UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

(X)		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended    October 2, 2010
		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		(I.R.S. Employer Identification
incorporation or organization)		Number)

2800 Rockcreek Parkway
North Kansas City, Missouri 64117
(816) 201-1024

(Address of Principal Executive Offices, including zip code;
registrant’s telephone number, including area code)

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 [X]      No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes [X]      No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]		Accelerated filer [   ]	Non-accelerated filer [   ] (Do not check if a smaller reporting company)			Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]      No [X]

There were 82,852,501 shares of Common Stock, $.01 par value, outstanding at October 21, 2010.

CERNER CORPORATION AND SUBSIDIARIES

I N D E X

Part I.		Financial Information:
Item 1.		Financial Statements:
		Condensed Consolidated Balance Sheets as of October 2, 2010 (unaudited) and January 2, 2010			1
		Condensed Consolidated Statements of Operations for the three and nine months ended October 2, 2010 and October 3, 2009 (unaudited)			2
		Condensed Consolidated Statements of Cash Flows for the three and nine months ended October 2, 2010 and October 3, 2009 (unaudited)			3
		Notes to Condensed Consolidated Financial Statements (unaudited)			4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			26
Item 4.		Controls and Procedures			26
Part II.		Other Information:			27
Item 6.		Exhibits			27

Part I. Financial Information

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of October 2, 2010 (unaudited) and January 2, 2010

(In thousands, except share data)		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	211,747			$	241,723
Short-term investments			353,516				317,113
Receivables, net			463,368				461,411
Inventory			8,058				11,242
Prepaid expenses and other			98,741				106,791
Deferred income taxes			2,285				8,055
Total current assets			1,137,715				1,146,335
Property and equipment, net			500,667				509,178
Software development costs, net			244,852				233,265
Goodwill			161,974				151,479
Intangible assets, net			38,340				33,719
Long-term investments			205,323				-
Other assets			69,512				74,591
Total assets		$	2,358,383			$	2,148,567
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	56,671			$	36,893
Current installments of long-term debt			25,751				25,014
Deferred revenue			117,847				137,095
Accrued payroll and tax withholdings			78,072				80,093
Other accrued expenses			46,593				79,008
Total current liabilities			324,934				358,103
Long-term debt			93,282				95,506
Deferred income taxes and other liabilities			112,228				98,372
Deferred revenue			18,578				15,788
Total liabilities			549,022				567,769
Stockholders’ Equity:
Cerner Corporation stockholders’ equity:
Common stock, $.01 par value, 150,000,000 shares authorized, 83,598,209 shares issued at October 2, 2010 and 82,564,708 shares issued at January 2, 2010			836				826
Additional paid-in capital			618,318				557,545
Retained earnings			1,220,198				1,053,563
Treasury stock			(28,002	)			(28,002	)
Accumulated other comprehensive loss, net			(2,109	)			(3,254	)
Total Cerner Corporation stockholders’ equity			1,809,241				1,580,678
Noncontrolling interest			120				120
Total stockholders’ equity			1,809,361				1,580,798
Total liabilities and stockholders’ equity		$	2,358,383			$	2,148,567

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended October 2, 2010 and October 3, 2009
(unaudited)

		Three Months Ended								Nine Months Ended
(In thousands, except per share data)		2010				2009				2010				2009
Revenues:
System sales		$	133,439			$	118,325			$	386,292			$	332,816
Support, maintenance and services			321,289				284,189				939,909				849,461
Reimbursed travel			7,955				6,901				23,820				23,266
Total revenues			462,683				409,415				1,350,021				1,205,543
Costs and expenses:
Cost of system sales			57,396				47,934				155,087				132,127
Cost of support, maintenance and services			13,797				14,644				46,536				46,506
Cost of reimbursed travel			7,955				6,901				23,820				23,266
Sales and client service			189,320				171,415				566,943				516,401
Software development (includes amortization of $17,756 and $50,015 for the three and nine months ended October 2, 2010; and $16,922 and $45,801 for the three and nine months ended October 3, 2009.)			67,257				66,752				202,024				196,578
General and administrative			32,966				31,059				99,611				91,819
Total costs and expenses			368,691				338,705				1,094,021				1,006,697
Operating earnings			93,992				70,710				256,000				198,846
Other income (expense):
Interest income (expense), net			87				180				2,291				(287	)
Other income (expense), net			5				(3	)			(566	)			414
Total other income (expense), net			92				177				1,725				127
Earnings before income taxes			94,084				70,887				257,725				198,973
Income taxes			(33,212	)			(22,493	)			(91,090	)			(66,004	)
Net earnings		$	60,872			$	48,394			$	166,635			$	132,969
Basic earnings per share		$	0.74			$	0.60			$	2.03			$	1.65
Diluted earnings per share		$	0.71			$	0.57			$	1.95			$	1.59
Basic weighted average shares outstanding			82,547				81,225				82,279				80,750
Diluted weighted average shares outstanding			85,360				84,172				85,273				83,576

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended October 2, 2010 and October 3, 2009
(unaudited)

		Nine Months Ended
(In thousands)		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	166,635			$	132,969
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			140,871				137,620
Share-based compensation expense			17,050				11,491
Provision for deferred income taxes			18,802				7,864
Changes in assets and liabilities (net of businesses acquired):
Receivables, net			(2,915	)			7,432
Inventory			3,174				(1,010	)
Prepaid expenses and other			16,675				(13,081	)
Accounts payable			24,455				(46,264	)
Accrued income taxes			(21,393	)			(1,962	)
Deferred revenue			(14,780	)			(8,966	)
Other accrued liabilities			(13,877	)			13,065
Net cash provided by operating activities			334,697				239,158
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases			(75,341	)			(89,863	)
Capitalized software development costs			(61,783	)			(58,698	)
Purchases of investments			(627,904	)			(89,176	)
Maturities of investments			379,705				75,449
Purchase of other intangibles			(8,034	)			(8,916	)
Acquisition of businesses, net of cash acquired			(14,486	)			(3,529	)
Net cash used in investing activities			(407,843	)			(174,733	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of future receivables			1,516				1,888
Long-term debt repayments			(2,404	)			(7,065	)
Proceeds from excess tax benefits from stock compensation			17,884				13,583
Proceeds from exercise of options			23,266				24,637
Net cash provided by financing activities			40,262				33,043
Effect of exchange rate changes on cash			2,908				10
Net (decrease) increase in cash and cash equivalents			(29,976	)			97,478
Cash and cash equivalents at beginning of period			241,723				270,494
Cash and cash equivalents at end of period		$	211,747			$	367,972
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	3,483			$	4,317
Income taxes, net of refund			88,238				40,179
Summary of acquisition transactions:
Fair value of tangible assets acquired		$	2,126			$	-
Fair value of intangible assets acquired			5,076				-
Fair value of goodwill			11,290				3,529
Fair value of current liabilities assumed			(1,057	)			-
Fair value of contingent liability payable			(1,725	)			-
Cash paid for acquisition			15,710				3,529
Cash acquired			(1,224	)			-
Net cash used		$	14,486			$	3,529

See notes to condensed consolidated financial statements (unaudited).

CERNER CORPORATION AND SUBSIDIARIES

(1)     Interim Statement Presentation

The condensed consolidated financial statements included herein have been prepared by the Company 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 have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. 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 our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using accounting principles generally accepted in the United States (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.

Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the results of operations or stockholders’ equity as previously reported.

Our third fiscal quarter ends on the Saturday closest to September 30. The 2010 and 2009 third quarters ended on October 2, 2010 and October 3, 2009, respectively. All references to years in these notes to condensed consolidated financial statements represent the three or nine months ended of the third fiscal quarters, respectively, unless otherwise noted.

Recent Accounting Pronouncements

In July 2010, Accounting Standards Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, was issued and amends ASC 310, Receivables. ASU 2010-20 requires increased disclosures about the credit quality of financing receivables and allowances for credit losses, including disclosure about credit quality indicators, past due information and modifications of financing receivables. Trade accounts receivable with maturities of one year or less are excluded from the disclosure requirements. The guidance is generally effective for reporting periods ending after December 15, 2010. We are currently evaluating the impact the adoption of ASU 2010-20 will have on our consolidated financial statements.

(2)     Acquisitions

On January 4, 2010, we completed the purchase of 100% of the outstanding common shares of IMC Health Care, Inc. (IMC), a provider of employer sponsored on-site health centers. The acquisition of IMC expanded our employer health initiatives, such as on-site employer health centers, occupational health services and wellness programs. Consideration for this transaction was $15.7 million in cash plus additional contingent consideration, which is payable if we achieve certain revenue milestones during the fiscal year 2010 from the clients acquired from IMC. We valued the contingent consideration at $1.7 million based on a probability-weighted assessment of potential contingent consideration payment scenarios ranging up to $2.5 million. Based on the third quarter 2010 assessment, we reduced the contingent consideration liability to $0.9 million and recognized a gain of $0.8 million within the Condensed Consolidated Statements of Operations as a component of general and administrative expenses. The allocation of the purchase price to the estimated fair values of the identified tangible and intangible assets acquired, net of liabilities assumed, is summarized below:

(in thousands)
		Allocation Amount
Tangible assets and liabilities
Current assets		$	1,862
Property and equipment			264
Current liabilities			(1,057	)
Total net tangible assets acquired			1,069
Intangible assets
Customer relationships			4,073
Non-compete agreements			1,003
Total intangible assets acquired			5,076
Goodwill			11,290
Total purchase price		$	17,435

The fair values of the acquired intangible assets and the contingent consideration were estimated by applying the income approach. Such estimations required the use of inputs that were unobservable in the market place (Level 3), including a discount rate that we estimated would be used by a market participant in valuing these assets, projections of revenues and cash flows, probability weighting factors and client attrition rates. See Note 3 for further information about the fair value level hierarchy.

The goodwill was allocated to our Domestic operating segment and is expected to be deductible for tax purposes. The other identifiable intangible assets are being amortized over five years. The operating results of IMC were combined with our operating results subsequent to the purchase date of January 4, 2010. Pro-forma results of operations have not been presented because the effect of this acquisition was not material to our results.

(3)     Fair Value Measurements

We determine fair value measurements used in our condensed 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 financial assets measured at fair value within the fair value hierarchy:

(In thousands)				October 2, 2010												January 2, 2010
		Balance Sheet		Fair Value Measurements Using												Fair Value Measurements Using
Description		Classification		Level 1				Level 2				Level 3				Level 1				Level 2				Level 3
Money market funds		Cash equivalents		$	20,541			$	-			$	-			$	80,242			$	-			$	-
Time deposits		Cash equivalents							200				-				-				8,523				-
Corporate bonds		Cash equivalents			-				7,200				-				-				8,194				-
Time deposits		Short-term investments			-				33,817				-				-				37,784				-
Commercial paper		Short-term investments			-				58,500				-				-				19,987				-
Government and corporate bonds		Short-term investments			-				239,949				-				-				164,792				-
Auction rate securities		Short-term investments			-				-				18,465				-				-				85,203
Put-like feature		Short-term investments			-				-				2,785				-				-				9,347
Government and corporate bonds		Long-term investments			-				205,323				-				-				-				-

Our auction rate securities have been classified as Level 3 assets within the fair value hierarchy, as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities. If different assumptions were used for the various inputs to the valuation, including, but not limited to, assumptions involving the estimated holding periods for the auction rate securities, the estimated cash flows over those estimated lives, and the estimated discount rates, including the liquidity discount rate, applied to those cash flows, the estimated fair value of these investments could be significantly higher or lower than the fair value we determined.

The table below presents the activity of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

		Three Months Ended								Nine Months Ended
(In thousands)		2010				2009				2010				2009
Beginning balance		$	30,850			$	99,150			$	94,550			$	105,300
Redemptions at par			(9,600	)			(3,900	)			(73,300	)			(10,050	)
Unrealized gain on auction rate securities included in earnings			1,179				1,924				6,866				11,757
Unrealized loss on put-like feature included in earnings			(1,179	)			(1,924	)			(6,866	)			(11,757	)
Ending balance		$	21,250			$	95,250			$	21,250			$	95,250

We classify our long-term, fixed rate debt as a long-term liability on the balance sheet and estimate the fair value using a Level 3 discounted cash flow analysis based on our current borrowing rates for debt with similar maturities. The fair value of our long-term debt, including current maturities, was approximately $130.6 million at October 2, 2010.

(4)     Receivables

Receivables consist of accounts receivable and contracts receivable. Accounts receivable represent recorded revenues that have been billed. Contracts receivable represent recorded revenues that are billable by us at future dates under the terms of a contract with a client. Billings and other consideration received on contracts in excess of related revenues recognized are recorded as deferred revenue. Substantially all receivables are derived from sales and related support and maintenance and professional services of our clinical, administrative and financial information systems and solutions to healthcare providers located throughout the United States and in certain non-U.S. countries.

We perform ongoing credit evaluations of our clients and generally do not require collateral from our clients. We provide an allowance for estimated uncollectible accounts based on specific identification, historical experience and our judgment. Provisions for losses on uncollectible accounts for the first nine months of 2010 and 2009 totaled $7.5 million and $2.6 million, respectively. A summary of net receivables is as follows:

(In thousands)		October 2, 2010				January 2, 2010
Gross accounts receivable		$	345,464			$	342,992
Less: Allowance for doubtful accounts			18,858				16,895
Accounts receivable, net of allowance			326,606				326,097
Contracts receivable			136,762				135,314
Total receivables, net		$	463,368			$	461,411

During the second quarter of 2008, Fujitsu Services Limited’s (Fujitsu) contract as the prime contractor in the National Health Service (NHS) initiative to automate clinical processes and digitize medical records in the Southern region of England was terminated by the NHS. This had the effect of automatically terminating our subcontract for the project. We are in dispute with Fujitsu regarding Fujitsu’s obligation to pay the amounts comprised of accounts receivable and contracts receivable related to that subcontract, and we are working with Fujitsu to resolve these issues based on processes provided for in the contract. Part of that process requires resolution of disputes between Fujitsu and the NHS regarding the contract termination. As of October 2, 2010, it remains unlikely that the matter will be resolved in the next 12 months. Therefore these receivables have been classified as long-term and represent the significant majority of other long-term assets as of the third quarter ended October 2, 2010. While the ultimate collectability of the receivables pursuant to this process is uncertain, we believe that we have valid and equitable grounds for recovery of such amounts and that collection of recorded amounts is probable.

During the first nine months of 2010 and 2009, we received total client cash collections of $1,402.6 million and $1,304.3 million, respectively, of which $45.8 million and $54.0 million were received from third party arrangements with non-recourse payment assignments.

(5)     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. We classify interest and penalties associated with unrecognized tax benefits as income tax expense in our Condensed Consolidated Statements of Operations.

Our effective tax rate was 35.3% and 33.2% for the first nine months of 2010 and 2009, respectively. This increase is primarily due to the research and development tax credit not being extended for the 2010 tax year and a decrease in unrecognized tax benefits in the third quarter of 2009 as a result of the Internal Revenue Service completion of the 2007 income tax return and refund claim related to the foreign tax credit for the 2004, 2005 and 2006 income tax returns.

During the first quarter of 2010, the Internal Revenue Service commenced its examination of the 2008 income tax return. We do not believe this examination will have a material effect on our financial position, results of operations or liquidity.

Other than the aforementioned matter, we do not anticipate any settlements of the remaining unrecognized tax benefits within the next 12 months.

(6)     Earnings Per Share

Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. A reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:

		Three Months Ended
		2010												2009
		Earnings				Shares				Per-Share				Earnings				Shares				Per-Share
(In thousands, except per share data)		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Basic earnings per share:
Income available to common stockholders		$	60,872				82,547			$	0.74			$	48,394				81,225			$	0.60
Effect of dilutive securities:
Stock options			-				2,813								-				2,947
Diluted earnings per share:
Income available to common stockholders including assumed conversions		$	60,872				85,360			$	0.71			$	48,394				84,172			$	0.57

Options to purchase 0.7 million and 1.2 million shares of common stock at per share prices ranging from $58.21 to $86.70 and $42.92 to $136.86 were outstanding for the three months ended October 2, 2010 and October 3, 2009, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive. In addition, the computation of diluted earnings per share does not include 118,000 performance based non-vested stock awards, as all necessary conditions of such contingently issuable shares have not been satisfied.

		Nine Months Ended
		2010												2009
		Earnings				Shares				Per-Share				Earnings				Shares				Per-Share
(In thousands, except per share data)		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Basic earnings per share:
Income available to common stockholders		$	166,635				82,279			$	2.03			$	132,969				80,750			$	1.65
Effect of dilutive securities:
Stock options			-				2,994								-				2,826
Diluted earnings per share:
Income available to common stockholders including assumed conversions		$	166,635				85,273			$	1.95			$	132,969				83,576			$	1.59

Options to purchase 0.5 million and 2.1 million shares of common stock at per share prices ranging from $58.21 to $86.70 and $36.72 to $136.86 were outstanding for the nine months ended October 2, 2010 and October 3, 2009, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive. In addition, the computation of diluted earnings per share does not include 118,000 performance based non-vested stock awards, as all necessary conditions of such contingently issuable shares have not been satisfied.

(7)     Share-Based Compensation

On March 12, 2010 approximately 115,000 stock options were granted to executive officers and other executive level associates under our Long-Term Incentive Plan F. These awards will vest 40% on March 12, 2012, and 20% will vest on March 12, 2013, 2014 and 2015. The fair value of each of these awards was $44.89 per award. Total compensation expense related to these awards is $5.1 million, which is expected to be recognized over a period of 5 years.

On June 1, 2010 we granted approximately 118,000 shares of performance-based non-vested stock to certain executive officers, pursuant to our Long-Term Incentive Plan F. The fair value of each of these awards was $81.90 based on the closing price of our common stock on the date of grant. These awards will vest according to the following schedule, contingent upon a relative adjusted GAAP earnings growth percentage over 2009 for each respective year and subjective performance criteria for certain shares, as defined in the award agreements:

Vesting Dates		Number of Shares
June 1, 2011			14,000
June 1, 2012			15,500
June 1, 2013			88,500
Total Shares			118,000

Approximately 21% of the total shares related to this award were forfeited due to the resignation of an executive officer in the third quarter of 2010. The amount of compensation expense recognized is based on management’s estimate of the most likely outcome and will be reassessed at each reporting date through the final vesting date, which may result in adjustments to compensation cost. Based on a current period vesting probability assessment, total compensation cost related to these awards is $7.6 million, net of forfeitures, and is expected to be recognized over a period of 3 years.

The following table presents the total compensation expense recognized in the condensed consolidated statements of operations with respect to stock options, non-vested shares and Associate Stock Purchase Plan shares:

		Three Months Ended								Nine Months Ended
(In thousands)		2010				2009				2010				2009
Stock option and non-vested share compensation expense		$	6,244			$	4,523			$	17,050			$	11,485
Associate stock purchase plan expense			424				248				1,229				913
Amounts capitalized in software development costs, net of amortization			(118	)			(66	)			(376	)			(187	)
Amounts charged against earnings, before income tax benefit		$	6,550			$	4,705			$	17,903			$	12,211
Amount of related income tax benefit recognized in earnings		$	2,440			$	1,753			$	6,669			$	4,549

As of October 2, 2010, there was $55.0 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 3.15 years.

(8)     Comprehensive Income

Total comprehensive income, which includes net earnings, foreign currency translation adjustments and gains and losses from a hedge of our net investment in the United Kingdom (U.K.), amounted to $80.7 million and $52.8 million for the three months ended October 2, 2010 and October 3, 2009, respectively, and $167.8 million and $142.0 million for the nine months ended October 2, 2010 and October 3, 2009, respectively. None of the items within comprehensive income, including net earnings, relate to non-controlling interests.

As of October 2, 2010, we designated all of our Great Britain Pound (GBP) denominated long-term debt as a net investment hedge of our U.K. operations. The objective of the hedge is to reduce our foreign currency exposure in the U.K. subsidiary investment. Changes in the exchange rate between the United States Dollar (USD) and GBP, related to the notional amount of the hedge, are recognized as a component of accumulated other comprehensive income (loss), to the extent the hedge is effective.

The following tables represent the fair value of the net investment hedge included within the Condensed Consolidated Balance Sheets and the related unrealized gain or loss, net of related income tax effects:

(In thousands)
		Balance Sheet		Fair Value
Derivatives designated		Classification		October 2, 2010				January 2, 2010
Net investment hedge		Short-term (S/T) liabilities		$	14,689			$	15,015
Net investment hedge		Long-term (L/T) liabilities			73,445				75,075
Total net investment hedge				$	88,134			$	90,090

(In thousands)
		Net Unrealized Gain (Loss)								Net Unrealized Gain (Loss)
Derivatives designated		For the Three Months Ended								For the Nine Months Ended
		2010				2009				2010				2009
Net investment hedge - S/T		$	(361	)		$	226			$	204			$	(815	)
Net investment hedge - L/T			(1,803	)			1,356				1,023				(4,887	)
Total net investment hedge		$	(2,164	)		$	1,582			$	1,227			$	(5,702	)

We recognize foreign currency transaction gains and losses within the Condensed Consolidated Statements of Operations as a component of general and administrative expenses. We realized a foreign currency loss of $0.9 million and a gain of $0.03 million during the three months ended October 2, 2010 and October 3, 2009, respectively, and a loss of $0.3 million and a gain of $4.0 million during the nine months ended October 2, 2010 and October 3, 2009, respectively.

(9)     Contingencies

The terms of our software license agreements with our clients generally provide for a limited indemnification of such intellectual property against losses, expenses and liabilities arising from third party claims based on alleged infringement by our solutions of an intellectual property right of such third party. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include a right to replace or modify an infringing solution. To date, we have not had to reimburse any of our clients for any losses related to these indemnification provisions pertaining to third party intellectual property infringement claims. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases 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.

From time to time we are involved in routine litigation incidental to the conduct of our business, including for example, employment disputes and litigation alleging solution defects, intellectual property infringement, violations of law and breaches of contract and warranties. We believe that no such routine litigation currently pending against us, if adversely determined, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

(10)     Segment Reporting

We have two operating segments, Domestic and Global. Revenues are derived primarily from the sale of clinical, financial and administrative information systems and solutions. The cost of revenues includes the cost of third party consulting services, computer hardware and sublicensed software purchased from computer and software 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, communications expenses and unreimbursed travel expenses. Performance of the segments is assessed at the operating earnings level and, therefore, the segment operations have been presented as such. “Other” includes expenses such as software development, marketing, general and administrative, share-based compensation expense and depreciation that have not been allocated to the operating segments. It is impractical for us to track assets by geographical business segment.

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 the operating information for the three and nine months ended October 2, 2010 and October 3, 2009.

		Operating Segments
(In thousands)		Domestic				Global				Other				Total
Three months ended 2010
Revenues		$	394,052			$	68,631			$	—			$	462,683
Cost of revenues			64,150				14,998				—				79,148
Operating expenses			102,605				29,482				157,456				289,543
Total costs and expenses			166,755				44,480				157,456				368,691
Operating earnings (loss)		$	227,297			$	24,151			$	(157,456	)		$	93,992
		Operating Segments
(In thousands)		Domestic				Global				Other				Total
Three months ended 2009
Revenues		$	338,508			$	70,907			$	—			$	409,415
Cost of revenues			57,759				11,720				—				69,479
Operating expenses			90,093				32,658				146,475				269,226
Total costs and expenses			147,852				44,378				146,475				338,705
Operating earnings (loss)		$	190,656			$	26,529			$	(146,475	)		$	70,710

		Operating Segments
(In thousands)		Domestic				Global				Other					Total
Nine months ended 2010
Revenues		$	1,130,384			$	219,637			$	—			$	1,350,021
Cost of revenues			189,540				35,903				—				225,443
Operating expenses			311,663				93,577				463,338				868,578
Total costs and expenses			501,203				129,480				463,338				1,094,021
Operating earnings (loss)		$	629,181			$	90,157			$	(463,338	)		$	256,000
		Operating Segments
(In thousands)		Domestic				Global				Other				Total
Nine months ended 2009
Revenues		$	997,441			$	208,102			$	—			$	1,205,543
Cost of revenues			169,567				32,333				—				201,899
Operating expenses			272,552				97,179				435,067				804,798
Total costs and expenses			442,119				129,512				435,067				1,006,697
Operating earnings (loss)		$	555,322			$	78,590			$	(435,067	)		$	198,846

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 third fiscal quarter ends on the Saturday closest to September 30. The 2010 and 2009 third quarters ended on October 2, 2010 and October 3, 2009, respectively. All references to years in the MD&A represent the respective three or nine months ended of the third fiscal quarters, unless otherwise noted.

Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute “forward looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the 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; changing political, economic and regulatory influences; government regulation; significant competition and market changes; risks associated with the ongoing adverse financial market environment and uncertainty in global economic conditions; 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; the authority of our Board of Directors to issue preferred stock and anti-takeover provisions contained in our corporate governance documents; 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. 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, healthcare devices and services that give healthcare 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 healthcare. We implement the healthcare solutions as stand-alone, combined or enterprise-wide systems. Cerner Millennium^® software solutions can be managed by our clients or in our data centers via a managed services model.

Our fundamental strategy centers on creating organic growth by investing in research and development (R&D) to create solutions and services for the healthcare industry. This strategy has driven strong growth over the long-term, as reflected in five- and ten-year compound annual revenue growth rates of 13% or more. This growth has also created a very strategic footprint in healthcare, with Cerner^® solutions licensed by over 8,500 facilities, including approximately 2,300 hospitals; 3,400 physician practices with over 30,000 physicians; 600 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 700 home health facilities; and 1,500 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 replacing competitors in healthcare settings that are looking to replace their current healthcare information technology (HIT) partners or those who have not yet strategically aligned with a supplier.

We expect to drive growth through new initiatives and services that reflect our ongoing ability to innovate and expand our reach into healthcare. Examples of these include our CareAware^® healthcare device architecture and devices, Cerner Healthe™ employer services, Cerner ITWorks^SM services, Cerner RevWorks^SM services, physician practice solutions and solutions and services for the pharmaceutical market. Finally, we are focused on selling our solutions and services outside of the United States. Many non-U.S. markets have a low penetration of HIT solutions and their governing bodies are in many cases focused on HIT as part of their strategy to improve the quality and lower the cost of healthcare.

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 more than 20% compound annual rates over five- and ten-year periods. We believe we can continue driving strong levels of earnings growth while also leveraging key areas to create operating margin expansion. The primary areas of opportunity for margin expansion include:

	•		becoming more efficient at implementing our software by leveraging implementation tools and methodologies we have developed that can reduce the amount of effort required to implement our software;
	•		leveraging our investments in R&D by addressing new markets that do not require significant incremental R&D but can contribute significantly to revenue growth; and
	•		leveraging our scalable business infrastructure to reduce the rate of increase in general and administrative spending to below our revenue growth rate.

We are also focused on increasing cash flow by growing earnings, reducing the use of working capital and controlling capital expenditures.

Healthcare Information Technology Market

Overall, while the weak global economy has impacted and could continue to impact our business, we believe there are several factors that are favorable for the HIT industry. Because HIT solutions play an important role in healthcare by improving safety, efficiency and reducing cost, they are often viewed as more strategic than other potential purchases. Most United States healthcare providers also recognize that they must invest in HIT to meet regulatory, compliance and government reimbursement requirements. In addition, with the Centers for Medicare and Medicaid Services estimating United States healthcare spending at $2.5 trillion or 17.3 percent of 2009 Gross Domestic Product, politicians and policymakers agree that the growing cost of our healthcare system is unsustainable. Leaders of both parties say the intelligent use of information systems will improve health outcomes and, correspondingly, drive down costs. They cite a 2005 study by RAND Corp., which estimated that the widespread adoption of HIT in the United States could cut healthcare costs by $162 billion annually.

In 2009, the broad recognition that HIT is essential to helping control healthcare costs contributed to the inclusion of HIT incentives in the American Recovery and Reinvestment Act (ARRA). The Health Information Technology for Economic and Clinical Health (HITECH) provisions within ARRA include more than $35 billion to incent healthcare organizations to modernize operations through meaningful use of HIT. We believe these incentives will create a period of increased demand for HIT solutions and services in the United States and that Cerner is well positioned to benefit due to our large footprint in United States hospitals and physician practices and our proven ability to deliver value.

Another dynamic in the United States marketplace is the recently passed healthcare reform legislation. We believe the legislation, which promises to drive insurance coverage to an estimated 32 million additional consumers, will have many second order effects on our clients. For example, healthcare providers may face increased volumes that could create capacity constraints, and they may find it challenging to profitably provide care at the rates reimbursed under the expanded coverage models. There will also be additional compliance and reporting challenges for our clients in the area of pay-for-quality and waste, fraud, and abuse measures. We believe these challenges are strong incentives for providers to maximize efficiency and create the need for our clients to further leverage HIT investments, all of which represent a long-term positive for HIT.

Outside of the United States, the economy has impacted and could continue to impact our results in almost all regions. However, we believe long-term revenue growth opportunities outside the United States remain significant because other countries are also grappling with increased healthcare spending, safety concerns and inefficient care, and many of these countries recognize HIT as an important part of the solution to these issues.

In summary, while the current economic environment has impacted our business, the fundamental value proposition of HIT remains strong. The HIT industry will likely benefit as healthcare providers and governments continue to recognize that these solutions and services contribute to safer, more efficient healthcare.

Results Overview

The Company delivered strong levels of bookings, revenues, earnings and cash flows in the third quarter of 2010. New business bookings revenue, which reflects the value of executed contracts for software, hardware and professional services and managed services, was $495.7 million in the third quarter of 2010, which was an increase of 17% compared to $424.3 million in the third quarter of 2009. Revenues for the third quarter of 2010 increased 13% to $462.7 million compared to $409.4 million in the year-ago quarter. The year-over-year increase in revenue in the third quarter reflects improved economic conditions and demand driven by the stimulus incentives.

Third quarter 2010 net earnings were $60.9 million and diluted earnings per share were $0.71. Third quarter 2009 net earnings were $48.4 million and diluted earnings per share were $0.57. Third quarter 2010 and 2009 net earnings and diluted earnings per share reflect the impact of shared-based compensation expense. Share-based compensation expense reduced third quarter 2010 net earnings and diluted earnings per share by $4.1 million and $0.05, respectively, and third quarter 2009 earnings and diluted earnings per share by $3.0 million and $0.04, 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 general and administrative expenses. Our third quarter 2010 operating margin was 20.3%, which is 300 basis points higher than the year-ago quarter and reflects the achievement of our long-term goal of achieving 20% operating margins.

We had strong cash collections of receivables of $471.8 million in the third quarter of 2010 compared to $410.6 million in the third quarter of 2009. Days sales outstanding was 91 days in the third quarter of 2010 compared to 88 days in the second quarter of 2010 and 105 days in the third quarter of 2009. The majority of the year-over-year decline is driven by the reclassification of our Fujitsu receivable to other long term assets during the fourth quarter of 2009, which is not included in our days sales outstanding calculation. Operating cash flows for the third quarter of 2010 were strong at $119.0 million compared to $73.4 million in the third quarter of 2009.

Results of Operations

Three Months Ended October 2, 2010 Compared to Three Months Ended October 3, 2009

The following table presents a summary of the operating information for the third quarters of 2010 and 2009:

						% of								% of
(in thousands)		2010				Revenue				2009				Revenue				% Change
Revenues
System sales		$	133,439				29 %			$	118,325				29 %				13 %
Support and maintenance			130,199				28 %				122,067				30 %				7 %
Services			191,090				41 %				162,122				40 %				18 %
Reimbursed travel			7,955				2 %				6,901				2 %				15 %
Total revenues			462,683				100 %				409,415				100 %				13 %
Costs of revenue
Costs of revenue			79,148				17 %				69,479				17 %				14 %
Total margin			383,535				83 %				339,936				83 %				13 %
Operating expenses
Sales and client service			189,320				41 %				171,415				42 %				10 %
Software development			67,257				15 %				66,752				16 %				1 %
General and administrative			32,966				7 %				31,059				8 %				6 %
Total operating expenses			289,543				63 %				269,226				66 %				8 %
Total costs and expenses			368,691				80 %				338,705				83 %				9 %
Operating earnings			93,992				20.3 %				70,710				17.3 %				33 %
Interest income (expense), net			87								180
Other income (expense), net			5								(3	)
Income taxes			(33,212	)							(22,493	)
Net earnings		$	60,872							$	48,394								26 %

Revenues & Backlog

Revenues increased 13% to $462.7 million for the third quarter 2010 from $409.4 million for the same period in 2009.

	•		System sales, which include revenues from the sale of software, technology resale (hardware and sublicensed software), deployment period licensed software upgrade rights, installation fees, transaction processing and subscriptions, increased 13% to $133.4 million for the third quarter of 2010 from $118.3 million for the same period in 2009. The increase in system sales was driven by a strong increase in licensed software and technology resale.
	•		Support and maintenance revenues increased 7% to $130.2 million during the third quarter of 2010 from $122.1 million during the same period in 2009. The increase is attributable to growth in Cerner Millennium applications for which support billing has been initiated.
	•		Services revenue, which includes professional services excluding installation, and managed services, increased 18% to $191.1 million from $162.1 million for the same period in 2009. This increase is driven by growth in CernerWorksSM managed services as a result of continued demand for our hosting services and an increase in professional services due to increased implementation activities.

Contract backlog, which reflects new business bookings that have not yet been recognized as revenue, increased 24% in the third quarter of 2010 compared to the same period in 2009. This increase was driven by growth in new business bookings during the past four quarters, including continued strong levels of managed services bookings that typically have longer contract terms. A summary of our total backlog follows:

(In thousands)		October 2, 2010				October 3, 2009
Contract backlog		$	4,018,475			$	3,246,797
Support and maintenance backlog			642,436				604,389
Total backlog		$	4,660,911			$	3,851,186

Costs of Revenue

Cost of revenues remained flat at 17% of total revenues in the third quarter of 2010 and 2009. The cost of revenues includes the cost of reimbursed travel expense, third party consulting services and subscription content, computer hardware and sublicensed software purchased from hardware and software 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, maintenance, support, services and reimbursed travel) carrying different margin rates changes from period to period. Costs 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 8% to $289.5 million in the third quarter of 2010, compared with $269.2 million for the same period in 2009. Share-based compensation expense recognized impacted expenses as indicated below:

		Three Months Ended
(In thousands)		2010				2009
Sales and client service expenses		$	2,944			$	2,315
Software development expense			1,861				1,132
General and administrative expenses			1,745				1,258
Total stock-based compensation expense		$	6,550			$	4,705

	•		Sales and client service expenses as a percent of total revenues were 41% in the third quarter of 2010 as compared to 42% in the same period of 2009. These expenses increased 10% to $189.3 million in the third quarter of 2010, from $171.4 million in the same period of 2009. 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 increase was primarily attributable to growth in the managed services business and an increase in bad debt expense.
	•		Software development expense increased 1% to $67.3 million for the third quarter of 2010 compared to $66.8 million for the same period in 2009. The small amount of the increase reflects our ongoing efforts to control spending growth relative to revenue growth. A summary of our total software development expense is as follows:

		Three Months Ended
(In thousands)		2010				2009
Software development costs		$	70,037			$	69,940
Capitalized software costs			(20,199	)			(19,878	)
Capitalized costs related to share-based payments			(337	)			(232	)
Amortization of capitalized software costs			17,756				16,922
Total software development expense		$	67,257			$	66,752

•

General and administrative expenses as a percent of total revenues were 7%, in the third quarter of 2010, as compared to 8% for the same period in 2009. These expenses increased 6% to $33.0 million in the third quarter of 2010, from $31.1 million for the same period in 2009. 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. We recorded a net transaction loss on foreign currency of $0.9 million and a net transaction gain on foreign currency of $0.03 million in the third quarters of 2010 and 2009, respectively, which, along with a slight increase in other corporate expenses, accounted for the majority of the overall increase in general and administrative expenses.

Non-Operating Items

	•		Net interest income was $0.09 million in the third quarter of 2010 compared to net interest income of $0.2 million in the third quarter of 2009. Interest income decreased to $1.8 million in the third quarter of 2010 from $2.4 million for the same period in 2009. Interest expense decreased to $1.7 million in the third quarter of 2010 from $2.2 million for the same period in 2009, due primarily to long-term debt payments made in the fourth quarter of 2009.
	•		Other income was $0.01 million in the third quarter of 2010, compared to other expense of $0.03 million for the same period in 2009. Other income and expense in the third quarters 2010 and 2009 includes offsetting unrealized gains and losses included in earnings related to our auction rate securities and put-like settlement feature in the amounts of $1.2 million and $1.9 million, respectively. Refer to Liquidity and Capital Resources within this MD&A and Note 3 of the notes to condensed consolidated financial statements for additional information on our auction rate securities.
	•		Our effective tax rate was 35% for the third quarter of 2010 and 32% for the third quarter of 2009. This increase is primarily due to the research and development tax credit not being extended for the 2010 tax year and a decrease in unrecognized tax benefits in the third quarter of 2009 as a result of the Internal Revenue Service completion of the 2007 income tax return and refund claim related to the foreign tax credit for the 2004, 2005 and 2006 income tax returns.

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 Aruba, Australia, Austria, Belgium, Canada, Cayman Islands, Chile, China (Hong Kong), Egypt, England, France, Germany, India, Ireland, Malaysia, Puerto Rico, Saudi Arabia, Singapore, Spain, Sweden, Switzerland and the United Arab Emirates.

The following table presents a summary of the operating information for the third quarters of 2010 and 2009:

(in thousands)		2010				% of Revenue				2009				% of Revenue				% Change
Domestic Segment
Revenues		$	394,052				100%			$	338,508				100%				16%
Costs of revenue			64,150				16%				57,759				17%				11%
Operating expenses			102,605				26%				90,093				27%				14%
Total costs and expenses			166,755				42%				147,852				44%				13%
Domestic operating earnings			227,297				58%				190,656				56%				19%
Global Segment
Revenues			68,631				100%				70,907				100%				-3%
Costs of revenue			14,998				22%				11,720				17%				28%
Operating expenses			29,482				43%				32,658				46%				-10%
Total costs and expenses			44,480				65%				44,378				63%				0%
Global operating earnings			24,151				35%				26,529				37%				-9%
Other, net			(157,456	)							(146,475	)							7%
Consolidated operating earnings		$	93,992							$	70,710								33%

Domestic Segment

	•		Revenues increased 16% to $394.1 million in the third quarter of 2010 from $338.5 million in the same period in 2009. This increase was driven primarily by growth in licensed software, managed services and professional services.
	•		Cost of revenues was 16% of revenues in the third quarter of 2010, compared to 17% of revenues in the same period in 2009. The decrease reflects the typically higher margins of licensed software, managed services and professional services.
	•		Operating expenses increased 14% to $102.6 million in the third quarter of 2010, from $90.1 million in the same period in 2009, due primarily to growth in managed services and professional services expense.

Global Segment

	•		Revenues decreased 3% to $68.6 million in the third quarter of 2010 from $70.9 million in the same period in 2009. This decrease was driven by decline in licensed software and professional services revenue, largely from our operations in France, partially offset by an increase in technology resale and support revenue.
	•		Cost of revenues was 22% of revenues in the third quarter of 2010, compared with 17% in the same period of 2009. The higher cost of revenues in the third quarter of 2010 was driven by the increase in technology resale, which carries a higher cost of revenue.
	•		Operating expenses decreased 10% to $29.5 million for the third quarter of 2010, from $32.7 million in the same period in 2009, primarily due to a decrease in personnel-related professional services expense, partially offset by an increase in bad debt expense.

Other, net

Operating results not attributed to an operating segment include expenses, such as software development, marketing, general and administrative, stock-based compensation and depreciation. These expenses increased 7% to $157.5 million in the third quarter of 2010 from $146.5 million in the same period in 2009. This increase was primarily due to growth in corporate personnel costs, somewhat offset by the previously discussed impact of foreign currency transaction gains and losses.

Nine Months Ended October 2, 2010 Compared to Nine Months Ended October 3, 2009

The following table presents a summary of the operating information for the first nine months of 2010 and 2009:

						% of								% of
(in thousands)		2010				Revenue				2009				Revenue				% Change
Revenues
System sales		$	386,292				29	%		$	332,816				28	%			16	%
Support and maintenance			385,304				29	%			370,210				31	%			4	%
Services			554,605				41	%			479,251				40	%			16	%
Reimbursed travel			23,820				2	%			23,266				2	%			2	%
Total revenues			1,350,021				100	%			1,205,543				100	%			12	%
Costs of revenue
Costs of revenue			225,443				17	%			201,899				17	%			12	%
Total margin			1,124,578				83	%			1,003,644				83	%			12	%
Operating expenses
Sales and client service			566,943				42	%			516,401				43	%			10	%
Software development			202,024				15	%			196,578				16	%			3	%
General and administrative			99,611				7	%			91,819				8	%			8	%
Total operating expenses			868,578				64	%			804,798				67	%			8	%
Total costs and expenses			1,094,021				81	%			1,006,697				84	%			9	%
Operating earnings			256,000				19.0	%			198,846				16.5	%			29	%
Interest income (expense), net			2,291								(287	)
Other income (expense), net			(566	)							414
Income taxes			(91,090	)							(66,004	)
Net earnings		$	166,635							$	132,969								25	%