,395		116,816		390,067		391,000
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	16,886		13,114		29,082		30,242		Amortization of acquisition-related intangibles	16,874		12,789		45,956		43,031

Total costs and expenses	Total costs and expenses	1,407,195		1,183,451		2,576,915		2,416,816		Total costs and expenses	1,243,053		1,173,722		3,819,968		3,590,538

Gain on sale of businesses										Gain on sale of businesses	—		216,869		—		216,869

Operating earnings	Operating earnings	49,560		146,898		267,618		325,274		Operating earnings	224,923		411,820		492,541		737,094

Other income (loss), net	Other income (loss), net	(1,678)		24,632		(472)		30,227		Other income (loss), net	(5,070)		48,020		(5,542)		78,247

Earnings before income taxes	Earnings before income taxes	47,882		171,530		267,146		355,501		Earnings before income taxes	219,853		459,840		486,999		815,341
Income taxes	Income taxes	(15,175)		(36,782)		(62,187)		(73,594)		Income taxes	(44,058)		(103,164)		(106,245)		(176,758)

Net earnings	Net earnings	$	32,707	$	134,748	$	204,959	$	281,907	Net earnings	$	175,795	$	356,676	$	380,754	$	638,583

Basic earnings per share	Basic earnings per share	$	0.11	$	0.44	$	0.68	$	0.92	Basic earnings per share	$	0.59	$	1.17	$	1.27	$	2.08
Diluted earnings per share	Diluted earnings per share	$	0.11	$	0.44	$	0.67	$	0.91	Diluted earnings per share	$	0.59	$	1.16	$	1.25	$	2.07
Basic weighted average shares outstanding	Basic weighted average shares outstanding	300,737		304,776		302,723		307,256		Basic weighted average shares outstanding	296,202		305,759		300,526		306,759
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	303,591		306,717		305,802		309,520		Diluted weighted average shares outstanding	298,714		308,366		303,423		309,124

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2021		2020		2021		2020

Net earnings	Net earnings	$	32,707	$	134,748	$	204,959	$	281,907	Net earnings	$	175,795	$	356,676	$	380,754	$	638,583
Foreign currency translation adjustment and other (net of taxes (benefit) of $250 and $(429) for the three and six months ended June 30, 2021, and $(88) and $337 for the three and six months ended June 30, 2020, respectively)		4,486		9,197		(4,505)		(11,349)
Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $736 and $2,245 for the three and six months ended June 30, 2021, and $(332) and $(6,682) for the three and six months ended June 30, 2020, respectively)		2,238		(1,007)		6,826		(20,315)
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(9) and $(80) for the three and six months ended June 30, 2021, and $494 and $215 for the three and six months ended June 30, 2020, respectively)		(27)		1,502		(244)		653
Foreign currency translation adjustment and other (net of taxes (benefit) of $(151) and $(580) for the three and nine months ended September 30, 2021, and $351 and $688 for the three and nine months ended September 30, 2020, respectively)										Foreign currency translation adjustment and other (net of taxes (benefit) of $(151) and $(580) for the three and nine months ended September 30, 2021, and $351 and $688 for the three and nine months ended September 30, 2020, respectively)	(13,259)		9,611		(17,764)		(1,738)
Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $748 and $2,993 for the three and nine months ended September 30, 2021, and $745 and $(5,937) for the three and nine months ended September 30, 2020, respectively)										Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $748 and $2,993 for the three and nine months ended September 30, 2021, and $745 and $(5,937) for the three and nine months ended September 30, 2020, respectively)	2,273		2,265		9,099		(18,050)
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $5 and $(75) for the three and nine months ended September 30, 2021, and $(73) and $142 for the three and nine months ended September 30, 2020, respectively)										Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $5 and $(75) for the three and nine months ended September 30, 2021, and $(73) and $142 for the three and nine months ended September 30, 2020, respectively)	17		(220)		(227)		433

Comprehensive income	Comprehensive income	$	39,404	$	144,440	$	207,036	$	250,896	Comprehensive income	$	164,826	$	368,332	$	371,862	$	619,228

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020

(unaudited)
Six Months Ended
(In thousands) 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 204,959 $ 281,907
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 354,567 343,941
Share-based compensation expense 101,891 72,580
Provision for deferred income taxes 3,232 12,884
Investment gains 0 (26,410)
Asset impairments 115,812 0
Changes in assets and liabilities (net of businesses acquired):
Receivables, net (41,751) (48,426)
Inventory 2,868 5,509
Prepaid expenses and other 9,914 (36,431)
Accounts payable 54,088 (31,711)
Accrued income taxes 11,585 26,358
Deferred revenue (676) (66,137)
Other accrued liabilities 3,080 8,032
Net cash provided by operating activities 819,569 542,096
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases (199,281) (166,296)
Capitalized software development costs (167,108) (151,393)
Purchases of investments (558,686) (91,957)
Sales and maturities of investments 380,156 81,022
Purchase of other intangibles (16,031) (20,656)
Acquisition of businesses, net of cash acquired (349,869) (35,766)
Net cash used in investing activities (910,819) (385,046)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance 500,000 300,000
Proceeds from exercise of stock options 154,900 156,908
Payments to taxing authorities in connection with shares directly withheld from associates (36,346) (14,217)
Treasury stock purchases (750,000) (650,000)
Dividends paid (135,260) (111,101)
Other (8,672) (4,159)
Net cash used in financing activities (275,378) (322,569)
Effect of exchange rate changes on cash and cash equivalents (2,583) (6,429)
Net decrease in cash and cash equivalents (369,211) (171,948)
Cash and cash equivalents at beginning of period 615,615 441,843
Cash and cash equivalents at end of period $ 246,404 $ 269,895


	Nine Months Ended
(In thousands)	2021		2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	380,754	$	638,583
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	535,816		518,987
Share-based compensation expense	157,165		110,500
Provision for deferred income taxes	3,582		21,554
Gain on sale of businesses	—		(216,869)
Investment gains	—		(75,834)
Asset impairments	117,739		—
Changes in assets and liabilities (net of businesses acquired):
Receivables, net	(33,948)		(78,695)
Inventory	(2,360)		8,206
Prepaid expenses and other	(2,091)		(36,664)
Accounts payable	27,467		(60,808)
Accrued income taxes	13,100		33,005
Deferred revenue	11,053		(32,071)
Other accrued liabilities	46,113		94,151

Net cash provided by operating activities	1,254,390		924,045

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases	(246,813)		(238,053)
Capitalized software development costs	(242,677)		(224,710)
Purchases of investments	(607,390)		(511,378)
Sales and maturities of investments	753,347		213,309
Purchase of other intangibles	(23,197)		(29,698)
Acquisition of businesses, net of cash acquired	(348,179)		(35,766)
Sale of businesses	—		229,471
Disposition of assets held for sale	9,349		—

Net cash used in investing activities	(705,560)		(596,825)

CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance	500,000		300,000
Repayment of long-term debt	—		(2,500)
Proceeds from exercise of stock options	214,577		202,680
Payments to taxing authorities in connection with shares directly withheld from associates	(62,159)		(22,623)
Treasury stock purchases	(1,125,000)		(650,000)
Dividends paid	(202,054)		(166,277)
Other	(18,441)		(6,807)

Net cash used in financing activities	(693,077)		(345,527)

Effect of exchange rate changes on cash and cash equivalents	(11,828)		(4,382)

Net decrease in cash and cash equivalents	(156,075)		(22,689)
Cash and cash equivalents at beginning of period	615,615		441,843

Cash and cash equivalents at end of period	$	459,540	$	419,154

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020

(unaudited)


		Common Stock			Additional Paid-in Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss, Net				Common Stock					Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss, Net
(In thousands)	(In thousands)	Shares	Amount								(In thousands)	Shares								Amount

Balance at December 28, 2019		367,635	$	3,676			$	1,905,171							$	5,934,909			$	(3,407,768)		$	(118,660)

Exercise of stock options and vests of restricted shares and share units		2,543	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, 2020		370,178	3,702		2,054,252				6,022,256				(4,057,768)				(159,363)

Exercise of stock options and vests of restricted shares and share units		1,009	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, 2020		371,187	$	3,712	$	2,120,341			$	6,101,402			$	(4,057,768)			$	(149,671)

Balance at December 31, 2020	Balance at December 31, 2020	373,225	$	3,732	$	2,288,806			$	6,475,551			$	(4,164,718)			$	(120,804)		Balance at December 31, 2020	373,225			$	3,732		$	2,288,806		$	6,475,551		$	(4,164,718)		$	(120,804)

Exercise of stock options and vests of restricted shares and share units	Exercise of stock options and vests of restricted shares and share units	824	8		31,471				—				—				—			Exercise of stock options and vests of restricted shares and share units	824			8		31,471			—			—			—

Employee share-based compensation expense	Employee share-based compensation expense	—	—		47,950				—				—				—			Employee share-based compensation expense	—			—		47,950			—			—			—

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				—				(4,620)			Other comprehensive income (loss)	—			—		—			—			—			(4,620)

Treasury stock purchases	Treasury stock purchases	—	—		—				—				(350,000)				—			Treasury stock purchases	—			—		—			—			(350,000)			—

Cash dividends declared ($0.22 per share)	Cash dividends declared ($0.22 per share)	—	—		—				(67,191)				—				—			Cash dividends declared ($0.22 per share)	—			—		—			(67,191)			—			—

Net earnings	Net earnings	—	—		—				172,252				—				—			Net earnings	—			—		—			172,252			—			—

Balance at March 31, 2021	Balance at March 31, 2021	374,049	3,740		2,368,227				6,580,612				(4,514,718)				(125,424)			Balance at March 31, 2021	374,049			3,740		2,368,227			6,580,612			(4,514,718)			(125,424)

Exercise of stock options and vests of restricted shares and share units	Exercise of stock options and vests of restricted shares and share units	2,887	29		87,377				—				—				—			Exercise of stock options and vests of restricted shares and share units	2,887			29		87,377			—			—			—

Employee share-based compensation expense	Employee share-based compensation expense	—	—		53,941				—				—				—			Employee share-based compensation expense	—			—		53,941			—			—			—

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				—				6,697			Other comprehensive income (loss)	—			—		—			—			—			6,697

Treasury stock purchases	Treasury stock purchases	—	—		—				—				(400,000)				—			Treasury stock purchases	—			—		—			—			(400,000)			—

Cash dividends declared ($0.22 per share)	Cash dividends declared ($0.22 per share)	—	—		—				(66,704)				—				—			Cash dividends declared ($0.22 per share)	—			—		—			(66,704)			—			—

Net earnings	Net earnings	—	—		—				32,707				—				—			Net earnings	—			—		—			32,707			—			—

Balance at June 30, 2021	Balance at June 30, 2021	376,936	$	3,769	$	2,509,545			$	6,546,615			$	(4,914,718)			$	(118,727)		Balance at June 30, 2021	376,936			3,769		2,509,545			6,546,615			(4,914,718)			(118,727)

Exercise of stock options and vests of restricted shares and share units																				Exercise of stock options and vests of restricted shares and share units	1,622			16		34,034			—			—			—

Employee share-based compensation expense																				Employee share-based compensation expense	—			—		55,274			—			—			—

Other comprehensive income (loss)																				Other comprehensive income (loss)	—			—		—			—			—			(10,969)

Treasury stock purchases																				Treasury stock purchases	—			—		—			—			(375,000)			—

Cash dividends declared ($0.22 per share)																				Cash dividends declared ($0.22 per share)	—			—		—			(65,731)			—			—

Net earnings																				Net earnings	—			—		—			175,795			—			—

Balance at September 30, 2021																				Balance at September 30, 2021	378,558			3,785		2,598,853			6,656,679			(5,289,718)			(129,696)

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, 2021 and September 30, 2020

(unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss, Net
(In thousands)	Shares	Amount

Balance at December 28, 2019	367,635	$	3,676	$	1,905,171	$	5,934,909	$	(3,407,768)	$	(118,660)

Exercise of stock options and vests of restricted shares and share units	2,543	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, 2020	370,178	3,702		2,054,252		6,022,256		(4,057,768)		(159,363)

Exercise of stock options and vests of restricted shares and share units	1,009	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, 2020	371,187	3,712		2,120,341		6,101,402		(4,057,768)		(149,671)

Exercise of stock options and vests of restricted shares and share units	1,086	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, 2020	372,273	$	3,723	$	2,196,127	$	6,402,220	$	(4,057,768)	$	(138,015)

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 quarterly report on Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using 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. Actual results could differ from those estimates.

All references to quarters or ~~six~~nine month periods ended 2021 and 2020 in these notes to condensed consolidated financial statements refer to the respective three and ~~six~~nine month periods ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, unless otherwise noted.

Employee Separation Costs

In connection with involuntary separation benefits, we recognized ~~$40~~less than $1 million and ~~$12~~$6 million of expenses in the ~~second~~third quarters of 2021 and 2020, respectively; and ~~$45~~$46 million and ~~$15~~$21 million of expenses during the first ~~six~~nine months of 2021 and 2020, respectively.

In connection with voluntary separation benefits, we recognized ~~$14~~$24 million and $2 million of expenses in the ~~second~~third quarters of 2021 and 2020, respectively; and ~~$27~~$51 million and ~~$15~~$18 million of expenses during the first ~~six~~nine months of 2021 and 2020, respectively.

Such employee separation costs are included in "General and administrative" expense in our condensed consolidated statements of operations.

At ~~June~~September 30, 2021, a liability of ~~$48~~$19 million for such obligations is included in "Accrued payroll and tax withholdings" in our condensed consolidated balance sheets.

Real Estate Held For Sale

In connection with our operational improvement initiatives, during the ~~second quarter of~~nine months ended September 30, 2021, we made certain decisions regarding the continued use of certain of our owned real estate. As a result of those decisions, on July 9, 2021, we sold office space located in Kansas City, Missouri (known as our Oaks Campus), in April 2021 began the process of marketing office space located in Kansas City, Missouri (known as our Riverport Campus), ~~and~~ in June 2021 began the process of marketing office space located in Kansas City, Kansas (known as our Continuous Campus)., and in September 2021 began the process of marketing a portion of our office space located in Malvern, Pennsylvania. At ~~June~~September 30, 2021, these long-lived assets aggregating ~~$67~~$101 million were held for sale and presented within our condensed consolidated balance sheets in "Property and equipment, net." In connection with the designation as held for sale, during the ~~three months ended June 30,~~second quarter of 2021, we recorded a pre-tax charge of $68 million to reduce the amount of such long-lived assets to fair value, less estimated costs to sell. Such charge is included in "Sales and client service" expense in our condensed consolidated statements of operations.

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Software Development Costs

In the second ~~quarter~~and third quarters of 2021, we recorded a pre-tax ~~charge~~charges of $48 million and $2 million, respectively, to reduce the carrying amount of certain capitalized software development costs to estimated net realizable value. Such ~~charge is~~charges are included in "Software development" expense in our condensed consolidated statements of operations.

Supplemental Disclosures of Cash Flow Information


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest (including amounts capitalized of $5,514 and $8,831, respectively)		$	20,190	$	16,572
Interest (including amounts capitalized of $8,308 and $12,040, respectively)						Interest (including amounts capitalized of $8,308 and $12,040, respectively)	$	41,918	$	31,661
Income taxes, net of refunds	Income taxes, net of refunds	53,358		8,690		Income taxes, net of refunds	95,065		78,519
Non-cash items:	Non-cash items:					Non-cash items:
Lease liabilities recorded upon the commencement of operating leases	Lease liabilities recorded upon the commencement of operating leases	7,743		22,270		Lease liabilities recorded upon the commencement of operating leases	9,062		24,499
Financed capital purchases	Financed capital purchases	6,143		0		Financed capital purchases	7,255		17,395

Recently Issued Accounting Pronouncements

Reference Rate Reform. The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020 and ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021. Such guidance provides optional financial reporting alternatives to reduce the cost and complexity associated with 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 accommodations within this guidance may be applied prospectively from the beginning of our 2020 first quarter through December 31, 2022. We are currently evaluating the effect that this guidance may have on our contracts that reference LIBOR, specifically, our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and related interest rate swap. As of the date of this filing, we have not elected to apply any of the provisions of this guidance.

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(2) Business Acquisition

On April 1, 2021, we acquired Kantar Health, a division of Kantar Group. Kantar Health provides data, analytics, commercial research, and consulting services to the life sciences industry. We believe this acquisition complements our existing Data-as-a-Service efforts as it provides a meaningful entry into the pharmaceutical market through Kantar Health's existing clients and their leadership team with important industry experience and relationships. These factors, combined with the synergies and economies of scale expected, are the basis for the acquisition and comprise the resulting goodwill recorded.

Consideration for the acquisition was a base cash purchase price of $375 million. The base purchase price is subject to post-closing adjustments for working capital and certain other adjustments, as specified in the Securities Purchase Agreement dated December 16, 2020, as amended.

Our acquisition of Kantar Health is being treated as a purchase in accordance with ~~ASC~~Accounting Standards Codification Topic ("ASC") 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed in the transaction. The allocation of purchase price is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. The allocation of purchase price is preliminary and subject to changes, as appraisals of intangible assets are finalized, working capital and certain other adjustments are agreed upon, and additional information becomes available. The following is a summary of the preliminary allocation of purchase price:


(In thousands)	Allocation Amount

Cash and cash equivalents	$	~~14,541~~14,992
Receivables, net	~~30,895~~31,952
Prepaid expenses and other	~~13,860~~11,776
Property and equipment, net	~~1,136~~1,147
Right-of-use assets	1,680
Goodwill	~~210,247~~217,608
Intangible assets, net:
Customer relationships	143,100
Existing technologies	39,700
Trade names	10,200
Other assets	26
Accounts payable	~~(34,215)~~(36,143)
Deferred revenue	~~(36,656)~~(35,640)
Accrued payroll and tax withholdings	~~(9,910)~~(11,031)
Other current liabilities	(3,777)
Deferred income taxes	(10,169)
Other liabilities	~~(6,248)~~(10,250)

Total purchase price	$	~~364,410~~365,171

The fair values of the acquired intangible assets were estimated by applying the income approach. Such estimations required the use of inputs that were unobservable in the marketplace (Level 3), including a discount rate that we estimated would be used by a market participant in valuing these assets, projections of revenues and cash flows, and client attrition rates, among others. The acquired intangible assets are being amortized over a weighted-average period of 13 years. Refer to Note (7) for further information about the fair value level hierarchy.

The goodwill of ~~$210~~$218 million was allocated among our Domestic and International operating segments, as shown below, with approximately $160 million of such goodwill expected to be deductible for tax purposes.

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The changes in the carrying amounts of goodwill for the ~~six~~nine months ended ~~June~~September 30, 2021 were as follows:


(In thousands)	(In thousands)	Domestic		International		Total		(In thousands)	Domestic		International		Total

Beginning balance at December 31, 2020	Beginning balance at December 31, 2020	$	854,188	$	60,332	$	914,520	Beginning balance at December 31, 2020	$	854,188	$	60,332	$	914,520
Goodwill recorded in connection with the Kantar Health acquisition	Goodwill recorded in connection with the Kantar Health acquisition	118,386		91,861		210,247		Goodwill recorded in connection with the Kantar Health acquisition	117,047		100,561		217,608
Foreign currency translation adjustment and other	Foreign currency translation adjustment and other	0		4,932		4,932		Foreign currency translation adjustment and other	—		(5,285)		(5,285)

Ending balance at June 30, 2021		$	972,574	$	157,125	$	1,129,699
Ending balance at September 30, 2021								Ending balance at September 30, 2021	$	971,235	$	155,608	$	1,126,843

Our condensed consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 include revenues of $45 million and $90 million, respectively, attributable to the acquired business since the April 1, 2021 acquisition date. The earnings contribution from the acquired business for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was not material to our condensed consolidated financial statements. Pro forma results of operations, assuming the acquisition was made at the beginning of the earliest period presented, have not been presented because the effect of this acquisition was not material to our results.

(3) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:


		Three Months Ended													Three Months Ended
		2021						2020							2021						2020
(In thousands)	(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total		(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Licensed software	Licensed software	$	157,908	$	17,208	$	175,116	$	138,950	$	13,212	$	152,162	Licensed software	$	186,106	$	13,073	$	199,179	$	159,327	$	12,367	$	171,694
Technology resale	Technology resale	51,680		5,180		56,860		36,376		5,741		42,117		Technology resale	35,206		2,378		37,584		45,217		1,896		47,113
Subscriptions	Subscriptions	94,222		4,215		98,437		85,281		6,771		92,052		Subscriptions	87,490		4,281		91,771		87,878		5,529		93,407
Professional services	Professional services	457,901		79,177		537,078		409,848		51,234		461,082		Professional services	472,387		79,361		551,748		433,127		46,768		479,895
Managed services	Managed services	284,758		36,019		320,777		275,679		31,479		307,158		Managed services	286,038		37,094		323,132		280,827		31,017		311,844
Support and maintenance	Support and maintenance	211,986		47,689		259,675		220,301		53,735		274,036		Support and maintenance	210,864		46,161		257,025		219,682		40,296		259,978
Reimbursed travel	Reimbursed travel	8,572		240		8,812		1,778		(36)		1,742		Reimbursed travel	7,397		140		7,537		4,711		31		4,742

Total revenues	Total revenues	$	1,267,027	$	189,728	$	1,456,755	$	1,168,213	$	162,136	$	1,330,349	Total revenues	$	1,285,488	$	182,488	$	1,467,976	$	1,230,769	$	137,904	$	1,368,673


		Six Months Ended													Nine Months Ended
		2021						2020							2021						2020
(In thousands)	(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total		(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Licensed software	Licensed software	$	306,741	$	30,036	$	336,777	$	285,447	$	24,747	$	310,194	Licensed software	$	492,847	$	43,109	$	535,956	$	444,774	$	37,114	$	481,888
Technology resale	Technology resale	89,571		12,961		102,532		80,825		12,779		93,604		Technology resale	124,777		15,339		140,116		126,042		14,675		140,717
Subscriptions	Subscriptions	189,605		8,644		198,249		172,217		14,220		186,437		Subscriptions	277,095		12,925		290,020		260,095		19,749		279,844
Professional services	Professional services	892,063		139,437		1,031,500		862,632		109,796		972,428		Professional services	1,364,450		218,798		1,583,248		1,295,759		156,564		1,452,323
Managed services	Managed services	566,834		71,319		638,153		555,415		61,097		616,512		Managed services	852,872		108,413		961,285		836,242		92,114		928,356
Support and maintenance	Support and maintenance	429,485		93,514		522,999		443,717		104,000		547,717		Support and maintenance	640,349		139,675		780,024		663,399		144,296		807,695
Reimbursed travel	Reimbursed travel	14,720		(397)		14,323		14,375		823		15,198		Reimbursed travel	22,117		(257)		21,860		19,086		854		19,940

Total revenues	Total revenues	$	2,489,019	$	355,514	$	2,844,533	$	2,414,628	$	327,462	$	2,742,090	Total revenues	$	3,774,507	$	538,002	$	4,312,509	$	3,645,397	$	465,366	$	4,110,763

910

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The following tables present our revenues disaggregated by timing of revenue recognition:


		Three Months Ended													Three Months Ended
		2021						2020							2021						2020
(In thousands)	(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total		(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Revenue recognized over time	Revenue recognized over time	$	1,189,314	$	178,406	$	1,367,720	$	1,101,797	$	151,456	$	1,253,253	Revenue recognized over time	$	1,200,015	$	175,440	$	1,375,455	$	1,143,515	$	132,891	$	1,276,406
Revenue recognized at a point in time	Revenue recognized at a point in time	77,713		11,322		89,035		66,416		10,680		77,096		Revenue recognized at a point in time	85,473		7,048		92,521		87,254		5,013		92,267

Total revenues	Total revenues	$	1,267,027	$	189,728	$	1,456,755	$	1,168,213	$	162,136	$	1,330,349	Total revenues	$	1,285,488	$	182,488	$	1,467,976	$	1,230,769	$	137,904	$	1,368,673


		Six Months Ended													Nine Months Ended
		2021						2020							2021						2020
(In thousands)	(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total		(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Revenue recognized over time	Revenue recognized over time	$	2,342,163	$	332,274	$	2,674,437	$	2,267,312	$	304,900	$	2,572,212	Revenue recognized over time	$	3,542,178	$	507,714	$	4,049,892	$	3,410,827	$	437,791	$	3,848,618
Revenue recognized at a point in time	Revenue recognized at a point in time	146,856		23,240		170,096		147,316		22,562		169,878		Revenue recognized at a point in time	232,329		30,288		262,617		234,570		27,575		262,145

Total revenues	Total revenues	$	2,489,019	$	355,514	$	2,844,533	$	2,414,628	$	327,462	$	2,742,090	Total revenues	$	3,774,507	$	538,002	$	4,312,509	$	3,645,397	$	465,366	$	4,110,763

Transaction Price Allocated to Remaining Performance Obligations

As of ~~June~~September 30, 2021, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates ~~$13.19~~$13.12 billion of which we expect to recognize approximately 30% of the revenue over the next 12 months and the remainder 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". During the ~~six~~nine months ended ~~June~~September 30, 2021, we recognized ~~$259~~$340 million of revenues that were included in our contract liability balance at the beginning of such period.

Significant Customers

Revenues attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, within our Domestic segment, comprised ~~20%~~21% and ~~17%~~19% of our consolidated revenues for the ~~second~~third quarters of 2021 and 2020, respectively; and 20% and 17% for the first ~~six~~nine months of 2021 and 2020, respectively. Amounts due in connection with these relationships comprised ~~16%~~17% and 13% of client receivables as of ~~June~~September 30, 2021 and December 31, 2020, respectively.

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(4) Receivables

A summary of net receivables is as follows:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Client receivables	Client receivables	$	1,389,724	$	1,322,278	Client receivables	$	1,380,794	$	1,322,278
Less: Provision for expected credit losses	Less: Provision for expected credit losses	152,494		153,566		Less: Provision for expected credit losses	160,945		153,566

Total receivables, net	Total receivables, net	$	1,237,230	$	1,168,712	Total receivables, net	$	1,219,849	$	1,168,712

In addition to the client receivables presented above, at ~~June~~September 30, 2021 and December 31, 2020, we had ~~$14~~$19 million and $17 million of non-current net client receivables, respectively, which are presented in "Other assets" in our condensed consolidated balance sheets.

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


(In thousands)	(In thousands)	Current		Non-current		Total		(In thousands)	Current		Non-current		Total

Provision for expected credit losses - balance at December 31, 2020	Provision for expected credit losses - balance at December 31, 2020	$	153,566	$	38,564	$	192,130	Provision for expected credit losses - balance at December 31, 2020	$	153,566	$	38,564	$	192,130
Additions charged to costs and expenses	Additions charged to costs and expenses	20,251		0		20,251		Additions charged to costs and expenses	20,251		—		20,251
Deductions, foreign currency and other	Deductions, foreign currency and other	2,278		0		2,278		Deductions, foreign currency and other	2,278		—		2,278

Provision for expected credit losses - balance at March 31, 2021	Provision for expected credit losses - balance at March 31, 2021	176,095		38,564		214,659		Provision for expected credit losses - balance at March 31, 2021	176,095		38,564		214,659
Additions charged to costs and expenses	Additions charged to costs and expenses	5,887		0		5,887		Additions charged to costs and expenses	5,887		—		5,887
Reclassifications to non-current	Reclassifications to non-current	(26,480)		26,480		0		Reclassifications to non-current	(26,480)		26,480		—
Deductions, foreign currency and other	Deductions, foreign currency and other	(3,008)		0		(3,008)		Deductions, foreign currency and other	(3,008)		—		(3,008)

Provision for expected credit losses - balance at June 30, 2021	Provision for expected credit losses - balance at June 30, 2021	$	152,494	$	65,044	$	217,538	Provision for expected credit losses - balance at June 30, 2021	152,494		65,044		217,538
Additions charged to costs and expenses								Additions charged to costs and expenses	11,265		—		11,265
Deductions, foreign currency and other								Deductions, foreign currency and other	(2,814)		(3,938)		(6,752)

Provision for expected credit losses - balance at September 30, 2021								Provision for expected credit losses - balance at September 30, 2021	$	160,945	$	61,106	$	222,051

Our estimates of expected credit losses for client receivables at both ~~June~~September 30, 2021 and December 31, 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; changes in 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.

During the first ~~six~~nine months of 2021 and 2020, we received total client cash collections of ~~$2.90~~$4.46 billion and ~~$2.66~~$4.09 billion, respectively.

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(5) Investments

Available-for-sale investments at ~~June~~September 30, 2021 were as follows:


(In thousands)	(In thousands)	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(In thousands)	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	52,425	$	—	$	—	$	52,425	Money market funds	$	91,433	$	—	$	—	$	91,433
Time deposits	Time deposits	37,685		—		—		37,685		Time deposits	41,320		—		—		41,320
Total cash equivalents	Total cash equivalents	90,110		—		—		90,110		Total cash equivalents	132,753		—		—		132,753

Short-term investments:	Short-term investments:									Short-term investments:
Time deposits	Time deposits	32,163		—		—		32,163		Time deposits	32,439		—		—		32,439
Commercial paper	Commercial paper	354,800		27		(13)		354,814		Commercial paper	118,300		10		(2)		118,308
Government and corporate bonds	Government and corporate bonds	251,453		112		(54)		251,511		Government and corporate bonds	171,866		48		(27)		171,887
Total short-term investments	Total short-term investments	638,416		139		(67)		638,488		Total short-term investments	322,605		58		(29)		322,634

Long-term investments:	Long-term investments:									Long-term investments:
Government and corporate bonds	Government and corporate bonds	106,306		2		(108)		106,200		Government and corporate bonds	60,102		—		(41)		60,061

Total available-for-sale investments	Total available-for-sale investments	$	834,832	$	141	$	(175)	$	834,798	Total available-for-sale investments	$	515,460	$	58	$	(70)	$	515,448

~~Table of Contents~~

Available-for-sale investments at December 31, 2020 were as follows:


(In thousands)	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Cash equivalents:
Money market funds	$	40,027	$	—	$	—	$	40,027
Time deposits	36,756		—		—		36,756
Commercial Paper	61,000		—		—		61,000
Total cash equivalents	137,783		—		—		137,783

Short-term investments:
Time deposits	28,302		—		—		28,302
Commercial Paper	264,000		12		(19)		263,993
Government and corporate bonds	149,975		247		(44)		150,178
Total short-term investments	442,277		259		(63)		442,473

Long-term investments:
Government and corporate bonds	136,983		152		(57)		137,078

Total available-for-sale investments	$	717,043	$	411	$	(120)	$	717,334

We sold available-for-sale investments for proceeds of ~~$80~~$400 million and $5 million during the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, respectively, resulting in insignificant losses in each period.

Other Investments

At ~~June~~September 30, 2021 and December 31, 2020, we had investments in equity securities that do not have readily determinable fair values of ~~$371~~$406 million and $361 million, respectively, accounted for in accordance with ~~Accounting Standards Codification Topic ("ASC")~~ASC 321, Investments-Equity Securities. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments during the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, respectively.

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At ~~June~~September 30, 2021 and December 31, 2020, we had investments in equity securities reported under the equity method of accounting of ~~$20~~$22 million and $12 million, respectively. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets.

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(6) Long-term Debt

The following is a summary of indebtedness outstanding:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Credit agreement loans due May 5, 2024	Credit agreement loans due May 5, 2024	$	600,000	$	600,000	Credit agreement loans due May 5, 2024	$	600,000	$	600,000
Senior notes:	Senior notes:					Senior notes:
Series 2021-A due March 24, 2026	Series 2021-A due March 24, 2026	100,000		0		Series 2021-A due March 24, 2026	100,000		—
Series 2021-B due March 24, 2031	Series 2021-B due March 24, 2031	400,000		0		Series 2021-B due March 24, 2031	400,000		—
Series 2020-A due March 11, 2030	Series 2020-A due March 11, 2030	300,000		300,000		Series 2020-A due March 11, 2030	300,000		300,000
Series 2015-A due February 15, 2022	Series 2015-A due February 15, 2022	225,000		225,000		Series 2015-A due February 15, 2022	225,000		225,000
Series 2015-B due February 14, 2025	Series 2015-B due February 14, 2025	200,000		200,000		Series 2015-B due February 14, 2025	200,000		200,000
Other	Other	11,662		11,662		Other	11,662		11,662

Total indebtedness	Total indebtedness	1,836,662		1,336,662		Total indebtedness	1,836,662		1,336,662
Less: debt issuance costs	Less: debt issuance costs	(508)		(593)		Less: debt issuance costs	(457)		(593)

Indebtedness, net	Indebtedness, net	1,836,154		1,336,069		Indebtedness, net	1,836,205		1,336,069
Less: current installments of long-term debt	Less: current installments of long-term debt	(225,000)		0		Less: current installments of long-term debt	(225,000)		—

Long-term debt	Long-term debt	$	1,611,154	$	1,336,069	Long-term debt	$	1,611,205	$	1,336,069

Credit Agreement

As of ~~June~~September 30, 2021, the interest rate on revolving credit loans outstanding under our Credit Agreement was ~~0.87%~~0.88% based on LIBOR plus the applicable spread.

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 to hedge the variability of cash flows associated with such interest obligations. The interest rate swap is designated as a cash flow hedge, which effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. At ~~June~~September 30, 2021 and December 31, 2020, this swap was in a net liability position with an aggregate fair value of ~~$28~~$25 million and $37 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".

Series 2021 Senior Notes

We entered into a Master Note Agreement on November 11, 2019, and subsequently amended on October 8, 2020 (collectively and as amended, the "2019 Shelf Agreement"), pursuant to which we may issue and sell up to an aggregate principal amount of $1.80 billion of unsecured senior promissory notes. In March 2021, we issued $500 million aggregate principal amount of unsecured senior notes (the "Series 2021 Senior Notes"), pursuant to the 2019 Shelf Agreement. The issuance consisted of $100 million of 2.00% Series 2021-A Notes due March 24, 2026 and $400 million of 2.59% Series 2021-B Notes due March 24, 2031. Interest on the Series 2021 Senior Notes is payable semiannually on each March 24 and September 24, commencing September 24, 2021, 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 2021 Senior Notes, subject to the payment of a make-whole amount. The Series 2021 Senior 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, $1.00 billion remains available for sale under the 2019 Shelf Agreement, which is uncommitted and subject to participation by the purchasers.

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(7) 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 investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at ~~June~~September 30, 2021:

(In thousands) Fair Value Measurements Using
Description Balance Sheet Classification Level 1 Level 2 Level 3
Money market funds Cash equivalents $ 52,425 $ — $ 0
Time deposits Cash equivalents — 37,685 0
Time deposits Short-term investments — 32,163 0
Commercial paper Short-term investments — 354,814 0
Government and corporate bonds Short-term investments — 251,511 0
Government and corporate bonds Long-term investments — 106,200 0


(In thousands)		Fair Value Measurements Using
Description	Balance Sheet Classification	Level 1		Level 2		Level 3

Money market funds	Cash equivalents	$	91,433	$	—	$	—
Time deposits	Cash equivalents	—		41,320		—
Time deposits	Short-term investments	—		32,439		—
Commercial paper	Short-term investments	—		118,308		—
Government and corporate bonds	Short-term investments	—		171,887		—
Government and corporate bonds	Long-term investments	—		60,061		—

The following table details our investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at December 31, 2020:

(In thousands) Fair Value Measurements Using
Description Balance Sheet Classification Level 1 Level 2 Level 3
Money market funds Cash equivalents $ 40,027 $ — $ 0
Time deposits Cash equivalents — 36,756 0
Commercial paper Cash equivalents — 61,000 —
Time deposits Short-term investments — 28,302 0
Commercial paper Short-term investments — 263,993 —
Government and corporate bonds Short-term investments — 150,178 0
Government and corporate bonds Long-term investments — 137,078 0


(In thousands)		Fair Value Measurements Using
Description	Balance Sheet Classification	Level 1		Level 2		Level 3

Money market funds	Cash equivalents	$	40,027	$	—	$	—
Time deposits	Cash equivalents	—		36,756		—
Commercial paper	Cash equivalents	—		61,000		—
Time deposits	Short-term investments	—		28,302		—
Commercial paper	Short-term investments	—		263,993		—
Government and corporate bonds	Short-term investments	—		150,178		—
Government and corporate bonds	Long-term investments	—		137,078		—

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

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Level 3 discounted cash flow analysis based on LIBOR rate forward curves. The fair value of our long-term debt at ~~June~~September 30, 2021 and December 31, 2020 was approximately ~~$1.88~~$1.84 billion and $1.36 billion, respectively. The carrying amount of such debt at ~~June~~September 30, 2021 and December 31, 2020 was $1.83 billion and $1.33 billion, respectively.

(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 ~~23.3%~~21.8% and ~~20.7%~~21.7% for the first ~~six~~nine months of 2021 and 2020, respectively. A $6 million valuation allowance was recorded in the second quarter of 2021 against a deferred tax asset where it became more likely than not that such deferred tax asset will not be realized, while a valuation allowance of $3 million was recorded during the first quarter of 2020. The remainder of the increase in the effective tax rate is primarily related to unfavorability of permanent book-tax differences for share-based compensation in 2021 compared to 2020.

(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											Three Months Ended
		2021					2020						2021					2020
		Earnings		Shares	Per-Share		Earnings		Shares	Per-Share			Earnings		Shares	Per-Share		Earnings		Shares	Per-Share
(In thousands, except per share data)	(In thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(In thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic earnings per share:	Basic earnings per share:											Basic earnings per share:
Income available to common shareholders	Income available to common shareholders	$	32,707	300,737	$	0.11	$	134,748	304,776	$	0.44	Income available to common shareholders	$	175,795	296,202	$	0.59	$	356,676	305,759	$	1.17
Effect of dilutive securities:	Effect of dilutive securities:											Effect of dilutive securities:
Stock options, non-vested shares and share units	Stock options, non-vested shares and share units	—		2,854			—		1,941			Stock options, non-vested shares and share units	—		2,512			—		2,607
Diluted earnings per share:	Diluted earnings per share:											Diluted earnings per share:
Income available to common shareholders including assumed conversions	Income available to common shareholders including assumed conversions	$	32,707	303,591	$	0.11	$	134,748	306,717	$	0.44	Income available to common shareholders including assumed conversions	$	175,795	298,714	$	0.59	$	356,676	308,366	$	1.16

For the three months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, options to purchase ~~0.4~~0.3 million and ~~6.0~~3.9 million shares of common stock at per share prices ranging from $52.32 to $76.49 and ~~$52.32~~$55.24 to $76.49, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.


		Six Months Ended											Nine Months Ended
		2021					2020						2021					2020
		Earnings		Shares	Per-Share		Earnings		Shares	Per-Share			Earnings		Shares	Per-Share		Earnings		Shares	Per-Share
(In thousands, except per share data)	(In thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(In thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic earnings per share:	Basic earnings per share:											Basic earnings per share:
Income available to common shareholders	Income available to common shareholders	$	204,959	302,723	$	0.68	$	281,907	307,256	$	0.92	Income available to common shareholders	$	380,754	300,526	$	1.27	$	638,583	306,759	$	2.08
Effect of dilutive securities:	Effect of dilutive securities:											Effect of dilutive securities:
Stock options, non-vested shares and share units	Stock options, non-vested shares and share units	—		3,079			—		2,264			Stock options, non-vested shares and share units	—		2,897			—		2,365
Diluted earnings per share:	Diluted earnings per share:											Diluted earnings per share:
Income available to common shareholders including assumed conversions	Income available to common shareholders including assumed conversions	$	204,959	305,802	$	0.67	$	281,907	309,520	$	0.91	Income available to common shareholders including assumed conversions	$	380,754	303,423	$	1.25	$	638,583	309,124	$	2.07

For the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, options to purchase ~~0.5~~0.4 million and ~~4.5~~4.4 million shares of common stock at per share prices ranging from $52.32 to $76.49 and $52.32 to $76.49, 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 ~~six~~nine months ended ~~June~~September 30, 2021 was as follows:


(In thousands, except per share and term data)	(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)	(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 year	Outstanding at beginning of year	10,204	$	58.59				Outstanding at beginning of year	10,204	$	58.59
Exercised	Exercised	(2,763)	56.18					Exercised	(3,779)	56.92
Forfeited and expired	Forfeited and expired	(108)	59.56					Forfeited and expired	(180)	56.49
Outstanding as of June 30, 2021		7,333	$	59.49	$	136,929	4.57
Outstanding as of September 30, 2021								Outstanding as of September 30, 2021	6,245	$	59.66	$	67,999	4.48

Exercisable as of June 30, 2021		5,484	$	58.79	$	106,205	3.99
Exercisable as of September 30, 2021								Exercisable as of September 30, 2021	4,748	$	59.06	$	54,598	3.81

As of ~~June~~September 30, 2021, there was ~~$28~~$20 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 ~~1.59~~1.39 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the ~~six~~nine months ended ~~June~~September 30, 2021 was as follows:


(In thousands, except per share data)	(In thousands, except per share data)	Number of Shares	Weighted-Average Grant Date Fair Value Per Share		(In thousands, except per share data)	Number of Shares	Weighted-Average Grant Date Fair Value Per Share

Outstanding at beginning of year	Outstanding at beginning of year	4,131	$	68.05	Outstanding at beginning of year	4,131	$	68.05
Granted	Granted	2,054	77.01		Granted	2,158	77.31
Vested	Vested	(1,435)	65.80		Vested	(2,386)	67.94
Forfeited	Forfeited	(332)	72.08		Forfeited	(522)	72.40

Outstanding as of June 30, 2021		4,418	$	72.64
Outstanding as of September 30, 2021					Outstanding as of September 30, 2021	3,381	$	73.36

As of ~~June~~September 30, 2021, there was ~~$249~~$195 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 ~~2.23~~2.13 years.

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 Ended				Six Months Ended					Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2021		2020		2021		2020

Stock option and non-vested share and share unit compensation expense	Stock option and non-vested share and share unit compensation expense	$	53,941	$	37,549	$	101,891	$	72,580	Stock option and non-vested share and share unit compensation expense	$	55,274	$	37,920	$	157,165	$	110,500
Associate stock purchase plan expense	Associate stock purchase plan expense	1,613		1,727		3,161		2,828		Associate stock purchase plan expense	1,300		1,367		4,461		4,195
Amounts capitalized in software development costs, net of amortization	Amounts capitalized in software development costs, net of amortization	(1,463)		(1,076)		(3,126)		(1,821)		Amounts capitalized in software development costs, net of amortization	(908)		(1,150)		(4,034)		(2,971)

Amounts charged against earnings, before income tax benefit	Amounts charged against earnings, before income tax benefit	$	54,091	$	38,200	$	101,926	$	73,587	Amounts charged against earnings, before income tax benefit	$	55,666	$	38,137	$	157,592	$	111,724

Amount of related income tax benefit recognized in earnings	Amount of related income tax benefit recognized in earnings	$	10,191	$	8,191	$	20,447	$	14,634	Amount of related income tax benefit recognized in earnings	$	11,155	$	7,818	$	31,602	$	22,452

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Treasury Stock

Under one of our share repurchase ~~program,~~programs, which was initially approved by our Board of Directors on May 23, 2017, and most recently amended on December 12, 2019 (the "2017 Share Repurchase Program"), the Company iswas authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases ~~are~~were to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, or any combination thereof. ~~No time limit was set for the completion of the 2017 Share Repurchase Program.~~

On April 23, 2021, our Board of Directors approved a new share repurchase program (the "2021 Share Repurchase Program"), which authorizes the Company to repurchase up to $3.75 billion in the aggregate of shares of our common stock, excluding transaction costs. The 2021 Share Repurchase Program is incremental to our 2017 Share Repurchase Program. 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, or any combination thereof. The 2021 Share Repurchase Program will expire on December 31, 2023.

During the ~~six~~nine months ended ~~June~~September 30, 2021, we repurchased ~~10.1~~14.8 million shares for total consideration of ~~$750 million~~$1.12 billion under our share repurchase programs. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. The 2017 Share Repurchase Program was completed during the third quarter of 2021. As of ~~June~~September 30, 2021, an aggregate of ~~$3.93~~$3.55 billion remained available for repurchase under the ~~programs.~~2021 Share Repurchase Program.

Dividends

On March 25, 2021, our Board of Directors declared a cash dividend of $0.22 per share on our issued and outstanding common stock, which was paid on April 20, 2021 to shareholders of record as of April 6, 2021. On May 19, 2021, our Board of Directors declared a cash dividend of $0.22 per share on our issued and outstanding common stock, which was paid on July 13, 2021 to shareholders of record as of June 28, 2021. On September 9, 2021, our Board of Directors declared a cash dividend of $0.22 per share on our issued and outstanding common stock, which was paid on October 12, 2021 to shareholders of record as of September 27, 2021. In connection with the declaration of such dividends, our non-vested shares 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 ~~June~~September 30, 2021 and December 31, 2020, our condensed consolidated balance sheets included liabilities for dividends payable of ~~$68~~$67 million and $69 million, respectively, which are included in "Other current liabilities".

Accumulated Other Comprehensive Loss, Net (AOCI)

The components of AOCI, net of tax, were as follows:


		Foreign currency translation adjustment and other		Unrealized loss on cash flow hedge				Unrealized holding gain (loss) on available-for-sale investments				Total			Foreign currency translation adjustment and other				Unrealized loss on cash flow hedge				Unrealized holding gain (loss) on available-for-sale investments				Total
(In thousands)	(In thousands)									(In thousands)

Balance at December 31, 2020	Balance at December 31, 2020	$	(93,450)			$	(27,788)			$	434						$	(120,804)	Balance at December 31, 2020		$	(93,450)			$	(27,788)			$	434	$	(120,804)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(8,991)		2,061				(217)				(7,147)		Other comprehensive income (loss) before reclassifications		(8,991)				2,061				(217)				(7,147)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		2,527				0				2,527		Amounts reclassified from AOCI	—				2,527				—				2,527

Balance at March 31, 2021	Balance at March 31, 2021	(102,441)		(23,200)				217				(125,424)		Balance at March 31, 2021	(102,441)				(23,200)				217				(125,424)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	4,486		(429)				(26)				4,031		Other comprehensive income (loss) before reclassifications	4,486				(429)				(26)				4,031
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		2,667				(1)				2,666		Amounts reclassified from AOCI	—				2,667				(1)				2,666

Balance at June 30, 2021	Balance at June 30, 2021	$	(97,955)	$	(20,962)			$	190			$	(118,727)	Balance at June 30, 2021	(97,955)				(20,962)				190				(118,727)
Other comprehensive income (loss) before reclassifications														Other comprehensive income (loss) before reclassifications	(13,259)				(384)				(23)				(13,666)
Amounts reclassified from AOCI														Amounts reclassified from AOCI	—				2,657				40				2,697

Balance at September 30, 2021														Balance at September 30, 2021	$	(111,214)			$	(18,689)			$	207			$	(129,696)

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		Foreign currency translation adjustment and other		Unrealized loss on cash flow hedge				Unrealized holding gain (loss) on available-for-sale investments				Total			Foreign currency translation adjustment and other				Unrealized loss on cash flow hedge				Unrealized holding gain (loss) on available-for-sale investments				Total
(In thousands)	(In thousands)									(In thousands)

Balance at December 28, 2019	Balance at December 28, 2019	$	(106,347)			$	(12,578)			$	265						$	(118,660)	Balance at December 28, 2019		$	(106,347)			$	(12,578)			$	265	$	(118,660)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(20,546)		(20,430)				(849)				(41,825)		Other comprehensive income (loss) before reclassifications		(20,546)				(20,430)				(849)				(41,825)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		1,122				0				1,122		Amounts reclassified from AOCI	—				1,122				—				1,122

Balance at March 31, 2020	Balance at March 31, 2020	(126,893)		(31,886)				(584)				(159,363)		Balance at March 31, 2020	(126,893)				(31,886)				(584)				(159,363)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	9,197		(3,205)				1,502				7,494		Other comprehensive income (loss) before reclassifications	9,197				(3,205)				1,502				7,494
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		2,198				0				2,198		Amounts reclassified from AOCI	—				2,198				—				2,198

Balance at June 30, 2020	Balance at June 30, 2020	$	(117,696)	$	(32,893)			$	918			$	(149,671)	Balance at June 30, 2020	(117,696)				(32,893)				918				(149,671)
Other comprehensive income (loss) before reclassifications														Other comprehensive income (loss) before reclassifications	9,611				(289)				(220)				9,102
Amounts reclassified from AOCI														Amounts reclassified from AOCI	—				2,554				—				2,554

Balance at September 30, 2020														Balance at September 30, 2020	$	(108,085)			$	(30,628)			$	698			$	(138,015)

The effects on net earnings of amounts reclassified from AOCI were as follows:


(In thousands)	(In thousands)		Three Months Ended				Six Months Ended				(In thousands)		Three Months Ended				Nine Months Ended
AOCI Component	AOCI Component	Location	2021		2020		2021		2020		AOCI Component	Location	2021		2020		2021		2020

Unrealized loss on cash flow hedge	Unrealized loss on cash flow hedge	Other income, net	$	(3,287)	$	(2,798)	$	(6,504)	$	(4,170)	Unrealized loss on cash flow hedge	Other income, net	$	(3,322)	$	(3,213)	$	(9,826)	$	(7,383)
		Income taxes	620		600		1,310		850			Income taxes	665		659		1,975		1,509
		Net of tax	(2,667)		(2,198)		(5,194)		(3,320)			Net of tax	(2,657)		(2,554)		(7,851)		(5,874)

Unrealized holding gain (loss) on available-for-sale investments	Unrealized holding gain (loss) on available-for-sale investments	Other income, net	2		0		2		0		Unrealized holding gain (loss) on available-for-sale investments	Other income, net	(51)		—		(49)		—
		Income taxes	(1)		0		(1)		0			Income taxes	11		—		10		—
		Net of tax	1		0		1		0			Net of tax	(40)		—		(39)		—

Total amount reclassified, net of tax	Total amount reclassified, net of tax		$	(2,666)	$	(2,198)	$	(5,193)	$	(3,320)	Total amount reclassified, net of tax		$	(2,697)	$	(2,554)	$	(7,890)	$	(5,874)

(11) Contingencies

We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 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.

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

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Services, Inc. and NextGen prior to the acquisition of the assets of Siemens Health Services, Inc. by Cerner HS in 2015. ~~In September 2017,~~The parties have settled the ~~court issued~~matter, and Cerner did not incur 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~~significant loss.

On May 16, 2019, Steward Health Care System LLC ("Steward") filed a lawsuit in the Chancery Court for Davidson County, Tennessee against the Company alleging $210 million in damages. The Company believes Steward's allegations arise out of Steward's disinterest in following the contract between the Company and Steward's predecessor for clinical and financial software and services after Steward closed on its acquisition of the predecessor. The Company has filed a counterclaim ~~alleging breach~~against Steward seeking recovery of ~~contract and tortious interference. NextGen’s expert testified at trial that NextGen should be entitled to collect profit disgorgement damages of $122 million or, at least $18 million of ambulatory-~~

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~~related disgorgement damages. Alternatively, he claimed NextGen should recover $26~~more than $42 million in lost profit damages. A remote trial commenced on January 25, 2021 and trial continues. We believe NextGen's claims are without merit and are vigorously defending against them; however, there can be no assurances asunpaid invoices owed to the ~~outcome~~Company. The Company believes the dispute is in the ordinary course of business and the ~~dispute.~~damages Steward asserts lack both factual and causal support. We have not concluded that a material loss related to the ~~claims raised by NextGen in its counterclaim~~Steward allegations is probable, nor have we accrued a liability related to these claims. Although we believe a loss ~~may~~could 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 potential damages given that the dispute is in ~~light~~the discovery process. We will continue to vigorously defend against these claims, and we continue to believe that we have valid grounds for recovery of the ~~inherent difficulty of predicting~~disputed client receivables. However, there can be no assurances as to 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.~~dispute.

On March 22, 2021, Astria Health ("Astria") filed an adversary proceeding in the United States Bankruptcy Court, Eastern District of Washington against the Company. Astria's allegations largely arise out of the Company's provision of revenue cycle services in 2018 and 2019. The Company believes the dispute is in the ordinary course of business and the factual allegations and the damages asserted lack both factual and causal support. We have not concluded that a material loss related to the Astria allegations is probable, nor have we accrued a liability related to these claims beyond reserving certain bankruptcy-related outstanding invoices. Although we believe a loss could 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 potential damages given that the dispute is in the early stages of the discovery process. We will continue to vigorously defend against this claim. However, there can be no assurances as to the outcome of the dispute.

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~~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 intellectual property 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, breaches of contract and 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 any claims to be material to our consolidated financial statements.

(12) Segment Reporting

We have two operating segments, Domestic and 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. 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 ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020:


(In thousands)	(In thousands)	Domestic		International		Other		Total		(In thousands)	Domestic		International		Other		Total

Three Months Ended 2021	Three Months Ended 2021									Three Months Ended 2021
Revenues	Revenues	$	1,267,027	$	189,728	$	—	$	1,456,755	Revenues	$	1,285,488	$	182,488	$	—	$	1,467,976

Costs of revenue	Costs of revenue	232,225		29,100		—		261,325		Costs of revenue	222,665		28,446		—		251,111
Operating expenses	Operating expenses	656,369		74,708		414,793		1,145,870		Operating expenses	580,535		70,472		340,935		991,942
Total costs and expenses	Total costs and expenses	888,594		103,808		414,793		1,407,195		Total costs and expenses	803,200		98,918		340,935		1,243,053

Operating earnings (loss)	Operating earnings (loss)	$	378,433	$	85,920	$	(414,793)	$	49,560	Operating earnings (loss)	$	482,288	$	83,570	$	(340,935)	$	224,923

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(In thousands)	(In thousands)	Domestic		International		Other		Total		(In thousands)	Domestic		International		Other		Total

Three Months Ended 2020	Three Months Ended 2020									Three Months Ended 2020
Revenues	Revenues	$	1,168,213	$	162,136	$	—	$	1,330,349	Revenues	$	1,230,769	$	137,904	$	—	$	1,368,673

Costs of revenue	Costs of revenue	189,779		22,184		—		211,963		Costs of revenue	219,938		11,951		—		231,889
Operating expenses	Operating expenses	587,674		57,413		326,401		971,488		Operating expenses	566,777		58,626		316,430		941,833
Total costs and expenses	Total costs and expenses	777,453		79,597		326,401		1,183,451		Total costs and expenses	786,715		70,577		316,430		1,173,722

Gain on sale of businesses										Gain on sale of businesses	—		—		216,869		216,869

Operating earnings (loss)	Operating earnings (loss)	$	390,760	$	82,539	$	(326,401)	$	146,898	Operating earnings (loss)	$	444,054	$	67,327	$	(99,561)	$	411,820


(In thousands)	(In thousands)	Domestic		International		Other		Total		(In thousands)	Domestic		International		Other		Total

Six Months Ended 2021
Nine Months Ended 2021										Nine Months Ended 2021
Revenues	Revenues	$	2,489,019	$	355,514	$	—	$	2,844,533	Revenues	$	3,774,507	$	538,002	$	—	$	4,312,509

Costs of revenue	Costs of revenue	437,919		54,062		—		491,981		Costs of revenue	660,584		82,508		—		743,092
Operating expenses	Operating expenses	1,216,931		136,322		731,681		2,084,934		Operating expenses	1,797,466		206,794		1,072,616		3,076,876
Total costs and expenses	Total costs and expenses	1,654,850		190,384		731,681		2,576,915		Total costs and expenses	2,458,050		289,302		1,072,616		3,819,968

Operating earnings (loss)	Operating earnings (loss)	$	834,169	$	165,130	$	(731,681)	$	267,618	Operating earnings (loss)	$	1,316,457	$	248,700	$	(1,072,616)	$	492,541


(In thousands)	(In thousands)	Domestic		International		Other		Total		(In thousands)	Domestic		International		Other		Total

Six Months Ended 2020
Nine Months Ended 2020										Nine Months Ended 2020
Revenues	Revenues	$	2,414,628	$	327,462	$	—	$	2,742,090	Revenues	$	3,645,397	$	465,366	$	—	$	4,110,763

Costs of revenue	Costs of revenue	418,346		48,033		—		466,379		Costs of revenue	638,284		59,984		—		698,268
Operating expenses	Operating expenses	1,157,768		123,968		668,701		1,950,437		Operating expenses	1,724,545		182,594		985,131		2,892,270
Total costs and expenses	Total costs and expenses	1,576,114		172,001		668,701		2,416,816		Total costs and expenses	2,362,829		242,578		985,131		3,590,538

Gain on sale of businesses										Gain on sale of businesses	—		—		216,869		216,869

Operating earnings (loss)	Operating earnings (loss)	$	838,514	$	155,461	$	(668,701)	$	325,274	Operating earnings (loss)	$	1,282,568	$	222,788	$	(768,262)	$	737,094

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

All references to quarters or ~~six~~nine month periods ended 2021 and 2020 in this MD&A represent the respective three and ~~six~~nine month periods ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, unless otherwise noted.

Management Overview

Our revenues are primarily derived by selling, implementing, operating and supporting software solutions, clinical content, hardware, devices and services that give healthcare 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 healthcare.

Our core strategy is to create organic growth by investing in research and development to create solutions and tech-enabled services for the healthcare industry. We expect to also supplement organic growth with acquisitions or strategic investments and collaborations.

Cerner's long history of growth has created an important strategic footprint in healthcare, with Cerner holding approximately 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 continue driving growth by leveraging our HealtheIntent® platform, which is the foundation for established and new offerings for both provider and non-provider markets. The EHR-agnostic HealtheIntent platform enables Cerner to become a strategic partner with healthcare stakeholders and help them improve performance under both fee-for-service and 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, care team communications, health systems operations, consumer and employer, and data-as-a-service.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. After several years of margin compression related to slowing revenue growth, increased mix of low-margin services, and lower software demand due to the end of direct government incentives for EHR adoption, Cerner implemented a new operating structure and introduced other initiatives focused on cost optimization and process ~~improvement in 2019. To assist in these efforts, we engaged an outside consulting firm to conduct a review of our operations and cost structure.~~improvement. We have made good progress since we kicked off our transformation in 2019 and expect this progress to be reflected in improved profitability going forward. 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, entering into 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 ~~six~~nine months of both 2021 and 2020 were impacted by the ongoing COVID-19 pandemic. It has caused us to modify certain of our business practices, including requiring most of our associates to work remotely; restricting associate travel; mandating vaccines for associates; 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 could 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, administering vaccines, and managing their own organizations through this crisis. ~~This~~A sustained decline in bookings ~~flows through to reduced~~could reduce 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, vaccine mandates 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 or strategies evolve.

We believe the impact of COVID-19 on our results of operations for the first quarter of 2020 was limited, 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 most significant impact of COVID-19 on our business was in the second quarter of 2020, with the impact beginning to moderate in subsequent periods but still persisting into 2021 due to some ongoing restrictive measures and certain regions dealing with resurgences of cases.

While we expect a negative financial impact to continue infor the rest of 2021, we do not expect it to be as significant as 2020. The impact will continue to be difficult to quantify as there are many factors that continue to be outside of our control, so any forward looking statements that we make regarding our projections of future financial performance; new solutions and services; capital allocation plans; cost optimization and operational improvement initiatives; and the expected benefits of our acquisitions, divestitures or other collaborations are all subject to increased risks.

Operational Improvement Initiatives

The Company has continued to focus on leveraging the impact of our new operating structure 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 have also made the decision to sell certain of our owned real estate.

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We expect to continue to evaluate and potentially complete divestiture transactions that are strategic to our operational

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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 incur 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, asset impairment charges, and other such related expenses. Expenses recognized in the first ~~six~~nine months of 2021 and 2020 primarily related to professional services fees, employee separation costs, and asset impairment charges which are included in operating expenses in our condensed consolidated statements of operations. We expect to incur additional expenses in connection with these initiatives in future periods, which may be material.

Results Overview

Bookings, which reflects the value of executed contracts for software, hardware, professional services and managed services, was ~~$1.36~~$1.81 billion in the ~~second~~third quarter of 2021, which is an increase of 2%23% compared to ~~$1.34~~$1.47 billion in the ~~second~~third quarter of 2020.

Revenues for the ~~second~~third quarter of 2021 increased ~~10%~~7% to ~~$1.46~~$1.47 billion, compared to ~~$1.33~~$1.37 billion in the ~~second~~third quarter of 2020.

Net earnings for the ~~second~~third quarter of 2021 decreased ~~76%~~51% to ~~$33~~$176 million, compared to ~~$135~~$357 million in the ~~second~~third quarter of 2020. Diluted earnings per share decreased ~~75%~~49% to ~~$0.11,~~$0.59, compared to ~~$0.44~~$1.16 in the ~~second~~third quarter of 2020.

We had cash collections of receivables of ~~$1.46~~$1.56 billion in the ~~second~~third quarter of 2021, compared to ~~$1.29~~$1.43 billion in the ~~second~~third quarter of 2020. Days sales outstanding was 7776 days in the ~~second~~third quarter of 2021, compared to 77 days for the ~~first~~second quarter of 2021 and 81 days for the ~~second~~third quarter of 2020. Operating cash flows for the ~~second~~third quarter of 2021 were ~~$369~~$435 million, compared to ~~$259~~$382 million in the ~~second~~third quarter of 2020.

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Results of Operations

Three Months Ended ~~June~~September 30, 2021 Compared to Three Months Ended ~~June~~September 30, 2020

The following table presents a summary of our operating information for the ~~second~~third quarters of 2021 and 2020:


(In thousands)	(In thousands)	2021		% of Revenue		2020		% of Revenue		% Change		(In thousands)	2021		% of Revenue		2020		% of Revenue		% Change

Revenues	Revenues	$	1,456,755	100	%	$	1,330,349	100	%	10	%	Revenues	$	1,467,976	100	%	$	1,368,673	100	%	7	%
Costs of revenue	Costs of revenue	261,325		18	%	211,963		16	%	23	%	Costs of revenue	251,111		17	%	231,889		17	%	8	%

Margin	Margin	1,195,430		82	%	1,118,386		84	%	7	%	Margin	1,216,865		83	%	1,136,784		83	%	7	%

Operating expenses	Operating expenses											Operating expenses
Sales and client service	Sales and client service	731,077		50	%	645,087		48	%	13	%	Sales and client service	651,010		44	%	625,402		46	%	4	%
Software development	Software development	241,600		17	%	178,955		13	%	35	%	Software development	202,663		14	%	186,826		14	%	8	%
General and administrative	General and administrative	156,307		11	%	134,332		10	%	16	%	General and administrative	121,395		8	%	116,816		9	%	4	%
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	16,886		1	%	13,114		1	%	29	%	Amortization of acquisition-related intangibles	16,874		1	%	12,789		1	%	32	%

Total operating expenses	Total operating expenses	1,145,870		79	%	971,488		73	%	18	%	Total operating expenses	991,942		68	%	941,833		69	%	5	%

Total costs and expenses	Total costs and expenses	1,407,195		97	%	1,183,451		89	%	19	%	Total costs and expenses	1,243,053		85	%	1,173,722		86	%	6	%

Gain on sale of businesses												Gain on sale of businesses	—		—	%	216,869		16	%

Operating earnings	Operating earnings	49,560		3	%	146,898		11	%	(66)	%	Operating earnings	224,923		15	%	411,820		30	%	(45)	%

Other income (loss), net	Other income (loss), net	(1,678)				24,632						Other income (loss), net	(5,070)				48,020
Income taxes	Income taxes	(15,175)				(36,782)						Income taxes	(44,058)				(103,164)

Net earnings	Net earnings	$	32,707			$	134,748			(76)	%	Net earnings	$	175,795			$	356,676			(51)	%

Revenues & Backlog

Revenues increased ~~10%~~7% to ~~$1.46~~$1.47 billion in the ~~second~~third quarter of 2021, as compared to ~~$1.33~~$1.37 billion in the same period of 2020. The following factors impacted the year-over-year change in revenues:

•Increased implementation activity during the ~~second~~third quarter of 2021 within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. In the ~~second~~third quarter of 2021, ~~20%~~21% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to ~~17%~~19% in the same period of 2020.

•The ~~second~~third quarter of 2021 includes a $45 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business. We expect the acquired business to contribute ~~over $85~~approximately $50 million of additional revenues over the remainder of 2021. Refer to Note (2) of the Notes for further information regarding the Kantar Health acquisition.

•Moderate recovery from the impact of the COVID-19 pandemic, which we believe had the most significant unfavorable impact to our business operations in the second quarter of 2020, as further discussed above. The largest impact was in the areas of licensed software, technology resale, professional services, and reimbursed travel revenues.

•~~The second quarter of 2021 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., on August 3, 2020.~~

•The second quarter of 2021 includes a $19 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain to affiliates of CompuGroup Medical SE & Co. KGaA on July 1, 2020.

Refer to Note (3) of the Notes 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 ~~$13.19~~$13.12 billion at ~~June~~September 30, 2021, compared to $13.04 billion at December 31, 2020. We expect to recognize 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; 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 approximately ~~$1.07~~$1.27 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.

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Costs of Revenue

Costs of revenue as a percent of revenues were ~~18%~~17% in the ~~second~~third quarter of both 2021 ~~compared to 16% in the same period of~~and 2020. The higher costs of revenue as a percent of revenues was primarily driven by higher reimbursed travel revenue, which carries a 100% cost of revenue; a higher mix of technology resale revenue, which carries a high cost of revenue; and the impact of the Kantar Health business acquired on April 1, 2021.

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%~~5% to ~~$1.15 billion~~$992 million in the ~~second~~third quarter of 2021, compared to ~~$971~~$942 million in the same period of 2020.

•Sales and client service expenses as a percent of revenues were ~~50%~~44% in the ~~second~~third quarter of 2021, compared to ~~48%~~46% in the same period of 2020. These expenses increased ~~13%~~4% to ~~$731~~$651 million in the ~~second~~third quarter of 2021, from ~~$645~~$625 million in the same period of 2020. 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 $68 million pre-tax charge recorded in~~expense contributions from the ~~second quarter of 2021 in connection with the designation of certain real estate assets as held for sale. Refer to Note (1) of the Notes for further information.~~Kantar Health business, which was acquired on April 1, 2021.

•Software development expenses as a percent of revenues were ~~17%~~14% in the ~~second~~third quarter of both 2021 ~~compared to 13% in the same period of~~and 2020. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, as well as other key initiatives such as platform modernization, with a focus on development of a software as a service platform. A summary of our total software development expense in the ~~second~~third quarters of 2021 and 2020 is as follows:


		Three Months Ended					Three Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Software development costs	Software development costs	$	212,258	$	195,296	Software development costs	$	210,082	$	198,565
Capitalized software costs	Capitalized software costs	(81,306)		(75,850)		Capitalized software costs	(73,773)		(71,525)
Capitalized costs related to share-based payments	Capitalized costs related to share-based payments	(2,252)		(1,688)		Capitalized costs related to share-based payments	(1,796)		(1,792)
Amortization of capitalized software costs	Amortization of capitalized software costs	65,247		61,197		Amortization of capitalized software costs	66,222		61,578
Net realizable value charge (see Note (1) of the Notes)		47,653		—
Net realizable value charges (see Note (1) of the Notes)						Net realizable value charges (see Note (1) of the Notes)	1,928		—

Total software development expense	Total software development expense	$	241,600	$	178,955	Total software development expense	$	202,663	$	186,826

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•General and administrative expenses as a percent of revenues were ~~11%~~8% in the ~~second~~third quarter of 2021, compared to ~~10%~~9% in the same period of 2020. These expenses increased ~~16%~~4% to ~~$156~~$121 million in the ~~second~~third quarter of 2021, from ~~$134~~$117 million in the same period of 2020. 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 was primarily driven by increased employee separation costs, ~~recognized in connection with our operational improvement initiatives,~~ as further discussed in Note (1) of the Notes. ~~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 ~~second~~third quarter of both 2021 and 2020. These expenses increased ~~29%~~32% to $17 million in the ~~second~~third quarter of 2021, from $13 million in the same period in 2020. 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 increase in amortization of acquisition-related intangibles is primarily due to amortization of

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intangibles acquired in our April 1, 2021 acquisition of the Kantar Health business. Refer to Note (2) of the Notes for further information regarding the Kantar Health acquisition.

Gain on Sale of Businesses

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.

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.

In the third quarter of 2020, we recognized a $217 million gain in connection with these divestiture transactions.

Non-Operating Items

•Other income (loss), net was a net loss of $2$5 million in the ~~second~~third quarter of 2021, compared to ~~$25~~$48 million of income in the same period of 2020. The decrease in 2021 is primarily attributable to the ~~second~~third quarter of 2020 including a ~~$26~~$49 million ~~unrealized~~ gain recognized ~~in connection with~~on the ~~measurement~~disposition of one of our equity investments.

•Our effective tax rate was ~~31.7%~~20.0% for the ~~second~~third quarter of 2021, compared to ~~21.4%~~22.4% for the same period of 2020. The ~~increase~~decrease in the effective tax rate is primarily due to ~~a $6 million valuation allowance recorded in~~ the ~~second~~third quarter of ~~2021 against a deferred tax asset where it has become more likely than not that such deferred tax asset will not be realized.~~2020 including taxes associated with the divestiture transactions discussed above. Refer to Note (8) of the Notes for further discussion regarding our effective tax rate.

Operations by Segment

We have two operating segments: Domestic and 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 for further information regarding our reportable segments.

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The following table presents a summary of our operating segment information for the ~~second~~third quarters of 2021 and 2020:


(In thousands)	(In thousands)	2021		% of Revenue	2020		% of Revenue	% Change	(In thousands)	2021		% of Revenue	2020		% of Revenue	% Change

Domestic Segment	Domestic Segment								Domestic Segment
Revenues	Revenues	$	1,267,027	100%	$	1,168,213	100%	8%	Revenues	$	1,285,488	100%	$	1,230,769	100%	4%

Costs of revenue	Costs of revenue	232,225		18%	189,779		16%	22%	Costs of revenue	222,665		17%	219,938		18%	1%
Operating expenses	Operating expenses	656,369		52%	587,674		50%	12%	Operating expenses	580,535		45%	566,777		46%	2%
Total costs and expenses	Total costs and expenses	888,594		70%	777,453		67%	14%	Total costs and expenses	803,200		62%	786,715		64%	2%

Domestic operating earnings	Domestic operating earnings	378,433		30%	390,760		33%	(3)%	Domestic operating earnings	482,288		38%	444,054		36%	9%

International Segment	International Segment								International Segment
Revenues	Revenues	189,728		100%	162,136		100%	17%	Revenues	182,488		100%	137,904		100%	32%

Costs of revenue	Costs of revenue	29,100		15%	22,184		14%	31%	Costs of revenue	28,446		16%	11,951		9%	138%
Operating expenses	Operating expenses	74,708		39%	57,413		35%	30%	Operating expenses	70,472		39%	58,626		43%	20%
Total costs and expenses	Total costs and expenses	103,808		55%	79,597		49%	30%	Total costs and expenses	98,918		54%	70,577		51%	40%

International operating earnings	International operating earnings	85,920		45%	82,539		51%	4%	International operating earnings	83,570		46%	67,327		49%	24%

Other costs and expenses, net	Other costs and expenses, net	(414,793)			(326,401)			27%	Other costs and expenses, net	(340,935)			(316,430)			8%

Gain on sale of businesses									Gain on sale of businesses	—			216,869

Consolidated operating earnings	Consolidated operating earnings	$	49,560		$	146,898		(66)%	Consolidated operating earnings	$	224,923		$	411,820		(45)%

Domestic Segment

•Revenues increased 8%4% to ~~$1.27~~$1.29 billion in the ~~second~~third quarter of 2021, from ~~$1.17~~$1.23 billion in the same period of 2020. The following factors impacted the year-over-year change in Domestic revenues:

◦Increased implementation activity during the ~~second~~third quarter of 2021 within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs.

◦The ~~second~~third quarter of 2021 includes a $21 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business.

◦Moderate recovery from the impact of the COVID-19 pandemic, which we believe had the most significant unfavorable impact to our business operations in the second quarter of 2020, as further discussed above. The largest impact was in the areas of licensed software, technology resale, professional services, and reimbursed travel revenues.

◦~~The second quarter of 2021 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., on August 3, 2020.~~

Refer to Note (3) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were ~~18%~~17% in the ~~second~~third quarter of 2021, compared to ~~16%~~18% in the same period of 2020. The ~~higher~~lower costs of revenue as a percent of revenues was primarily driven by the mix of revenues for the quarters, inclusive of the third quarter of 2021 containing a higher ~~reimbursed travel revenue,~~percentage of licensed software revenues, which ~~carries~~caries a ~~100%~~lower cost of ~~revenue; a higher mix of technology resale revenue, which carries a high cost of revenue; and the impact of the Kantar Health business acquired on April 1, 2021.~~revenue.

•Operating expenses as a percent of revenues were ~~52%~~45% in the ~~second~~third quarter of 2021, compared to ~~50%~~46% in the same period of 2020. These expenses increased ~~12%~~2% to ~~$656~~$581 million in the ~~second~~third quarter of 2021, from ~~$588~~$567 million in the same period of 2020. The increase in operating expenses was primarily driven by ~~a $68 million pre-tax charge recorded in~~expense contributions from the ~~second quarter of 2021 in connection with the designation of certain real estate assets as held for sale. Refer to Note (1) of the Notes for further information.~~Kantar Health business, which was acquired on April 1, 2021.

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International Segment

•Revenues increased ~~17%~~32% to ~~$190~~$182 million in the ~~second~~third quarter of 2021, compared to ~~$162~~$138 million in the same period of 2020. The ~~following factors impacted the year-over-year change~~increase in ~~International revenues:~~

◦~~The second quarter of 2021 includes~~revenues is primarily due to a $24 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business.

◦The second quarter of 2021 includes a $19 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain to affiliates of CompuGroup Medical SE & Co. KGaA on July 1, 2020.

◦The remaining ~~difference~~increase is attributable to 2021 revenue growth across the majority of our remaining International Segment operations.

Refer to Note (3) of the Notes for further information regarding revenues disaggregated by our business models.

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•Costs of revenue as a percent of revenues were ~~15%~~16% in the ~~second~~third quarter of 2021, compared to ~~14%~~9% in the same period of 2020. The higher costs of revenue as a percent of revenues was primarily driven by the impact of the Kantar Health business acquired on April 1, 2021.

•Operating expenses as a percent of revenues were 39% in the ~~second~~third quarter of 2021, compared to ~~35%~~43% in the same period of 2020. These expenses increased ~~30%~~20% to ~~$75~~$70 million in the ~~second~~third quarter of 2021, from ~~$57~~$59 million in the same period of 2020. The increase in operating expenses is primarily due to the April 1, 2021 acquisition of the Kantar Health business.

Other Costs and Expenses, Net

Operating costs 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 ~~27%~~8% to ~~$415~~$341 million in the ~~second~~third quarter of 2021, from ~~$326~~$316 million in the same period of 2020. The increase is primarily due to increased employee separation costs, recognized in connection with our operational improvement initiatives, and a pre-tax charge of $48 million to reduce the carrying amount of certain capitalized software development costs to estimated net realizable value, both of which areas further discussed in Note (1) of the Notes.

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~~Six~~Nine Months Ended ~~June~~September 30, 2021 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2020

The following table presents a summary of our operating information for the first ~~six~~nine months of 2021 and 2020:


(In thousands)	(In thousands)	2021		% of Revenue		2020		% of Revenue		% Change		(In thousands)	2021		% of Revenue		2020		% of Revenue		% Change

Revenues	Revenues	$	2,844,533	100	%	$	2,742,090	100	%	4	%	Revenues	$	4,312,509	100	%	$	4,110,763	100	%	5	%
Costs of revenue	Costs of revenue	491,981		17	%	466,379		17	%	5	%	Costs of revenue	743,092		17	%	698,268		17	%	6	%

Margin	Margin	2,352,552		83	%	2,275,711		83	%	3	%	Margin	3,569,417		83	%	3,412,495		83	%	5	%

Operating expenses	Operating expenses											Operating expenses
Sales and client service	Sales and client service	1,353,253		48	%	1,281,736		47	%	6	%	Sales and client service	2,004,263		46	%	1,907,138		46	%	5	%
Software development	Software development	433,927		15	%	364,275		13	%	19	%	Software development	636,590		15	%	551,101		13	%	16	%
General and administrative	General and administrative	268,672		9	%	274,184		10	%	(2)	%	General and administrative	390,067		9	%	391,000		10	%	—	%
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	29,082		1	%	30,242		1	%	(4)	%	Amortization of acquisition-related intangibles	45,956		1	%	43,031		1	%	7	%

Total operating expenses	Total operating expenses	2,084,934		73	%	1,950,437		71	%	7	%	Total operating expenses	3,076,876		71	%	2,892,270		70	%	6	%

Total costs and expenses	Total costs and expenses	2,576,915		91	%	2,416,816		88	%	7	%	Total costs and expenses	3,819,968		89	%	3,590,538		87	%	6	%

Gain on sale of businesses												Gain on sale of businesses	—		—	%	216,869		5	%

Operating earnings	Operating earnings	267,618		9	%	325,274		12	%	(18)	%	Operating earnings	492,541		11	%	737,094		18	%	(33)	%

Other income (loss), net	Other income (loss), net	(472)				30,227						Other income (loss), net	(5,542)				78,247
Income taxes	Income taxes	(62,187)				(73,594)						Income taxes	(106,245)				(176,758)

Net earnings	Net earnings	$	204,959			$	281,907			(27)	%	Net earnings	$	380,754			$	638,583			(40)	%

Revenues & Backlog

Revenues increased 4%5% to ~~$2.84~~$4.31 billion in the first ~~six~~nine months of 2021, as compared to ~~$2.74~~$4.11 billion in the same period of 2020. The following factors impacted the year-over-year change in revenues:

•Increased implementation activity during the first ~~six~~nine months of 2021 within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. In the first ~~six~~nine months of 2021, 20% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to 17% in the same period of 2020.

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•The first ~~six~~nine months of 2021 includes a ~~$45~~$90 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business. Refer to Note (2) of the Notes for further information regarding the Kantar Health acquisition.

•The first ~~six~~nine months of 2021 includes a ~~$43~~$44 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., on August 3, 2020.

•The first ~~six~~nine months of 2021 includes a $40 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain to affiliates of CompuGroup Medical SE & Co. KGaA on July 1, 2020.

Refer to Note (3) of the Notes for further information regarding revenues disaggregated by our business models.

Costs of Revenue

Costs of revenue as a percent of revenues were 17% in the first ~~six~~nine months of both 2021 and 2020.

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Operating Expenses

Total operating expenses increased 7%6% to ~~$2.08~~$3.08 billion in the first ~~six~~nine months of 2021, compared to ~~$1.95~~$2.89 billion in the same period of 2020.

•Sales and client service expenses as a percent of revenues were ~~48%~~46% in the first ~~six~~nine months of both 2021 ~~compared to 47% in the same period of~~and 2020. These expenses increased 6%5% to ~~$1.35~~$2.00 billion in the first ~~six~~nine months of 2021, from ~~$1.28~~$1.91 billion in the same period of 2020. The increase in sales and client service expenses was primarily driven by a $68 million pre-tax charge recorded in the first ~~six~~nine months of 2021 in connection with the designation of certain real estate assets as held for sale. The remaining increase was was primarily driven by expense contributions from the Kantar Health business, which was acquired on April 1, 2021. Refer to Note (1) and Note (2) of the Notes for further information.

•Software development expenses as a percent of revenues were 15% in the first ~~six~~nine months of 2021, compared to 13% in the same period of 2020. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium and HealtheIntent platforms, as well as other key initiatives such as platform modernization, with a focus on development of a software as a service platform. A summary of our total software development expense in the first ~~six~~nine months of 2021 and 2020 is as follows:


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Software development costs	Software development costs	$	423,285	$	393,460	Software development costs	$	633,367	$	592,025
Capitalized software costs	Capitalized software costs	(162,461)		(148,354)		Capitalized software costs	(236,234)		(219,879)
Capitalized costs related to share-based payments	Capitalized costs related to share-based payments	(4,647)		(3,039)		Capitalized costs related to share-based payments	(6,443)		(4,831)
Amortization of capitalized software costs	Amortization of capitalized software costs	130,097		122,208		Amortization of capitalized software costs	196,319		183,786
Net realizable value charge (see Note (1) of the Notes)		47,653		—
Net realizable value charges (see Note (1) of the Notes)						Net realizable value charges (see Note (1) of the Notes)	49,581		—

Total software development expense	Total software development expense	$	433,927	$	364,275	Total software development expense	$	636,590	$	551,101

•General and administrative expenses as a percent of revenues were 9% in the first ~~six~~nine months of 2021, compared to 10% in the same period of 2020. These expenses ~~decreased 2% to $269~~were relatively flat at $390 million in the first ~~six~~nine months of 2021, ~~from $274~~compared to $391 million in the same period of 2020. ~~The slight decrease in general~~General and administrative expenses ~~was primarily driven by lower depreciation~~include certain charges incurred in connection with our operational improvement initiatives, as further discussed above, and in the Notes. We expect to incur additional expenses ~~associated~~in connection with ~~property and equipment.~~these efforts in future periods, which may be material.

•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the first ~~six~~nine months of both 2021 and 2020. These expenses ~~were relativity flat at $29~~increased 7% to $46 million in the first ~~six~~nine months of 2021, ~~compared to $30~~from $43 million in the same period in 2020. The increase in amortization of acquisition-related intangibles is primarily due to

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amortization of intangibles acquired in our April 1, 2021 acquisition of the Kantar Health business. Refer to Note (2) of the Notes for further information regarding the Kantar Health acquisition.

Gain on Sale of Businesses

The first nine months of 2020 includes a $217 million gain recognized in connection with the divestiture transactions described above.

Non-Operating Items

•Other income (loss), net was a net loss of ~~less than $1~~$6 million in the first ~~six~~nine months of 2021, compared to ~~$30~~$78 million of income in the same period of 2020. The decrease in 2021 is primarily attributable to the first ~~six~~nine months of 2020 ~~includes~~including a ~~$26~~$76 million ~~unrealized~~ gain recognized ~~in connection with~~on the ~~measurement~~disposition of one of our equity investments. The remaining difference is primarily attributable to increased interest expense in the first ~~six~~nine months of 2021 from the $300 million of Series 2020-A Notes we issued in March 2020 and the $500 million of Series 2021 Senior Notes we issued in March 2021.

•Our effective tax rate was ~~23.3%~~relatively flat at 21.8% for the first ~~six~~nine months of 2021, compared to ~~20.7%~~21.7% for the same period of 2020. A $6 million valuation allowance was recorded in the first six months of 2021 against a deferred tax asset where it became more likely than not that such deferred tax asset will not be realized, while a valuation allowance of $3 million was recorded during first six months of 2020. The remainder of the increase in the effective tax rate is primarily related to unfavorability of permanent book-tax differences for share based compensation in 2021 compared to 2020. Refer to Note (8) of the Notes for further discussion regarding our effective tax rate.

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Operations by Segment

The following table presents a summary of our operating segment information for the first ~~six~~nine months of 2021 and 2020:


(In thousands)	(In thousands)	2021		% of Revenue	2020		% of Revenue	% Change	(In thousands)	2021		% of Revenue	2020		% of Revenue	% Change

Domestic Segment	Domestic Segment								Domestic Segment
Revenues	Revenues	$	2,489,019	100%	$	2,414,628	100%	3%	Revenues	$	3,774,507	100%	$	3,645,397	100%	4%

Costs of revenue	Costs of revenue	437,919		18%	418,346		17%	5%	Costs of revenue	660,584		18%	638,284		18%	3%
Operating expenses	Operating expenses	1,216,931		49%	1,157,768		48%	5%	Operating expenses	1,797,466		48%	1,724,545		47%	4%
Total costs and expenses	Total costs and expenses	1,654,850		66%	1,576,114		65%	5%	Total costs and expenses	2,458,050		65%	2,362,829		65%	4%

Domestic operating earnings	Domestic operating earnings	834,169		34%	838,514		35%	(1)%	Domestic operating earnings	1,316,457		35%	1,282,568		35%	3%

International Segment	International Segment								International Segment
Revenues	Revenues	355,514		100%	327,462		100%	9%	Revenues	538,002		100%	465,366		100%	16%

Costs of revenue	Costs of revenue	54,062		15%	48,033		15%	13%	Costs of revenue	82,508		15%	59,984		13%	38%
Operating expenses	Operating expenses	136,322		38%	123,968		38%	10%	Operating expenses	206,794		38%	182,594		39%	13%
Total costs and expenses	Total costs and expenses	190,384		54%	172,001		53%	11%	Total costs and expenses	289,302		54%	242,578		52%	19%

International operating earnings	International operating earnings	165,130		46%	155,461		47%	6%	International operating earnings	248,700		46%	222,788		48%	12%

Other costs and expenses, net	Other costs and expenses, net	(731,681)			(668,701)			9%	Other costs and expenses, net	(1,072,616)			(985,131)			9%

Gain on sale of businesses									Gain on sale of businesses	—			216,869

Consolidated operating earnings	Consolidated operating earnings	$	267,618		$	325,274		(18)%	Consolidated operating earnings	$	492,541		$	737,094		(33)%

Domestic Segment

•Revenues increased 3%4% to ~~$2.49~~$3.77 billion in the first ~~six~~nine months of 2021, from ~~$2.41~~$3.65 billion in the same period of 2020. The following factors impacted the year-over-year change in Domestic revenues:

◦Increased implementation activity during the first ~~six~~nine months of 2021 within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs.

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◦The first ~~six~~nine months of 2021 includes a ~~$21~~$42 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business.

◦The first ~~six~~nine months of 2021 includes a ~~$43~~$44 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., on August 3, 2020.

Refer to Note (3) 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 ~~six~~nine months of both 2021 ~~compared to 17% in the same period of~~and 2020. The higher costs of revenue as a percent of revenues was primarily driven by a higher mix of technology resale revenue, which carries a high cost of revenue; along with the impact of the Kantar Health business acquired on April 1, 2021.

•Operating expenses as a percent of revenues were ~~49%~~48% in the first ~~six~~nine months of 2021, compared to ~~48%~~47% in the same period of 2020. These expenses increased 5%4% to ~~$1.22~~$1.80 billion in the first ~~six~~nine months of 2021, from ~~$1.16~~$1.72 billion in the same period of 2020. The increase in operating expenses was primarily driven by a $68 million pre-tax charge recorded in the first ~~six~~nine months of 2021 in connection with the designation of certain real estate assets as held for sale. The remaining increase was was primarily driven by expense contributions from the Kantar Health business, which was acquired on April 1, 2021. Refer to Note (1) and Note (2) of the Notes for further information.

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International Segment

•Revenues increased 9%16% to ~~$356~~$538 million in the first ~~six~~nine months of 2021, from ~~$327~~$465 million in the same period of 2020. The following factors impacted the year-over-year change in International revenues:

◦The first ~~six~~nine months of 2021 includes a ~~$24~~$48 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business.

◦The first ~~six~~nine months of 2021 includes a $40 million reduction in revenues due to the sale of certain of our business operations primarily conducted in Germany and Spain to affiliates of CompuGroup Medical SE & Co. KGaA on July 1, 2020.

◦The remaining difference is attributable to 2021 revenue growth across the majority of our remaining International Segment operations.

Refer to Note (3) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were 15% in the first ~~six~~nine months of ~~both~~ 2021, ~~and~~compared to 13% in the same period of 2020. The higher costs of revenue as a percent of revenues was primarily driven by the impact of the Kantar Health business acquired on April 1, 2021.

•Operating expenses as a percent of revenues were 38% in the first ~~six~~nine months of ~~both~~ 2021, ~~and~~compared to 39% in the same period of 2020. These expenses increased ~~10%~~13% to ~~$136~~$207 million in the first ~~six~~nine months of 2021, from ~~$124~~$183 million in the same period of 2020. The increase in operating expenses is primarily due to the April 1, 2021 acquisition of the Kantar Health business.

Other Costs and Expenses, Net

These expenses increased 9% to ~~$732 million~~$1.07 billion in the first ~~six~~nine months of 2021, from ~~$669~~$985 million in the same period of 2020. The increase is primarily due to a pre-tax ~~charge~~charges of ~~$48~~$50 million recorded in the first ~~six~~nine months of 2021 to reduce the carrying amount of certain capitalized software development costs to estimated net realizable value, as further discussed in Note (1) of the Notes.

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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, collaborations, 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, time deposits and commercial paper with original maturities of less than 90 days), short-term investments, borrowings under our Credit Agreement and other sources of debt financing. At ~~June~~September 30, 2021, we had cash and cash equivalents of ~~$246~~$460 million and short-term investments of ~~$638~~$323 million, as compared to cash and cash equivalents of $616 million and short-term investments of $442 million at December 31, 2020.

We have entered into a Credit Agreement with a syndicate of lenders that provides for an unsecured $1.00 billion revolving credit loan facility, along with a letter of credit 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 $1.20 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 ~~June~~September 30, 2021, we had outstanding revolving credit loans and letters of credit of $600 million and ~~$31~~$30 million, respectively; which reduced our available borrowing capacity to ~~$369~~$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 (6) of the Notes for further information.

We believe that our present cash position, together with cash generated from operations, short-term investments and, 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.

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The following table summarizes our cash flows in the first ~~six~~nine months of 2021 and 2020:


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Cash flows from operating activities	Cash flows from operating activities	$	819,569	$	542,096	Cash flows from operating activities	$	1,254,390	$	924,045
Cash flows from investing activities	Cash flows from investing activities	(910,819)		(385,046)		Cash flows from investing activities	(705,560)		(596,825)
Cash flows from financing activities	Cash flows from financing activities	(275,378)		(322,569)		Cash flows from financing activities	(693,077)		(345,527)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(2,583)		(6,429)		Effect of exchange rate changes on cash	(11,828)		(4,382)
Total change in cash and cash equivalents	Total change in cash and cash equivalents	(369,211)		(171,948)		Total change in cash and cash equivalents	(156,075)		(22,689)

Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	615,615		441,843		Cash and cash equivalents at beginning of period	615,615		441,843

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	246,404	$	269,895	Cash and cash equivalents at end of period	$	459,540	$	419,154

Free cash flow (non-GAAP)	Free cash flow (non-GAAP)	$	453,180	$	224,407	Free cash flow (non-GAAP)	$	764,900	$	461,282

Cash from Operating Activities


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Cash collections from clients	Cash collections from clients	$	2,903,150	$	2,658,956	Cash collections from clients	$	4,464,651	$	4,085,527
Cash paid to employees and suppliers and other	Cash paid to employees and suppliers and other	(2,010,033)		(2,091,598)		Cash paid to employees and suppliers and other	(3,073,278)		(3,051,302)
Cash paid for interest	Cash paid for interest	(20,190)		(16,572)		Cash paid for interest	(41,918)		(31,661)
Cash paid for taxes, net of refunds	Cash paid for taxes, net of refunds	(53,358)		(8,690)		Cash paid for taxes, net of refunds	(95,065)		(78,519)

Total cash from operations	Total cash from operations	$	819,569	$	542,096	Total cash from operations	$	1,254,390	$	924,045

Cash flows from operations increased ~~$277~~$330 million in the first ~~six~~nine months of 2021 when compared to the same period of 2020, due primarily to increased collections of client receivables. Days sales outstanding was 7776 days in the ~~second~~third quarter of 2021, compared to 77 days for the ~~first~~second quarter of 2021 and 81 days for the ~~second~~third quarter of 2020.

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Cash from Investing Activities


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Capital purchases	Capital purchases	$	(199,281)	$	(166,296)	Capital purchases	$	(246,813)	$	(238,053)
Capitalized software development costs	Capitalized software development costs	(167,108)		(151,393)		Capitalized software development costs	(242,677)		(224,710)
Purchases of investments, net of sales and maturities		(178,530)		(10,935)
Sales and maturities of investments, net of purchases						Sales and maturities of investments, net of purchases	145,957		(298,069)
Purchases of other intangibles	Purchases of other intangibles	(16,031)		(20,656)		Purchases of other intangibles	(23,197)		(29,698)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(349,869)		(35,766)		Acquisition of businesses, net of cash acquired	(348,179)		(35,766)
Sale of businesses						Sale of businesses	—		229,471
Disposition of assets held for sale						Disposition of assets held for sale	9,349		—

Total cash flows from investing activities	Total cash flows from investing activities	$	(910,819)	$	(385,046)	Total cash flows from investing activities	$	(705,560)	$	(596,825)

Cash flows from investing activities consist primarily of capital spending, investment, acquisition, and divestiture activities.

Our capital spending in the first ~~six~~nine months of 2021 was driven by capitalized equipment purchases primarily to support growth in our managed services business and capitalized spending to support our ongoing software development initiatives. Capital purchases for the ~~remainder of~~full year 2021 are expected to ~~be below~~approximate 2020 levels, primarily driven by reduced purchases to support our facilities requirements, reflective of the completion of construction on the most recent phases of our Innovations Campus in the third quarter of 2020.levels.

Short-term investment activity historically consists of the investment of cash generated by our business in excess of what is necessary to fund operations. Both the 2021 and 2020 activity is impacted by excess cash primarily being used to execute on our capital allocation strategy, including the acquisition of businesses, share repurchases and cash dividends, as discussed below. The 2020 activity includes the investment of proceeds from the sale of certain business operations in the third quarter of 2020, as discussed below.

~~Table~~During the first nine months of ~~Contents~~

~~On April 1,~~ 2021, we paid ~~$364~~$363 million of purchase price consideration in connection with our acquisition of Kantar Health, as further discussed in Note (2) of the Notes. We expect to continue seeking and completing strategic business acquisitions, investments, and relationships that are complementary to our business.

During the first nine months of 2020, we received proceeds of $229 million in connection with certain business divestitures discussed above. We expect to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives discussed above.

During the first nine months of 2021, we received proceeds of $9 million in connection with the sale of our Oaks Campus. We expect future proceeds from the disposition of real estate held for sale, however, the amount and timing of such proceeds are dependent upon economic and market conditions which are not within our control. Refer to Note (1) of the Notes for further information regarding real estate held for sale.

Cash from Financing Activities


		Six Months Ended					Nine Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020

Long-term debt issuance	Long-term debt issuance	$	500,000	$	300,000	Long-term debt issuance	$	500,000	$	300,000
Repayment of long-term debt						Repayment of long-term debt	—		(2,500)
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)	Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)	118,554		142,691		Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)	152,418		180,057
Treasury stock purchases	Treasury stock purchases	(750,000)		(650,000)		Treasury stock purchases	(1,125,000)		(650,000)
Dividends paid	Dividends paid	(135,260)		(111,101)		Dividends paid	(202,054)		(166,277)
Other	Other	(8,672)		(4,159)		Other	(18,441)		(6,807)

Total cash flows from financing activities	Total cash flows from financing activities	$	(275,378)	$	(322,569)	Total cash flows from financing activities	$	(693,077)	$	(345,527)

In March 2021, we issued $500 million aggregate principal amount of Series 2021 Senior Notes. In March 2020, we issued $300 million aggregate principal amount of Series 2020-A notes. Refer to Note (6) of the Notes for further information regarding these, as well as our other debt obligations.

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We may incur additional indebtedness in the next 12 months, which will primarily be dependent on cash flows from operations, market interest rates, and the timing of business acquisition and capital allocation activity. The proceeds from such indebtedness would be deployed in accordance with our 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 would 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 2021 based on the number of exercisable options as of ~~June~~September 30, 2021 and our current stock price.

During the first ~~six~~nine months of 2021 and 2020, we repurchased ~~10.1~~14.8 million shares of our common stock for total consideration of ~~$750 million~~$1.12 billion and 9.2 million shares of our common stock for total consideration of $650 million, respectively. As of ~~June~~September 30, 2021, an aggregate of ~~$3.93~~$3.55 billion remained available for repurchase under our share repurchase ~~programs.~~program. We will continue to repurchase shares under our share repurchase ~~programs,~~program, but the amount and timing of such repurchases will be dependent on a number of factors, including the price of our common stock and other cash flow needs. There is no assurance that we will repurchase up to the full amount remaining under our ~~programs.~~program. Refer to Note (10) of the Notes for further information regarding our share repurchase ~~programs.~~program.

During the first ~~six~~nine months of both 2021 and 2020, we declared and paid quarterly cash dividends. 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. Refer to Note (10) of the Notes for further information regarding our cash dividend activity.

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.

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Free Cash Flow (Non-GAAP)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2021		2020		2021		2020

Cash flows from operating activities (GAAP)	Cash flows from operating activities (GAAP)	$	369,135	$	258,590	$	819,569	$	542,096	Cash flows from operating activities (GAAP)	$	434,821	$	381,949	$	1,254,390	$	924,045
Capital purchases	Capital purchases	(123,356)		(117,048)		(199,281)		(166,296)		Capital purchases	(47,532)		(71,757)		(246,813)		(238,053)
Capitalized software development costs	Capitalized software development costs	(83,558)		(77,538)		(167,108)		(151,393)		Capitalized software development costs	(75,569)		(73,317)		(242,677)		(224,710)

Free cash flow (non-GAAP)	Free cash flow (non-GAAP)	$	162,221	$	64,004	$	453,180	$	224,407	Free cash flow (non-GAAP)	$	311,720	$	236,875	$	764,900	$	461,282

Free cash flow increased ~~$229~~$304 million in the first ~~six~~nine months of 2021 compared to the same period in 2020, primarily due to increased cash from operations, partially offset by an increase in capital spending. 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 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.

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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. 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," "strategy," "opportunities," "future," "estimated," "objectives", 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; the expected revenue contributions of acquired businesses; 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 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; 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; potential claims for system errors and warranties or significant costs and reputational harm related to product and service-related liabilities; 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, or subject to claims related to open source licenses; material adverse resolution of legal proceedings or other claims or reputational harm stemming from negative publicity related to such claims or legal proceedings; risks associated with our global operations, including without limitation greater difficulty in collecting accounts receivable; significant competition and our ability to anticipate or respond quickly 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; risks inherent with business acquisitions, strategic investments, collaborations and the failure to achieve projected synergies, or divestitures; managing growth in the new markets in which we offer solutions, healthcare devices or services; long sales cycles for our solutions and

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services; risks related to our dependence on strategic relationships and third party suppliers, including any impact to such supplier’s business resulting from the COVID-19 pandemic; risks associated with the 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 and uncertainties as to how quickly we are able to finalize our CEO succession plans;~~expertise; inability to achieve expected operating efficiencies and sustain or improve operating expense reductions or business disruptions or adverse tax consequences associated with restructuring, realignment and costs reduction activities; changing political, economic and regulatory 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, regulations 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; 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; volatility and disruption resulting from global economic or market conditions, including the impact from the COVID-19 pandemic; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; risk that our capital allocation strategy will not be fully implemented or enhance long-term shareholder value; 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 potential for losses resulting from asset impairment charges; potential variations in our sales forecasts compared to actual sales; risks that our revenue growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; variations in our quarterly operating results; volatility in the trading price of our common stock and the timing and volume of market activity; risks associated with fluctuations in foreign currency exchange rates; and our directors’ authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents. 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, 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

No material changes.

Item 4. 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) promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) 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.

There were no changes in our internal controls over financial reporting during the fiscal quarter ended ~~June~~September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. ~~During the fiscal quarter ended June 30,~~On April 1, 2021, we completed the acquisition of Kantar Health. As permitted by Securities and Exchange Commission staff interpretative guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of our internal controls over financial reporting at ~~June~~September 30, 2021 does not include Kantar Health.

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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.

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 2020 annual report on Form 10-K.~~ 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.

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

The table below provides information with respect to Common Stock purchases by the Company during the ~~second~~third fiscal quarter of 2021.

Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)
Period
April 1, 2021 - April 30, 2021 1,365,000 $ 74.30 1,365,000 $ 4,225,494,010
May 1, 2021 - May 31, 2021 2,123,675 77.32 2,123,675 4,061,290,425
June 1, 2021 - June 30, 2021 1,693,842 79.41 1,690,841 3,927,014,404
Total 5,182,517 $ 77.21 5,179,516


	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
July 1, 2021 - July 31, 2021	4,760,503	$	78.75	4,760,503	$	3,552,109,673
August 1, 2021 - August 31, 2021	—	—		—	3,552,109,673
September 1, 2021 - September 30, 2021	—	—		—	3,552,109,673

Total	4,760,503	$	78.75	4,760,503

(a) Of the 5,182,517 shares of common stock, par value $0.01 per share, presented in the table above, 3,001 shares were originally granted to employees as restricted stock pursuant to our 2011 Omnibus Equity Incentive Plan (the "Omnibus Plan"). The Omnibus Plan allows for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock. Pursuant to the Omnibus Plan, the 3,001 shares reflected above were relinquished by employees in exchange for our agreement to pay U.S. federal and state withholding obligations resulting from the vesting of the Company's restricted stock.

~~(b)~~ Under our 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 "2017 Share Repurchase Program") the Company iswas authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases ~~are~~were to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, or any combination thereof. ~~No time limit~~This program was ~~set for~~completed in the ~~completion~~third quarter of ~~the 2017 Share Repurchase Program.~~2021.

On April 23, 2021, our Board of Directors approved (and announced on May 5, 2021) a new share repurchase program ~~(the~~(as amended, the "2021 Share Repurchase Program"), which authorizes the Company to repurchase up to $3.75 billion in the aggregate of shares of our common stock, excluding transaction costs. The 2021 Share Repurchase Program is incremental to our 2017 Share Repurchase Program. 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, or any combination thereof. The 2021 Share Repurchase Program will expire on December 31, 2023.

During the ~~six~~nine months ended ~~June~~September 30, 2021, we repurchased ~~10.1~~14.8 million shares for total consideration of ~~$750 million~~$1.12 billion under our share

~~Table of Contents~~

repurchase programs pursuant to Rule 10b5-1 plans. As of ~~June~~September 30, 2021, an aggregate of ~~$3.93~~$3.55 billion remained available for repurchase under the ~~programs.~~2021 Share Repurchase Program.

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Item 6. Exhibits


(a)						Exhibits

10.1*						~~Letter~~Executive Employment Agreement between Cerner Corporation and ~~Transition~~David T. Feinberg

10.2*						Time Sharing Agreement ~~with Brent Shafer~~between Cerner Corporation and David T. Feinberg

10.3*						Separation Agreement between Cerner Corporation and Donald Trigg

31.1						Certification of ~~Brent Shafer~~David T. Feinberg pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2						Certification of Mark J. Erceg pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1						Certification of ~~Brent Shafer~~David T. Feinberg pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2						Certification of Mark J. Erceg pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101.INS						Inline 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.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

104						Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101.

*Indicates a management contract or compensatory plan or arrangement.

3839

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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
	Registrant

Date: ~~July 30,~~October 29, 2021	By:	/s/ Mark J. Erceg
		Mark J. Erceg
		Executive Vice President and Chief
		Financial Officer (duly authorized
		officer and principal financial officer)


	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)
Period
April 1, 2021 - April 30, 2021	1,365,000	$	74.30	1,365,000	$	4,225,494,010
May 1, 2021 - May 31, 2021	2,123,675	77.32		2,123,675	4,061,290,425
June 1, 2021 - June 30, 2021	1,693,842	79.41		1,690,841	3,927,014,404

Total	5,182,517	$	77.21	5,179,516