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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2020
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission File Number: 0-15386

CERNER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
https://cdn.kscope.io/745a63b5e5017e1a882d1012c7b138af-cern-20200630_g1.jpg
43-1196944
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
2800 Rockcreek Parkway
North Kansas City,MO64117
(Address of principal executive offices)(Zip Code)

(816) 221-1024
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareCERNThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-accelerated Filer Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class  Outstanding at July 22, 2020
Common Stock, $0.01 par value per share  305,381,551 shares



Table of Contents
CERNER CORPORATION

TABLE OF CONTENTS
 
Part I.Financial Information:
Item 1.Financial Statements:
Item 2.
Item 3.
Item 4.
Part II.Other Information:
Item 1.
Item 1A.
Item 2.
Item 6.
Signatures



Table of Contents
Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2020 (unaudited) and December 28, 2019

(In thousands, except share data)20202019
Assets
Current assets:
Cash and cash equivalents$269,895  $441,843  
Short-term investments171,123  99,931  
Receivables, net1,183,988  1,139,595  
Inventory18,525  23,182  
Prepaid expenses and other410,016  392,073  
Total current assets2,053,547  2,096,624  
Property and equipment, net1,870,779  1,858,772  
Right-of-use assets122,639  123,155  
Software development costs, net973,060  939,859  
Goodwill912,082  883,158  
Intangible assets, net346,259  364,439  
Long-term investments388,675  419,419  
Other assets212,300  209,196  
Total assets$6,879,341  $6,894,622  
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$261,540  $273,440  
Deferred revenue295,711  360,025  
Accrued payroll and tax withholdings267,930  245,843  
Other current liabilities181,621  148,140  
Total current liabilities1,006,802  1,027,448  
Long-term debt1,338,467  1,038,382  
Deferred income taxes381,926  377,657  
Other liabilities134,130  133,807  
Total liabilities2,861,325  2,577,294  
Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 371,186,776 shares issued at June 30, 2020 and 367,634,796 shares issued at December 28, 2019
3,712  3,676  
Additional paid-in capital2,120,341  1,905,171  
Retained earnings6,101,402  5,934,909  
Treasury stock, 65,919,144 shares at June 30, 2020 and 56,723,546 shares at December 28, 2019
(4,057,768) (3,407,768) 
Accumulated other comprehensive loss, net(149,671) (118,660) 
Total shareholders' equity4,018,016  4,317,328  
Total liabilities and shareholders' equity$6,879,341  $6,894,622  

See notes to condensed consolidated financial statements (unaudited).
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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2020 and June 29, 2019
(unaudited)
 
 Three Months EndedSix Months Ended
(In thousands, except per share data)2020201920202019
Revenues$1,330,349  $1,431,061  $2,742,090  $2,820,938  
Costs and expenses:
Costs of revenue211,963  268,673  466,379  521,877  
Sales and client service645,087  678,895  1,281,736  1,319,082  
Software development (Includes amortization of $61,197 and $122,208 for the three and six months ended June 30, 2020, respectively; and $56,005 and $112,250 for the three and six months ended June 29, 2019, respectively)
178,955  181,047  364,275  361,408  
General and administrative134,332  149,788  274,184  245,984  
Amortization of acquisition-related intangibles13,114  21,541  30,242  43,526  
Total costs and expenses1,183,451  1,299,944  2,416,816  2,491,877  
Operating earnings146,898  131,117  325,274  329,061  
Other income, net24,632  23,006  30,227  31,438  
Earnings before income taxes171,530  154,123  355,501  360,499  
Income taxes(36,782) (27,154) (73,594) (67,311) 
Net earnings$134,748  $126,969  $281,907  $293,188  
Basic earnings per share$0.44  $0.40  $0.92  $0.91  
Diluted earnings per share$0.44  $0.39  $0.91  $0.90  
Basic weighted average shares outstanding304,776  321,280  307,256  322,485  
Diluted weighted average shares outstanding306,717  324,662  309,520  325,498  
See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2020 and June 29, 2019
(unaudited)
 
 Three Months EndedSix Months Ended
(In thousands)2020201920202019
Net earnings$134,748  $126,969  $281,907  $293,188  
Foreign currency translation adjustment and other (net of taxes (benefit) of $(88) and $337 for the three and six months ended June 30, 2020; and $179 and $(4) for the three and six months ended June 29, 2019, respectively)
9,197  (100) (11,349) 2,221  
Unrealized loss on cash flow hedge (net of tax benefit of $332 and $6,682 for the three and six months ended June 30, 2020; and $4,069 for both the three and six months ended June 29, 2019, respectively)
(1,007) (12,370) (20,315) (12,370) 
Unrealized holding gain on available-for-sale investments (net of taxes of $494 and $215 for the three and six months ended June 30, 2020; and $71 and $281 for the three and six months ended June 29, 2019, respectively)
1,502  216  653  853  
Comprehensive income$144,440  $114,715  $250,896  $283,892  

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2020 and June 29, 2019
(unaudited)
 Six Months Ended
(In thousands)20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$281,907  $293,188  
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization343,941  336,486  
Share-based compensation expense72,580  42,884  
Provision for deferred income taxes12,884  15,154  
Investment gains(26,410) (15,509) 
Changes in assets and liabilities (net of businesses acquired):
Receivables, net(48,426) (47,839) 
Inventory5,509  1,875  
Prepaid expenses and other(36,431) (76,048) 
Accounts payable(31,711) 24,980  
Accrued income taxes26,358  (1,569) 
Deferred revenue(66,137) (78,090) 
Other accrued liabilities8,032  28,564  
Net cash provided by operating activities542,096  524,076  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases(166,296) (277,874) 
Capitalized software development costs(151,393) (144,902) 
Purchases of investments(91,957) (140,723) 
Sales and maturities of investments81,022  289,669  
Purchase of other intangibles(20,656) (17,457) 
Acquisition of businesses, net of cash acquired(35,766)   
Net cash used in investing activities(385,046) (291,287) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance300,000  600,000  
Proceeds from exercise of stock options
156,908  125,000  
Payments to taxing authorities in connection with shares directly withheld from associates(14,217) (4,860) 
Treasury stock purchases(650,000) (620,542) 
Dividends paid(111,101)   
Other(4,159) (4,450) 
Net cash provided by (used in) financing activities(322,569) 95,148  
Effect of exchange rate changes on cash and cash equivalents(6,429) 861  
Net increase (decrease) in cash and cash equivalents(171,948) 328,798  
Cash and cash equivalents at beginning of period441,843  374,126  
Cash and cash equivalents at end of period$269,895  $702,924  

See notes to condensed consolidated financial statements (unaudited).
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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three and six months ended June 30, 2020 and June 29, 2019
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Loss, Net
(In thousands)SharesAmount
Balance at December 29, 2018362,213  $3,622  $1,559,562  $5,576,525  $(2,107,768) $(103,552) 
Exercise of stock options and vests of restricted shares and share units706  7  11,716  —  —  —  
Employee share-based compensation expense—  —  19,860  —  —  —  
Other comprehensive income (loss)—  —  —  —  —  2,958  
Net earnings—  —  —  166,219  —  —  
Balance at March 30, 2019362,919  3,629  1,591,138  5,742,744  (2,107,768) (100,594) 
Exercise of stock options and vests of restricted shares and share units1,777  18  108,045  —  —  —  
Employee share-based compensation expense—  —  23,024  —  —  —  
Other comprehensive income (loss)—  —  —  —  —  (12,254) 
Treasury stock purchases—  —  —  —  (600,000) —  
Cash dividends declared ($0.18 per share)—  —  —  (57,682) —  —  
Net earnings—  —  —  126,969  —  —  
Balance at June 29, 2019364,696  $3,647  $1,722,207  $5,812,031  $(2,707,768) $(112,848) 
Balance at December 28, 2019367,635  $3,676  $1,905,171  $5,934,909  $(3,407,768) $(118,660) 
Exercise of stock options and vests of restricted shares and share units2,543  26  114,050  —  —  —  
Employee share-based compensation expense—  —  35,031  —  —  —  
Cumulative effect of accounting change (ASU 2016-13)—  —  —  (4,606) —  —  
Other comprehensive income (loss)—  —  —  —  —  (40,703) 
Treasury stock purchases—  —  —  —  (650,000) —  
Cash dividends declared ($0.18 per share)—  —  —  (55,206) —  —  
Net earnings—  —  —  147,159  —  —  
Balance at March 31, 2020370,178  3,702  2,054,252  6,022,256  (4,057,768) (159,363) 
Exercise of stock options and vests of restricted shares and share units1,009  10  28,540  —  —  —  
Employee share-based compensation expense—  —  37,549  —  —  —  
Other comprehensive income (loss)—  —  —  —  —  9,692  
Cash dividends declared ($0.18 per share)—  —  —  (55,602) —  —  
Net earnings—  —  —  134,748  —  —  
Balance at June 30, 2020371,187  $3,712  $2,120,341  $6,101,402  $(4,057,768) $(149,671) 

See notes to condensed consolidated financial statements (unaudited).
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CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1) Interim Statement Presentation

Basis of Presentation

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

The condensed consolidated financial statements were prepared using GAAP. 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

Prior to fiscal year 2020, our second fiscal quarter ended on the Saturday closest to June 30. The second quarter and year-to-date periods for 2019 presented herein consisted of 91 days and 182 days, respectively, and ended on June 29, 2019.

In December 2019, our Board of Directors approved the change of our fiscal year to a calendar year, commencing with fiscal year 2020. Accordingly, the second quarter and year-to-date periods for 2020 presented herein consisted of 91 days and 185 days, respectively, and ended on June 30, 2020.

All references to periods in these notes to condensed consolidated financial statements represent the respective periods described above ending on June 30, 2020 and June 29, 2019, unless otherwise noted.

Supplemental Disclosures of Cash Flow Information
 Six Months Ended
(In thousands)20202019
Cash paid during the period for:
Interest (including amounts capitalized of $8,831 and $8,164, respectively)
$16,572  $8,907  
Income taxes, net of refunds8,690  47,877  
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases22,270  22,551  

Accounting Pronouncements Adopted in 2020

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

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

Recently Issued Accounting Pronouncements

Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform, such as the upcoming discontinuance of the London Interbank Offered Rate ("LIBOR"). The accommodations within ASU 2020-04 may be applied prospectively from the beginning of our 2020 first quarter through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 may have on our contracts that reference LIBOR, specifically, our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and related interest rate swap. As of the date of this filing, we have not elected to apply any of the provisions of this standard.

(2) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:

Three Months Ended
20202019
(In thousands)Domestic
Segment
International
Segment
TotalDomestic
Segment
International
Segment
Total
Licensed software$138,950  $13,212  $152,162  $181,061  $16,052  $197,113  
Technology resale36,376  5,741  42,117  54,851  5,884  60,735  
Subscriptions85,281  6,771  92,052  83,573  6,197  89,770  
Professional services409,848  51,234  461,082  429,910  55,397  485,307  
Managed services275,679  31,479  307,158  268,560  29,091  297,651  
Support and maintenance220,301  53,735  274,036  225,602  50,809  276,411  
Reimbursed travel1,778  (36) 1,742  22,555  1,519  24,074  
Total revenues$1,168,213  $162,136  $1,330,349  $1,266,112  $164,949  $1,431,061  

Six Months Ended
20202019
(In thousands)Domestic SegmentInternational SegmentTotalDomestic SegmentInternational SegmentTotal
Licensed software$285,447  $24,747  $310,194  $321,506  $30,084  $351,590  
Technology resale80,825  12,779  93,604  104,009  12,266  116,275  
Subscriptions172,217  14,220  186,437  161,275  12,786  174,061  
Professional services862,632  109,796  972,428  867,139  108,607  975,746  
Managed services555,415  61,097  616,512  545,885  56,159  602,044  
Support and maintenance443,717  104,000  547,717  452,083  101,291  553,374  
Reimbursed travel14,375  823  15,198  45,045  2,803  47,848  
Total revenues$2,414,628  $327,462  $2,742,090  $2,496,942  $323,996  $2,820,938  



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

Three Months Ended
20202019
(In thousands)Domestic
Segment
International
Segment
Total