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, and its affiliates. Siemens Health Services offered 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 were offered on the Soarian, Invision, and i.s.h.med platforms, among others. Siemens Health Services also offered 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 ability and scale for R&D investment, and added over 5,000 highly-skilled associates that 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 $1.39 billion of cash, consisting of the $1.3 billion agreed upon purchase price plus working capital and certain other adjustments under the Master Sale and Purchase Agreement ("MSPA") dated August 5, 2014, as amended.

We incurred pre-tax costs of $22 million and $16 million in 2015 and 2014, respectively, in connection with our acquisition of Siemens Health Services, which are included in general and administrative expense in our consolidated statements of operations.

The acquisition of Siemens Health Services was treated as a purchase in accordance with 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.

The final allocation of purchase price is as follows:



(in thousands)	Allocation Amount			Estimated Weighted Average Useful Life
Receivables, net of allowances of $34,191	$	226,207
Other current assets	46,682
Property and equipment	158,324			20 years
Goodwill	532,327
Intangible assets:
Customer relationships	371,000			10 years
Existing technologies	201,990			5 years
Trade names	39,990			8 years
Total intangible assets	612,980
Other non-current assets	5,212
Accounts payable	(42,306		)
Deferred revenue (current)	(85,314		)
Other current liabilities	(12,853		)
Deferred revenue (non-current)	(48,130		)

Total purchase price	$	1,393,129

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 amortization of acquisition-related intangibles in our 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, among others, 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.

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 $532 million was allocated among our Domestic and Global operating segments, and is expected to be deductible for tax purposes. Refer to Note (7) for additional information on goodwill.

Our consolidated statements of operations include revenues of approximately $930 million attributable to the acquired business (now referred to as "Cerner Health Services") in 2015. Disclosure of the earnings contribution from the Cerner Health Services business in 2015 is not practicable, as we had already integrated operations in many areas.

The following table provides unaudited pro forma results of operations for the years ended January 2, 2016 and January 3, 2015, as if the acquisition had been completed on the first day of our 2014 fiscal year.



	For the Years Ended
(In thousands, except per share data)	2015		2014

Pro forma revenues	$	4,518,947	$	4,549,387
Pro forma net earnings	546,027		463,344
Pro forma diluted earnings per share	1.56		1.32

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 2015 year 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 $22 million, respectively. Pro forma results for the 2014 year include pre-tax adjustments for amortization of intangible assets, fair value adjustments for deferred revenue, and elimination of acquisition costs of $86 million, $52 million, and $16 million respectively.

Lee's Summit Tech Center

On December 17, 2015, we purchased real estate interests, in-place tenant leases, and certain other assets associated with the property commonly referred to as the Summit Technology Campus, located in Lee's Summit, Missouri. The acquired property (now referred to as the "Lee's Summit Tech Center") consists of a 550,000 square foot multi-tenant office building. We expect to utilize this space to support our data center and office space needs. Consideration for the Lee's Summit Tech Center is expected to total $86 million, consisting of $85 million of up-front cash plus contingent consideration not to exceed $1 million.

The acquisition of the Lee's Summit Tech Center was treated as a purchase in accordance with ASC Topic 805, Business Combinations. The final allocation of purchase price resulted in the allocation of $86 million to property and equipment, net in our consolidated balance sheets. The in-place tenant leases had a de minimis impact on the allocation of purchase price. No goodwill resulted from the transaction.

InterMedHx

On April 1, 2014, we purchased 100% of the outstanding membership interests of InterMedHx, LLC (InterMedHx). InterMedHx was a provider of health technology solutions in the areas of preventive care, patient administration, and medication history. We believe the addition of InterMedHx solutions provides additional capabilities in the market.

Consideration for the acquisition of InterMedHx is expected to total $19 million, consisting of up-front cash plus contingent consideration, which is payable at a percentage of the revenue contribution from InterMedHx solutions and services. We valued the contingent consideration at $12 million based on projections of revenue over the assessment period. We paid $2 million in both 2016 and 2015 to satisfy a portion of this contingent consideration obligation.

The allocation of purchase price to the estimated fair value of the identified tangible and intangible assets acquired and liabilities assumed resulted in goodwill of $17 million and $4 million in intangible assets related to the value of existing technologies. The goodwill was allocated to our Domestic operating segment and is expected to be deductible for tax purposes. Identifiable intangible assets are being amortized over a period of five years.