10-Q 1 cern-20220331.htm 10-Q cern-20220331
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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: March 31, 2022
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
cern-20220331_g1.jpg
43-1196944
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
2800 Rock Creek 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 April 26, 2022
Common Stock, $0.01 par value per share  294,098,094 shares



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 6.
Signatures



Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2022 (unaudited) and December 31, 2021
(In thousands, except share data)20222021
Assets
Current assets:
Cash and cash equivalents$709,532 $589,847 
Short-term investments171,180 252,622 
Receivables, net1,178,037 1,161,361 
Inventory27,704 28,159 
Prepaid expenses and other381,404 417,465 
Total current assets2,467,857 2,449,454 
Property and equipment, net1,610,496 1,656,171 
Right-of-use assets76,474 82,940 
Software development costs, net1,003,806 1,000,357 
Goodwill1,129,539 1,131,121 
Intangible assets, net434,900 458,482 
Long-term investments456,398 461,984 
Other assets194,761 193,649 
Total assets$7,374,231 $7,434,158 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$359,562 $329,582 
Current installments of long-term debt 225,000 
Deferred revenue456,929 531,234 
Accrued payroll and tax withholdings284,145 317,092 
Other current liabilities278,236 223,350 
Total current liabilities1,378,872 1,626,258 
Long-term debt1,611,303 1,611,256 
Deferred income taxes362,236 395,177 
Other liabilities113,301 121,005 
Total liabilities3,465,712 3,753,696 
Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 381,357,862 shares issued at March 31, 2022 and 380,232,975 shares issued at December 31, 2021
3,814 3,802 
Additional paid-in capital2,811,612 2,717,244 
Retained earnings6,877,111 6,751,692 
Treasury stock, 87,383,166 shares at March 31, 2022 and December 31, 2021
(5,664,718)(5,664,718)
Accumulated other comprehensive loss, net(119,300)(127,558)
Total shareholders' equity3,908,519 3,680,462 
Total liabilities and shareholders' equity$7,374,231 $7,434,158 

See notes to condensed consolidated financial statements (unaudited).
1

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2022 and March 31, 2021
(unaudited)
 
 Three Months Ended
(In thousands, except per share data)20222021
Revenues$1,429,801 $1,387,778 
Costs and expenses:
Costs of revenue243,848 230,656 
Sales and client service612,997 622,176 
Software development (Includes amortization of $65,206 and $64,850, respectively)
195,091 192,327 
General and administrative109,279 112,365 
Amortization of acquisition-related intangibles16,602 12,196 
Total costs and expenses1,177,817 1,169,720 
Operating earnings251,984 218,058 
Other income, net26 1,206 
Earnings before income taxes252,010 219,264 
Income taxes(45,881)(47,012)
Net earnings$206,129 $172,252 
Basic earnings per share$0.70 $0.57 
Diluted earnings per share$0.70 $0.56 
Basic weighted average shares outstanding293,412 304,731 
Diluted weighted average shares outstanding296,336 308,031 
See notes to condensed consolidated financial statements (unaudited).

2

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2022 and March 31, 2021
(unaudited)
 
 Three Months Ended
(In thousands)20222021
Net earnings$206,129 $172,252 
Foreign currency translation adjustment and other (net of tax benefit of $237 and $679, respectively)
(3,424)(8,991)
Unrealized gain (loss) on cash flow hedge (net of taxes of $3,906 and $1,509, respectively)
12,060 4,588 
Unrealized holding gain (loss) on available-for-sale investments (net of tax benefit of $125 and $71, respectively)
(378)(217)
Comprehensive income$214,387 $167,632 

See notes to condensed consolidated financial statements (unaudited).

3

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2022 and March 31, 2021
(unaudited)
 Three Months Ended
(In thousands)20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$206,129 $172,252 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization175,223 175,313 
Share-based compensation expense33,332 47,950 
Provision for deferred income taxes(36,301)(2,829)
Changes in assets and liabilities:
Receivables, net(16,712)(12,301)
Inventory461 (7,411)
Prepaid expenses and other13,600 24,173 
Accounts payable35,730 30,118 
Accrued income taxes75,323 21,378 
Deferred revenue(72,800)14,768 
Other accrued liabilities(38,922)(12,977)
Net cash provided by operating activities375,063 450,434 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases(42,393)(75,925)
Capitalized software development costs(56,300)(83,550)
Purchases of investments(8,439)(321,670)
Sales and maturities of investments99,638 306,935 
Purchase of other intangibles(4,703)(7,975)
Net cash used in investing activities(12,197)(182,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance 500,000 
Repayment of long-term debt(225,000) 
Proceeds from exercise of stock options63,394 36,514 
Payments to taxing authorities in connection with shares directly withheld from associates(1,583)(4,897)
Treasury stock purchases (341,715)
Dividends paid(79,183)(67,477)
Other1,038 (5,310)
Net cash provided by (used in) financing activities(241,334)117,115 
Effect of exchange rate changes on cash and cash equivalents(1,847)(3,118)
Net increase in cash and cash equivalents119,685 382,246 
Cash and cash equivalents at beginning of period589,847 615,615 
Cash and cash equivalents at end of period$709,532 $997,861 

See notes to condensed consolidated financial statements (unaudited).
4

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 2022 and March 31, 2021
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Loss, Net
(In thousands)SharesAmount
Balance at December 31, 2020373,225 $3,732 $2,288,806 $6,475,551 $(4,164,718)$(120,804)
Exercise of stock options and vests of restricted shares and share units824 8 31,471 — — — 
Employee share-based compensation expense— — 47,950 — — — 
Other comprehensive income (loss)— — — — — (4,620)
Treasury stock purchases— — — — (350,000)— 
Cash dividends declared ($0.22 per share)— — — (67,191)— — 
Net earnings— — — 172,252 — 
Balance at March 31, 2021374,049 3,740 2,368,227 6,580,612 (4,514,718)(125,424)
Balance at December 31, 2021380,233 $3,802 $2,717,244 $6,751,692 $(5,664,718)$(127,558)
Exercise of stock options and vests of restricted shares and share units1,125 12 61,036 — — — 
Employee share-based compensation expense— — 33,332 — — — 
Other comprehensive income (loss)— — — — — 8,258 
Cash dividends declared ($0.27 per share)— — — (80,710)— — 
Net earnings— — — 206,129 — 
Balance at March 31, 2022381,358 $3,814 $2,811,612 $6,877,111 $(5,664,718)$(119,300)

See notes to condensed consolidated financial statements (unaudited).
















5

CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1) Interim Statement Presentation

Basis of Presentation

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

The condensed consolidated financial statements were prepared using GAAP. These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

All references to quarters or three month periods ended 2022 and 2021 in these notes to condensed consolidated financial statements refer to the respective three month periods ended March 31, 2022 and March 31, 2021, unless otherwise noted.

Oracle Merger Agreement

On December 20, 2021, we entered into an Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the "Merger Agreement") with Cedar Acquisition Corporation ("Merger Subsidiary"), which is a wholly owned subsidiary of OC Acquisition LLC ("Parent"), Parent, which is a wholly owned subsidiary of Oracle Corporation ("Oracle"), and (solely with respect to performance of its obligations set forth in certain specified sections thereof) Oracle. Pursuant to the Merger Agreement, on January 19, 2022, Oracle commenced a cash tender offer (the "Offer") to acquire all of the issued and outstanding shares of our common stock for a purchase price of $95.00 per share, net to the holders thereof in cash, without interest and subject to any required tax withholding. If the Offer is completed, Merger Subsidiary will merge with and into Cerner (the "Merger") and we will become a wholly owned indirect subsidiary of Oracle. As a result of the Merger, the shares of our common stock will cease to be publicly held. Completion of the Merger remains subject to certain closing conditions, including receipt of certain regulatory approvals, shareholders holding a majority of the outstanding shares of our common stock tendering their shares in the Offer, and other customary closing conditions. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions.


6

Supplemental Disclosures of Cash Flow Information
 Three Months Ended
(In thousands)20222021
Cash paid during the period for:
Interest (including amounts capitalized of $2,763 and $2,692, respectively)
$21,667 $15,549 
Income taxes, net of refunds(2,063)19,216 
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases292 7,745 
Financed capital purchases 1,361 

Recently Issued Accounting Pronouncements

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

Business Combinations. The FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers in October 2021. Such guidance amends the recognition and measurement principles that apply to business combinations to require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. ASU 2021-08 is effective for the Company in the first quarter of 2023, with early adoption permitted. The standard requires prospective application to business combinations occurring on or after the date of adoption. As of the date of this filing, we have not determined if we will early adopt.

(2) Revenue Recognition

Disaggregation of Revenue

The following table presents revenues disaggregated by our business models:

Three Months Ended
20222021
(In thousands)Domestic
Segment
International
Segment
TotalDomestic
Segment
International
Segment
Total
Licensed software$178,913 $10,508 $189,421 $148,833 $12,828 $161,661 
Technology resale42,764 4,719 47,483 37,891 7,781 45,672 
Subscriptions90,553 3,870 94,423 95,383 4,429 99,812 
Professional services452,238 73,022 525,260 434,162 60,260 494,422 
Managed services287,975 36,651 324,626 282,076 35,300 317,376 
Support and maintenance200,667 42,213 242,880 217,499 45,825 263,324 
Reimbursed travel5,346 362 5,708 6,148 (637)5,511 
Total revenues$1,258,456 $171,345 $1,429,801 $1,221,992 $165,786 $1,387,778 


7

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

Three Months Ended
20222021
(In thousands)Domestic
Segment
International
Segment
TotalDomestic
Segment
International
Segment
Total
Revenue recognized over time$1,182,210 $160,615 $1,342,825 $1,152,849 $153,868 $1,306,717 
Revenue recognized at a point in time76,246 10,730 86,976 69,143 11,918 81,061 
Total revenues$1,258,456 $171,345 $1,429,801 $1,221,992 $165,786 $1,387,778 

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $13.21 billion of which we expect to recognize approximately 31% of the revenue over the next 12 months and the remainder thereafter.

Contract Liabilities

Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. Such amounts are classified in our condensed consolidated balance sheets as "Deferred revenue". During the three months ended March 31, 2022, we recognized $151 million of revenues that were included in our contract liability balance at the beginning of such period.

Significant Customers

Revenues attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, within our Domestic segment, comprised 20% of our consolidated revenues for the first three months of both 2022 and 2021. Amounts due in connection with these relationships comprised 15% of client receivables as of both March 31, 2022 and December 31, 2021.

(3) Receivables

A summary of net receivables is as follows:
(In thousands)March 31, 2022December 31, 2021
Client receivables$1,291,556 $1,307,167 
Less: Provision for expected credit losses113,519 145,806 
Total receivables, net$1,178,037 $1,161,361 

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

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

(In thousands)CurrentNon-currentTotal
Provision for expected credit losses - balance at December 31, 2021$145,806 $61,106 $206,912 
Additions (reductions) charged to costs and expenses(7,011) (7,011)
Deductions, foreign currency and other(25,276) (25,276)
Provision for expected credit losses - balance at March 31, 2022$113,519 $61,106 $174,625 

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Our estimates of expected credit losses for client receivables at both March 31, 2022 and December 31, 2021, were primarily based on historical credit loss experience and adjustments for certain asset-specific risk characteristics (i.e. known client financial hardship or bankruptcy). Exposure to credit losses may increase if our clients are adversely affected by changes in healthcare laws; changes in reimbursement or payor models; economic pressures or uncertainty associated with local or global economic recessions; disruption associated with the COVID-19 pandemic; or other client-specific factors. Although we have historically not experienced significant credit losses, it is possible that there could be an adverse impact from potential adjustments to the carrying amount of client receivables as clients' cash flows are impacted by the COVID-19 pandemic and related economic uncertainty, which may be material.

During the first three months of 2022 and 2021, we received total client cash collections of $1.40 billion and $1.44 billion, respectively.

(4) Investments

Available-for-sale investments at March 31, 2022 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$63,290 $— $— $63,290 
Time deposits45,501 — — 45,501 
Commercial Paper115,500 — — 115,500 
Total cash equivalents224,291 — — 224,291 
Short-term investments:
Time deposits19,994 — — 19,994 
Commercial paper34,000 — (10)33,990 
Government and corporate bonds117,576 3 (383)117,196 
Total short-term investments171,570 3 (393)171,180 
Long-term investments:
Government and corporate bonds19,642 — (361)19,281 
Total available-for-sale investments$415,503 $3 $(754)$414,752 

9

Available-for-sale investments at December 31, 2021 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$149,429 $— $— $149,429 
Time deposits35,342 — — 35,342 
Commercial Paper77,850 — — 77,850 
Government and corporate bonds5,000   5,000 
Total cash equivalents267,621 — — 267,621 
Short-term investments:
Time deposits25,598 — — 25,598 
Commercial Paper57,000 — (14)56,986 
Government and corporate bonds170,123 18 (103)170,038 
Total short-term investments252,721 18 (117)252,622 
Long-term investments:
Government and corporate bonds31,167 — (149)31,018 
Total available-for-sale investments$551,509 $18 $(266)$551,261 

We sold available-for-sale investments for proceeds of $133 million during the three months ended March 31, 2022, resulting in insignificant losses in the period.

Other Investments

At both March 31, 2022 and December 31, 2021, we had investments in equity securities that do not have readily determinable fair values of $406 million, accounted for in accordance with Accounting Standards Codification Topic ("ASC") 321, Investments-Equity Securities. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments during the three months ended March 31, 2022 and March 31, 2021, respectively.

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

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(5) Long-term Debt

The following is a summary of indebtedness outstanding:
(In thousands)March 31, 2022December 31, 2021
Credit agreement loans due December 30, 2026
$600,000 $600,000 
Senior notes:
Series 2021-A due March 24, 2026
100,000 100,000 
Series 2021-B due March 24, 2031
400,000 400,000 
Series 2020-A due March 11, 2030
300,000 300,000 
Series 2015-A due February 15, 2022
 225,000 
Series 2015-B due February 14, 2025
200,000 200,000 
Other11,662 11,662 
Total indebtedness1,611,662 1,836,662 
Less: debt issuance costs(359)(406)
Indebtedness, net1,611,303 1,836,256 
Less: current installments of long-term debt (225,000)
Long-term debt$1,611,303 $1,611,256 

Credit Agreement

As of March 31, 2022, the interest rate on revolving credit loans outstanding under our Credit Agreement was 1.14% based on LIBOR plus the applicable spread.

We are exposed to market risk from fluctuations in the variable interest rates on outstanding indebtedness under our Credit Agreement. In order to manage this exposure, we have entered into an interest rate swap agreement to hedge the variability of cash flows associated with such interest obligations. The interest rate swap is designated as a cash flow hedge, which effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. At March 31, 2022 and December 31, 2021, this swap was in a net liability position with an aggregate fair value of $1 million and $17 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".

Series 2015-A Senior Notes

On February 15, 2022, we repaid our $225 million of Series 2015-A notes due February 15, 2022.

11

(6) Fair Value Measurements

We determine fair value measurements used in our consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
 
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 – Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$63,290 $— $ 
Time depositsCash equivalents— 45,501  
Commercial paperCash equivalents— 115,500 — 
Time depositsShort-term investments— 19,994  
Commercial paperShort-term investments— 33,990  
Government and corporate bondsShort-term investments— 117,196  
Government and corporate bondsLong-term investments— 19,281  

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

(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$149,429 $— $ 
Time depositsCash equivalents— 35,342  
Commercial paperCash equivalents— 77,850 — 
Government and corporate bondsCash equivalents 5,000  
Time depositsShort-term investments— 25,598  
Commercial paperShort-term investments— 56,986 — 
Government and corporate bondsShort-term investments— 170,038  
Government and corporate bondsLong-term investments— 31,018  

Our interest rate swap agreement is measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such agreement is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are
12

observable in active markets over the terms that the instrument is held, the derivative is classified as Level 2 in the hierarchy.

We estimate the fair value of our long-term, fixed rate debt using a Level 3 discounted cash flow analysis based on current borrowing rates for debt with similar maturities. We estimate the fair value of our long-term, variable rate debt using a Level 3 discounted cash flow analysis based on LIBOR rate forward curves. The fair value of our long-term debt at March 31, 2022 and December 31, 2021 was approximately $1.59 billion and $1.87 billion, respectively. The carrying amount of such debt at March 31, 2022 and December 31, 2021 was $1.60 billion and $1.83 billion, 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. Our effective tax rate was 18.2% and 21.4% for the first three months of 2022 and 2021, respectively. The decrease in the effective tax rate in the first quarter of 2022 is primarily due to favorability of permanent book-tax differences for share-based compensation in 2022 compared to 2021.

(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
 20222021
 EarningsSharesPer-ShareEarningsSharesPer-Share
(In thousands, except per share data)(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Basic earnings per share:
Income available to common shareholders
$206,129 293,412 $0.70 $172,252 304,731 $0.57 
Effect of dilutive securities:
Stock options, non-vested shares and share units— 2,924 — 3,300 
Diluted earnings per share:
Income available to common shareholders including assumed conversions
$206,129 296,336 $0.70 $172,252 308,031 $0.56 

For the three months ended March 31, 2021, options to purchase 1.1 million shares of common stock at per share prices ranging from $52.32 to $76.49, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive. For the three months ended March 31, 2022, an inconsequential number of outstanding securities were not included in the computation of diluted earnings per share because they were anti-dilutive.


13

(9) Share-Based Compensation and Equity

Stock Options

Stock option activity for the three months ended March 31, 2022 was as follows:
(In thousands, except per share and term data)Number of
Shares
Weighted-
Average
Exercise 
Price
(Per Share)
Aggregate
Intrinsic 
Value
Weighted-Average 
Remaining
Contractual
Term (Yrs)
Outstanding at beginning of year4,670 $59.61 
Exercised(1,093)57.27 
Forfeited and expired(74)62.77 
Outstanding as of March 31, 20223,503 $60.27 $116,608 4.74
Exercisable as of March 31, 20222,322 $59.59 $78,862 4.11

As of March 31, 2022, there was $10 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of 1.05 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the three months ended March 31, 2022 was as follows:
(In thousands, except per share data)Number of SharesWeighted-Average
Grant Date Fair Value Per Share
Outstanding at beginning of year3,644 $73.35 
Granted2,016 93.39 
Vested(48)73.50 
Forfeited(186)74.16 
Outstanding as of March 31, 20225,426 $80.77 

As of March 31, 2022, there was $340 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.40 years.

Share-Based Compensation Cost

The following table presents total compensation expense recognized with respect to stock options, non-vested shares and share units, and our associate stock purchase plan:
 Three Months Ended
(In thousands)20222021
Stock option and non-vested share and share unit compensation expense$33,332 $47,950 
Associate stock purchase plan expense1,477 1,548 
Amounts capitalized in software development costs, net of amortization
(90)(1,663)
Amounts charged against earnings, before income tax benefit$34,719 $47,835 
Amount of related income tax benefit recognized in earnings$6,321 $10,256 


14

Dividends

On March 14, 2022, our Board of Directors declared a cash dividend of $0.27 per share on our issued and outstanding common stock, which was paid on April 19, 2022 to shareholders of record as of March 28, 2022. In connection with the declaration of such dividend, our non-vested shares and share units are entitled to dividend equivalents, which will be payable to the holder subject to, and upon vesting of, the underlying awards. Our outstanding stock options are not entitled to dividend or dividend equivalents. At both March 31, 2022 and December 31, 2021, our condensed consolidated balance sheets included liabilities for dividends payable of $81 million, which are included in "Other current liabilities".

Accumulated Other Comprehensive Loss, Net (AOCI)

The components of AOCI, net of tax, were as follows:
 Foreign currency translation adjustment and otherUnrealized loss on cash flow hedgeUnrealized holding gain (loss) on available-for-sale investmentsTotal
(In thousands)
Balance at December 31, 2021$(114,630)$(12,961)$33 $(127,558)
Other comprehensive income (loss) before reclassifications(3,424)9,542 (389)5,729 
Amounts reclassified from AOCI
 2,518 11 2,529 
Balance at March 31, 2022$(118,054)$(901)$(345)$(119,300)
Foreign currency translation adjustment and otherUnrealized loss on cash flow hedgeUnrealized holding gain (loss) on available-for-sale investmentsTotal
(In thousands)
Balance at December 31, 2020$(93,450)$(27,788)$434 $(120,804)
Other comprehensive income (loss) before reclassifications(8,991)2,061 (217)(7,147)
Amounts reclassified from AOCI 2,527  2,527 
Balance at March 31, 2021$(102,441)$(23,200)$217 $(125,424)


The effects on net earnings of amounts reclassified from AOCI were as follows:
(In thousands)Three Months Ended
AOCI ComponentLocation20222021
Unrealized loss on cash flow hedgeOther income, net$(3,079)$(3,217)
Income taxes561 690 
Net of tax(2,518)(2,527)
Unrealized holding gain (loss) on available-for-sale investmentsOther income, net(13) 
Income taxes2  
Net of tax(11) 
Total amount reclassified, net of tax$(2,529)$(2,527)


15

(10) Contingencies

We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies ("ASC 450"). No less than quarterly, and as facts and circumstances change, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.
On May 16, 2019, Steward Health Care System LLC ("Steward") filed a lawsuit in the Chancery Court for Davidson County, Tennessee against the Company. The Company believes Steward's allegations arise out of Steward's disinterest in following the contract between the Company and Steward's predecessor for clinical and financial software and services after Steward closed on its acquisition of the predecessor. The Company has filed a counterclaim against Steward seeking recovery of more than $42 million in unpaid invoices owed to the Company. The Company believes the dispute is in the ordinary course of business and the damages Steward asserts lack both factual and causal support. Steward has recently asserted that its damages are $300 million and advised the Company that it will seek to treble the damages. We have not concluded that a material loss related to the Steward allegations is probable, nor have we accrued a liability related to these claims. Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is in the discovery process. We will continue to vigorously defend against these claims, and we continue to believe that we have valid grounds for recovery of the disputed client receivables. However, there can be no assurances as to the outcome of the dispute.

On March 22, 2021, Astria Health ("Astria") filed an adversary proceeding in the United States Bankruptcy Court, Eastern District of Washington against the Company. Astria's allegations largely arise out of the Company's provision of revenue cycle services in 2018 and 2019. The Company believes the dispute is in the ordinary course of business and the factual allegations and the damages asserted lack both factual and causal support. Astria has recently claimed damages of $96 million. We have not concluded that a material loss related to the Astria allegations is probable, nor have we accrued a liability related to these claims beyond reserving certain bankruptcy-related outstanding invoices. Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that expert discovery is not yet complete. We will continue to vigorously defend against this claim. However, there can be no assurances as to the outcome of the dispute.

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

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

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

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

(In thousands)DomesticInternationalOtherTotal
Three Months Ended 2022
Revenues$1,258,456 $171,345 $— $1,429,801 
Costs of revenue215,241 28,607 — 243,848 
Operating expenses541,575 71,422 320,972 933,969 
Total costs and expenses
756,816 100,029 320,972 1,177,817 
Operating earnings (loss)$501,640 $71,316 $(320,972)$251,984 

(In thousands)DomesticInternationalOtherTotal
Three Months Ended 2021
Revenues$1,221,992 $165,786 $— $1,387,778 
Costs of revenue205,694 24,962 — 230,656 
Operating expenses560,562 61,614 316,888 939,064 
Total costs and expenses
766,256 86,576 316,888 1,169,720 
Operating earnings (loss)$