NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Interim Statement Presentation
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Cerner Corporation ("Cerner," the "Company," "we," "us" or "our") 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 ("GAAP") have been condensed or omitted pursuant to such rules and regulations. 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 management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) 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 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.
Fiscal Period End
Our third fiscal quarter ends on the Saturday closest to September 30. The 2019 and 2018 third quarters ended on September 28, 2019 and September 29, 2018, respectively. All references to years in these notes to condensed consolidated financial statements represent the respective three or nine months ended on such dates, unless otherwise noted.
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
(In thousands)
|
|
|
2019
|
|
2018
|
Cash paid during the period for:
|
|
|
|
|
|
Interest (including amounts capitalized of $12,575 and $9,318, respectively)
|
|
|
$
|
20,756
|
|
|
$
|
15,568
|
|
Income taxes, net of refunds
|
|
|
65,171
|
|
|
(47,462
|
)
|
Voluntary Separation Benefits
In January 2019, we adopted a voluntary separation plan ("2019 VSP") for eligible associates. Generally, the 2019 VSP was available to U.S. associates who met a minimum level of combined age and tenure, excluding, among others, our executive officers. Associates who elected to participate in the 2019 VSP received financial benefits commensurate with their tenure and position, along with vacation payout, medical benefits, and accelerated vesting of certain share-based payment awards. The irrevocable acceptance period for associates electing to participate in the 2019 VSP ended in April 2019. In the second quarter of 2019, we recorded pre-tax charges for the 2019 VSP of $41 million. Such charges are included in general and administrative expense in our condensed consolidated statements of operations.
In the third quarter of 2019, we offered voluntary separation benefits to certain associates primarily located outside the U.S. The irrevocable acceptance period for associates to accept such offers ended in September 2019. In the third quarter of 2019, we recorded corresponding pre-tax charges of $11 million. Such charges are included in general and administrative expense in our condensed consolidated statements of operations.
Involuntary Separation Benefits
In the third quarter of 2019, we recorded pre-tax charges of $21 million in connection with the involuntary termination of approximately 250 U.S. associates. Such charges are included in general and administrative expense in our condensed consolidated statements of operations. Separation benefits for these associates include cash severance, contribution to a health reimbursement account, career transition assistance, and accelerated vesting of certain share-based payment awards. At September 28, 2019, a liability of $18 million for such obligations is included in accrued payroll and tax withholdings in our condensed consolidated balance sheets, which we expect to settle/pay in the fourth quarter of 2019.
Contract Termination Costs
In the third quarter of 2019, we recorded pre-tax charges of $60 million in connection with the termination of certain client contracts prior to end of their stated terms, the majority of which was paid in cash. Such charges are included in our domestic operating segment, and presented in sales and client service expense in our condensed consolidated statements of operations. At September 28, 2019, our condensed consolidated balance sheets do not include a liability for any obligations related to such contract terminations.
Purchase Obligations
In July 2019, we entered into an agreement with a certain vendor to purchase $650 million of cloud computing services over an initial 10-year period ending in 2029.
Accounting Pronouncements Adopted in 2019
Leases. In the first quarter of 2019, we adopted new lease accounting guidance. Refer to Note (7) for further details.
Callable Debt Securities. In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring the premium be amortized to the earliest call date. Such guidance impacts how premiums are amortized on our available-for-sale investments. We adopted ASU 2017-08 in the first quarter of 2019. Such guidance did not have an impact on our condensed consolidated financial statements and related disclosures.
Accumulated Other Comprehensive Income. In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for "stranded tax effects" resulting from certain U.S. tax reform enacted in December 2017. Such "stranded tax effects" were created when deferred tax assets and liabilities related to items in AOCI were remeasured at the lower U.S. corporate tax rate in the period of enactment. We adopted ASU 2018-02 in the first quarter of 2019, and did not elect to reclassify "stranded tax effects" from AOCI to retained earnings.
Shareholders' Equity. In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification. Such guidance, among other things, extends to interim periods the annual requirement in SEC Regulation S-X, Rule 3-04 to disclose changes in shareholders' equity. Under the requirements in SEC Regulation S-X, Rules 8-03(a)(5) and 10-01(a)(7), as amended by this new guidance, registrants must now analyze changes in shareholders' equity, in the form of a reconciliation, for the current and comparative year-to-date interim periods, with subtotals for each interim period. This guidance is effective for filings submitted on or after November 5, 2018. We have presented a separate condensed consolidated statement of changes in shareholders' equity in this Form 10-Q in order to satisfy this new disclosure requirement.
Recently Issued Accounting Pronouncements
Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how we determine our allowance for estimated uncollectible receivables and evaluate our available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2020, with early adoption permitted in the first quarter of 2019. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures, and we did not early adopt.
Collaborative Arrangements. In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB's new revenue standard (Topic 606). Such guidance clarifies revenue recognition and financial statement presentation for transactions between collaboration participants. ASU 2018-18 is effective for the Company in the first quarter of 2020, with early adoption permitted. The standard requires retrospective application to the date we adopted Topic 606, December 31, 2017. We are currently evaluating the effect that ASU 2018-18 will have on our consolidated financial statements and related disclosures, and we do not expect to early adopt.
(2) Revenue Recognition
Disaggregation of Revenue
The following tables present revenues disaggregated by our business models:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
2019
|
|
2018
|
(In thousands)
|
Domestic
Segment
|
International
Segment
|
Total
|
|
Domestic
Segment
|
International
Segment
|
Total
|
|
|
|
|
|
|
|
|
Licensed software
|
$
|
144,599
|
|
$
|
9,934
|
|
$
|
154,533
|
|
|
$
|
132,447
|
|
$
|
7,441
|
|
$
|
139,888
|
|
Technology resale
|
65,103
|
|
5,072
|
|
70,175
|
|
|
51,097
|
|
9,281
|
|
60,378
|
|
Subscriptions
|
85,230
|
|
6,674
|
|
91,904
|
|
|
73,792
|
|
5,323
|
|
79,115
|
|
Professional services
|
446,562
|
|
60,893
|
|
507,455
|
|
|
400,695
|
|
56,030
|
|
456,725
|
|
Managed services
|
272,933
|
|
29,502
|
|
302,435
|
|
|
278,019
|
|
23,981
|
|
302,000
|
|
Support and maintenance
|
227,131
|
|
50,163
|
|
277,294
|
|
|
229,202
|
|
48,578
|
|
277,780
|
|
Reimbursed travel
|
23,705
|
|
1,927
|
|
25,632
|
|
|
22,902
|
|
1,285
|
|
24,187
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
1,265,263
|
|
$
|
164,165
|
|
$
|
1,429,428
|
|
|
$
|
1,188,154
|
|
$
|
151,919
|
|
$
|
1,340,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
2019
|
|
2018
|
(In thousands)
|
Domestic
Segment
|
International
Segment
|
Total
|
|
Domestic
Segment
|
International
Segment
|
Total
|
|
|
|
|
|
|
|
|
Licensed software
|
$
|
466,105
|
|
$
|
40,018
|
|
$
|
506,123
|
|
|
$
|
417,761
|
|
$
|
29,334
|
|
$
|
447,095
|
|
Technology resale
|
169,112
|
|
17,338
|
|
186,450
|
|
|
171,135
|
|
27,876
|
|
199,011
|
|
Subscriptions
|
246,505
|
|
19,460
|
|
265,965
|
|
|
220,063
|
|
18,639
|
|
238,702
|
|
Professional services
|
1,313,701
|
|
169,500
|
|
1,483,201
|
|
|
1,168,079
|
|
177,232
|
|
1,345,311
|
|
Managed services
|
818,818
|
|
85,661
|
|
904,479
|
|
|
785,951
|
|
69,906
|
|
855,857
|
|
Support and maintenance
|
679,214
|
|
151,454
|
|
830,668
|
|
|
693,217
|
|
148,083
|
|
841,300
|
|
Reimbursed travel
|
68,750
|
|
4,730
|
|
73,480
|
|
|
69,108
|
|
4,277
|
|
73,385
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
3,762,205
|
|
$
|
488,161
|
|
$
|
4,250,366
|
|
|
$
|
3,525,314
|
|
$
|
475,347
|
|
$
|
4,000,661
|
|
The following tables present our revenues disaggregated by timing of revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
2019
|
|
2018
|
(In thousands)
|
Domestic
Segment
|
International
Segment
|
Total
|
|
Domestic
Segment
|
International
Segment
|
Total
|
|
|
|
|
|
|
|
|
Revenue recognized over time
|
$
|
1,143,470
|
|
$
|
155,017
|
|
$
|
1,298,487
|
|
|
$
|
1,078,029
|
|
$
|
137,594
|
|
$
|
1,215,623
|
|
Revenue recognized at a point in time
|
121,793
|
|
9,148
|
|
130,941
|
|
|
110,125
|
|
14,325
|
|
124,450
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
1,265,263
|
|
$
|
164,165
|
|
$
|
1,429,428
|
|
|
$
|
1,188,154
|
|
$
|
151,919
|
|
$
|
1,340,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
2019
|
|
2018
|
(In thousands)
|
Domestic
Segment
|
International
Segment
|
Total
|
|
Domestic
Segment
|
International
Segment
|
Total
|
|
|
|
|
|
|
|
|
Revenue recognized over time
|
$
|
3,403,965
|
|
$
|
445,320
|
|
$
|
3,849,285
|
|
|
$
|
3,169,402
|
|
$
|
425,991
|
|
$
|
3,595,393
|
|
Revenue recognized at a point in time
|
358,240
|
|
42,841
|
|
401,081
|
|
|
355,912
|
|
49,356
|
|
405,268
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
3,762,205
|
|
$
|
488,161
|
|
$
|
4,250,366
|
|
|
$
|
3,525,314
|
|
$
|
475,347
|
|
$
|
4,000,661
|
|
Transaction Price Allocated to Remaining Performance Obligations
As of September 28, 2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $13.31 billion of which we expect to recognize 31% of the revenue over the next 12 months and the remainder thereafter.
Contract Liabilities
Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. Such amounts are classified in our condensed consolidated balance sheets as deferred revenue. During the nine months ended September 28, 2019, we recognized $342 million of revenues that were included in our contract liability balance at the beginning of such period.
(3) Receivables
A summary of net receivables is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 28, 2019
|
|
December 29, 2018
|
|
|
|
|
Client receivables
|
$
|
1,259,584
|
|
|
$
|
1,237,127
|
|
Less: Allowance for doubtful accounts
|
104,604
|
|
|
64,561
|
|
|
|
|
|
Client receivables, net of allowance
|
1,154,980
|
|
|
1,172,566
|
|
|
|
|
|
Current portion of lease receivables (under ASC Topic 840)
|
—
|
|
|
10,928
|
|
|
|
|
|
Total receivables, net
|
$
|
1,154,980
|
|
|
$
|
1,183,494
|
|
During the first nine months of 2019 and 2018, we received total client cash collections of $4.23 billion and $3.99 billion, respectively.
(4) Investments
Available-for-sale investments at September 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Adjusted Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
140,504
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
140,504
|
|
Time deposits
|
|
59,585
|
|
|
—
|
|
|
—
|
|
|
59,585
|
|
Commercial paper
|
|
27,400
|
|
|
—
|
|
|
—
|
|
|
27,400
|
|
Total cash equivalents
|
|
227,489
|
|
|
—
|
|
|
—
|
|
|
227,489
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Time deposits
|
|
5,690
|
|
|
—
|
|
|
—
|
|
|
5,690
|
|
Commercial paper
|
|
17,750
|
|
|
13
|
|
|
(10
|
)
|
|
17,753
|
|
Government and corporate bonds
|
|
104,077
|
|
|
53
|
|
|
(29
|
)
|
|
104,101
|
|
Total short-term investments
|
|
127,517
|
|
|
66
|
|
|
(39
|
)
|
|
127,544
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Government and corporate bonds
|
|
81,431
|
|
|
78
|
|
|
(54
|
)
|
|
81,455
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
436,437
|
|
|
$
|
144
|
|
|
$
|
(93
|
)
|
|
$
|
436,488
|
|
Available-for-sale investments at December 29, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Adjusted Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
76,471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76,471
|
|
Time deposits
|
|
71,461
|
|
|
—
|
|
|
—
|
|
|
71,461
|
|
Commercial Paper
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
Total cash equivalents
|
|
157,932
|
|
|
—
|
|
|
—
|
|
|
157,932
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Time deposits
|
|
31,947
|
|
|
—
|
|
|
—
|
|
|
31,947
|
|
Commercial paper
|
|
75,445
|
|
|
—
|
|
|
(91
|
)
|
|
75,354
|
|
Government and corporate bonds
|
|
294,941
|
|
|
1
|
|
|
(958
|
)
|
|
293,984
|
|
Total short-term investments
|
|
402,333
|
|
|
1
|
|
|
(1,049
|
)
|
|
401,285
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Government and corporate bonds
|
|
18,247
|
|
|
—
|
|
|
(55
|
)
|
|
18,192
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
578,512
|
|
|
$
|
1
|
|
|
$
|
(1,104
|
)
|
|
$
|
577,409
|
|
We sold available-for-sale investments for proceeds of $181 million and $45 million during the nine months ended September 28, 2019 and September 29, 2018, respectively, resulting in insignificant gains/losses in each period.
Other Investments
At September 28, 2019 and December 29, 2018, we had equity investments that do not have readily determinable fair values of $314 million and $277 million, respectively, accounted for in accordance with Accounting Standards Codification ("ASC") Topic 321, Investments-Equity Securities. Such investments are included in long-term investments in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments for the nine months ended September 28, 2019 and September 29, 2018, respectively.
(5) Long-term Debt
The following is a summary of indebtedness outstanding:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 28, 2019
|
|
December 29, 2018
|
|
|
|
|
Credit agreement loans
|
$
|
600,000
|
|
|
$
|
—
|
|
Senior notes
|
425,000
|
|
|
425,000
|
|
Capital lease obligations (under ASC Topic 840)
|
—
|
|
|
4,914
|
|
Other
|
14,162
|
|
|
14,162
|
|
|
|
|
|
Debt and capital lease obligations
|
1,039,162
|
|
|
444,076
|
|
Less: debt issuance costs
|
(595
|
)
|
|
(360
|
)
|
|
|
|
|
Debt and capital lease obligations, net
|
1,038,567
|
|
|
443,716
|
|
Less: current portion
|
—
|
|
|
(4,914
|
)
|
|
|
|
|
Long-term debt
|
$
|
1,038,567
|
|
|
$
|
438,802
|
|
Credit Agreement
In May 2019, we entered into a First Amendment to our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") with a syndicate of lenders. The Credit Agreement provides for an unsecured revolving credit facility expiring in May 2024, and includes: (a) a revolving credit loan facility of up to $700 million at any time outstanding, and (b) a letter of credit facility of up to $100 million at any time outstanding (which is a sub-facility of the $700 million revolving credit loan facility). The Credit Agreement also includes an accordion feature allowing an increase of the credit facility of up to an additional $300 million ($1 billion in the aggregate) at any time outstanding, subject to lender participation and the satisfaction of specified conditions. Borrowings outstanding under the Credit Agreement are due in May 2024, with prepayment permitted at any time. Proceeds may be used for working capital and general corporate purposes, including but not limited to certain business acquisitions and purchases under our share repurchase programs. The Credit Agreement provides certain restrictions on our ability to borrow, incur liens, sell assets and pay dividends, and contains certain leverage and interest coverage covenants.
Generally, interest on revolving credit loans is payable at a variable rate based on LIBOR, prime, or the U.S. federal funds rate, plus a spread that varies depending on leverage ratios maintained. Unused commitment, letter of credit, and other fees are also payable under the Credit Agreement. As of September 28, 2019, the interest rate on revolving credit loans outstanding was 2.84% based on LIBOR plus the applicable spread.
As of September 28, 2019, we had outstanding revolving credit loans and letters of credit of $600 million and $30 million, respectively; which reduced our available borrowing capacity to $70 million.
Interest Rate Swap
We are exposed to market risk from fluctuations in the variable interest rates on outstanding indebtedness under our Credit Agreement. In order to manage this exposure, we have entered into an interest rate swap agreement, with an initial notional amount of $600 million, to hedge the variability of cash flows associated with such interest obligations through May 2024. The interest rate swap has an effective start date of May 13, 2019, and is designated as a cash flow hedge, which effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. As of September 28, 2019, this swap was in a net liability position with an aggregate fair value of $22 million, which is presented in our condensed consolidated balance sheets in other current liabilities. We classify fair value measurements of our interest rate swap as Level 2, as further described in Note (6).
Our interest rate swap agreement is accounted for in accordance with ASC Topic 815, Derivatives and Hedging. Such agreement is designated as a cash flow hedge and considered to be highly effective under hedge accounting principles. Therefore, the swap agreement is recognized in our condensed consolidated balance sheets as either an asset or liability, measured at fair value. Changes in the fair value of the swap agreement are initially recorded in accumulated other comprehensive loss, net and then subsequently recognized in our condensed consolidated statements of operations in the
periods in which earnings are affected by the hedged item. All cash flows associated with the swap agreement are classified as operating activities in our condensed consolidated statements of cash flows.
(6) Fair Value Measurements
We determine fair value measurements used in our 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 and recorded at fair value on a recurring basis at September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
Description
|
|
Balance Sheet Classification
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
Cash equivalents
|
|
$
|
140,504
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time deposits
|
|
Cash equivalents
|
|
—
|
|
|
59,585
|
|
|
—
|
|
Commercial paper
|
|
Cash equivalents
|
|
—
|
|
|
27,400
|
|
|
—
|
|
Time deposits
|
|
Short-term investments
|
|
—
|
|
|
5,690
|
|
|
—
|
|
Commercial paper
|
|
Short-term investments
|
|
—
|
|
|
17,753
|
|
|
—
|
|
Government and corporate bonds
|
|
Short-term investments
|
|
—
|
|
|
104,101
|
|
|
—
|
|
Government and corporate bonds
|
|
Long-term investments
|
|
—
|
|
|
81,455
|
|
|
—
|
|
The following table details our financial assets measured and recorded at fair value on a recurring basis at December 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
Description
|
|
Balance Sheet Classification
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
Cash equivalents
|
|
$
|
76,471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time deposits
|
|
Cash equivalents
|
|
—
|
|
|
71,461
|
|
|
—
|
|
Commercial Paper
|
|
Cash equivalents
|
|
—
|
|
|
10,000
|
|
|
—
|
|
Time deposits
|
|
Short-term investments
|
|
—
|
|
|
31,947
|
|
|
—
|
|
Commercial paper
|
|
Short-term investments
|
|
—
|
|
|
75,354
|
|
|
—
|
|
Government and corporate bonds
|
|
Short-term investments
|
|
—
|
|
|
293,984
|
|
|
—
|
|
Government and corporate bonds
|
|
Long-term investments
|
|
—
|
|
|
18,192
|
|
|
—
|
|
Our interest rate swap agreement is measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such agreement is based on the market standard methodology of netting the discounted expected future
variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instrument is held, the derivative is classified as Level 2 in the hierarchy.
We estimate the fair value of our long-term, fixed rate debt using a Level 3 discounted cash flow analysis based on current borrowing rates for debt with similar maturities. We estimate the fair value of our long-term, variable rate debt using a Level 3 discounted cash flow analysis based on LIBOR rate forward curves. The fair value of our long-term debt, including current maturities, at September 28, 2019 and December 29, 2018 was approximately $1.07 billion and $431 million, respectively. The carrying amount of such debt at September 28, 2019 and December 29, 2018 was $1.03 billion and $425 million, respectively.
(7) Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which introduces a new accounting model that requires most leases to be reported on the balance sheet. It also establishes disclosure requirements, which are more extensive than those required under prior U.S. GAAP. The standard requires use of the modified retrospective (cumulative effect) transition approach and was effective for the Company in the first quarter of 2019. We selected the effective date of ASU 2016-02 as the date of initial application on transition, as permitted by ASU 2016-02, as amended ("Topic 842"). Under this transition method, the cumulative effect from prior periods upon applying the new guidance to arrangements containing leases was recognized in our condensed consolidated balance sheets as of December 30, 2018. We did not recast comparative periods.
A summary of such cumulative effect adjustment is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Increase /
(Decrease)
|
|
|
|
|
Right-of-use asset
|
|
|
$
|
129,652
|
|
Prepaid expenses and other
|
|
|
3,968
|
|
Other current liabilities
|
|
|
22,767
|
|
Other liabilities
|
|
|
110,853
|
|
Arrangements Containing Leases
The cumulative effect adjustment above, is primarily comprised of arrangements where we are the lessee under operating leases for real estate (office, data center, and warehouse space) and certain dedicated fiber optic lines within our infrastructure. The duration of these agreements ranges from several months to in excess of 20 years. Generally, variable lease payments under these operating lease agreements relate to amounts based on changes to an index or rate (i.e. percentage change in the consumer price index). We do not have any arrangements where we are the lessee, classified as finance leases in our condensed consolidated financial statements.
In addition to the items described above, we also procure hotel stays and rental cars related to associate business travel, and the use of certain equipment for trade shows, client presentations, conferences, and internal meetings. We have made the policy election to classify such arrangements as short-term leases, as defined in Topic 842. As such, we have not recognized lease liabilities and right-of-use assets for such arrangements in our condensed consolidated financial statements. The duration of these arrangements is less than one month. Therefore, we do not disclose any short-term lease expense, as permitted by Topic 842. Expense for such items is recognized on a straight-line basis over the term of such arrangements.
Arrangements in which we are the lessor are not significant to our condensed consolidated financial statements.
Amounts Included in the Condensed Consolidated Financial Statements
The following table presents a summary of lease liability and right-of-use asset amounts included in our condensed consolidated balance sheets as of September 28, 2019, under operating lease arrangements where we are the lessee:
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Description
|
|
Balance Sheet Classification
|
|
September 28, 2019
|
|
|
|
|
|
Right-of-use asset
|
|
Right-of-use assets
|
|
$
|
121,746
|
|
Lease liability - current
|
|
Other current liabilities
|
|
30,080
|
|
Lease liability - non-current
|
|
Other liabilities
|
|
103,177
|
|
Lease liabilities recorded upon the commencement of operating leases during the nine months ended September 28, 2019 were $23 million.
For the three and nine months ended September 28, 2019, operating lease cost was $9 million and $28 million, respectively. Variable lease cost was less than $1 million for both the three and nine months ended September 28, 2019.
Maturity Analysis
Aggregate future payments under operating lease arrangements where we are the lessee (by fiscal year) are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Operating Lease Obligations
|
|
|
|
|
Remainder of 2019
|
|
|
$
|
10,164
|
|
2020
|
|
|
32,170
|
|
2021
|
|
|
27,677
|
|
2022
|
|
|
22,185
|
|
2023
|
|
|
15,511
|
|
2024 and thereafter
|
|
|
47,394
|
|
|
|
|
|
Aggregate future payments
|
|
|
155,101
|
|
Impact of discounting
|
|
|
(21,844
|
)
|
|
|
|
|
Aggregate lease liability at September 28, 2019
|
|
|
$
|
133,257
|
|
At September 28, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating lease arrangements where we are the lessee were 7.05 years and 3.7%, respectively.
Prior Periods
Prior to the adoption of Topic 842, we accounted for arrangements where we were the lessee under operating leases in accordance with ASC Topic 840, Leases. Rent expense for office and warehouse space for our regional and global offices for the three and nine months ended September 29, 2018 was $8 million and $25 million, respectively. Aggregate minimum future payments under these non-cancelable operating leases as of December 29, 2018, were as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Operating Lease Obligations
|
|
|
|
|
2019
|
|
|
$
|
29,739
|
|
2020
|
|
|
27,669
|
|
2021
|
|
|
22,904
|
|
2022
|
|
|
17,240
|
|
2023
|
|
|
10,166
|
|
2024 and thereafter
|
|
|
17,743
|
|
|
|
|
|
|
|
|
$
|
125,461
|
|
(8) 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. Our effective tax rate was 18.9% and 20.7% for the first nine months of 2019 and 2018, respectively. The decrease in the effective tax rate in the first nine months of 2019 is primarily due to increased excess tax benefits recognized as a component of income tax expense due to elevated stock option exercise activity.
(9) Earnings Per Share
A reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
2019
|
|
2018
|
|
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 shareholders
|
$
|
81,935
|
|
|
315,876
|
|
|
$
|
0.26
|
|
|
$
|
169,381
|
|
|
329,342
|
|
|
$
|
0.51
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested shares
|
—
|
|
|
3,237
|
|
|
|
|
—
|
|
|
3,595
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders including assumed conversions
|
$
|
81,935
|
|
|
319,113
|
|
|
$
|
0.26
|
|
|
$
|
169,381
|
|
|
332,937
|
|
|
$
|
0.51
|
|
For the three months ended September 28, 2019 and September 29, 2018, options to purchase 7.7 million and 13.0 million shares of common stock at per share prices ranging from $54.87 to $75.83 and $50.04 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
2019
|
|
2018
|
|
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 shareholders
|
$
|
375,123
|
|
|
320,282
|
|
|
$
|
1.17
|
|
|
$
|
498,739
|
|
|
330,789
|
|
|
$
|
1.51
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested shares
|
—
|
|
|
3,079
|
|
|
|
|
—
|
|
|
3,704
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders including assumed conversions
|
$
|
375,123
|
|
|
323,361
|
|
|
$
|
1.16
|
|
|
$
|
498,739
|
|
|
334,493
|
|
|
$
|
1.49
|
|
For the nine months ended September 28, 2019 and September 29, 2018, options to purchase 10.1 million and 12.7 million shares of common stock at per share prices ranging from $51.87 to $75.83 and $50.04 to $73.40, respectively, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive.
(10) Share-Based Compensation and Equity
Stock Options
Stock option activity for the nine months ended September 28, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share and term data)
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
(Per Share)
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-Average
Remaining
Contractual
Term (Yrs)
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
21,792
|
|
|
$
|
52.31
|
|
|
|
|
|
Granted
|
1,045
|
|
|
65.53
|
|
|
|
|
|
Exercised
|
(4,821
|
)
|
|
40.91
|
|
|
|
|
|
Forfeited and expired
|
(946
|
)
|
|
61.39
|
|
|
|
|
|
Outstanding as of September 28, 2019
|
17,070
|
|
|
55.83
|
|
|
$
|
215,557
|
|
|
6.24
|
|
|
|
|
|
|
|
|
Exercisable as of September 28, 2019
|
9,181
|
|
|
$
|
51.62
|
|
|
$
|
154,997
|
|
|
4.76
|
The weighted-average assumptions used to estimate the fair value, under the Black-Scholes-Merton pricing model, of stock options granted during the nine months ended September 28, 2019 were as follows:
|
|
|
|
|
|
Expected volatility (%)
|
|
25.1
|
%
|
Expected dividend rate (%)
|
|
1
|
%
|
Expected term (yrs)
|
|
7
|
|
Risk-free rate (%)
|
|
2.4
|
%
|
Fair value per option
|
|
$
|
17.58
|
|
As of September 28, 2019, there was $112 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 2.83 years.
Non-vested Shares and Share Units
Non-vested share and share unit activity for the nine months ended September 28, 2019 was as follows:
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Number of Shares
|
|
Weighted-Average
Grant Date Fair Value
Per Share
|
|
|
|
|
Outstanding at beginning of year
|
882
|
|
|
$
|
62.82
|
|
Granted
|
2,262
|
|
|
66.47
|
|
Vested
|
(394
|
)
|
|
67.01
|
|
Forfeited
|
(64
|
)
|
|
63.01
|
|
|
|
|
|
Outstanding as of September 28, 2019
|
2,686
|
|
|
$
|
65.27
|
|
As of September 28, 2019, there was $144 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.30 years.
Share-Based Compensation Cost
The following table presents total compensation expense recognized with respect to stock options, non-vested shares and share units, and our associate stock purchase plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Stock option and non-vested share and share unit compensation expense
|
$
|
30,537
|
|
|
$
|
25,209
|
|
|
$
|
73,421
|
|
|
$
|
74,348
|
|
Associate stock purchase plan expense
|
1,321
|
|
|
1,407
|
|
|
4,612
|
|
|
4,685
|
|
Amounts capitalized in software development costs, net of amortization
|
(76
|
)
|
|
266
|
|
|
70
|
|
|
587
|
|
|
|
|
|
|
|
|
|
Amounts charged against earnings, before income tax benefit
|
$
|
31,782
|
|
|
$
|
26,882
|
|
|
$
|
78,103
|
|
|
$
|
79,620
|
|
|
|
|
|
|
|
|
|
Amount of related income tax benefit recognized in earnings
|
$
|
6,330
|
|
|
$
|
5,615
|
|
|
$
|
14,888
|
|
|
$
|
16,483
|
|
Treasury Stock
In May 2018, our Board of Directors approved an amendment to our share repurchase program that allowed for the Company to repurchase up to an aggregate $1.0 billion of shares of our common stock, excluding transaction costs. In April 2019, our Board of Directors approved a further amendment to this share repurchase program. Under this new amendment, the Company is authorized to repurchase up to an additional $1.2 billion of shares of our common stock, for an aggregate of $2.2 billion, excluding transaction costs. The repurchases are to be effected in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers. No time limit was set for the completion of the program. During the nine months ended September 28, 2019, we repurchased 14.4 million shares for total consideration of $1.0 billion under the program. The shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. As of September 28, 2019, $483 million remains available for repurchase under the amended program.
Dividends
On September 10, 2019, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on October 9, 2019 to shareholders of record as of September 25, 2019. On May 29, 2019, our Board of Directors declared a cash dividend of $0.18 per share on our issued and outstanding common stock, which was paid on July 26, 2019 to shareholders of record as of June 18, 2019. In connection with the declaration of such dividends, our non-vested share and share units are entitled to dividend equivalents, which will be payable to the holder subject to, and upon vesting of, the underlying awards. Our outstanding stock options are not entitled to dividend or dividend equivalents.
Accumulated Other Comprehensive Loss, Net (AOCI)
The components of AOCI, net of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment and other
|
|
Unrealized loss on cash flow hedge
|
|
Unrealized holding gain (loss) on available-for-sale investments
|
|
Total
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
(102,939
|
)
|
|
$
|
—
|
|
|
$
|
(613
|
)
|
|
$
|
(103,552
|
)
|
Other comprehensive income (loss) before reclassifications
|
2,321
|
|
|
—
|
|
|
637
|
|
|
2,958
|
|
Amounts reclassified from AOCI
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
(100,618
|
)
|
|
—
|
|
|
24
|
|
|
(100,594
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(100
|
)
|
|
(12,223
|
)
|
|
216
|
|
|
(12,107
|
)
|
Amounts reclassified from AOCI
|
—
|
|
|
(147
|
)
|
|
—
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
Balance at June 29, 2019
|
(100,718
|
)
|
|
(12,370
|
)
|
|
240
|
|
|
(112,848
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(11,679
|
)
|
|
(4,135
|
)
|
|
17
|
|
|
(15,797
|
)
|
Amounts reclassified from AOCI
|
—
|
|
|
98
|
|
|
(3
|
)
|
|
95
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
$
|
(112,397
|
)
|
|
$
|
(16,407
|
)
|
|
$
|
254
|
|
|
$
|
(128,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment and other
|
|
Unrealized loss on cash flow hedge
|
|
Unrealized holding gain (loss) on available-for-sale investments
|
|
Total
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2017
|
$
|
(72,365
|
)
|
|
$
|
—
|
|
|
$
|
(1,017
|
)
|
|
$
|
(73,382
|
)
|
Other comprehensive income (loss) before reclassifications
|
2,794
|
|
|
—
|
|
|
(898
|
)
|
|
1,896
|
|
Amounts reclassified from AOCI
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
(69,571
|
)
|
|
—
|
|
|
(1,915
|
)
|
|
(71,486
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(21,811
|
)
|
|
—
|
|
|
639
|
|
|
(21,172
|
)
|
Amounts reclassified from AOCI
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
(91,382
|
)
|
|
—
|
|
|
(1,273
|
)
|
|
(92,655
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(8,907
|
)
|
|
—
|
|
|
553
|
|
|
(8,354
|
)
|
Amounts reclassified from AOCI
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
$
|
(100,289
|
)
|
|
$
|
—
|
|
|
$
|
(720
|
)
|
|
$
|
(101,009
|
)
|
The effects on net earnings of amounts reclassified from AOCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
AOCI Component
|
|
Location
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedge
|
|
Other income, net
|
|
$
|
(122
|
)
|
|
$
|
—
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
|
Income taxes
|
|
24
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
(98
|
)
|
|
—
|
|
|
49
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale investments
|
|
Other income, net
|
|
4
|
|
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
|
Income taxes
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
3
|
|
|
—
|
|
|
3
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total amount reclassified, net of tax
|
|
|
|
$
|
(95
|
)
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
(3
|
)
|
(11) Contingencies
We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC Topic 450, Contingencies.
The terms of our agreements with our clients generally provide for limited indemnification of such clients against losses, expenses and liabilities arising from third party or other claims based on, among other things, alleged infringement by our solutions of an intellectual property right of third parties or damages caused by data privacy breaches or system interruptions. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include, as applicable, a right to replace or modify an infringing solution. For several reasons, including the lack of a sufficient number of prior indemnification claims relating to IP infringement, data privacy breaches or system interruptions, the inherent uncertainty stemming from such claims, and the lack of a monetary liability limit for such claims 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.
In addition to commitments and obligations in the ordinary course of business, we are involved in various other legal proceedings and claims that arise in the ordinary course of business, including for example, employment and client disputes and litigation alleging solution and implementation defects, personal injury, intellectual property infringement, violations of law and breaches of contract and warranties. Many of these proceedings are at preliminary stages and many seek an indeterminate amount of damages. At this time, we do not believe the range of potential losses under such claims to be material to our condensed consolidated financial statements.
During the three months ended June 29, 2019, we incurred a $20 million pre-tax charge in connection with a client dispute that arose during the same period. The client is continuing to assess the potential for additional damages and claims, and our evaluation of the dispute continues. We have not accrued a reserve for any additional damages or claims at this time because we cannot reasonably determine the probability of a loss and we cannot reasonably estimate the amount of loss, if any. While we can provide no assurances as to the ultimate outcome of this dispute, we believe the amount, if any, we will be required to pay to fully settle this dispute will not have a material adverse impact on our business, results of operations, cash flows or financial condition.
No less than quarterly, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.
(12) Segment Reporting
We have two operating segments, Domestic and International (formerly referred to as Global). Revenues are derived primarily from the sale of clinical, financial and administrative information solutions and services. The cost of revenues includes the cost of third-party consulting services, computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Operating expenses incurred by the geographic business segments consist of sales and client service expenses including salaries of sales and client service personnel, expenses associated with our managed services business, marketing expenses, communications expenses and unreimbursed travel expenses. "Other" includes expenses that have not been allocated to the operating segments, such as software development, general and administrative expenses, certain organizational restructuring and other expense, share-based compensation expense, and certain amortization and depreciation. Performance of the segments is assessed at the operating earnings level by our chief operating decision maker, who is our Chief Executive Officer. Items such as interest, income taxes, capital expenditures and total assets are managed at the consolidated level and thus are not included in our operating segment disclosures. 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 our operating segments and other expense for the three and nine months ended September 28, 2019 and September 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Domestic
|
|
International
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Three Months Ended 2019
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,265,263
|
|
|
$
|
164,165
|
|
|
$
|
—
|
|
|
$
|
1,429,428
|
|
|
|
|
|
|
|
|
|
Costs of revenue
|
246,634
|
|
|
25,144
|
|
|
—
|
|
|
271,778
|
|
Operating expenses
|
639,590
|
|
|
68,153
|
|
|
361,130
|
|
|
1,068,873
|
|
Total costs and expenses
|
886,224
|
|
|
93,297
|
|
|
361,130
|
|
|
1,340,651
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
$
|
379,039
|
|
|
$
|
70,868
|
|
|
$
|
(361,130
|
)
|
|
$
|
88,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Domestic
|
|
International
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Three Months Ended 2018
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,188,154
|
|
|
$
|
151,919
|
|
|
$
|
—
|
|
|
$
|
1,340,073
|
|
|
|
|
|
|
|
|
|
Costs of revenue
|
202,980
|
|
|
27,352
|
|
|
—
|
|
|
230,332
|
|
Operating expenses
|
532,958
|
|
|
67,220
|
|
|
302,407
|
|
|
902,585
|
|
Total costs and expenses
|
735,938
|
|
|
94,572
|
|
|
302,407
|
|
|
1,132,917
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
$
|
452,216
|
|
|
$
|
57,347
|
|
|
$
|
(302,407
|
)
|
|
$
|
207,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Domestic
|
|
International
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Nine Months Ended 2019
|
|
|
|
|
|
|
|
Revenues
|
$
|
3,762,205
|
|
|
$
|
488,161
|
|
|
$
|
—
|
|
|
$
|
4,250,366
|
|
|
|
|
|
|
|
|
|
Costs of revenue
|
719,119
|
|
|
74,536
|
|
|
—
|
|
|
793,655
|
|
Operating expenses
|
1,817,244
|
|
|
209,580
|
|
|
1,012,049
|
|
|
3,038,873
|
|
Total costs and expenses
|
2,536,363
|
|
|
284,116
|
|
|
1,012,049
|
|
|
3,832,528
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
$
|
1,225,842
|
|
|
$
|
204,045
|
|
|
$
|
(1,012,049
|
)
|
|
$
|
417,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Domestic
|
|
International
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Nine Months Ended 2018
|
|
|
|
|
|
|
|
Revenues
|
$
|
3,525,314
|
|
|
$
|
475,347
|
|
|
$
|
—
|
|
|
$
|
4,000,661
|
|
|
|
|
|
|
|
|
|
Costs of revenue
|
617,839
|
|
|
82,554
|
|
|
—
|
|
|
700,393
|
|
Operating expenses
|
1,604,297
|
|
|
209,771
|
|
|
875,542
|
|
|
2,689,610
|
|
Total costs and expenses
|
2,222,136
|
|
|
292,325
|
|
|
875,542
|
|
|
3,390,003
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
$
|
1,303,178
|
|
|
$
|
183,022
|
|
|
$
|
(875,542
|
)
|
|
$
|
610,658
|
|