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

Our fiscal year ends on the Saturday closest to December 31. Fiscal years 2012, 2011 and 2010 each consisted of 52 weeks and ended on December 29, 2012, December 31, 2011 and January 1, 2011, respectively. All references to years in this MD&A represent fiscal years unless otherwise noted.

Management Overview

Our revenues are primarily derived by selling, implementing and supporting software solutions, clinical content, hardware, devices and services that give health care providers secure access to clinical, administrative and financial data in real time, allowing them to improve 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 12% or more. This growth has also created an important strategic footprint in health care, with Cernerฎ solutions licensed by approximately 10,000 facilities around the world, including more than 2,700 hospitals; 4,150 physician practices; 45,000 physicians; 550 ambulatory facilities, such as laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics and surgery centers; 800 home health facilities; 45 employer sites and 1,750 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 looking 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 CareAwareฎ health care device architecture and devices, employer services, Cerner ITWorks services, Cerner RevWorks 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 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 2012.

New business bookings revenue in 2012, which reflects the value of executed contracts for software, hardware, professional services and managed services, was $3.1 billion, which is an increase of 15% compared to $2.7 billion in 2011. Our 2012 revenues increased 21% to $2.7 billion compared to $2.2 billion in 2011. The year-over-year increase in revenue reflects improved economic conditions, ongoing demand related to the HITECH Act, and increased contributions form new initiatives, such as device resale, Cerner ITWorks and Cerner RevWorks.

Our 2012 net earnings increased 30% to $397.2 million compared to $306.6 million in 2011. Diluted earnings per share increased 28% to $2.26 compared to $1.76 in 2011. The 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 2012 net earnings and diluted earnings per share by $23.5 million and $0.13, and the 2011 earnings and diluted earnings per share by $18.2 million and $0.11, 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, including efficiencies in our implementation and operational

processes, leveraging R&D investments and controlling general and administrative expenses. Our full-year 2012 operating margin of 21.4% reflects an increase of 50 basis points compared to 2011, which was driven by strong margin expansion in our core business that was somewhat offset by record levels of lower-margin technology resale.

We had cash collections of receivables of $2.7 billion in 2012 compared to $2.2 billion in 2011. Days sales outstanding was 74 days for the 2012 fourth quarter compared to 73 days for the 2012 third quarter and 83 days for the 2011 fourth quarter. Operating cash flows for 2012 were strong at $708.3 million compared to $546.3 million in 2011.

Health Care Information Technology Market Outlook

We have provided a detailed assessment of the health care information technology market under "Health Care and Health Care IT Industry" in Part I, Item 1 "Business."

Results of Operations
Fiscal Year 2012 Compared to Fiscal Year 2011
                                          % of                      % of
(In thousands)                 2012     Revenue        2011       Revenue    % Change
Revenues
System sales               $  902,799       34 %   $  706,714         32 %       28 %
Support and maintenance       604,247       23 %      550,554         25 %       10 %
Services                    1,103,082       41 %      901,193         41 %       22 %
Reimbursed travel              55,308        2 %       44,692          2 %       24 %

Total revenues              2,665,436      100 %    2,203,153        100 %       21 %

Costs of revenue
Costs of revenue              608,197       23 %      441,672         20 %       38 %

Total margin                2,057,239       77 %    1,761,481         80 %       17 %

Operating expenses
Sales and client service    1,020,640       38 %      869,962         39 %       17 %
Software development          301,370       11 %      286,801         13 %        5 %
General and administrative    163,567        6 %      144,920          7 %       13 %

Total operating expenses    1,485,577       56 %    1,301,683         59 %       14 %

Total costs and expenses    2,093,774       79 %    1,743,355         79 %       20 %

Operating earnings            571,662       21 %      459,798         21 %       24 %

Other income, net              16,046                   9,896
Income taxes                 (190,476 )              (163,067 )

Net earnings               $  397,232              $  306,627                    30 %

Revenues & Backlog
Revenues increased 21% to $2.7 billion in 2012, as compared to $2.2 billion 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 28% to $902.8 million in 2012 from $706.7 million for the same period in 2011. The increase in system sales was driven by record levels of technology resale and solid growth in subscriptions and software.

• Support and maintenance revenues increased 10% to $604.2 million in 2012 compared to $550.6 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 that support and maintenance revenues will continue to grow as the base of installed Cerner Millennium systems grows.

• Services revenue, which includes professional services, excluding installation, and managed services, increased 22% to $1.1 billion in 2012 from $0.9 billion for the same period in 2011. This increase was driven by growth in CernerWorks managed 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.

Contract backlog, which reflects new business bookings that have not yet been recognized as revenue, increased 21% in 2012 when compared to 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 total backlog at the end of 2012 and 2011 follows:

(In thousands)                      2012           2011

Contract backlog                $ 6,534,564    $ 5,401,427
Support and maintenance backlog     738,154        705,744

Total backlog                   $ 7,272,718    $ 6,107,171

Costs of Revenue
Cost of revenues as a percentage of total revenues was 23% in 2012, compared to 20% 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.
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 14% to $1.5 billion in 2012, compared with $1.3 billion in 2011.

• Sales and client service expenses as a percent of total revenues were 38% in 2012, compared to 39% in the same period of 2011. These expenses increased 17% to $1.0 billion in 2012, from $0.9 billion 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 2012, compared to 13% in 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 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. Expense was also limited by a higher percentage of our software development investments being capitalized, which we expect to continue, as a higher percent of our development initiatives are focused on new functionality versus maintenance. A summary of our total software development expense in 2012 and 2011 is as follows:

                                                     For the Years Ended
(In thousands)                                       2012          2011

Software development costs                        $ 319,828     $ 290,645
Capitalized software costs                          (98,067 )     (81,417 )
Capitalized costs related to share-based payments    (2,122 )      (1,525 )
Amortization of capitalized software costs           81,731        79,098

Total software development expense                $ 301,370     $ 286,801

• General and administrative expenses as a percent of total revenues were 6% in 2012, compared to 7% in 2011. These expenses increased 13% to $163.6 million in 2012, from $144.9 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 continued to increase such personnel to support our overall revenue growth.

Non-Operating Items

• Interest income increased to $16.5 million in 2012 from $15.2 million in 2011 due primarily to growth in investments. Interest expense decreased to $5.1 million in 2012 compared to $5.3 million in 2011 due primarily to payments on our long-term debt, offset by increased capital lease obligations. Other income in 2012 also includes a $4.5 million gain recognized on the disposition of one of our cost-method investments.

• Our effective tax rate decreased to 32% in 2012 from 35% in 2011. This decrease was primarily due to an increase in net favorable permanent differences, along with a favorable adjustment to our unrecognized tax benefits, partially offset by the expiration of the research and development tax credit on December 31, 2011. We do not expect the favorable impact of permanent differences to be as significant in 2013. We also do not expect any significant favorable adjustments to our unrecognized tax benefits in 2013. Refer to Note (12) of the notes to consolidated financial statements for further information regarding our effective tax rate.

In January 2013, the American Taxpayer Relief Act of 2012 (Act) became law. The Act reinstates the research and development tax credit retroactively from January 1, 2012 to December 31, 2013. In the first quarter of 2013, we will recognize the research and development tax credit related to 2012 as a favorable discrete item. Research and development tax credits generated in 2013 will be recognized pro-rata over that year as a component of the overall 2013 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, Mexico, 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 years ended 2012 and 2011:

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

Domestic Segment
Revenues                                      $ 2,341,304         100%       $ 1,894,454         100%          24%
Costs of revenue                                  548,813         23%            387,466         20%           42%
Operating expenses                                506,249         22%            439,465         23%           15%
Total costs and expenses                        1,055,062         45%            826,931         44%           28%

Domestic operating earnings                     1,286,242         55%          1,067,523         56%           20%

Global Segment
Revenues                                          324,132         100%           308,699         100%          5%
Costs of revenue                                   59,384         18%             54,206         18%           10%
Operating expenses                                131,580         41%            126,997         41%           4%
Total costs and expenses                          190,964         59%            181,203         59%           5%

Global operating earnings                         133,168         41%            127,496         41%           4%

Other, net                                       (847,748 )                     (735,221 )                     15%

Consolidated operating earnings               $   571,662                    $   459,798                       24%

Domestic Segment
• Revenues increased 24% to $2.3 billion in 2012 from $1.9 billion in 2011. This increase was primarily driven by strong growth in technology resale and professional services.

• Cost of revenues was 23% of revenues in 2012, compared to 20% of revenues 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.

• Operating expenses increased 15% to $506.2 million in 2012 from $439.5 million in 2011, due primarily to growth in managed services and professional services expenses.

Global Segment
• Revenues increased 5% to $324.1 million in 2012 from $308.7 million in 2011. This increase was primarily driven by growth in technology resale and managed services, along with a higher level of support services. Growth in our Global Segment revenues has lagged our faster rate of revenue growth in our Domestic Segment due to the more significant impact of the economic downturn of the last several years on the non-U.S. countries in which we conduct operations.

• Cost of revenues was 18% in 2012 and 2011, due to a similar mix of sales.

• Operating expenses were at $131.6 million in 2012, compared to $127.0 million in 2011, primarily due to overall growth in our Global segment.

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 15% to $847.7 million in 2012 from $735.2 million in 2011. This increase was primarily due to growth in corporate and development personnel costs.

Fiscal Year 2011 Compared to Fiscal Year 2010

                                          % of                      % of
(In thousands)                 2011     Revenue        2010       Revenue    % Change
Revenues
System sales               $  706,714       32 %   $  550,792         30 %       28 %
Support and maintenance       550,554       25 %      517,494         28 %        6 %
Services                      901,193       41 %      749,483         40 %       20 %
Reimbursed travel              44,692        2 %       32,453          2 %       38 %

Total revenues              2,203,153      100 %    1,850,222        100 %       19 %

Costs of revenue
Costs of revenue              441,672       20 %      320,356         17 %       38 %

Total margin                1,761,481       80 %    1,529,866         83 %       15 %

Operating expenses
Sales and client service      869,962       39 %      767,152         42 %       13 %
Software development          286,801       13 %      272,851         15 %        5 %
General and administrative    144,920        7 %      130,530          7 %       11 %

Total operating expenses    1,301,683       59 %    1,170,533         64 %       11 %

Total costs and expenses    1,743,355       79 %    1,490,889         81 %       17 %

Operating earnings            459,798       21 %      359,333         19 %       28 %

Other income, net               9,896                   2,879
Income taxes                 (163,067 )              (124,940 )

Net earnings               $  306,627              $  237,272                    29 %

Revenues & Backlog
Revenues increased 19% to $2.2 billion in 2011, as compared to $1.9 billion in 2010.

• System sales increased 28% to $706.7 million in 2011 from $550.8 million in 2010. The increase in system sales was driven by strong increases in licensed software, technology resale, and subscriptions.

• Support and maintenance revenues increased 6% to $550.6 million in 2011 compared to $517.5 million in 2010. This increase was attributable to continued success at selling Cerner Millennium applications and implementing them at client sites.

• Services revenue increased 20% to $901.2 million in 2011 compared to $749.5 million in 2010. This increase was driven by growth in CernerWorks managed 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.

Contract backlog, which reflects new business bookings that have not yet been recognized as revenue, increased 26% in 2011 compared to 2010. This increase was driven by growth in new business bookings during 2011, including continued strong levels of managed services and Cerner ITWorks bookings that typically have longer contract terms.

A summary of total backlog at the end of 2011 and 2010 follows:

(In thousands)                      2011           2010

Contract backlog                $ 5,401,427    $ 4,285,267
Support and maintenance backlog     705,744        654,913

Total backlog                   $ 6,107,171    $ 4,940,180

Costs of Revenue
Cost of revenues as a percentage of total revenues was 20% of total revenues in 2011, as compared to 17% of total revenues in 2010. 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
Total operating expenses increased 11% in 2011 to $1.3 billion as compared to $1.2 billion in 2010.

• Sales and client service expenses as a percent of total revenues were 39% in 2011, as compared to 42% in 2010. These expenses increased 13% to $870.0 million in 2011, from $767.2 million in 2010. The increase in these expenses was primarily attributable to growth in the managed services business and a higher level of professional services expenses. The decrease as a percent of revenue reflected efficiencies in our implementation and operational processes.

• Software development expenses as a percent of revenue were 13% in 2011, as compared to 15% in 2010. These expenses increased 5% in 2011 to $286.8 million, from $272.9 million in 2010. Expenditures for software development in 2011 reflected continued development and enhancement of the Cerner Millennium platform and software solutions and investments in new growth initiatives. Although these expenses increased in 2011, the reduction as a percent of revenue reflected our ongoing efforts to control spending relative to revenue growth. A summary of our total software development expense in 2011 and 2010 is as follows:

                                                     For the Years Ended
(In thousands)                                       2011          2010

Software development costs                        $ 290,645     $ 284,836
Capitalized software costs                          (81,417 )     (79,631 )
Capitalized costs related to share-based payments    (1,525 )      (1,348 )
Amortization of capitalized software costs           79,098        68,994

Total software development expense                $ 286,801     $ 272,851

• General and administrative expenses as a percent of total revenues were 7% in 2011 and 2010. These expenses increased 11% to $144.9 million in 2011 from $130.5 million in 2010. An increase in corporate personnel costs accounted for the majority of the overall increase in general and administrative expenses, as we increased personnel to support our overall revenue growth.

Non-Operating Items

• Interest income increased to $15.2 million in 2011 from $10.3 million in 2010 due primarily to growth in investments and related increase in investment returns. Interest expense decreased to $5.3 million in 2011 from $6.9 million in 2010 due to payment on our long-term debt.

• Our effective tax rate was 35% in 2011, as compared to 34% in 2010. The increase was attributable to the mix of domestic and foreign earnings.

Operations by Segment

The following table presents a summary of our operating segment information for
the years ended 2011 and 2010:
(In thousands)                                    2011        % of Revenue       2010        % of Revenue   % Change

Domestic Segment
Revenues                                      $ 1,894,454         100%       $ 1,562,563         100%          21%
Costs of revenue                                  387,466         20%            272,385         17%           42%
Operating expenses                                439,465         23%            417,181         27%           5%
Total costs and expenses                          826,931         44%            689,566         44%           20%

Domestic operating earnings                     1,067,523         56%            872,997         56%           22%

Global Segment
Revenues                                          308,699         100%           287,659         100%          7%
Costs of revenue                                   54,206         18%             47,971         17%           13%
Operating expenses                                126,997         41%            124,546         43%           2%
Total costs and expenses                          181,203         59%            172,517         60%           5%

Global operating earnings                         127,496         41%            115,142         40%           11%

Other, net                                       (735,221 )                     (628,806 )                     17%

Consolidated operating earnings               $   459,798                    $   359,333                       28%

Domestic Segment . . .