Company Quick10K Filing
Cerner
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 325 $23,267
10-Q 2019-10-25 Quarter: 2019-09-28
10-Q 2019-07-25 Quarter: 2019-06-29
10-Q 2019-04-26 Quarter: 2019-03-30
10-K 2019-02-08 Annual: 2018-12-29
10-Q 2018-10-26 Quarter: 2018-09-29
10-Q 2018-08-03 Quarter: 2018-06-30
10-Q 2018-05-03 Quarter: 2018-03-31
10-K 2018-02-12 Annual: 2017-12-30
10-Q 2017-10-27 Quarter: 2017-09-30
10-Q 2017-07-28 Quarter: 2017-07-01
10-Q 2017-04-28 Quarter: 2017-04-01
10-K 2017-02-10 Annual: 2016-12-31
10-Q 2016-11-02 Quarter: 2016-10-01
10-Q 2016-08-03 Quarter: 2016-07-02
10-Q 2016-05-06 Quarter: 2016-04-02
10-K 2016-02-17 Annual: 2016-01-02
10-Q 2015-11-04 Quarter: 2015-10-03
10-Q 2015-08-05 Quarter: 2015-07-04
10-Q 2015-05-08 Quarter: 2015-04-04
10-K 2015-02-11 Annual: 2015-01-03
10-Q 2014-10-24 Quarter: 2014-09-27
10-Q 2014-07-25 Quarter: 2014-06-28
10-Q 2014-04-25 Quarter: 2014-03-29
10-K 2014-02-05 Annual: 2013-12-28
10-Q 2013-10-25 Quarter: 2013-09-28
10-Q 2013-07-26 Quarter: 2013-06-29
10-Q 2013-04-26 Quarter: 2013-03-30
10-K 2013-02-08 Annual: 2012-12-29
10-Q 2012-10-26 Quarter: 2012-09-29
10-Q 2012-07-27 Quarter: 2012-06-30
10-Q 2012-04-27 Quarter: 2012-03-31
10-K 2012-02-15 Annual: 2011-12-31
10-Q 2011-10-28 Quarter: 2011-10-01
10-Q 2011-08-01 Quarter: 2011-07-02
10-Q 2011-04-29 Quarter: 2011-04-02
10-K 2011-02-16 Annual: 2011-01-01
10-Q 2010-10-29 Quarter: 2010-10-02
10-Q 2010-07-30 Quarter: 2010-07-03
10-Q 2010-04-30 Quarter: 2010-04-03
10-K 2010-02-22 Annual: 2010-01-02
8-K 2019-12-12 Amend Bylaw, Other Events, Exhibits
8-K 2019-11-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-10-30 Officers
8-K 2019-10-24 Earnings, Exhibits
8-K 2019-09-11 Other Events, Exhibits
8-K 2019-09-09 Officers, Regulation FD, Exhibits
8-K 2019-07-30 Regulation FD, Exhibits
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-05-30 Other Events, Exhibits
8-K 2019-05-30 Officers, Shareholder Vote, Exhibits
8-K 2019-05-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-08 Enter Agreement, Officers, Regulation FD, Other Events, Exhibits
8-K 2019-02-05 Earnings, Other Events, Exhibits
8-K 2019-01-14 Officers, Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-09-05 Officers, Regulation FD, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-09 Regulation FD, Exhibits
8-K 2018-05-21 Other Events, Exhibits
8-K 2018-05-18 Officers, Shareholder Vote
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-03-01 Officers, Amend Bylaw, Exhibits
8-K 2018-02-06 Earnings, Exhibits
8-K 2018-01-10 Officers, Regulation FD, Exhibits
CERN 2019-09-28
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits
EX-31.1 ex311-ceocertq32019.htm
EX-31.2 ex312-cfocertq32019.htm
EX-32.1 ex321-ceosec906certq32.htm
EX-32.2 ex322-cfosec906certq32.htm

Cerner Earnings 2019-09-28

CERN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
FISV 36,296 19,640 17,094 5,977 2,645 961 1,416 50,043 44% 35.3 5%
CTSH 35,944 15,517 4,960 16,458 4,722 2,075 3,288 35,002 29% 10.6 13%
VRSN 24,841 1,890 3,315 1,226 1,040 630 879 23,607 85% 26.9 33%
VRSK 24,108 6,234 4,023 2,490 1,573 597 1,038 26,483 63% 25.5 10%
WIT 23,894 833,171 262,418 0 0 0 0 -18,072 0%
CERN 23,267 7,276 2,559 5,527 4,538 594 1,421 23,603 82% 16.6 8%
DXC 14,635 32,577 21,360 20,361 0 1,170 3,720 21,467 0% 5.8 4%
LDOS 11,528 9,327 5,968 10,527 1,506 662 1,028 13,857 14% 13.5 7%
OTEX 11,247 7,934 4,049 2,869 1,938 286 870 13,712 68% 15.8 4%
JKHY 10,406 2,185 756 1,553 630 272 353 10,313 41% 29.2 12%

Document
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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: September 28, 2019
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
cernerlogocolora03.jpg
43-1196944
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
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)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
CERN
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-accelerated Filer Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
  
Outstanding at October 16, 2019
Common Stock, $0.01 par value per share
  
314,097,410 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 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 September 28, 2019 (unaudited) and December 29, 2018
(In thousands, except share data)
2019
 
2018
 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
496,430

 
$
374,126

Short-term investments
136,266

 
401,285

Receivables, net
1,154,980

 
1,183,494

Inventory
23,155

 
25,029

Prepaid expenses and other
402,247

 
334,870

Total current assets
2,213,078

 
2,318,804

 
 
 
 
Property and equipment, net
1,865,924

 
1,743,575

Right-of-use assets
121,746

 

Software development costs, net
935,170

 
894,512

Goodwill
844,926

 
847,544

Intangible assets, net
347,376

 
405,305

Long-term investments
403,435

 
300,046

Other assets
205,775

 
198,850

 
 
 
 
Total assets
$
6,937,430

 
$
6,708,636

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
275,916

 
$
293,534

Current installments of long-term debt and capital lease obligations

 
4,914

Deferred revenue
308,444

 
399,189

Accrued payroll and tax withholdings
264,049

 
195,931

Other current liabilities
153,187

 
69,122

Total current liabilities
1,001,596

 
962,690

 
 
 
 
Long-term debt
1,038,567

 
438,802

Deferred income taxes
353,711

 
336,379

Other liabilities
132,289

 
42,376

Total liabilities
2,526,163

 
1,780,247

 
 
 
 
Shareholders' Equity:
 
 
 
Common stock, $.01 par value, 500,000,000 shares authorized, 366,201,300 shares issued at September 28, 2019 and 362,212,843 shares issued at December 29, 2018
3,662

 
3,622

Additional paid-in capital
1,806,939

 
1,559,562

Retained earnings
5,836,984

 
5,576,525

Treasury stock, 52,282,997 shares at September 28, 2019 and 37,905,013 shares at December 29, 2018
(3,107,768
)
 
(2,107,768
)
Accumulated other comprehensive loss, net
(128,550
)
 
(103,552
)
Total shareholders' equity
4,411,267

 
4,928,389

 
 
 
 
Total liabilities and shareholders' equity
$
6,937,430

 
$
6,708,636


See notes to condensed consolidated financial statements (unaudited).

1

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 28, 2019 and September 29, 2018
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
$
1,429,428

 
$
1,340,073

 
$
4,250,366

 
$
4,000,661

Costs and expenses:
 
 
 
 
 
 
 
Costs of revenue
271,778

 
230,332

 
793,655

 
700,393

Sales and client service
707,743

 
605,946

 
2,026,825

 
1,830,999

Software development (Includes amortization of $56,786 and $169,036 for the three and nine months ended September 28, 2019, respectively; and $53,429 and $155,571 for the three and nine months ended September 29, 2018, respectively)
187,526

 
172,297

 
548,934

 
502,192

General and administrative
152,321

 
102,789

 
398,305

 
290,547

Amortization of acquisition-related intangibles
21,283

 
21,553

 
64,809

 
65,872

 
 
 
 
 
 
 
 
Total costs and expenses
1,340,651

 
1,132,917


3,832,528


3,390,003

 
 
 
 
 
 
 
 
Operating earnings
88,777

 
207,156


417,838


610,658

 
 
 
 
 
 
 
 
Other income, net
13,535

 
6,943

 
44,973

 
18,404

 
 
 
 
 
 
 
 
Earnings before income taxes
102,312

 
214,099


462,811


629,062

Income taxes
(20,377
)
 
(44,718
)
 
(87,688
)
 
(130,323
)
 
 
 
 
 
 
 
 
Net earnings
$
81,935

 
$
169,381


$
375,123


$
498,739

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.26

 
$
0.51

 
$
1.17

 
$
1.51

Diluted earnings per share
$
0.26

 
$
0.51

 
$
1.16

 
$
1.49

Basic weighted average shares outstanding
315,876

 
329,342

 
320,282

 
330,789

Diluted weighted average shares outstanding
319,113

 
332,937

 
323,361

 
334,493

See notes to condensed consolidated financial statements (unaudited).


2

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 28, 2019 and September 29, 2018
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net earnings
$
81,935

 
$
169,381

 
$
375,123

 
$
498,739

Foreign currency translation adjustment and other (net of taxes (benefit) of $(409) and $(413) for the three and nine months ended September 28, 2019; and $(13) and $572 for the three and nine months ended September 29, 2018, respectively)
(11,679
)
 
(8,907
)
 
(9,458
)
 
(27,924
)
Unrealized loss on cash flow hedge (net of tax benefit of $1,327 and $5,396 for the three and nine months ended September 28, 2019, respectively)
(4,037
)
 

 
(16,407
)
 

Unrealized holding gain on available-for-sale investments (net of taxes of $5 and $286 for the three and nine months ended September 28, 2019; and $181 and $97 for the three and nine months ended September 29, 2018, respectively)
14

 
553

 
867

 
297

 
 
 
 
 
 
 
 
Comprehensive income
$
66,233

 
$
161,027


$
350,125


$
471,112


See notes to condensed consolidated financial statements (unaudited).


3

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 28, 2019 and September 29, 2018
(unaudited)
 
Nine Months Ended
(In thousands)
2019
 
2018
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings
$
375,123

 
$
498,739

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
509,559

 
473,748

Share-based compensation expense
73,421

 
74,348

Provision for deferred income taxes
22,793

 
16,412

Investment gains
(24,231
)
 

Changes in assets and liabilities:
 
 
 
Receivables, net
24,558

 
(250,042
)
Inventory
1,877

 
(9,006
)
Prepaid expenses and other
(75,191
)
 
162,053

Accounts payable
(3,346
)
 
21,762

Accrued income taxes
(795
)
 
(9,150
)
Deferred revenue
(89,400
)
 
34,316

Other accrued liabilities
61,156

 
33,940

 
 
 
 
Net cash provided by operating activities
875,524

 
1,047,120

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital purchases
(388,588
)
 
(305,951
)
Capitalized software development costs
(211,284
)
 
(209,122
)
Purchases of investments
(317,979
)
 
(477,156
)
Sales and maturities of investments
507,258

 
454,439

Purchase of other intangibles
(25,794
)
 
(24,304
)
 
 
 
 
Net cash used in investing activities
(436,387
)
 
(562,094
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Long-term debt issuance
600,000

 

Repayment of long-term debt

 
(75,000
)
Proceeds from exercise of stock options
188,474

 
82,001

Payments to taxing authorities in connection with shares directly withheld from associates
(14,994
)
 
(9,749
)
Treasury stock purchases
(1,020,542
)
 
(345,210
)
Dividends paid
(57,293
)
 

Other
(8,450
)
 
2,254

 
 
 
 
Net cash used in financing activities
(312,805
)

(345,704
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(4,028
)
 
(11,631
)
 
 
 
 
Net increase in cash and cash equivalents
122,304

 
127,691

Cash and cash equivalents at beginning of period
374,126

 
370,923

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

 
$
498,614

See notes to condensed consolidated financial statements (unaudited).

4

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three and nine months ended September 28, 2019 and September 29, 2018
(unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss, Net
(In thousands)
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 29, 2018
362,213

 
$
3,622

 
$
1,559,562

 
$
5,576,525

 
$
(2,107,768
)
 
$
(103,552
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
706

 
7

 
11,716

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense

 

 
19,860

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

 

 
2,958

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
166,219

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 30, 2019
362,919


3,629


1,591,138


5,742,744


(2,107,768
)

(100,594
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
1,777

 
18

 
108,045

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense

 

 
23,024

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

 

 
(12,254
)
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock purchases

 

 

 

 
(600,000
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared ($0.18 per share)

 

 

 
(57,682
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
126,969

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 29, 2019
364,696


$
3,647


$
1,722,207


$
5,812,031


$
(2,707,768
)

$
(112,848
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
1,505

 
15

 
54,195

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense

 

 
30,537

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

 

 
(15,702
)
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock purchases

 

 

 

 
(400,000
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared ($0.18 per share)

 

 

 
(56,982
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
81,935

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 28, 2019
366,201


3,662


1,806,939


5,836,984


(3,107,768
)

(128,550
)
See notes to condensed consolidated financial statements (unaudited).









5

Table of Contents

CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)
For the three and nine months ended September 28, 2019 and September 29, 2018
(unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss, Net
(In thousands)
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 30, 2017
359,205

 
$
3,592

 
$
1,380,371

 
$
4,938,866

 
$
(1,464,099
)
 
$
(73,382
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
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
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
629

 
6

 
5,962

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense

 

 
24,204

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

 

 
(21,169
)
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock purchases

 

 

 

 
(200,000
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
169,357

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
360,501

 
$
3,605

 
$
1,443,803

 
$
5,275,824

 
$
(1,751,723
)
 
$
(92,655
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and vests of restricted shares and share units
1,366

 
14

 
58,212

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense

 

 
25,209

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

 

 
(8,354
)
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock purchases

 

 

 

 
(57,586
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
169,381

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 29, 2018
361,867

 
$
3,619

 
$
1,527,224

 
$
5,445,205

 
$
(1,809,309
)
 
$
(101,009
)
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

Our third fiscal quarter ends on the Saturday closest to September 30. The 2019 and 2018 third quarters ended on September 28, 2019 and September 29, 2018, respectively. All references to years in these notes to condensed consolidated financial statements represent the respective three or nine months ended on such dates, unless otherwise noted.

Supplemental Disclosures of Cash Flow Information
 
 
 
Nine Months Ended
(In thousands)
 
 
2019
 
2018
Cash paid during the period for:
 
 
 
 
 
Interest (including amounts capitalized of $12,575 and $9,318, respectively)
 
 
$
20,756

 
$
15,568

Income taxes, net of refunds
 
 
65,171

 
(47,462
)


Voluntary Separation Benefits

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 April 2019. In the second quarter of 2019, we recorded pre-tax charges for the 2019 VSP of $41 million. Such charges are included in general and administrative expense in our condensed consolidated statements of operations.

In the third quarter of 2019, we offered voluntary separation benefits to certain associates primarily located outside the U.S. The irrevocable acceptance period for associates to accept such offers ended in September 2019. In the third quarter of 2019, we recorded corresponding pre-tax charges of $11 million. Such charges are included in general and administrative expense in our condensed consolidated statements of operations.


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Table of Contents

Involuntary Separation Benefits

In the third quarter of 2019, we recorded pre-tax charges of $21 million in connection with the involuntary termination of approximately 250 U.S. associates. Such charges are included in general and administrative expense in our condensed consolidated statements of operations. Separation benefits for these associates include cash severance, contribution to a health reimbursement account, career transition assistance, and accelerated vesting of certain share-based payment awards. At September 28, 2019, a liability of $18 million for such obligations is included in accrued payroll and tax withholdings in our condensed consolidated balance sheets, which we expect to settle/pay in the fourth quarter of 2019.

Contract Termination Costs

In the third quarter of 2019, we recorded pre-tax charges of $60 million in connection with the termination of certain client contracts prior to end of their stated terms, the majority of which was paid in cash. Such charges are included in our domestic operating segment, and presented in sales and client service expense in our condensed consolidated statements of operations. At September 28, 2019, our condensed consolidated balance sheets do not include a liability for any obligations related to such contract terminations.

Purchase Obligations

In July 2019, we entered into an agreement with a certain vendor to purchase $650 million of cloud computing services over an initial 10-year period ending in 2029.

Accounting Pronouncements Adopted in 2019

Leases. In the first quarter of 2019, we adopted new lease accounting guidance. Refer to Note (7) for further details.

Callable Debt Securities. In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring the premium be amortized to the earliest call date. Such guidance impacts how premiums are amortized on our available-for-sale investments. We adopted ASU 2017-08 in the first quarter of 2019. Such guidance did not have 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

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 did not early adopt.

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Collaborative Arrangements. In November 2018, the FASB issued 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 new revenue standard (Topic 606). Such guidance clarifies revenue recognition and financial statement presentation for transactions between collaboration participants. ASU 2018-18 is effective for the Company in the first quarter of 2020, with early adoption permitted. The standard requires retrospective application to the date we adopted Topic 606, December 31, 2017. We are currently evaluating the effect that ASU 2018-18 will have on our consolidated financial statements and related disclosures, and we do not expect to early adopt.

(2) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:
 
Three Months Ended
 
2019
 
2018
(In thousands)
Domestic
Segment
International
Segment
Total
 
Domestic
Segment
International
Segment
Total
 
 
 
 
 
 
 
 
Licensed software
$
144,599

$
9,934

$
154,533

 
$
132,447

$
7,441

$
139,888

Technology resale
65,103

5,072

70,175

 
51,097

9,281

60,378

Subscriptions
85,230

6,674

91,904

 
73,792

5,323

79,115

Professional services
446,562

60,893

507,455

 
400,695

56,030

456,725

Managed services
272,933

29,502

302,435

 
278,019

23,981

302,000

Support and maintenance
227,131

50,163

277,294

 
229,202

48,578

277,780

Reimbursed travel
23,705

1,927

25,632

 
22,902

1,285

24,187

 
 
 
 
 
 
 
 
Total revenues
$
1,265,263

$
164,165

$
1,429,428

 
$
1,188,154

$
151,919

$
1,340,073



 
Nine Months Ended
 
2019
 
2018
(In thousands)
Domestic
Segment
International
Segment
Total
 
Domestic
Segment
International
Segment