Acquisitions

On May 31, 2018, immediately following the consummation of the Spin-Off, the Company completed the Mergers. As defined in the Merger Agreement, Perspecta issued shares of Perspecta common stock to Veritas Capital and its affiliates, including 18,877,244 shares to The SI Organization Holdings LLC (the “Vencore HC Stockholder”) and 4,396,097 shares to KGS Holding LLC (the “KeyPoint Stockholder,” and, together with the Vencore HC Stockholder, the “Vencore Stockholders”), representing in the aggregate approximately 14% of the outstanding shares of Perspecta common stock immediately following the Mergers. As a result of these transactions, Vencore HC and KGS HC became wholly-owned subsidiaries of Perspecta.

The Spin-Off and Mergers were structured as a “Reverse Morris Trust” transaction, in which Perspecta was deemed the accounting acquirer of Vencore HC and KGS HC and their respective subsidiaries. Purchase consideration transferred in a business combination is typically measured by reference to the fair value of equity issued or other assets transferred by the accounting acquirer. Accordingly, the fair value of the purchase consideration transferred was measured based on the fair value of approximately 14% of shares of the combined business, $400 million cash transferred by Perspecta to the Vencore Stockholders, and approximately $1.0 billion paid to extinguish certain existing Vencore HC and KeyPoint HC indebtedness.

Under the acquisition method of accounting, total consideration exchanged was:



(in millions)	Amount
Preliminary fair value of equity purchase consideration received by Vencore Stockholders⁽¹⁾	$	578
Preliminary fair value of cash purchase consideration received by Vencore Stockholders	400
Preliminary fair value of cash consideration paid by USPS to extinguish certain existing Vencore indebtedness	994
Consideration transferred	$	1,972

⁽¹⁾

Represents the fair value of consideration received by the Vencore HC Stockholder and the KeyPoint Stockholder for approximately 14% ownership in the combined company. The fair value of the purchase consideration transferred was based on 18,877,244 shares of Perspecta common stock distributed to Vencore HC Stockholder and 4,396,097 shares of Perspecta common stock distributed to the KeyPoint Stockholder as of the close of business on the record date for the Mergers, at the closing price of $24.86 per share on May 31, 2018.

The information presented below represents the allocation of Vencore’s purchase price to the assets acquired and liabilities assumed as of the acquisition date, May 31, 2018.

The major classes of assets and liabilities to which the purchase price allocated were as follows:



(in millions)	Estimated Fair Value
Current assets	$	333
Property and equipment	35
Intangible assets	622
Other assets	33
Accounts payable, accrued payroll, accrued expenses, and other current liabilities	(188		)
Deferred revenue	(12		)
Other liabilities	(90		)
Net identifiable assets acquired	733
Goodwill	1,239
Consideration transferred	$	1,972

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the closing date of the Mergers.

The goodwill recognized in the Mergers is attributable to the intellectual capital, the acquired assembled work force and expected cost synergies, none of which qualify for recognition as a separate intangible asset. The goodwill related to the Mergers is not expected to be fully deductible for tax purposes. The preliminary estimate of goodwill above includes approximately $172 million of tax deductible goodwill. Goodwill arising from the Mergers has been allocated on a preliminary basis to Perspecta’s reporting units based on the relative fair value of assets acquired.

The fair values of assets acquired and liabilities assumed are preliminary and based on a valuation using estimates and assumptions that are subject to change, which could result in material changes to the purchase price allocation. During the third quarter, the Company made certain valuation adjustments to provisional amounts previously recognized. These adjustments resulted in a net $1 million decrease of the goodwill, primarily due to fair value adjustments resulting in a decrease in liabilities. As a result, the Company updated the preliminary allocation to Perspecta’s reportable segments as follows: $1,156 million allocated to Defense and Intelligence and $83 million allocated to Civilian and Health Care.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents results as if the Spin-Off and the Mergers and the related financing had occurred on April 1, 2017. The historical consolidated financial information of Perspecta has been adjusted in the pro forma information to give effect to the events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. The effects of the Spin-Off are primarily attributable to interest expense associated with the incurrence of debt in connection with the Spin-Off. The effects of the Mergers primarily relate to amortization of acquired intangible assets. The consolidated financial information of Perspecta includes merger and integration-related costs that are not expected to recur and impact the combined results over the long-term. The unaudited pro forma results do not reflect future events that have occurred or may occur after the transactions, including but not limited to, the impact of any actual or anticipated synergies expected to result from the Mergers. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on April 1, 2017, nor is it necessarily an indication of future operating results.



	Nine Months Ended December 31, 2018		Period from April 1, 2018 to May 31, 2018			Nine Months Ended December 31, 2018
(in millions, except per-share amounts)	Historical Perspecta⁽¹⁾		Historical Vencore HC and KeyPoint HC			Effects of the Spin-Off			Effects of the Mergers		Pro Forma Combined for the Spin-Off and Mergers
Revenue	$	2,936	$	245		$	—		$	—	$	3,181
Net income (loss)	$	91	$	(57	)	$	(7	)	$	12	$	39

Earnings per common share⁽²⁾:
Basic	$	0.55									$	0.24
Diluted	$	0.55									$	0.24

⁽¹⁾Revenue and net income includes $860 million and $137 million associated with Vencore HC and KeyPoint HC, respectively, for the period of June 1, 2018 through December 31, 2018.

⁽²⁾ Historical and pro forma combined earnings per share information is computed based on 165.02 million basic weighted average shares and 165.27 million diluted shares. See Note 6 – “Earnings Per Share.”



	Three Months Ended December 31, 2017
(in millions, except per-share amounts)	Historical Perspecta		Historical Vencore HC and KeyPoint HC		Effects of the Spin-Off		Effects of the Mergers			Pro Forma Combined for the Spin-Off and Mergers
Revenue	$	722	$	349	$	—	$	—		$	1,071
Net income (loss)	$	104	$	20	$	—	$	(32	)	$	92

Earnings per common share⁽¹⁾:
Basic	$	0.73								$	0.56
Diluted	$	0.73								$	0.56

⁽¹⁾Historical earnings per share information for the three months ended December 31, 2017 is computed using the 142.43 million shares of Perspecta common stock resulting from the Distribution. See Note 6 – “Earnings Per Share.” Pro forma combined earnings per share includes the shares issued by Perspecta in connection with the Mergers on May 31, 2018. As a result, both basic and diluted pro forma combined earnings per share information is computed based on 165.70 million shares of Perspecta common stock, as Perspecta did not operate as a stand-alone entity during the period and therefore, no Perspecta common stock, stock options or other equity awards were outstanding and no dividends were declared or paid by Perspecta.



	Nine Months Ended December 31, 2017
(in millions, except per-share amounts)	Historical Perspecta		Historical Vencore HC and KeyPoint HC		Effects of the Spin-Off			Effects of the Mergers			Pro Forma Combined for the Spin-Off and Mergers
Revenue	$	2,104	$	1,041	$	—		$	—		$	3,145
Net income (loss)	$	176	$	22	$	(18	)	$	(61	)	$	119

Earnings per common share⁽¹⁾:
Basic	$	1.24									$	0.72
Diluted	$	1.24									$	0.72

⁽¹⁾Historical earnings per share information for the nine months ended December 31, 2017 is computed using the 142.43 million shares of Perspecta common stock resulting from the Distribution. See Note 6 – “Earnings Per Share.” Pro forma combined earnings per share includes the shares issued by Perspecta in connection with the Mergers on May 31, 2018. As a result, both basic and diluted pro forma combined earnings per share information is computed based on 165.70 million shares of Perspecta common stock, as Perspecta did not operate as a stand-alone entity during the period and therefore, no Perspecta common stock, stock options or other equity awards were outstanding and no dividends were declared or paid by Perspecta.