Exhibit 99.3
CERNER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We derived the following unaudited pro forma condensed consolidated financial information by applying pro forma adjustments attributable to the Siemens Health Services ("Siemens HS") acquisition to our historical condensed consolidated financial statements and the Siemens HS financial statements included in this Form 8-K/A. The unaudited condensed consolidated pro forma balance sheet gives pro forma effect to the Siemens HS acquisition as if it had occurred on January 3, 2015. The unaudited condensed consolidated pro forma statement of operations data for the fiscal year ended January 3, 2015 gives effect to the Siemens HS acquisition as if it had occurred on December 29, 2013. We describe the assumptions underlying the pro forma adjustments in the accompanying notes to unaudited pro forma condensed consolidated financial information, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and should not be considered indicative of the results that would have been achieved had the transactions been consummated on the dates or for the periods indicated and do not purport to represent consolidated balance sheet data or statement of operations data or other financial data as of any future date or any future period.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the information contained in "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and accompanying notes appearing elsewhere in our Annual Report on Form 10-K for the period ended January 3, 2015, and the Siemens HS financial statements included in this Form 8-K/A.
CERNER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
As of January 3, 2015
Historical | As of January 3, 2015 | |||||||||||||||||||||||
As of | Purchase Price Pro Forma Adjustments | Purchase Price Allocation Pro Forma Adjustments | Acquisition Cost Pro Forma Adjustments | Cerner Pro Forma Siemens HS Acquisition | ||||||||||||||||||||
January 3, 2015 | September 30, 2014 | |||||||||||||||||||||||
(In thousands) | Cerner | Siemens HS | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 635,203 | $ | 21 | $ | (502,014 | ) | $ | (21 | ) | $ | (17,500 | ) | $ | 115,689 | |||||||||
Short-term investments | 785,663 | — | (770,000 | ) | — | — | 15,663 | |||||||||||||||||
Receivables, net | 672,778 | 208,873 | — | 35,338 | — | 916,989 | ||||||||||||||||||
Other current assets | 255,142 | 245,953 | — | (194,500 | ) | — | 306,595 | |||||||||||||||||
Total current assets | 2,348,786 | 454,847 | (1,272,014 | ) | (159,183 | ) | (17,500 | ) | 1,354,936 | |||||||||||||||
Property and equipment, net | 924,260 | 121,264 | — | 27,858 | — | 1,073,382 | ||||||||||||||||||
Software development costs, net | 420,199 | 261,386 | — | (261,386 | ) | — | 420,199 | |||||||||||||||||
Goodwill | 320,538 | 275,345 | — | 232,181 | — | 828,064 | ||||||||||||||||||
Intangible assets, net | 126,636 | 21,429 | — | 551,551 | — | 699,616 | ||||||||||||||||||
Other non-current assets | 390,146 | 313,289 | (100,000 | ) | (313,056 | ) | — | 290,379 | ||||||||||||||||
Total assets | $ | 4,530,565 | $ | 1,447,560 | $ | (1,372,014 | ) | $ | 77,965 | $ | (17,500 | ) | $ | 4,666,576 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 160,285 | $ | 74,709 | $ | — | $ | (39,670 | ) | $ | — | $ | 195,324 | |||||||||||
Current installments of long-term debt and capital lease obligations | 67,460 | — | — | — | — | 67,460 | ||||||||||||||||||
Deferred revenue | 209,655 | 258,387 | — | (170,451 | ) | — | 297,591 | |||||||||||||||||
Other current liabilities | 196,915 | 156,864 | — | (142,853 | ) | (6,816 | ) | 204,110 | ||||||||||||||||
Total current liabilities | 634,315 | 489,960 | — | (352,974 | ) | (6,816 | ) | 764,485 | ||||||||||||||||
Long-term debt and capital lease obligations | 62,868 | — | — | — | — | 62,868 | ||||||||||||||||||
Deferred income taxes and other liabilities | 256,601 | 126,099 | — | (126,099 | ) | — | 256,601 | |||||||||||||||||
Deferred revenue | 10,813 | 342,959 | — | (326,434 | ) | — | 27,338 | |||||||||||||||||
Total liabilities | 964,597 | 959,018 | — | (805,507 | ) | (6,816 | ) | 1,111,292 | ||||||||||||||||
Shareholders’ Equity | 3,565,968 | 488,542 | — | (488,542 | ) | (10,684 | ) | 3,555,284 | ||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,530,565 | $ | 1,447,560 | $ | — | $ | (1,294,049 | ) | $ | (17,500 | ) | $ | 4,666,576 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
1
CERNER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
For the year ended January 3, 2015
Historical | For the year ended January 3, 2015 | |||||||||||||||||||||||
For the year ended | Classification Pro Forma Adjustments | Acquisition Pro Forma Adjustments | Acquisition Cost Pro Forma Adjustments | Cerner Pro Forma Siemens HS Acquisition | ||||||||||||||||||||
January 3, 2015 | September 30, 2014 | |||||||||||||||||||||||
(In thousands, except per share data) | Cerner | Siemens HS | ||||||||||||||||||||||
Revenues | $ | 3,402,703 | $ | 1,199,157 | $ | — | $ | — | $ | — | $ | 4,601,860 | ||||||||||||
Costs of revenue | 604,377 | 803,517 | (537,417 | ) | — | — | 870,477 | |||||||||||||||||
Total margin | 2,798,326 | 395,640 | 537,417 | — | — | 3,731,383 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Sales and client service | 1,395,568 | — | 614,451 | — | — | 2,010,019 | ||||||||||||||||||
Software development | 392,805 | 224,384 | — | — | — | 617,189 | ||||||||||||||||||
General and administrative | 246,869 | 185,727 | (77,034 | ) | 83,282 | (15,786 | ) | 423,058 | ||||||||||||||||
Contract settlement (gain) | — | (38,057 | ) | — | — | — | (38,057 | ) | ||||||||||||||||
Total operating expenses | 2,035,242 | 372,054 | 537,417 | 83,282 | (15,786 | ) | 3,012,209 | |||||||||||||||||
Operating earnings | 763,084 | 23,586 | — | (83,282 | ) | 15,786 | 719,174 | |||||||||||||||||
Other income (expense), net | 11,090 | (1,066 | ) | — | — | — | 10,024 | |||||||||||||||||
Earnings before income taxes | 774,174 | 22,520 | — | (83,282 | ) | 15,786 | 729,198 | |||||||||||||||||
Income taxes | (248,741 | ) | (8,607 | ) | — | 32,438 | (5,648 | ) | (230,558 | ) | ||||||||||||||
Net earnings | $ | 525,433 | $ | 13,913 | $ | — | $ | (50,844 | ) | $ | 10,138 | $ | 498,640 | |||||||||||
Basic earnings per share | $ | 1.54 | $ | 1.46 | ||||||||||||||||||||
Diluted earnings per share | $ | 1.50 | $ | 1.42 | ||||||||||||||||||||
Basic weighted average shares outstanding | 342,150 | 342,150 | ||||||||||||||||||||||
Diluted weighted average shares outstanding | 350,386 | 350,386 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
2
CERNER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
(1) Purchase Price
Consideration for the acquisition was $1,372,014 of cash. 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.
We used a combination of cash on hand and proceeds from the sale of investments to fund the acquisition. The sources of funds used in connection with the acquisition are reflected in the Unaudited Condensed Consolidated Pro Forma Balance Sheet as follows:
Cash and cash equivalents | $ | 502,014 | ||
Short-term investments | 770,000 | |||
Long-term investments | 100,000 | |||
Total net tangible assets | $ | 1,372,014 |
(2) Allocation of Purchase Price
The acquisition of Siemens HS will be treated as a purchase in accordance with Accounting Standards Codification (ASC) 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 finalized, and additional information becomes available. The preliminary allocation of purchase price reflects reclassification adjustments to present assets and liabilities consistent with Cerner's historical presentation.
The preliminary allocation of purchase price is reflected in the Unaudited Condensed Consolidated Pro Forma Balance Sheet as follows:
Allocation Amount | Estimated Weighted Average Useful Life | |||||
Receivables, net | $ | 244,211 | ||||
Other current assets | 51,453 | |||||
Property and equipment | 149,122 | |||||
Goodwill | 507,526 | |||||
Intangible assets: | ||||||
Customer relationships | 331,000 | 9 years | ||||
Existing technologies | 201,990 | 5 years | ||||
Trade names | 39,990 | 8 years | ||||
Total intangible assets | 572,980 | |||||
Other non-current assets | 233 | |||||
Accounts payable | (35,039 | ) | ||||
Deferred revenue (current) | (87,936 | ) | ||||
Other current liabilities | (14,011 | ) | ||||
Deferred revenue (non-current) | (16,525 | ) | ||||
Total purchase price | $ | 1,372,014 |
Intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives above.
3
(3) Acquisition Costs
For the year ended January 3, 2015, we incurred $15,786 of pre-tax costs in connection with our acquisition of Siemens HS. An adjustment is reflected in the Unaudited Condensed Consolidated Pro Forma Statement of Operations to remove such costs, along with the related income tax benefit of $5,648.
Direct and incremental transaction costs expected to be incurred in connection with the closing of the transaction in 2015 are estimated at $17,500. Our estimate of such costs is based on management's judgment after evaluating several factors, including 2014 actual costs and amounts contractually due to external advisers and service providers. An adjustment is reflected in the Unaudited Condensed Consolidated Pro Forma Balance Sheet for such costs, along with the related income tax benefit of $6,816. The income tax benefit was derived using a statutory income tax rate of 38.95%.
(4) Other Adjustments to Unaudited Condensed Consolidated Pro Forma Statement of Operations
Reclassification adjustments are reflected in the Unaudited Condensed Consolidated Pro Forma Statement of Operations in order to estimate the presentation of Siemens HS costs and expenses consistent with Cerner's historical presentation.
An adjustment of $83,282 is reflected in the Unaudited Condensed Consolidated Pro Forma Statement of Operations to estimate the incremental depreciation and amortization resulting from the preliminary allocation of purchase price. The related income tax benefit is also presented, derived using a statutory tax rate of 38.95%.
(5) Subsequent Events
In January 2015, we issued $500,000 aggregate principal amount of unsecured Senior Notes ("Notes"), pursuant to a Master Note Purchase Agreement dated December 4, 2014. The issuance consisted of $225,000 of 3.18% Series 2015-A Notes due February 15, 2022, $200,000 of 3.58% Series 2015-B Notes due February 14, 2025, and $75,000 in floating rate Series 2015-C Notes due February 15, 2022. Interest is payable semiannually on February 15th and August 15th in each year, commencing on August 15, 2015 for the Series 2015-A Notes and Series 2015-B Notes. The Series 2015-C Notes will accrue interest at a floating rate equal to the Adjusted LIBOR Rate (as defined in the Master Note Purchase Agreement), payable quarterly on February 15th, May 15th, August 15th and November 15th in each year, commencing on May 15, 2015. The Master Note Purchase Agreement contains certain leverage and interest coverage ratio covenants and provides certain restrictions on our ability to borrow, incur liens, sell assets, and other customary terms. Proceeds from the Notes are available for general corporate purposes. This transaction has not been reflected in the Unaudited Pro Forma Condensed Financial Information, as the debt issuance was not directly attributable to the acquisition transaction.
4