Acquisitions

12 Months Ended

Jan. 29, 2021

Acquisitions:

Unisys Federal Acquisition

On March 13, 2020, the Company completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation. Unisys Federal provides infrastructure modernization, cloud migration, managed services, and enterprise IT-as-a-service solutions to U.S. federal civilian agencies and the Department of Defense. This strategic acquisition enhances our capabilities in government priority areas, expands our portfolio of intellectual property and technology-driven offerings, and increases our access to current and new customers. The Company purchased substantially all of the assets and liabilities of Unisys Federal for an aggregate purchase price of $1.2 billion. The Company used the net proceeds from its offering of Senior Notes and borrowings under the Term Loan B2 Facility (as discussed in Note 11), proceeds from the sale of receivables under its MARPA Facility (as discussed in Note 14), and cash on its balance sheet to finance the acquisition and pay related fees and expenses.

The purchase price was allocated, on a preliminary basis, among assets acquired and liabilities assumed at fair value on the acquisition date, March 13, 2020, based on the best available information, with the excess purchase price recorded as goodwill.

During fiscal 2021, the Company adjusted the preliminary purchase price resulting in a $39 million net increase to goodwill. The measurement period adjustments included: $6 million increase to the purchase price associated with the final net working capital adjustment; $67 million increase to other long-term liabilities associated with off-market customer contracts; $26 million net increase to intangible assets; $6 million increase to deferred tax assets; $1 million increase to prepaid expenses; and $1 million decrease to other accrued liabilities. The Company has completed the purchase accounting valuation for this transaction and recorded final purchase accounting entries as follows:


	(in millions)
Receivables	$	114
Prepaid expenses	15
Goodwill	654
Intangible assets	574
Property, plant, and equipment	4
Operating lease right of use assets	43
Other assets	7
Total assets acquired	1,411
Accounts payable	42
Accrued vacation	7
Other accrued liabilities	62
Operating lease liabilities	30
Other long-term liabilities	68
Total liabilities assumed	209
Net assets acquired	$	1,202
Amount of tax deductible goodwill	$	593

Goodwill resulting from the acquisition of Unisys Federal was primarily associated with intellectual capital, an acquired assembled work force, and future customer relationships. The identifiable intangible assets and a portion of the goodwill acquired by the Company are amortizable for tax purposes.

The following table summarizes the fair value of intangible assets and the related weighted-average useful lives as of the acquisition date:


	Amount		Weighted-Average Amortization Period
	(in millions)		(in years)
Customer relationships	$	520	13
Backlog	47		1
Developed technology	7		1
Total intangible assets	$	574	12

The backlog intangible asset is comprised solely of funded backlog as of the acquisition date. The customer relationships intangible asset consists of unfunded backlog as of the acquisition date and estimated future renewals and recompetes. The backlog and customer relationships intangible assets were valued using the excess earnings method (income approach) in which the value is derived from an estimation of the after-tax cash flows specifically attributable to the intangible asset being valued. The analysis included assumptions for projections of revenues and expenses, tax rates, contributory asset charges, discount rates, and a tax amortization benefit.

The developed technology asset was valued using the relief from royalty method (income approach) in which the value is derived by estimation of the after-tax royalty savings attributable to owning the developed technology asset. Assumptions in this analysis included projections of revenues, royalty rates representing costs avoided due to ownership of the developed technology asset, discount rates, a tax amortization benefit, and future obsolescence of the technology.

The Company recorded a $67 million provision for certain off-market customer contracts whose terms are unfavorable compared to the current market terms as of the acquisition date. An income approach was used to

estimate fair value, involving estimates for future costs to complete the remaining performance under the contract as well as a market participant profit rate of return. The provision for off-market customer contracts is included in other long-term liabilities and will be amortized over the remaining contractual terms as an increase to revenue. Amortization for the fiscal year ended January 29, 2021, was $15 million. Amortization for the next four years is expected to be as follows: $18 million in 2022, $18 million in 2023, $14 million in 2024, and $2 million in 2025.

The Company incurred $49 million in acquisition-related costs associated with the acquisition of Unisys Federal, including $27 million of debt issue costs (as discussed in Note 11). Acquisition-related costs of $2 million were incurred in the fourth quarter of fiscal 2020.

The amount of Unisys Federal's revenue included in the consolidated statements of income for the twelve months ended January 29, 2021, was $669 million, and the amount of net income attributable to common stockholders included in the consolidated statements of income for the twelve months ended January 29, 2021, was $62 million.

The following unaudited pro forma financial information presents the combined results of operations for Unisys Federal and the Company for the twelve months ended January 29, 2021 and January 31, 2020, respectively:


	Year Ended
	January 29, 2021		January 31, 2020
	(in millions)
Revenues	$	7,146	$	7,105
Net income attributable to common stockholders	$	258	$	193

The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Unisys Federal as though it had occurred on February 2, 2019. They include adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; acquisition and other transaction costs; and certain costs allocated from the former parent. The unaudited pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on February 2, 2019, nor is it indicative of future operating results.

Engility Acquisition

On January 14, 2019, the Company completed the acquisition of Engility Holdings, Inc., a leading provider of integrated solutions and services supporting U.S. government customers in the defense, federal civilian, and intelligence and space communities. The purchase consideration for the acquisition of Engility was as follows:


	(in millions)
Common stock issued to Engility shareholders(1)	$	1,086
Converted vesting stock awards assumed(2)	22
Cash consideration paid to extinguish Engility outstanding debt	1,052
Purchase price	$	2,160

(1) Represents approximately 16.8 million new shares of SAIC common stock issued to Engility shareholders prior to the market opening on January 14, 2019, using the SAIC share price of $65.03 at the close of business on January 11, 2019.

(2) Represents the fair value of the converted vesting stock awards assumed attributable to pre-acquisition service. See Note 8.

During fiscal 2019, the Company incurred $63 million in acquisition-related costs associated with the acquisition of Engility, including $31 million of debt issue costs, see Note 11, and $2 million in stock issue costs.

The amount of Engility's revenue included in the consolidated statements of income for fiscal 2019 was $98 million and the amount of net loss included in the consolidated statements of income for fiscal 2019 was $19 million, which includes $32 million of integration-related costs.

The following unaudited pro forma financial information presents the combined results of operations for Engility and the Company for the year ended February 1, 2019:


	Year Ended
	February 1, 2019
	(in millions)
Revenues	$	6,426
Net income attributable to common stockholders	$	260

The unaudited pro forma, combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Engility as though it had occurred on February 4, 2017. They include adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; acquisition, integration, and other transaction costs; and the elimination of intercompany revenue and costs.