Lockheed Martin 2015 Annual Report Download - page 90

The unaudited supplemental pro forma financial information also reflects an increase in interest expense, net of tax, of
$109 million and $121 million in 2015 and 2014, respectively. The increase in interest expense is the result of assuming the
November 2015 Notes were issued on January 1, 2014. Proceeds of the November 2015 Notes were used to repay all
outstanding borrowings under the 364-day Facility used to finance a portion of the purchase of Sikorsky, as contemplated at
the date of acquisition.
The unaudited supplemental pro forma financial information does not reflect the realization of any expected ongoing
cost or revenue synergies relating to the integration of the two companies. Further, the pro forma data should not be
considered indicative of the results that would have occurred if the acquisition, related financing and associated notes
issuance and repayment of the 364-day credit facility had been consummated on January 1, 2014, nor are they indicative of
future results.
Other acquisitions
We paid $898 million in 2014 for acquisitions of businesses and investments in affiliates, net of cash acquired, primarily
related to the acquisitions of Systems Made Simple, Zeta and Industrial Defender. On December 1, 2014, we completed the
acquisition of all interests in Systems Made Simple, a provider of health information technology solutions, which is included
in our IS&GS business segment. On August 18, 2014, we completed the acquisition of all interests in Zeta, a designer of
systems that enable collection, processing, safeguarding and dissemination of information for intelligence and defense
communities, which is included in our Space Systems business segment. On April 7, 2014, we completed the acquisition of
all interest in Industrial Defender, a provider of cybersecurity solutions for control systems in the oil and gas, utility and
chemical industries, which is included in our IS&GS business segment. In connection with the 2014 acquisitions, we
preliminarily recorded goodwill of $657 million, related to expected synergies from combining operations and value of the
existing workforce. The recorded goodwill is not deductible for tax purposes. Additionally, we recorded other intangible
assets of $223 million, primarily related to customer relationships and technologies, which will be amortized over a weighted
average period of eight years. We plan to include Systems Made Simple and Industrial Defender in any future divestiture of
our IS&GS business segment.
We paid $269 million in 2013 for acquisitions of businesses and investments in affiliates, net of cash acquired, primarily
related to the acquisition of Amor Group, a United Kingdom-based company specializing in information technology, civil
government services and the energy market. Amor Group is included in our IS&GS business segment. In connection with
these acquisitions, we recorded goodwill of $175 million, which is not deductible for tax purposes. Additionally, we recorded
other intangible assets of $34 million, related to customer relationships and technologies, which will be amortized over a
weighted average period of eight years.
Systems Made Simple, Industrial Defender and Amor Group will be divested as part of the IS&GS business segment in
connection with the proposed transaction with Leidos (discussed below).
Divestitures
IS&GS Divestiture
On January 26, 2016, we entered into definitive agreements to separate and combine our IS&GS business segment with
Leidos in a tax-efficient Reverse Morris Trust transaction. As part of the transaction, we will receive a $1.8 billion one-time
special cash payment . The cash payment is subject to adjustment and could be less or more than anticipated due to variances
in working capital. Additionally, our stockholders will receive approximately 50.5 percent of the outstanding equity of
Leidos on a fully diluted basis (approximately 77 million shares) with an estimated value of $3.2 billion based on Leidos’
stock price on the date of announcement. However, the actual value of the stock to be received by our stockholders will
depend on the value of such shares at the time of closing of the transaction and our stockholders may receive more or less
than the anticipated value. At our election, the distribution may be effected by means of a pro rata dividend in a spin-off
transaction or in an exchange offer for outstanding Lockheed Martin shares in a split-off transaction. The transaction
structure, which is subject to market conditions, is currently contemplated to be a split-off transaction resulting in a decrease
in our outstanding common shares and a significant book gain at closing. In a split-off transaction, only those stockholders
that elect to participate will receive Leidos shares in the merger transaction, provided, that, if the exchange offer is not fully
subscribed, Lockheed Martin will spin-off the remaining shares to be converted into Leidos stock in the merger pro rata. The
value of the shares of Leidos stock to be received and the value of our stock at the time of the split-off will also impact the
number of any shares of our stock retired in the split-off and the amount of any book gain. Although the transaction structure
is currently contemplated to be a split-off transaction, there is no assurance that the transaction will be structured as a split-
off transaction or that it will result in a reduction in our shares or a gain at closing.
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