Acquisitions (Notes)

3 Months Ended

Apr. 04, 2015

Schedule of Business Acquisitions, by Acquisition [Abstract]

Business Combination Disclosure [Text Block]

Business Acquisitions

Siemens Health Services

On February 2, 2015, we acquired substantially all of the assets, and assumed certain liabilities of Siemens Health Services, the health information technology business unit of Siemens AG, a stock corporation established under the laws of Germany. Siemens Health Services offers a portfolio of enterprise-level clinical and financial health care information technology solutions, as well as departmental, connectivity, population health, and care coordination solutions globally. Solutions are offered on the Soarian, Invision, and i.s.h.med platforms, among others. Siemens Health Services also offers a range of complementary services including support, hosting, managed services, implementation services, and strategic consulting.

We believe the acquisition enhances our organic growth opportunities as it provides us a larger base into which we can sell our combined portfolio of solutions and services. The acquisition also augments our non-U.S. footprint and growth opportunities, increases our scale for R&D investment, and adds over 5,000 highly-skilled associates that will enhance our capabilities.These factors, combined with the synergies and economies of scale expected from combining the operations of Cerner and Siemens Health Services, are the basis for acquisition and comprise the resulting goodwill recorded.

Consideration for the acquisition was $1.37 billion of cash, consisting of the $1.3 billion agreed upon price plus working capital adjustments. The purchase price is subject to certain post-closing adjustments for working capital and pension obligations, as specified in the Master Sale and Purchase Agreement dated August 5, 2014, as amended.

During the three months ended April 4, 2015, we incurred $17 million of pre-tax costs in connection with our acquisition of Siemens Health Services, which are included in general and administrative expense in our condensed consolidated statements of operations.

The acquisition of Siemens Health Services is being treated as a purchase in accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed in the transaction. Our allocation of purchase price is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. The allocation of purchase price is preliminary and subject to changes, which could be significant, as appraisals of tangible and intangible assets are finalized, working capital and pension obligation adjustments are agreed upon and finalized, and additional information becomes available.

The preliminary allocation of purchase price is as follows:

(in thousands)	Allocation Amount			Estimated Weighted Average Useful Life
Receivables, net of allowances of $33,674	$	237,081
Other current assets	51,453
Property and equipment	153,226			20 years
Goodwill	450,001
Intangible assets:
Customer relationships	396,000			10 years
Existing technologies	201,990			5 years
Trade names	39,990			8 years
Total intangible assets	637,980
Other non-current assets	233
Accounts payable	(39,488		)
Deferred revenue (current)	(89,531		)
Other current liabilities	(14,011		)
Deferred revenue (non-current)	(14,930		)
Total purchase price	$	1,372,014

The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives, with such amortization included in general and administrative expense in our condensed consolidated statements of operations.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 inputs included discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates, royalty rates, and market comparables, among others.

Property and equipment was valued primarily using the sales comparison method, a form of the market approach, in which the value is derived by evaluating the market prices of assets with comparable features such as size, location, condition and age. Our analysis included multiple property categories, including land, buildings, and personal property, and included assumptions for market prices of comparable assets, and physical and economic obsolescence, among others.

Customer relationship intangible assets were valued using the excess earnings method, a form of the income approach, in which the value is derived by estimation of the after-tax cash flows specifically attributable to the customer relationships. Our analysis consisted of two customer categories, order backlog and existing customer relationships, and included assumptions for projections of revenues and expenses, contributory asset charges, discount rates, and a tax amortization benefit, among others.

Existing technology and trade name intangible assets were valued using the relief from royalty method, a form of the income approach, in which the value is derived by estimation of the after-tax royalty savings attributable to owning the assets. Assumptions in these analyses included projections of revenues, royalty rates representing costs avoided due to ownership of the assets, discount rates, and a tax amortization benefit.

Deferred revenue was valued using an income approach, in which the value was derived by estimation of the fulfillment cost, plus a normal profit margin (which excludes any selling margin), for performance obligations assumed in the acquisition. Assumptions included estimations of costs incurred to fulfill the obligations, profit margins a market participant would expect to receive, and a discount rate.

The goodwill of $450 million was allocated among our Domestic and Global operating segments, as shown below, and is expected to be deductible for tax purposes.

The changes in the carrying amounts of goodwill for the three months ended April 4, 2015 were as follows:

(In thousands)	Domestic		Global			Total
Beginning balance	$	311,170	$	9,368		$	320,538
Goodwill recorded in connection with the Siemens Health Services acquisition	397,708		52,293			450,001
Foreign currency translation adjustment and other	—		(3,317		)	(3,317		)
Ending balance at April 4, 2015	$	708,878	$	58,344		$	767,222

Our condensed consolidated statement of operations for the three months ended April 4, 2015 includes revenues of $176 million attributable to the acquired business (now referred to as "Cerner Health Services") since the February 2, 2015 acquisition date. Disclosure of the earnings contribution from the Cerner Health Services business is not practicable, as we have already integrated operations in many areas.

The following table provides unaudited pro forma results of operations for the three months ended April 4, 2015 and March 29, 2014 as if the acquisition had been completed on the first day of our 2014 fiscal year.

	Three Months Ended
(In thousands, except per share data)	2015		2014
Pro forma revenues	$	1,089,769	$	1,065,800
Pro forma net earnings	114,333		99,089
Pro forma diluted earnings per share	0.33		0.28

These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented, nor are they indicative of our consolidated results of operations in future periods. The pro forma results for the three months ended April 4, 2015 include pre-tax adjustments for amortization of intangible assets, fair value adjustments for deferred revenue, and the elimination of acquisition costs of $7 million, $6 million, and $17 million, respectively. Pro forma results for the three months ended March 29, 2014 include pre-tax adjustments for amortization of intangible assets and fair value adjustments for deferred revenue of $22 million and $19 million, respectively.