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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: March 31, 2021
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
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 30, 2021
Common Stock, $0.01 par value per share  301,317,068 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 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 March 31, 2021 (unaudited) and December 31, 2020

(In thousands, except share data)20212020
Assets
Current assets:
Cash and cash equivalents$997,861 $615,615 
Short-term investments476,362 442,473 
Receivables, net1,175,139 1,168,712 
Inventory30,442 23,027 
Prepaid expenses and other375,376 401,160 
Total current assets3,055,180 2,650,987 
Property and equipment, net1,803,027 1,804,083 
Right-of-use assets102,871 104,536 
Software development costs, net1,028,513 1,009,349 
Goodwill912,043 914,520 
Intangible assets, net316,368 329,249 
Long-term investments492,704 510,220 
Other assets197,704 198,152 
Total assets$7,908,410 $7,521,096 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$279,256 $235,755 
Current installments of long-term debt225,000  
Deferred revenue407,736 393,293 
Accrued payroll and tax withholdings313,184 309,814 
Other current liabilities237,964 229,764 
Total current liabilities1,463,140 1,168,626 
Long-term debt1,611,102 1,336,069 
Deferred income taxes372,037 376,035 
Other liabilities149,694 157,799 
Total liabilities3,595,973 3,038,529 
Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 374,048,596 shares issued at March 31, 2021 and 373,224,832 shares issued at December 31, 2020
3,740 3,732 
Additional paid-in capital2,368,227 2,288,806 
Retained earnings6,580,612 6,475,551 
Treasury stock, 72,276,054 shares at March 31, 2021 and 67,371,686 shares at December 31, 2020
(4,514,718)(4,164,718)
Accumulated other comprehensive loss, net(125,424)(120,804)
Total shareholders' equity4,312,437 4,482,567 
Total liabilities and shareholders' equity$7,908,410 $7,521,096 

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

Table of Contents
CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2021 and March 31, 2020
(unaudited)
 
 Three Months Ended
(In thousands, except per share data)20212020
Revenues$1,387,778 $1,411,741 
Costs and expenses:
Costs of revenue230,656 254,416 
Sales and client service622,176 636,649 
Software development (Includes amortization of $64,850 and $61,011, respectively)
192,327 185,320 
General and administrative112,365 139,852 
Amortization of acquisition-related intangibles12,196 17,128 
Total costs and expenses1,169,720 1,233,365 
Operating earnings218,058 178,376 
Other income, net1,206 5,595 
Earnings before income taxes219,264 183,971 
Income taxes(47,012)(36,812)
Net earnings$172,252 $147,159 
Basic earnings per share$0.57 $0.48 
Diluted earnings per share$0.56 $0.47 
Basic weighted average shares outstanding304,731 309,657 
Diluted weighted average shares outstanding308,031 312,240 
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 months ended March 31, 2021 and March 31, 2020
(unaudited)
 
 Three Months Ended
(In thousands)20212020
Net earnings$172,252 $147,159 
Foreign currency translation adjustment and other (net of taxes (benefit) of $(679) and $425, respectively)
(8,991)(20,546)
Unrealized gain (loss) on cash flow hedge (net of taxes (benefit) of $1,509 and $(6,350), respectively)
4,588 (19,308)
Unrealized holding gain (loss) on available-for-sale investments (net of tax benefit of $71 and $279, respectively)
(217)(849)
Comprehensive income$167,632 $106,456 

See notes to condensed consolidated financial statements (unaudited).

3

Table of Contents
CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2021 and March 31, 2020
(unaudited)
 Three Months Ended
(In thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$172,252 $147,159 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization175,313 172,646 
Share-based compensation expense47,950 35,031 
Provision for deferred income taxes(2,829)10,449 
Investment gains (477)
Changes in assets and liabilities (net of businesses acquired):
Receivables, net(12,301)(22,774)
Inventory(7,411)(296)
Prepaid expenses and other24,173 (13,681)
Accounts payable30,118 8,539 
Accrued income taxes21,378 1,105 
Deferred revenue14,768 (42,310)
Other accrued liabilities(12,977)(11,885)
Net cash provided by operating activities450,434 283,506 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases(75,925)(49,248)
Capitalized software development costs(83,550)(73,855)
Purchases of investments(321,670)(39,194)
Sales and maturities of investments306,935 36,112 
Purchase of other intangibles(7,975)(9,682)
Acquisition of businesses, net of cash acquired (744)
Net cash used in investing activities(182,185)(136,611)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance500,000 300,000 
Proceeds from exercise of stock options36,514 118,203 
Payments to taxing authorities in connection with shares directly withheld from associates(4,897)(4,517)
Treasury stock purchases(341,715)(650,000)
Dividends paid(67,477)(56,047)
Other(5,310)(3,600)
Net cash provided by (used in) financing activities117,115 (295,961)
Effect of exchange rate changes on cash and cash equivalents(3,118)(7,365)
Net increase (decrease) in cash and cash equivalents382,246 (156,431)
Cash and cash equivalents at beginning of period615,615 441,843 
Cash and cash equivalents at end of period$997,861 $285,412 

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 months ended March 31, 2021 and March 31, 2020
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Loss, Net
(In thousands)SharesAmount
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)
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)

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 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 2021 and 2020 in these notes to condensed consolidated financial statements refer to the respective three month periods ended March 31, 2021 and March 31, 2020, unless otherwise noted.

Supplemental Disclosures of Cash Flow Information
 Three Months Ended
(In thousands)20212020
Cash paid during the period for:
Interest (including amounts capitalized of $2,692 and $4,633, respectively)
$15,549 $11,811 
Income taxes, net of refunds19,216 2,869 
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases7,745 17,762 
Financed capital purchases1,361  

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 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 guidance.

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(2) Revenue Recognition

Disaggregation of Revenue

The following table presents revenues disaggregated by our business models:

Three Months Ended
20212020
(In thousands)Domestic
Segment
International
Segment
TotalDomestic
Segment
International
Segment
Total
Licensed software$148,833 $12,828 $161,661 $146,497 $11,535 $158,032 
Technology resale37,891 7,781 45,672 44,449 7,038 51,487 
Subscriptions95,383 4,429 99,812 86,936 7,449 94,385 
Professional services434,162 60,260 494,422 452,784 58,562 511,346 
Managed services282,076 35,300 317,376 279,736 29,618 309,354 
Support and maintenance217,499 45,825 263,324 223,416 50,265 273,681 
Reimbursed travel6,148 (637)5,511 12,597 859 13,456 
Total revenues$1,221,992 $165,786 $1,387,778 $1,246,415 $165,326 $1,411,741 

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

Three Months Ended
20212020
(In thousands)Domestic
Segment
International
Segment
TotalDomestic
Segment
International
Segment
Total
Revenue recognized over time$1,152,849 $153,868 $1,306,717 $1,165,515 $153,444 $1,318,959 
Revenue recognized at a point in time69,143 11,918 81,061 80,900 11,882 92,782 
Total revenues$1,221,992 $165,786 $1,387,778 $1,246,415 $165,326 $1,411,741 

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2021, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $13.07 billion of which we expect to recognize approximately 30% of the revenue over the next 12 months and the remainder thereafter.

Contract Liabilities

Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. Such amounts are classified in our condensed consolidated balance sheets as "Deferred revenue". During the three months ended March 31, 2021, we recognized $138 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% and 17% of our consolidated revenues for the first three months of 2021 and 2020, respectively. Amounts due in connection with these relationships comprised 16% and 13% of client receivables as of March 31, 2021 and December 31, 2020, respectively.

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(3) Receivables

A summary of net receivables is as follows:
(In thousands)March 31, 2021December 31, 2020
Client receivables$1,351,234 $1,322,278 
Less: Provision for expected credit losses176,095 153,566 
Total receivables, net$1,175,139 $1,168,712 

In addition to the client receivables presented above, at both March 31, 2021 and December 31, 2020, we had $17 million 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, 2020$153,566 $38,564 $192,130 
Additions charged to costs and expenses20,251  20,251 
Deductions, foreign currency and other2,278  2,278 
Provision for expected credit losses - balance at March 31, 2021$176,095 $38,564 $214,659 

Our estimates of expected credit losses for client receivables at both March 31, 2021 and December 31, 2020, were primarily based on historical credit loss experience and adjustments for certain asset-specific risk characteristics (i.e. known client financial hardship or bankruptcy). Exposure to credit losses may increase if our clients are adversely affected by changes in healthcare laws; 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 2021 and 2020, we received total client cash collections of $1.44 billion and $1.37 billion, respectively.

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(4) Investments

Available-for-sale investments at March 31, 2021 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$165,667 $— $— $165,667 
Time deposits31,588 — — 31,588 
Commercial Paper131,000 — — 131,000 
Government and corporate bonds9,709 — — 9,709 
Total cash equivalents337,964 — — 337,964 
Short-term investments:
Time deposits31,192 — — 31,192 
Commercial paper252,500 9 (70)252,439 
Government and corporate bonds192,606 226 (101)192,731 
Total short-term investments476,298 235 (171)476,362 
Long-term investments:
Government and corporate bonds105,645 10 (72)105,583 
Total available-for-sale investments$919,907 $245 $(243)$919,909 

Available-for-sale investments at December 31, 2020 were as follows:
(In thousands)Adjusted CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash equivalents:
Money market funds$40,027 $— $— $40,027 
Time deposits36,756 — — 36,756 
Commercial Paper61,000 — — 61,000 
Total cash equivalents137,783 — — 137,783 
Short-term investments:
Time deposits28,302 — — 28,302 
Commercial Paper264,000 12 (19)263,993 
Government and corporate bonds149,975 247 (44)150,178 
Total short-term investments442,277 259 (63)442,473 
Long-term investments:
Government and corporate bonds136,983 152 (57)137,078 
Total available-for-sale investments$717,043 $411 $(120)$717,334 

We sold available-for-sale investments for proceeds of $5 million during the three months ended March 31, 2020, resulting in insignificant losses in the period.

Other Investments

At March 31, 2021 and December 31, 2020, we had investments in equity securities that do not have readily determinable fair values of $369 million and $361 million, respectively, accounted for in accordance with Accounting Standards Codification Topic ("ASC") 321, Investments-Equity Securities. Such investments are included in "Long-term investments"
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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, 2021 and March 31, 2020, respectively.

At March 31, 2021 and December 31, 2020, we had investments in equity securities reported under the equity method of accounting of $18 million and $12 million, respectively. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets.

(5) Long-term Debt

The following is a summary of indebtedness outstanding:
(In thousands)March 31, 2021December 31, 2020
Credit agreement loans due May 5, 2024
$600,000 $600,000 
Senior notes:
Series 2021-A due March 24, 2026
100,000  
Series 2021-B due March 24, 2031
400,000  
Series 2020-A due March 11, 2030
300,000 300,000 
Series 2015-A due February 15, 2022
225,000 225,000 
Series 2015-B due February 14, 2025
200,000 200,000 
Other11,662 11,662 
Total indebtedness1,836,662 1,336,662 
Less: debt issuance costs(560)(593)
Indebtedness, net1,836,102 1,336,069 
Less: current installments of long-term debt(225,000) 
Long-term debt$1,611,102 $1,336,069 

Credit Agreement

As of March 31, 2021, the interest rate on revolving credit loans outstanding under our Credit Agreement was 0.91% 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, 2021 and December 31, 2020, this swap was in a net liability position with an aggregate fair value of $31 million and $37 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".

Series 2021 Senior Notes

We entered into a Master Note Agreement on November 11, 2019, and subsequently amended on October 8, 2020 (collectively and as amended, the "2019 Shelf Agreement"), pursuant to which we may issue and sell up to an aggregate principal amount of $1.80 billion of unsecured senior promissory notes. In March 2021, we issued $500 million aggregate principal amount of unsecured senior notes (the "Series 2021 Senior Notes"), pursuant to the 2019 Shelf Agreement. The issuance consisted of $100 million of 2.00% Series 2021-A Notes due March 24, 2026 and $400 million of 2.59% Series 2021-B Notes due March 24, 2031. Interest on the Series 2021 Senior Notes is payable semiannually on each March 24 and September 24, commencing September 24, 2021, and the principal balance is due at maturity. The Company may prepay at any time all, or any part of, the outstanding principal amount of the Series 2021 Senior Notes, subject to the payment of a make-whole amount. The Series 2021 Senior Notes are subject to the terms of the 2019 Shelf Agreement, which contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. As of the date of this filing, $1.00 billion remains available for sale under the 2019 Shelf Agreement, which is uncommitted and subject to participation by the purchasers.
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(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, 2021:

(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$165,667 $— $ 
Time depositsCash equivalents— 31,588  
Commercial paperCash equivalents— 131,000 — 
Government and corporate bondsCash equivalents— 9,709 — 
Time depositsShort-term investments— 31,192  
Commercial paperShort-term investments— 252,439  
Government and corporate bondsShort-term investments— 192,731  
Government and corporate bondsLong-term investments— 105,583  

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, 2020:

(In thousands)Fair Value Measurements Using
DescriptionBalance Sheet ClassificationLevel 1Level 2Level 3
Money market fundsCash equivalents$40,027 $— $ 
Time depositsCash equivalents— 36,756  
Commercial paperCash equivalents— 61,000 — 
Time depositsShort-term investments— 28,302  
Commercial paperShort-term investments— 263,993 — 
Government and corporate bondsShort-term investments— 150,178  
Government and corporate bondsLong-term investments— 137,078  

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
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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, 2021 and December 31, 2020 was approximately $1.85 billion and $1.36 billion, respectively. The carrying amount of such debt at March 31, 2021 and December 31, 2020 was $1.83 billion and $1.33 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 21.4% and 20.0% for the first three months of 2021 and 2020, respectively. The increase in the effective tax rate in the first quarter of 2021 is primarily due to a decrease in net excess tax benefits recognized as a component of income tax expense in connection with the exercise of stock options and the vesting of restricted share and share unit awards.

(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
 20212020
 EarningsSharesPer-ShareEarningsSharesPer-Share
(In thousands, except per share data)(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Basic earnings per share:
Income available to common shareholders
$172,252 304,731 $0.57 $147,159 309,657 $0.48 
Effect of dilutive securities:
Stock options, non-vested shares and share units— 3,300 — 2,583 
Diluted earnings per share:
Income available to common shareholders including assumed conversions
$172,252 308,031 $0.56 $147,159 312,240 $0.47 

For the three months ended March 31, 2021 and March 31, 2020, options to purchase 1.1 million and 4.1 million shares of common stock at per share prices ranging from $52.32 to $76.49 and $56.76 to $76.49, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.


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(9) Share-Based Compensation and Equity

Stock Options

Stock option activity for the three months ended March 31, 2021 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 year10,204 $58.59 
Exercised(705)51.57 
Forfeited and expired(41)58.83 
Outstanding as of March 31, 20219,458 $59.11 $120,781 5.36
Exercisable as of March 31, 20215,997 $57.99 $83,349 4.53

As of March 31, 2021, there was $39 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 1.77 years.

Non-vested Shares and Share Units

Non-vested share and share unit activity for the three months ended March 31, 2021 was as follows:
(In thousands, except per share data)Number of SharesWeighted-Average
Grant Date Fair Value Per Share
Outstanding at beginning of year4,131 $68.05 
Granted71 73.95 
Vested(188)65.89 
Forfeited(64)69.07 
Outstanding as of March 31, 20213,950 $68.24 

As of March 31, 2021, there was $158 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of 1.68 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)20212020
Stock option and non-vested share and share unit compensation expense$47,950 $35,031 
Associate stock purchase plan expense1,548 1,101 
Amounts capitalized in software development costs, net of amortization
(1,663)(745)
Amounts charged against earnings, before income tax benefit$47,835 $35,387 
Amount of related income tax benefit recognized in earnings$10,256 $6,443 


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Treasury Stock

Under our current share repurchase program, which was initially approved by our Board of Directors in May 2017 and most recently amended in December 2019, the Company is authorized to repurchase up to $3.70 billion of shares of our common stock, excluding transaction costs. The repurchases are to be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the three months ended March 31, 2021, we repurchased 4.9 million shares for total consideration of $350 million under the program. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. As of March 31, 2021, $577 million remained available for repurchase under the program.

Dividends
On March 25, 2021, our Board of Directors declared a cash dividend of $0.22 per share on our issued and outstanding common stock, which was paid on April 20, 2021 to shareholders of record as of April 6, 2021. 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, 2021 and December 31, 2020, our condensed consolidated balance sheets included liabilities for dividends payable of $69 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, 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)

Foreign currency translation adjustment and otherUnrealized loss on cash flow hedgeUnrealized holding gain (loss) on available-for-sale investmentsTotal
(In thousands)
Balance at December 28, 2019$(106,347)$(12,578)$265 $(118,660)
Other comprehensive income (loss) before reclassifications(20,546)(20,430)(849)(41,825)
Amounts reclassified from AOCI 1,122  1,122 
Balance at March 31, 2020$(126,893)$(31,886)$(584)$(159,363)


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

(In thousands)Three Months Ended
AOCI ComponentLocation20212020
Unrealized loss on cash flow hedgeOther income, net$(3,217)$(1,372)
Income taxes690 250 
Total amount reclassified, net of tax$(2,527)$(1,122)

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(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.
Cerner Health Services, Inc. ("Cerner HS"), a wholly owned subsidiary of Cerner Corporation, filed a lawsuit in the Chester County, Pennsylvania, Court of Common Pleas against NextGen Healthcare Information Systems, LLC ("NextGen") relating to a dispute arising out of a supplier relationship initially established between Siemens Health Services, Inc. and NextGen prior to the acquisition of the assets of Siemens Health Services, Inc. by Cerner HS in 2015. In September 2017, the court issued a preliminary injunction to prevent NextGen from refusing to honor certain contractual obligations to support Cerner HS's clients who use NextGen ambulatory EHR solutions. In September 2018, NextGen filed a counterclaim alleging breach of contract and tortious interference. NextGen’s expert testified at trial that NextGen should be entitled to collect profit disgorgement damages of $122 million or, at least $18 million of ambulatory-related disgorgement damages. Alternatively, he claimed NextGen should recover $26 million in lost profit damages. A remote trial commenced on January 25, 2021 and trial continues. We believe NextGen's claims are without merit and are vigorously defending against them; however, there can be no assurances as to the outcome of the dispute. We have not concluded that a loss related to the claims raised by NextGen in its counterclaim is probable, nor have we accrued a liability related to these claims. Although a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss in light of the inherent difficulty of predicting the outcome of litigation generally, the wide range of damages presented by NextGen's expert, and the continued lack of clarity on the causal connection between Cerner Corporation's and Cerner HS's actions and any alleged damages.

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

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

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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, 2021 and March 31, 2020:

(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)$455,736 $79,210 $(316,888)$218,058 

(In thousands)DomesticInternationalOtherTotal
Three Months Ended 2020
Revenues$1,246,415 $165,326 $— $1,411,741 
Costs of revenue228,567 25,849 — 254,416 
Operating expenses570,094 66,555 342,300 978,949 
Total costs and expenses
798,661 92,404 342,300 1,233,365 
Operating earnings (loss)$447,754 $72,922 $(342,300)$