~~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 30, 2021~~March 31, 2022

☐ 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~~April 26, ~~2021~~2022
Common Stock, $0.01 par value per share						~~295,585,810~~294,098,094 shares

Table of Contents

CERNER CORPORATION

TABLE OF CONTENTS


Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of March 31, 202 ~~June~~2 3 0 ~~, 2021~~ (unaudited) and December 31, ~~2020~~20 21	1

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 202 2 and SMarch 31, 202 ix1 ~~Months Ended~~ ~~June~~ 3 0 ~~, 2021 and~~ ~~June~~ 3 0 ~~, 2020~~ (unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 202 2 and March 31, 202 ~~Six~~1 ~~Months Ended~~ ~~June~~ 3 0 ~~, 2021 and~~ ~~June~~ 3 0 ~~, 2020~~ (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended March 31, 202 ~~June~~2 3and March 31, 202 01 ~~, 2021 and~~ ~~June~~ 3 0 ~~, 2020~~ (unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 202 2 and ~~Six~~March 31, 202 ~~Months Ended~~ 1 ~~June~~ 3 0 ~~, 2021 and~~ ~~June~~ 3 0 ~~, 2020~~ (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2118

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3626

Item 4.	Controls and Procedures	3626

Part II.	Other Information:

Item 1.	Legal Proceedings	37

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	3726

Item 6.	Exhibits	3827

Signatures

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of ~~June 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020~~2021


(In thousands, except share data)	(In thousands, except share data)	2021		2020		(In thousands, except share data)	2022		2021

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	$	709,532	$	589,847
Short-term investments	Short-term investments	638,488		442,473		Short-term investments	171,180		252,622
Receivables, net	Receivables, net	1,237,230		1,168,712		Receivables, net	1,178,037		1,161,361
Inventory	Inventory	20,168		23,027		Inventory	27,704		28,159
Prepaid expenses and other	Prepaid expenses and other	398,510		401,160		Prepaid expenses and other	381,404		417,465
Total current assets	Total current assets	2,540,800		2,650,987		Total current assets	2,467,857		2,449,454

Property and equipment, net	Property and equipment, net	1,768,617		1,804,083		Property and equipment, net	1,610,496		1,656,171
Right-of-use assets	Right-of-use assets	95,666		104,536		Right-of-use assets	76,474		82,940
Software development costs, net	Software development costs, net	1,001,440		1,009,349		Software development costs, net	1,003,806		1,000,357
Goodwill	Goodwill	1,129,699		914,520		Goodwill	1,129,539		1,131,121
Intangible assets, net	Intangible assets, net	492,547		329,249		Intangible assets, net	434,900		458,482
Long-term investments	Long-term investments	497,350		510,220		Long-term investments	456,398		461,984
Other assets	Other assets	194,983		198,152		Other assets	194,761		193,649

Total assets	Total assets	$	7,721,102	$	7,521,096	Total assets	$	7,374,231	$	7,434,158

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	$	359,562	$	329,582
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	456,929		531,234
Accrued payroll and tax withholdings	Accrued payroll and tax withholdings	332,513		309,814		Accrued payroll and tax withholdings	284,145		317,092
Other current liabilities	Other current liabilities	223,203		229,764		Other current liabilities	278,236		223,350
Total current liabilities	Total current liabilities	1,542,894		1,168,626		Total current liabilities	1,378,872		1,626,258

Long-term debt	Long-term debt	1,611,154		1,336,069		Long-term debt	1,611,303		1,611,256
Deferred income taxes	Deferred income taxes	389,018		376,035		Deferred income taxes	362,236		395,177
Other liabilities	Other liabilities	151,552		157,799		Other liabilities	113,301		121,005
Total liabilities	Total liabilities	3,694,618		3,038,529		Total liabilities	3,465,712		3,753,696

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, 381,357,862 shares issued at March 31, 2022 and 380,232,975 shares issued at December 31, 2021						Common stock, $0.01 par value, 500,000,000 shares authorized, 381,357,862 shares issued at March 31, 2022 and 380,232,975 shares issued at December 31, 2021	3,814		3,802
Additional paid-in capital	Additional paid-in capital	2,509,545		2,288,806		Additional paid-in capital	2,811,612		2,717,244
Retained earnings	Retained earnings	6,546,615		6,475,551		Retained earnings	6,877,111		6,751,692
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, 87,383,166 shares at March 31, 2022 and December 31, 2021						Treasury stock, 87,383,166 shares at March 31, 2022 and December 31, 2021	(5,664,718)		(5,664,718)
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(118,727)		(120,804)		Accumulated other comprehensive loss, net	(119,300)		(127,558)
Total shareholders' equity	Total shareholders' equity	4,026,484		4,482,567		Total shareholders' equity	3,908,519		3,680,462

Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	7,721,102	$	7,521,096	Total liabilities and shareholders' equity	$	7,374,231	$	7,434,158

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~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended
(In thousands, except per share data)	(In thousands, except per share data)	2021		2020		2021		2020		(In thousands, except per share data)	2022		2021

Revenues	Revenues	$	1,456,755	$	1,330,349	$	2,844,533	$	2,742,090	Revenues	$	1,429,801	$	1,387,778
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	243,848		230,656
Sales and client service	Sales and client service	731,077		645,087		1,353,253		1,281,736		Sales and client service	612,997		622,176
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 $65,206 and $64,850, respectively)										Software development (Includes amortization of $65,206 and $64,850, respectively)	195,091		192,327
General and administrative	General and administrative	156,307		134,332		268,672		274,184		General and administrative	109,279		112,365
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	16,886		13,114		29,082		30,242		Amortization of acquisition-related intangibles	16,602		12,196

Total costs and expenses	Total costs and expenses	1,407,195		1,183,451		2,576,915		2,416,816		Total costs and expenses	1,177,817		1,169,720

Operating earnings	Operating earnings	49,560		146,898		267,618		325,274		Operating earnings	251,984		218,058

Other income (loss), net		(1,678)		24,632		(472)		30,227
Other income, net										Other income, net	26		1,206

Earnings before income taxes	Earnings before income taxes	47,882		171,530		267,146		355,501		Earnings before income taxes	252,010		219,264
Income taxes	Income taxes	(15,175)		(36,782)		(62,187)		(73,594)		Income taxes	(45,881)		(47,012)

Net earnings	Net earnings	$	32,707	$	134,748	$	204,959	$	281,907	Net earnings	$	206,129	$	172,252

Basic earnings per share	Basic earnings per share	$	0.11	$	0.44	$	0.68	$	0.92	Basic earnings per share	$	0.70	$	0.57
Diluted earnings per share	Diluted earnings per share	$	0.11	$	0.44	$	0.67	$	0.91	Diluted earnings per share	$	0.70	$	0.56
Basic weighted average shares outstanding	Basic weighted average shares outstanding	300,737		304,776		302,723		307,256		Basic weighted average shares outstanding	293,412		304,731
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	303,591		306,717		305,802		309,520		Diluted weighted average shares outstanding	296,336		308,031

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~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021

Net earnings	Net earnings	$	32,707	$	134,748	$	204,959	$	281,907	Net earnings	$	206,129	$	172,252
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 tax benefit of $237 and $679, respectively)										Foreign currency translation adjustment and other (net of tax benefit of $237 and $679, respectively)	(3,424)		(8,991)
Unrealized gain (loss) on cash flow hedge (net of taxes of $3,906 and $1,509, respectively)										Unrealized gain (loss) on cash flow hedge (net of taxes of $3,906 and $1,509, respectively)	12,060		4,588
Unrealized holding gain (loss) on available-for-sale investments (net of tax benefit of $125 and $71, respectively)										Unrealized holding gain (loss) on available-for-sale investments (net of tax benefit of $125 and $71, respectively)	(378)		(217)

Comprehensive income	Comprehensive income	$	39,404	$	144,440	$	207,036	$	250,896	Comprehensive income	$	214,387	$	167,632

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~

(unaudited)


		Six Months Ended					Three Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021

CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	Net earnings	$	204,959	$	281,907	Net earnings	$	206,129	$	172,252
Adjustments to reconcile net earnings to net cash provided by operating activities:	Adjustments to reconcile net earnings to net cash provided by operating activities:					Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	354,567		343,941		Depreciation and amortization	175,223		175,313
Share-based compensation expense	Share-based compensation expense	101,891		72,580		Share-based compensation expense	33,332		47,950
Provision for deferred income taxes	Provision for deferred income taxes	3,232		12,884		Provision for deferred income taxes	(36,301)		(2,829)
Investment gains		0		(26,410)
Asset impairments		115,812		0
Changes in assets and liabilities (net of businesses acquired):
Changes in assets and liabilities:						Changes in assets and liabilities:
Receivables, net	Receivables, net	(41,751)		(48,426)		Receivables, net	(16,712)		(12,301)
Inventory	Inventory	2,868		5,509		Inventory	461		(7,411)
Prepaid expenses and other	Prepaid expenses and other	9,914		(36,431)		Prepaid expenses and other	13,600		24,173
Accounts payable	Accounts payable	54,088		(31,711)		Accounts payable	35,730		30,118
Accrued income taxes	Accrued income taxes	11,585		26,358		Accrued income taxes	75,323		21,378
Deferred revenue	Deferred revenue	(676)		(66,137)		Deferred revenue	(72,800)		14,768
Other accrued liabilities	Other accrued liabilities	3,080		8,032		Other accrued liabilities	(38,922)		(12,977)

Net cash provided by operating activities	Net cash provided by operating activities	819,569		542,096		Net cash provided by operating activities	375,063		450,434

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases	Capital purchases	(199,281)		(166,296)		Capital purchases	(42,393)		(75,925)
Capitalized software development costs	Capitalized software development costs	(167,108)		(151,393)		Capitalized software development costs	(56,300)		(83,550)
Purchases of investments	Purchases of investments	(558,686)		(91,957)		Purchases of investments	(8,439)		(321,670)
Sales and maturities of investments	Sales and maturities of investments	380,156		81,022		Sales and maturities of investments	99,638		306,935
Purchase of other intangibles	Purchase of other intangibles	(16,031)		(20,656)		Purchase of other intangibles	(4,703)		(7,975)
Acquisition of businesses, net of cash acquired		(349,869)		(35,766)

Net cash used in investing activities	Net cash used in investing activities	(910,819)		(385,046)		Net cash used in investing activities	(12,197)		(182,185)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance	Long-term debt issuance	500,000		300,000		Long-term debt issuance	—		500,000
Repayment of long-term debt						Repayment of long-term debt	(225,000)		—
Proceeds from exercise of stock options	Proceeds from exercise of stock options	154,900		156,908		Proceeds from exercise of stock options	63,394		36,514
Payments to taxing authorities in connection with shares directly withheld from associates	Payments to taxing authorities in connection with shares directly withheld from associates	(36,346)		(14,217)		Payments to taxing authorities in connection with shares directly withheld from associates	(1,583)		(4,897)
Treasury stock purchases	Treasury stock purchases	(750,000)		(650,000)		Treasury stock purchases	—		(341,715)
Dividends paid	Dividends paid	(135,260)		(111,101)		Dividends paid	(79,183)		(67,477)
Other	Other	(8,672)		(4,159)		Other	1,038		(5,310)

Net cash used in financing activities		(275,378)		(322,569)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(241,334)		117,115

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(2,583)		(6,429)		Effect of exchange rate changes on cash and cash equivalents	(1,847)		(3,118)

Net decrease in cash and cash equivalents		(369,211)		(171,948)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	119,685		382,246
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	589,847		615,615

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	$	709,532	$	997,861

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~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 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)

Balance at December 31, 2021																				Balance at December 31, 2021	380,233			$	3,802	$	2,717,244		$	6,751,692		$	(5,664,718)		$	(127,558)

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	1,125			12		61,036			—			—			—

Employee share-based compensation expense	Employee share-based compensation expense	—	—		53,941				—				—				—			Employee share-based compensation expense	—			—		33,332			—			—			—

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				—				6,697			Other comprehensive income (loss)	—			—		—			—			—			8,258

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

Cash dividends declared ($0.22 per share)		—	—		—				(66,704)				—				—
Cash dividends declared ($0.27 per share)																				Cash dividends declared ($0.27 per share)	—			—		—			(80,710)			—			—

Net earnings	Net earnings	—	—		—				32,707				—				—			Net earnings	—			—		—			206,129			—			—

Balance at June 30, 2021		376,936	$	3,769	$	2,509,545			$	6,546,615			$	(4,914,718)			$	(118,727)
Balance at March 31, 2022																				Balance at March 31, 2022	381,358			$	3,814	$	2,811,612		$	6,877,111		$	(5,664,718)		$	(119,300)

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~~three month periods ended ~~2021~~2022 and ~~2020~~2021 in these notes to condensed consolidated financial statements refer to the respective three ~~and six~~ month periods ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and June 30, 2020,~~ unless otherwise noted.

~~Employee Separation Costs~~Oracle Merger Agreement

In connection with involuntary separation benefits, we recognized $40 million and $12 million of expenses in the second quarters of 2021 and 2020, respectively; and $45 million and $15 million of expenses during the first six months of 2021 and 2020, respectively.

In connection with voluntary separation benefits, we recognized $14 million and $2 million of expenses in the second quarters of 2021 and 2020, respectively; and $27 million and $15 million of expenses during the first six 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 30, 2021, a liability of $48 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~~On December 20, 2021, we ~~made~~entered into an Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the "Merger Agreement") with Cedar Acquisition Corporation ("Merger Subsidiary"), which is a wholly owned subsidiary of OC Acquisition LLC ("Parent"), Parent, which is a wholly owned subsidiary of Oracle Corporation ("Oracle"), and (solely with respect to performance of its obligations set forth in certain ~~decisions regarding~~specified sections thereof) Oracle. Pursuant to the ~~continued use~~Merger Agreement, on January 19, 2022, Oracle commenced a cash tender offer (the "Offer") to acquire all of ~~certain~~the issued and outstanding shares of our common stock for a purchase price of $95.00 per share, net to the holders thereof in cash, without interest and subject to any required tax withholding. If the Offer is completed, Merger Subsidiary will merge with and into Cerner (the "Merger") and we will become a wholly owned ~~real estate.~~indirect subsidiary of Oracle. As a result of ~~those decisions,~~the Merger, the shares of our common stock will cease to be publicly held. Completion of the Merger remains subject to certain closing conditions, including receipt of certain regulatory approvals, shareholders holding a majority of the outstanding shares of our common stock tendering their shares in the Offer, and other customary closing conditions. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on ~~July 9, 2021, we sold office space located~~making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in ~~Kansas City, Missouri (known as~~excess of our ~~Oaks Campus), in April 2021 began the process of marketing office space located in Kansas City, Missouri (known as our Riverport Campus),~~regular quarterly dividend, issuing or repurchasing stock and in June 2021 began the process of marketing office space located in Kansas City, Kansas (known as our Continuous Campus). At June 30, 2021, these long-lived assets aggregating $67 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, 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.taking other specified actions.

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~~Software Development Costs~~

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

Supplemental Disclosures of Cash Flow Information
Six Months Ended
(In thousands) 2021 2020
Cash paid during the period for:
Interest (including amounts capitalized of $5,514 and $8,831, respectively) $ 20,190 $ 16,572
Income taxes, net of refunds 53,358 8,690
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases 7,743 22,270
Financed capital purchases 6,143 0


	Three Months Ended
(In thousands)	2022		2021
Cash paid during the period for:
Interest (including amounts capitalized of $2,763 and $2,692, respectively)	$	21,667	$	15,549
Income taxes, net of refunds	(2,063)		19,216
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases	292		7,745
Financed capital purchases	—		1,361

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~~Fourth Amended and Restated Credit Agreement ~~(as amended, the~~(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.

~~Table of Contents~~

~~(2)~~ Business ~~Acquisition~~

Combinations.
The FASB issued ASU 2021-08,

~~On April 1, 2021, we~~Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers in October 2021. Such guidance amends the recognition and measurement principles that apply to business combinations to require that an entity recognize and measure contract assets and contract liabilities acquired ~~Kantar Health,~~in 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~~business combination in accordance with ~~ASC 805,~~ ~~Business Combinations, which~~Topic 606. ASU 2021-08 is effective for the Company in the first quarter of 2023, with early adoption permitted. The standard requires ~~allocation~~prospective application to business combinations occurring on or after the date of adoption. As of the ~~purchase price to the estimated fair values~~date 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~~
~~Receivables, net~~	~~30,895~~
~~Prepaid expenses and other~~	~~13,860~~
~~Property and equipment, net~~	~~1,136~~
~~Right-of-use assets~~	~~1,680~~
~~Goodwill~~	~~210,247~~
~~Intangible assets, net:~~
~~Customer relationships~~	~~143,100~~
~~Existing technologies~~	~~39,700~~
~~Trade names~~	~~10,200~~
~~Other assets~~	26
~~Accounts payable~~	~~(34,215)~~
~~Deferred revenue~~	~~(36,656)~~
~~Accrued payroll and tax withholdings~~	~~(9,910)~~
~~Other current liabilities~~	~~(3,777)~~
~~Deferred income taxes~~	~~(10,169)~~
~~Other liabilities~~	~~(6,248)~~

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

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 thatthis filing, 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 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.

~~Table of Contents~~

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

(In thousands) Domestic International Total
Beginning balance at December 31, 2020 $ 854,188 $ 60,332 $ 914,520
Goodwill recorded in connection with the Kantar Health acquisition 118,386 91,861 210,247
Foreign currency translation adjustment and other 0 4,932 4,932
Ending balance at June 30, 2021 $ 972,574 $ 157,125 $ 1,129,699

Our condensed consolidated statements of operations for the three and six months ended June 30, 2021 include revenues of $45 million attributable to the acquired business since the April 1, 2021 acquisition date. The earnings contribution from the acquired business for the three and six months ended June 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.~~determined if we will early adopt.

~~(3)~~(2) Revenue Recognition

Disaggregation of Revenue

The following ~~tables present~~table presents revenues disaggregated by our business models:

Three Months Ended
2021 2020
(In thousands) Domestic
Segment International
Segment Total Domestic
Segment International
Segment Total
Licensed software $ 157,908 $ 17,208 $ 175,116 $ 138,950 $ 13,212 $ 152,162
Technology resale 51,680 5,180 56,860 36,376 5,741 42,117
Subscriptions 94,222 4,215 98,437 85,281 6,771 92,052
Professional services 457,901 79,177 537,078 409,848 51,234 461,082
Managed services 284,758 36,019 320,777 275,679 31,479 307,158
Support and maintenance 211,986 47,689 259,675 220,301 53,735 274,036
Reimbursed travel 8,572 240 8,812 1,778 (36) 1,742
Total revenues $ 1,267,027 $ 189,728 $ 1,456,755 $ 1,168,213 $ 162,136 $ 1,330,349


		Six Months Ended													Three Months Ended
		2021						2020							2022						2021
(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	$	178,913	$	10,508	$	189,421	$	148,833	$	12,828	$	161,661
Technology resale	Technology resale	89,571		12,961		102,532		80,825		12,779		93,604		Technology resale	42,764		4,719		47,483		37,891		7,781		45,672
Subscriptions	Subscriptions	189,605		8,644		198,249		172,217		14,220		186,437		Subscriptions	90,553		3,870		94,423		95,383		4,429		99,812
Professional services	Professional services	892,063		139,437		1,031,500		862,632		109,796		972,428		Professional services	452,238		73,022		525,260		434,162		60,260		494,422
Managed services	Managed services	566,834		71,319		638,153		555,415		61,097		616,512		Managed services	287,975		36,651		324,626		282,076		35,300		317,376
Support and maintenance	Support and maintenance	429,485		93,514		522,999		443,717		104,000		547,717		Support and maintenance	200,667		42,213		242,880		217,499		45,825		263,324
Reimbursed travel	Reimbursed travel	14,720		(397)		14,323		14,375		823		15,198		Reimbursed travel	5,346		362		5,708		6,148		(637)		5,511

Total revenues	Total revenues	$	2,489,019	$	355,514	$	2,844,533	$	2,414,628	$	327,462	$	2,742,090	Total revenues	$	1,258,456	$	171,345	$	1,429,801	$	1,221,992	$	165,786	$	1,387,778

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

Three Months Ended
2021 2020
(In thousands) Domestic
Segment International
Segment Total Domestic
Segment International
Segment Total
Revenue recognized over time $ 1,189,314 $ 178,406 $ 1,367,720 $ 1,101,797 $ 151,456 $ 1,253,253
Revenue recognized at a point in time 77,713 11,322 89,035 66,416 10,680 77,096
Total revenues $ 1,267,027 $ 189,728 $ 1,456,755 $ 1,168,213 $ 162,136 $ 1,330,349


		Six Months Ended													Three Months Ended
		2021						2020							2022						2021
(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	$	1,182,210	$	160,615	$	1,342,825	$	1,152,849	$	153,868	$	1,306,717
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	76,246		10,730		86,976		69,143		11,918		81,061

Total revenues	Total revenues	$	2,489,019	$	355,514	$	2,844,533	$	2,414,628	$	327,462	$	2,742,090	Total revenues	$	1,258,456	$	171,345	$	1,429,801	$	1,221,992	$	165,786	$	1,387,778

Transaction Price Allocated to Remaining Performance Obligations

As of ~~June 30, 2021,~~March 31, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates ~~$13.19~~$13.21 billion of which we expect to recognize approximately ~~30%~~31% 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~~three months ended ~~June 30, 2021,~~March 31, 2022, we recognized ~~$259~~$151 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% ~~and 17%~~ of our consolidated revenues for the ~~second quarters of 2021 and 2020, respectively; and 20% and 17% for the~~ first ~~six~~three months of ~~2021~~both 2022 and ~~2020, respectively.~~2021. Amounts due in connection with these relationships comprised ~~16% and 13%~~15% of client receivables as of ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021.

~~(4)~~(3) Receivables

A summary of net receivables is as follows:
(In thousands) June 30, 2021 December 31, 2020
Client receivables $ 1,389,724 $ 1,322,278
Less: Provision for expected credit losses 152,494 153,566
Total receivables, net $ 1,237,230 $ 1,168,712


(In thousands)	March 31, 2022		December 31, 2021

Client receivables	$	1,291,556	$	1,307,167
Less: Provision for expected credit losses	113,519		145,806

Total receivables, net	$	1,178,037	$	1,161,361

In addition to the client receivables presented above, at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had ~~$14~~$12 million and ~~$17~~$16 million, respectively, of non-current net client receivables, ~~respectively,~~ which are presented in "Other assets" in our condensed consolidated balance sheets.

~~Table of Contents~~

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

(In thousands) Current Non-current Total
Provision for expected credit losses - balance at December 31, 2020 $ 153,566 $ 38,564 $ 192,130
Additions charged to costs and expenses 20,251 0 20,251
Deductions, foreign currency and other 2,278 0 2,278
Provision for expected credit losses - balance at March 31, 2021 176,095 38,564 214,659
Additions charged to costs and expenses 5,887 0 5,887
Reclassifications to non-current (26,480) 26,480 0
Deductions, foreign currency and other (3,008) 0 (3,008)
Provision for expected credit losses - balance at June 30, 2021 $ 152,494 $ 65,044 $ 217,538


(In thousands)	Current		Non-current		Total

Provision for expected credit losses - balance at December 31, 2021	$	145,806	$	61,106	$	206,912
Additions (reductions) charged to costs and expenses	(7,011)		—		(7,011)
Deductions, foreign currency and other	(25,276)		—		(25,276)

Provision for expected credit losses - balance at March 31, 2022	$	113,519	$	61,106	$	174,625

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Our estimates of expected credit losses for client receivables at both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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~~three months of ~~2021~~2022 and ~~2020,~~2021, we received total client cash collections of ~~$2.90~~$1.40 billion and ~~$2.66~~$1.44 billion, respectively.

~~(5)~~(4) Investments

Available-for-sale investments at ~~June 30, 2021~~March 31, 2022 were as follows:
(In thousands) Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Cash equivalents:
Money market funds $ 52,425 $ — $ — $ 52,425
Time deposits 37,685 — — 37,685
Total cash equivalents 90,110 — — 90,110
Short-term investments:
Time deposits 32,163 — — 32,163
Commercial paper 354,800 27 (13) 354,814
Government and corporate bonds 251,453 112 (54) 251,511
Total short-term investments 638,416 139 (67) 638,488
Long-term investments:
Government and corporate bonds 106,306 2 (108) 106,200
Total available-for-sale investments $ 834,832 $ 141 $ (175) $ 834,798


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

Cash equivalents:
Money market funds	$	63,290	$	—	$	—	$	63,290
Time deposits	45,501		—		—		45,501
Commercial Paper	115,500		—		—		115,500
Total cash equivalents	224,291		—		—		224,291

Short-term investments:
Time deposits	19,994		—		—		19,994
Commercial paper	34,000		—		(10)		33,990
Government and corporate bonds	117,576		3		(383)		117,196
Total short-term investments	171,570		3		(393)		171,180

Long-term investments:
Government and corporate bonds	19,642		—		(361)		19,281

Total available-for-sale investments	$	415,503	$	3	$	(754)	$	414,752

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Available-for-sale investments at December 31, ~~2020~~2021 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


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

Cash equivalents:
Money market funds	$	149,429	$	—	$	—	$	149,429
Time deposits	35,342		—		—		35,342
Commercial Paper	77,850		—		—		77,850
Government and corporate bonds	5,000		—		—		5,000
Total cash equivalents	267,621		—		—		267,621

Short-term investments:
Time deposits	25,598		—		—		25,598
Commercial Paper	57,000		—		(14)		56,986
Government and corporate bonds	170,123		18		(103)		170,038
Total short-term investments	252,721		18		(117)		252,622

Long-term investments:
Government and corporate bonds	31,167		—		(149)		31,018

Total available-for-sale investments	$	551,509	$	18	$	(266)	$	551,261

We sold available-for-sale investments for proceeds of ~~$80 million and $5~~$133 million during the ~~six~~three months ended ~~June 30, 2021 and June 30, 2020, respectively,~~March 31, 2022, resulting in insignificant losses in ~~each~~the period.

Other Investments

At ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020,~~2021, 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") 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~~three months ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and June 30, 2020,~~ respectively.

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had investments in equity securities reported under the equity method of accounting of ~~$20~~$31 million and ~~$12~~$25 million, respectively. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets.

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~~(6)~~(5) Long-term Debt

The following is a summary of indebtedness outstanding:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	March 31, 2022		December 31, 2021

Credit agreement loans due May 5, 2024		$	600,000	$	600,000
Credit agreement loans due December 30, 2026						Credit agreement loans due December 30, 2026	$	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		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		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
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	1,611,662		1,836,662
Less: debt issuance costs	Less: debt issuance costs	(508)		(593)		Less: debt issuance costs	(359)		(406)

Indebtedness, net	Indebtedness, net	1,836,154		1,336,069		Indebtedness, net	1,611,303		1,836,256
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	$	1,611,303	$	1,611,256

Credit Agreement

As of ~~June 30, 2021,~~March 31, 2022, the interest rate on revolving credit loans outstanding under our Credit Agreement was ~~0.87%~~1.14% 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 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, this swap was in a net liability position with an aggregate fair value of ~~$28~~$1 million and ~~$37~~$17 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".

Series ~~2021~~2015-A 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~~On February 15, 2022, 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 $100repaid our $225 million of ~~2.00%~~ Series ~~2021-A Notes~~2015-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.February 15, 2022.

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~~(7)~~(6) Fair Value Measurements

We determine fair value measurements used in our consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

•Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

•Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

•Level 3 – Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table details our investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at ~~June 30, 2021:~~March 31, 2022:

(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	$	63,290	$	—	$	—
Time deposits	Cash equivalents	—		45,501		—
Commercial paper	Cash equivalents	—		115,500		—
Time deposits	Short-term investments	—		19,994		—
Commercial paper	Short-term investments	—		33,990		—
Government and corporate bonds	Short-term investments	—		117,196		—
Government and corporate bonds	Long-term investments	—		19,281		—

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:~~2021:

(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	$	149,429	$	—	$	—
Time deposits	Cash equivalents	—		35,342		—
Commercial paper	Cash equivalents	—		77,850		—
Government and corporate bonds	Cash equivalents	—		5,000		—
Time deposits	Short-term investments	—		25,598		—
Commercial paper	Short-term investments	—		56,986		—
Government and corporate bonds	Short-term investments	—		170,038		—
Government and corporate bonds	Long-term investments	—		31,018		—

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

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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 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was approximately ~~$1.88~~$1.59 billion and ~~$1.36~~$1.87 billion, respectively. The carrying amount of such debt at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$1.83~~$1.60 billion and ~~$1.33~~$1.83 billion, respectively.

~~(8)~~(7) 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%~~18.2% and ~~20.7%~~21.4% for the first ~~six~~three months of 2022 and 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~~decrease in the effective tax rate in the first quarter of 2022 is primarily ~~related~~due to ~~unfavorability~~favorability of permanent book-tax differences for share-based compensation in ~~2021~~2022 compared to ~~2020.~~2021.

~~(9)~~(8) 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						2022					2021
		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	$	206,129	293,412	$	0.70	$	172,252	304,731	$	0.57
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	—		2,924			—		3,300
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	$	206,129	296,336	$	0.70	$	172,252	308,031	$	0.56

For the three months ended ~~June 30,~~March 31, 2021, ~~and June 30, 2020,~~ options to purchase ~~0.4 million and 6.0~~1.1 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.

Six Months Ended
2021 2020
Earnings Shares Per-Share Earnings Shares Per-Share
(In thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share:
Income available to common shareholders $ 204,959 302,723 $ 0.68 $ 281,907 307,256 $ 0.92
Effect of dilutive securities:
Stock options, non-vested shares and share units — 3,079 — 2,264
Diluted earnings per share:
Income available to common shareholders including assumed conversions $ 204,959 305,802 $ 0.67 $ 281,907 309,520 $ 0.91

For the ~~six~~three months ended ~~June 30, 2021 and June 30, 2020, options to purchase 0.5 million and 4.5 million shares~~March 31, 2022, an inconsequential number of ~~common stock at per share prices ranging from $52.32 to $76.49 and $52.32 to $76.49, respectively, were~~ outstanding ~~but~~securities were not included in the computation of diluted earnings per share because they were anti-dilutive.

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~~(10)~~(9) Share-Based Compensation and Equity

Stock Options

Stock option activity for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was as follows:

(In thousands, except per share and term data) Number of
Shares Weighted-
Average
Exercise
Price
(Per Share) Aggregate
Intrinsic
Value Weighted-Average
Remaining
Contractual
Term (Yrs)
Outstanding at beginning of year 10,204 $ 58.59
Exercised (2,763) 56.18
Forfeited and expired (108) 59.56
Outstanding as of June 30, 2021 7,333 $ 59.49 $ 136,929 4.57
Exercisable as of June 30, 2021 5,484 $ 58.79 $ 106,205 3.99


(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	4,670	$	59.61
Exercised	(1,093)	57.27
Forfeited and expired	(74)	62.77
Outstanding as of March 31, 2022	3,503	$	60.27	$	116,608	4.74

Exercisable as of March 31, 2022	2,322	$	59.59	$	78,862	4.11

As of ~~June 30, 2021,~~March 31, 2022, there was ~~$28~~$10 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~~1.05 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 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	3,644	$	73.35
Granted	Granted	2,054	77.01		Granted	2,016	93.39
Vested	Vested	(1,435)	65.80		Vested	(48)	73.50
Forfeited	Forfeited	(332)	72.08		Forfeited	(186)	74.16

Outstanding as of June 30, 2021		4,418	$	72.64
Outstanding as of March 31, 2022					Outstanding as of March 31, 2022	5,426	$	80.77

As of ~~June 30, 2021,~~March 31, 2022, there was ~~$249~~$340 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~~2.40 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
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021

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	$	33,332	$	47,950
Associate stock purchase plan expense	Associate stock purchase plan expense	1,613		1,727		3,161		2,828		Associate stock purchase plan expense	1,477		1,548
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	(90)		(1,663)

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	$	34,719	$	47,835

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	$	6,321	$	10,256

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~~Treasury Stock~~

Under our share repurchase program, 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 is authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, 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 months ended June 30, 2021, we repurchased 10.1 million shares for total consideration of $750 million 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. As of June 30, 2021, an aggregate of $3.93 billion remained available for repurchase under the programs.

Dividends

On March ~~25, 2021,~~14, 2022, our Board of Directors declared a cash dividend of ~~$0.22~~$0.27 per share on our issued and outstanding common stock, which was paid on April ~~20, 2021~~19, 2022 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 JuneMarch 28, ~~2021.~~2022. In connection with the declaration of such ~~dividends,~~dividend, 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 30, 2021~~both March 31, 2022 and December 31, ~~2020,~~2021, our condensed consolidated balance sheets included liabilities for dividends payable of ~~$68~~$81 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		$	(93,450)			$	(27,788)			$	434							$	(120,804)
Balance at December 31, 2021														Balance at December 31, 2021		$	(114,630)				$	(12,961)		$	33		$	(127,558)
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	(3,424)					9,542			(389)			5,729
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		2,527				0				2,527		Amounts reclassified from AOCI	—					2,518			11			2,529

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

Balance at June 30, 2021		$	(97,955)	$	(20,962)			$	190			$	(118,727)
Balance at March 31, 2022														Balance at March 31, 2022	$	(118,054)				$	(901)		$	(345)		$	(119,300)


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

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

Balance at March 31, 2021	$	(102,441)	$	(23,200)	$	217	$	(125,424)

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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
(In thousands)
Balance at December 28, 2019 $ (106,347) $ (12,578) $ 265 $ (118,660)
Other comprehensive income (loss) before reclassifications (20,546) (20,430) (849) (41,825)
Amounts reclassified from AOCI 0 1,122 0 1,122
Balance at March 31, 2020 (126,893) (31,886) (584) (159,363)
Other comprehensive income (loss) before reclassifications 9,197 (3,205) 1,502 7,494
Amounts reclassified from AOCI 0 2,198 0 2,198
Balance at June 30, 2020 $ (117,696) $ (32,893) $ 918 $ (149,671)

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
AOCI Component	AOCI Component	Location	2021		2020		2021		2020		AOCI Component	Location	2022		2021

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	$	(3,079)	$	(3,217)
		Income taxes	620		600		1,310		850			Income taxes	561		690
		Net of tax	(2,667)		(2,198)		(5,194)		(3,320)
												Net of tax	(2,518)		(2,527)

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	(13)		—
		Income taxes	(1)		0		(1)		0			Income taxes	2		—
		Net of tax	1		0		1		0
												Net of tax	(11)		—

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		$	(2,529)	$	(2,527)

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(10) 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~~On May 16, 2019, Steward Health ~~Services, Inc.~~Care System LLC ("~~Cerner HS"~~Steward")~~, a wholly owned subsidiary of Cerner Corporation,~~ filed a lawsuit in the ~~Chester~~Chancery Court for Davidson County, ~~Pennsylvania, Court of Common Pleas~~Tennessee against ~~NextGen Healthcare Information Systems, LLC ("NextGen") relating to a dispute arising~~the Company. The Company believes Steward's allegations arise out of ~~a supplier relationship initially established~~Steward's disinterest in following the contract between ~~Siemens Health Services, Inc.~~the Company and ~~NextGen prior to the~~Steward's predecessor for clinical and financial software and services after Steward closed on its acquisition of the assets of Siemens Health Services, Inc. by Cerner HS in 2015. In September 2017, the court issued a preliminary injunction to prevent NextGen from refusing to honor certain contractual obligations to support Cerner HS's clients who use NextGen ambulatory EHR solutions. In September 2018, NextGenpredecessor. 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. Steward has recently asserted that its damages are $300 million and advised the Company that it will seek to treble the damages. 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. Astria has recently claimed damages of $96 million. 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 expert discovery is not yet complete. 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 condensed consolidated financial statements.

~~(12)~~

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(11) 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.

The following table presents a summary of our operating segments and other expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020:~~March 31, 2021:

(In thousands) Domestic International Other Total
Three Months Ended 2021
Revenues $ 1,267,027 $ 189,728 $ — $ 1,456,755
Costs of revenue 232,225 29,100 — 261,325
Operating expenses 656,369 74,708 414,793 1,145,870
Total costs and expenses 888,594 103,808 414,793 1,407,195
Operating earnings (loss) $ 378,433 $ 85,920 $ (414,793) $ 49,560

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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 2022										Three Months Ended 2022
Revenues	Revenues	$	1,168,213	$	162,136	$	—	$	1,330,349	Revenues	$	1,258,456	$	171,345	$	—	$	1,429,801

Costs of revenue	Costs of revenue	189,779		22,184		—		211,963		Costs of revenue	215,241		28,607		—		243,848
Operating expenses	Operating expenses	587,674		57,413		326,401		971,488		Operating expenses	541,575		71,422		320,972		933,969
Total costs and expenses	Total costs and expenses	777,453		79,597		326,401		1,183,451		Total costs and expenses	756,816		100,029		320,972		1,177,817

Operating earnings (loss)	Operating earnings (loss)	$	390,760	$	82,539	$	(326,401)	$	146,898	Operating earnings (loss)	$	501,640	$	71,316	$	(320,972)	$	251,984

(In thousands) Domestic International Other Total
Six Months Ended 2021
Revenues $ 2,489,019 $ 355,514 $ — $ 2,844,533
Costs of revenue 437,919 54,062 — 491,981
Operating expenses 1,216,931 136,322 731,681 2,084,934
Total costs and expenses 1,654,850 190,384 731,681 2,576,915
Operating earnings (loss) $ 834,169 $ 165,130 $ (731,681) $ 267,618


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

Six Months Ended 2020
Three Months Ended 2021										Three Months Ended 2021
Revenues	Revenues	$	2,414,628	$	327,462	$	—	$	2,742,090	Revenues	$	1,221,992	$	165,786	$	—	$	1,387,778

Costs of revenue	Costs of revenue	418,346		48,033		—		466,379		Costs of revenue	205,694		24,962		—		230,656
Operating expenses	Operating expenses	1,157,768		123,968		668,701		1,950,437		Operating expenses	560,562		61,614		316,888		939,064
Total costs and expenses	Total costs and expenses	1,576,114		172,001		668,701		2,416,816		Total costs and expenses	766,256		86,576		316,888		1,169,720

Operating earnings (loss)	Operating earnings (loss)	$	838,514	$	155,461	$	(668,701)	$	325,274	Operating earnings (loss)	$	455,736	$	79,210	$	(316,888)	$	218,058

2017

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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~~the three month periods ended ~~2021~~2022 and ~~2020~~2021 in this MD&A represent the respective three ~~and six~~ month periods ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and June 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.

Oracle Merger Agreement

On December 20, 2021, we entered into the Merger Agreement with Oracle and certain of its wholly owned subsidiaries. Pursuant to the Merger Agreement, on January 19, 2022, Oracle commenced a cash tender offer to acquire all of the issued and outstanding shares of our common stock for a purchase price of $95.00 per share, net to the holders thereof in cash, without interest and subject to any required tax withholding. If the Offer is completed, Merger Subsidiary will merge

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~~COVID-19~~with and into Cerner and we will become a wholly owned indirect subsidiary of Oracle. As a result of the Merger, the shares of our common stock will cease to be publicly held. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions. We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements. If the Merger Agreement is terminated under certain specified circumstances, we will be required to pay Parent a termination fee of $950 million. The completion of the Merger remains subject to customary closing conditions, including receipt of certain regulatory approvals and other customary closing conditions. The Merger is expected to close in calendar year 2022.

~~Our business and results of operations for the first six 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; 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, dueFor additional information related to the ~~uncertainty surrounding~~proposed transaction, please refer to the ~~pandemic,~~Schedule 14D-9, as amended, previously filed with the ~~difficulty inherent in identifying~~SEC and ~~measuring~~other relevant materials related to the ~~various impacts~~transaction that ~~have or may stem from such an event and~~we will file with 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:~~SEC.

•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 decline in bookings flows through to reduced backlog and lower subsequent revenues.

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

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

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

•~~Capital expenditures – A decline in capital spending as certain capital projects are delayed 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 in 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 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 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 billion in the second quarter of 2021, which is an increase of 2% compared to $1.34 billion in the second quarter of 2020.

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

Net earnings for the second quarter of 2021 decreased 76% to $33 million, compared to $135 million in the second quarter of 2020. Diluted earnings per share decreased 75% to $0.11, compared to $0.44 in the second quarter of 2020.

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

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Results of Operations

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

The following table presents a summary of our operating information for the ~~second~~first quarters of ~~2021~~2022 and ~~2020:~~2021:


(In thousands)	(In thousands)	2021		% of Revenue		2020		% of Revenue		% Change		(In thousands)	2022		% of Revenue		2021		% of Revenue		% Change

Revenues	Revenues	$	1,456,755	100	%	$	1,330,349	100	%	10	%	Revenues	$	1,429,801	100	%	$	1,387,778	100	%	3	%
Costs of revenue	Costs of revenue	261,325		18	%	211,963		16	%	23	%	Costs of revenue	243,848		17	%	230,656		17	%	6	%

Margin	Margin	1,195,430		82	%	1,118,386		84	%	7	%	Margin	1,185,953		83	%	1,157,122		83	%	2	%

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	612,997		43	%	622,176		45	%	(1)	%
Software development	Software development	241,600		17	%	178,955		13	%	35	%	Software development	195,091		14	%	192,327		14	%	1	%
General and administrative	General and administrative	156,307		11	%	134,332		10	%	16	%	General and administrative	109,279		8	%	112,365		8	%	(3)	%
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	16,886		1	%	13,114		1	%	29	%	Amortization of acquisition-related intangibles	16,602		1	%	12,196		1	%	36	%

Total operating expenses	Total operating expenses	1,145,870		79	%	971,488		73	%	18	%	Total operating expenses	933,969		65	%	939,064		68	%	(1)	%

Total costs and expenses	Total costs and expenses	1,407,195		97	%	1,183,451		89	%	19	%	Total costs and expenses	1,177,817		82	%	1,169,720		84	%	1	%

Operating earnings	Operating earnings	49,560		3	%	146,898		11	%	(66)	%	Operating earnings	251,984		18	%	218,058		16	%	16	%

Other income (loss), net		(1,678)				24,632
Other income, net												Other income, net	26				1,206
Income taxes	Income taxes	(15,175)				(36,782)						Income taxes	(45,881)				(47,012)

Net earnings	Net earnings	$	32,707			$	134,748			(76)	%	Net earnings	$	206,129			$	172,252			20	%

Revenues & Backlog

Revenues increased ~~10%~~3% to ~~$1.46~~$1.43 billion in the ~~second~~first quarter of ~~2021,~~2022, as compared to ~~$1.33~~$1.39 billion in the same period of ~~2020.~~2021. The ~~following factors impacted the year-over-year change in revenues:~~

•~~Increased implementation activity during the second~~first 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 quarter 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.

•~~The second quarter of 2021~~2022 includes a ~~$45~~$47 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 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~~$13.21 billion at ~~June 30, 2021,~~March 31, 2022, compared to ~~$13.04~~$13.26 billion at December 31, ~~2020.~~2021. We expect to recognize ~~30%~~31% 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

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such cancellation provisions are rarely exercised. We expect to recognize approximately ~~$1.07 billion~~$993 million of revenue over the next 12 months under currently executed contracts related to such cancellable periods, which is not included in our calculation of backlog.

Costs of Revenue

Costs of revenue as a percent of revenues were ~~18%~~17% in the ~~second~~first quarter of 2021, compared to 16% in the same period of 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;both 2022 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%~~decreased 1% to ~~$1.15 billion~~$934 million in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~$971~~$939 million in the same period of ~~2020.~~2021.

•Sales and client service expenses as a percent of revenues were ~~50%~~43% in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~48%~~45% in the same period of ~~2020.~~2021. These expenses ~~increased 13%~~decreased 1% to ~~$731~~$613 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$645~~$622 million in the same period of ~~2020.~~2021. 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, expenses for expected credit losses on client receivables, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs. The ~~increase~~decrease in sales and client service expenses was primarily driven by ~~a $68 million pre-tax charge recorded~~reductions in ~~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.~~non-personnel costs.

•Software development expenses as a percent of revenues were ~~17%~~14% in the ~~second~~first quarter of ~~2021, compared to 13% in the same period of 2020.~~both 2022 and 2021. 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~~first quarters of ~~2021~~2022 and ~~2020~~2021 is as follows:


		Three Months Ended					Three Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021

Software development costs	Software development costs	$	212,258	$	195,296	Software development costs	$	186,185	$	211,027
Capitalized software costs	Capitalized software costs	(81,306)		(75,850)		Capitalized software costs	(55,163)		(81,155)
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	(1,137)		(2,395)
Amortization of capitalized software costs	Amortization of capitalized software costs	65,247		61,197		Amortization of capitalized software costs	65,206		64,850
Net realizable value charge (see Note (1) of the Notes)		47,653		—

Total software development expense	Total software development expense	$	241,600	$	178,955	Total software development expense	$	195,091	$	192,327

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•General and administrative expenses as a percent of revenues were ~~11%~~8% in the ~~second~~first quarter of ~~2021, compared to 10% in the same period of 2020.~~both 2022 and 2021. These expenses ~~increased 16%~~decreased 3% to ~~$156~~$109 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$134~~$112 million in the same period of ~~2020.~~2021. 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~~decrease in general and administrative expenses was primarily driven by ~~increased~~a reduction in 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.costs.

•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the ~~second~~first quarter of both ~~2021~~2022 and ~~2020.~~2021. These expenses increased ~~29%~~36% to $17 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$13~~$12 million in the same period in~~2020.~~ 2021. 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

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acquisitions. The increase in amortization of acquisition-related intangibles is primarily due to 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.~~

Non-Operating Items

•Other income, ~~(loss),~~ net was ~~a net loss of $2~~less than $1 million in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~$25~~$1 million ~~of income~~ in the same period of ~~2020. The decrease~~2021. Other income, net for the periods presented is primarily ~~attributable to the second quarter~~comprised of ~~2020 including a $26 million unrealized gain recognized in connection with the measurement of one of~~investment earnings, offset by interest expense on our ~~equity investments.~~outstanding indebtedness.

•Our effective tax rate was ~~31.7%~~18.2% for the ~~second~~first quarter of ~~2021,~~2022, compared to 21.4% for the same period of ~~2020.~~2021. The ~~increase~~decrease in the effective tax rate in the first quarter of 2022 is primarily due to ~~a $6 million valuation allowance recorded~~favorability of permanent book-tax differences for share-based compensation in ~~the second 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.~~2022 compared to 2021. Refer to Note ~~(8)~~(7) 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)~~(11) 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~~first quarters of ~~2021~~2022 and ~~2020:~~2021:


(In thousands)	(In thousands)	2021		% of Revenue	2020		% of Revenue	% Change	(In thousands)	2022		% of Revenue	2021		% of Revenue	% Change

Domestic Segment	Domestic Segment								Domestic Segment
Revenues	Revenues	$	1,267,027	100%	$	1,168,213	100%	8%	Revenues	$	1,258,456	100%	$	1,221,992	100%	3%

Costs of revenue	Costs of revenue	232,225		18%	189,779		16%	22%	Costs of revenue	215,241		17%	205,694		17%	5%
Operating expenses	Operating expenses	656,369		52%	587,674		50%	12%	Operating expenses	541,575		43%	560,562		46%	(3)%
Total costs and expenses	Total costs and expenses	888,594		70%	777,453		67%	14%	Total costs and expenses	756,816		60%	766,256		63%	(1)%

Domestic operating earnings	Domestic operating earnings	378,433		30%	390,760		33%	(3)%	Domestic operating earnings	501,640		40%	455,736		37%	10%

International Segment	International Segment								International Segment
Revenues	Revenues	189,728		100%	162,136		100%	17%	Revenues	171,345		100%	165,786		100%	3%

Costs of revenue	Costs of revenue	29,100		15%	22,184		14%	31%	Costs of revenue	28,607		17%	24,962		15%	15%
Operating expenses	Operating expenses	74,708		39%	57,413		35%	30%	Operating expenses	71,422		42%	61,614		37%	16%
Total costs and expenses	Total costs and expenses	103,808		55%	79,597		49%	30%	Total costs and expenses	100,029		58%	86,576		52%	16%

International operating earnings	International operating earnings	85,920		45%	82,539		51%	4%	International operating earnings	71,316		42%	79,210		48%	(10)%

Other costs and expenses, net	Other costs and expenses, net	(414,793)			(326,401)			27%	Other costs and expenses, net	(320,972)			(316,888)			1%

Consolidated operating earnings	Consolidated operating earnings	$	49,560		$	146,898		(66)%	Consolidated operating earnings	$	251,984		$	218,058		16%

Domestic Segment

•Revenues increased 8%3% to ~~$1.27~~$1.26 billion in the ~~second~~first quarter of ~~2021,~~2022, from ~~$1.17~~$1.22 billion in the same period of ~~2020.~~2021. The ~~following factors impacted~~first quarter of 2022 includes a $23 million increase in revenues due to contributions from our April 1, 2021 acquisition of the ~~year-over-year change in Domestic revenues:~~

◦~~Increased~~Kantar Health business. The remaining increase is primarily attributable to increased implementation activity during the ~~second~~first quarter of ~~2021~~2022 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~~ In the first quarter of both 2022 and 2021, ~~includes a $21 million increase in~~20% of our consolidated 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~~were attributable to our ~~business operations in~~relationships (as 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~~prime contractor or 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.~~

subcontractor) with U.S. government agencies. Refer to Note ~~(3)~~(2) 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~~first quarter of ~~2021, compared to 16% in the same period~~both 2022 and 2021.

Table of 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.Contents

•Operating expenses as a percent of revenues were ~~52%~~43% in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~50%~~46% in the same period of ~~2020.~~2021. These expenses ~~increased 12%~~decreased 3% to ~~$656~~$542 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$588~~$561 million in the same period of ~~2020.~~2021. The ~~increase~~decrease in operating expenses was primarily driven by ~~a $68 million pre-tax charge recorded~~reductions in ~~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.~~non-personnel costs.

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International Segment

•Revenues increased ~~17%~~3% to ~~$190~~$171 million in the ~~second~~first quarter of ~~2021, compared to $162~~2022, from $166 million in the same period of ~~2020.~~2021. The ~~following factors impacted the year-over-year change in International revenues:~~

◦~~The second~~first quarter of ~~2021~~2022 includes 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~~ This increase was partially offset by a ~~$19 million~~ reduction in revenues ~~due to~~in the ~~sale~~first quarter 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~~2022 attributable to ~~2021 revenue growth across the majority of our remaining International Segment operations.~~

project delays in certain regions in Europe. Refer to Note ~~(3)~~(2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were ~~15%~~17% in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~14%~~15% in the same period of ~~2020.~~2021. 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%~~42% in the ~~second~~first quarter of ~~2021,~~2022, compared to ~~35%~~37% in the same period of ~~2020.~~2021. These expenses increased ~~30%~~16% to ~~$75~~$71 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$57~~$62 million in the same period of ~~2020.~~2021. 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%~~1% to ~~$415~~$321 million in the ~~second~~first quarter of ~~2021,~~2022, from ~~$326~~$317 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 are further discussed in Note (1) of the Notes.

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

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

(In thousands) 2021 % of
Revenue 2020 % of
Revenue % Change
Revenues $ 2,844,533 100 % $ 2,742,090 100 % 4 %
Costs of revenue 491,981 17 % 466,379 17 % 5 %
Margin 2,352,552 83 % 2,275,711 83 % 3 %
Operating expenses
Sales and client service 1,353,253 48 % 1,281,736 47 % 6 %
Software development 433,927 15 % 364,275 13 % 19 %
General and administrative 268,672 9 % 274,184 10 % (2) %
Amortization of acquisition-related intangibles 29,082 1 % 30,242 1 % (4) %
Total operating expenses 2,084,934 73 % 1,950,437 71 % 7 %
Total costs and expenses 2,576,915 91 % 2,416,816 88 % 7 %
Operating earnings 267,618 9 % 325,274 12 % (18) %
Other income (loss), net (472) 30,227
Income taxes (62,187) (73,594)
Net earnings $ 204,959 $ 281,907 (27) %

~~Revenues & Backlog~~

~~Revenues increased 4% to $2.84 billion in the first six months of 2021, as compared to $2.74 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 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 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.

•The first six months of 2021 includes a $45 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 months of 2021 includes a $43 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 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 months of both 2021 and 2020.~~

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~~Operating Expenses~~

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

•Sales and client service expenses as a percent of revenues were 48% in the first six months of 2021, compared to 47% in the same period of 2020. These expenses increased 6% to $1.35 billion in the first six months of 2021, from $1.28 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 months 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.

•Software development expenses as a percent of revenues were 15% in the first six 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 months of 2021 and 2020 is as follows:

Six Months Ended
(In thousands) 2021 2020
Software development costs $ 423,285 $ 393,460
Capitalized software costs (162,461) (148,354)
Capitalized costs related to share-based payments (4,647) (3,039)
Amortization of capitalized software costs 130,097 122,208
Net realizable value charge (see Note (1) of the Notes) 47,653 —
Total software development expense $ 433,927 $ 364,275

•General and administrative expenses as a percent of revenues were 9% in the first six months of 2021, compared to 10% in the same period of 2020. These expenses decreased 2% to $269 million in the first six months of 2021, from $274 million in the same period of 2020. The slight decrease in general and administrative expenses was primarily driven by lower depreciation expenses associated with property and equipment.

•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the first six months of both 2021 and 2020. These expenses were relativity flat at $29 million in the first six months of 2021, compared to $30 million in the same period in~~2020.~~

~~Non-Operating Items~~

•Other income (loss), net was a net loss of less than $1 million in the first six months of 2021, compared to $30 million of income in the same period of 2020. The first six months of 2020 includes a $26 million unrealized gain recognized in connection with the measurement of one of our equity investments. The remaining difference is primarily attributable to increased interest expense in the first six 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% for the first six months of 2021, compared to 20.7% 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 months of 2021 and 2020:~~

(In thousands) 2021 % of Revenue 2020 % of Revenue % Change
Domestic Segment
Revenues $ 2,489,019 100% $ 2,414,628 100% 3%
Costs of revenue 437,919 18% 418,346 17% 5%
Operating expenses 1,216,931 49% 1,157,768 48% 5%
Total costs and expenses 1,654,850 66% 1,576,114 65% 5%
Domestic operating earnings 834,169 34% 838,514 35% (1)%
International Segment
Revenues 355,514 100% 327,462 100% 9%
Costs of revenue 54,062 15% 48,033 15% 13%
Operating expenses 136,322 38% 123,968 38% 10%
Total costs and expenses 190,384 54% 172,001 53% 11%
International operating earnings 165,130 46% 155,461 47% 6%
Other costs and expenses, net (731,681) (668,701) 9%
Consolidated operating earnings $ 267,618 $ 325,274 (18)%

~~Domestic Segment~~

•~~Revenues increased 3% to $2.49 billion in the first six months of 2021, from $2.41 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 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.

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

◦The first six months of 2021 includes a $43 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 months of 2021, compared to 17% in the same period of 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% in the first six months of 2021, compared to 48% in the same period of 2020. These expenses increased 5% to $1.22 billion in the first six months of 2021, from $1.16 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 months 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.

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~~International Segment~~

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

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

◦The first six 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 months of both 2021 and 2020.~~

•Operating expenses as a percent of revenues were 38% in the first six months of both 2021 and 2020. These expenses increased 10% to $136 million in the first six months of 2021, from $124 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 in the first six months of 2021, from $669 million in the same period of 2020.~~ The increase is primarily due to a ~~pre-tax charge of $48 million recorded~~reduction in capitalized software costs in the first ~~six months~~quarter 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.~~2022.

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. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions.We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements.

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 30, 2021,~~March 31, 2022, we had cash and cash equivalents of ~~$246~~$710 million and short-term investments of ~~$638~~$171 million, as compared to cash and cash equivalents of ~~$616~~$590 million and short-term investments of ~~$442~~$253 million at December 31, ~~2020.~~2021.

We have entered into a Credit Agreement with a syndicate of lenders that provides for an unsecured ~~$1.00~~$1.225 billion revolving credit loan facility, along with a letter of credit facility up to ~~$100~~$200 million (which is a sub-facility of the ~~$1.00~~$1.225 billion revolving credit loan facility). We have the ability to increase the maximum capacity to ~~$1.20~~$1.725 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.~~December 2026, with two one-year extension options that are subject to lender approval. As of ~~June 30, 2021,~~March 31, 2022, we had outstanding revolving credit loans and letters of credit of $600 million and ~~$31~~$16 million, respectively; which reduced our available borrowing capacity to ~~$369~~$609 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.~~

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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~~three months of ~~2021~~2022 and ~~2020:~~
Six Months Ended
(In thousands) 2021 2020
Cash flows from operating activities $ 819,569 $ 542,096
Cash flows from investing activities (910,819) (385,046)
Cash flows from financing activities (275,378) (322,569)
Effect of exchange rate changes on cash (2,583) (6,429)
Total change 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
Free cash flow (non-GAAP) $ 453,180 $ 224,407
2021:


	Three Months Ended
(In thousands)	2022		2021

Cash flows from operating activities	$	375,063	$	450,434
Cash flows from investing activities	(12,197)		(182,185)
Cash flows from financing activities	(241,334)		117,115
Effect of exchange rate changes on cash	(1,847)		(3,118)
Total change in cash and cash equivalents	119,685		382,246

Cash and cash equivalents at beginning of period	589,847		615,615

Cash and cash equivalents at end of period	$	709,532	$	997,861

Free cash flow (non-GAAP)	$	276,370	$	290,959

Cash from Operating Activities
Six Months Ended
(In thousands) 2021 2020
Cash collections from clients $ 2,903,150 $ 2,658,956
Cash paid to employees and suppliers and other (2,010,033) (2,091,598)
Cash paid for interest (20,190) (16,572)
Cash paid for taxes, net of refunds (53,358) (8,690)
Total cash from operations $ 819,569 $ 542,096


	Three Months Ended
(In thousands)	2022		2021

Cash collections from clients	$	1,399,577	$	1,439,319
Cash paid to employees and suppliers and other	(1,004,910)		(954,120)
Cash paid for interest	(21,667)		(15,549)
Cash paid for taxes, net of refunds	2,063		(19,216)

Total cash from operations	$	375,063	$	450,434

Cash flows from operations ~~increased $277~~decreased $75 million in the first ~~six~~three months of ~~2021~~2022 when compared to the same period of ~~2020,~~2021, due primarily to ~~increased collections of client receivables.~~an increase in cash used to fund working capital requirements. Days sales outstanding was 7775 days in the ~~second~~first quarter of 2022, compared to 73 days for the fourth quarter of 2021 ~~compared to~~and 77 days for the first quarter of ~~2021 and 81 days for the second quarter of 2020.~~2021.

Cash from Investing Activities
Six Months Ended
(In thousands) 2021 2020
Capital purchases $ (199,281) $ (166,296)
Capitalized software development costs (167,108) (151,393)
Purchases of investments, net of sales and maturities (178,530) (10,935)
Purchases of other intangibles (16,031) (20,656)
Acquisition of businesses, net of cash acquired (349,869) (35,766)
Total cash flows from investing activities $ (910,819) $ (385,046)


	Three Months Ended
(In thousands)	2022		2021

Capital purchases	$	(42,393)	$	(75,925)
Capitalized software development costs	(56,300)		(83,550)
Sales and maturities of investments, net of purchases	91,199		(14,735)
Purchases of other intangibles	(4,703)		(7,975)

Total cash flows from investing activities	$	(12,197)	$	(182,185)

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

Our capital spending in the first ~~six~~three months of ~~2021~~2022 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~~We expect the aggregate of capital purchases and capitalized software development costs to approximate 2021 levels for the remainder of 2021 are expected to be below 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 2020.2022.

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~~2022 and 2021 ~~and 2020~~ activity is impacted by excess cash primarily being used to execute on ~~our capital allocation strategy, including the share repurchases and cash dividends discussed below.~~

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~~On April 1,~~our capital allocation strategy, including the share repurchases in the 2021 ~~we paid $364 million of purchase price consideration~~period and cash dividends in ~~connection with our acquisition of Kantar Health,~~both the 2021 and 2022 periods 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.~~below.

Cash from Financing Activities


		Six Months Ended					Three Months Ended
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021

Long-term debt issuance	Long-term debt issuance	$	500,000	$	300,000	Long-term debt issuance	$	—	$	500,000
Repayment of long-term debt						Repayment of long-term debt	(225,000)		—
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)	61,811		31,617
Treasury stock purchases	Treasury stock purchases	(750,000)		(650,000)		Treasury stock purchases	—		(341,715)
Dividends paid	Dividends paid	(135,260)		(111,101)		Dividends paid	(79,183)		(67,477)
Other	Other	(8,672)		(4,159)		Other	1,038		(5,310)

Total cash flows from financing activities	Total cash flows from financing activities	$	(275,378)	$	(322,569)	Total cash flows from financing activities	$	(241,334)	$	117,115

In March 2021, we issued ~~$500~~$100 million aggregate principal amount of Series ~~2021 Senior Notes. In March 2020, we issued $300~~2021-A Notes and $400 million aggregate principal amount of Series ~~2020-A notes. Refer to Note (6)~~2021-B Notes.

On February 15, 2022, we repaid our $225 million of ~~the~~Series 2015-A Notes ~~for further information regarding these, as well as our other debt obligations.~~due February 15, 2022, using cash on hand.

We ~~may~~do not expect to 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.near-term.

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 30, 2021~~March 31, 2022 and our current stock price.

During the first ~~six~~three months of 2021, ~~and 2020,~~ we repurchased ~~10.1~~4.9 million shares of our common stock for total consideration of ~~$750 million and 9.2 million shares of our common stock for total consideration of $650 million, respectively.~~$350 million. As of ~~June 30, 2021, an aggregate of $3.93~~March 31, 2022, $3.18 billion ~~remained~~remains available for repurchase under our share repurchase ~~programs.~~program. We ~~will continue~~do not expect to repurchase additional shares ~~under our share repurchase programs, but~~in the ~~amount and timing of such repurchases will be dependent on a number of factors, including~~near-term as 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. Refer to Note (10) of the Notes for further information regarding our share repurchase programs.Merger Agreement prohibits us from repurchasing additional shares without Parent's consent.

During the first ~~six~~three months of both ~~2021~~2022 and ~~2020,~~2021, 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, including considering the timing of the expected closing of the Oracle transaction, 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.~~assets.

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Free Cash Flow (Non-GAAP)
Three Months Ended Six Months Ended
(In thousands) 2021 2020 2021 2020
Cash flows from operating activities (GAAP) $ 369,135 $ 258,590 $ 819,569 $ 542,096
Capital purchases (123,356) (117,048) (199,281) (166,296)
Capitalized software development costs (83,558) (77,538) (167,108) (151,393)
Free cash flow (non-GAAP) $ 162,221 $ 64,004 $ 453,180 $ 224,407


	Three Months Ended
(In thousands)	2022		2021

Cash flows from operating activities (GAAP)	$	375,063	$	450,434
Capital purchases	(42,393)		(75,925)
Capitalized software development costs	(56,300)		(83,550)

Free cash flow (non-GAAP)	$	276,370	$	290,959

Free cash flow ~~increased $229~~decreased $15 million in the first ~~six~~three months of ~~2021~~2022 compared to the same period in ~~2020,~~2021, primarily due to ~~increased~~a reduction in cash from operations, partially offset by ~~an increase~~a reduction 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

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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.

~~Forward-Looking~~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," “current,” "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; the proposed acquisition of us by Oracle and its affiliates; 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~~Factors that could cause or contribute to actual results differing materially, ~~including without limitation:~~include but are not limited to: potential disruptions to our business caused by the proposed acquisition of us by Oracle; the possibility that the proposed acquisition will not close or that the closing may be delayed; stockholder litigation could prevent or delay the closing of the transaction or otherwise impact our business, operating results and financial condition; the impact of the COVID-19 pandemic on how Cerner and its customers are operating their businesses and the duration and extent to which the ~~COVID-19~~ pandemic ~~and measures taken in response thereto could adversely affect our financial condition,~~will impact Cerner's 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;~~harm and interrupt clients' access to their data; 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;~~breach; 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,~~the possibility that Cerner may be adversely affected by other economic, business, and/or competitive factors, 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;~~suppliers; 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~~cost 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;~~conditions; 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; our strategy to transition to a subscription based recurring revenue model and continued modernization of our technology may adversely affect our near-term revenue growth and results of operations; the

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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; and 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.~~rates. 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.

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)) 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 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. During the fiscal quarter ended June 30, 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 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~~2021 annual report on Form 10-K. In our opinion, no

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litigation to which we are currently a party is likely to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

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

~~(c) Issuer Purchases of Equity Securities~~

~~The table below provides information with respect to Common Stock purchases by the Company during the second 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

(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 is authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, 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 (and announced on May 5, 2021) 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 months ended June 30, 2021, we repurchased 10.1 million shares for total consideration of $750 million under our share

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

Item 6. Exhibits


(a)						Exhibits

10.1*						~~Letter~~Amended Employment Agreement between Cerner Corporation and ~~Transition~~Nasim Afsarmanesh, incorporated by reference to Exhibit (e)(19) of the Schedule 14D-9 filed by the Company on January 19, 2022

10.2*						Cerner Corporation 2011 Omnibus Equity Incentive Plan – Time-Based Restricted Stock Unit Agreement ~~with Brent Shafer~~

10.3*						Cerner Corporation 2011 Omnibus Equity Incentive Plan – Performance-Based Restricted Stock Unit Agreement

10.4*						Form 2022 Executive Performance Agreement - Section 16 Officer

10.5*						Form Amendment to Executive Severance/Employment Agreement

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.

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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, 2021~~May 3, 2022	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