The following Management Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Cerner Corporation (Cerner, the Company, we, us or our). This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the financial statements (Notes) found above.

Our first fiscal quarter ends on the Saturday closest to March 31. The 2012 and 2011 first quarters ended on March 31, 2012 and April 2, 2011, respectively. All references to years in this MD&A represent the respective three months ended on such dates, unless otherwise noted.

Except for the historical information and discussions contained herein, statements contained in this quarterly report on Form 10-Q may constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including: the possibility of product-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; risks associated with our non-U.S. operations; risks associated with our ability to effectively hedge exposure to fluctuations in foreign currency exchange rates; the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the United States and non-U.S. countries; risks associated with our recruitment and retention of key personnel; risks related to our reliance on third party suppliers; risks inherent with business acquisitions; the potential for losses resulting from asset impairment charges; risks associated with the ongoing adverse financial market environment and uncertainty in global economic conditions; changing political, economic, regulatory and judicial influences; government regulation; significant competition and market changes; variations in our quarterly operating results; potential inconsistencies in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity; the authority of our Board of Directors to issue preferred stock and anti-takeover provisions contained in our corporate governance documents; material adverse resolution of legal proceedings; and, other risks, uncertainties and factors discussed elsewhere in this Form 10-Q, in our other filings with the Securities and Exchange Commission or in materials incorporated therein by reference. Forward looking statements are not guarantees of future performance or results. The reader should not place undue reliance on forward-looking statements since the statements speak only as to the date they are made. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

Management Overview

Our revenues are primarily derived by selling, implementing and supporting software solutions, clinical content, hardware, health care devices and services that give health care providers secure access to clinical, administrative and financial data in real time, allowing them to improve the quality, safety and efficiency in the delivery of health care.

Our fundamental strategy centers on creating organic growth by investing in research and development (R&D) to create solutions and services for the health care industry. This strategy has driven strong growth over the long-term, as reflected in five- and ten-year compound annual revenue growth rates of 10% or more. This growth has also created an important strategic footprint in health care, with Cerner® solutions licensed by approximately 9,300 facilities around the world, including more than 2,650 hospitals; 3,750 physician practices; 40,000 physicians; 500 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 800 home health facilities; 40 employer sites and 1,600 retail pharmacies. Selling additional solutions back into this client base is an important element of our future revenue growth. We are also focused on driving growth through market share expansion by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are planning to replace their current supplier.

We expect to drive growth through new initiatives and services that reflect our ongoing ability to innovate and expand our reach into health care. Examples of these include our CareAware® health care device architecture and devices, Cerner HealtheSMemployer services, Cerner ITWorksSM services, Cerner RevWorksSM services, and solutions on our

Healthe Intent platform. Finally, we believe there is significant opportunity for growth outside of the United States, with many non-U.S. markets focused on health care information technology (HCIT) as part of their strategy to improve the quality and lower the cost of health care.

Beyond our strategy for driving revenue growth, we are also focused on earnings growth. Similar to our history of growing revenue, our net earnings have increased at compound annual rates of more than 20% over the most recent five- and ten-year periods. We expect to drive continued earnings growth through ongoing revenue growth coupled with margin expansion, which we expect to achieve through efficiencies in our implementation and operational processes and by leveraging R&D investments and controlling general and administrative expenses.

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

Results Overview

The Company delivered strong levels of bookings, revenues, earnings and cash flows in the first quarter of 2012.

New business bookings, which reflects the value of executed contracts for software, hardware, professional services and managed services, was $652.3 million in the first quarter of 2012, which was an increase of 24% compared to $524.9 million in the first quarter of 2011. Revenues for the first quarter of 2012 increased 30% to $641.2 million compared to $491.7 million in the year-ago quarter. The year-over-year increase in revenue reflects ongoing demand related to "meaningful use" incentives that we believe are increasing the focus of health care providers on improving the efficiency and quality of health care through the use of information technology and related services.

First quarter 2012 net earnings increased 37% to $88.7 million compared to $64.6 million in the first quarter of 2011. Diluted earnings per share increased 38% to $0.51 compared to $0.37 in the first quarter of 2011. First quarter 2012 and 2011 net earnings and diluted earnings per share reflect the impact of stock-based compensation expense. The effect of these expenses reduced the first quarter 2012 net earnings and diluted earnings per share by $5.5 million and $0.03, respectively, and first quarter 2011 net earnings and diluted earnings per share by $4.6 million and $0.03, respectively.

The growth in net earnings and diluted earnings per share was driven primarily by strong revenue growth and continued progress with our margin expansion initiatives, particularly leveraging R&D investments and controlling selling, general and administrative expenses. Our first quarter 2012 operating margin was 19.9%, which is 80 basis points higher than the year-ago quarter.

We had strong cash collections of receivables of $683.2 million in the first quarter of 2012 compared to $531.1 million in the first quarter of 2011. Days sales outstanding was 76 days in the first quarter of 2012 compared to 83 days in the fourth quarter of 2011 and 87 days in the first quarter of 2011. Operating cash flows for the first quarter of 2012 were strong at $162.7 million compared to $126.5 million in the first quarter of 2011.

Results of Operations

Three Months Ended March 31, 2012 Compared to Three Months Ended April 2, 2011

The following table presents a summary of the operating information for the
first quarters of 2012 and 2011:




                                                        % of                             % of
(In thousands)                         2012            Revenue          2011            Revenue       % Change


Revenues
System sales                       $     225,820            35%     $     140,379            29%            61%
Support and maintenance                  145,754            23%           131,827            27%            11%
Services                                 258,150            40%           209,167            42%            23%
Reimbursed travel                         11,488             2%            10,291             2%            12%

Total revenues                           641,212           100%           491,664           100%            30%

Costs of revenue
Costs of revenue                         158,008            25%            90,680            18%            74%

Total margin                             483,204            75%           400,984            82%            21%

Operating expenses
Sales and client service                 245,074            38%           201,348            41%            22%
Software development                      71,145            11%            71,144            15%            -
General and administrative                39,546             6%            34,793             7%            14%

Total operating expenses                 355,765            55%           307,285            63%            16%


Total costs and expenses                 513,773            80%           397,965            81%            29%


Operating earnings                       127,439            20%            93,699            19%            36%
Interest income, net                       2,619                            1,976
Other income, net                              5                               35
Income taxes                             (41,355 )                        (31,154 )


Net earnings                       $      88,708                    $      64,556                           37%

Revenues & Backlog

Revenues increased 30% to $641.2 million for the first quarter of 2012 from $491.7 million for the same period in 2011.

• System sales, which include revenues from the sale of licensed software, software as a service, technology resale (hardware, devices, and sublicensed software), deployment period licensed software upgrade rights, installation fees, transaction processing and subscriptions, increased 61% to $225.8 million for the first quarter of 2012 from $140.4 million for the same period in 2011. The increase in system sales was driven by a very strong increase in technology resale and strong increases in software, software as a service and subscriptions.

• Support and maintenance revenues increased 11% to $145.8 million during the first quarter of 2012 from $131.8 million during the same period in 2011. This increase was attributable to continued success at selling Cerner Millennium applications and implementing them at client sites. We expect support and maintenance revenues will continue to grow as the base of installed Cerner Millenniumsystems grows.

• Services revenue, which includes professional services, excluding installation, and managed services, increased 23% to $258.2 million from $209.2 million for the same period in 2011. This increase was driven by growth in CernerWorksSMmanaged services as a result of continued demand for our hosting services and an increase in professional services due to increased implementation activities and growth in Cerner ITWorks services and an increase in other consulting services.

Contract backlog, which reflects new business bookings that have not yet been recognized as revenue, increased 25% in the first quarter of 2012 compared to the same period in 2011. This increase was driven by growth in new business bookings during the past four quarters, including continued strong levels of managed services and Cerner ITWorks services bookings that typically have longer contract terms. A summary of our total backlog follows:

                                             KISHORE KUNAL       KISHORE KUNAL

        (In thousands)                     March 31, 2012      April 2, 2011

        Contract backlog                   $     5,569,764     $    4,460,603
        Support and maintenance backlog            704,243            665,734

        Total backlog                      $     6,274,007     $    5,126,337

Costs of Revenue

Cost of revenues was 25% of total revenues in the first quarter of 2012, compared to 18% in the same period of 2011. The higher cost of revenues as a percent of revenue was driven by a higher mix of technology resale, which carries a higher cost of revenue, and a slightly higher level of third party consulting costs. Cost of revenues includes the cost of reimbursed travel expense, sales commissions, third party consulting services and subscription content and computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, devices, maintenance, support, services and reimbursed travel) carrying different margin rates changes from period to period. Cost of revenues does not include the costs of our client service personnel who are responsible for delivering our service offerings. Such costs are included in sales and client service expense.

Operating Expenses

Total operating expenses increased 16% to $355.8 million in the first quarter of 2012, compared with $307.3 million for the same period in 2011.

• Sales and client service expenses as a percent of total revenues were 38% in the first quarter of 2012, compared to 41% in the same period of 2011. These expenses increased 22% to $245.1 million in the first quarter of 2012, from $201.3 million in the same period of 2011. Sales and client service expenses include salaries of sales and client service personnel, depreciation and other expenses associated with our CernerWorks managed service business, communications expenses, unreimbursed travel expenses, expense for share-based payments, sales and marketing salaries and trade show and advertising costs. The decrease as a percent of revenue reflects ongoing efficiencies in our implementation and operational processes.

• Software development expenses as a percent of revenue were 11% in the first quarter of 2012, compared to 15% in the same period of 2011. Expenditures for software development reflect ongoing development and enhancement of the Cerner Millennium platform, including investments in the next evolution of Cerner Millennium, Millennium+™, which leverages the cloud and enables greater mobility. The reduction as a percentage of revenue reflects our ongoing efforts to control spending relative to revenue growth. Because of the strong platform we have built, we are able to continue advancing our solutions and investing in new solutions without large increases in spending. A summary of our total software development expense in the first quarters of 2012 and 2011 is as follows:

                                                         0000$000,000,0000          0000$000,000,0000
                                                                    Three Months Ended
(In thousands)                                                2012                       2011


Software development costs                             $            74,836        $          72,552
Capitalized software costs                                         (22,651 )                (20,171)
Capitalized costs related to share-based payments                     (429 )                   (295)
Amortization of capitalized software costs                          19,389                   19,058

Total software development expense                     $            71,145        $          71,144

• General and administrative expenses as a percent of total revenues were 6% in the first quarter of 2012, compared to 7% in the same period of 2011. These expenses increased 14% to $39.5 million in the first quarter of 2012, from $34.8 million for the same period in 2011. General and administrative expenses include salaries for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, transaction gains or losses on foreign currency and expense for share based payments. The increase in general and administrative expenses was primarily driven by an increase in corporate personnel costs, as we have increased such personnel to support our overall revenue growth.

Non-Operating Items

• Net interest income was $2.6 million in the first quarter of 2012, compared to net interest income of $2.0 million in the first quarter of 2011. Interest income increased to $4.1 million in the first quarter of 2012 from $3.5 million for the same period in 2011 due primarily to growth in investments. Interest expense was $1.5 million in the first quarters of 2012 and 2011.

• Our effective tax rate was 31.8% for the first quarter of 2012 and 32.6% for the first quarter of 2011. This decrease was primarily due to an increase in net favorable discrete items recorded in 2012 relative to 2011, partially offset by the expiration of the research and development tax credit on December 31, 2011. Refer to Note (4) of the notes to the condensed consolidated financial statements for further information regarding our effective tax rate.

Operations by Segment

We have two operating segments, Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Argentina, Aruba, Australia, Austria, Canada, Cayman Islands, Chile, China (Hong Kong), Egypt, England, France, Germany, Guam, India, Ireland, Italy, Japan, Malaysia, Morocco, Puerto Rico, Qatar, Saudi Arabia, Singapore, Spain, Sweden, Switzerland and the United Arab Emirates.

The following table presents a summary of the operating information for the first quarters of 2012 and 2011:

(In thousands)                         2012            % of Revenue       2011           % of Revenue   % Change


Domestic Segment
Revenues                           $      554,274          100%       $     420,990          100%          32%
Costs of revenue                          134,303           24%              77,925           19%          72%
Operating expenses                        120,438           22%             105,349           25%          14%

Total costs and expenses                  254,741           46%             183,274           44%          39%


Domestic operating earnings               299,533           54%             237,716           56%          26%


Global Segment
Revenues                                   86,938          100%              70,674          100%          23%
Costs of revenue                           23,705           27%              12,755           18%          86%
Operating expenses                         32,751           38%              29,099           41%          13%

Total costs and expenses                   56,456           65%              41,854           59%          35%


Global operating earnings                  30,482           35%              28,820           41%          6%


Other, net                               (202,576 )                        (172,837 )                      17%


Consolidated operating earnings    $      127,439                     $      93,699                        36%

Domestic Segment

• Revenues increased 32% to $554.3 million in the first quarter of 2012 from $421.0 million in the same period in 2011. This increase was driven by growth across all business models, with particular strength in technology resale and professional services.

• Cost of revenues was 24% of revenues in the first quarter of 2012, compared to 19% of revenues in the same period in 2011. The higher cost of revenues as a percent of revenue was primarily driven by a higher mix of technology resale, which carries a higher cost of revenue, and a slightly higher level of third party consulting costs.

• Operating expenses increased 14% to $120.4 million in the first quarter of 2012, from $105.3 million in the same period in 2011, due primarily to growth in managed services and professional services expenses.

Global Segment

• Revenues increased 23% to $86.9 million in the first quarter of 2012 from $70.7 million in the same period in 2011. This increase was driven by strong growth in technology resale.

• Cost of revenues was 27% of revenues in the first quarter of 2012, compared with 18% in the same period of 2011. The higher cost of revenues as a percent of revenue was primarily driven by a higher mix of technology resale, which carries a higher cost of revenue.

• Operating expenses increased 13% to $32.8 million for the first quarter of 2012, from $29.1 million in the same period in 2011, primarily due to an increase in personnel-related expense.

Other, net

Operating results not attributed to an operating segment include expenses, such as centralized professional services costs, software development, marketing, general and administrative, stock-based compensation, depreciation, and amortization. These expenses increased 17% to $202.6 million in the first quarter of 2012 from $172.8 million in the same period in 2011. This increase was primarily due to growth in corporate and development personnel costs and other non-personnel costs.

Liquidity and Capital Resources

Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients and the amount we invest in software development, acquisitions and capital expenditures.

Our principal sources of liquidity are our cash, cash equivalents, which consist of money market funds, time deposits and bonds with original maturities of less than 90 days, and short-term investments. At March 31, 2012, we had cash and cash equivalents of $281.2 million and short-term investments of $612.6 million, as compared to cash and cash equivalents of $243.1 million and short-term investments of $531.6 million at December 31, 2011.

Approximately 16% of our aggregate cash, cash equivalents and short-term investments at March 31, 2012, were held outside of the United States. As part of our business strategy, we plan to indefinitely reinvest the earnings of our foreign operations; however, should the earnings of our foreign operations be repatriated, we would accrue and pay tax on such earnings, which may be material.

Additionally, we maintain a $100.0 million, multi-year revolving credit facility, which expires in February 2017. The facility provides an unsecured revolving line of credit for working capital purposes, along with a letter of credit facility. As of March 31, 2012, we had no outstanding borrowings under this agreement; however, we have $17.6 million of outstanding letters of credit, which reduced our available borrowing capacity to $82.4 million.

We believe that our present cash position, together with cash generated from operations, short-term investments and, if necessary, our available lines of credit, will be sufficient to meet anticipated cash requirements during 2012.

The following table summarizes our cash flows in the first three months of 2012 and 2011: