REG-Unisys Corp: Acquisition(s)

UnisysAnnouncement

06/02/2020 11:30

Unisys to Sell Its U.S. Federal Business to SAIC for $1.2 Billion, or 13x
Adjusted EBITDA, a Significant Premium to Unisys' Trading Multiple;
Preliminary Full-Year 2019 Unisys Results Indicate Company Achieves Guidance
on All Provided Metrics

Based on preliminary results((1)), non-GAAP adjusted revenue((2)) growth and
non-GAAP operating profit((3)) margin expected to be toward upper end of
full-year 2019 guidance ranges of 3% to 7% and 8.25% to 9.25%, respectively;
Adjusted EBITDA((4)) margin expected to be at low end of full-year 2019
guidance range of 14.4% to 16.0%

Transaction to significantly strengthen company's balance sheet and as a
result increase operational flexibility; proceeds are expected to be
substantially tax-free and used to pay down debt and reduce pension
obligations; company adopts tax asset protection plan

Company to leverage strong performance of global Enterprise Solutions
business, continue to drive digital transformation for Government (excludes
U.S. Federal), Commercial and Financial Services clients with innovative
solutions including Unisys Stealth(®), CloudForte(®), InteliServe(™) and
ClearPath Forward(®)

BLUE BELL, Pennsylvania, Feb. 6, 2020 -- Unisys Corporation
(https://c212.net/c/link/?t=0&l=en&o=2712988-1&h=2253524703&u=https%3A%2F%2Fwww.unisys.com%2F&a=Unisys+Corporation) (NYSE:
UIS), a leader in digital transformation solutions, today entered into a
definitive agreement to sell the company's U.S. Federal business to Science
Applications International Corp. (SAIC) (NYSE: SAIC) for $1.2 billion. The
transaction multiple of approximately 13x LTM 9/30/19 Adjusted EBITDA((5))
represents a significant premium to Unisys' trading multiple. Net proceeds are
largely expected to be used to pay down debt and reduce pension obligations,
thereby significantly improving Unisys' balance sheet, its U.S. pension funded
status and overall financial flexibility. The transaction was unanimously
approved by the Unisys Board of Directors and is expected to close in the
first half of 2020, subject to customary closing conditions.

Unisys' U.S. Federal business represents more than 1,900 associates, with
approximately $689 million in revenue for the LTM period ended September 30,
2019.

"This transaction comes at a significant premium to the Unisys trading
multiple, and is a tribute to the unique and attractive business that our U.S.
Federal colleagues have built over many years," said Unisys Chairman and CEO
Peter Altabef. "Under the leadership of Venkatapathi "PV" Puvvada, we have
become known as a true innovator in the federal market, leveraging powerful
intellectual property and a world-class team. This transaction will allow us
to significantly enhance our balance sheet, which will create increased
operational flexibility that will ultimately position us to better serve our
clients while delivering increased value to investors."

Use of Proceeds

Unisys intends to largely use the net proceeds from the sale to pay down debt
and reduce its U.S. pension obligations by applying a portion of the net
proceeds to its U.S. defined benefit pension plans:
*
Pro forma for the transaction, the company's net debt (inclusive of pension
deficit) is expected to be reduced by approximately $1.04 billion.
*
The company intends to fully redeem its $440 million of Senior Secured Notes
in accordance with the terms of those notes.
*
The remaining net proceeds targeted for net debt reduction (~$600 million) are
expected to be contributed to U.S. pension plans and applied toward the
minimum required contributions in 2020, 2021 and 2022.
*
This will effectively remove the requirements to make any cash contributions
to the U.S. plans out of operating cash flow in 2020, 2021 and 2022.
*
This will also increase the funded status of the U.S. pension plans to allow
for potential removal of pension liability through bulk lump sum offerings and
potential annuitization of obligations.
*
Cumulative required contributions into worldwide pension plans from 2020
through 2025 are expected to be reduced to approximately $775 million on a pro
forma basis from $1.375 billion based on assumptions as of year-end 2018.
*
The company will have the flexibility to make additional discretionary
contributions to smooth future funding requirements beyond 2022.
*
The company's unfunded pension deficit is expected to be reduced from $1.74
billion as of year-end 2018 to approximately $1.14 billion on a pro forma
basis.
*
Pro forma net debt inclusive of pension obligations is expected to be
approximately $860 million, relative to $1.9 billion pre-transaction,
resulting in pro forma net leverage of 2.4x LTM 9/30/19 Adj. EBITDA((6)),
relative to 4.2x pre-transaction.
*
The company expects to offset any federal taxable gains from the sale with its
existing unrestricted tax assets and expects additional tax assets to be
generated by the aforementioned pension contributions.

"In addition to the benefits from a meaningfully improved balance sheet, we
see Unisys as having significant financial upside potential, as Enterprise
Solutions has always represented the key area for improvements to efficiency
and therefore our profitability," said Mike Thomson, senior vice president and
CFO of Unisys. "Unisys will continue to execute on plans already established
for driving improved operating margin, while also retaining the disciplined
focus on cash flow that has been key to our recent transformation."

Built on Strong Performance, Innovative Solutions

"Our innovative solutions and focus on security have made us a critical
partner to many of the largest, most complex enterprises in the world and
helped improve the financial performance of Enterprise Solutions in recent
periods," Eric Hutto, senior vice president and president, Enterprise
Solutions said. "We will use the same technology-enabled, intellectual
property-based solutions that have helped drive the company's recent success,
such as Unisys Stealth(®), CloudForte(®), InteliServe™ and ClearPath
Forward(®). Our increased capital structure flexibility will allow for
further investment in new solutions and more optionality in deal pursuits,
with a disciplined focus on optimizing cash flow and profitability."

Tax Asset Protection Plan

In conjunction with the transaction, Unisys also announced today that it has
adopted a Tax Asset Protection Plan (the "Plan"), which is designed to protect
Unisys' tax assets in contemplation of the sale discussed in this release.
This Plan is similar to tax benefit protection plans adopted by other public
companies with significant tax attributes. 

Unisys' ability to use its tax attributes would be significantly limited if
there were an "ownership change" for federal tax law purposes, which generally
occurs when the percentage of Unisys' ownership of one or more 5% shareholders
has increased by more than 50% over the lowest percentage owned by such
shareholders at any time during the prior three years (calculated on a rolling
basis).

The Plan is designed to protect Unisys' valuable tax assets by reducing the
likelihood of an 'ownership change' through actions involving Unisys'
securities.

As part of the Plan, Unisys has declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Unisys common stock,
par value $0.01 per share, payable to stockholders of record as of February
15, 2020 as well as to holders of Unisys common stock issued after that date.
In the Plan, the acquisition of 4.9% or more of the Unisys common stock would
trigger the operation of the Rights. There is no guarantee, however, that the
Plan will prevent Unisys from experiencing an ownership change.

Unisys' Board of Directors has the discretion under certain circumstances to
exempt acquisitions of Unisys' securities from the provisions of the Plan. The
Plan may be amended by Unisys' Board at any time.

The issuance of the Rights will not affect Unisys' reported earnings per share
and is not taxable to Unisys or its stockholders.

Additional information regarding the Plan will be contained in a Form 8-K and
in a Registration Statement on Form 8-A that Unisys Corporation filed with the
Securities and Exchange Commission today.

Advisors

Centerview Partners LLC is serving as exclusive financial advisor and Sullivan
& Cromwell LLP is serving as legal advisor to Unisys.

Conference Call

A conference call will be hosted at 8:00am EST on February 6, 2020 to provide
an overview of the transaction and to address questions from the financial and
advisory community. Please use the link below to access the webcast:
 https://services.choruscall.com/links/uis200206.html 

((1)) The preliminary results set forth in this release are unaudited and
remain subject to completion of the company's financial closing procedures.
The company will report its fourth quarter and full-year 2019 financial
results during its previously announced conference call to be held on February
25, 2020.

Non-GAAP and Other Information

Although appropriate under generally accepted accounting principles ("GAAP"),
the company's results reflect revenue and charges that the company believes
are not indicative of its ongoing operations and that can make its revenue,
profitability and liquidity results difficult to compare to prior periods,
anticipated future periods, or to its competitors' results. These items
consist of certain portions of revenue, post-retirement, debt exchange and
cost-reduction and other expenses. Management believes each of these items can
distort the visibility of trends associated with the company's ongoing
performance. Management also believes that the evaluation of the company's
financial performance can be enhanced by use of supplemental presentation of
its results that exclude the impact of these items in order to enhance
consistency and comparativeness with prior or future period results. The
following measures are often provided and utilized by the company's
management, analysts, and investors to enhance comparability of year-over-year
results, as well as to compare results to other companies in our industry.

((2))  Non-GAAP adjusted revenue – In 2018 and 2019, the company's non-GAAP
results reflect adjustments to exclude certain revenue. In 2018, this includes
revenue from software license extensions and renewals, which were contracted
for in 2017 and properly recorded as revenue at that time under the revenue
recognition rules then in effect (ASC 605). Upon adoption of the new revenue
recognition rules (ASC 606) on January 1, 2018, and since the company adopted
ASC 606 under the modified retrospective method whereby prior periods were not
restated, the company was required to include $53 million in the cumulative
effect adjustment to retained earnings on January 1, 2018. ASC 606 requires
revenue related to software license renewals or extensions to be recorded when
the new license term begins, which in the case of the $53 million was January
1, 2018. The company has excluded revenue and related profit for these
software licenses in its non-GAAP results since it has been previously
reported in 2017. This is a one-time adjustment and it will not reoccur in
future periods. Additionally, the company's non-GAAP results include
adjustments to exclude certain revenue and related profit relating to
reimbursements from the company's check-processing JV partners for
restructuring expenses included as part of the company's restructuring
program.

((3)) Non-GAAP operating profit – The company recorded pretax
post-retirement expense and pretax charges in connection with cost-reduction
activities, debt exchange and other expenses. For the company, non-GAAP
operating profit excluded these items. The company believes that this
profitability measure is more indicative of the company's operating results
and aligns those results to the company's external guidance, which is used by
the company's management to allocate resources and may be used by analysts and
investors to gauge the company's ongoing performance. During 2018 and 2019,
the company included the non-GAAP adjustments discussed in (2) herein.

((4)) EBITDA & adjusted EBITDA – Earnings before interest, taxes,
depreciation and amortization ("EBITDA") is calculated by starting with net
income (loss) attributable to Unisys Corporation common shareholders and
adding or subtracting the following items: net income attributable to
noncontrolling interests, interest expense (net of interest income), provision
for income taxes, depreciation and amortization. Adjusted EBITDA further
excludes post-retirement, debt exchange, and cost-reduction and other
expenses, non-cash share-based expense, and other (income) expense
adjustments. In order to provide investors with additional understanding of
the company's operating results, these charges are excluded from the adjusted
EBITDA calculation. During 2018 and 2019, the company included the adjustments
discussed in (2) herein.

((5)) Last twelve months effective 9/30/19, derived from Unisys' accounting
records, which are maintained in accordance with GAAP. The U.S. Federal
business has not been run on a standalone basis, and as such, certain
adjustments were based on management's best estimates of standalone
assumptions.

( (6)) Pro forma adjusted EBITDA excludes last twelve months Adjusted EBITDA
for U.S. Federal business as of 9/30/19. 

About Unisys

Unisys is a global information technology company that builds
high-performance, security-centric solutions for the most demanding businesses
and governments. Unisys offerings include security software and services;
digital transformation and workplace services; industry applications and
services; and innovative software operating environments for high-intensity
enterprise computing. For more information on how Unisys builds better
outcomes securely for its clients across the Government, Commercial and
Financial Services markets, visit www.unisys.com.

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Forward-Looking Statements

Any statements contained in this release are not historical facts, including
those regarding future performance, are forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, assumptions, anticipated events
or trend, beliefs relating to matters that are not historical in nature and
involve risks and uncertainties that could cause actual results to differ from
expectations, all of which are difficult to predict and many of which are
beyond the control of the company. Actual results may differ materially from
the company's current expectations depending upon a number of factors
affecting the company's business and risks associated with the transaction.
These factors include, among others: the ability to close the transaction on
the expected timing or at all; the ability to obtain required antitrust
regulatory approval for the transaction; the risk that a condition to closing
of the transaction may not be satisfied on a timely basis or at all; the
failure of the transaction to close for any other reason; buyer's access to
financing for the acquisition on a timely basis; the difficulty of predicting
the timing or outcome of pending or future litigation or government
investigations; the ability of the company to achieve the intended benefits of
the transactions (including, without limitation, risks related to the ability
of the company to repay certain indebtedness and reduce pension obligations
following the closing of the transaction); the risk related to the diversion
of management's attention from the company's ongoing business operations; the
effect of the announcement or pendency of the transaction on the company's
business relationships (including, without limitation, customers and suppliers
and other third parties), operating results, and business generally; the risk
related to the change of the company's business structure and a smaller size
of the company following the closing of the transaction; the effect of the
announcement or disruption from the transaction making it more difficult to
retain and hire key personnel; the risk related to the company's ability to
operate its business as a going-concern following the closing of the
transaction. These risks and uncertainties are discussed in the company's
reports filed with the SEC, including but not limited to the company's annual
report on Form 10-K and in its subsequent reports on Form 10-Q and periodic
reports on Form 8-K, and from time to time in the company's other investor
communications. Except as expressly required by law, the company assumes no
obligation to update any forward-looking statement to reflect events or
circumstances that occur after the date on which the statement is made.  

RELEASE NO.: 0206/9745

Unisys and other Unisys products and services mentioned herein, as well as
their respective logos, are trademarks or registered trademarks of Unisys
Corporation. Any other brand or product referenced herein is acknowledged to
be a trademark or registered trademark of its respective holder.

UIS-C

CONTACT: Investors: Courtney Holben, Unisys, 215-986-3379,
courtney.holben@unisys.com; Media: John Clendening, Unisys, 214-403-1981,
john.clendening@unisys.com or Jared Levy, Sard Verbinnen & Co., 212-687-8080,
Unisys-SVC@sardverb.com



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