UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(X)~~☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, ~~2017~~2020

ORor

~~( )~~☐ 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)

~~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

~~Number)~~

No.)

2800 Rockcreek Parkway

~~2800 Rockcreek Parkway~~

North Kansas City, MO

64117

(Address of principal executive offices)

(Zip Code)

~~(816)~~

(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 ☐

~~Yes [X] No [ ]~~

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).

Yes ~~[X]~~☒ 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 [X]~~ Accelerated ~~filer [ ]~~Filer ☒ Accelerated Filer ☐ Non-accelerated ~~filer [ ] (do not check if smaller reporting company)~~Filer ☐ Smaller ~~reporting company [ ]~~Reporting Company ☐ Emerging ~~growth company [ ]~~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 ~~[X]~~☒

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 October 21, 2020
Common Stock, $0.01 par value per share						306,589,898 shares

Table of Contents

CERNER CORPORATION

TABLE OF CONTENTS


Part I.		Financial Information:

~~Class~~Item 1.		Financial Statements:	~~Outstanding at October 19, 2017~~
~~Common Stock, $0.01 par value per share~~	~~332,414,896 shares~~

~~CERNER CORPORATION~~

~~TABLE OF CONTENTS~~



~~Part I.~~		~~Financial Information:~~

~~Item 1.~~	~~Financial Statements:~~

	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2020 (unaudited) and December ~~31, 2016~~28, 2019		1

		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~October 1, 2016~~S eptember 2 8 , 2019 (unaudited)		2

		Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~N ine Months Ended Sept ember 30, 2020 and September ~~30, 2017 and October 1, 2016~~28 , 2019 (unaudited)		3

		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September ~~30, 2017 and October 1, 2016~~28 , 2019 (unaudited)		4

		Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended Septe mber 30, 2020 and September 2 8 , 2019 (unaudited)		5

		Notes to Condensed Consolidated Financial Statements (unaudited)		57

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		1823

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		2939

Item 4.		Controls and Procedures		2939

Part II.		Other Information:

Item 1.		Legal Proceedings		40

Item 1A.		Risk Factors		40

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		3041

Item 6.		Exhibits		3142

Signatures

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, ~~2017~~2020 (unaudited) and December ~~31, 2016~~28, 2019


(In thousands, except share data)	2017			2016			(In thousands, except share data)	2020		2019

Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	573,054		$	170,861		Cash and cash equivalents	$	419,154	$	441,843
Short-term investments	278,996			185,588			Short-term investments	473,323		99,931
Receivables, net	1,020,707			944,943			Receivables, net	1,219,227		1,139,595
Inventory	15,687			14,740			Inventory	15,768		23,182
Prepaid expenses and other	343,060			303,229			Prepaid expenses and other	397,487		392,073
Total current assets	2,231,504			1,619,361			Total current assets	2,524,959		2,096,624

Property and equipment, net	1,587,035			1,552,524			Property and equipment, net	1,867,600		1,858,772
Right-of-use assets							Right-of-use assets	109,659		123,155
Software development costs, net	802,874			719,209			Software development costs, net	991,649		939,859
Goodwill	851,961			844,200			Goodwill	907,105		883,158
Intangible assets, net	501,299			566,047			Intangible assets, net	330,837		364,439
Long-term investments	112,401			109,374			Long-term investments	423,315		419,419
Other assets	145,182			219,248			Other assets	205,688		209,196

Total assets	$	6,232,256		$	5,629,963		Total assets	$	7,360,812	$	6,894,622

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

Current liabilities:							Current liabilities:
Accounts payable	$	204,323		$	238,134		Accounts payable	$	256,449	$	273,440
Current installments of long-term debt and capital lease obligations	13,988			26,197
Deferred revenue	327,622			311,839			Deferred revenue	320,294		360,025
Accrued payroll and tax withholdings	202,640			211,554			Accrued payroll and tax withholdings	328,663		245,843
Other accrued expenses	58,292			57,677
Other current liabilities							Other current liabilities	196,170		148,140
Total current liabilities	806,865			845,401			Total current liabilities	1,101,576		1,027,448

Long-term debt and capital lease obligations	521,016			537,552
Deferred income taxes and other liabilities	327,340			306,263
Deferred revenue	13,032			12,800
Long-term debt							Long-term debt	1,336,018		1,038,382
Deferred income taxes							Deferred income taxes	391,790		377,657
Other liabilities							Other liabilities	125,141		133,807
Total liabilities	1,668,253			1,702,016			Total liabilities	2,954,525		2,577,294

Shareholders’ Equity:
Common stock, $.01 par value, 500,000,000 shares authorized, 356,765,307 shares issued at September 30, 2017 and 353,731,237 shares issued at December 31, 2016	3,568			3,537
Shareholders' Equity:							Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 372,272,953 shares issued at September 30, 2020 and 367,634,796 shares issued at December 28, 2019							Common stock, $0.01 par value, 500,000,000 shares authorized, 372,272,953 shares issued at September 30, 2020 and 367,634,796 shares issued at December 28, 2019	3,723		3,676
Additional paid-in capital	1,345,022			1,230,913			Additional paid-in capital	2,196,127		1,905,171
Retained earnings	4,602,208			4,094,327			Retained earnings	6,402,220		5,934,909
Treasury stock, 24,452,763 shares at September 30, 2017 and 24,089,737 shares at December 31, 2016	(1,314,054		)	(1,290,665		)
Treasury stock, 65,919,144 shares at September 30, 2020 and 56,723,546 shares at December 28, 2019							Treasury stock, 65,919,144 shares at September 30, 2020 and 56,723,546 shares at December 28, 2019	(4,057,768)		(3,407,768)
Accumulated other comprehensive loss, net	(72,741		)	(110,165		)	Accumulated other comprehensive loss, net	(138,015)		(118,660)
Total shareholders’ equity	4,564,003			3,927,947
Total shareholders' equity							Total shareholders' equity	4,406,287		4,317,328

Total liabilities and shareholders’ equity	$	6,232,256		$	5,629,963
Total liabilities and shareholders' equity							Total liabilities and shareholders' equity	$	7,360,812	$	6,894,622

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months endedSeptember 30, ~~2017~~2020 and ~~October 1, 2016~~September 28, 2019

(unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
(In thousands, except per share data)	2017			2016			2017			2016			(In thousands, except per share data)	2020		2019		2020		2019

Revenues:
System sales	$	324,021		$	301,252		$	991,685		$	913,710
Support, maintenance and services	927,829			861,085			2,763,483			2,561,474
Reimbursed travel	24,157			22,220			73,319			63,470

Total revenues	1,276,007			1,184,557			3,828,487			3,538,654
Revenues													Revenues	$	1,368,673	$	1,429,428	$	4,110,763	$	4,250,366
Costs and expenses:													Costs and expenses:
Cost of system sales	105,200			93,275			322,884			296,336
Cost of support, maintenance and services	73,547			67,475			228,757			204,313
Cost of reimbursed travel	24,157			22,220			73,319			63,470
Costs of revenue													Costs of revenue	231,889		271,778		698,268		793,655
Sales and client service	564,621			512,671			1,688,208			1,534,763			Sales and client service	625,402		707,743		1,907,138		2,026,825
Software development (Includes amortization of $44,358 and $126,346 for the three and nine months ended September 30, 2017, respectively; and $35,552 and $102,429 for the three and nine months ended October 1, 2016, respectively)	153,834			136,755			442,570			405,451
Software development (Includes amortization of $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively; and $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively)													Software development (Includes amortization of $61,578 and $183,786 for the three and nine months ended September 30, 2020, respectively; and $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively)	186,826		187,526		551,101		548,934
General and administrative	84,178			87,071			263,203			267,232			General and administrative	116,816		152,321		391,000		398,305
Amortization of acquisition-related intangibles	22,564			22,865			68,126			68,104			Amortization of acquisition-related intangibles	12,789		21,283		43,031		64,809

Total costs and expenses	1,028,101			942,332			3,087,067			2,839,669			Total costs and expenses	1,173,722		1,340,651		3,590,538		3,832,528

Gain on sale of businesses													Gain on sale of businesses	216,869		0		216,869		0

Operating earnings	247,906			242,225			741,420			698,985			Operating earnings	411,820		88,777		737,094		417,838

Other income (expense), net	2,509			(417		)	4,054			3,734
Other income, net													Other income, net	48,020		13,535		78,247		44,973

Earnings before income taxes	250,415			241,808			745,474			702,719			Earnings before income taxes	459,840		102,312		815,341		462,811
Income taxes	(72,991		)	(71,829		)	(215,154		)	(215,926		)	Income taxes	(103,164)		(20,377)		(176,758)		(87,688)

Net earnings	$	177,424		$	169,979		$	530,320		$	486,793		Net earnings	$	356,676	$	81,935	$	638,583	$	375,123

Basic earnings per share	$	0.53		$	0.50		$	1.60		$	1.44		Basic earnings per share	$	1.17	$	0.26	$	2.08	$	1.17
Diluted earnings per share	$	0.52		$	0.49		$	1.57		$	1.41		Diluted earnings per share	$	1.16	$	0.26	$	2.07	$	1.16
Basic weighted average shares outstanding	331,993			338,684			331,319			338,675			Basic weighted average shares outstanding	305,759		315,876		306,759		320,282
Diluted weighted average shares outstanding	338,780			344,817			337,946			344,917			Diluted weighted average shares outstanding	308,366		319,113		309,124		323,361

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 nine months endedSeptember 30, ~~2017~~2020 and ~~October 1, 2016~~September 28, 2019

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended				Nine Months Ended
(In thousands)	2017			2016			2017		2016			(In thousands)	2020		2019		2020		2019

Net earnings	$	177,424		$	169,979		$	530,320	$	486,793		Net earnings	$	356,676	$	81,935	$	638,583	$	375,123
Foreign currency translation adjustment and other (net of taxes (benefit) of $(100) and $991 for the three and nine months ended September 30, 2017; and $1,282 and $3,437 for the three and nine months ended October 1, 2016)	10,806			(2,085		)	37,369		(8,557		)
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(1) and $34 for the three and nine months ended September 30, 2017; and $(188) and $101 for the three and nine months ended October 1, 2016)	(2		)	(308		)	55		164
Foreign currency translation adjustment and other (net of taxes (benefit) of $351 and $688 for the three and nine months ended September 30, 2020; and $(409) and $(413) for the three and nine months ended September 28, 2019, respectively)												Foreign currency translation adjustment and other (net of taxes (benefit) of $351 and $688 for the three and nine months ended September 30, 2020; and $(409) and $(413) for the three and nine months ended September 28, 2019, respectively)	9,611		(11,679)		(1,738)		(9,458)
Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $745 and $(5,937) for the three and nine months ended September 30, 2020; and $(1,327) and $(5,396) for the three and nine months ended September 28, 2019, respectively)												Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $745 and $(5,937) for the three and nine months ended September 30, 2020; and $(1,327) and $(5,396) for the three and nine months ended September 28, 2019, respectively)	2,265		(4,037)		(18,050)		(16,407)
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(73) and $142 for the three and nine months ended September 30, 2020; and $5 and $286 for the three and nine months ended September 28, 2019, respectively)												Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $(73) and $142 for the three and nine months ended September 30, 2020; and $5 and $286 for the three and nine months ended September 28, 2019, respectively)	(220)		14		433		867

Comprehensive income	$	188,228		$	167,586		$	567,744	$	478,400		Comprehensive income	$	368,332	$	66,233	$	619,228	$	350,125

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months endedSeptember 30, ~~2017~~2020 and ~~October 1, 2016~~September 28, 2019

(unaudited)


	Nine Months Ended
(In thousands)	2020		2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	638,583	$	375,123
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	518,987		509,559
Share-based compensation expense	110,500		73,421
Provision for deferred income taxes	21,554		22,793
Gain on sale of businesses	(216,869)		0
Investment gains	(75,834)		(24,231)
Changes in assets and liabilities (net of businesses acquired):
Receivables, net	(78,695)		24,558
Inventory	8,206		1,877
Prepaid expenses and other	(36,664)		(75,191)
Accounts payable	(60,808)		(3,346)
Accrued income taxes	33,005		(795)
Deferred revenue	(32,071)		(89,400)
Other accrued liabilities	94,151		61,156

Net cash provided by operating activities	924,045		875,524

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases	(238,053)		(388,588)
Capitalized software development costs	(224,710)		(211,284)
Purchases of investments	(511,378)		(317,979)
Sales and maturities of investments	213,309		507,258
Purchase of other intangibles	(29,698)		(25,794)
Sale of businesses	229,471		0
Acquisition of businesses, net of cash acquired	(35,766)		0

Net cash used in investing activities	(596,825)		(436,387)

CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance	300,000		600,000
Repayment of long-term debt	(2,500)		0
Proceeds from exercise of stock options	202,680		188,474
Payments to taxing authorities in connection with shares directly withheld from associates	(22,623)		(14,994)
Treasury stock purchases	(650,000)		(1,020,542)
Dividends paid	(166,277)		(57,293)
Other	(6,807)		(8,450)

Net cash used in financing activities	(345,527)		(312,805)

Effect of exchange rate changes on cash and cash equivalents	(4,382)		(4,028)

Net increase (decrease) in cash and cash equivalents	(22,689)		122,304
Cash and cash equivalents at beginning of period	441,843		374,126

Cash and cash equivalents at end of period	$	419,154	$	496,430

Nine Months Ended
(In thousands) 2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 530,320
$ 486,793
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 425,241
371,385
Share-based compensation expense 59,217
56,896
Provision for deferred income taxes 36,667
(25,922 )
Changes in assets and liabilities (net of businesses acquired):
Receivables, net (19,080 ) 43,699
Inventory (909 ) (5,590 )
Prepaid expenses and other (11,908 ) (33,801 )
Accounts payable (12,651 ) (19,566 )
Accrued income taxes 1,984
53,393
Deferred revenue 12,749
(1,780 )
Other accrued liabilities (62,865 ) (17,809 )

Net cash provided by operating activities 958,765
907,698

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases (262,372 ) (327,861 )
Capitalized software development costs (210,033 ) (228,803 )
Purchases of investments (337,010 ) (387,809 )
Sales and maturities of investments 237,912
262,100
Purchase of other intangibles (22,186 ) (13,222 )

Net cash used in investing activities (593,689 ) (695,595 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 61,688
60,486
Payments to taxing authorities in connection with shares directly withheld from associates (7,989 ) (38,122 )
Treasury stock purchases (23,389 ) (200,075 )
Contingent consideration payments for acquisition of businesses (2,671 ) (2,074 )

Net cash provided by (used in) financing activities 27,639

(179,785 )

Effect of exchange rate changes on cash and cash equivalents 9,478
(2,943 )

Net increase in cash and cash equivalents 402,193
29,375
Cash and cash equivalents at beginning of period 170,861
402,122

Cash and cash equivalents at end of period $ 573,054
$ 431,497

Summary of acquisition transactions:
Fair value of tangible assets acquired $ —
$ (10,200 )
Fair value of intangible assets acquired —
(25,000 )
Fair value of goodwill —
46,940
Less: Fair value of liabilities assumed —
(11,740 )

Net cash used $ —
$ —

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 nine months ended September 30, 2020 and September 28, 2019

(unaudited)


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

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

Exercise of stock options and vests of restricted shares and share units	2,543	26		114,050		—		—		—

Employee share-based compensation expense	—	—		35,031		—		—		—

Cumulative effect of accounting change (ASU 2016-13)	—	—		—		(4,606)		—		—

Other comprehensive income (loss)	—	—		—		—		—		(40,703)

Treasury stock purchases	—	—		—		—		(650,000)		—

Cash dividends declared ($0.18 per share)	—	—		—		(55,206)		—		—

Net earnings	—	—		—		147,159		—		—

Balance at March 31, 2020	370,178	3,702		2,054,252		6,022,256		(4,057,768)		(159,363)

Exercise of stock options and vests of restricted shares and share units	1,009	10		28,540		—		—		—

Employee share-based compensation expense	—	—		37,549		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		9,692

Cash dividends declared ($0.18 per share)	—	—		—		(55,602)		—		—

Net earnings	—	—		—		134,748		—		—

Balance at June 30, 2020	371,187	3,712		2,120,341		6,101,402		(4,057,768)		$	(149,671)

Exercise of stock options and vests of restricted shares and share units	1,086	11		37,866		—		—		—

Employee share-based compensation expense	—	—		37,920		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		11,656

Cash dividends declared ($0.18 per share)	—	—		—		(55,858)		—		—

Net earnings	—	—		—		356,676		—		—

Balance at September 30, 2020	372,273	$	3,723	$	2,196,127	$	6,402,220	$	(4,057,768)	$	(138,015)

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

For the three and nine months ended September 30, 2020 and September 28, 2019

(unaudited)


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

Balance at December 29, 2018	362,213	$	3,622	$	1,559,562	$	5,576,525	$	(2,107,768)	$	(103,552)

Exercise of stock options and vests of restricted shares and share units	706	7		11,716		—		—		—

Employee share-based compensation expense	—	—		19,860		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		2,958

Net earnings	—	—		—		166,219		—		—

Balance at March 30, 2019	362,919	3,629		1,591,138		5,742,744		(2,107,768)		(100,594)

Exercise of stock options and vests of restricted shares and share units	1,777	18		108,045		—		—		—

Employee share-based compensation expense	—	—		23,024		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		(12,254)

Treasury stock purchases	—	—		—		—		(600,000)		—

Cash dividends declared ($0.18 per share)	—	—		—		(57,682)		—		—

Net earnings	—	—		—		126,969		—		—

Balance at June 29, 2019	364,696	3,647		1,722,207		5,812,031		(2,707,768)		(112,848)

Exercise of stock options and vests of restricted shares and share units	1,505	15		54,195		—		—		—

Employee share-based compensation expense	—	—		30,537		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		(15,702)

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

Cash dividends declared ($0.18 per share)	—	—		—		(56,982)		—		—

Net earnings	—	—		—		81,935		—		—

Balance at September 28, 2019	366,201	$	3,662	$	1,806,939	$	5,836,984	$	(3,107,768)	$	(128,550)

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

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~~management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using GAAP. 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.

Fiscal Period End

~~Our~~Prior to fiscal year 2020, our third fiscal quarter ~~ends~~ended on the Saturday closest to September 30. The ~~2017~~third quarter and ~~2016~~year-to-date periods for 2019 presented herein consisted of 91 days and 273 days, respectively, and ended on September 28, 2019.

In December 2019, our Board of Directors approved the change of our fiscal year to a calendar year, commencing with fiscal year 2020. Accordingly, the third ~~quarters~~quarter and year-to-date periods for 2020 presented herein consisted of 92 days and 277 days, respectively, and ended on September 30, ~~2017 and October 1, 2016, respectively.~~ 2020.

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

Supplemental Disclosures of Cash Flow Information


	Nine Months Ended
(In thousands)	2020		2019
Cash paid during the period for:
Interest (including amounts capitalized of $12,040 and $12,575, respectively)	$	31,661	$	20,756
Income taxes, net of refunds	78,519		65,171
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases	24,499		23,129
Capital purchases	17,395		7,600

CARES Act

Cash flows from operating activities for the first nine months of 2020 include the impact of $56 million of certain federal payroll taxes related to pay cycles in the second and third quarters of 2020, for which we have deferred remittance to the taxing authority as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). We expect to continue to defer the remittance of such payroll taxes for the remainder of 2020, as permitted by the CARES Act, for which the remittances to the taxing authority are to be paid in equal amounts at the end of 2021 and 2022, respectively. At September 30, 2020, these deferred remittances are included in "Accrued payroll and tax withholdings" in our condensed consolidated balance sheets.

Table of Contents

Accounting Pronouncements Adopted in ~~2017~~2020

~~Share-Based Compensation.~~Credit Losses on Financial Instruments. In ~~March 2016,~~the first quarter of 2020, we adopted new guidance regarding impairment assessment for certain financial assets. Refer to Notes (3) and (4) for further details.

Collaborative Arrangements. In November 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-09,~~ ~~Compensation - Stock Compensation~~2018-18, Collaborative Arrangements (Topic ~~718)~~808): ~~Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 impacts several aspects~~Clarifying the Interaction between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the ~~accounting~~FASB's recent revenue standard (Topic 606). Such guidance clarifies revenue recognition and financial statement presentation for ~~share-based payment award~~ transactions ~~including: (1) accounting and cash flow classification for excess tax benefits and deficiencies, (2) forfeitures, and (3) tax withholding requirements and cash flow classification.~~between collaboration participants. We adopted ASU ~~2016-09 was effective for the Company~~2018-18 in the first quarter of ~~2017. This new~~2020. Such guidance ~~impacts our condensed consolidated financial statements as follows:~~

Prior to the adoption of ASU 2016-09, when associates exercised stock options, or upon the vesting of restricted stock awards, we recognized any related excess tax benefits or deficiencies (the difference between the deduction for tax purposes and the cumulative compensation cost recognized in the consolidated financial statements) in additional paid-in capital ("APIC"). During the three and ~~nine months ended~~ ~~October 1, 2016, we recognized net excess tax benefits in APIC of $37 million and $48 million, respectively.~~

Under the new guidance, all excess tax benefits and tax deficiencies are recognized as a component of income tax expense. They are not estimated when determining the annual estimated effective tax rate; instead, they are recorded as discrete items in the reporting period they occur. During the three and nine months ended September 30, 2017, we recognized $5 million and $22 million, respectively, of net excess tax benefits as discrete items, which are included in income taxes in our condensed consolidated statements of operations. These net excess tax benefits recognized during the three and nine months ended September 30, 2017, resulted in favorable impacts to diluted earnings per share of $0.01 and $0.06, respectively.

This provision of the new guidance may have a significant impact on our future income tax expense, including increased variability in our quarterly effective tax rates. The impact will be dependent on a number of factors, including the price of our common stock, grant activity under our stock and equity plans, and the timing of option exercises by our associates. This provision of the new guidance was required to be applied prospectively. Prior periods have not been retrospectively adjusted.

We utilize the treasury stock method for calculating diluted earnings per share. Prior to the adoption of ASU 2016-09, this method assumed that any net excess tax benefits generated from the hypothetical exercise of dilutive options were used to repurchase outstanding shares. Assumed share repurchases for net excess tax benefits included in our calculation of diluted earnings per share for the three and ~~nine months ended~~ ~~October 1, 2016 were 2.1 million shares and 2.0 million shares respectively.~~

Under the new guidance, excess tax benefits generated from the hypothetical exercise of dilutive options are excluded from the calculation of diluted earnings per share. Therefore, the denominator in our diluted earnings per share calculation has increased (comparatively). We estimate that this provision of the new guidance will reduce our calculation of diluted earnings per share by approximately $0.01 to $0.02 for our fiscal year ended December 30, 2017. This provision of the new guidance was required to be applied prospectively. Prior periods have not been retrospectively adjusted.

Prior to the adoption of ASU 2016-09, we presented net excess tax benefits in our condensed consolidated statements of cash flows as a cash inflow from financing activities. Under the new guidance, net excess tax benefits are presented within operating activities. We have elected to apply this provision of the new guidance retrospectively. Prior periods have been retrospectively adjusted.

Prior to the adoption of ASU 2016-09, we presented cash payments to taxing authorities in connection with shares directly withheld from associates upon the exercise of stock options, or upon the vesting of restricted stock awards, to meet statutory tax withholding requirements (employee withholdings) as a cash outflow from operating activities. Under the new guidance, such payments are presented within financing activities. This provision of the new guidance was required to be applied retrospectively. Prior periods have been retrospectively adjusted.

Under the new guidance, an entity is permitted to make an entity-wide accounting policy election (at adoption) either to estimate the number of forfeitures expected to occur or to account for forfeitures as a reduction to compensation cost when they occur. Upon adoption of ASU 2016-09, we did not ~~change our policy of estimating participant forfeitures as a part of our calculations of share-based compensation cost.~~

~~Income Taxes.~~ ~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which provides new guidance regarding when~~have an entity should recognize the income tax consequences of certain intra-entity asset transfers. Prior to the adoption of ASU 2016-16, U.S. GAAP prohibited entities from recognizing the income tax consequences of intercompany asset transfers, including transfers of intellectual property. The seller deferred any net tax effect, and the buyer was prohibited from recognizing a deferred tax asset on the difference between the newly created tax basis of the asset in its tax jurisdiction and its financial statement carrying amount as reported in the consolidated financial statements. ASU 2016-16 requires entities to recognize these tax consequences in the period in which the transfer takes place, with the exception of inventory transfers.

ASU 2016-16 is effective for the Company in the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The standard requires the use of the modified retrospective (cumulative effect) transition approach. The Company adopted the standard early, in the first quarter of 2017. In connection with such adoption, we recorded a cumulative effect adjustment reducing prepaid expenses and other, other assets, and retained earnings within our condensed consolidated balance sheets by $8 million, $14 million, and $22 million, respectively. This cumulative effect adjustment includes recognition of the income tax consequences of intra-entity transfers of assets other than inventory that occurred prior to the adoption date. Prior periods were not retrospectively adjusted.

~~Recently Issued Accounting Pronouncements~~

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP. The new standard introduces a five-step process to be followed in determining the amount and timing of revenue recognition. It also provides guidance on accounting for costs incurred to obtain or fulfill contracts with customers, and establishes disclosure requirements which are more extensive than those required under existing U.S. GAAP.

~~The FASB has issued the following amendments to ASU 2014-09 from August 2015 through September 2017:~~

~~ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~

~~ASU 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net)~~

~~ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~

~~ASU 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~

~~ASU 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~

~~ASU 2017-13,~~ Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments

~~Such amendments provide supplemental and clarifying guidance, as well as amend the effective date of the new standard.~~

ASU 2014-09, as amended, is effective for the Company in the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method.

In 2015, we formed a cross-functional implementation team and began our analysis of this new guidance. Such analysis includes assessment of the impact of the new guidance on our consolidated financial statements and related disclosures, as well as related impacts on processes, accounting systems, and internal controls. Based on our analysis to-date, we have reached the following tentative conclusions regarding this new guidance and how we expect it to impact our consolidated financial statements and related disclosures:

~~We will adopt this new guidance effective with our first quarter of 2018.~~

We will use the cumulative effect transition method. Such method provides that the cumulative effect from prior periods upon applying the new guidance is recognized in our consolidated balance sheets as of the date of adoption, including an adjustment to retained earnings. Prior periods will not be retrospectively adjusted.

~~We believe substantially all of our revenue falls within the scope of ASU 2014-09, as amended; substantially all of our revenue is contractual.~~

Generally, our subscription and content fees revenue is recognized ratably over the respective contract terms ("over time"). Upon adoption of the new guidance, we expect to recognize a license component of certain subscription and content fees revenue upon delivery to the customer ("point in time") and a non-license component (i.e. support) of such revenues over the respective contract terms ("over time"). At the date of adoption of this new guidance, we expect to record a cumulative adjustment to our consolidated balance sheet, including an adjustment to retained earnings, to adjust for the impact of certain prior period subscription and content fees revenue, as calculated under the new guidance.

For certain of our arrangements, revenue for software, implementation services and, in certain cases, support services for which vendor specific objective evidence (VSOE) of fair value cannot be established are accounted for as a single unit of accounting. If VSOE of fair value cannot be established for both the implementation services and the support services, the entire arrangement fee is recognized ratably ("over time") over the period during which the implementation services are expected to be performed or the support period, whichever is longer, beginning with delivery of the software, provided that all other revenue recognition criteria are met. Upon adoption of the new guidance, the concept of VSOE of fair value is eliminated. Consideration for an arrangement is allocated to performance obligations based on stand-alone selling price or an estimate of stand-alone selling price. With this change, we expect to be able to allocate consideration to the various elements within arrangements currently accounted for as a single unit of accounting. Such revenue will then be recognized as each performance obligation is delivered (i.e. "point in time" for software) or as provided to the customer (i.e. "over time" for implementation services and support services). At the date of adoption of this new guidance, we expect to record a cumulative adjustment to our consolidated balance sheet, including an adjustment to retained earnings, to adjust for the impact

~~of certain software, implementation services, and support services delivered in prior periods, as calculated under the new guidance.~~

We have determined the only significant incremental costs incurred to obtain contracts with customers within the scope of ASU 2014-09, as amended, are sales commissions paid to associates. Under current U.S. GAAP, we recognize sales commissions as earned, and record such amounts as a component of total costs and expenses in our consolidated statements of operations. We recognized sales commission expense of $44 million, $45 million and $35 million in the 2016, 2015, and 2014 annual periods, respectively. Under the new guidance, we expect to record sales commissions as an asset, and amortize to expense over the related contract performance period. At the date of adoption of this new guidance, we expect to record an asset in our consolidated balance sheets for the amount of unamortized sales commissions for prior periods, as calculated under the new guidance. Such amount will subsequently be amortized to expense over the remaining performance periods of the related contracts with remaining performance obligations. We currently estimate the amount of this asset to approximate $80 million. Such estimate is preliminary and subject to change as we finalize our implementation process.

In connection with the expected cumulative adjustments described above, we also expect to record a cumulative adjustment to our consolidated balance sheet, including an adjustment to retained earnings, for the related impact on deferred income taxes from such adjustments.

Our analysis and evaluation of the new standard will continue through the effective date in the first quarter of 2018. A significant amount of work remains due to the complexity of revenue recognition within our industry, the increased number of judgments and estimates required by this new guidance, and the volume of our contract portfolio which must be examined. We must quantify all impacts of this new guidance, including the topics discussed above, which may be material to our consolidated financial statements and related disclosures. We must also implement any necessary changes/modifications to processes, accounting systems, and internal controls.

~~Financial Instruments.~~ ~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10)~~: ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Such guidance will impact how we account for our investments reported under the cost method of accounting as follows:

Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) will be required to be measured at fair value with changes in fair value recognized in net earnings. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The impairment assessment of equity investments without readily determinable fair values will require a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

~~ASU 2016-01 is effective for the Company in the first quarter of 2018, with early adoption permitted. We do not expect the adoption of ASU 2016-01 to have a material~~ impact on our consolidated financial statements and related ~~disclosures, and we have determined that we will not early adopt.~~disclosures.

~~Leases.~~Recently Issued Accounting Pronouncements

Reference Rate Reform. In ~~February 2016,~~March 2020, the FASB issued ASU ~~2016-02,~~ ~~Leases~~2020-04, Reference Rate Reform (Topic ~~842)~~848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which ~~introduces a new model that requires most leases~~provides optional financial reporting alternatives to ~~be reported on~~reduce the ~~balance sheet~~cost and ~~aligns many~~complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform, such as the upcoming discontinuance of the ~~underlying principles~~London Interbank Offered Rate ("LIBOR"). The accommodations within ASU 2020-04 may be applied prospectively from the beginning of the new lessor model with those in the new revenue recognition standard. The standard requires the use of the modified retrospective (cumulative effect) transition approach. ASU 2016-02 is effective for the Company in theour 2020 first quarter ~~of 2019, with early adoption permitted.~~through December 31, 2022. We are currently evaluating the effect that ASU ~~2016-02 will~~2020-04 may have on our ~~consolidated financial statements~~contracts that reference LIBOR, specifically, our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and related ~~disclosures, and~~interest rate swap. As of the date of this filing, we dohave not elected to apply any of the provisions of this standard.

(2) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:


	Three Months Ended
	2020						2019
(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Licensed software	$	159,327	$	12,367	$	171,694	$	144,599	$	9,934	$	154,533
Technology resale	45,217		1,896		47,113		65,103		5,072		70,175
Subscriptions	87,878		5,529		93,407		85,230		6,674		91,904
Professional services	433,127		46,768		479,895		446,562		60,893		507,455
Managed services	280,827		31,017		311,844		272,933		29,502		302,435
Support and maintenance	219,682		40,296		259,978		227,131		50,163		277,294
Reimbursed travel	4,711		31		4,742		23,705		1,927		25,632

Total revenues	$	1,230,769	$	137,904	$	1,368,673	$	1,265,263	$	164,165	$	1,429,428

Table of Contents


	Nine Months Ended
	2020						2019
(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Licensed software	$	444,774	$	37,114	$	481,888	$	466,105	$	40,018	$	506,123
Technology resale	126,042		14,675		140,717		169,112		17,338		186,450
Subscriptions	260,095		19,749		279,844		246,505		19,460		265,965
Professional services	1,295,759		156,564		1,452,323		1,313,701		169,500		1,483,201
Managed services	836,242		92,114		928,356		818,818		85,661		904,479
Support and maintenance	663,399		144,296		807,695		679,214		151,454		830,668
Reimbursed travel	19,086		854		19,940		68,750		4,730		73,480

Total revenues	$	3,645,397	$	465,366	$	4,110,763	$	3,762,205	$	488,161	$	4,250,366

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


	Three Months Ended
	2020						2019
(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Revenue recognized over time	$	1,143,515	$	132,891	$	1,276,406	$	1,143,470	$	155,017	$	1,298,487
Revenue recognized at a point in time	87,254		5,013		92,267		121,793		9,148		130,941

Total revenues	$	1,230,769	$	137,904	$	1,368,673	$	1,265,263	$	164,165	$	1,429,428


	Nine Months Ended
	2020						2019
(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Revenue recognized over time	$	3,410,827	$	437,791	$	3,848,618	$	3,403,965	$	445,320	$	3,849,285
Revenue recognized at a point in time	234,570		27,575		262,145		358,240		42,841		401,081

Total revenues	$	3,645,397	$	465,366	$	4,110,763	$	3,762,205	$	488,161	$	4,250,366

Transaction Price Allocated to Remaining Performance Obligations

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

Contract Liabilities

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

Significant Customers

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

Table of Contents

(3) Receivables

A summary of net receivables is as follows:


(In thousands)	September 30, 2020		December 28, 2019

Client receivables	$	1,370,394	$	1,245,670
Less: Provision for expected credit losses	151,167		106,075

Total receivables, net	$	1,219,227	$	1,139,595

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


(In thousands)

Provision for expected credit losses - balance at December 28, 2019	$	106,075
Cumulative effect of accounting change (ASU 2016-13)	4,606
Additions charged to costs and expenses	54,636
Deductions	(14,150)

Provision for expected credit losses - balance at September 30, 2020	$	151,167

During the first nine months of 2020 and 2019, we received total client cash collections of $4.09 billion and $4.23 billion, respectively.

Expected Credit Losses ~~on Financial Instruments.~~

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

~~Callable Debt Securities.~~ ~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~, which shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring the premium be amortized to the earliest call date. Such guidance will impact how premiums are amortized on our available-for-sale investments. ASU 2017-08 is effective for the Company in the first quarter of 2019, with early adoption permitted.client receivables. The standard requires ~~the~~ use of the modified retrospective (cumulative effect) transition ~~approach.~~ approach as of the beginning of the first reporting period in which the guidance was effective, which for the Company was the first quarter of 2020. Under this transition method, the cumulative effect from prior periods upon applying this new guidance was recognized in our condensed consolidated balance sheets as of December 29, 2019. We did not recast comparative periods.

A summary of such cumulative effect adjustment is as follows:


(In thousands)	Increase/(Decrease)

Receivables, net	$	(4,606)
Retained earnings	(4,606)

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

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

Table of Contents

(4) Investments

Available-for-sale investments at September 30, 2020 were as follows:


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

Cash equivalents:
Money market funds	$	56,855	$	—	$	—	$	56,855
Time deposits	19,676		—		—		19,676
Commercial Paper	1,600		—		—		1,600
Government and corporate bonds	1,150		—		—		1,150
Total cash equivalents	79,281		—		—		79,281

Short-term investments:
Time deposits	21,248		—		—		21,248
Commercial paper	259,000		22		(7)		259,015
Government and corporate bonds	192,536		559		(35)		193,060
Total short-term investments	472,784		581		(42)		473,323

Long-term investments:
Government and corporate bonds	91,605		180		(78)		91,707

Total available-for-sale investments	$	643,670	$	761	$	(120)	$	644,311

Available-for-sale investments at December 28, 2019 were as follows:


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

Cash equivalents:
Money market funds	$	185,666	$	—	$	—	$	185,666
Time deposits	64,286		—		—		64,286
Total cash equivalents	249,952		—		—		249,952

Short-term investments:
Time deposits	2,506		—		—		2,506
Government and corporate bonds	83,272		52		(11)		83,313
Total short-term investments	85,778		52		(11)		85,819

Long-term investments:
Government and corporate bonds	96,186		91		(67)		96,210

Total available-for-sale investments	$	431,916	$	143	$	(78)	$	431,981

We sold available-for-sale investments for proceeds of $5 million and $181 million during the nine months ended September 30, 2020 and September 28, 2019, respectively, resulting in insignificant gains/losses in each period.

Other Investments

At September 30, 2020 and December 28, 2019, we had investments in equity securities that do not have readily determinable fair values of $320 million and $314 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 nine months ended September 30, 2020 and September 28, 2019, respectively.

Table of Contents

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

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

Impairment Assessment

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

(5) Long-term Debt

The following is a summary of indebtedness outstanding:


(In thousands)	September 30, 2020		December 28, 2019

Credit agreement loans due May 5, 2024	$	600,000	$	600,000
Senior notes:
Series 2020-A due March 11, 2030	300,000		0
Series 2015-A due February 15, 2022	225,000		225,000
Series 2015-B due February 14, 2025	200,000		200,000
Other	11,662		14,162

Total indebtedness	1,336,662		1,039,162
Less: debt issuance costs	(644)		(780)

Long-term debt	$	1,336,018	$	1,038,382

Credit Agreement

As of September 30, 2020, the interest rate on revolving credit loans outstanding under our Credit Agreement was 0.95% based on LIBOR plus the applicable spread.

We are ~~currently evaluating~~exposed to market risk from fluctuations in the ~~effect that ASU 2017-08 will have~~variable interest rates on outstanding indebtedness under our ~~consolidated financial statements and related disclosures, and~~Credit Agreement. In order to manage this exposure, we have ~~not determined if~~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 September 30, 2020 and December 28, 2019, this swap was in a net liability position with an aggregate fair value of $41 million and $17 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".

Series 2020-A Senior Notes

In March 2020, we ~~will early adopt.~~issued $300 million aggregate principal amount of 2.50% senior unsecured Series 2020-A notes (the "Series 2020-A Notes") due March 11, 2030, pursuant to a Master Note Agreement we entered into in November 2019, and subsequently amended on October 8, 2020 (collectively and as amended, the "2019 Shelf Agreement"). Interest on

Table of Contents

~~(2)~~the Series 2020-A Notes is payable semiannually on each March 11 and September 11, commencing September 11, 2020, and the principal balance is due at maturity. The Company may prepay at any time all, or any part of, the outstanding principal amount of the Series 2020-A Notes, subject to the payment of a make-whole amount. The Series 2020-A Notes are subject to the terms of the 2019 Shelf Agreement, which contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. As of the date of this filing, $1.50 billion remains available for sale under the 2019 Shelf Agreement, which is uncommitted and subject to participation by the purchasers.

(6) Fair Value Measurements

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

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

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

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

The following table details our ~~financial assets~~investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at September 30, ~~2017~~:2020:


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

Money market funds	Cash equivalents	$	319,668	$	—	$	—	Money market funds	Cash equivalents	$	56,855	$	—	$	0
Time deposits	Cash equivalents	—		51,426		—		Time deposits	Cash equivalents	—		19,676		0
Commercial paper	Cash equivalents	—		23,550		—		Commercial paper	Cash equivalents	—		1,600		—
Government and corporate bonds	Cash equivalents	—		500		—		Government and corporate bonds	Cash equivalents	—		1,150		—
Time deposits	Short-term investments	—		32,808		—		Time deposits	Short-term investments	—		21,248		0
Commercial paper	Short-term investments	—		87,874		—		Commercial paper	Short-term investments	—		259,015		0
Government and corporate bonds	Short-term investments	—		158,314		—		Government and corporate bonds	Short-term investments	—		193,060		0
Government and corporate bonds	Long-term investments	—		99,032		—		Government and corporate bonds	Long-term investments	—		91,707		0

The following table details our ~~financial assets~~investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at December ~~31, 2016~~:28, 2019:


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

Money market funds	Cash equivalents	$	185,666	$	—	$	0
Time deposits	Cash equivalents	—		64,286		0
Time deposits	Short-term investments	—		2,506		0
Government and corporate bonds	Short-term investments	—		83,313		0
Government and corporate bonds	Long-term investments	—		96,210		0

Table of Contents

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

Money market funds Cash equivalents $ 23,110
$ —
$ —
Time deposits Cash equivalents —
11,477
—
Time deposits Short-term investments —
40,639
—
Commercial paper Short-term investments —
22,301
—
Government and corporate bonds Short-term investments —
122,648
—
Government and corporate bonds Long-term investments —
95,368
—

Our investments in equity securities with readily determinable fair values accounted for in accordance with ASC 321 were measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such arrangements was based on quoted prices in active markets, reduced by a percentage reflecting a discount for lack of marketability.

Our interest rate swap agreement is measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such agreement is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instrument is held, the derivative is classified as Level 2 in the hierarchy.

We estimate the fair value of our long-term, fixed rate debt using a Level 3 discounted cash flow analysis based on current borrowing rates for debt with similar maturities. We estimate the fair value of our long-term, variable rate debt using a Level 3 discounted cash flow analysis based on LIBOR rate forward curves. The fair value of our long-term debt ~~including current maturities,~~ at September 30, ~~2017~~2020 and December ~~31, 2016~~28, 2019 was approximately ~~$517 million~~$1.34 billion and ~~$515 million,~~$1.07 billion, respectively. The carrying amount of such debt at ~~both~~ September 30, ~~2017~~2020 and December ~~31, 2016~~28, 2019 was ~~$500 million.~~$1.33 billion and $1.03 billion, respectively.

~~(3) Available-for-sale Investments~~

(7) Gain on Sale of Businesses

~~Available-for-sale investments at~~ ~~September 30, 2017~~

Germany and Spain

On July 1, 2020, we sold certain of our business operations, primarily conducted in Germany and Spain, to affiliates of CompuGroup Medical SE & Co. KGaA ("CGM"), as a part of our portfolio management strategy. Such operations included the associates, intellectual property, client contracts, other assets, and liabilities related to our medico®, Selene®, Soarian Health Archive®, and Soarian® Integrated Care solution offerings. We received a sale price of $227 million, which is subject to post-closing adjustments for working capital and certain other adjustments.

The following table presents a reconciliation of the sale price to the net gain recognized on the disposed business operations which is included in "Gain on sale of businesses" in our condensed consolidated statements of operations:


(In thousands)

Sale price	$	226,623
Net assets/(liabilities) removed	(7,617)
Transaction expenses	(5,573)
Foreign currency	1,263

Gain on sale of businesses	$	214,696

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


(In thousands)

Sale price	$	226,623
VAT and other transaction taxes, net	(2,142)

Cash received from sale of businesses	$	224,481

Table of Contents

Amounts included in our condensed consolidated balance sheets related to the disposed business operations immediately prior to the sale on July 1, 2020 were as follows:

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

Cash equivalents:
Money market funds $ 319,668
$ —
$ —
$ 319,668
Time deposits 51,426
—
—
51,426
Commercial paper 23,550
—
—
23,550
Government and corporate bonds 500
—
—
500
Total cash equivalents 395,144
—
—
395,144

Short-term investments:
Time deposits 32,808
—
—
32,808
Commercial paper 87,916
2
(44 ) 87,874
Government and corporate bonds 158,532
2
(220 ) 158,314
Total short-term investments 279,256
4
(264 ) 278,996

Long-term investments:
Government and corporate bonds 99,226
—
(194 ) 99,032

Total available-for-sale investments $ 773,626

$ 4

$ (458 )
$ 773,172


(In thousands)	Asset/(Liability)

Receivables, net	$	7,334
Inventory	65
Prepaid expenses and other	5,759
Property and equipment, net	336
Right-of-use assets	554
Software development costs, net	5,532
Goodwill	7,692
Intangible assets, net	3,687
Accounts payable	(1,631)
Deferred revenue	(16,655)
Accrued payroll and tax withholdings	(4,545)
Other current liabilities	(511)

Net assets/(liabilities)	$	7,617

~~Available-for-sale investments at~~ ~~December 31, 2016~~ ~~were as follows:~~Revenue Cycle Outsourcing

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

Cash equivalents:
Money market funds $ 23,110
$ —
$ —
$ 23,110
Time deposits 11,477
—
—
11,477
Total cash equivalents 34,587
—
—
34,587

Short-term investments:
Time deposits 40,639
—
—
40,639
Commercial paper 22,325
—
(24 ) 22,301
Government and corporate bonds 122,729
3
(84 ) 122,648
Total short-term investments 185,693
3
(108 ) 185,588

Long-term investments:
Government and corporate bonds 95,806
—
(438 ) 95,368

Total available-for-sale investments $ 316,086
$ 3
$ (546 ) $ 315,543

WeOn August 3, 2020, we sold ~~available-for-sale investments for proceeds of $29 million and $92 million during the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~October 1, 2016, respectively, resulting in insignificant gains in each period.~~

~~(4) Receivables~~

~~A summary of net receivables is as follows:~~

(In thousands) September 30, 2017 December 31, 2016

Gross accounts receivable $ 1,065,903
$ 958,843
Less: Allowance for doubtful accounts 59,673
43,028

Accounts receivable, net of allowance 1,006,230
915,815

Current portion of lease receivables 14,477
29,128

Total receivables, net $ 1,020,707
$ 944,943

During the second quarter of 2008, Fujitsu Services Limited’s ("Fujitsu") contract as the prime contractor in the National Health Service ("NHS") initiative to automate clinical processes and digitize medical records in the Southern region of England was terminated. This had the effectcertain of our ~~subcontract for~~revenue cycle outsourcing business operations to affiliates of R1 RCM Inc., as a part of our portfolio management strategy. Such operations included the ~~project being terminated. We continue to be in dispute with Fujitsu regarding Fujitsu’s obligation to pay the amounts comprised of accounts receivable~~associates, client contracts, certain other assets, and ~~contracts receivable~~certain liabilities related to ~~that subcontract,~~our commercial revenue cycle outsourcing services business. A net gain of $2 million was recognized on the disposed business operations and ~~we are working with Fujitsu~~is included in "Gain on sale of businesses" in our condensed consolidated statements of operations. Amounts included in our condensed consolidated balance sheets related to ~~resolve these issues based~~the disposed business operations immediately prior to the sale on ~~processes provided for in the contract. Part of that process requires final resolution of disputes between Fujitsu and the NHS regarding the contract termination. As of~~ ~~September 30, 2017, it remains unlikely that~~August 3, 2020 were not material to our ~~matter with Fujitsu will be resolved in the next 12 months. Therefore, these receivables have been classified as long-term and represent less than the majority of other long-term assets at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~. While the ultimate collectability of the receivables pursuant to this process is uncertain, we believe that we have valid and equitable grounds for recovery of such amounts and that collection of recorded amounts is probable. Nevertheless, it is reasonably possible that our estimates regarding collectability of such amounts might materially change in the near term, considering that we do not have complete knowledge of the status of the proceedings between Fujitsu and NHS and their effect on our claim.condensed consolidated financial statements.

~~During the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~and~~ ~~2016, we received total client cash collections of $4.1 billion and $3.8 billion, respectively.~~

~~(5)~~(8) Income Taxes

We determine the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our effective tax rate was ~~28.9%~~21.7% and ~~30.7%~~18.9% for the first nine months of ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~decrease~~increase in the effective tax rate in ~~2017~~the first nine months of 2020 is primarily due to a ~~result of the inclusion of~~decrease in net excess tax benefits recognized as a ~~discrete item within~~component of income tax expense in connection with the ~~tax provision, upon our adoption~~exercise of ~~ASU 2016-09~~stock options and the vesting of restricted share and share unit awards. Also contributing to the increase, are taxes associated with the divestiture transactions that closed in the ~~first~~third quarter of ~~2017. Refer to~~2020, as further discussed in Note ~~(1) for further discussion regarding our adoption~~(7).

Table of ~~ASU 2016-09 and its impact on our condensed consolidated financial statements.~~Contents

~~(6)~~(9) Earnings Per Share

A reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:


	Three Months Ended
	2020					2019
	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	$	356,676	305,759	$	1.17	$	81,935	315,876	$	0.26
Effect of dilutive securities:
Stock options, non-vested shares and share units	—		2,607			—		3,237
Diluted earnings per share:
Income available to common shareholders including assumed conversions	$	356,676	308,366	$	1.16	$	81,935	319,113	$	0.26

Three Months Ended
2017 2016
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 $ 177,424
331,993
$ 0.53
$ 169,979
338,684
$ 0.50
Effect of dilutive securities:
Stock options and non-vested shares —
6,787
—
6,133

Diluted earnings per share:
Income available to common shareholders including assumed conversions $ 177,424
338,780
$ 0.52
$ 169,979
344,817
$ 0.49

For the three months ended September 30, ~~2017~~2020 and ~~October 1, 2016~~,September 28, 2019, options to purchase ~~11.0~~3.9 million and ~~8.1~~7.7 million shares of common stock at per share prices ranging from ~~$50.04~~$55.24 to ~~$73.40~~$76.49 and ~~$47.84~~$54.87 to ~~$73.40,~~$75.83, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.


	Nine Months Ended											Nine Months Ended
	2017					2016						2020					2019
	Earnings		Shares	Per-Share		Earnings		Shares	Per-Share			Earnings		Shares	Per-Share		Earnings		Shares	Per-Share
(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:
Income available to common shareholders	$	530,320	331,319	$	1.60	$	486,793	338,675	$	1.44	Income available to common shareholders	$	638,583	306,759	$	2.08	$	375,123	320,282	$	1.17
Effect of dilutive securities:											Effect of dilutive securities:
Stock options and non-vested shares	—		6,627			—		6,242
Stock options, non-vested shares and share units											Stock options, non-vested shares and share units	—		2,365			—		3,079
Diluted earnings per share:											Diluted earnings per share:
Income available to common shareholders including assumed conversions	$	530,320	337,946	$	1.57	$	486,793	344,917	$	1.41	Income available to common shareholders including assumed conversions	$	638,583	309,124	$	2.07	$	375,123	323,361	$	1.16

For the nine months ended September 30, ~~2017~~2020 and ~~October 1, 2016~~,September 28, 2019, options to purchase ~~10.4~~4.4 million and ~~7.2~~10.1 million shares of common stock at per share prices ranging from ~~$47.38~~$52.32 to ~~$73.40~~$76.49 and ~~$47.38~~$51.87 to ~~$73.40,~~$75.83, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.

~~(7)~~

Table of Contents

(10) Share-Based Compensation and Equity

Stock Options

Stock option activity for the nine months endedSeptember 30, ~~2017~~2020 was as follows:


(In thousands, except per share and term data)	Number of Shares	Weighted- Average Exercise Price (Per Share)		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Yrs)

Outstanding at beginning of year	15,416	$	56.36
Granted	3	72.36
Exercised	(4,009)	50.67
Forfeited and expired	(228)	61.32
Outstanding as of September 30, 2020	11,182	58.31		$	156,372	5.70

Exercisable as of September 30, 2020	7,248	$	56.87	$	111,738	4.85

(In thousands, except per share data)
Number of
Shares

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value

Weighted-Average
Remaining
Contractual
Term (Yrs)
Outstanding at beginning of year 23,601
$ 40.33

Granted 4,194
63.25

Exercised (2,685 ) 25.03

Forfeited and expired (850 ) 57.35

Outstanding as of September 30, 2017 24,260
45.39
$ 629,257
5.99

Exercisable as of September 30, 2017 12,802
$ 32.88
$ 492,125
3.82

The weighted-average assumptions used to estimate the fair value, under the Black-Scholes-Merton pricing model, of stock options granted during the nine months ended September 30, ~~2017~~2020 were as follows:

Expected volatility (%) 26.7 %
Expected term (yrs) 7
Risk-free rate (%) 2.1 %
Fair value per option $ 20.47


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

As of September 30, ~~2017~~,2020, there was ~~$167~~$58 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of ~~3.46~~2.12 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the nine months endedSeptember 30, ~~2017~~2020 was as follows:


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

Outstanding at beginning of year	2,634	$	65.30
Granted	2,520	69.99
Vested	(946)	66.30
Forfeited	(97)	67.24

Outstanding as of September 30, 2020	4,111	$	67.90

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

Outstanding at beginning of year 354
$ 61.12
Granted 586
66.86
Vested (158 ) 57.79
Forfeited (10 ) 57.02
��
Outstanding as of September 30, 2017 772
$ 66.21

As of September 30, ~~2017~~,2020, there was ~~$36~~$223 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of ~~1.65~~1.96 years.

Table of Contents

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				Nine Months Ended
(In thousands)	2020		2019		2020		2019

Stock option and non-vested share and share unit compensation expense	$	37,920	$	30,537	$	110,500	$	73,421
Associate stock purchase plan expense	1,367		1,321		4,195		4,612
Amounts capitalized in software development costs, net of amortization	(1,150)		(76)		(2,971)		70

Amounts charged against earnings, before income tax benefit	$	38,137	$	31,782	$	111,724	$	78,103

Amount of related income tax benefit recognized in earnings	$	7,818	$	6,330	$	22,452	$	14,888

Three Months Ended Nine Months Ended
(In thousands) 2017 2016 2017 2016

Stock option and non-vested share and share unit compensation expense $ 19,858
$ 18,942
$ 59,217
$ 56,896
Associate stock purchase plan expense 1,546
1,503
4,516
4,722
Amounts capitalized in software development costs, net of amortization (45 ) (95 ) (365 ) (486 )

Amounts charged against earnings, before income tax benefit $ 21,359
$ 20,350
$ 63,368
$ 61,132

Amount of related income tax benefit recognized in earnings $ 6,226
$ 6,045
$ 18,289
$ 18,793

Treasury Stock

~~In May 2017,~~Under our current share repurchase program, which was initially approved by our Board of Directors ~~authorized a new share repurchase program that allows~~in May 2017 and most recently amended in December 2019, the Company is authorized to repurchase up to $3.70 billion of shares of our common stock, ~~up to $500 million,~~ excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of ~~this~~the program.

During the nine months ended September 30, ~~2017,~~2020, we repurchased ~~0.4~~9.2 million shares for total consideration of ~~$23 million. These~~$650 million under the program. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. As of September 30, ~~2017, an aggregate of $577 million remained~~2020, $1.03 billion remains available for repurchase under the program.

Dividends

On September 10, 2020, our Board of Directors declared a cash dividend of $0.18 per share ~~repurchase programs.~~on our issued and outstanding common stock, which was paid on October 13, 2020 to shareholders of record as of September 25, 2020. On May 21, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on July 17, 2020 to shareholders of record as of June 5, 2020. On March 19, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on April 17, 2020 to shareholders of record as of April 3, 2020. In connection with the declaration of such dividends, our non-vested 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 both September 30, 2020 and December 28, 2019, our condensed consolidated balance sheets included liabilities for dividends payable of $56 million, which are included in "Other current liabilities".

~~(8)~~

Table of Contents

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
(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)
Other comprehensive income (loss) before reclassifications	9,611		(289)		(220)		9,102
Amounts reclassified from AOCI	0		2,554		0		2,554

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


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

Balance at December 29, 2018	$	(102,939)	$	0	$	(613)	$	(103,552)
Other comprehensive income (loss) before reclassifications	2,321		0		637		2,958
Amounts reclassified from AOCI	0		0		0		0

Balance at March 30, 2019	(100,618)		0		24		(100,594)
Other comprehensive income (loss) before reclassifications	(100)		(12,223)		216		(12,107)
Amounts reclassified from AOCI	0		(147)		0		(147)

Balance at June 29, 2019	(100,718)		(12,370)		240		(112,848)
Other comprehensive income (loss) before reclassifications	(11,679)		(4,135)		17		(15,797)
Amounts reclassified from AOCI	0		98		(3)		95

Balance at September 28, 2019	$	(112,397)	$	(16,407)	$	254	$	(128,550)

Table of Contents

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


(In thousands)		Three Months Ended				Nine Months Ended
AOCI Component	Location	2020		2019		2020		2019

Unrealized loss on cash flow hedge	Other income, net	$	(3,213)	$	(122)	$	(7,383)	$	58
	Income taxes	659		24		1,509		(9)

	Net of tax	(2,554)		(98)		(5,874)		49

Unrealized holding gain (loss) on available-for-sale investments	Other income, net	0		4		0		4
	Income taxes	0		(1)		0		(1)

	Net of tax	0		3		0		3

Total amount reclassified, net of tax		$	(2,554)	$	(95)	$	(5,874)	$	52

(11) Contingencies

We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ~~Accounting Standards Codification Topic~~ASC 450, Contingencies ("ASC 450").

The terms of our software license agreements with our clients generally provide for a limited indemnification of such clients against losses, expenses and liabilities arising from third party claims based on alleged infringement by our solutions of an intellectual property right of such third party. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include a right to replace or modify an infringing solution. To date, we have not had to reimburse any of our clients for any judgments or settlements to third parties related to these indemnification provisions pertaining to intellectual property infringement claims. For several reasons, including the lack of a sufficient number of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases 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 subject to various legal proceedings and claims that arise in the ordinary course of business, including for example, employment and client disputes and litigation alleging solution and implementation defects, personal injury, intellectual property infringement, violations of law and breaches of contract and warranties. In addition, we are a defendant in lawsuits filed in federal and state courts brought as putative class or collective actions on behalf of various groups of current and former associates in the U.S. alleging that we misclassified associates as exempt from overtime pay under the Fair Labor Standards Act and state wage and hour laws. These proceedings are at various procedural stages and seek unspecified monetary damages, injunctive relief, costs and attorneys’ fees. Given the substantial uncertainties, such as the impact of discovery and the extent to which significant factual issues are resolved, the disposition of pre-trial motions, the extent of potential damages that are often unspecified or indeterminate, and the status of settlement discussions (if any), we cannot predict with any reasonable certainty the timing or outcome of such contingencies. At this time, we do not believe any material losses under these claims to be probable or estimable.

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.~~made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.

As previously disclosed, we continue to be in dispute with Fujitsu Services Limited ("Fujitsu") regarding Fujitsu's obligation to pay amounts to us due upon the termination of a subcontract, including client receivables, in connection with Fujitsu's contract as the prime contractor in the National Health Service ("NHS") initiative to automate clinical processes and digitize medical records in the Southern region of England. The NHS terminated its contract with Fujitsu, which gave rise to the termination of our subcontract with Fujitsu. We filed a request for arbitration with the London Court of International Arbitration on April 22, 2019 seeking damages. On December 30, 2019, Fujitsu filed its Defense and Counterclaim (the "Counterclaim") in response. In its Counterclaim, Fujitsu defends against our claim in full and argues that we are liable to Fujitsu for: (i) £306 million in damages based on our alleged fraudulent misrepresentations inducing Fujitsu to enter into the subcontract; or (ii) alternatively, £173.8 million in damages based on our alleged breaches of the subcontract. We filed our response to Fujitsu's Counterclaim on May 1, 2020, to which they have now responded. We believe that Fujitsu's claims are without merit and will vigorously defend against them, and we continue to believe that we have valid and equitable grounds for recovery of the disputed client receivables; however, there can be no assurances as to the outcome of the dispute. As previously disclosed, we recorded a pre-tax charge of $45 million in the fourth quarter of 2018 to provide an allowance against the disputed client receivables reflecting the uncertainty in collection of such receivables and related litigation risk resulting from the conclusion of the non-binding alternative dispute resolution procedures, which occurred before we filed our request for arbitration. We have not concluded that a loss related to the new claims raised by Fujitsu in the Counterclaim is probable, nor have we accrued a liability related to these claims beyond the previously reported pre-tax charge recorded in the fourth quarter of 2018. Although we believe a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Counterclaim given that the dispute is in the early stages of the arbitration process. Arbitration is currently scheduled to occur in April 2022.

~~(9)~~

Table of Contents

Cerner Health Services, Inc. ("Cerner HS"), a wholly owned subsidiary of Cerner Corporation, filed a lawsuit in the Chester County, Pennsylvania, Court of Common Pleas against NextGen Healthcare Information Systems, LLC ("NextGen") relating to a dispute arising out of a supplier relationship initially established between Siemens Health Services, Inc. ("Health Services") and NextGen prior to the acquisition of the assets of Health Services by Cerner HS in 2015. In September 2017, the court issued a preliminary injunction to prevent NextGen from refusing to honor certain contractual obligations to support Cerner HS's clients who use NextGen ambulatory EHR solutions. In September 2018, NextGen filed a counterclaim alleging breach of contract and tortious interference but did not specify its damages. In August 2019, NextGen provided an expert report alleging profit disgorgement damages of $135 million or, alternatively, $30.5 million in lost profit damages, but the report did not discuss how our actions allegedly caused NextGen's damages. In December 2019, we deposed NextGen's expert, gaining additional clarity on categories of alleged damages but not on the alleged theories of liability. A jury trial is set to begin on January 25, 2021. We believe NextGen's claims are without merit and will vigorously defend against them; however, there can be no assurances as to the outcome of the dispute. We have not concluded that a loss related to the claims raised by NextGen in its counterclaim is probable, nor have we accrued a liability related to these claims. Although a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss in light of the inherent difficulty of predicting the outcome of litigation generally, the wide range of damages presented by NextGen's expert, and the continued lack of clarity on the causal connection between Cerner Corporation's and Cerner HS's actions and any alleged damages.

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

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

(12) Segment Reporting

We have two operating segments, Domestic and ~~Global.~~International. Revenues are derived primarily from the sale of clinical, financial and administrative information ~~systems~~solutions and ~~solutions.~~services. The cost of revenues includes the cost of ~~third party~~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, ~~acquisition costs~~certain organizational restructuring and ~~related adjustments,~~other expense, share-based compensation expense, and certain amortization and depreciation. "Other" also includes gains or losses recognized on the divestiture of businesses. Performance of the segments is assessed at the operating earnings level by our chief operating decision maker, who is our ~~Interim~~ 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.

Table of Contents

The following table presents a summary of our operating segments and other expense for the three and nine months endedSeptember 30, ~~2017~~2020 and ~~October 1, 2016:~~September 28, 2019:


(In thousands)	Domestic		International		Other		Total

Three Months Ended 2020
Revenues	$	1,230,769	$	137,904	$	—	$	1,368,673

Costs of revenue	219,938		11,951		—		231,889
Operating expenses	566,777		58,626		316,430		941,833
Total costs and expenses	786,715		70,577		316,430		1,173,722

Gain on sale of businesses	0		0		216,869		216,869

Operating earnings (loss)	$	444,054	$	67,327	$	(99,561)	$	411,820


(In thousands)	Domestic		International		Other		Total

Three Months Ended 2019
Revenues	$	1,265,263	$	164,165	$	—	$	1,429,428

Costs of revenue	246,634		25,144		—		271,778
Operating expenses	639,590		68,153		361,130		1,068,873
Total costs and expenses	886,224		93,297		361,130		1,340,651

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


(In thousands)	Domestic		International		Other		Total

Nine Months Ended 2020
Revenues	$	3,645,397	$	465,366	$	—	$	4,110,763

Costs of revenue	638,284		59,984		—		698,268
Operating expenses	1,724,545		182,594		985,131		2,892,270
Total costs and expenses	2,362,829		242,578		985,131		3,590,538

Gain on sale of businesses	0		0		216,869		216,869

Operating earnings (loss)	$	1,282,568	$	222,788	$	(768,262)	$	737,094


(In thousands)	Domestic		International		Other		Total

Nine Months Ended 2019
Revenues	$	3,762,205	$	488,161	$	—	$	4,250,366

Costs of revenue	719,119		74,536		—		793,655
Operating expenses	1,817,244		209,580		1,012,049		3,038,873
Total costs and expenses	2,536,363		284,116		1,012,049		3,832,528

Operating earnings (loss)	$	1,225,842	$	204,045	$	(1,012,049)	$	417,838

(In thousands) Domestic Global Other Total

Three Months Ended 2017
Revenues $ 1,133,971
$ 142,036
$ —
$ 1,276,007

Cost of revenues 176,198
26,706
—
202,904
Operating expenses 502,256
68,229
254,712
825,197
Total costs and expenses 678,454
94,935

254,712
1,028,101

Operating earnings (loss) $ 455,517
$ 47,101
$ (254,712 ) $ 247,906

Table of Contents

(In thousands) Domestic Global Other Total

Three Months Ended 2016
Revenues $ 1,055,037
$ 129,520
$ —
$ 1,184,557

Cost of revenues 161,625
21,345
—
182,970
Operating expenses 446,704
60,430
252,228
759,362
Total costs and expenses 608,329
81,775
252,228
942,332

Operating earnings (loss) $ 446,708
$ 47,745
$ (252,228 ) $ 242,225

(In thousands) Domestic Global Other Total

Nine Months Ended 2017
Revenues $ 3,421,429
$ 407,058
$ —
$ 3,828,487

Cost of revenues 549,895
75,065
—
624,960
Operating expenses 1,474,591
197,333
790,183
2,462,107
Total costs and expenses 2,024,486
272,398
790,183
3,087,067

Operating earnings (loss) $ 1,396,943
$ 134,660
$ (790,183 ) $ 741,420

(In thousands) Domestic Global Other Total

Nine Months Ended 2016
Revenues $ 3,132,566
$ 406,088
$ —
$ 3,538,654

Cost of revenues 488,404
75,715
—
564,119
Operating expenses 1,304,731
183,824
786,995
2,275,550
Total costs and expenses 1,793,135
259,539
786,995
2,839,669

Operating earnings (loss) $ 1,339,431
$ 146,549
$ (786,995 ) $ 698,985

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, and the information in Part II, "Item 1A. Risk Factors" below.

~~Our~~ ~~third~~ ~~fiscal quarter ends on the Saturday closest to September 30. The~~ ~~2017~~ ~~and~~ ~~2016third~~ ~~quarters ended on~~ ~~September 30, 2017~~ ~~and~~ ~~October 1, 2016, respectively.~~ All references to ~~years~~periods in this MD&A represent the respective three or nine months ended on such dates, unless otherwise noted.

Except for the historical information and discussions contained herein, statements contained in this quarterly report on Form 10-Q may constitute "forward-looking statements" within the meaning of Section 27A Refer to Note (1) of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner's management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. These statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance," "opportunity," "prospects" or "estimate" or the negative of these words, variations thereof or similar expressions. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including without limitation: the possibility of significant costs and reputational harm related to product-related liabilities; potential claimsNotes for ~~system errors and warranties; the possibility of interruption at~~information regarding our data centers or client support facilities; 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; 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; potential claims or other risks associated with relying on open source software in our proprietary software, solutions or services; material adverse resolution of legal proceedings; risks associated with our global operations; risks associated with fluctuations in foreign currency exchange rates; the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; the uncertainty surrounding the impact of the United Kingdom’s vote to leave the European Union (commonly referred to as Brexit) on our global business; risks associated with the unexpected loss or recruitment and retention of key personnel, 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; risks related to our dependence on strategic partners and third party suppliers; difficulties and operational and financial risks associated with successfully completing the integration of the Cerner Health Services (formerly Siemens Health Services) business into our business or the failure to realize the synergies and other benefits expected from the acquisition; risks inherent with business acquisitions and combinations and the integration thereof; the potential for losses resulting from asset impairment charges; risks associated with volatility and disruption resulting from global economic or market conditions; managing growth in the new markets in which we offer solutions, health care devices or services; risks inherent in contracting with government clients; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; changing political, economic, regulatory and judicial influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; government regulation; significant competition and our ability to quickly respond to market changes and changing technologies and to bring competitive new solutions, devices, features and services to market in a timely fashion; long sales cycles for our solutions and services; variations in our quarterly operating results; potential variations in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity; our directors' authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents; changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements; and, other risks, uncertainties and factors discussed elsewhere in this Form 10-Q, in our other 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 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 results of operations, financial condition or business over time.fiscal period ends.

Management Overview

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

Our ~~fundamental strategic focus~~core strategy is ~~the creation of~~to create organic growth by investing in research and development ("R&D") to create solutions and tech-enabled services for the health care industry. This strategy has driven strong growth over the long-term, as reflected in five- and ten-year compound annual revenue growth rates of 13% or more. This growth has also created an important strategic footprint in health care, with ~~Cerner~~^® solutions in more than 25,000 facilities worldwide, including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites. Selling additional solutions and services back into this client base is an important element of our future revenue growth. We are also focused on driving growth through market share expansion by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are looking to replace their current supplier. We may also supplement organic growth with acquisitions or strategic ~~investments.~~investments and collaborations.

~~We expect~~Cerner's long history of growth has created an important strategic footprint in health care, with Cerner holding more than 25 percent market share in the U.S. acute care electronic health record ("EHR") market and a leading market share in several non-U.S. regions. Foundational to ~~drive~~our growth ~~through~~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 ~~reflect~~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 ~~ongoing ability~~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 ~~innovate and expand our reach into health care. Examples of these include our~~ ~~CareAware~~^®become a strategic partner with health care ~~device architecture~~stakeholders and ~~devices,~~ ~~Cerner ITWorks~~^SM ~~services, revenue cycle solutions~~help them improve performance under value-based contracting. The platform, along with our CareAware® platform, also supports offerings in areas such as long-term care, home care and ~~services,~~hospice, rehabilitation, behavioral health, community care, care team communications, health systems operations, consumer and ~~HealtheIntent~~^SM ~~population health solutions~~employer, and services. Finally, we believe there is significant opportunity for growth outside of the United States, with many non-U.S. markets focused on health care information technology as part of their strategy to improve the quality and lower the cost of health care.data-as-a-service.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. ~~Similar~~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. We have made good progress since we kicked off our transformation in 2019 and expect this progress to be reflected in improved profitability in 2020 and beyond. We are focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our history of growing revenue, our net earnings have increased at compound annual rates of 15% or more over the most recent five- and ten-year periods. We expect to drive continued earnings growth through ongoing revenue growth coupled with margin expansion, which we expect to achieve through efficiencies in our implementation and operational processes and by leveraging R&D investments and controlling general and administrative expenses.clients.

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

Table of Contents

COVID-19

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

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

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

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

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

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

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

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

Table of Contents

Operational Improvement Initiatives

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

In the near term, we expect to continue incurring expenses in connection with these efforts. Such expenses may include, but are not limited to, consultant and other professional services fees, employee separation costs, contract termination costs, and other such related expenses. Expenses recognized in the first nine months of 2020 are primarily related to professional services fees and employee separation costs, 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

~~The Company delivered lower than expected bookings and good levels of revenues, earnings, and operating cash flow in the third quarter of 2017.~~

Bookings, which ~~reflects~~reflect the value of executed contracts for software, hardware, professional services and managed services, was ~~$1.11~~$1.47 billion in the third quarter of ~~2017,~~2020, which is a decrease of ~~23%~~11% compared to $1.65 billion in the third quarter of 2019.

Revenues for the third quarter of 2020 decreased 4% to $1.37 billion, compared to $1.43 billion in the third quarter of ~~2016. The decline in bookings was primarily attributable to several large contracts not signing during the quarter as previously expected. These contracts were primarily related to our~~ ~~ITWorks~~ business, which includes large long-term services contracts that have a significant impact on bookings, but do not have a material impact on current period revenue or earnings. The Company still expects to sign these contracts in future periods.2019.

Revenues for the third quarter of 2017 increased 8% to $1.3 billion, compared to $1.2 billion in the third quarter of 2016. The year-over-year increase in revenue reflects ongoing demand from new and existing clients for Cerner's solutions and services driven by their needs to keep up with regulatory requirements, adapt to changing reimbursement models, and deliver safer and more efficient care.

Net earnings for the third quarter of ~~2017~~2020 increased 4%335% to ~~$177~~$357 million, compared to ~~$170~~$82 million in the third quarter of ~~2016.~~2019. Diluted earnings per share increased 6%346% to ~~$0.52,~~$1.16, compared to ~~$0.49~~$0.26 in the third quarter of ~~2016. The overall increase in net earnings and diluted earnings per share was primarily a result of increased revenues.~~2019.

We had cash collections of receivables of ~~$1.4~~$1.43 billion in the third quarter of ~~2017,~~2020, compared to ~~$1.3~~$1.50 billion in the third quarter of ~~2016.~~2019. Days sales outstanding was 7381 days in the third quarter of 2020 and the second quarter of 2020, compared to 74 days for the third quarter of ~~2017 compared to 73 days for the second quarter of 2017 and 76 days for the third quarter of 2016.~~2019. Operating cash flows for the third quarter of ~~2017~~2020 were ~~$363~~$382 million, compared to ~~$311~~$351 million in the third quarter of ~~2016.~~2019.

Table of Contents

Results of Operations

Three Months EndedSeptember 30, ~~2017~~2020 Compared to Three Months Ended~~October 1, 2016~~September 28, 2019

The following table presents a summary of ~~the~~our operating information for the third quarters of ~~2017~~2020 and ~~2016~~:2019:


(In thousands)	2017			% of Revenue		2016			% of Revenue		% Change		(In thousands)	2020		% of Revenue		2019		% of Revenue		% Change

Revenues													Revenues	$	1,368,673	100	%	$	1,429,428	100	%	(4)	%
System sales	$	324,021		25	%	$	301,252		25	%	8	%
Support and maintenance	263,361			21	%	253,425			21	%	4	%
Services	664,468			52	%	607,660			51	%	9	%
Reimbursed travel	24,157			2	%	22,220			2	%	9	%

Total revenues	1,276,007			100	%	1,184,557			100	%	8	%

Costs of revenue
Costs of revenue	202,904			16	%	182,970			15	%	11	%	Costs of revenue	231,889		17	%	271,778		19	%	(15)	%

Total margin	1,073,103			84	%	1,001,587			85	%	7	%
Margin													Margin	1,136,784		83	%	1,157,650		81	%	(2)	%

Operating expenses													Operating expenses
Sales and client service	564,621			44	%	512,671			43	%	10	%	Sales and client service	625,402		46	%	707,743		50	%	(12)	%
Software development	153,834			12	%	136,755			12	%	12	%	Software development	186,826		14	%	187,526		13	%	—	%
General and administrative	84,178			7	%	87,071			7	%	(3	)%	General and administrative	116,816		9	%	152,321		11	%	(23)	%
Amortization of acquisition-related intangibles	22,564			2	%	22,865			2	%	(1	)%	Amortization of acquisition-related intangibles	12,789		1	%	21,283		1	%	(40)	%

Total operating expenses	825,197			65	%	759,362			64	%	9	%	Total operating expenses	941,833		69	%	1,068,873		75	%	(12)	%

Total costs and expenses	1,028,101			81	%	942,332			80	%	9	%	Total costs and expenses	1,173,722		86	%	1,340,651		94	%	(12)	%

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

Operating earnings	247,906			19	%	242,225			20	%	2	%	Operating earnings	411,820		30	%	88,777		6	%	364	%

Other income (expense), net	2,509					(417		)
Other income, net													Other income, net	48,020				13,535
Income taxes	(72,991		)			(71,829		)					Income taxes	(103,164)				(20,377)

Net earnings	$	177,424				$	169,979				4	%	Net earnings	$	356,676			$	81,935			335	%

Revenues & Backlog

Revenues ~~increased 8%~~decreased 4% to ~~$1.3~~$1.37 billion in the third quarter of ~~2017~~,2020, as compared to ~~$1.2~~$1.43 billion in the same period of ~~2016~~.2019. The decline in revenues is primarily attributable to the following:

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

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

•The third quarter of 2020 includes a $22 million reduction in revenues due to the sale of ~~licensed software (including perpetual license sales~~certain of our business operations primarily conducted in Germany and ~~software~~Spain, as a service), technology resale (hardware, devices, and sublicensed software), deployment period licensed software upgrade rights, installation fees, transaction processing and subscriptions, increased 8%further discussed in Note (7) of the Notes. We expect the disposition of such operations to ~~$324~~reduce future International Segment revenues by approximately $83 million ~~in the~~ on an annualized basis.

•The third quarter of ~~2017, from $301~~2020 includes a $20 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations, as further discussed in Note (7) of the Notes. We expect the disposition of such operations to reduce future Domestic Segment revenues by approximately $77 million on an annualized basis.

These declines are partially offset by increased implementation activity within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. In the third quarter of 2020, 19% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to 12% in the same period of ~~2016. The increase in system sales was primarily driven~~2019. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by ~~increases in licensed software and subscriptions~~our business models.

Table of ~~$15 million and $12 million, respectively.~~


•	~~Support and maintenance revenues increased 4% to $263 million in the~~ ~~third~~ ~~quarter of 2017, from $253 million in the same period of 2016. This increase was primarily attributable to continued success selling~~ ~~Cerner Millennium~~^® ~~applications and implementing them at client sites.~~

~~Services revenue, which includes professional services (excluding installation) and managed services, increased 9% to $664 million in the~~ ~~third~~ quarter of 2017, from $608 million in the same period of 2016. This increase was driven by a $42 million increase in professional services due to growth in implementation and consulting activities and growth in managed services of $15 million as a result of continued demand for our hosting services.Contents

~~Revenue backlog,~~Backlog, which reflects contracted revenue that has not yet been recognized as revenue, ~~increased 7% to $16.5~~was $13.01 billion ~~in the third quarter of 2017~~at September 30, 2020, compared to ~~$15.5~~$13.71 billion at December 28, 2019. This decline in backlog is primarily attributable to the ~~same period~~divestiture transactions discussed above, along with the impact of ~~2016. This increase was driven by solid levels of new business~~the ongoing COVID-19 pandemic on our bookings during the ~~past four quarters, including strong levels~~first nine months of ~~managed services bookings~~2020, as further discussed above. We expect to recognize 30% of our backlog as revenue over the next 12 months.

We believe that ~~typically have longer~~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 ~~terms.~~consideration related to such cancellable periods has been excluded from our calculation of backlog. However, historically our experience has been that such cancellation provisions are rarely exercised. We expect to recognize approximately $1.16 billion of revenue over the next 12 months under currently executed contracts related to such cancellable periods, which is not included in our calculation of backlog.

Costs of Revenue

Costs of revenue as a percent of ~~total~~ revenues were ~~16%~~17% in the third quarter of ~~2017,~~2020, compared to ~~15%~~19% in the same period of ~~2016.~~2019. The ~~marginally higher~~lower costs of revenue as a percent of ~~total~~ revenues was primarily ~~due to~~driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party ~~costs~~resources associated with ~~technology resale.~~professional services revenue.

Costs of revenue include the cost of reimbursed travel expense, sales commissions, third party consulting services and subscription content and computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Such costs, as a percent of ~~total~~ revenues, typically have varied as the mix of revenue (software, hardware, devices, maintenance, support, ~~services~~ and ~~reimbursed travel)~~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 9%~~decreased 12% to ~~$825~~$942 million in the third quarter of ~~2017, as~~2020, compared to ~~$759 million~~$1.07 billion in the same period of ~~2016.~~2019.

•Sales and client service expenses as a percent of ~~total~~ revenues were ~~44%~~46% in the third quarter of ~~2017,~~2020, compared to ~~43%~~50% in the same period of ~~2016.~~2019. These expenses ~~increased 10%~~decreased 12% to ~~$565~~$625 million in the third quarter of ~~2017,~~2020, from ~~$513~~$708 million in the same period of ~~2016.~~2019. Sales and client service expenses include salaries and benefits of sales, marketing, support, and services personnel, depreciation and other expenses associated with our managed services business, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs. The ~~growth~~decrease in sales and client service expenses ~~reflects hiring~~was primarily driven by an $11 million reduction in associate travel costs, and the third quarter of ~~services personnel~~2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to ~~support~~ the ~~growth~~reduction in ~~services revenue.~~expenses.

Table of Contents

•Software development expenses as a percent of ~~total~~ revenues were ~~12%~~14% in the third quarter of ~~both 2017 and 2016.~~2020, compared to 13% in the same period of 2019. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium®and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle, ~~and~~ population health management, and health network solutions. In addition, the third quarter of 2020 includes costs incurred in connection with our efforts to modernize our platforms, with a focus on development of a software as a service platform. A summary of our total software development expense in the third quarters of ~~2017~~2020 and ~~2016~~2019 is as follows:


	Three Months Ended							Three Months Ended
(In thousands)	2017			2016			(In thousands)	2020		2019

Software development costs	$	176,543		$	174,831		Software development costs	$	198,565	$	197,122
Capitalized software costs	(66,404		)	(72,943		)	Capitalized software costs	(71,525)		(65,684)
Capitalized costs related to share-based payments	(663		)	(685		)	Capitalized costs related to share-based payments	(1,792)		(698)
Amortization of capitalized software costs	44,358			35,552			Amortization of capitalized software costs	61,578		56,786

Total software development expense	$	153,834		$	136,755		Total software development expense	$	186,826	$	187,526

•General and administrative expenses as a percent of ~~total~~ revenues were 7%9% in the third quarter of ~~both 2017 and 2016.~~2020, compared to 11% in the same period of 2019. These expenses decreased 3%23% to ~~$84~~$117 million in the third quarter of ~~2017,~~2020, from ~~$87~~$152 million in the same period of ~~2016.~~2019. General and administrative expenses include salaries and benefits for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, depreciation and amortization, transaction gains or losses on foreign currency, expense for share-based payments, ~~acquisition costs~~certain organizational restructuring and ~~related adjustments.~~other expense. The decrease in general and administrative expenses is primarily due to ~~lower expense for share-based payments, driven by stock option awards forfeited by~~a reduction in expenses incurred in connection with our ~~former CEO upon his passing~~operational improvement initiatives, discussed above. We expect to incur additional expenses in ~~July 2017.~~

connection with these efforts in future periods, which may be material. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.

•Amortization of acquisition-related intangibles as a percent of ~~total~~ revenues ~~were 2%~~was 1% in the third quarter of both ~~2017~~2020 and ~~2016.~~2019. These expenses ~~remained flat at $23~~decreased 40% to $13 million in the third quarter of ~~both 2017 and 2016.~~2020, from $21 million in the same period in2019. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business acquisitions.

The decrease in amortization of acquisition-related intangibles is primarily due to the impact of certain intangible assets from the Health Services acquisition in February 2015 becoming fully amortized in the first quarter of 2020. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.

Gain on Sale of Businesses

The third quarter of 2020 includes a $217 million gain on sale of businesses. Refer to Note (7) of the Notes for further information regarding divestiture transactions that closed during the third quarter of 2020.

Non-Operating Items

•Other income, ~~(expense),~~ net was $3$48 million in ~~income in~~ the third quarter of ~~2017, and less than $1~~2020, compared to $14 million ~~in expense~~ in the same period of ~~2016.~~2019. The ~~increase~~third quarter of 2020 includes a $49 million gain recognized on the disposition of one of our equity investments. The third quarter of 2019 includes a $9 million unrealized gain recognized on that same equity investment. The remaining difference is primarily attributable to ~~an impairment loss recognized on one of our investments accounted for under the cost method~~increased interest expense in the third quarter of ~~2016.~~

2020, from the $600 million of revolving credit loans we borrowed under our Credit Agreement in May 2019, and the $300 million of Series 2020-A Notes we issued in March 2020.

•Our effective tax rate was ~~29.1%~~22.4% for the third quarter of ~~2017 and 29.7% in~~2020, compared to 19.9% for the same period of ~~2016.~~2019. The ~~decrease~~increase in the effective tax rate in ~~2017~~the third quarter of 2020 is primarily ~~a result~~due to taxes associated with the divestiture transactions that closed in the third quarter of 2020, as further discussed in Note (7) of the ~~inclusion of net excess tax benefits as discrete items within the tax provision, upon our adoption of ASU 2016-09 in the first quarter of 2017.~~Notes. Refer to Note ~~(1)~~(8) of the ~~notes to condensed consolidated financial statements~~Notes for further discussion regarding our ~~adoption~~effective tax rate.

Table of ~~ASU 2016-09 and its impact on our condensed consolidated financial statements.~~Contents

Operations by Segment

We have two operating segments: Domestic and ~~Global.~~International. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The ~~Global~~International segment includes revenue contributions and expenditures linked to business activity ~~in Aruba,~~outside the United States, primarily from Australia, ~~Austria, the Bahamas, Belgium, Bermuda, Brazil,~~ Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, SwitzerlandEurope, and the ~~United Arab Emirates.~~Middle East. Refer to Note ~~(9)~~(12) of the ~~notes to condensed consolidated financial statements~~Notes for further information regarding our reportable segments.

The following table presents a summary of our operating segment information for the third quarters of ~~2017~~2020 and ~~2016~~:

2019:

(In thousands) 2017 % of Revenue 2016 % of Revenue % Change

Domestic Segment
Revenues $ 1,133,971
100% $ 1,055,037
100% 7%

Costs of revenue 176,198
16% 161,625
15% 9%
Operating expenses 502,256
44% 446,704
42% 12%
Total costs and expenses 678,454
60% 608,329
58% 12%

Domestic operating earnings 455,517
40%
446,708
42% 2%

Global Segment
Revenues 142,036
100% 129,520
100% 10%

Costs of revenue 26,706
19% 21,345
16% 25%
Operating expenses 68,229
48% 60,430
47% 13%
Total costs and expenses 94,935
67% 81,775
63% 16%

Global operating earnings 47,101
33% 47,745
37% (1)%

Other, net (254,712 ) (252,228 ) 1%

Consolidated operating earnings $ 247,906
$ 242,225
2%


(In thousands)	2020		% of Revenue	2019		% of Revenue	% Change

Domestic Segment
Revenues	$	1,230,769	100%	$	1,265,263	100%	(3)%

Costs of revenue	219,938		18%	246,634		19%	(11)%
Operating expenses	566,777		46%	639,590		51%	(11)%
Total costs and expenses	786,715		64%	886,224		70%	(11)%

Domestic operating earnings	444,054		36%	379,039		30%	17%

International Segment
Revenues	137,904		100%	164,165		100%	(16)%

Costs of revenue	11,951		9%	25,144		15%	(52)%
Operating expenses	58,626		43%	68,153		42%	(14)%
Total costs and expenses	70,577		51%	93,297		57%	(24)%

International operating earnings	67,327		49%	70,868		43%	(5)%

Other costs and expenses, net	(316,430)			(361,130)			(12)%

Gain on sale of businesses	216,869			—

Consolidated operating earnings	$	411,820		$	88,777		364%

Domestic Segment

•Revenues ~~increased 7%~~decreased 3% to ~~$1.13~~$1.23 billion in the third quarter of ~~2017,~~2020, from ~~$1.06~~$1.27 billion in the same period of ~~2016. This increase was~~2019. The decline in revenues is primarily ~~driven~~attributable to the following:

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

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

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

These declines are partially offset by ~~growth in services revenue.~~

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

•Costs of revenue as a percent of revenues ~~was 16%~~were 18% in the third quarter of ~~2017~~2020, compared to ~~15%~~19% in the same period of ~~2016.~~2019. The ~~marginally higher~~lower costs of revenue as a percent of revenues was primarily ~~due to~~driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party ~~costs~~resources associated with ~~technology resale.~~professional services revenue.

Table of Contents

•Operating expenses as a percent of revenues were ~~44%~~46% in the third quarter of ~~2017,~~2020, compared to ~~42%~~51% in the same period of ~~2016. The increase as a percent of revenues reflects a higher mix of services during~~2019. These expenses decreased 11% to $567 million in the third quarter of ~~2017 that was driven by services revenue growth.~~

~~Global Segment~~

~~Revenues increased 10% to $142 million in the~~ ~~third~~ ~~quarter of 2017,~~2020, from ~~$130~~$640 million in the same period of ~~2016. This increase~~2019. The decrease in operating expenses was primarily driven by ~~growth~~a $9 million reduction in ~~services revenue.~~

associate travel costs, and the third quarter of 2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above.

International Segment

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

•Costs of revenue as a percent of revenues were ~~19%~~9% in the third quarter of ~~2017,~~2020, compared to ~~16%~~15% in the same period of ~~2016.~~2019. The ~~higher~~lower costs of revenue as a percent of revenues ~~were~~was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher ~~amount~~cost of ~~third party~~revenue; and reduced utilization of third-party resources ~~utilized for~~associated with professional services and support and ~~services.~~

maintenance revenue.

•Operating expenses as a percent of revenues were ~~48%~~43% in the third quarter of ~~2017,~~2020, compared to ~~47%~~42% in the same period of ~~2016.~~2019. These expenses decreased 14% to $59 million in the third quarter of 2020, from $68 million in the same period of 2019. The ~~increase as a percent of revenues was~~decrease in operating expenses is primarily due to ~~an increase~~the sale of certain of our business operations in ~~non-personnel expenses.~~

Germany and Spain, as further discussed in Note (7) of the Notes.

Other ~~net~~Costs and Expenses, Net

Operating ~~results~~costs and expenses not attributed to an operating segment include expenses such as software development, general and administrative expenses, ~~acquisition costs and related adjustments,~~ share-based compensation expense, ~~and~~ certain amortization and ~~depreciation.~~depreciation, certain organizational restructuring and other expense. These expenses ~~increased 1%~~decreased 12% to ~~$255~~$316 million in the third quarter of ~~2017,~~2020, from ~~$252~~$361 million in the same period of ~~2016.~~2019. The ~~increase was~~decrease is primarily due to ~~increased amortization~~a reduction in expenses incurred in connection with our operational improvement initiatives, discussed above.

Table of ~~capitalized software costs, resulting from releases of new and enhanced solutions over the last four quarters.~~Contents

Nine Months Ended September 30, ~~2017~~2020 Compared to Nine Months Ended~~October 1, 2016~~ September 28, 2019

The following table presents a summary of our operating information for the first nine months of ~~2017~~2020 and ~~2016:~~2019:


(In thousands)	2017			% of Revenue		2016			% of Revenue		% Change		(In thousands)	2020		% of Revenue		2019		% of Revenue		% Change

Revenues													Revenues	$	4,110,763	100	%	$	4,250,366	100	%	(3)	%
System sales	$	991,685		26	%	$	913,710		26	%	9	%
Support and maintenance	785,039			21	%	761,165			22	%	3	%
Services	1,978,444			52	%	1,800,309			51	%	10	%
Reimbursed travel	73,319			2	%	63,470			2	%	16	%

Total revenues	3,828,487			100	%	3,538,654			100	%	8	%

Costs of revenue
Costs of revenue	624,960			16	%	564,119			16	%	11	%	Costs of revenue	698,268		17	%	793,655		19	%	(12)	%

Total margin	3,203,527			84	%	2,974,535			84	%	8	%
Margin													Margin	3,412,495		83	%	3,456,711		81	%	(1)	%

Operating expenses													Operating expenses
Sales and client service	1,688,208			44	%	1,534,763			43	%	10	%	Sales and client service	1,907,138		46	%	2,026,825		48	%	(6)	%
Software development	442,570			12	%	405,451			11	%	9	%	Software development	551,101		13	%	548,934		13	%	—	%
General and administrative	263,203			7	%	267,232			8	%	(2	)%	General and administrative	391,000		10	%	398,305		9	%	(2)	%
Amortization of acquisition-related intangibles	68,126			2	%	68,104			2	%	—	%	Amortization of acquisition-related intangibles	43,031		1	%	64,809		2	%	(34)	%

Total operating expenses	2,462,107			64	%	2,275,550			64	%	8	%	Total operating expenses	2,892,270		70	%	3,038,873		71	%	(5)	%

Total costs and expenses	3,087,067			81	%	2,839,669			80	%	9	%	Total costs and expenses	3,590,538		87	%	3,832,528		90	%	(6)	%

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

Operating earnings	741,420			19	%	698,985			20	%	6	%	Operating earnings	737,094		18	%	417,838		10	%	76	%

Other income, net	4,054					3,734							Other income, net	78,247				44,973
Income taxes	(215,154		)			(215,926		)					Income taxes	(176,758)				(87,688)

Net earnings	$	530,320				$	486,793				9	%	Net earnings	$	638,583			$	375,123			70	%

Revenues

Revenues ~~increased 8%~~decreased 3% to ~~$3.8~~$4.11 billion in the first nine months of ~~2017,~~2020, as compared to ~~$3.5~~$4.25 billion in the same period of ~~2016.~~2019. The decline in revenues is primarily attributable to the following:

~~System sales increased 9% to $992 million~~•The impact of the ongoing COVID-19 pandemic on our operations during the first nine months of 2020, with the largest impact in the areas of licensed software, technology resale, professional services, and reimbursed travel revenues, as further discussed above.

•The first nine months of ~~2017, from $914~~2020 includes a $126 million reduction in revenues due to the termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019.

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

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

These declines are partially offset by increased implementation activity within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. In the first nine months of 2020, 17% of our total revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, compared to 11% in the same period of ~~2016. The increase in system sales was primarily driven~~2019. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by ~~increases in licensed software and subscriptions of $51 million and $28 million, respectively.~~

our business models.

~~Support and maintenance revenues increased 3% to $785 million in the first~~ ~~nine~~ ~~months of 2017, from $761 million in the same period of 2016. This increase was primarily attributable to continued success selling~~ ~~Cerner Millennium~~ ~~applications and implementing them at client sites.~~

~~Services revenue increased 10% to $2.0 billion in the first~~ ~~nine~~ months of 2017, from $1.8 billion in the same period of 2016. This increase was driven by a $124 million increase in professional services due to growth in implementation and consulting activities, and growth in managed services of $54 million as a result of continued demand for our hosting services.

Costs of Revenue

Costs of revenue as a percent of ~~total~~ revenues were ~~16%~~17% in the first nine months of ~~both 2017~~2020, compared to 19% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel

Table of Contents

revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and ~~2016.~~reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

Operating Expenses

Total operating expenses ~~increased 8%~~decreased 5% to ~~$2.5~~$2.89 billion in the first nine months of ~~2017, as~~2020, compared to ~~$2.3~~$3.04 billion in the same period of ~~2016.~~2019.

•Sales and client service expenses as a percent of ~~total~~ revenues were ~~44%~~46% in the first nine months of ~~2017,~~2020, compared to ~~43%~~48% in the same period of ~~2016.~~2019. These expenses ~~increased 10%~~decreased 6% to ~~$1.7~~$1.91 billion in the first nine months of ~~2017,~~2020, from ~~$1.5~~$2.03 billion in the same period of ~~2016.~~2019. The ~~growth~~decrease in sales and client service expenses ~~reflects hiring~~was primarily driven by a $35 million reduction in associate travel costs; the first nine months of ~~services personnel~~2019 included a $60 million charge in connection with the termination of certain revenue cycle outsourcing contracts, discussed above; and the first nine months of 2019 included a $20 million charge in connection with a client dispute. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to ~~support~~ the ~~strong growth~~reduction in ~~services revenue.~~

expenses.

•Software development expenses as a percent of ~~total~~ revenues were ~~12%~~13% in the first nine months of ~~2017, compared to 11% in the same period of 2016.~~both 2020 and 2019. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium®and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle, ~~and~~ population health management, and health network solutions. In addition, the first nine months of 2020 includes costs incurred in connection with our efforts to modernize our platforms, with a focus on development of a software as a service platform. A summary of our total software development expense in the first nine months of ~~2017~~2020 and ~~2016~~2019 is as follows:


	Nine Months Ended							Nine Months Ended
(In thousands)	2017			2016			(In thousands)	2020		2019

Software development costs	$	526,257		$	531,825		Software development costs	$	592,025	$	591,182
Capitalized software costs	(207,910		)	(226,640		)	Capitalized software costs	(219,879)		(209,458)
Capitalized costs related to share-based payments	(2,123		)	(2,163		)	Capitalized costs related to share-based payments	(4,831)		(1,826)
Amortization of capitalized software costs	126,346			102,429			Amortization of capitalized software costs	183,786		169,036

Total software development expense	$	442,570		$	405,451		Total software development expense	$	551,101	$	548,934

•General and administrative expenses as a percent of ~~total~~ revenues were 7%10% in the first nine months of ~~2017,~~2020, compared to 8%9% in the same period of ~~2016.~~2019. These expenses decreased 2% to ~~$263~~$391 million in the first nine months of ~~2017,~~2020, from ~~$267~~$398 million in the same period of ~~2016.~~2019. The decrease in general and administrative expenses includes ~~lower expense for share-based payments, driven by stock option awards forfeited by~~the impact of the first nine months of 2019 including a $7 million charge to settle disputes with a former vendor. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses. In the first nine months of 2020, general and administrative expenses include $118 million of expenses incurred in connection with our ~~former CEO upon his passing~~operational improvement initiatives, discussed above, compared to $115 million in ~~July 2017.~~

the same period of 2019. We expect to incur additional expenses in connection with these efforts in future periods, which may be material.

•Amortization of acquisition-related intangibles as a percent of ~~total~~ revenues ~~were~~was 1% in the first nine months of 2020, compared to 2% in the ~~first~~ ~~nine~~ ~~months~~same period of ~~both 2017 and 2016.~~2019. These expenses ~~remained flat at $68~~decreased 34% to $43 million in the first nine months of ~~both 2017 and 2016.~~2020, from $65 million in the same period in2019. The decrease in amortization of acquisition-related intangibles is primarily due to the impact of certain intangible assets from the Health Services acquisition in February 2015 becoming fully amortized in the first quarter of 2020. The divestiture transactions, as further discussed in Note (7) of the Notes, also contributed to the reduction in expenses.

Gain on Sale of Businesses

The first nine months of 2020 includes a $217 million gain on sale of businesses. Refer to Note (7) of the Notes for further information regarding divestiture transactions that closed during the first nine months of 2020.

Table of Contents

Non-Operating Items

•Other income, net was $4$78 million in the first nine months of ~~both 2017~~2020, compared to $45 million in the same period of 2019. The first nine months of 2020 includes a $76 million gain recognized on the disposition of one of our equity investments. The first nine months of 2019 includes a $9 million unrealized gain recognized on that same equity investment. The first nine months of 2019 also includes a $16 million gain recognized on the disposition of another one of our equity investments. The remaining difference is primarily attributable to increased interest expense in the first nine months of 2020, from the $600 million of revolving credit loans we borrowed under our Credit Agreement in May 2019, and ~~2016.~~

the $300 million of Series 2020-A Notes we issued in March 2020.

•Our effective tax rate was ~~28.9%~~21.7% for the first nine months of ~~2017 and 30.7% in~~2020, compared to 18.9% for the same period of ~~2016.~~2019. The ~~decrease~~increase in the effective tax rate in ~~2017~~the first nine months of 2020 is primarily due to a ~~result of the inclusion of~~decrease in net excess tax benefits recognized as ~~discrete items within~~a component of income tax expense in connection with the ~~tax provision, upon our adoption~~exercise of ~~ASU 2016-09~~stock options and the vesting of restricted share and share unit awards. Also contributing to the increase, are taxes associated with the divestiture transactions that closed in the ~~first~~third quarter of ~~2017.~~2020, as further discussed in Note (7) of the Notes. Refer to Note ~~(1)~~(8) of the ~~notes to condensed consolidated financial statements~~Notes for further discussion regarding our ~~adoption of ASU 2016-09 and its impact on our condensed consolidated financial statements.~~

effective tax rate.

Operations by Segment

The following table presents a summary of our operating segment information for the first nine months of ~~2017~~2020 and ~~2016:~~2019:


(In thousands)	2017			% of Revenue	2016			% of Revenue	% Change	(In thousands)	2020		% of Revenue	2019		% of Revenue	% Change

Domestic Segment										Domestic Segment
Revenues	$	3,421,429		100%	$	3,132,566		100%	9%	Revenues	$	3,645,397	100%	$	3,762,205	100%	(3)%

Costs of revenue	549,895			16%	488,404			16%	13%	Costs of revenue	638,284		18%	719,119		19%	(11)%
Operating expenses	1,474,591			43%	1,304,731			42%	13%	Operating expenses	1,724,545		47%	1,817,244		48%	(5)%
Total costs and expenses	2,024,486			59%	1,793,135			57%	13%	Total costs and expenses	2,362,829		65%	2,536,363		67%	(7)%

Domestic operating earnings	1,396,943			41%	1,339,431			43%	4%	Domestic operating earnings	1,282,568		35%	1,225,842		33%	5%

Global Segment
International Segment										International Segment
Revenues	407,058			100%	406,088			100%	—%	Revenues	465,366		100%	488,161		100%	(5)%

Costs of revenue	75,065			18%	75,715			19%	(1)%	Costs of revenue	59,984		13%	74,536		15%	(20)%
Operating expenses	197,333			48%	183,824			45%	7%	Operating expenses	182,594		39%	209,580		43%	(13)%
Total costs and expenses	272,398			67%	259,539			64%	5%	Total costs and expenses	242,578		52%	284,116		58%	(15)%

Global operating earnings	134,660			33%	146,549			36%	(8)%
International operating earnings										International operating earnings	222,788		48%	204,045		42%	9%

Other, net	(790,183		)		(786,995		)		—%
Other costs and expenses, net										Other costs and expenses, net	(985,131)			(1,012,049)			(3)%

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

Consolidated operating earnings	$	741,420			$	698,985			6%	Consolidated operating earnings	$	737,094		$	417,838		76%

Domestic Segment

•Revenues ~~increased 9%~~decreased 3% to ~~$3.4~~$3.65 billion in the first nine months of ~~2017,~~2020, from ~~$3.1~~$3.76 billion in the same period of ~~2016. This increase was~~2019. The decline in revenues is primarily ~~driven~~attributable to the following:

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

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

Table of Contents

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

These declines are partially offset by ~~growth in services revenue.~~

•Costs of revenue as a percent of revenues were ~~16%~~18% in the first nine months of ~~both 2017~~2020, compared to 19% in the same period of 2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and ~~2016.~~

reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

•Operating expenses as a percent of revenues were ~~43%~~47% in the first nine months of ~~2017,~~2020, compared to ~~42%~~48% in the same period of ~~2016.~~2019. These expenses decreased 5% to $1.72 billion in the first nine months of 2020, from $1.82 billion in the same period of 2019. The ~~increase as a percent of revenues reflects a higher mix of services~~decrease in ~~2017 that~~operating expenses was primarily driven by ~~services~~a $27 million reduction in associate travel costs; the first nine months of 2019 included a $60 million charge in connection with the termination of certain revenue ~~growth.~~

cycle outsourcing contracts, discussed above; and the first nine months of 2019 included a $20 million charge in connection with a client dispute.

~~Global~~International Segment

•Revenues ~~were flat at $407~~decreased 5% to $465 million in the first nine months of ~~2017, and $406~~2020, from $488 million in the same period of ~~2016.~~

2019. The decline in revenues is primarily due to a $22 million reduction from the sale of certain of our business operations primarily conducted in Germany and Spain, as further discussed in Note (7) of the Notes. Additionally, we believe the ongoing COVID-19 pandemic has negatively impacted our operations for the first nine months of 2020, as further discussed above. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.

•Costs of revenue as a percent of revenues were ~~flat at $75 million~~13% in the first nine months of ~~2017, and $76 million~~2020, compared to 15% in the same period of ~~2016.~~

2019. The lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue, which carries a 100% cost of revenue; a lower mix of technology resale revenue, which carries a higher cost of revenue; and reduced utilization of third-party resources associated with professional services and support and maintenance revenue.

•Operating expenses as a percent of revenues were ~~48%~~39% in the first nine months of ~~2017,~~2020, compared to ~~45%~~43% in the same period ~~in 2016. The increase as a percent~~ of ~~revenues is primarily due to an increase in non-personnel expenses.~~

~~Other, net~~

2019. These expenses ~~remained relatively flat at $790~~decreased 13% to $183 million in the first nine months of ~~2017 and $787~~2020, from $210 millionin the same period of~~2016.~~ 2019. The decrease in operating expenses is primarily due to the sale of certain of our business operations in Germany and Spain, as further discussed in Note (7) of the Notes.

Other Costs and Expenses, net

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

Liquidity and Capital Resources

Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients and the amount we invest in software development, acquisitions, capital expenditures, and ~~in recent years,~~ our share repurchase and dividend programs.

Our principal sources of liquidity are our cash, cash equivalents, which primarily consist of money market funds ~~commercial paper~~ and time deposits with original maturities of less than 90 days, short-term investments, and ~~short-term investments.~~borrowings under our Credit Agreement and other sources of debt financing. At September 30, ~~2017,~~2020, we had cash and cash equivalents of ~~$573~~$419 million and short-term investments of ~~$279~~$473 million, as compared to cash and cash equivalents of ~~$171~~$442 million and short-term investments of ~~$186~~$100 million at December ~~31, 2016~~.28, 2019.

~~The non-U.S. subsidiaries~~

Table of Contents

We have entered into a Credit Agreement with a syndicate of lenders that provides for which we have elected to indefinitely reinvest earnings outside of the U.S. held approximately 24% of our aggregate cash, cash equivalents, and short-term investments at September 30, 2017. As part of our current business strategy, we plan to indefinitely reinvest the earnings of these foreign operations; however, should the earnings of these foreign operations be repatriated, we would accrue and pay tax on such earnings, which may be material.

~~We maintain a~~ ~~$100 million~~ ~~multi-year~~an unsecured $1.00 billion revolving credit loan facility, ~~which expires in October 2020. The facility provides an unsecured revolving line of credit for working capital purposes,~~ along with a letter of credit ~~facility.~~facility up to $100 million (which is a sub-facility of the $1.00 billion revolving credit loan facility). We have the ability to increase the maximum capacity to ~~$200 million~~$1.20 billion at any time during the ~~facility's~~Credit Agreement's term, subject to lender ~~participation.~~participation and the satisfaction of specified conditions. The Credit Agreement expires in May 2024. As of September 30, ~~2017,~~2020, we had no outstanding ~~borrowings under this facility; however, we had $42 million of outstanding~~revolving credit loans and letters of credit of $600 million and $30 million, respectively; which reduced our available borrowing capacity to ~~$58 million.~~$370 million under the Credit Agreement.

We have also entered into note purchase agreements pursuant to which we may issue and sell unsecured senior promissory notes to those purchasers electing to purchase. See Note (5) of the Notes for further information.

We believe that our present cash position, together with cash generated from operations, short-term investments and, ~~if necessary,~~as appropriate, remaining availability under our ~~available line~~Credit Agreement and other sources of ~~credit,~~debt financing, will be sufficient to meet anticipated cash requirements for the next 12 months.

The following table summarizes our cash flows in the first ninemonths of ~~2017~~2020 and ~~2016~~:2019:


	Nine Months Ended
(In thousands)	2020		2019

Cash flows from operating activities	$	924,045	$	875,524
Cash flows from investing activities	(596,825)		(436,387)
Cash flows from financing activities	(345,527)		(312,805)
Effect of exchange rate changes on cash	(4,382)		(4,028)
Total change in cash and cash equivalents	(22,689)		122,304

Cash and cash equivalents at beginning of period	441,843		374,126

Cash and cash equivalents at end of period	$	419,154	$	496,430

Free cash flow (non-GAAP)	$	461,282	$	275,652

Nine Months Ended
(In thousands) 2017 2016

Cash flows from operating activities $ 958,765
$ 907,698
Cash flows from investing activities (593,689 ) (695,595 )
Cash flows from financing activities 27,639
(179,785 )
Effect of exchange rate changes on cash 9,478
(2,943 )
Total change in cash and cash equivalents 402,193
29,375

Cash and cash equivalents at beginning of period 170,861
402,122

Cash and cash equivalents at end of period $ 573,054
$ 431,497

Free cash flow (non-GAAP) $ 486,360
$ 351,034

Refer to Note (1) of the notes to condensed consolidated financial statements for discussion regarding our adoption of ASU 2016-09 in the first quarter of 2017, which impacted the classification of certain items within our condensed consolidated statements of cash flows.

Cash from Operating Activities


	Nine Months Ended
(In thousands)	2020		2019

Cash collections from clients	$	4,085,527	$	4,233,269
Cash paid to employees and suppliers and other	(3,051,302)		(3,271,818)
Cash paid for interest	(31,661)		(20,756)
Cash paid for taxes, net of refunds	(78,519)		(65,171)

Total cash from operations	$	924,045	$	875,524

Nine Months Ended
(In thousands) 2017 2016

Cash collections from clients $ 4,060,904
$ 3,796,652
Cash paid to employees and suppliers and other (2,917,105 ) (2,707,928 )
Cash paid for interest (17,175 ) (17,397 )
Cash paid for taxes, net of refunds (167,859 ) (163,629 )

Total cash from operations $ 958,765
$ 907,698

Cash ~~flow~~flows from operations increased ~~$51~~$49 million in the first ninemonths of ~~2017~~2020 when compared to the same period of ~~2016~~2019, due primarily to an increase in cash impacting ~~earnings, partially offset~~earnings. This increase also includes the impact of $56 million of certain federal payroll taxes related to pay cycles in the second and third quarters of 2020, for which we have deferred remittance to the taxing authority as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). We expect to continue to defer the remittance of such payroll taxes for the remainder of 2020, as permitted by ~~an increase~~the CARES Act, for which the remittances to the taxing authority are to be paid in ~~cash used to fund working capital~~

~~requirements. During~~equal amounts at the ~~first ninemonths~~end of ~~2017~~2021 and ~~2016, we received total client cash collections of $4.1 billion and $3.8 billion,~~2022, respectively. Days sales outstanding was 7381 days in the third quarter of ~~2017, compared to 73 days in~~2020 and the second quarter of ~~2017 and 76~~2020, compared to 74 days infor the third quarter of ~~2016. Revenues provided under support and maintenance agreements represent recurring cash flows. We expect these revenues to continue to grow as the base~~2019.

Table of ~~installed systems grows.~~Contents

Cash from Investing Activities


	Nine Months Ended
(In thousands)	2020		2019

Capital purchases	$	(238,053)	$	(388,588)
Capitalized software development costs	(224,710)		(211,284)
Purchases of investments, net of sales and maturities	(298,069)		189,279
Purchases of other intangibles	(29,698)		(25,794)
Sale of businesses	229,471		—
Acquisition of businesses, net of cash acquired	(35,766)		—

Total cash flows from investing activities	$	(596,825)	$	(436,387)

Nine Months Ended
(In thousands) 2017 2016

Capital purchases $ (262,372 ) $ (327,861 )
Capitalized software development costs (210,033 ) (228,803 )
Purchases of investments, net of sales and maturities (99,098 ) (125,709 )
Purchases of other intangibles (22,186 ) (13,222 )

Total cash flows from investing activities $ (593,689 ) $ (695,595 )

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

Our capital spending in the first ninemonths of ~~2017~~2020 was driven by capitalized equipment purchases primarily to support growth in our managed services business, investments in a cloud infrastructure to support cloud-based solutions, building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives. Capital purchases ~~in 2017~~for the remainder of 2020 are expected to ~~remain lower than 2016~~continue to be below 2019 levels, ~~as we completed~~primarily driven by reduced purchases to support our facilities requirements, reflective of the ~~first two phases~~completion of construction on the current phases of our Innovations Campus ~~(office space development located~~ in ~~Kansas City, Missouri) in January 2017.~~the third quarter of 2020.

Short-term investment activity historically consists of the investment of cash generated by our business in excess of what is necessary to fund operations. The 2020 activity includes the investment of proceeds from the sale of certain business operations in the third quarter of 2020, as discussed below. The 2019 activity was impacted by changes made to our investment mix, such that our excess funds were more heavily held in cash and cash equivalents versus short-term and long-term investments.

Investment activity also includes the sale of one of our equity investments in August 2020 for cash proceeds of $90 million. Refer to Note (4) of the Notes for further information regarding this investment.

In the second quarter of 2020, we paid $35 million of purchase price consideration in connection with our acquisition of a consulting company specializing in providing cybersecurity solutions to clients in the healthcare industry. In the first quarter of 2020, we paid $1 million of purchase price consideration in connection with our October 2019 acquisition of AbleVets, LLC, upon finalization of working capital adjustments. We expect to continue ~~short-term investment activity over~~seeking and completing strategic business acquisitions, investments, and relationships that are complementary to our business.

On July 1, 2020, we sold certain of our business operations, primarily conducted in Germany and Spain, for cash proceeds of $224 million. We also sold certain of our revenue cycle outsourcing business operations on August 3, 2020. Refer to Note (7) of the ~~remainder of 2017, as we~~Notes for further information regarding these sales. We expect ~~strong levels of cash flow.~~to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives discussed above.

Cash from Financing Activities


	Nine Months Ended
(In thousands)	2020		2019

Long-term debt issuance	$	300,000	$	600,000
Repayment of long-term debt	(2,500)		—
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)	180,057		173,480
Treasury stock purchases	(650,000)		(1,020,542)
Dividends paid	(166,277)		(57,293)
Other	(6,807)		(8,450)

Total cash flows from financing activities	$	(345,527)	$	(312,805)

Table of Contents

Nine Months Ended
(In thousands) 2017 2016

Cash from option exercises (net of taxes paid in connection with shares surrendered by associates) $ 53,699
$ 22,364
Treasury stock purchases (23,389 ) (200,075 )
Contingent consideration payments for acquisition of businesses (2,671 ) (2,074 )

Total cash flows from financing activities $ 27,639
$ (179,785 )
In March 2020, we issued $300 million aggregate principal amount of 2.50% senior unsecured Series 2020-A notes. In May 2019, we borrowed $600 million of revolving credit loans under our Credit Agreement. Refer to Note (5) of the Notes for further information regarding these obligations.

We may incur additional indebtedness in the next 12 months, which will primarily be dependent on cash flows from operations as well as the timing of business acquisition and capital allocation activity. The proceeds from such indebtedness would be deployed in accordance with our capital allocation strategy, which may include share repurchases and dividend payments (as discussed further below), as well as for general corporate purposes, including acquisitions and investments. The terms and availability of any such debt financing may be impacted by economic and financial market conditions, as well as our financial condition and results of operations at the time we seek such financing, and there can be no assurances that we would be able to obtain such financing on terms that will be acceptable or advantageous to us.

Cash inflows from stock option exercises are dependent on a number of factors, including the price of our common stock, grant activity under our stock option and equity plans, and overall market volatility. We expect net cash inflows from stock option exercises to continue throughout ~~2017~~2020 based on the number of exercisable options as of September 30, ~~2017~~2020 and our current stock price.

During the first nine months of ~~2017,~~2020 and 2019, we repurchased ~~0.4~~9.2 million shares of our common stock ~~under our share repurchase programs~~ for total consideration of ~~$23 million.~~$650 million and 14.4 million shares of our common stock for total consideration of $1.0 billion, respectively. As of September 30, ~~2017, $77 million~~2020, $1.03 billion remains available for repurchase under ~~the program authorized by~~ our ~~Board of Directors in November 2016, and an additional $500 million remains available for~~share repurchase ~~under the program authorized in May 2017.~~program. We may continue to repurchase shares under ~~these programs~~this program in ~~2017, which~~2020, but such repurchases will be dependent on a number of factors, including the price of our common ~~stock. Although we may continue to repurchase shares, there~~stock and other cash flow needs. There is no assurance that we will repurchase up to the full amount remaining under the ~~programs.~~program.

~~During the first nine months~~On December 12, 2019, our Board of ~~2016, we repurchased 3.7 million shares~~Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on January 9, 2020 to shareholders of record as of December 27, 2019. On March 19, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on April 17, 2020 to shareholders of record as of April 3, 2020. On May 21, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on July 17, 2020 to shareholders of record as of June 5, 2020. On September 10, 2020, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on October 13, 2020 to shareholders of record as of September 25, 2020. Subject to declaration by our Board of Directors, we expect to continue paying quarterly cash dividends as a part of our current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of our Board of Directors and compliance with covenants under our outstanding debt agreements.

The source of funds for such repurchases and dividends may include cash generated from operations, liquidation of investment holdings and other dispositions of assets, and the incurrence of indebtedness. Refer to Note (10) of the Notes for further information regarding our share repurchase ~~programs for total consideration of $200 million.~~and dividend programs.

Free Cash Flow (Non-GAAP)


	Three Months Ended				Nine Months Ended
(In thousands)	2020		2019		2020		2019

Cash flows from operating activities (GAAP)	$	381,949	$	351,448	$	924,045	$	875,524
Capital purchases	(71,757)		(110,714)		(238,053)		(388,588)
Capitalized software development costs	(73,317)		(66,382)		(224,710)		(211,284)

Free cash flow (non-GAAP)	$	236,875	$	174,352	$	461,282	$	275,652

Three Months Ended Nine Months Ended
(In thousands) 2017 2016 2017 2016

Cash flows from operating activities (GAAP) $ 362,937
$ 311,064
$ 958,765
$ 907,698
Capital purchases (73,000 ) (110,266 ) (262,372 ) (327,861 )
Capitalized software development costs (67,067 ) (73,628 ) (210,033 ) (228,803 )

Free cash flow (non-GAAP) $ 222,870
$ 127,170
$ 486,360
$ 351,034

Free cash flow increased ~~$135~~$186 million in the first ninemonths of ~~2017~~2020 compared to the same period in ~~2016. This increase is~~2019, primarily due to ~~increased operating cash flow, along with~~ reduced capital ~~purchases as discussed above.~~expenditures. Free cash flow is a non-GAAP financial measure used by management, along with GAAP results, to analyze our earnings quality and overall cash generation of the ~~business.~~business, and for management compensation purposes. We define free cash flow as cash flows from ~~operations~~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 ~~to be~~is the GAAP financial measure most directly comparable to free cash flow. The presentation of free cash flow is not meant to be considered in isolation, nor as a substitute for, or superior to, GAAP results, and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with

Table of Contents

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 Statements

All statements contained in this quarterly report on Form 10-Q that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner's management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words "will," "believe," "plans," "may," "expect," "expected," "anticipated," "mitigate," "strategy," "continue," "opportunities," "future," "estimate" or "predict" or the negative of these words, variations thereof or similar expressions are intended to identify such forward-looking statements. For example, our forward-looking statements include statements regarding our expectations, opportunities or plans for growth; our operational improvement initiatives and the results expected to be realized from those initiatives; our expectations with respect to realizing revenue from backlog; our anticipated expenses, cash requirements and sources of liquidity; the expected impact of the COVID-19 pandemic on our results of operations, financial condition, business and operations; and our capital allocation strategies and plans. These statements involve a number of risks, uncertainties and other factors that could cause or contribute to actual results differing materially, including without limitation: the possibility of significant costs and reputational harm related to product and services-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities, or those of third parties with whom we have contracted (such as public cloud providers), that could expose us to significant costs and reputational harm; the possibility of increased expenses, exposure to legal claims and regulatory actions and reputational harm associated with a cyberattack or other breach in our IT security or the IT security of third parties on which we rely; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others or subject to claims related to open source licenses; material adverse resolution of legal proceedings or other claims or reputational harm stemming from negative publicity related to such claims or legal proceedings; risks associated with our global operations, including without limitation, greater difficulty in collecting accounts receivable; risks associated with fluctuations in foreign currency exchange rates; changes in tax laws, regulations or guidance that could adversely affect our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; the uncertainty surrounding the impact of the departure of the United Kingdom from the European Union on our global business; risks associated with the unexpected loss or recruitment and retention of key personnel or the failure to successfully develop and execute succession planning to assure transitions of key associates and their knowledge, relationships and expertise; risks related to our dependence on strategic relationships and third party suppliers, including any impact to the business of such suppliers resulting from the COVID-19 pandemic; risks inherent with business acquisitions or strategic investments and the failure to achieve projected synergies; risks associated with volatility and disruption resulting from global economic or market conditions, including any impact thereon resulting from events such as the COVID-19 pandemic; 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; managing growth in the new markets in which we offer solutions, health care devices or services; long sales cycles for our solutions and services; risks inherent in contracting with government clients, including without limitation, complying with strict compliance and disclosure obligations, navigating complex procurement rules and processes and defending against bid protests; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; impact of the phase-out of the London Interbank Offered Rate (LIBOR) on the interest rates under our financing agreements and the related interest rate swap related to the outstanding indebtedness under our Credit Agreement; the potential for losses resulting from asset impairment charges; changing political, economic, regulatory and judicial influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; non-compliance with laws, government regulation or certain industry initiatives or failure to deliver solutions or services that enable our clients to comply with laws or regulations applicable to their businesses; variations in our quarterly operating results; potential variations in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity, including volatility resulting from the COVID-19 pandemic; inability to achieve expected operating efficiencies and sustain or improve operating expense reductions; risks that Cerner's revenue

Table of Contents

growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; risks that our capital allocation strategy will not be fully implemented or enhance long-term shareholder value; risks that Cerner's business may be negatively affected as a result of future proxy fights or the actions of activist shareholders; and the extent to which the COVID-19 pandemic and measures taken in response thereto could adversely affect our financial condition, future bookings and results of operations, including risks associated with the impact of the COVID-19 pandemic on collecting accounts receivable. Additional discussion of these and other risks, uncertainties and factors affecting Cerner's business is contained in our filings with the Securities and Exchange Commission, including those under the caption "Risk Factors" in our latest annual report on Form 10-K and in this quarterly report on Form 10-Q, or in materials incorporated herein or therein by reference. Forward-looking statements are not guarantees of future performance or results. The reader should not place undue reliance on forward-looking statements since the statements speak only as of the date that they are made. Except as required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in our business, results of operations or financial condition over time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

No material changes.

Item 4. Controls and Procedures


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

~~The Company's Interim~~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") ~~have evaluated~~, of the effectiveness of ~~the Company’s~~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"). ~~They~~Based upon that evaluation, our CEO and CFO have concluded that, as of the Evaluation Date, ~~these~~our disclosure controls and procedures were designed, and were effective, to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities and would be disclosed on a timely basis. The CEO and CFO have concluded that the Company’s disclosure controls and procedures are designed, and are effective, to giveprovide reasonable assurance that the information required to be disclosed by ~~the Company~~us in reports ~~that it files~~we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in ~~the~~SEC rules and forms ~~of the SEC. They have also concluded that the Company’s disclosure controls~~ and ~~procedures are effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act are~~is accumulated and communicated to ~~the Company’s~~our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.


b)	~~Changes in Internal Control over Financial Reporting.~~

~~During the fiscal quarter ended September 30, 2017, progress continued on a plan that calls for modifications and enhancements to the Company’s internal controls~~b)Changes in Internal Control over financial reporting in relation to our upcoming adoption of the new revenue recognition standard effective in the first quarter of 2018. Such plan resulted in changes to certain process and procedures during the quarter. Specifically, we implemented/modified internal controls to address:Financial Reporting.

•~~Monitoring of the adoption process~~

~~The gathering of information and evaluation of analysis used in the development of disclosures required prior to the new standard’s effective date~~

~~As we continue the implementation process, we expect that there will be additional changes in internal controls over financial reporting.~~

During the fiscal quarter ended September 30, 2017, we implemented a new human resources administration and payroll system. Certain internal controls were modified in connection with the implementation of this new system.

There were no ~~other~~ changes in ~~the Company’s~~our internal controls over financial reporting during the fiscal quarter ended September 30, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal controls over financial reporting.


c)	~~Limitations on Controls.~~

The Company’s management, including its CEO and CFO, has concluded that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at that reasonable assurance level. However, the Company’sc)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.

Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

For information regarding risk factors that could affect our business, results of operations, financial condition or future results, see Part I, "Item 1A. Risk Factors" of the Form 10-K. In addition to the risk factors disclosed therein, we are supplementing those identified in the Form 10-K with the following risk factor, as described below. For further information on our forward-looking statements see Part I, Item 2 of this quarterly report on Form 10-Q.

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

The magnitude and duration of the disruption and resulting decline in business activity is uncertain. In particular, we have experienced and may continue to experience a negative financial impact due to a number of factors, including without limitation:

•Cerner's efforts and investments in assisting its clients in their response to the pandemic, which includes redirecting development and consulting resources and priorities, and waiving, deferring or reducing fees for COVID-19-related emergency expansions;

•Near-term declines in new business bookings as our clients focus on helping their patients during the crisis, rather than making new or expanded purchasing decisions;

•Longer-term declines in bookings for new Solutions and Services to the extent that the pandemic results in a sustained global or U.S. economic downturn;

•Delays in implementing our Solutions and Services, including delays in the pace of completion of existing projects, such as the MHS Genesis project with the U.S. Department of Defense and the U.S. Department of Veterans Affairs’ Electronic Health Record Modernization project, while client resources are reallocated or dedicated to fighting the COVID-19 pandemic in the United States;

•Supply chain interruptions;

•Financial pressures being put on our clients, which may in turn result in a delay in collections or non-payment from our clients; and

•Financial pressures being put on our strategic investments for which we hold an equity interest increases the risk of asset impairment.

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

The extent to which the COVID-19 pandemic will impact our financial condition and results of operations will depend on future developments, which are highly uncertain and difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, its impact on our strategic

Table of Contents

investments, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts to our business as a result of the global or U.S. economic impact and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.

Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to impact our stock price. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described under "Risk Factors" in the Form 10-K, such as those described in our risk factors titled "We depend on strategic relationships and third party suppliers and our revenue and operating earnings could suffer if we fail to manage these relationships properly," "Volatility and disruption resulting from global economic or market conditions could negatively affect our business, results of operations and financial condition", "We operate in intensely competitive and dynamic industries, and our ability to successfully compete and continue to grow our business depends on our ability to anticipate or respond quickly to market changes, changing technologies and evolving pricing and deployment methods and to bring competitive new Solutions and Services and features to market in a timely fashion", "Our success depends upon the recruitment and retention of key personnel”, and those under the heading "Risks Related to our Common Stock."

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

The table below provides information with respect to Common Stock purchases by the Company during the third fiscal quarter of ~~2017~~.2020.

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
July 2, 2017 - July 29, 2017 —
$ —
—
$ 600,000,000
July 30, 2017 - August 26, 2017 285,726
64.25
285,726
581,642,586
August 27, 2017 - September 30, 2017 77,556
65.00
77,300
576,618,633

Total 363,282
$ 64.41
363,026

~~(a)~~

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)

Approximate Dollar Value of Shares That May Yet Be Purchased Under the 363,282 shares of common stock, par value $0.01 per share, presented in the table above, 256 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 the minimum tax obligations due upon the vesting of restricted stock. Pursuant to the Omnibus Plan, the 256 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.Plans or Programs (a)

Period
~~(b)~~July 1, 2020 - July 31, 2020	~~During the nine months ended~~	—	$	—	—	$	1,033,733,300
August 1, 2020 - August 31, 2020		—	—		—	1,033,733,300
September 1, 2020 - September 30, ~~2017, the Company repurchased 0.4 million shares of our common stock under our share repurchase programs for consideration of $23 million, excluding transaction costs, pursuant to Rule 10b5-1 plans.~~2020		—	—		—	1,033,733,300

Total		—	$	—	—

~~As announced on November 14, 2016,~~

(a) Under our current share repurchase program, which was initially approved by our Board of Directors on May 23, 2017 (and announced May 25, 2017) and most recently amended on December 12, 2019 (as announced on December 13, 2019), the Company is authorized ~~a share~~to repurchase ~~program for an aggregate purchase of~~ up to ~~$500 million~~$3.70 billion of shares of our common stock, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the nine months ended September 30, 2020, we repurchased 9.2 million shares for total consideration of $650 million under the program pursuant to Rule 10b5-1 plans. As of September 30, ~~2017, $77 million remained~~2020, $1.03 billion remains available for repurchase under ~~this plan. No time limit has been set~~the program. Refer to Note (10) of the Notes for ~~completion of this program.~~

~~As announced on May 25, 2017,~~further information regarding our ~~Board of Directors authorized a separate~~ share repurchase ~~program for an aggregate purchase~~program.

Table of up to $500 million of our common stock, excluding transaction costs. As of September 30, 2017, $500 million remained available for repurchase under this plan. No time limit has been set for completion of this program.Contents

Item 6. Exhibits


(a)		Exhibits

~~(a)~~10.1		~~Exhibits~~

~~10.1~~	~~Enhanced Severance Pay Plan (as amended~~First Amendment to Master Note Agreement dated October 8, 2020, between Cerner Corporation and ~~restated effective~~the Purchasers listed therein, incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed October ~~1, 2017)~~9, 2020

~~10.2~~10.2*		~~2011 Omnibus Equity Incentive Plan - Non-qualified Stock Option Grant Certificate~~

~~10.3~~	~~2011 Omnibus Equity Incentive Plan - Time Based Restricted Stock Agreement~~

~~10.4~~	Cerner Corporation 2011 Omnibus Equity Incentive Plan - Performance Based Restricted Stock Unit Agreement

~~10.5~~10.3*		Cerner Corporation 2011 Omnibus Equity Incentive Plan - Time Based Restricted Stock Unit Agreement

~~10.6~~31.1		~~2011 Omnibus Equity Incentive Plan - Performance Based Restricted Stock Unit Agreement~~

~~10.7~~	~~Amended Employment Agreement between Cerner Corporation and Zane M. Burke (incorporated by reference from Exhibit 10.1 to the current report on Form 8-K filed with the SEC on September 11, 2017)~~

~~10.8~~	~~Amended Employment Agreement between Cerner Corporation and Michael R. Nill (incorporated by reference from Exhibit 10.2 to the current report on Form 8-K filed with the SEC on September 11, 2017)~~

~~10.9~~	~~Amended Employment Agreement between Cerner Corporation and Jeffrey A. Townsend (incorporated by reference from Exhibit 10.3 to the current report on Form 8-K filed with the SEC on September 11, 2017)~~

~~10.10~~	~~Relocation Agreement between Cerner Corporation and Jeffrey A. Townsend~~

~~10.11~~	~~Amended Employment Agreement between Cerner Corporation and Marc G. Naughton (incorporated by reference from Exhibit 10.4 to the current report on Form 8-K filed with the SEC on September 11, 2017)~~

~~31.1~~	Certification of ~~Clifford W. Illig~~Brent Shafer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of Marc G. Naughton pursuant to Section 302 of Sarbanes-Oxley Act of 2002

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

32.2		Certification of Marc G. Naughton pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101.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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CERNER CORPORATION

~~CERNER CORPORATION~~Registrant

~~Registrant~~

Date: October ~~27, 2017~~29, 2020

By:

/s/ Marc G. Naughton

Marc G. Naughton

Executive Vice President and Chief

Financial Officer (duly authorized

officer and principal financial officer)



(In thousands)	September 30, 2017		December 31, 2016

Gross accounts receivable	$	1,065,903	$	958,843
Less: Allowance for doubtful accounts	59,673		43,028

Accounts receivable, net of allowance	1,006,230		915,815

Current portion of lease receivables	14,477		29,128

Total receivables, net	$	1,020,707	$	944,943



(In thousands, except per share data)	Number of Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Yrs)
Outstanding at beginning of year	23,601		$	40.33
Granted	4,194		63.25
Exercised	(2,685	)	25.03
Forfeited and expired	(850	)	57.35
Outstanding as of September 30, 2017	24,260		45.39		$	629,257	5.99

Exercisable as of September 30, 2017	12,802		$	32.88	$	492,125	3.82



Expected volatility (%)	26.7		%
Expected term (yrs)	7
Risk-free rate (%)	2.1		%
Fair value per option	$	20.47



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

Outstanding at beginning of year	354		$	61.12
Granted	586		66.86
Vested	(158	)	57.79
Forfeited	(10	)	57.02
			��
Outstanding as of September 30, 2017	772		$	66.21



(In thousands)	Domestic		Global		Other			Total

Three Months Ended 2017
Revenues	$	1,133,971	$	142,036	$	—		$	1,276,007

Cost of revenues	176,198		26,706		—			202,904
Operating expenses	502,256		68,229		254,712			825,197
Total costs and expenses	678,454		94,935		254,712			1,028,101

Operating earnings (loss)	$	455,517	$	47,101	$	(254,712	)	$	247,906



	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	Total Number of Shares Purchased (a)	Average Price Paid per Share
July 2, 2017 - July 29, 2017	—	$	—	—	$	600,000,000
July 30, 2017 - August 26, 2017	285,726	64.25		285,726	581,642,586
August 27, 2017 - September 30, 2017	77,556	65.00		77,300	576,618,633

Total	363,282	$	64.41	363,026