Acquisitions

3 Months Ended

Apr. 03, 2020

Business Combinations [Abstract]

Acquisitions

Note 4–Acquisitions

L3Harris Technologies ("L3Harris") Transaction

On February 3, 2020, we entered into a definitive agreement to acquire L3Harris' security detection and automation businesses for cash consideration of $1.0 billion, subject to net working capital adjustments, if any. L3Harris' security detection and automation businesses provide airport and critical infrastructure screening products, automated tray return systems and other industrial automation products.

Additionally, on February 12, 2020, we entered into a senior unsecured delayed-draw term loan facility providing for $1.0 billion of commitments from certain financial institutions in connection with the L3Harris transaction (see "Note 9–Debt").

On May 4, 2020, we completed our acquisition of L3Harris' security detection and automation businesses and drew on our senior unsecured delayed-draw term loan facility (see "Note 16–Subsequent Events").

Dynetics Acquisition

On January 31, 2020 (the "Acquisition Date"), we completed our acquisition of Dynetics, Inc. ("Dynetics"), an industry-leading applied research and national security solutions company. All of the issued and outstanding shares of common stock of Dynetics were purchased for $1.64 billion, net of cash acquired.

In connection with the acquisition, we entered into a Bridge Credit Agreement with certain financial institutions, which provided for a senior unsecured 364-day bridge loan facility in an aggregate principal amount of $1.25 billion (the "Bridge Facility"). See "Note 9–Debt" for further details.

The proceeds of the Bridge Facility and cash on hand on the Acquisition Date were used to fund the purchase of Dynetics and repay in full all third party indebtedness of Dynetics, terminate all commitments thereunder and discharge and release all existing guarantees and liens.

The addition of Dynetics will accelerate opportunities within our innovation engine that researches and develops new technologies and solutions to address the most challenging needs of our customers.

The preliminary fair values of the assets acquired and liabilities assumed at the Acquisition Date were as follows (in millions):

Cash	$	18
Receivables	159
Other current assets	64
Operating lease right-of-use assets	25
Property, plant and equipment	161
Intangible assets	464
Accounts payable and accrued liabilities	(45)
Accrued payroll and employee benefits	(29)
Operating lease liabilities	(20)
Total identifiable net assets acquired	797
Goodwill	863
Preliminary purchase price	$	1,660

Due to the timing and complexity of the acquisition, the assets acquired and liabilities assumed were recorded at their preliminary estimated fair values. As of April 3, 2020, we had not finalized the determination of fair values of the acquired assets and liabilities, primarily including, but not limited to: property, plant and equipment and intangible assets. The preliminary purchase price allocation is subject to change as we complete our determination of the fair value of the acquired assets and liabilities, the impact of which could be material.

The goodwill represents intellectual capital and the acquired assembled workforce, none of which qualify for recognition as a separate intangible asset. For tax purposes, $867 million of goodwill is deductible.

The following table summarizes the preliminary fair value of intangible assets acquired at the Acquisition Date and the related weighted average amortization period:

	Weighted average amortization period	Fair value
	(in years)	(in millions)
Program intangibles	10	$	430
Backlog intangibles	1	34
Total	9	$	464

The following expenses were incurred related to the acquisition of Dynetics:

	Three Months Ended
	April 3, 2020
	(in millions)
Acquisition costs	$	8
Integration costs	1
Total acquisition and integration costs	$	9

For the three months ended April 3, 2020, $129 million of revenues related to Dynetics were recognized within the Defense Solutions reportable segment.

Pro Forma Financial Information

The following unaudited pro forma financial information presents consolidated results of operations as if the acquisition had occurred on December 29, 2018. The pro forma financial information was prepared based on historical financial information and has been adjusted to give effect to the events that are directly attributable to the acquisition of Dynetics and factually supportable. The unaudited pro forma results below do not reflect future events that have occurred or may occur after the acquisition, including anticipated synergies or other expected benefits that may be realized from the acquisition. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the acquisition had been completed on December 29, 2018, nor is it intended to be an indication of future operating results.

	Three Months Ended
	April 3, 2020		March 29, 2019
	(in millions, except per share amounts)
Revenues	$	2,952	$	2,722
Net income attributable to Leidos common stockholders	130		158
Earnings per share:
Basic	$	0.92	$	1.09
Diluted	0.90		1.07

The unaudited pro forma financial information above includes the following nonrecurring significant adjustment made to account for certain costs incurred as if the acquisition had been completed on December 29, 2018:

•Acquisition-related costs of $8 million were excluded within the pro forma financial information for fiscal 2020 and were included within the supplemental pro forma earnings for fiscal 2019.