UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 3, 2020
(Exact name of registrant as specified in its charter) | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | |||||
(Address of principal executive office) | (Zip Code) | ||||||
(571 ) 526-6000
(Registrants' telephone number, including area code)
Not Applicable
(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01 | Regulation FD Disclosure. |
On February 4, 2020, Leidos issued a press release announcing that it had entered into a definitive agreement to acquire the security, detection, and automation business of L3Harris Technologies, Inc., for $1.0 billion in cash. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Leidos announced a conference call to be held at 7:30 a.m., Eastern Time on February 4, 2020. A live audio broadcast of the conference call along with the investor presentation will be available to the public through links on the Investor Relations section of Leidos’ web site (http://investors.leidos.com). A webcast replay will also be accessible following the event. A copy of the investor presentation, which will be discussed during the conference call, is attached to this report as Exhibit 99.2 and incorporated herein by reference.
The information under this Item 7.01 and both Exhibit 99.1 and Exhibit 99.2 attached hereto are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information or exhibits be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filings, except as shall be expressly set forth by specific reference in such a filing. The furnishing of Exhibit 99.1 and Exhibit 99.2 attached hereto is not intended to constitute a determination by Leidos that the information is material or that the dissemination of the information is required by Regulation FD.
Cautionary Statement Regarding Forward-Looking Statements
The forward-looking statements contained in the exhibits to this Current Report on Form 8-K involve risks and uncertainties that may affect Leidos’ operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission (the “SEC”). Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “project,” “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other words of similar meaning in connection with a discussion of the transaction or future operating or financial performance or events. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the expectations of Leidos will be realized. This release also contains statements about the proposed acquisition of the security, detection, and automation business of L3Harris Technologies, Inc. that are based on assumptions currently believed to be valid but involve significant risks and uncertainties, many of which are beyond Leidos’ control, which could cause Leidos’ actual results to differ materially from these forward-looking statements with respect to the transaction, including risks relating to the completion of the transaction on anticipated terms and timing, including regulatory approvals, anticipated tax treatment, ability to retain key personnel, the dependency of the transaction on market conditions and the impact of a change in market conditions on the value to be received in the transaction, unforeseen liabilities, future capital expenditures, uncertainty as to the expected financial condition and economic performance of the company following the closing, including future revenues, expenses, earnings, indebtedness, losses, prospects, business strategies for the management, expansion and growth of the company following the closing, Leidos’ ability to integrate the businesses successfully and to achieve anticipated synergies, and the risk that disruptions from the transaction will harm Leidos’ business. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements
could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Leidos’ consolidated financial condition, results of operations or liquidity. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see Leidos’ filings with the SEC, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Leidos’ annual report on Form 10-K for the year ended December 2018, and in its quarterly reports on Form 10-Q which are available at http://www.Leidos.com and at the SEC’s web site at http://www.sec.gov. The forward-looking statements contained in this release are made only as of the date of this release. Readers are cautioned not to put undue reliance on forward-looking statements. Leidos assumes no obligation to provide revisions or updates to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are furnished with this report.
Press Release, dated February 4, 2020. | |
Investor Presentation, dated February 4, 2020. | |
Exhibit 104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 4, 2020 | LEIDOS HOLDINGS, INC. | |||||
By: | /s/ Raymond L. Veldman | |||||
Raymond L. Veldman | ||||||
Senior Vice President and Deputy General Counsel | ||||||
FOR IMMEDIATE RELEASE
Leidos to acquire L3Harris Technologies’ Security Detection and Automation Businesses Expanding Product Portfolio in High-Growth, Global Security Market
Transaction Adds Complementary Technology and Products, Creating a Comprehensive Security and Detection Portfolio
Projected to be Immediately Accretive to Leidos' Revenue Growth, EBITDA Margins and Non-GAAP EPS upon closing
Accelerates Innovation, Diversifies Revenues, Enhances Scale
Leidos to Host Conference Call Today at 7:30 a.m. ET
Reston, Va., Feb. 4, 2020 - Leidos Holdings, Inc. (NYSE: LDOS) (“Leidos”), a FORTUNE® 500 science and technology leader, today announced that it has entered into a definitive agreement to acquire L3Harris Technologies’ (NYSE: LHX) (“L3Harris”) Security Detection and Automation businesses, for $1 billion in cash. The Boards of Directors of both companies unanimously approved the transaction.
L3Harris’ Security Detection and Automation businesses provide airport and critical infrastructure screening products, automated tray return systems and other industrial automation products. With headquarters in Tewksbury, Mass. and Luton, England, the combined businesses have 1,200 employees and a global sales and services operations footprint with more than 20,000 systems deployed world-wide across more than 100 countries. The businesses serve customers in the aviation, transportation, government and critical infrastructure markets.
“The acquisition of these businesses will help accelerate our growth and innovation and enable us to offer the market a comprehensive security platform,” said Leidos Chairman and CEO Roger Krone. “The businesses further our commitment to a diversified revenue stream, by expanding our customer penetration into 75 additional countries. This transaction is projected to be immediately accretive to revenue growth, EBITDA margins, and non-GAAP EPS upon closing.”
Krone continued, “This powerful portfolio of technology and the outstanding team of employees that support it complement the Leidos team well. The work this team performs is vital to securing so many important locations – where passengers count on equipment reliability and efficiency to keep them safe. This mission is consistent with our company’s goal of making the world safer, healthier and more efficient. Together, we will advance our strategy of helping secure some of the world’s most critical infrastructure and the individuals who travel through it. I look forward to welcoming these L3Harris employees to Leidos and working together to continue our important work.”
Compelling Strategic and Operational Benefits
• | Expands Product Portfolio in High-Growth, Global Security Market: This acquisition adds complementary products that expand Leidos’ offerings to create a comprehensive security and detection platform. These products include checkpoint |
security products like checkpoint CT scanners, people scanners, comprehensive explosives trace detectors, checked baggage screeners and automated tray return systems (ATRS). The addition of this technology to the Leidos portfolio will enhance the company’s offerings in a global security product market projected to grow in excess of the federal budget.
• | Diversifies Revenue Through Increased International Presence: This business expands our customer penetration internationally, helping deliver on a stated objective to diversify revenue globally. The deal will increase Leidos’ international security products revenue more than six-fold. |
• | Enhanced Scale Accelerates Growth & Innovation: The acquisition enables Leidos to complement its existing successful global border and port sales channel by leveraging the acquired businesses’ global airport sales channel across the full Leidos portfolio of product and service solutions. The acquisition also enables the company to leverage technology investments across the combined portfolio to accelerate innovation and improve service efficiency for customers. |
Transaction Details
The transaction is expected to be immediately accretive to Leidos’ revenue growth, EBITDA margins, and non-GAAP diluted earnings per share upon closing.
Leidos expects to fund the $1 billion cash transaction through a combination of cash on hand and incremental debt.
Approvals and Timing
The transaction is expected to close by the end of the second quarter of 2020, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals.
Advisors
Leidos retained Credit Suisse Securities (USA) LLC as financial advisor, and Fried, Frank, Harris, Shriver, & Jacobson LLP and DLA Piper as legal advisors in connection with the transaction. Leidos also retained PwC as operations and accounting advisor.
Conference Call & Webcast
Leidos management will host a conference call beginning at 7:30 a.m. ET today, Feb. 4, 2020, to discuss the transaction. Analysts and institutional investors may participate by dialing +1 (877) 869-3847 (U.S. dial-in) or +1 (201) 689-8261 (international dial-in).
A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leidos Investor Relations website (http://ir.leidos.com).
After the call concludes, an audio replay can be accessed on the Leidos Investor Relations website or by dialing +1 (877) 660-6853 (toll-free U.S.) or +1 (201) 612-7415 (international callers) and entering conference ID 13698829. The replay will be available through Feb. 11, 2020.
About Leidos
Leidos is a Fortune 500® information technology, engineering, and science solutions and services leader working to solve the world's toughest challenges in the defense, intelligence, homeland security, civil, and health markets. The company's 36,000 employees support vital
missions for government and commercial customers. Headquartered in Reston, Va., Leidos reported annual revenues of approximately $10.19 billion for the fiscal year ended December 28, 2018. For more information, visit www.leidos.com.
Cautionary Statement Regarding Forward-Looking Statements
The forward-looking statements contained in this release involve risks and uncertainties that may affect Leidos’ operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission (the "SEC"). Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “project”, “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other words of similar meaning in connection with a discussion of the transaction or future operating or financial performance or events. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the expectations of Leidos will be realized. This release also contains statements about the proposed acquisition of the security detection and automation businesses of L3Harris Technologies, Inc. that are based on assumptions currently believed to be valid but involve significant risks and uncertainties, many of which are beyond Leidos’ control, which could cause Leidos’ actual results to differ materially from these forward-looking statements with respect to the transaction, including risks relating to the completion of the transaction on anticipated terms and timing, including regulatory approvals, anticipated tax treatment, ability to retain key personnel, the dependency of the transaction on market conditions and the impact of a change in market conditions on the value to be received in the transaction, unforeseen liabilities, future capital expenditures, uncertainty as to the expected financial condition and economic performance of the company following the closing, including future revenues, expenses, earnings, indebtedness, losses, prospects, business strategies for the management, expansion and growth of the company following the closing, Leidos' ability to integrate the businesses successfully and to achieve anticipated synergies, and the risk that disruptions from the transaction will harm Leidos' business. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Leidos' consolidated financial condition, results of operations or liquidity. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see Leidos' filings with the SEC, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in Leidos' annual report on Form 10-K for the year ended December 2018, and in its quarterly reports on Form 10-Q which are available at http://www.Leidos.com and at the SEC's web site at http://www.sec.gov. The forward-looking statements contained in this release are made only as of the date of this release. Readers are cautioned not to put undue reliance on forward-looking statements. Leidos assumes no obligation to provide revisions or updates to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
Media:
Melissa Koskovich
(571) 526-6850
koskovichm@leidos.com
Investors:
Kelly P. Hernandez
(571) 526-6404
ir@leidos.com
Leidos to Acquire L3Harris Security Detection & Automation Businesses February 4, 2020
Cautionary Statement Regarding Forward-Looking Statements The forward-looking statements contained in this presentation involve risks and uncertainties that may affect Leidos’ operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission (the “SEC”). Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “project,” “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other words of similar meaning in connection with a discussion of the Transaction or future operating or financial performance or events. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the expectations of Leidos will be realized. This presentation also contains statements about the proposed acquisition of the security detection, and automation business of L3Harris Technologies, Inc. (the “Transaction”) that are based on assumptions currently believed to be valid but involve significant risks and uncertainties, many of which are beyond Leidos’ control, which could cause Leidos’ actual results to differ materially from these forward-looking statements with respect to the Transaction, including risks relating to the completion of the Transaction on anticipated terms and timing, including regulatory approvals, anticipated tax treatment, ability to retain key personnel, the dependency of the Transaction on market conditions and the impact of a change in market conditions on the value to be received in the Transaction, unforeseen liabilities, future capital expenditures, uncertainty as to the expected financial condition and economic performance of the company following the closing, including future revenues, expenses, earnings, indebtedness, losses, prospects, business strategies for the management, expansion and growth of the company following the closing, Leidos’ ability to integrate the businesses successfully and to achieve anticipated synergies, and the risk that disruptions from the Transaction will harm Leidos’ business. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Leidos’ consolidated financial condition, results of operations or liquidity. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward- looking statements, see Leidos’ filings with the SEC, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Leidos’ annual report on Form 10-K for the year ended December 2018, and in its quarterly reports on Form 10-Q which are available at http://www.Leidos.com and at the SEC’s web site at http://www.sec.gov. The forward-looking statements contained in this presentation are made only as of the date of this presentation. Readers are cautioned not to put undue reliance on forward-looking statements. Leidos assumes no obligation to provide revisions or updates to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. 2 2
Terms $ Financing • Total cash price of $1.0 billion • Transaction will be funded through cash on hand and incremental debt • Represents forward EBITDA multiple of ~13.3x times CY20, or ~9.4 times • Net leverage* ratio of ~3.7x expected CY21 at close Transaction Overview Financial Timing & Closing Benefits Conditions • Immediately accretive to revenue • Unanimously approved by the Boards growth, adjusted EBITDA margins and of Directors of both companies non-GAAP EPS • Closing expected by end of Q2 2020 • Expected to generate $20 million in annualized cost synergies by 2022 • Subject to customary closing conditions, including regulatory approvals *Net leverage ratio defined as (Total Debt – Cash & Equivalents)/TTM EBITDA 3
Highlights Key Products L3Harris Checkpoint Security Products Security Detection & Security Detection: Leading Checkpoint CT scanners, people provider of airport and critical scanners, and comprehensive infrastructure screening explosives trace detectors Automation Businesses products and services Checked Baggage Products Checked baggage screeners designed Overview to meet high levels of explosives Automation: Provider of detection performance with a very high automated tray return systems level of reliability (ATRS) and other industrial automation products Security Detection Automation Automation Products Business Business ATRS and other industrial automation products Global sales and services Headquartered in Headquartered in operations with >20,000 systems Product Services deployed Tewksbury, MA Luton, UK world-wide Maintenance services associated with security & detection product sales Combined 1,200 employees worldwide Annualized 2020E Revenues of ~$500 million & EBITDA of ~$75 million 4
Compelling Strategic Benefits • Adds complementary products that expand Leidos’ offerings to create a more Expands Product Portfolio in High- comprehensive security detection platform Growth Global Security Market • Projected 3-year revenue CAGR of acquired businesses in low to mid-teens • Global Security Product market projected to grow in excess of federal budget • Delivers on stated objective to diversify revenue globally Diversifies Revenue Through • Increases international security products revenue six-fold Increased International Presence • Expands customer penetration into 75 additional countries • L3Harris’ global airport sales channel complementary to Leidos’ global port & border sales channel Enhanced Scale Accelerates Growth & • Leidos’ efficient service model will yield improved service delivery for global Innovation customers • Leveraging technology investments across the combined security platform accelerates innovation 5
Expands Product Portfolio in High-Growth Security Market People Checkpoint Checkpoint Explosive Automation Checked Checked Ports & Scanners X-Ray CT Trace Baggage: Baggage: Borders In-line Stand- Alone Complementary product portfolio Note: Graphic depicts deployed products 6
Diversifies Revenues Through Increased International Presence Countries where Leidos Security products are deployed. Additional countries where L3Harris Security Detection and Automation products are deployed. Leidos’ International Revenue Mix will increase to 13% from 10% 7
Enhanced Scale Accelerates Growth & Innovation Checkpoint Border Security Border Security Security Products Checkpoint Security Products Products Products ~ 5% ~35% Checked Baggage ~ 25% ~ 25% Products Checked ~ 15% Baggage Products Combined ~ 22% Checked CY20E Revenue CY20E CY20E Revenue Baggage ~$225 million Revenue ~$500 million Products ~$ ~22% Services 725M Services ~ 60% Services ~30% ~ 40% Automation Products Automation Products ~ 8% ~12% • Global Sales & Service • Technology Investments: Combines complementary sales • Global Sales & Service • Technology Investments: Channel: Ports & Borders − Explosive Detection channels to enhance growth Channel: Airports − CT at the Checkpoint • Highly Efficient Service − Biometrics • Outsourced − Explosive Detection Model Manufacturing Model − Airport Efficiency Leveraging technology − Automation • In-house Manufacturing Modeling investments across broader − Wave mm portfolio to accelerate innovation Note: Combined estimates are presented as if the acquisition occurred on January 1, 2020 8
Transaction Offers Significant Financial Benefits Clearly Identified and Higher Margin Portfolio Immediate Earnings High Cash Achievable Synergies Transaction expected to drive Accretion Efficiency Expected to generate Leidos’ adjusted EBITDA margin Immediately accretive to non- Capital-light business model approximately $20 million of higher GAAP EPS aligns with Leidos’ with annualized cost synergies by capex <2% of annual Expect to expand margins of 2022 Expect to add ~$75 million of revenue acquired business due to annualized adjusted EBITDA in Anticipate revenue synergy improved operational discipline, 2020 opportunities through growing leveraging Leidos’ ~30 year maintenance and service legacy in the security products Expect ~$30 million of one-time revenue business pre-tax transaction related expenses; ~$23 million after tax 9
Transaction Creates Value for All Stakeholders Shareholders Customers Employees Accelerates revenue growth Accelerates innovation across a more Consistent with our mission of comprehensive security product making the world safer Diversifies revenue with increased platform international exposure Aligns a talented workforce under Opportunity for improved service one of Leidos’ key strategic Accretive to margin and earnings efficiency by leveraging the Leidos businesses Creates revenue and cost synergies service and operational model 10
Appendix
Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures, such as non-GAAP operating income, non-GAAP diluted earnings per share (EPS), adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA margin. These are not measures of financial performance under generally accepted accounting principles in the U.S. ("GAAP") and, accordingly, these measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Management believes that these non-GAAP measures provide another measure of the Company's results of operations and financial condition, including its ability to comply with financial covenants. These non-GAAP measures are frequently used by financial analysts covering Leidos and its peers. The Company’s computation of its non-GAAP measures may not be comparable to similarly titled measures reported by other companies, thus limiting their use for comparability. Leidos does not provide a reconciliation of forward-looking adjusted EBITDA margins (non-GAAP) or non-GAAP diluted EPS to GAAP net income, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, Leidos is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income and diluted EPS being materially less than projected adjusted EBITDA margins (non-GAAP) and non-GAAP diluted EPS. 12
Definition of Non-GAAP Financial Measures Non-GAAP operating income is computed by excluding the following items from net income: (i) non-operating expense, net; (ii) income tax expense, and (iii) the following discrete items: • Integration and restructuring costs — Represents integration, lease termination and severance costs related to the Company’s acquisitions. • Amortization of acquired intangible assets — Represents the amortization of the fair value of the acquired intangible assets. • Amortization of equity method investment — Represents the amortization of the fair value of the acquired equity method investment. • Gain on sale of business — Represents the net gain on sale of businesses. • Asset impairment charges — Represents impairments of long-lived tangible assets. • Other tax adjustments — Represents discrete tax items. Non-GAAP EPS is computed by dividing net income, adjusted for the discrete items as identified above and the related tax impacts, by the diluted weighted average number of common shares outstanding. Adjusted EBITDA is computed by excluding the following items from income before income taxes: (i) discrete items as identified above; (ii) interest expense; (iii) interest income; (iv) depreciation expense; and (v) amortization of intangibles. Adjusted EBITDA margin is computed by dividing adjusted EBITDA by revenue. 13