Lockheed Martin 2015 Annual Report Download - page 87

Note 3 – Acquisitions and Divestitures
Acquisitions
Acquisition of Sikorsky Aircraft Corporation
On November 6, 2015, we completed the acquisition of Sikorsky Aircraft Corporation and certain affiliated companies
(collectively “Sikorsky”) from United Technologies Corporation (UTC) and certain of UTC’s subsidiaries. The purchase
price of the acquisition was $9.0 billion, net of cash acquired. As a result of the acquisition, Sikorsky became a wholly-
owned subsidiary of ours. Sikorsky is a global company primarily engaged in the research, design, development,
manufacture and support of military and commercial helicopters. Sikorsky’s products include military helicopters such as the
H-60 Black Hawk, MH-60R Seahawk, CH-53K, H-92; and commercial helicopters such as the S-76 and S-92. The
acquisition enables us to extend our core business into the military and commercial rotary wing markets, allowing us to
strengthen our position in the aerospace and defense industry. Further, this acquisition will expand our presence in
commercial and international markets. Sikorsky has been aligned under our MST business segment.
To fund the $9.0 billion acquisition price, we utilized $6.0 billion of proceeds borrowed under our 364-day revolving
credit facility (the 364-day Facility), $2.0 billion of cash on hand and $1.0 billion from the issuance of commercial paper. In
the fourth quarter of 2015, we repaid all outstanding borrowings under the 364-day Facility with the proceeds from the
issuance of $7.0 billion of fixed interest-rate long-term notes in a public offering (the November 2015 Notes). In the fourth
quarter of 2015, we also repaid the $1.0 billion in commercial paper borrowings (see Note 10).
We and UTC made a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction
as an asset purchase for tax purposes. This election generates a cash tax benefit with an estimated net present value of
$1.9 billion for Lockheed Martin and its stockholders.
Preliminary Allocation of Acquisition Price to Assets Acquired and Liabilities Assumed
We accounted for the acquisition of Sikorsky as a business combination, which requires us to record the assets acquired
and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired
is recorded as goodwill. We have commenced the appraisals necessary to assess the fair values of the tangible and intangible
assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. The amounts
recorded for certain assets and liabilities are preliminary in nature and are subject to adjustment as additional information is
obtained about the facts and circumstances that existed as of the acquisition date. The final determination of the fair values of
certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date
permitted under GAAP. The size, breadth, and timing of the Sikorsky acquisition could necessitate the need to use the full
one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and
liability fair values as of the acquisition date including contractual and operational factors underlying the customer programs
intangible assets, the tradename intangible asset, customer contractual obligations, property, plant and equipment,
inventories, receivables and deferred revenue; and the assumptions underpinning certain reserves such as those for
environmental and legal obligations. The final values may also result in changes to depreciation and amortization expense
related to certain assets such as buildings, equipment and intangible assets. Any potential adjustments made could be
material in relation to the preliminary values presented in the table below.
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