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: ~~June~~March 30, ~~2018~~2019

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-15386

CERNER CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		43-1196944
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2800 Rockcreek Parkway North Kansas City, MO		64117
(Address of principal executive offices)		(Zip Code)

(816) 221-1024

(Registrant's telephone number, including area code)

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 [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 [ ] Non-accelerated filer [ ] ~~(do not check if smaller reporting company)~~ Smaller reporting company [ ] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date.



Class		Outstanding at ~~July 25, 2018~~April 17, 2019
Common Stock, $0.01 par value per share		~~329,004,371~~325,420,595 shares

CERNER CORPORATION

TABLE OF CONTENTS



Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of ~~June~~March 30, ~~2018~~2019 (unaudited) and December ~~30, 2017~~29, 2018	1

	Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 30, 2019 and March 31, 2018 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	56

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1916

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3024

Item 4.	Controls and Procedures	3024

Part II.	Other Information:

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3126

Item 6.	Exhibits	3227

Signatures

Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of ~~June~~March 30, ~~2018~~2019 (unaudited) and December ~~30, 2017~~29, 2018


(In thousands, except share data)	2018			2017			2019			2018

Assets
Current assets:
Cash and cash equivalents	$	510,968		$	370,923		$	503,161		$	374,126
Short-term investments	374,596			434,844			400,509			401,285
Receivables, net	1,151,860			1,042,781			1,159,215			1,183,494
Inventory	15,345			15,749			24,104			25,029
Prepaid expenses and other	326,623			515,930			336,817			334,870
Total current assets	2,379,392			2,380,227			2,423,806			2,318,804

Property and equipment, net	1,666,309			1,603,319			1,790,116			1,743,575
Right-of-use assets							134,137			—
Software development costs, net	867,284			822,159			915,149			894,512
Goodwill	849,455			853,005			846,740			847,544
Intangible assets, net	439,999			479,753			385,128			405,305
Long-term investments	118,286			196,837			283,596			300,046
Other assets	208,274			134,011			219,840			198,850

Total assets	$	6,528,999		$	6,469,311		$	6,998,512		$	6,708,636

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	284,203		$	218,996		$	290,947		$	293,534
Current installments of long-term debt and capital lease obligations	2,155			11,585			—			4,914
Deferred revenue	278,668			311,337			337,811			399,189
Accrued payroll and tax withholdings	205,337			183,770			230,407			195,931
Other accrued expenses	65,324			63,907
Other current liabilities							81,459			69,122
Total current liabilities	835,687			789,595			940,624			962,690

Long-term debt and capital lease obligations	438,760			515,130			438,823			438,802
Deferred income taxes and other liabilities	371,381			365,674
Deferred revenue	4,317			13,564
Deferred income taxes							343,788			336,379
Other liabilities							146,128			42,376
Total liabilities	1,650,145			1,683,963			1,869,363			1,780,247

Shareholders' Equity:
Common stock, $.01 par value, 500,000,000 shares authorized, 360,501,265 shares issued at June 30, 2018 and 359,204,864 shares issued at December 30, 2017	3,605			3,592
Common stock, $.01 par value, 500,000,000 shares authorized, 362,919,192 shares issued at March 30, 2019 and 362,212,843 shares issued at December 29, 2018							3,629			3,622
Additional paid-in capital	1,443,803			1,380,371			1,591,138			1,559,562
Retained earnings	5,275,824			4,938,866			5,742,744			5,576,525
Treasury stock, 31,536,972 shares at June 30, 2018 and 26,743,517 shares at December 30, 2017	(1,751,723		)	(1,464,099		)
Treasury stock, 37,905,013 shares at March 30, 2019 and December 29, 2018							(2,107,768		)	(2,107,768		)
Accumulated other comprehensive loss, net	(92,655		)	(73,382		)	(100,594		)	(103,552		)
Total shareholders' equity	4,878,854			4,785,348			5,129,149			4,928,389

Total liabilities and shareholders' equity	$	6,528,999		$	6,469,311		$	6,998,512		$	6,708,636

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the ~~three and~~ ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018

(unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
(In thousands, except per share data)	2018			2017			2018			2017			2019			2018

Revenues	$	1,367,727		$	1,291,994		$	2,660,588		$	2,552,480		$	1,389,877		$	1,292,861
Costs and expenses:
Costs of revenue	238,783			223,063			470,061			422,056			253,204			231,278
Sales and client service	635,105			563,387			1,225,053			1,123,587			640,187			589,948
Software development (Includes amortization of $52,141 and $102,142 for the three and six months ended June 30, 2018, respectively; and $41,427 and $81,988 for the three and six months ended July 1, 2017, respectively)	168,278			142,835			329,895			288,736
Software development (Includes amortization of $56,245 and $50,001, respectively)													180,361			161,617
General and administrative	95,464			90,633			187,758			179,025			96,196			92,294
Amortization of acquisition-related intangibles	21,810			22,688			44,319			45,562			21,985			22,509

Total costs and expenses	1,159,440			1,042,606			2,257,086			2,058,966			1,191,933			1,097,646

Operating earnings	208,287			249,388			403,502			493,514			197,944			195,215

Other income, net	6,597			2,661			11,461			1,545			8,432			4,864

Earnings before income taxes	214,884			252,049			414,963			495,059			206,376			200,079
Income taxes	(45,527		)	(72,366		)	(85,605		)	(142,163		)	(40,157		)	(40,078		)

Net earnings	$	169,357		$	179,683		$	329,358		$	352,896		$	166,219		$	160,001

Basic earnings per share	$	0.51		$	0.54		$	0.99		$	1.07		$	0.51		$	0.48
Diluted earnings per share	$	0.51		$	0.53		$	0.98		$	1.05		$	0.51		$	0.48
Basic weighted average shares outstanding	330,206			331,056			331,479			330,607			324,573			332,395
Diluted weighted average shares outstanding	333,562			337,898			335,223			337,116			327,003			336,534

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the ~~three and~~ ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018

(unaudited)


	Three Months Ended						Six Months Ended					Three Months Ended
(In thousands)	2018			2017			2018			2017		2019		2018

Net earnings	$	169,357		$	179,683		$	329,358		$	352,896	$	166,219	$	160,001
Foreign currency translation adjustment and other (net of taxes (benefit) of $(335) and $585 for the three and six months ended June 30, 2018; and $904 and $1,091 for the three and six months ended July 1, 2017)	(21,811		)	16,158			(19,017		)	26,563
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $209 and $(84) for the three and six months ended June 30, 2018; and $(33) and $35 for the three and six months ended July 1, 2017)	642			(54		)	(256		)	57
Foreign currency translation adjustment and other (net of taxes (benefit) of $(183) and $920, respectively)												2,321		2,794
Unrealized holding gain (loss) on available-for-sale investments (net of taxes (benefit) of $210 and $(293), respectively)												637		(898		)

Comprehensive income	$	148,188		$	195,787		$	310,085		$	379,516	$	169,177	$	161,897

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018

(unaudited)


	Six Months Ended						Three Months Ended
(In thousands)	2018			2017			2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	329,358		$	352,896		$	166,219		$	160,001
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	312,645			278,889			166,671			152,592
Share-based compensation expense	49,139			39,359			19,860			24,935
Provision for deferred income taxes	1,736			25,849			3,998			(3,047		)
Changes in assets and liabilities:
Receivables, net	(186,039		)	(79,723		)	13,789			(70,608		)
Inventory	390			211			928			1,445
Prepaid expenses and other	181,035			106			(13,318		)	125,550
Accounts payable	43,364			33,647			(10,891		)	7,608
Accrued income taxes	7,919			(3,846		)	4,256			7,195
Deferred revenue	(40,132		)	12,336			(61,547		)	(7,205		)
Other accrued liabilities	9,251			(63,896		)	27,301			10,499

Net cash provided by operating activities	708,666			595,828			317,266			408,965

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases	(188,994		)	(189,372		)	(119,261		)	(79,711		)
Capitalized software development costs	(142,951		)	(142,966		)	(74,551		)	(73,602		)
Purchases of investments	(194,592		)	(182,484		)	(90,953		)	(151,387		)
Sales and maturities of investments	331,728			187,355			110,104			101,674
Purchase of other intangibles	(16,373		)	(14,036		)	(8,994		)	(8,472		)

Net cash used in investing activities	(211,182		)	(341,503		)	(183,655		)	(211,498		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt	(75,000		)	—			—			(75,000		)
Proceeds from exercise of stock options	21,343			38,293			15,281			10,036
Payments to taxing authorities in connection with shares directly withheld from associates	(7,308		)	(7,972		)	(1,730		)	(1,723		)
Treasury stock purchases	(287,624		)	—			(20,542		)	(87,624		)
Contingent consideration payments for acquisition of businesses	(1,691		)	(2,671		)

Net cash provided by (used in) financing activities	(350,280		)	27,650
Net cash used in financing activities							(6,991		)	(154,311		)

Effect of exchange rate changes on cash and cash equivalents	(7,159		)	7,594			2,415			(680		)

Net increase in cash and cash equivalents	140,045			289,569			129,035			42,476
Cash and cash equivalents at beginning of period	370,923			170,861			374,126			370,923

Cash and cash equivalents at end of period	$	510,968		$	460,430		$	503,161		$	413,399

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three months ended March 30, 2019 and March 31, 2018

(unaudited)



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

Balance at December 30, 2017	359,205	$	3,592	$	1,380,371	$	4,938,866	$	(1,464,099	)	$	(73,382	)

Exercise of stock options (including net-settled option exercises)	667	7		8,331		—		—			—

Employee share-based compensation expense	—	—		24,935		—		—			—

Cumulative effect of accounting change (ASU 2014-09)	—	—		—		7,600		—			—

Other comprehensive income (loss)	—	—		—		—		—			1,896

Treasury stock purchases	—	—		—		—		(87,624		)	—

Net earnings	—	—		—		160,001		—			—

Balance at March 31, 2018	359,872	$	3,599	$	1,413,637	$	5,106,467	$	(1,551,723	)	$	(71,486	)

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

Exercise of stock options (including net-settled option exercises)	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	)

CERNER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Statement Presentation

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Cerner Corporation ("Cerner," the "Company," "we," "us" or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K.

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

The condensed consolidated financial statements were prepared using GAAP. 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 ~~second~~first fiscal quarter ends on the Saturday closest to ~~June 30.~~March 31. The 2019 and 2018 ~~and 2017 second~~first quarters ended on ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively. All references to years in these notes to condensed consolidated financial statements represent the respective three ~~or six~~ months ended on such dates, unless otherwise noted.

Supplemental Disclosures of Cash Flow Information


	Six Months Ended					Three Months Ended
(In thousands)	2018			2017		2019		2018
Cash paid during the period for:
Interest (including amounts capitalized of $5,874 and $5,520, respectively)	$	8,333		$	9,067
Interest (including amounts capitalized of $3,797 and $2,811, respectively)						$	7,288	$	8,199
Income taxes, net of refunds	(86,825		)	99,104		22,511		(97,506		)

Voluntary Separation Plan

In January 2019, we adopted a voluntary separation plan ("2019 VSP") for eligible associates. Generally, the 2019 VSP was available to U.S. associates who met a minimum level of combined age and tenure, excluding, among others, our executive officers. Associates who elected to participate in the 2019 VSP received financial benefits commensurate with their tenure and position, along with vacation payout, medical benefits, and accelerated vesting of certain share-based payment awards. The irrevocable acceptance period for associates electing to participate in the 2019 VSP ended in early April 2019. We expect the resulting pre-tax charge in the second quarter of 2019 to approximate $41 million. Such charge will be included in general and administrative expense in our condensed consolidated statements of operations.

Accounting Pronouncements Adopted in ~~2018~~2019

~~Revenue Recognition.~~Leases. In the first quarter of ~~2018,~~2019, we adopted new ~~revenue~~lease accounting guidance. Refer to Note ~~(2)~~(6) for further details.

~~Financial Instruments~~.Callable Debt Securities. In ~~January 2016,~~March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-01,~~2017-08, ~~Financial Instruments~~Receivables - ~~Overall~~Nonrefundable Fees and Other Costs (Subtopic ~~825-10)~~310-20): ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Premium Amortization on Purchased Callable Debt Securities, which ~~was subsequently amended~~shortens the amortization period for certain investments in ~~February 2018~~callable debt securities purchased at a premium by ~~ASU 2018-03,~~ ~~Technical Corrections and Improvements~~requiring the premium be amortized to ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.~~the earliest call date. Such guidance ~~impacts~~would impact how ~~we account for~~premiums are amortized on 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) are 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.

available-for-sale investments. We adopted ~~this new guidance effective for our~~ASU 2017-08 in the first quarter of ~~2018. Provisions within the guidance applicable to the Company were required to be applied prospectively. The adoption of such~~2019. Such guidance did not have ~~a material~~an impact on our condensed consolidated financial statements and related disclosures.

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

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

Recently Issued Accounting Pronouncements

~~Leases.~~ ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, which introduces a new model that requires most leases to be reported on the balance sheet and aligns many of the underlying principles 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 the first quarter of 2019, with early adoption permitted. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures, and we do not expect to early adopt.

In the second quarter of 2018, we continued our analysis of contractual arrangements that may qualify as leases under the new standard. We currently expect the most significant impact of this new guidance will be the recognition of right-of-use assets and lease liabilities for our operating leases of office space. At December 30, 2017, we disclosed aggregate minimum future payments under these arrangements of $124 million within Note 16, Commitments in our most recent Form 10-K. We do not expect the new standard to have a significant impact on our consolidated statements of operations.

Our analysis and evaluation of the new standard will continue through the effective date in the first quarter of 2019. We must complete our analysis of contractual arrangements, quantify all impacts of this new guidance, and evaluate related disclosures. We must also implement any necessary changes/modifications to processes, accounting systems, and internal controls.

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

~~Callable Debt Securities.~~Collaborative Arrangements. In ~~March 2017,~~November 2018, the FASB issued ASU ~~2017-08,~~2018-18, ~~Receivables - Nonrefundable Fees~~Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and ~~Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~Topic 606, which ~~shortens~~clarifies when transactions between participants in a collaborative arrangement are within the ~~amortization period for certain investments in callable debt securities purchased at a premium by requiring~~scope of the ~~premium be amortized to the earliest call date.~~FASB's new revenue standard (Topic 606). Such guidance ~~will impact how premiums are amortized on our available-for-sale investments.~~clarifies revenue recognition and financial statement presentation for transactions between collaboration participants. ASU ~~2017-08~~2018-18 is effective for the Company in the first quarter of ~~2019,~~2020, with early adoption permitted. The standard requires retrospective application to the ~~use of the modified retrospective (cumulative effect) transition approach. We do not expect ASU 2017-08 to have a material impact on our consolidated financial statements and related disclosures, and~~date we ~~do not expect to early adopt.~~

~~Accumulated Other Comprehensive Income.~~ ~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for "stranded tax effects" resulting from certain U.S. tax reform enacted in~~adopted Topic 606, December 31, 2017. Such "stranded tax effects" were created when deferred tax assets and liabilities related to items in AOCI were remeasured at the lower U.S. corporate tax rate in the period of enactment. ASU 2018-02 is effective for the Company in the first quarter of 2019, with early adoption permitted. The guidance in this ASU is to be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. corporate tax rate was recognized. We are currently evaluating the effect that ASU ~~2018-02~~2018-18 will have on our consolidated financial statements and related disclosures, and we do not expect to early adopt.

(2) 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 replaced 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 prior U.S. GAAP.

ASU 2014-09, as amended ("Topic 606"), was effective for the Company in the first quarter of 2018. We selected the modified retrospective (cumulative effect) transition method of adoption. Such method provides that the cumulative effect from prior periods upon applying the new guidance to contracts which were not complete as of the adoption date, be recognized in our condensed consolidated balance sheets as of December 31, 2017, including an adjustment to retained earnings. A summary of such cumulative effect adjustment is as follows:

(In thousands)
Increase /
(Decrease)

Receivables, net $ (79,492 )
Prepaid expenses and other (2,253 )
Other assets 81,157
Accounts payable (9,361 )
Deferred income taxes and other liabilities 1,173
Retained earnings 7,600

Prior periods were not retrospectively adjusted. The impact of applying Topic 606 (versus prior U.S. GAAP) increased revenues by $21 million and $64 million, and earnings before income taxes by $15 million and $13 million, for the three and six months ended June 30, 2018, respectively. The impact of applying Topic 606 (versus prior U.S. GAAP) did not have a significant impact on other line items in our condensed consolidated statements of operations, statements of comprehensive income, and statements of cash flows for the three and six month periods ended June 30, 2018. Additionally, the impact of applying Topic 606 did not have a significant impact on our condensed consolidated balance sheet as of June 30, 2018.

~~Revenue Recognition Policy~~

We enter into contracts with customers that may include various combinations of our software solutions and related services, which are generally capable of being distinct and accounted for as separate performance obligations. The predominant model of customer procurement involves multiple deliverables and includes a software license agreement, project-related implementation and consulting services, software support, hosting services, and computer hardware. We allocate revenues to each performance obligation within an arrangement based on estimated relative stand-alone selling price. Revenue is then recognized for each performance obligation upon transfer of control of the software solution or services to the customer in an amount that reflects the consideration we expect to receive.

~~Generally, we recognize revenue under Topic 606 for each of our performance obligations as follows:~~

Perpetual software licenses - We recognize perpetual software license revenues when control of such licenses are transferred to the client ("point in time"). We determine the amount of consideration allocated to this performance obligation using the residual approach.

~~Software as a service - We recognize software as a service ratably over the related hosting period ("over time")~~.

Time-based software and content license fees - We recognize a license component of time-based software and content license fees upon delivery to the client ("point in time") and a non-license component (i.e. support) ratably over the respective contract term ("over time").

Hosting - Remote hosting recurring services are recognized ratably over the hosting service period ("over time"). Certain of our hosting arrangements contain fees deemed to be a "material right" under Topic 606. We recognize

~~such fees over the term that will likely affect the client's decision about whether to renew the related hosting service ("over time")~~.

Services - We recognize revenue for fixed fee services arrangements over time, utilizing a labor hours input method. For fee-for-service arrangements, we recognize revenue over time as hours are worked at the rates clients are invoiced, utilizing the "as invoiced" practical expedient available in Topic 606. For stand-ready services arrangements, we recognize revenue ratably over the related service period.

~~Support and maintenance - We recognize support and maintenance fees ratably over the related contract period ("over time")~~.

~~Hardware - We recognize hardware revenues when control of such hardware/devices is transferred to the client ("point in time")~~.

~~Transaction processing - We recognize transaction processing revenues ratably as we provide such services ("over time")~~.

~~Such revenues are recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.~~

Disaggregation of Revenue

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


	Three Months Ended												Three Months Ended
	2018						2017⁽¹⁾						2019						2018
(In thousands)	Domestic Segment		Global Segment		Total		Domestic Segment		Global Segment		Total		Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Licensed software	$	161,220	$	11,168	$	172,388	$	146,895	$	8,991	$	155,886	$	140,445	$	14,032	$	154,477	$	124,094	$	10,725	$	134,819
Technology resale	61,789		13,468		75,257		66,358		6,774		73,132		49,158		6,382		55,540		58,249		5,127		63,376
Subscriptions	76,419		6,532		82,951		112,518		6,272		118,790		77,702		6,589		84,291		69,852		6,784		76,636
Professional services	387,540		59,778		447,318		347,313		48,850		396,163		437,229		53,210		490,439		379,844		61,424		441,268
Managed services	261,787		23,765		285,552		242,673		19,006		261,679		277,325		27,068		304,393		246,145		22,160		268,305
Support and maintenance	229,779		49,177		278,956		214,642		44,932		259,574		226,481		50,482		276,963		234,236		50,328		284,564
Reimbursed travel	23,530		1,775		25,305		25,255		1,515		26,770		22,490		1,284		23,774		22,676		1,217		23,893

Total revenues	$	1,202,064	$	165,663	$	1,367,727	$	1,155,654	$	136,340	$	1,291,994	$	1,230,830	$	159,047	$	1,389,877	$	1,135,096	$	157,765	$	1,292,861

⁽¹⁾As noted above, prior period amounts were not adjusted upon our adoption of Topic 606.

Six Months Ended
2018
2017⁽¹⁾
(In thousands) Domestic
Segment Global
Segment Total Domestic
Segment Global
Segment Total

Licensed software $ 285,314
$ 21,893
$ 307,207
$ 279,427
$ 18,787
$ 298,214
Technology resale 120,038
18,595
138,633
126,871
10,368
137,239
Subscriptions 146,271
13,316
159,587
220,770
11,441
232,211
Professional services 767,384
121,202
888,586
696,177
96,301
792,478
Managed services 507,932
45,925
553,857
485,306
36,192
521,498
Support and maintenance 464,015
99,505
563,520
432,386
89,292
521,678
Reimbursed travel 46,206
2,992
49,198
46,521
2,641
49,162

Total revenues $ 2,337,160
$ 323,428
$ 2,660,588
$ 2,287,458
$ 265,022
$ 2,552,480

⁽¹⁾As noted above, prior period amounts were not adjusted upon our adoption of Topic 606.

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


	Three Months Ended						Six Months Ended						Three Months Ended
	2018						2018						2019						2018
(In thousands)	Domestic Segment		Global Segment		Total		Domestic Segment		Global Segment		Total		Domestic Segment		International Segment		Total		Domestic Segment		International Segment		Total

Revenue recognized over time	$	1,062,878	$	144,262	$	1,207,140	$	2,091,373	$	288,397	$	2,379,770	$	1,135,982	$	142,211	$	1,278,193	$	1,028,495	$	144,135	$	1,172,630
Revenue recognized at a point in time	139,186		21,401		160,587		245,787		35,031		280,818		94,848		16,836		111,684		106,601		13,630		120,231

Total revenues	$	1,202,064	$	165,663	$	1,367,727	$	2,337,160	$	323,428	$	2,660,588	$	1,230,830	$	159,047	$	1,389,877	$	1,135,096	$	157,765	$	1,292,861

Transaction Price Allocated to Remaining Performance Obligations

As of ~~June~~March 30, ~~2018,~~2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates ~~$14.79~~$14.87 billion of which we expect to recognize approximately ~~31%~~29% of the revenue over the next 12 months and the remainder thereafter.

Contract Liabilities

Our payment arrangements with clients typically include an initial payment due upon contract signing and date-based licensed software payment terms and payments based upon delivery for services, hardware and sublicensed software. 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 ~~either current or long-term~~ deferred revenue. During the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, we recognized ~~$287~~$150 million of revenues that were included in our contract liability balance at the beginning of such period.

~~Costs to Obtain or Fulfill a Contract~~

We have determined the only significant incremental costs incurred to obtain contracts with clients within the scope of Topic 606 are sales commissions paid to our associates. We record sales commissions as an asset, and amortize to expense ratably over the remaining performance periods of the related contracts with remaining performance obligations. At June 30, 2018, our condensed consolidated balance sheet includes an $85 million asset related to sales commissions to be expensed in future periods, which is included in other assets.

~~During the three and~~ ~~six months ended~~ June 30, 2018, we recognized $10 million and $18 million, respectively, of amortization related to this sales commissions asset, which is included in costs of revenue in our condensed consolidated statements of operations.

~~Significant Judgments when Applying Topic 606~~

Our contracts with clients typically include various combinations of our software solutions and related services. Determining whether such software solutions and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Specifically, judgment is required to determine whether software licenses are distinct from services and hosting included in an arrangement.

Contract transaction price is allocated to performance obligations using estimated stand-alone selling price. Judgment is required in estimating stand-alone selling price for each distinct performance obligation. We determine stand-alone selling price maximizing observable inputs such as stand-alone sales when they exist or substantive renewal prices charged to clients. In instances where stand-alone selling price is not observable, we utilize an estimate of stand-alone selling price. Such estimates are derived from various methods that include: cost plus margin, historical pricing practices, and the residual approach, which requires a considerable amount of judgment.

The labor hours input method used for our fixed fee services performance obligation is dependent on our ability to reliably estimate the direct labor hours to complete a project, which may span several years. We utilize our historical project experience and detailed planning process as a basis for our future estimates to complete current projects.

~~Certain of our arrangements contain variable consideration. We do not believe our estimates of variable consideration to be significant to our determination of revenue recognition.~~

~~Practical Expedients~~

We have reflected the aggregate effect of all contract modifications occurring prior to the Topic 606 adoption date when (i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price, and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations.

(3) Receivables

~~Receivables consist of client receivables and the current portion of amounts due under sales-type leases.~~

Client receivables represent recorded revenues that have either been billed, or for which we have an unconditional right to invoice and receive payment in the future. We periodically provide long-term financing options to creditworthy clients through extended payment terms. Generally, these extended payment terms provide for date-based payments over a fixed period, not to exceed the term of the overall arrangement. Thus, our portfolio of client contracts contains a financing component, which is recognized over time as a component of other income, net in our condensed consolidated statements of operations.

~~Lease receivables represent our net investment in sales-type leases resulting from the sale of certain health care devices to our clients.~~

We perform ongoing credit evaluations of our clients and generally do not require collateral from our clients. We provide an allowance for estimated uncollectible accounts based on specific identification, historical experience and our judgment.

A summary of net receivables is as follows:

(In thousands) June 30, 2018 December 30, 2017

Client receivables $ 1,204,487
$ 1,082,886
Less: Allowance for doubtful accounts 61,639
52,786

Client receivables, net of allowance 1,142,848
1,030,100

Current portion of lease receivables 9,012
12,681

Total receivables, net $ 1,151,860
$ 1,042,781

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 gave rise to the termination of our subcontract for the project. We continue to be in dispute with Fujitsu regarding Fujitsu's obligation to pay amounts due upon termination, including our client receivables and damages for pre-termination losses. We are working with Fujitsu to resolve these issues based on processes provided for in the subcontract. Part of that process required final resolution of disputes between Fujitsu and the NHS regarding the prime contract termination, which has now occurred. As of ~~June 30, 2018~~, it remains unlikely that our matter with Fujitsu will be resolved in the next 12 months. Therefore, these client receivables have been classified as long-term and represent less than the majority of other long-term assets at ~~June 30, 2018~~ ~~and~~ ~~December 30, 2017~~. While the ultimate collectability of the client 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 thousands)	March 30, 2019		December 29, 2018

Client receivables	$	1,233,419	$	1,237,127
Less: Allowance for doubtful accounts	74,204		64,561

Client receivables, net of allowance	1,159,215		1,172,566

Current portion of lease receivables (under ASC Topic 840)	—		10,928

Total receivables, net	$	1,159,215	$	1,183,494

During the first ~~six~~three months of ~~2018~~2019 and ~~2017~~2018, we received total client cash collections of ~~$2.59~~$1.36 billion and ~~$2.64~~$1.27 billion, respectively.

(4) Investments

Available-for-sale investments at ~~June~~March 30, 2019 were as follows:



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

Cash equivalents:
Money market funds	$	77,709	$	—	$	—		$	77,709
Time deposits	63,300		—		—			63,300
Commercial paper	72,965		—		—			72,965
Total cash equivalents	213,974		—		—			213,974

Short-term investments:
Time deposits	35,011		—		—			35,011
Commercial paper	85,631		17		(30		)	85,618
Government and corporate bonds	280,119		84		(323		)	279,880
Total short-term investments	400,761		101		(353		)	400,509

Long-term investments:
Government and corporate bonds	1,319		—		(2		)	1,317

Total available-for-sale investments	$	616,054	$	101	$	(355	)	$	615,800

Available-for-sale investments at December 29, 2018 were as follows:

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

Cash equivalents:
Money market funds $ 42,195
$ —
$ —
$ 42,195
Time deposits 78,581
—
—
78,581
Total cash equivalents 120,776
—
—
120,776

Short-term investments:
Time deposits 28,988
—
—
28,988
Commercial paper 77,950
—
(98 ) 77,852
Government and corporate bonds 268,884
—
(1,128 ) 267,756
Total short-term investments 375,822
—
(1,226 ) 374,596

Long-term investments:
Government and corporate bonds 105,251
—
(753 ) 104,498

Total available-for-sale investments $ 601,849

$ —

$ (1,979 )
$ 599,870

~~Available-for-sale investments at~~ ~~December 30, 2017~~ ~~were as follows:~~

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

Cash equivalents:
Money market funds $ 99,472
$ —
$ —
$ 99,472
Time deposits 60,226
—
—
60,226
Government and corporate bonds 850
—
—
850
Total cash equivalents 160,548
—
—
160,548

Short-term investments:
Time deposits 40,186
—
—
40,186
Commercial paper 147,646
2
(139 ) 147,509
Government and corporate bonds 247,626
—
(477 ) 247,149
Total short-term investments 435,458
2
(616 ) 434,844

Long-term investments:
Government and corporate bonds 185,478
—
(1,026 ) 184,452

Total available-for-sale investments $ 781,484
$ 2
$ (1,642 ) $ 779,844

~~We sold available-for-sale investments for proceeds of $45 million and $20 million during the~~ ~~six months endedJune 30, 2018~~ ~~and~~ ~~July 1, 2017, respectively, resulting in insignificant gains/losses in each period.~~



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

Cash equivalents:
Money market funds	$	76,471	$	—	$	—		$	76,471
Time deposits	71,461		—		—			71,461
Commercial Paper	10,000		—		—			10,000
Total cash equivalents	157,932		—		—			157,932

Short-term investments:
Time deposits	31,947		—		—			31,947
Commercial paper	75,445		—		(91		)	75,354
Government and corporate bonds	294,941		1		(958		)	293,984
Total short-term investments	402,333		1		(1,049		)	401,285

Long-term investments:
Government and corporate bonds	18,247		—		(55		)	18,192

Total available-for-sale investments	$	578,512	$	1	$	(1,104	)	$	577,409

Other Investments

~~On July 27,~~At March 30, 2019 and December 29, 2018, we ~~acquired a minority interest~~had cost method investments of $277 million. Such investments are included in ~~Essence Group Holdings Corporation ("Essence Group")~~long-term investments in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments for ~~cash consideration of $266 million under a Stock Purchase Agreement ("SPA") dated July 9, 2018. Concurrently with~~ the execution of the SPA, we announced a strategic operating relationship with Lumeris Healthcare Outcomes, LLC ("Lumeris"), a subsidiary of Essence Group, pursuant to which we will collaborate to bring to market an EHR-agnostic offering, ~~Maestro Advantage~~^TM~~, designed to help providers who participate in value-based arrangements, including Medicare Advantage~~three months ended ended March 30, 2019 and ~~provider-sponsored health plans, control costs and improve outcomes.~~March 31, 2018, respectively.

(5) Fair Value Measurements

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

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

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

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

The following table details our financial assets measured and recorded at fair value on a recurring basis at ~~June~~March 30, ~~2018~~2019:


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

Money market funds	Cash equivalents	$	42,195	$	—	$	—	Cash equivalents	$	77,709	$	—	$	—
Time deposits	Cash equivalents	—		78,581		—		Cash equivalents	—		63,300		—
Commercial paper								Cash equivalents	—		72,965		—
Time deposits	Short-term investments	—		28,988		—		Short-term investments	—		35,011		—
Commercial paper	Short-term investments	—		77,852		—		Short-term investments	—		85,618		—
Government and corporate bonds	Short-term investments	—		267,756		—		Short-term investments	—		279,880		—
Government and corporate bonds	Long-term investments	—		104,498		—		Long-term investments	—		1,317		—

The following table details our financial assets measured and recorded at fair value on a recurring basis at December ~~30, 2017~~29, 2018:


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

Money market funds	Cash equivalents	$	99,472	$	—	$	—	Cash equivalents	$	76,471	$	—	$	—
Time deposits	Cash equivalents	—		60,226		—		Cash equivalents	—		71,461		—
Government and corporate bonds	Cash equivalents	—		850		—
Commercial Paper								Cash equivalents	—		10,000		—
Time deposits	Short-term investments	—		40,186		—		Short-term investments	—		31,947		—
Commercial paper	Short-term investments	—		147,509		—		Short-term investments	—		75,354		—
Government and corporate bonds	Short-term investments	—		247,149		—		Short-term investments	—		293,984		—
Government and corporate bonds	Long-term investments	—		184,452		—		Long-term investments	—		18,192		—

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 ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017~~29, 2018 was approximately ~~$431~~$438 million and ~~$519~~$431 million, respectively. The carrying amount of such debt at ~~June~~both March 30, ~~2018~~2019 and December ~~30, 2017~~29, 2018 was $425 ~~million and $500 million, respectively.~~million.

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

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

A summary of such cumulative effect adjustment is as follows:



(In thousands)	Increase / (Decrease)

Right-of-use asset	$	129,652
Prepaid expenses and other	3,968
Other current liabilities	22,767
Other liabilities	110,853

Arrangements Containing Leases

The cumulative effect adjustment above, is primarily comprised of arrangements where we are the lessee under operating leases for real estate (office, data center, and warehouse space) and certain dedicated fiber optic lines within our infrastructure. The duration of these agreements ranges from several months to in excess of 20 years. Generally, variable lease payments under these operating lease agreements relate to amounts based on changes to an index or rate (i.e. percentage change in the consumer price index). We do not have any arrangements where we are the lessee, classified as finance leases in our condensed consolidated financial statements.

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

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

Amounts Included in the Condensed Consolidated Financial Statements

The following istable presents a summary of ~~indebtedness outstanding:~~lease liability and right-of-use asset amounts included in our condensed consolidated balance sheets as of March 30, 2019, under operating lease arrangements where we are the lessee:

(In thousands) June 30, 2018 December 30, 2017

Senior Notes $ 425,000
$ 500,000
Capital lease obligations 2,155
13,068
Other 14,162
14,162

  Debt and capital lease obligations 441,317
527,230
Less: debt issuance costs (402 ) (515 )

  Debt and capital lease obligations, net 440,915
526,715
Less: current portion (2,155 ) (11,585 )

  Long-term debt and capital lease obligations $ 438,760
$ 515,130



(In thousands)
Description	Balance Sheet Classification	March 30, 2019

Right-of-use asset	Right-of-use assets	$	134,137
Lease liability - current	Other current liabilities	29,746
Lease liability - non-current	Other liabilities	112,606

In Lease liabilities recorded upon the commencement of operating leases during the three months endedMarch ~~2018, we repaid our $75~~30, 2019, were $16 million.

For the three months ended March 30, 2019, operating lease cost was $9 million ~~floating rate Series 2015-C Notes due February 15, 2022.~~and variable lease cost was less than $1 million.

Maturity Analysis

Aggregate future payments under operating lease arrangements where we are the lessee (by fiscal year) are as follows:



(In thousands)	Operating Lease Obligations

Remainder of 2019	$	26,506
2020	31,186
2021	26,576
2022	20,890
2023	14,092
2024 and thereafter	46,689

Aggregate future payments	165,939
Impact of discounting	(23,587		)

Aggregate lease liability at March 30, 2019	$	142,352

At March 30, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating lease arrangements where we are the lessee were 7.15 years and 3.7%, respectively.

(7) Income Taxes

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

~~H.R. 1,~~ ~~An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018~~ ("U.S. Tax Reform"), was enacted on December 22, 2017. U.S. Tax Reform provides for, among other things, the reduction of the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. Relevant accounting guidance provides that the impact of U.S. Tax Reform, as of the date of enactment, may be provisionally recorded and adjusted during a measurement period of up to one year. As of December 30, 2017, we provisionally recorded certain impacts of U.S. Tax Reform including an adjustment to our net deferred tax liability arising from the reduction in the federal tax rate as well as the impact of mandatory deemed repatriation. Additional analysis and computations are being performed with respect to these provisional amounts. The ultimate impact as of the enactment date may differ from the provisional amounts we have recorded, possibly materially, due to among other things, additional regulatory guidance that may be issued and changes to our assumptions and interpretations. No measurement period adjustments were recorded during the ~~six months ended~~ ~~June 30, 2018.~~

Our effective tax rate was ~~20.6%~~19.5% and ~~28.7%~~20.0% for the first ~~six~~three months of 2019 and 2018, ~~and 2017,~~ respectively. ~~The decrease in the effective tax rate in 2018 is primarily due to the aforementioned reduction in the U.S. corporate statutory tax rate from 35% to 21%.~~

(8) Earnings Per Share

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


	Three Months Ended										Three Months Ended
	2018					2017					2019					2018
	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		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic earnings per share:
Income available to common shareholders	$	169,357	330,206	$	0.51	$	179,683	331,056	$	0.54	$	166,219	324,573	$	0.51	$	160,001	332,395	$	0.48
Effect of dilutive securities:
Stock options and non-vested shares	—		3,356			—		6,842			—		2,430			—		4,139
Diluted earnings per share:
Income available to common shareholders including assumed conversions	$	169,357	333,562	$	0.51	$	179,683	337,898	$	0.53	$	166,219	327,003	$	0.51	$	160,001	336,534	$	0.48

For the three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018, options to purchase ~~14.0~~13.7 million and ~~11.0~~11.2 million shares of common stock at per share prices ranging from $47.99 to $73.40 and ~~$50.04~~$51.19 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.

Six Months Ended
2018 2017
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 $ 329,358
331,479
$ 0.99
$ 352,896
330,607
$ 1.07
Effect of dilutive securities:
Stock options and non-vested shares —
3,744
—
6,509

Diluted earnings per share:
Income available to common shareholders including assumed conversions $ 329,358
335,223
$ 0.98
$ 352,896
337,116
$ 1.05

~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2018~~ ~~and~~ ~~July 1, 2017~~, options to purchase 12.4 million and 11.7 million shares of common stock at per share prices ranging from $50.04 to $73.40 and $47.38 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.

(9) Share-Based Compensation and Equity

Stock Options

Stock option activity for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 was as follows:


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

Outstanding at beginning of year	21,332		$	49.40				21,792		$	52.31
Granted	3,572		58.32					39		55.28
Exercised	(947	)	23.25					(750	)	19.16
Forfeited and expired	(156	)	60.75					(329	)	62.92
Outstanding as of June 30, 2018	23,801		51.71		$	235,909	6.67
Outstanding as of March 30, 2019								20,752		53.34		$	138,631	6.12

Exercisable as of June 30, 2018	12,287		$	43.77	$	210,966	4.84
Exercisable as of March 30, 2019								10,663		$	46.77	$	131,285	4.40

The weighted-average assumptions used to estimate the fair value, under the Black-Scholes-Merton pricing model, of stock options granted during the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 were as follows:


Expected volatility (%)	27.0		%	26.1		%
Expected dividend rate (%)				1		%
Expected term (yrs)	7			7
Risk-free rate (%)	2.8		%	2.6		%
Fair value per option	$	20.12		$	15.62

As of ~~June~~March 30, ~~2018~~2019, there was ~~$185~~$132 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 ~~3.59~~3.08 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the ~~six~~three months ended~~June~~ March 30, ~~2018~~2019 was as follows:


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

Outstanding at beginning of year	799		$	66.76	882		$	62.82
Granted	480		58.72		10		54.47
Vested	(343	)	65.54		(4	)	59.22
Forfeited	(3	)	62.78		(6	)	59.62

Outstanding as of June 30, 2018	933		$	63.08
Outstanding as of March 30, 2019					882		$	62.76

As of ~~June~~March 30, ~~2018~~2019, there was ~~$44~~$26 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of ~~2.09~~1.84 years.

Share-Based Compensation Cost

The following table presents total compensation expense recognized with respect to stock options, non-vested shares and share units, and our associate stock purchase plan:


	Three Months Ended					Six Months Ended					Three Months Ended
(In thousands)	2018		2017			2018		2017			2019		2018

Stock option and non-vested share and share unit compensation expense	$	24,204	$	21,859		$	49,139	$	39,359		$	19,860	$	24,935
Associate stock purchase plan expense	1,916		1,495			3,278		2,970			1,542		1,362
Amounts capitalized in software development costs, net of amortization	161		(200		)	321		(320		)	187		160

Amounts charged against earnings, before income tax benefit	$	26,281	$	23,154		$	52,738	$	42,009		$	21,589	$	26,457

Amount of related income tax benefit recognized in earnings	$	5,568	$	6,647		$	10,868	$	12,063		$	4,201	$	5,300

Treasury Stock

In May ~~2017,~~2018, our Board of Directors ~~authorized a~~approved an amendment to our share repurchase program that ~~allows~~allowed for the Company to repurchase up to ~~$500 million~~an aggregate $1.0 billion of shares of our common stock, excluding transaction costs. In April 2019, our Board of Directors approved a further amendment to this share repurchase program. Under this new amendment, the Company is authorized to repurchase up to an additional $1.2 billion of shares of our common stock, for an aggregate of $2.2 billion, excluding transaction costs. The repurchases are to be ~~effectuated~~effected 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. ~~In May 2018, our Board~~As of ~~Directors approved an amendment to~~ the ~~repurchase program that was authorized in May 2017. Under the amendment, the Company was authorized to repurchase up to an additional $500 million~~date of ~~shares of our common stock, for an aggregate of $1~~this filing, $1.5 billion excluding transaction costs. During the six months ended June 30, 2018, we repurchased 4.8 million shares for total consideration of $288 million under the program. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. At June 30, 2018, $639 million remains available for repurchase under the amended program.

(10) 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 450, Contingencies.

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~~involved in various other legal proceedings and claims that arise in the ordinary course of business, including for example, employment and client disputes and litigation alleging solution and implementation defects, personal injury, intellectual property infringement, violations of law and breaches of contract and warranties. 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 ~~these~~such claims to be material to our condensed consolidated financial statements.

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

(11) Segment Reporting

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

The following table presents a summary of our operating segments and other expense for the three ~~and six~~ months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017:~~March 31, 2018:


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

Three Months Ended 2018
Three Months Ended 2019
Revenues	$	1,202,064	$	165,663	$	—		$	1,367,727	$	1,230,830	$	159,047	$	—		$	1,389,877

Costs of revenue	208,185		30,598		—			238,783		228,559		24,645		—			253,204
Operating expenses	551,468		73,407		295,782			920,657		572,018		68,169		298,542			938,729
Total costs and expenses	759,653		104,005		295,782			1,159,440		800,577		92,814		298,542			1,191,933

Operating earnings (loss)	$	442,411	$	61,658	$	(295,782	)	$	208,287	$	430,253	$	66,233	$	(298,542	)	$	197,944

(In thousands) Domestic Global Other Total

Three Months Ended 2017
Revenues $ 1,155,654
$ 136,340
$ —
$ 1,291,994

Costs of revenue 197,336
25,727
—
223,063
Operating expenses 488,955
65,581
265,007
819,543
Total costs and expenses 686,291
91,308
265,007
1,042,606

Operating earnings (loss) $ 469,363
$ 45,032
$ (265,007 ) $ 249,388

(In thousands) Domestic Global Other Total

Six Months Ended 2018
Revenues $ 2,337,160
$ 323,428
$ —
$ 2,660,588

Costs of revenue 414,859
55,202
—
470,061
Operating expenses 1,071,339
142,551
573,135
1,787,025
Total costs and expenses 1,486,198
197,753
573,135
2,257,086

Operating earnings (loss) $ 850,962
$ 125,675
$ (573,135 ) $ 403,502


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

Six Months Ended 2017
Three Months Ended 2018
Revenues	$	2,287,458	$	265,022	$	—		$	2,552,480	$	1,135,096	$	157,765	$	—		$	1,292,861

Costs of revenue	373,697		48,359		—			422,056		206,674		24,604		—			231,278
Operating expenses	972,335		129,104		535,471			1,636,910		519,871		69,144		277,353			866,368
Total costs and expenses	1,346,032		177,463		535,471			2,058,966		726,545		93,748		277,353			1,097,646

Operating earnings (loss)	$	941,426	$	87,559	$	(535,471	)	$	493,514	$	408,551	$	64,017	$	(277,353	)	$	195,215

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.

Our ~~second~~first fiscal quarter ends on the Saturday closest to ~~June 30.~~March 31. The ~~2018~~2019 and ~~2017~~2018 ~~second~~first quarters ended on ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018, respectively. All references to years in this MD&A represent the respective ~~three or~~ ~~six~~three months ended on such dates, unless otherwise noted.

~~Except~~Management Overview

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

We expect to drive growth through solutions and tech-enabled services that reflect our ongoing ability to innovate and expand our reach into health care. Examples of these include our CareAware^® health care device architecture and devices, Cerner ITWorks^SM services, revenue cycle solutions and services, and HealtheIntent^® population health solutions and services. Finally, we continue to believe there is significant opportunity for growth outside of the United States, with many non-U.S. markets focused on health care information technology as part of their strategy to improve the quality and ~~discussions contained herein,~~lower the cost of health care.

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

Results Overview

Bookings, which reflects the value of executed contracts for software, hardware, professional services and managed services, was $1.24 billion in the first quarter of 2019, which is a decrease of 11% compared to $1.40 billion in the first quarter of 2018, with the decrease primarily reflecting a decline in long-term contracts, which tend to be larger but have little impact on near-term revenue.

Revenues for the first quarter of 2019 increased 8% to $1.39 billion, compared to $1.29 billion in the first quarter of 2018. The 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 first quarter of 2019 increased 4% to $166 million, compared to $160 million in the first quarter of 2018. Diluted earnings per share increased 6% to $0.51, compared to $0.48 in the first quarter of 2018. The overall increase in net earnings and diluted earnings per share was primarily a result of increased revenues, partially offset by a lower operating margin, which reflects the hiring of personnel to support revenue growth.

We had cash collections of receivables of $1.36 billion in the first quarter of 2019, compared to $1.27 billion in the first quarter of 2018. Days sales outstanding was 76 days for the 2019 first quarter, compared to 79 days for the 2018 fourth quarter and 73 days for the 2018 first quarter. Operating cash flows for the first quarter of 2019 were $317 million, compared to $409 million in the first quarter of 2018.

Operational Improvement Initiatives

We transitioned to a new operating structure in the first quarter of 2019. The Company has been focused on leveraging the impact of this reorganization and identifying additional efficiencies. Currently, we are focused on reducing operating expenses and generating other efficiencies that are expected to provide longer-term operating margin expansion. To assist in these efforts, we have engaged an outside consulting firm to conduct a review of our operations and cost structure. Our goal is to identify opportunities to operate more efficiently and achieve and improve upon the efficiencies without impacting the quality of our solutions and services and commitments to our clients.

In the near term, we expect to incur expenses in connection with these efforts, which may be material. 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. For the three months ended March 30, 2019, we recognized $2 million of expenses related to these efforts, which is included in general and administrative expense in our condensed consolidated statements of operations. Additional expenses in the second quarter of 2019 will include charges associated with the 2019 VSP, as further discussed in Note (1) of the notes to condensed consolidated financial statements, as well as consultant and other professional services fees, and other related costs.

Results of Operations

Three Months Ended March 30, 2019 Compared to Three Months EndedMarch 31, 2018

The following table presents a summary of the operating information for the first quarters of 2019 and 2018:



(In thousands)	2019			% of Revenue		2018			% of Revenue		% Change

Revenues	$	1,389,877		100	%	$	1,292,861		100	%	8	%
Costs of revenue	253,204			18	%	231,278			18	%	9	%

Margin	1,136,673			82	%	1,061,583			82	%	7	%

Operating expenses
Sales and client service	640,187			46	%	589,948			46	%	9	%
Software development	180,361			13	%	161,617			13	%	12	%
General and administrative	96,196			7	%	92,294			7	%	4	%
Amortization of acquisition-related intangibles	21,985			2	%	22,509			2	%	(2	)%

Total operating expenses	938,729			68	%	866,368			67	%	8	%

Total costs and expenses	1,191,933			86	%	1,097,646			85	%	9	%

Operating earnings	197,944			14	%	195,215			15	%	1	%

Other income, net	8,432					4,864
Income taxes	(40,157		)			(40,078		)

Net earnings	$	166,219				$	160,001				4	%

Revenues & Backlog

Revenues increased 8% to $1.39 billion in the first quarter of 2019, as compared to $1.29 billion in the same period of 2018. The growth in revenues includes a $49 million increase in professional services revenue, driven by increased implementation activity. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

Backlog, which reflects contracted revenue that has not yet been recognized as revenue, increased 2% to $14.87 billion in the first quarter of 2019, compared to $14.63 billion in the same period of 2018. This increase was driven by solid levels of new business bookings during the past four quarters, including strong levels of managed services bookings that typically have longer contract terms. We expect to recognize approximately 29% of our backlog as revenue over the next 12 months.

We believe that backlog may not necessarily be a comprehensive indicator of future revenue as certain of our arrangements may be canceled (or conversely renewed) at our clients' option, thus contract consideration related to such cancellable periods has been excluded from our calculation of backlog. However, historically our experience has been that such cancellation provisions are rarely exercised. We expect to recognize approximately $640 million of revenue over the next 12 months under currently executed contracts related to such cancellable periods, which is not included in our calculation of backlog.

Costs of Revenue

Costs of revenue as a percent of revenues were 18% in the first quarter of both 2019 and 2018.

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

Operating Expenses

Total operating expenses increased 8% to $939 million in the first quarter of 2019, compared to $866 million in the same period of 2018.

Sales and client service expenses as a percent of revenues were 46% in the first quarter of both 2019 and 2018. These expenses increased 9% to $640 million in the first quarter of 2019, from $590 million in the same period of 2018. Sales and client service expenses include salaries and benefits of sales, marketing, support, and services personnel, depreciation and other expenses associated with our managed services business, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs. The growth in sales and client service expenses is primarily due to the hiring of services personnel to support growth in services revenue.

•

Software development expenses as a percent of revenues were 13% in the first quarter of both 2019 and 2018. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium^® and HealtheIntent platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle and population health solutions. A summary of our total software development expense in the first quarters of 2019 and 2018 is as follows:



	Three Months Ended
(In thousands)	2019			2018

Software development costs	$	198,667		$	185,218
Capitalized software costs	(74,099		)	(73,071		)
Capitalized costs related to share-based payments	(452		)	(531		)
Amortization of capitalized software costs	56,245			50,001

Total software development expense	$	180,361		$	161,617

General and administrative expenses as a percent of revenues were 7% in the first quarter of both 2019 and 2018. These expenses increased 4% to $96 million in the first quarter of 2019, from $92 million in the same period in 2018. General and administrative expenses include salaries and benefits for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, depreciation and amortization, transaction gains or losses on foreign currency, expense for share-based payments, acquisition costs and related adjustments. The increase in general and administrative expenses includes $2 million of expenses incurred in the first quarter of 2019 in connection with our operational improvement initiatives discussed above. We expect to incur additional expenses in connection with these efforts in future periods in 2019, which may be material. Such additional expenses include charges associated with the 2019 VSP, as further discussed in Note (1) of the notes to condensed consolidated financial statements.

Amortization of acquisition-related intangibles as a percent of revenues was 2% in the first quarter of both 2019 and 2018. These expenses remained relatively flat at $22 million in the first quarter of 2019, and $23 million in the same period in2018. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business acquisitions.

Non-Operating Items

Other income, net was $8 million in the first quarter of 2019, compared to $5 million in the same period of 2018. The increase is primarily attributable to increased interest income on our cash and investment balances, due to rising interest rates.

Our effective tax rate remained relatively flat at 19.5% for the first quarter of 2019, and 20.0% in the same period of 2018. Refer to Note (7) of the notes to condensed consolidated financial statements for further discussion regarding our effective tax rate.

Operations by Segment

We have two operating segments: Domestic and International (formerly referred to as Global). The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The International segment includes revenue contributions and expenditures linked to business activity outside the United States, primarily from Australia, Canada, Europe, and the Middle East. Refer to Note (11) of the notes to condensed consolidated financial statements for further information regarding our reportable segments.

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



(In thousands)	2019			% of Revenue	2018			% of Revenue	% Change

Domestic Segment
Revenues	$	1,230,830		100%	$	1,135,096		100%	8%

Costs of revenue	228,559			19%	206,674			18%	11%
Operating expenses	572,018			46%	519,871			46%	10%
Total costs and expenses	800,577			65%	726,545			64%	10%

Domestic operating earnings	430,253			35%	408,551			36%	5%

International Segment
Revenues	159,047			100%	157,765			100%	1%

Costs of revenue	24,645			15%	24,604			16%	—%
Operating expenses	68,169			43%	69,144			44%	(1)%
Total costs and expenses	92,814			58%	93,748			59%	(1)%

International operating earnings	66,233			42%	64,017			41%	3%

Other, net	(298,542		)		(277,353		)		8%

Consolidated operating earnings	$	197,944			$	195,215			1%

Domestic Segment

Revenues increased 8% to $1.23 billion in the first quarter of 2019, from $1.14 billion in the same period of 2018. The growth in revenues includes a $57 million increase in professional services revenue, driven by increased implementation activity. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

Costs of revenue as a percent of revenues were 19% in the first quarter of 2019, compared to 18% in the same period of 2018. The marginally higher costs of revenue as a percent of revenues is impacted by the mix of technology resale revenue, whereas the first quarter of 2019 included a higher mix of hardware and devices, which carry a higher cost of revenue than sublicensed software.

Operating expenses as a percent of revenues were 46% in the first quarter of both 2019 and 2018.

International Segment

Revenues remained relatively flat at $159 million in the first quarter of 2019, and $158 million in the same period of 2018. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

Costs of revenue remained flat at $25 million in the first quarter of both 2019 and 2018.

Operating expenses remained relatively flat at $68 million in the first quarter of 2019, and $69 million in the same period of 2018.

Other, net

Operating results 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. These expenses increased 8% to $299 million in the first quarter of 2019, from $277 million in the same period of 2018. The increase is primarily due to increased software development expenses, including increased amortization of capitalized software costs resulting from releases of new and enhanced solutions over the last four quarters.

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 programs and future dividends.

Our principal sources of liquidity are our cash, cash equivalents, which consist of money market funds, commercial paper and time deposits with original maturities of less than 90 days, and short-term investments. At March 30, 2019, we had cash and cash equivalents of $503 million and short-term investments of $401 million, as compared to cash and cash equivalents of $374 million and short-term investments of $401 million at December 29, 2018.

We maintain a $100.0 million multi-year revolving credit 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. We have the ability to increase the maximum capacity to $200 million at any time during the facility's term, subject to lender participation. As of March 30, 2019, we had no outstanding borrowings under this facility; however, we had $30 million of outstanding letters of credit, which reduced our available borrowing capacity to $70 million.

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

The following table summarizes our cash flows in the first threemonths of 2019 and 2018:



	Three Months Ended
(In thousands)	2019			2018

Cash flows from operating activities	$	317,266		$	408,965
Cash flows from investing activities	(183,655		)	(211,498		)
Cash flows from financing activities	(6,991		)	(154,311		)
Effect of exchange rate changes on cash	2,415			(680		)
Total change in cash and cash equivalents	129,035			42,476

Cash and cash equivalents at beginning of period	374,126			370,923

Cash and cash equivalents at end of period	$	503,161		$	413,399

Free cash flow (non-GAAP)	$	123,454		$	255,652

Cash from Operating Activities



	Three Months Ended
(In thousands)	2019			2018

Cash collections from clients	$	1,357,139		$	1,274,497
Cash paid to employees and suppliers and other	(1,010,074		)	(954,839		)
Cash paid for interest	(7,288		)	(8,199		)
Cash paid for taxes, net of refunds	(22,511		)	97,506

Total cash from operations	$	317,266		$	408,965

Cash flows from operations decreased $92 million in the first threemonths of 2019 when compared to the same period of 2018, due primarily to net refunds of taxes in 2018. Days sales outstanding was 76 days in the first quarter of 2019, compared to 79 days for the fourth quarter of 2018 and 73 days for the first quarter of 2018.

Cash from Investing Activities



	Three Months Ended
(In thousands)	2019			2018

Capital purchases	$	(119,261	)	$	(79,711	)
Capitalized software development costs	(74,551		)	(73,602		)
Sales and maturities of investments, net of purchases	19,151			(49,713		)
Purchases of other intangibles	(8,994		)	(8,472		)

Total cash flows from investing activities	$	(183,655	)	$	(211,498	)

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

Our capital spending in the first threemonths of 2019 was driven by capitalized equipment purchases primarily to support growth in our managed services business, investments in a cloud infrastructure to support cloud-based solutions, building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives. Total capital spending for 2019 is expected to exceed 2018 levels, primarily driven by spending to support our facilities requirements, including the continued construction of our Innovations Campus.

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 2019 activity was impacted by a change in investment mix, where our funds were more heavily held in cash and cash equivalents versus short-term and long-term investments, primarily due to interest rates currently available on cash deposits.

Cash from Financing Activities



	Three Months Ended
(In thousands)	2019			2018

Repayment of long-term debt	$	—		$	(75,000	)
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates)	13,551			8,313
Treasury stock purchases	(20,542		)	(87,624		)

Total cash flows from financing activities	$	(6,991	)	$	(154,311	)

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

We expect to incur additional indebtedness in 2019, for which the amount and timing is yet to be determined. The proceeds from such indebtedness are expected to be deployed in accordance with our current capital allocation strategy, which may include share repurchases, as discussed further below. The terms and availability of 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 will 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 2019 based on the number of exercisable options as of March 30, 2019 and our current stock price.

As of the date of this filing, $1.5 billion remains available for repurchase under our current share repurchase program. We expect to continue to repurchase shares under this program in 2019, which will be dependent on a number of factors, including the price of our common stock. Although we expect to continue to repurchase shares, there is no assurance that we will repurchase up to the full amount remaining under the program. The source of funds for such repurchases may include cash generated from operations, liquidation of investment holdings, and the incurrence of indebtedness. Refer to Note (9) of the notes to condensed consolidated financial statements for further information regarding our share repurchase program.

Subject to declaration by the Board of Directors, the Company plans to initiate a quarterly cash dividend of $0.15 per share, with the first payment expected in the third quarter of 2019. Future dividends will be subject to the determination, declaration and discretion of the Board of Directors and compliance with our covenants under our credit facility.

Free Cash Flow (Non-GAAP)



	Three Months Ended
(In thousands)	2019			2018

Cash flows from operating activities (GAAP)	$	317,266		$	408,965
Capital purchases	(119,261		)	(79,711		)
Capitalized software development costs	(74,551		)	(73,602		)

Free cash flow (non-GAAP)	$	123,454		$	255,652

Free cash flow decreased $132 million in the first threemonths of 2019 compared to the same period in 2018, primarily due to a decrease in cash from operations along with increased capital expenditures. Free cash flow is a non-GAAP financial measure used by management, along with GAAP results, to analyze our earnings quality and overall cash generation of the business, and for management compensation purposes. We define free cash flow as cash flows from operating activities reduced by capital purchases and capitalized software development costs. The table above sets forth a reconciliation of free cash flow to cash flows from operating activities, which we believe is the GAAP financial measure most directly comparable to free cash flow. The presentation of free cash flow is not meant to be considered in isolation, nor as a substitute for, or superior to, GAAP results, and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with 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.

New Disclosure Guidance

In March 2019, the Securities and Exchange Commission ("SEC") issued SEC Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K. Such guidance revises certain disclosure requirements in SEC Regulation S-K, with the intent of improving the readability of filed documents and simplifying registrants' compliance efforts. This guidance is generally effective for filings submitted on or after May 2, 2019. We are currently evaluating the impact that this new guidance will have on our disclosures in future filings.

Forward Looking Statements

All statements contained in this quarterly report on Form 10-Q ~~may~~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. ~~These statements can often be identified by the use of forward-looking terminology, such as "could,"~~The words "should," "will," "believe," "plans," "may," "expect," ~~"positioned,~~"expected," ~~"anticipate,~~"position," ~~"forecast,~~"anticipated," ~~"guidance,~~"strategy," "continue," "opportunity," ~~"outlook"~~"future" or "estimate" or the negative of these words, variations thereof or similar ~~expressions.~~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; 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 ~~to differ~~differing materially, including without limitation: the possibility of significant costs and reputational harm related to product-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;~~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; potential claims or other risks associated with relying on open source software in our proprietary software solutions or technology-enabled services; material adverse resolution of legal ~~proceedings;~~proceedings or other claims; risks associated with our ~~global~~international 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 United Kingdom's vote to leave the European Union (commonly referred to as Brexit) on our ~~global~~international 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 associated with failure to timely or effectively manage publicity related to harassment or discrimination claims and legal proceedings if such claims are raised against key personnel; risks related to our dependence on strategic relationships and third party suppliers; risks inherent with business acquisitions and combinations and the integration thereof into our ~~business;~~business or relating to disputes involving such acquisitions or combinations; risks associated with volatility and disruption resulting from global economic or market conditions; significant competition and our ability to quickly respond to market changes, ~~and~~ changing technologies and evolving pricing and deployment methods and to bring competitive new solutions, devices, features and services to market in a timely fashion; managing growth in the new markets in which we offer solutions, health care devices or services; long sales cycles for our solutions and services; risks inherent in contracting with government clients, including without limitation, complying with strict compliance and disclosure obligations, navigating complex procurement rules and processes and defending against bid protests; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements; 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;~~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; inability to reduce expenses and costs to the extent currently anticipated; risks that Cerner’s revenue growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; risks that our stock repurchase program or quarterly dividend program 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 our directors' authority to issue preferred stock and the anti-takeover provisions in our corporate governance ~~documents;~~documents. Additional discussion of these and other risks, uncertainties and factors ~~discussed elsewhere~~affecting Cerner's business is contained 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 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 ~~or business~~ over time.

~~Management Overview~~

Our fundamental strategic focus is the creation of organic growth by investing in research and development ("R&D") to create solutions and 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 14% and 13%, respectively. This growth has also created an important strategic footprint in health care, with ~~Cerner~~^® solutions in more than 27,000 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 by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are looking to replace their current suppliers. We may also supplement organic growth with acquisitions or strategic investments.

~~We expect to drive growth through solutions and services that reflect our ongoing ability to innovate and expand our reach into health care. Examples of these include our~~ ~~CareAware~~^® ~~health care device architecture and devices,~~ ~~Cerner ITWorks~~^SM ~~services, revenue cycle solutions and services, and~~ ~~HealtheIntent~~^SM population health solutions 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.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. Similar to our history of growing revenue, our net earnings have increased at compound annual rates of 17% and 21% over the most recent five- and ten-year periods, respectively. We expect to drive earnings growth as we continue to grow our revenue. We also have opportunities to expand our operating margins over time. In the near term, we expect growth in non-cash expenses, such as amortization and depreciation, and a mix of lower margin revenue associated with some of our rapidly growing services businesses will limit our margin expansion. Longer-term, we expect to generate margin expansion as the growth rate of non-cash expenses slows, we achieve economies of scale and efficiencies in our services businesses, control general and administrative expenses, and get more contributions to our growth from solutions on our ~~HealtheIntent~~ ~~platform, which we expect to be accretive to our overall margins.~~

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

~~Results Overview~~

Bookings, which reflects the value of executed contracts for software, hardware, professional services and managed services, was $1.78 billion in the second quarter of 2018, which is an increase of 9% compared to $1.64 billion in the second quarter of 2017.

Revenues for the second quarter of 2018 increased 6% to $1.37 billion, compared to $1.29 billion in the second quarter of 2017. The 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 second quarter of 2018 decreased 6% to $169 million, compared to $180 million in the second quarter of 2017. Diluted earnings per share decreased 4% to $0.51, compared to $0.53 in the second quarter of 2017. The overall decrease in net earnings and diluted earnings per share was primarily a result of increased operating expenses, which reflects the hiring of personnel to support revenue growth. The increase in operating expenses was partially offset by a lower effective tax rate, stemming from certain U.S. income tax reform enacted in December 2017.

We had cash collections of receivables of $1.32 billion in both the second quarter of 2018 and 2017. Days sales outstanding was 77 days for the second quarter of 2018 compared to 73 days for both the first quarter of 2018 and the second quarter of 2017. Operating cash flows for the second quarter of 2018 were $300 million compared to $292 million in the second quarter of 2017.

~~Results of Operations~~

~~Three Months EndedJune 30, 2018~~ ~~Compared to~~ ~~Three Months EndedJuly 1, 2017~~

~~The following table presents a summary of the operating information for the~~ ~~second~~ ~~quarters of~~ ~~2018~~ ~~and~~ ~~2017~~:

(In thousands) 2018
% of
Revenue
2017
% of
Revenue
% Change

Revenues $ 1,367,727
100 % $ 1,291,994
100 % 6 %
Costs of revenue 238,783
17 % 223,063
17 % 7 %

Margin 1,128,944
83 % 1,068,931
83 % 6 %

Operating expenses
Sales and client service 635,105
46 % 563,387
44 % 13 %
Software development 168,278
12 % 142,835
11 % 18 %
General and administrative 95,464
7 % 90,633
7 % 5 %
Amortization of acquisition-related intangibles 21,810
2 % 22,688
2 % (4 )%

Total operating expenses 920,657
67 % 819,543
63 % 12 %

Total costs and expenses 1,159,440
85 % 1,042,606
81 % 11 %

Operating earnings 208,287
15 % 249,388
19 % (16 )%

Other income, net 6,597
2,661

Income taxes (45,527 ) (72,366 )

Net earnings $ 169,357
$ 179,683
(6 )%

~~Revenues & Backlog~~

~~Revenues increased 6% to $1.37 billion in the~~ ~~second~~ ~~quarter of~~ ~~2018, as compared to $1.29 billion in the same period of~~ ~~2017. The growth in revenues includes a $51 million increase in professional services revenue, driven by increased contributions from our~~ ~~Cerner ITWorks~~^SM ~~and revenue cycle services. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.~~

Backlog, which reflects contracted revenue that has not yet been recognized as revenue, was $14.79 billion as of June 30, 2018. In the first quarter of 2018, we adopted new revenue recognition guidance as further discussed in Note (2) of the notes to condensed consolidated financial statements. In connection with the adoption of such guidance, we modified our calculation of backlog as previously determined under Regulation S-K to represent the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially satisfied) to conform to the new revenue recognition guidance. Backlog amounts disclosed in prior periods have not been adjusted, and are not comparable to, the current period presentation.

~~Costs of Revenue~~

~~Costs of revenue as a percent of revenues were 17% in the second quarter of both 2018 and 2017.~~

~~Operating Expenses~~

~~Total operating expenses increased 12% to $921 million in the second quarter of 2018, as compared to $820 million in the same period of 2017.~~

~~Sales and client service expenses as a percent of revenues were 46% in the~~ ~~second~~ ~~quarter of 2018, compared to 44% in the same period of 2017. These expenses increased 13% to $635 million in the~~ ~~second~~ quarter of 2018, from $563 million in the same period of 2017. 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 in sales and client service expenses is primarily due to the hiring of services personnel to support growth in services revenue.

•

~~Software development expenses as a percent of revenues were 12% in the~~ ~~second~~ ~~quarter of~~ ~~2018, compared to 11% in the same period of~~ ~~2017. Expenditures for software development include ongoing development and enhancement of the~~ ~~Cerner Millennium~~^® ~~and~~ ~~HealtheIntent~~ ~~platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle and population health solutions. A summary of our total software development expense in the~~ ~~second~~ ~~quarters of 2018 and 2017 is as follows:~~

Three Months Ended
(In thousands) 2018 2017

Software development costs $ 185,486
$ 173,282
Capitalized software costs (68,786 ) (71,087 )
Capitalized costs related to share-based payments (563 ) (787 )
Amortization of capitalized software costs 52,141
41,427

Total software development expense $ 168,278
$ 142,835

~~General and administrative expenses as a percent of revenues were 7% in the~~ ~~second~~ ~~quarter of both 2018 and 2017. These expenses increased 5% to $95 million in the~~ ~~second~~ quarter of 2018, from $91 million in the same period in 2017. 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 and related adjustments. The increase in general and administrative expenses is primarily due to an increase in personnel expenses.

~~Amortization of acquisition-related intangibles as a percent of revenues was 2% in the~~ ~~second~~ ~~quarter of both 2018 and 2017. These expenses remained relatively flat at $22 million in the~~ ~~second~~ ~~quarter of 2018, and $23 million in the same period in~~2017. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business acquisitions.

~~Non-Operating Items~~

~~Other income, net was $7 million in the~~ ~~second~~ quarter of 2018, compared to $3 million in the same period of 2017. The increase is primarily attributable to increased interest income on our cash and investment balances, due to a combination of increased holdings and rising interest rates.

~~Our effective tax rate was 21.2% for the~~ ~~second~~ quarter of 2018, compared to 28.7% in the same period of 2017. The decrease in the effective tax rate in 2018 is primarily due to a reduction in the U.S. corporate statutory tax rate from 35% to 21%, effective January 1, 2018. Refer to Note (7) of the notes to condensed consolidated financial statements for further discussion regarding our effective tax rate.

~~Operations by Segment~~

We have two operating segments: Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, the Bahamas, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. Refer to Note (11) of the notes to condensed consolidated financial statements for further information regarding our reportable segments.

~~The following table presents a summary of our operating segment information for the~~ ~~second~~ ~~quarters of~~ ~~2018~~ ~~and~~ ~~2017~~:

(In thousands) 2018 % of Revenue 2017 % of Revenue % Change

Domestic Segment
Revenues $ 1,202,064
100% $ 1,155,654
100% 4%

Costs of revenue 208,185
17% 197,336
17% 5%
Operating expenses 551,468
46% 488,955
42% 13%
Total costs and expenses 759,653
63% 686,291
59% 11%

Domestic operating earnings 442,411
37%
469,363
41% (6)%

Global Segment
Revenues 165,663
100% 136,340
100% 22%

Costs of revenue 30,598
18% 25,727
19% 19%
Operating expenses 73,407
44% 65,581
48% 12%
Total costs and expenses 104,005
63% 91,308
67% 14%

Global operating earnings 61,658
37% 45,032
33% 37%

Other, net (295,782 ) (265,007 ) 12%

Consolidated operating earnings $ 208,287
$ 249,388
(16)%

~~Domestic Segment~~

•

~~Revenues increased 4% to $1.20 billion in the~~ ~~second~~ ~~quarter of 2018, from $1.16 billion in the same period of 2017. The growth in revenues includes a $40 million increase in professional services revenue, driven by increased contributions from our~~ ~~Cerner ITWorks~~^SM ~~and revenue cycle services. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.~~

~~Costs of revenue as a percent of revenues were 17% in the~~ ~~second~~ ~~quarter of both 2018 and 2017.~~

~~Operating expenses as a percent of revenues were 46% in the~~ ~~second~~ ~~quarter of 2018, compared to 42% in the same period of 2017. The higher operating expenses as a percent of revenues reflects the hiring of personnel to support revenue growth.~~

~~Global Segment~~

~~Revenues increased 22% to $166 million in the~~ ~~second~~ quarter of 2018, from $136 million in the same period of 2017. This increase was driven by growth across most of our business. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

~~Costs of revenue as a percent of revenues were 18% in the~~ ~~second~~ quarter of 2018, compared to 19% in the same period of 2017. The lower costs of revenue as a percent of revenues was primarily driven by a lower amount of third party resources utilized for support and services.

~~Operating expenses as a percent of revenues were 44% in the~~ ~~second~~ quarter of 2018, compared to 48% in the same period of 2017. The decrease as a percent of revenues is primarily a reflection of increased revenue in proportion to the amount of our fixed operating expenses.

~~Other, net~~

Operating results 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. These expenses increased 12% to $296 million in the second quarter of 2018, from $265 million in the same period of 2017. The increase is primarily due to increased software development expenses, including increased amortization of capitalized software costs resulting from releases of new and enhanced solutions over the last four quarters.

~~Six Months Ended June 30, 2018 Compared to Six Months EndedJuly 1, 2017~~

~~The following table presents a summary of our operating information for the first~~ ~~six~~ ~~months of 2018 and 2017:~~

(In thousands) 2018
% of
Revenue
2017
% of
Revenue
% Change

Revenues $ 2,660,588
100 % $ 2,552,480
100 % 4 %
Costs of revenue 470,061
18 % 422,056
17 % 11 %

Margin 2,190,527
82 % 2,130,424
83 % 3 %

Operating expenses
Sales and client service 1,225,053
46 % 1,123,587
44 % 9 %
Software development 329,895
12 % 288,736
11 % 14 %
General and administrative 187,758
7 % 179,025
7 % 5 %
Amortization of acquisition-related intangibles 44,319
2 % 45,562
2 % (3 )%

Total operating expenses 1,787,025
67 % 1,636,910
64 % 9 %

Total costs and expenses 2,257,086
85 % 2,058,966
81 % 10 %

Operating earnings 403,502
15 % 493,514
19 % (18 )%

Other income, net 11,461
1,545

Income taxes (85,605 ) (142,163 )

Net earnings $ 329,358
$ 352,896
(7 )%

~~Revenues~~

Revenues increased 4% to $2.66 billion in the first six months of 2018, as compared to $2.55 billion in the same period of 2017. The growth in revenues includes a $96 million increase in professional services revenue, driven by increased contributions from our ~~Cerner ITWorks~~^SM ~~and revenue cycle services. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.~~

~~Costs of Revenue~~

Costs of revenue as a percent of revenues were 18% in the first six months of 2018, compared to 17% in the same period of 2017. The higher costs of revenue as a percent of revenues was primarily driven by higher third-party costs associated with services revenue.

~~Operating Expenses~~

~~Total operating expenses increased 9% to $1.79 billion in the first~~ ~~six~~ ~~months of~~ ~~2018, as compared to~~ ~~$1.64 billion~~ ~~in the same period of~~ ~~2017~~.

~~Sales and client service expenses as a percent of revenues were 46% in the first~~ ~~six~~ ~~months of 2018, compared to 44% in the same period of 2017. These expenses increased 9% to $1.23 billion in the first~~ ~~six~~ months of 2018, from $1.12 billion in the same period of 2017. The growth in sales and client service expenses is primarily due to the hiring of services personnel to support growth in services revenue.

•

~~Software development expenses as a percent of revenues were 12% in the first~~ ~~six~~ ~~months of 2018, compared to 11% in the same period of 2017. Expenditures for software development include ongoing development and enhancement of the~~ ~~Cerner Millennium~~^® ~~and~~ ~~HealtheIntent~~ platforms, with a focus on supporting key initiatives to enhance physician experience, revenue cycle and population health solutions. A summary of our total software development expense in the first six months of 2018 and 2017 is as follows:

Six Months Ended
(In thousands) 2018 2017

Software development costs $ 370,704
$ 349,714
Capitalized software costs (141,857 ) (141,506 )
Capitalized costs related to share-based payments (1,094 ) (1,460 )
Amortization of capitalized software costs 102,142
81,988

Total software development expense $ 329,895
$ 288,736

~~General and administrative expenses as a percent of revenues were 7% in the first~~ ~~six~~ ~~months of both 2018 and 2017. These expenses increased 5% to $188 million in the first~~ ~~six~~ ~~months of 2018, from $179 million in the same period of 2017. The increase in general and administrative expenses is primarily due to increased expense associated with share-based payment awards.~~

~~Amortization of acquisition-related intangibles as a percent of revenues was 2% in the first~~ ~~six~~ ~~months of both 2018 and 2017. These expenses remained relatively flat at $44 million in the first~~ ~~six~~ ~~months of 2018, and $46 million in the same period of 2017.~~

~~Non-Operating Items~~

~~Other income, net was $11 million in the first~~ ~~six~~ months of 2018, compared to $2 million in the same period of 2017. The increase is primarily attributable to increased interest income on our cash and investment balances, due to a combination of increased holdings and rising interest rates.

~~Our effective tax rate was 20.6% for the first~~ ~~six~~ months of 2018, compared to 28.7% in the same period of 2017. The decrease in the effective tax rate in 2018 is primarily due to a reduction in the U.S. corporate statutory tax rate from 35% to 21%, effective January 1, 2018. Refer to Note (7) of the notes to condensed consolidated financial statements for further discussion regarding our effective tax rate.

~~Operations by Segment~~

~~The following table presents a summary of our operating segment information for the first~~ ~~six~~ ~~months of 2018 and 2017:~~

(In thousands) 2018 % of Revenue 2017 % of Revenue % Change

Domestic Segment
Revenues $ 2,337,160
100% $ 2,287,458
100% 2%

Costs of revenue 414,859
18% 373,697
16% 11%
Operating expenses 1,071,339
46% 972,335
43% 10%
Total costs and expenses 1,486,198
64% 1,346,032
59% 10%

Domestic operating earnings 850,962
36%
941,426
41% (10)%

Global Segment
Revenues 323,428
100% 265,022
100% 22%

Costs of revenue 55,202
17% 48,359
18% 14%
Operating expenses 142,551
44% 129,104
49% 10%
Total costs and expenses 197,753
61% 177,463
67% 11%

Global operating earnings 125,675
39% 87,559
33% 44%

Other, net (573,135 ) (535,471 ) 7%

Consolidated operating earnings $ 403,502
$ 493,514
(18)%

~~Domestic Segment~~

•

~~Revenues increased 2% to $2.34 billion in the first~~ ~~six~~ ~~months of 2018, from $2.29 billion in the same period of 2017. The growth in revenues includes a $71 million increase in professional services revenue, driven by increased contributions from our~~ ~~Cerner ITWorks~~^SM ~~and revenue cycle services. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.~~

~~Costs of revenue as a percent of revenues were 18% in the first~~ ~~six~~ ~~months of 2018, compared to 16% in the same period of 2017. The higher costs of revenue as a percent of revenues was primarily driven by higher third-party costs associated with services revenue.~~

~~Operating expenses as a percent of revenues were 46% in the first~~ ~~six~~ ~~months of 2018, compared to 43% in the same period of 2017. The higher operating expenses as a percent of revenues reflects the hiring of personnel to support revenue growth.~~

~~Global Segment~~

~~Revenues increased 22% to $323 million in the first~~ ~~six~~ months of 2018, from $265 million in the same period of 2017. This increase was driven by growth across most of our business. Refer to Note (2) of the notes to condensed consolidated financial statements for further information regarding revenues disaggregated by our business models.

~~Costs of revenue as a percent of revenues were 17% in the first~~ ~~six~~ months of 2018, compared to 18% in the same period of 2017. The lower costs of revenue as a percent of revenues was primarily driven by a lower amount of third party resources utilized for support and services.

~~Operating expenses as a percent of revenues were 44% in the first~~ ~~six~~ months of 2018, compared to 49% in the same period in 2017. The decrease as a percent of revenues is primarily a reflection of increased revenue in proportion to the amount of our fixed operating expenses.

~~Other, net~~

These expenses increased 7% to $573 million in the first six months of 2018, from $535 million in the same period of 2017. The increase is primarily due to increased software development expenses, including increased amortization of capitalized software costs resulting from releases of new and enhanced solutions over the last four quarters.

~~Liquidity and Capital Resources~~

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, and short-term investments. At June 30, 2018, we had cash and cash equivalents of $511 million and short-term investments of $375 million, as compared to cash and cash equivalents of $371 million and short-term investments of ~~$435 million~~ at ~~December 30, 2017~~.

~~We maintain a~~ ~~$100 million~~ multi-year revolving credit 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. We have the ability to increase the maximum capacity to $200 million at any time during the facility's term, subject to lender participation. As of June 30, 2018, we had no outstanding borrowings under this facility; however, we had $47 million of outstanding letters of credit, which reduced our available borrowing capacity to $53 million.

We believe that our present cash position, together with cash generated from operations, short-term investments and, if necessary, our available line of credit, will be sufficient to meet anticipated cash requirements for the next 12 months.

~~The following table summarizes our cash flows in the first~~ ~~sixmonths of~~ ~~2018~~ ~~and~~ ~~2017~~:

Six Months Ended
(In thousands) 2018 2017

Cash flows from operating activities $ 708,666
$ 595,828
Cash flows from investing activities (211,182 ) (341,503 )
Cash flows from financing activities (350,280 ) 27,650
Effect of exchange rate changes on cash (7,159 ) 7,594
Total change in cash and cash equivalents 140,045
289,569

Cash and cash equivalents at beginning of period 370,923
170,861

Cash and cash equivalents at end of period $ 510,968
$ 460,430

Free cash flow (non-GAAP) $ 376,721
$ 263,490

~~Cash from Operating Activities~~

Six Months Ended
(In thousands) 2018 2017

Cash collections from clients $ 2,592,826
$ 2,644,616
Cash paid to employees and suppliers and other (1,962,652 ) (1,940,617 )
Cash paid for interest (8,333 ) (9,067 )
Cash paid for taxes, net of refunds 86,825
(99,104 )

Total cash from operations $ 708,666
$ 595,828

~~Cash flow from operations increased $113 million in the first six~~months of 2018 when compared to the same period of 2017, due primarily to net refunds of taxes. Days sales outstanding was 77 days in the second quarter of 2018, compared to 73 days for both the first quarter of 2018 and second quarter of 2017. Revenues provided under support and maintenance agreements represent recurring cash flows. We expect these revenues to continue to grow as the base of our installed systems grows.

~~Cash from Investing Activities~~

Six Months Ended
(In thousands) 2018 2017

Capital purchases $ (188,994 ) $ (189,372 )
Capitalized software development costs (142,951 ) (142,966 )
Sales and maturities of investments, net of purchases 137,136
4,871
Purchases of other intangibles (16,373 ) (14,036 )

Total cash flows from investing activities $ (211,182 ) $ (341,503 )

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

~~Our capital spending in the first six~~months of 2018 was driven by capitalized equipment purchases primarily to support growth in our managed services business, investments in a cloud infrastructure to support cloud-based solutions, building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives. Total capital spending for 2018 is expected to exceed 2017 levels, primarily driven by an increase in spending to support our facilities requirements, including commencement of construction on the next two phases of our Innovations Campus (office space development located in Kansas City, Missouri); along with increased capital purchases to support the growth in our managed services business.

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 2017 activity was impacted by a change in investment mix, where we invested more heavily in cash equivalents versus short-term and long-term investments. The 2018 activity is impacted by excess cash being used to repurchase shares of our common stock, as discussed further below.

On July 27, 2018 we acquired a minority interest in Essence Group Holdings Corporation for cash consideration of $266 million. Refer to Note (4) of the notes to condensed consolidated financial statements for further information regarding this investment.

~~Cash from Financing Activities~~

Six Months Ended
(In thousands) 2018 2017

Repayment of long-term debt $ (75,000 ) $ —
Cash from option exercises (net of taxes paid in connection with shares surrendered by associates) 14,035
30,321
Treasury stock purchases (287,624 ) —
Contingent consideration payments for acquisition of businesses (1,691 ) (2,671 )

Total cash flows from financing activities $ (350,280 ) $ 27,650

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

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 ~~2018~~ ~~based on the number of exercisable options as of~~ ~~June 30, 2018~~ ~~and our current stock price.~~

During the six months ended June 30, 2018, we repurchased 4.8 million shares of our common stock for total consideration of $288 million. At June 30, 2018, $639 million remains available for repurchase under our current program. We may continue to repurchase shares under this program in 2018, which will be dependent on a number of factors, including the price of our common stock. Although we may continue to repurchase shares, there is no assurance that we will repurchase up to the full amount remaining under the program. Refer to Note (9) of the notes to condensed consolidated financial statements for further information regarding our share repurchase program.

~~Free Cash Flow (Non-GAAP)~~

Three Months Ended Six Months Ended
(In thousands) 2018 2017 2018 2017

Cash flows from operating activities (GAAP) $ 299,701
$ 292,243
$ 708,666
$ 595,828
Capital purchases (109,283 ) (101,307 ) (188,994 ) (189,372 )
Capitalized software development costs (69,349 ) (71,874 ) (142,951 ) (142,966 )

Free cash flow (non-GAAP) $ 121,069
$ 119,062
113,231,000 $ 376,721
$ 263,490

~~Free cash flow increased $113 million in the first six~~months of 2018 compared to the same period in 2017, primarily due to an increase in cash from operations. 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. We define free cash flow as cash flows from operating activities reduced by capital purchases and capitalized software development costs. The table above sets forth a reconciliation of free cash flow to cash flows from operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow. The presentation of free cash flow is not meant to be considered in isolation, nor as a substitute for, or superior to, GAAP results, and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Free cash flow may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe free cash flow is important to enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance, because free cash flow takes into account certain capital expenditures necessary to operate our business.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

No material changes.

Item 4. Controls and Procedures


a)	Evaluation of Disclosure Controls and Procedures.

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


b)	Changes in Internal Control over Financial Reporting.

During the fiscal quarter ended ~~June~~March 30, ~~2018,~~2019, we ~~initiated a plan that calls for~~adopted ASU 2016-02, Leases (Topic 842), as amended. In connection with the adoption of this new guidance, material modifications and enhancements were made to our internal controls over financial ~~reporting in relation to our upcoming adoption of the new lease standard effective in the first quarter of 2019. Such plan resulted in changes to certain processes and procedures during the quarter.~~reporting. Specifically, we implemented/modified internal controls to address:

•The calculation and presentation of transition adjustments (cumulative effect adjustments);

•Recognition and measurement of lease liabilities and right-of-use assets;

•Related new disclosure requirements; and

•Monitoring of the adoption ~~process; and~~process.

~~The gathering of information and evaluation of analysis used in the development of disclosures required prior to the new standard's adoption.~~

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

Except as disclosed above, there were no other changes in our internal controls over financial reporting during the fiscal quarter ended ~~June~~March 30, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


c)	Limitations on Controls.

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

Part II. Other Information

Item 1A. Risk Factors

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

Lower than expected revenue growth or shifts in our revenue mix could adversely affect our results of operations. Our revenue growth and mix could vary over time due to a number of factors, including timing of contracts signing, changes in the health of our end markets, unexpected client attrition, and the mix of software, hardware, devices, maintenance, support and services revenues, which carry different margin rates which can vary from period to period. Our operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including rapid growth in lower margin services business, declines in software, and growth in non-cash expenses, such as amortization and depreciation. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our results of operations. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could decline.

Our business could be negatively affected as a result of any future proxy fight or the actions of activist shareholders. Although our engagement with activist shareholder Starboard Value LP and certain of its affiliates (collectively, "Starboard") was settled as a result of our entry into a cooperation agreement, future proxy contests or related activist activities with Starboard or other activist shareholders could adversely affect our business for a number of reasons, including, but not limited to, the fact that responding to proxy contests and other actions by activist shareholders can be costly and time-consuming and can create perceived uncertainties as to our future direction and governance that may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and others important to our success. Any future proxy contest or activist activities could also cause our stock price to experience periods of volatility. Further, if a proxy contest or a related settlement results in a change in the composition of our Board of Directors it could, in certain circumstances, give third parties certain rights under our existing contractual obligations, which could adversely affect our business.

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

The table below provides information with respect to Common Stock purchases by the Company during the ~~second~~first fiscal quarter of ~~2018~~2019.

Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)
Period
April 1, 2018 - April 28, 2018 —
$ —
—
$ 339,023,012
April 29, 2018 - May 26, 2018 3,408,003
58.76
3,402,811
639,091,129
May 27, 2018 - June 30, 2018 41,103
59.73
—
639,091,129

Total 3,449,106
$ 58.77
3,402,811



	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
December 30, 2018 - January 26, 2019	—	$	—	—	$	283,172,767
January 27, 2019 - February 23, 2019	59	54.95		—	283,172,767
February 24, 2019 - March 30, 2019	246	57.14		—	283,172,767

Total	305	$	56.72	—

(a)

Of the ~~3,449,106~~305 shares of common stock, par value $0.01 per share, presented in the table above, ~~46,295~~all 305 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 ~~46,295~~305 shares reflected above were relinquished by employees in exchange for our agreement to pay U.S. federal and state withholding obligations resulting from the vesting of the Company’s restricted stock.

(b)

As announced on May ~~25, 2017,~~21, 2018, our Board of Directors ~~authorized a share~~approved an amendment to our repurchase program that ~~allows~~allowed for the Company to repurchase up to ~~$500 million~~an aggregate of $1.0 billion of shares of our common stock, excluding transaction costs. As announced on April 9, 2019, our Board of Directors approved a further amendment to this share repurchase program. Under the amendment, the Company is authorized to repurchase up to an additional $1.2 billion of shares of our common stock, for an aggregate of $2.2 billion, excluding transaction costs. The repurchases are to be 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~~As of the ~~program. As announced on May 21, 2018, our Board~~date of Directors approved an amendment to the repurchase program that was authorized in May 2017. Under the amendment, the Company was authorized to repurchase up to an additional $500 million of shares of our common stock, for an aggregate of $1this filing, $1.5 billion excluding transaction costs. During the six months ended June 30, 2018, we repurchased 4.8 million shares for total consideration of $288 million under the program pursuant to Rule 10b5-1 plans. At June 30, 2018, $639 million remains available for repurchase under the amended program. Refer to Note (9) of the notes to condensed consolidated financial statements for further information regarding our share repurchase program.

Item 6. Exhibits



(a)		Exhibits

10.1		Cooperation Agreement, dated April 8, 2019, by and among Cerner Corporation and Starboard Value LP and certain of its affiliates filed as Exhibit 10.1 to Form 8-K filed April 9, 2019, is incorporated herein by reference

10.2		Form 2019 Executive Performance Agreement - Section 16 Officer

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

10.4		2011 Omnibus Equity Incentive Plan - Form of Performance Based Restricted Stock Agreement

10.5		2011 Omnibus Equity Incentive Plan - Form of Director Restricted Stock Agreement

31.1		Certification of Brent Shafer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

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




	CERNER CORPORATION
	Registrant

Date: ~~August 3, 2018~~April 26, 2019	By:	/s/ Marc G. Naughton
		Marc G. Naughton
		Executive Vice President and Chief
		Financial Officer (duly authorized
		officer and principal financial officer)



(In thousands)	June 30, 2018		December 30, 2017

Client receivables	$	1,204,487	$	1,082,886
Less: Allowance for doubtful accounts	61,639		52,786

Client receivables, net of allowance	1,142,848		1,030,100

Current portion of lease receivables	9,012		12,681

Total receivables, net	$	1,151,860	$	1,042,781