Nevada | 001-38395 | 82-3141520 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
15052 Conference Center Drive | ||
Chantilly, VA | 20151 | |
(Address of Principal Executive Offices) | (Zip Code) |
☐ | 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)) |
Exhibit No. | Description of Exhibit | ||
99.3 |
PERSPECTA INC. | ||||
Dated: July 19, 2018 | By: | /s/ John P. Kavanaugh | ||
Name: | John P. Kavanaugh | |||
Title: | Senior Vice President and Chief Financial Officer |
(in millions) | Historical USPS as of March 31, 2018 | Effect of Spin-Off | Historical Vencore as of March 31, 2018 | Reclassifications | Effect of Mergers | Pro Forma Combined as of March 31, 2018 | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | 5A | $ | 86 | $ | — | $ | 109 | 5A | $ | 195 | ||||||||||
Receivables, net | 354 | — | 182 | — | — | 536 | ||||||||||||||||||
Prepaid and other current assets | — | — | 20 | (20 | ) | 4A | — | — | ||||||||||||||||
Prepaid expenses | 74 | — | — | 11 | 4A | — | 85 | |||||||||||||||||
Deferred costs | — | — | 21 | (21 | ) | 4A | — | — | ||||||||||||||||
Deferred contract costs and other current assets | 21 | — | — | 30 | 4A | — | 51 | |||||||||||||||||
Total current assets | 449 | — | 309 | — | 109 | 867 | ||||||||||||||||||
Intangible assets, net | 897 | — | 237 | 2 | 4A | 936 | 5B | 2,072 | ||||||||||||||||
Goodwill | 2,022 | — | 397 | — | 694 | 5C | 3,113 | |||||||||||||||||
Property and equipment, net | 290 | — | 34 | (2 | ) | 4A | — | 322 | ||||||||||||||||
Deferred income taxes, net | — | — | — | — | — | — | ||||||||||||||||||
Other assets | 21 | 3 | 5D | 44 | — | 5 | 5D | 73 | ||||||||||||||||
Total assets | $ | 3,679 | $ | 3 | $ | 1,021 | $ | — | $ | 1,744 | $ | 6,447 | ||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Current capital lease liability | 160 | — | — | 1 | 4A | — | 161 | |||||||||||||||||
Short-term debt and current maturities of long-term debt | — | 32 | 5D | 23 | — | 27 | 5D | 82 | ||||||||||||||||
Accounts payable | 195 | — | — | 49 | 4A | — | 244 | |||||||||||||||||
Accounts payable and accrued expenses | — | — | 82 | (82 | ) | 4A | — | — | ||||||||||||||||
Accrued payroll and related costs | 17 | — | 63 | — | (10 | ) | 5E | 70 | ||||||||||||||||
Accrued expenses and other current liabilities | 180 | 12 | 5F | — | 63 | 4A | (1 | ) | 5F | 254 | ||||||||||||||
Other current liabilities | — | — | 40 | (37 | ) | 4A | (3 | ) | 5F | — | ||||||||||||||
Deferred revenue and advance contract payments | 53 | — | — | 6 | 4A | — | 59 | |||||||||||||||||
Total current liabilities | 605 | 44 | 208 | — | 13 | 870 | ||||||||||||||||||
Non-current capital lease liability | 144 | — | — | 1 | 4A | — | 145 | |||||||||||||||||
Long-term debt, net of current maturities | — | 1,035 | 5D | 946 | — | 532 | 5D | 2,513 | ||||||||||||||||
Non-current deferred revenue | 7 | — | — | — | — | 7 | ||||||||||||||||||
Accrued pension and other post-retirement benefits, net of current portion | — | — | 102 | (102 | ) | 4A | — | — | ||||||||||||||||
Non-current income tax liabilities and deferred tax liabilities | 176 | — | — | 21 | 4A | 318 | 5G | 515 | ||||||||||||||||
Other long-term liabilities | 18 | — | 53 | 80 | 4A | (7 | ) | 5H | 144 | |||||||||||||||
Total liabilities | 950 | 1,079 | 1,309 | — | 856 | 4,194 | ||||||||||||||||||
Commitments and Contingencies | ||||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||
Parent company investment | 2,729 | (2,729 | ) | 5I | — | — | — | — | ||||||||||||||||
Preferred stock | — | — | — | — | — | — | ||||||||||||||||||
Common stock | — | — | — | — | — | — | ||||||||||||||||||
Additional paid-in-capital | — | 2,729 | 5I | 189 | — | 411 | 5I | 3,329 | ||||||||||||||||
Accumulated deficit | — | (1,076 | ) | 5I | (393 | ) | — | 393 | 5I | (1,076 | ) | |||||||||||||
Accumulated other comprehensive income (loss) | — | — | (84 | ) | — | 84 | 5I | — | ||||||||||||||||
Total stockholders’ equity | 2,729 | (1,076 | ) | (288 | ) | — | 888 | 2,253 | ||||||||||||||||
Total liabilities and equity | $ | 3,679 | $ | 3 | $ | 1,021 | $ | — | $ | 1,744 | $ | 6,447 |
(in millions, except per share amounts) | Historical USPS for the Year Ended March 31, 2018 | Effect of Spin-Off | Historical Vencore for the Twelve Months Ended March 31, 2018 | Reclassifications | Effect of Mergers | Pro Forma Combined | ||||||||||||||||||
Revenues | $ | 2,819 | $ | — | $ | 1,384 | $ | — | $ | — | $ | 4,203 | ||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Costs of services | 2,155 | — | 1,142 | (9 | ) | 4B | 25 | 6A | 3,313 | |||||||||||||||
Selling, general and administrative | 182 | — | 106 | — | (17 | ) | 6B | 271 | ||||||||||||||||
Depreciation and amortization | 167 | — | 30 | — | 73 | 6C | 270 | |||||||||||||||||
Restructuring costs | 14 | — | — | 5 | 4B | — | 19 | |||||||||||||||||
Separation costs | 90 | (48 | ) | 6D | — | — | — | 42 | ||||||||||||||||
Interest expense | 12 | 52 | 6E | 82 | — | (6 | ) | 6E | 140 | |||||||||||||||
(Gain) loss on pension plan | — | — | (9 | ) | 9 | 4B | — | — | ||||||||||||||||
Debt extinguishment cost | — | — | 4 | — | — | 4 | ||||||||||||||||||
Deferred contract costs | — | — | 5 | (5 | ) | 4B | — | — | ||||||||||||||||
Other expense (income), net | — | — | — | 1 | 4B | — | 1 | |||||||||||||||||
Total costs and expenses | 2,620 | 4 | 1,360 | 1 | 75 | 4,060 | ||||||||||||||||||
Income (loss) before taxes | 199 | (4 | ) | 24 | (1 | ) | (75 | ) | 143 | |||||||||||||||
Income tax benefit | (9 | ) | (1 | ) | 6F | (10 | ) | — | (27 | ) | 6F | (47 | ) | |||||||||||
Equity in net loss of affiliate | — | — | 1 | (1 | ) | 4B | — | — | ||||||||||||||||
Net income (loss) | $ | 208 | $ | (3 | ) | $ | 33 | $ | — | $ | (48 | ) | $ | 190 | ||||||||||
Earnings per common share: | ||||||||||||||||||||||||
Basic | $ | 1.15 | ||||||||||||||||||||||
Diluted | $ | 1.15 | ||||||||||||||||||||||
Weighted-average common shares: | ||||||||||||||||||||||||
Basic | 6G | 165.71 | ||||||||||||||||||||||
Diluted | 6G | 165.71 |
Preliminary fair value of equity purchase consideration received by Vencore stockholders (i) | $ | 578 | |
Preliminary fair value of cash purchase consideration received by Vencore stockholders (ii) | 400 | ||
Preliminary fair value of cash consideration paid by USPS to extinguish certain existing Vencore indebtedness (iii) | 994 | ||
Consideration transferred | $ | 1,972 |
(i) | Represents the fair value of consideration received by Vencore stockholders to give them 14.03% ownership in the combined company (23,258,058 shares at $24.86/share). |
(ii) | Represents the cash distribution payment made to Vencore stockholders in accordance with the Merger Agreement. |
(iii) | Represents cash paid to extinguish certain existing Vencore indebtedness concurrently with the Spin-Off and the Mergers. |
Total current assets | $ | 267 | |
Intangible assets (i) | 1,175 | ||
Other assets | 76 | ||
Total assets acquired | 1,518 | ||
Total current liabilities (ii) | 171 | ||
Deferred tax liabilities (iii) | 339 | ||
Other liabilities (iv) | 127 | ||
Total liabilities assumed | 637 | ||
Net identifiable assets acquired | 881 | ||
Goodwill | 1,091 | ||
Total consideration to be transferred | $ | 1,972 |
(i) | The identifiable intangible asset fair value estimates are based on a preliminary valuation and may change. The identifiable intangible assets associated with the Mergers consist of program assets and developed technology with an estimated fair value of $1.2 billion. The acquired program assets represent existing programs and contracts of the acquirees (Vencore Holding Corp. and KGS Holding Corp) including various agencies of the U.S. Government. The programs generate future cash flows as the acquirees perform on the contracted programs and win future recompetes under the same program vehicles. The recompete win assumption was accounted for based on a probability of renewal factor. The final valuation may be materially different and may result in the identification of additional intangible assets as more detailed information becomes available. |
(ii) | Includes the elimination of approximately $10 million of liability classified class B/B-1 membership interests that were settled as part of the merger consideration transferred. Also includes the repayment of the current portion of certain Vencore indebtedness existing as of March 31, 2018. See Note 3 for further details about the financing adjustments. |
(iii) | This balance includes the deferred tax liability resulting from the fair value adjustments for the identifiable intangible assets. This estimate of deferred tax liability was determined based on the book and tax basis differences attributable to the identifiable intangible assets acquired and liabilities assumed based on estimated statutory tax rates during the period of approximately 34%. The tax rate was based upon the jurisdictions in which the combined company expects to operate. The goodwill recognized in the Mergers is not expected to be deductible for income tax purposes. The final deferred tax liability may be materially different as more detailed information will become available after the consummation of the Mergers. |
(iv) | Other liabilities includes an adjustment to eliminate $8 million of deferred rent on Vencore’s balance sheet that is not recognized for purchase accounting. |
Effects of the Spin-Off: | |||
The New Revolving Credit Facility (i) | $ | 20 | |
The New Term Facility, current (ii) | 32 | ||
The New Term Facility, long-term (ii) | 936 | ||
EDS Notes Assumed (iii) | 79 | ||
Total pro forma Spin-Off adjustments to debt | $ | 1,067 | |
Effects of the Mergers: | |||
The New Revolving Credit Facility (i) | $ | 30 | |
The New Term Facility, current (ii) | 50 | ||
The New Term Facility, long-term (ii) | 1,448 | ||
Repayment of existing Vencore indebtedness (iv) | (969 | ) | |
Total pro forma Mergers adjustments to debt | $ | 559 |
(i) | Approximately $50 million of the $600 million New Revolving Credit Facility was drawn upon at the closing of the Mergers, and $9 million of estimated debt issuance costs related to the New Revolving Credit facility were capitalized in Other Assets, which represents the approximate amount of costs that market participants would incur to obtain similar financing. |
(ii) | A portion of the New Term Facility requires quarterly principal repayments totaling $87 million annually; accordingly, this amount has been presented as current in the pro forma balance sheet, net of $5 million of debt issuance costs. The long-term portion of the New Term Facility is presented net of $29 million of debt issuance costs. |
(iii) | Represents EDS Notes held by Enterprise Services LLC, a subsidiary of Perspecta following the Internal Reorganization and $13 million of unamortized premiums resulting from the application of fair value accounting associated with the merger of HPES and CSC. |
(iv) | USPS repaid certain historical Vencore outstanding indebtedness of approximately $972 million, inclusive of $23 million of current debt and $3 million of accrued interest. The $972 million balance sheet removal is net of approximately $21 million of capitalized finance costs, and therefore total cash paid to extinguish debt principal was $990 million. Fees incurred to repay the indebtedness were approximately $1 million, and are included as additional consideration transferred in the purchase price. |
(A) | Vencore Balance Sheet line items were reclassified as follows: |
(i) | Prepaid expenses out of “Prepaid and other current assets” and into “Prepaid expenses”; |
(ii) | Deferred costs out “Deferred costs” and into “Deferred contract costs and other current assets”; |
(iii) | Other current assets out of “Prepaid and other current assets” and into “Deferred contract costs and other current assets”; |
(iv) | Software out of “Property and equipment, net” and into “Intangible assets, net”; |
(v) | Deferred income tax assets out of “Other assets” and into “Deferred income taxes, net”; |
(vi) | Accrued expenses out of “Accounts payable and accrued expenses” and into “Accrued expenses and other current liabilities”; |
(vii) | Deferred revenue out of “Other current liabilities” and into “Deferred revenue and advance contract payments”; |
(viii) | Non-current deferred tax and other tax liabilities out of “Other long-term liabilities” and into “Non-current income tax liabilities and deferred tax liabilities”; |
(ix) | “Accrued Pension and other post-retirement liabilities, net of current portion” was moved into “Other long-term liabilities”; |
(x) | Accounts payable out of “Accounts payable and accrued expenses” and into “Accounts payable”; |
(xi) | Other current liabilities out of “Other current liabilities” and into “Accrued expenses and other current liabilities”; |
(xii) | Current capital lease liability out of “Other current liabilities” and into “Current capital lease liability”; and |
(xiii) | Non-current capital lease liability out of “Other long-term liabilities” and into “Non-current capital lease liability.” |
(B) | Vencore Statement of Operations line items were reclassified as follows: |
(i) | Deferred restructuring costs out of “Deferred contract costs” and into “Restructuring costs”; |
(ii) | Pension related expense out of “(Gain) loss on pension plan” and into “Costs of Services”; and |
(iii) | “Equity in net losses of affiliate" to “Other expense (income), net.” |
(A) | Cash and cash equivalents were adjusted as follows: |
(in millions) | Effect of Spin-Off March 31, 2018 | Effect of Mergers March 31, 2018 | ||||
Transaction costs (i) | $ | (1 | ) | $ | (20 | ) |
New financing proceeds (ii) | 985 | 1,523 | ||||
Vencore debt repayment (iii) | — | (994 | ) | |||
Perspecta Payment (iv) | (984 | ) | — | |||
Cash consideration transferred (v) | — | (400 | ) | |||
Total pro forma adjustment to Cash and cash equivalents | $ | — | $ | 109 | ||
(i) | Represents financing and transaction related costs incurred by USPS and Vencore of $1 million and $20 million, respectively, related to the Spin-Off and Mergers. |
(ii) | Represents the cash borrowed through the New Term Facility of $2.5 billion and borrowed through the New Revolving Credit Facility of $50 million, net of debt issuance costs of $43 million. See Note 3 for further details of the financing adjustments. |
(iii) | Represents repayment of certain historical Vencore outstanding indebtedness of approximately $994 million, as well as fees of approximately $1 million. See Note 3 for further details of the financing adjustments. |
(iv) | Represents distribution payment of $984 million from USPS to DXC shareholders prior to the Distribution, which reflects the transaction consideration of $1,050 million less $66 million in principal amount of the EDS Notes that remain outstanding at a subsidiary of Perspecta following the Internal Reorganization. |
(v) | Represents purchase consideration of $400 million paid by USPS to the sellers of Vencore. See Note 2 for further details about consideration transferred and purchase price allocation related to the Mergers. |
(B) | Intangible assets, net was adjusted for the Mergers as follows: |
(in millions) | Effect of Mergers March 31, 2018 | ||
Elimination of Vencore historical intangible assets | $ | (239 | ) |
Preliminary fair value of acquisition-related intangible assets (i) | 1,175 | ||
Total pro forma adjustment to Intangible assets, net | $ | 936 | |
(i) | Of the total net assets acquired, approximately $1.2 billion, is estimated to be the preliminary fair value of identified intangible assets, which consist of program assets and developed technology with preliminary estimated useful lives of 14 and 5 years, respectively. See Note 2 for additional information. |
(C) | Goodwill associated with the Mergers was adjusted as more fully described in Note 2. |
(D) | Short-term debt and current maturities of long-term debt and long-term debt, net of current maturities, were adjusted as described in Note 3. |
(E) | Accrued payroll and related costs were adjusted to remove the Vencore liability classified B/B-1 participation interests, as these liabilities were extinguished in connection with the Mergers. |
(F) | Accrued expenses and other current liabilities were adjusted as follows: |
(in millions) | Effect of Spin-off | Effect of Mergers March 31, 2018 | ||||
Vencore debt repayment (i) | $ | — | $ | (3 | ) | |
Deferred rent elimination (ii) | — | (1 | ) | |||
EDS Notes consent fees (iii) | 12 | — | ||||
Total pro forma adjustment to Accrued expenses and other current liabilities | $ | 12 | $ | (4 | ) | |
(i) | Represents the removal of accrued interest paid in accordance with the repayment of certain outstanding Vencore indebtedness. See Note 6 for further details on the financing adjustments recorded. |
(ii) | Represents the elimination of deferred rent through the purchase price allocation discussed further in Note 2. |
(iii) | Represents a payable from USPS to DXC for the bondholder consent fees paid by DXC in connection with the consent solicitation relating to the EDS Notes, and made in connection with the EDS Exchange Offer, a transaction considered directly attributable to the Spin-Off and Mergers. |
(G) | Reflects an adjustment to deferred tax liabilities based on estimated statutory tax rate for fiscal year 2018 of approximately 34%, multiplied by the preliminary fair value adjustments to the identifiable intangible assets. |
(H) | Other liabilities includes an adjustment to eliminate deferred rent on Vencore’s balance sheet that is not recognized for purchase accounting. |
(I) | Stockholders’ equity was adjusted as follows: |
(in millions) | Additional Paid-In Capital | Net Parent Investment | Retained Earnings / (Accumulated Deficit) | Accumulated Other Comprehensive Loss | ||||||||
Effects of the Spin-Off: | ||||||||||||
Removal of USPS Net parent investment (i) | $ | 2,729 | $ | (2,729 | ) | $ | — | $ | — | |||
Assumed EDS Notes (ii) | — | — | (91 | ) | — | |||||||
Perspecta Payment (iii) | — | — | (984 | ) | — | |||||||
Transaction costs (vi) | — | — | (1 | ) | — | |||||||
Total pro forma Spin-Off adjustment | $ | 2,729 | $ | (2,729 | ) | $ | (1,076 | ) | $ | — | ||
Effects of the Mergers: | ||||||||||||
Elimination of total acquiree equity and accumulated other comprehensive loss (iv) | $ | (189 | ) | $ | — | $ | 393 | $ | 84 | |||
Consideration transferred (v) | 600 | — | (17 | ) | — | |||||||
Transaction costs (vi) | — | — | 17 | — | ||||||||
Total pro forma Mergers adjustment | $ | 411 | $ | — | $ | 393 | $ | 84 | ||||
(i) | Represents the net parent investment to be removed as effect of the Spin-Off. |
(ii) | Represents adjustment for $79 million (comprising $66 million principal and $13 million of unamortized premiums) of EDS Notes expected to be outstanding at Enterprise Services LLC, a USPS subsidiary following the Internal Reorganization as well as $12 million of payables to DXC assumed for consent fees paid by DXC in connection with the consent solicitation relating to the EDS Notes, and made in connection with the EDS Exchange Offer, prior to the Spin-Off. |
(iii) | Reflects the $984 million distribution payment made to DXC prior to the Distribution, which reflects the transaction consideration of $1,050 million less an expected $66 million in principal amount of the EDS Notes that remain outstanding at a subsidiary of Perspecta following the Internal Reorganization. |
(iv) | Relates to the elimination of Vencore equity and accumulated other comprehensive loss. |
(v) | Relates to additional paid-in-capital recorded for the purchase price allocation purchase consideration calculated as further described in Note 2. |
(vi) | Reflects transaction costs related to the Spin-Off and the Mergers, as well as the deferred tax impact of such costs. The actual amount of transaction costs that are deductible for tax purposes is subject to a transaction cost study that will be performed subsequent to the closing of the Mergers. |
(A) | Costs of services was adjusted to conform the pension accounting policy of Vencore to that of USPS, as described in additional detail in Note 1. |
(B) | Selling, general and administrative expenses were adjusted as follows: |
Effects of the Mergers on the Year Ended March 31, 2018 (Pro Forma) | |||
Remove transaction costs (i) | $ | (9 | ) |
Remove management fees (ii) | (4 | ) | |
Remove membership interest (iii) | (4 | ) | |
Total adjustment to Selling, general and administrative expense | $ | (17 | ) |
(i) | Transaction costs represent costs paid to advisers, attorney and other third parties directly related to the Mergers. Accordingly, transaction costs have been eliminated as these costs are directly attributable to the Mergers, but which are not expected to have a continuing impact on results of operations following the consummation of the Spin-Off and the Mergers. |
(ii) | Represents removal of annual historical Veritas management fees paid by Vencore that are eliminated as they are not expected to have a continuing impact on the results of operations following the consummation of the Spin-Off and the Mergers. |
(iii) | Represents the elimination of the mark-to-market impact of Vencore’s Class B/B-1 membership interests, which are not expected to have a continuing impact on the results of operations following the consummation of the Spin-Off and the Mergers. |
(C) | Depreciation and amortization were adjusted to reflect the change in amortization expense associated with acquired intangible assets. |
(D) | Separation costs include costs arising from the separation of USPS from its parent, DXC, as part of the Spin-off transaction. These costs primarily represent costs paid to third party providers and are eliminated as they are not expected to have a continuing impact on the results of operations following the consummation of the Spin-Off and the Mergers. |
(E) | Interest expense was adjusted as a result of the New Term Facility, New Revolving Credit Facility, amended MARPA Facility, EDS Notes assumed and Vencore outstanding debt repayment as further described in Note 3. |
(F) | Represents the income tax impact of the pro forma adjustments, using an estimated statutory tax rate of approximately 34% for the year ended March 31, 2018. |
(G) | The weighted average common shares outstanding for basic EPS reflects 142,454,277 shares of the combined company issued to DXC shareholders in connection with the Spin-Off, and 23,258,058 shares of the combined company issued to the sellers of Vencore, in accordance with the Merger Agreement. |