NEWS: Leidos Holdings, Inc. Reports Fourth Quarter and Fiscal Year 2016 Results

February 23, 2017 Investor Relations
- Revenues: $2.58 billion for fourth quarter; $7.04 billion for fiscal year 2016
- Diluted Earnings per Share from Continuing Operations: $0.39 for fourth quarter; $2.35 for fiscal year 2016
- Non-GAAP Diluted Earnings per Share from Continuing Operations: $0.75 for fourth quarter; $3.51 for fiscal year 2016
- Diluted weighted average shares outstanding: 153 million for fourth quarter; 104 million for fiscal year 2016
- Cash Flow from Continuing Operations: $162 million for fourth quarter, $446 million for fiscal year 2016
- 2017 guidance increased for revenue, adjusted EBITDA margin, and non-GAAP EPS

RESTON, Va.Feb. 23, 2017 /PRNewswire/ -- Leidos Holdings, Inc. (NYSE: LDOS), a global science and technology solutions company, today reported financial results for the fourth quarter and fiscal year 2016.

Roger KroneLeidos Chairman and Chief Executive Officer, commented: "I am pleased with our fourth quarter results and with a strong close to a successful and transformational year for the Company. Through the dedicated effort of our employees and the innovative solutions we bring to our customers, we were able to grow revenues, margins, earnings, and cash flow from operations, compared to the prior year.  We are proceeding well against our stated targets and remain committed to building on our successes in the year ahead."

Fourth Quarter Summary Results

Revenues for the quarter were $2.58 billion, compared to $1.28 billion in the prior year quarter. The current quarter included $1.35 billion of revenue attributable to the Information Systems & Global Solutions business ("IS&GS Business") acquired from Lockheed Martin during the third quarter of fiscal year 2016.

Operating income from continuing operations for the quarter was $152 million, compared to $102 million in the prior year quarter. Operating margin decreased to 5.9% from 8.0% in the prior year quarter, as the current quarter included $54 million of amortization of acquired intangible assets, $22 million of acquisition and integration costs, $8 million of restructuring charges and $4 million of asset impairment charges. Excluding these items, the non-GAAP operating margin increased to 9.3% from 8.4% in the prior year quarter.

Diluted earnings per share ("EPS") from continuing operations attributable to Leidos common stockholders for the quarter was $0.39, compared to $1.72 in the prior year quarter. The weighted average diluted share count for the quarter was 153 million, up from 74 million in the prior year quarter primarily due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders in connection with the acquisition of the IS&GS Business during the third quarter of fiscal year 2016. Excluding the items mentioned above, non-GAAP diluted EPS from continuing operations attributable to Leidos common stockholders for the fourth quarter was $0.75 compared to $0.80 in the prior year quarter.

National Security Solutions

National Security Solutions revenues for the quarter of $876 million increased $28 million, or 3%, compared to the prior year quarter. The revenue growth was primarily attributable to revenues associated with our international business and increases in fees resulting from the achievement of contract milestones and related profit write-ups on certain contracts. These increases were partially offset by reduced revenue due to lower scope and completion of certain contracts.

National Security Solutions operating income margin for the quarter was 7.8%, compared to 7.7% in the prior year quarter.

Information Systems & Global Solutions

IS&GS revenues for the fourth quarter were $1.35 billion with an operating margin of 6.5%. Excluding the impact of amortization of the acquired intangibles, the non-GAAP operating margin of IS&GS was 10.4%.

Health and Infrastructure Sector

Health and Infrastructure Sector ("HIS") revenues of $348 million for the quarter decreased $84 million, or 19%, compared to the prior year quarter. The revenue decline is primarily attributable to the divestiture of the heavy construction business in the current fiscal year. Excluding the revenues from the divested business, HIS revenues increased $26 million, or 8.1%, primarily due to growth in the Federal Health business.

Health and Infrastructure Sector operating income margin for the quarter was 13.2%, up from 10.6% in the prior year, due to the divestiture of the heavy construction business.

Fiscal Year 2016 Summary Results

Revenues for fiscal year 2016 were $7.04 billion, compared to $5.09 billion in the prior calendar year. Fiscal year 2016 revenues included $1.97 billion of revenue attributable to the IS&GS Business.

Operating income from continuing operations for fiscal year 2016 was $417 million, compared to $298 million in the prior calendar year. Operating margin was 5.9% for both fiscal year 2016 as well as the prior calendar year. The current year operating income included $84 million of amortization of intangible assets, $90 million of acquisition and integration costs, $14 million of restructuring charges and $4 million of asset impairment charges. Excluding these items, the non-GAAP operating margin increased to 8.6% from 7.6% in the prior calendar year.

Diluted EPS from continuing operations attributable to Leidos common stockholders for fiscal year 2016 was $2.35, compared to $3.19 for the prior calendar year. The diluted share count was 104 million, up from 74 million in the prior calendar year due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders in connection with the acquisition of the IS&GS Business during the third quarter of fiscal year 2016. Excluding the impact of items mentioned above and the prior year gain on sale of the Company's former headquarters, the non-GAAP diluted EPS from continuing operations attributable to Leidos common stockholders for fiscal year 2016 was $3.51, compared to $2.96 in the prior calendar year.

National Security Solutions

National Security Solutions revenues of $3.61 billion for fiscal year 2016 increased $143 million, or 4%, compared to the prior calendar year. The revenue growth was primarily attributable to revenues from our international business and increases in fees resulting from the achievement of contract milestones and related profit write-ups on certain contracts. These increases were partially offset by reduced revenue due to lower scope and completion of certain contracts.

National Security Solutions operating income margin for fiscal year 2016 was 8.1%, compared to 8.0% in the prior calendar year.

Information Systems & Global Solutions

IS&GS revenues were $1.97 billion and operating margin was 5.8% for fiscal year 2016. Excluding the impact of amortization of acquired intangibles, non-GAAP operating margin was 9.8%.

Health and Infrastructure Sector

Health and Infrastructure Sector revenues for fiscal year 2016 of $1.46 billion decreased $151 million, or 9%, compared to the prior calendar year. The revenue decline is primarily attributable to the divestiture of the heavy construction business in the second quarter of fiscal year 2016 and the sale of the Plainfield Renewable Energy facility ("Plainfield"), which closed in the second quarter of the prior calendar year. Excluding the revenues from the divested businesses, HIS revenues increased $134 million, or 10.1%, primarily due to growth in the Federal Health business, partially offset by lower revenues in our engineering services business.

Health and Infrastructure Sector operating margin for fiscal year 2016 was 11.1%, up from 2.8% in the prior calendar year due to the divestiture of the heavy construction business, the sale of Plainfield, reduced indirect costs, lower asset impairment charges and bad debt expense.

Cash Flow Summary

Cash flows provided by operating activities of continuing operations for the quarter were $162 million compared to $32 million in the prior year. The higher operating cash inflows were primarily due to timing of collections and vendor and benefit payments compared to the prior year quarter.  

Cash flows used in investing activities of continuing operations for the quarter were $8 million compared to $56 million of cash flows provided by investing activities in the prior year quarter. The $64 million lower cash flows was primarily due to proceeds received from the sale of assets in the prior year quarter that did not recur in the current year quarter.

Cash flows used in financing activities of continuing operations for the quarter were $227 million compared to $67 million in the prior year quarter. The higher financing cash outflows were primarily due to the early repayment of debt in the current year quarter.

Cash flows provided by operating activities of continuing operations for the fiscal year were $446 million compared to $410 million in the prior calendar year. The higher operating cash inflows were primarily due to timing of collections and vendor and benefit payments compared to the prior calendar year.

Cash flows provided by investing activities of continuing operations for the fiscal year were $26 million compared to $64 million in the prior calendar year. The $38 million lower cash flows was primarily due to proceeds received from the sale of assets in the prior calendar year that did not recur in the current fiscal year, partially offset by cash acquired as part of the acquisition of the IS&GS Business in the current fiscal year.

Cash flows used in financing activities of continuing operations for the fiscal year were $751 million compared to $296 million in in the prior calendar year. The higher financing cash outflows were primarily due to a special cash dividend payment in connection with the Transactions and the early repayment of debt, partially offset by the issuance of debt, net of issuance costs.

As of December 30, 2016, the Company had $376 million in cash and cash equivalents and $3.3 billion in notes payable and long-term debt.

New Business Awards

New business bookings totaled $1.84 billion in the fourth quarter of fiscal year 2016 and $6.95 billion for fiscal year 2016, representing a book-to-bill ratio of 0.7 and 1.0 for the fourth quarter and fiscal year 2016, respectively.

Notable recent awards received include:

  • U.S. Air ForceLeidos was awarded a prime contract by the United States Air Force ("USAF") to continue to provide mission planning systems engineering and integration for the Joint Mission Planning Enterprise. The single-award indefinite-delivery/indefinite-quantity contract has a ten-year period of performance and a total contract value of $350 million.
     
  • Joint Improvised Threat Defeat OrganizationLeidos was awarded a subcontract to support the Joint Improvised Threat Defeat Organization ("JIDO") with analytical operations, intelligence and training services. The single-award cost-plus award-fee task order has a two-year base period of performance, three one-year options and a total subcontract value to Leidos of $202 million if all options are exercised.
     
  • Defense Logistics AgencyLeidos was awarded a contract by the Defense Logistics Agency ("DLA") to support the J6 Enterprise Technology Services ("JETS") program. The multiple-award indefinite-delivery/indefinite-quantity contract has a five-year base period of performance, one three-year option and a total contract ceiling of $6 billion for all awardees if the option is exercised. The DLA JETS program will provide DLA Information Operations the full range of information technology services to develop, maintain, and protect the applications, software, hardware and systems that support DLA's mission as the logistics combat support agency to the U.S. military services.
     
  • U.S. Intelligence Community: The Company was awarded contracts valued at $265 million, if all options are exercised by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.

The Company's backlog of signed business orders at the end of fiscal year 2016 was $17.74 billion, of which $5.98 billion was funded, and at the end of calendar year 2015 was $9.90 billion, of which $2.52 billion was funded. The increase in backlog was primarily due to the acquisition of the IS&GS Business.

Forward Guidance

The Company's outlook for fiscal year 2017 is being presented based on a 12-month period from December 31, 2016, to December 29, 2017, as follows:

  • Revenues of $10.0 billion to $10.4 billion;
  • Adjusted EBITDA margins of 9.5% to 10.0%;
  • Non-GAAP diluted earnings per share from continuing operations of $3.05 to $3.35; and
  • Cash flows provided by operating activities from continuing operations at or above $475 million.

Fiscal year 2017 guidance excludes the impact of any future acquisitions, divestitures and other non-ordinary course items.

Conference Call Information

Leidos management will discuss operations and financial results in an earnings conference call beginning at 8 A.M. eastern on February 23, 2017. 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) and entering passcode 13652714.

About Leidos

Leidos is a global science and technology solutions leader working to solve the world's toughest challenges in the defense, intelligence, homeland security, civil and health markets. The Company's 32,000 employees support vital missions for government and commercial customers.

For more information, visit www.leidos.com.

Forward-Looking Statements

Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance" and similar words or phrases. Forward-looking statements in this release include, among others, estimates of future revenues, EBITDA margins, operating income, earnings, earnings per share, charges, backlog, outstanding shares and cash flows, as well as statements about future dividends, share repurchases, acquisitions and dispositions. These statements reflect our belief and assumptions as to future events that may not prove to be accurate.

Actual performance and results may differ materially from the guidance and other forward-looking statements made in this release depending on a variety of factors, including: changes to our reputation and relationships with government agencies, developments in the U.S. Government defense budget, including budget reductions, implementation of spending cuts (sequestration) or changes in budgetary priorities; delays in the U.S. Government budget process; delays in the U.S. Government contract procurement process or the award of contracts; delays or loss of contracts as a result of competitor protests; changes in U.S. Government procurement rules, regulations and practices; changes in interest rates and other market factors out of our control; our compliance with various U.S. Government and other government procurement rules and regulations; governmental reviews, audits and investigations of our Company; our ability to effectively compete for and win contracts with the U.S. Government and other customers; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; factors relating to the transaction with Lockheed Martin, including, tax treatment; the possibility that we may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all, the integration of the acquired Information Systems & Global Solutions business being more difficult, time-consuming or costly than expected; the effect of any changes resulting from the transaction in customer, supplier and other business relationships; general market perception of the transaction and exposure to lawsuits and contingencies associated with the Information Systems & Global Solutions business; the mix of our contracts and our ability to accurately estimate costs associated with our firm-fixed-price and other contracts; our ability to realize as revenues the full amount of our backlog; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively acquire businesses and make investments; our ability to maintain relationships with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer contracts, including complex engineering projects; the failure of our inspection or detection systems to detect threats; the adequacy of our insurance programs designed to protect us from significant product or other liability claims; our ability to manage risks associated with our international business; our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable laws and contractual agreements; and our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face. These are only some of the factors that may affect the forward-looking statements contained in this release. For further information concerning risks and uncertainties associated with our business, please refer to the filings we make from time to time with the U.S. Securities and Exchange Commission ("SEC"), including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our latest Annual report on Form 10-K and quarterly reports on Form 10-Q, all of which may be viewed or obtained through the Investor Relations section of our website at www.leidos.com. All information in this release is as of February 23, 2017. The Company expressly disclaims any duty to update the guidance or any other forward-looking statement provided in this release to reflect subsequent events, actual results or changes in the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.

CONTACTS:

 
   

Investor Relations:

Media Relations:

Kelly P. Hernandez

Melissa L. Koskovich

571.526.6404

571.526.6850

kelly.p.hernandez@leidos.com

koskovichm@leidos.com

 

 

 

LEIDOS HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)

                         
   

Three Months Ended

 

Twelve Months Ended

   

December 30, 
2016

 

January 1,
2016

 

December 30,
2016

 

January 1, 
2016

Revenues

 

$

2,575

   

$

1,281

   

$

7,043

   

$

5,086

 

Cost of revenues

 

2,266

   

1,124

   

6,191

   

4,468

 

Selling, general and administrative expenses

 

131

   

53

   

334

   

232

 

Bad debt expense

 

2

   

(1)

   

3

   

9

 

Acquisition and integration costs

 

22

   

   

90

   

 

Asset impairment charges

 

4

   

   

4

   

73

 

Restructuring expenses

 

8

   

3

   

14

   

6

 

Equity earnings of non-consolidated subsidiaries

 

(10)

   

   

(10)

   

 

Operating income

 

152

   

102

   

417

   

298

 

Interest income

 

2

   

2

   

10

   

4

 

Interest expense

 

(39)

   

(14)

   

(96)

   

(58)

 

Other (expense) income, net

 

(10)

   

83

   

(13)

   

84

 

Income from continuing operations before income taxes

 

105

   

173

   

318

   

328

 

Income tax expense

 

(45)

   

(46)

   

(72)

   

(92)

 

Income from continuing operations

 

60

   

127

   

246

   

236

 

Discontinued operations:

               

Loss from discontinued operations before income taxes

 

   

(1)

   

   

(1)

 

Income tax benefit

 

   

1

   

   

19

 

Income from discontinued operations

 

   

   

   

18

 

Net income

 

60

   

127

   

246

   

254

 

Less: net income attributable to non-controlling interest, net of 
     taxes

 

1

   

   

2

   

 

Net income attributable to Leidos common stockholders

 

$

59

   

$

127

   

$

244

   

$

254

 

Earnings per share:

               

Basic:

               

Income from continuing operations attributable to Leidos 
     common stockholders

 

$

0.39

   

$

1.76

   

$

2.39

   

$

3.23

 

Discontinued operations, net of taxes

 

   

   

   

0.25

 

Net income attributable to Leidos common stockholders

 

$

0.39

   

$

1.76

   

$

2.39

   

$

3.48

 

Diluted:

               

Income from continuing operations attributable to Leidos 
     common stockholders

 

$

0.39

   

$

1.72

   

$

2.35

   

$

3.19

 

Discontinued operations, net of taxes

 

   

   

   

0.24

 

Net income attributable to Leidos common stockholders

 

$

0.39

   

$

1.72

   

$

2.35

   

$

3.43

 

Weighted average number of common shares outstanding:

               

Basic

 

150

   

72

   

102

   

73

 

Diluted

 

153

   

74

   

104

   

74

 
                 

Cash dividends declared per share

 

$

0.32

   

$

0.32

   

$

14.92

   

$

1.28

 

 

 

 

LEIDOS HOLDINGS, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions)

 
   

December 30,
 2016

 

January 1,
 2016

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

376

   

$

656

 

Receivables, net

 

1,657

   

921

 

Inventory, prepaid expenses and other current assets

 

348

   

216

 

Total current assets

 

2,381

   

1,793

 

Property, plant and equipment, net

 

259

   

142

 

Intangible assets, net

 

1,589

   

25

 

Goodwill

 

4,622

   

1,207

 

Deferred tax assets

 

16

   

8

 

Other assets

 

265

   

195

 
   

$

9,132

   

$

3,370

 

LIABILITIES AND EQUITY

       

Current liabilities:

       

Accounts payable and accrued liabilities

 

$

1,427

   

$

761

 

Accrued payroll and employee benefits

 

483

   

268

 

Dividends payable

 

23

   

2

 

Income taxes payable

 

21

   

6

 

Notes payable and long-term debt, current portion

 

62

   

2

 

Liabilities of discontinued operations

 

   

1

 

Total current liabilities

 

2,016

   

1,040

 

Notes payable and long-term debt, net of current portion

 

3,225

   

1,079

 

Deferred tax liabilities

 

540

   

34

 

Other long-term liabilities

 

204

   

149

 

Commitments and contingencies

       

Stockholders' equity:

       

Preferred stock, $.0001 par value,10 million shares authorized and no shares issued 
     and outstanding at December 30, 2016 and January 1, 2016

 

   

 

Common stock, $.0001 par value, 500 million shares authorized, 150 million and 
     72 million shares issued and outstanding at December 30, 2016, and January 1, 
     2016, respectively

 

   

 

Additional paid-in capital

 

3,316

   

1,353

 

Accumulated deficit

 

(177)

   

(277)

 

Accumulated other comprehensive loss

 

(4)

   

(8)

 

Total Leidos stockholders' equity

 

3,135

   

1,068

 

Non-controlling interest

 

12

   

 

Total equity

 

3,147

   

1,068

 
   

$

9,132

   

$

3,370

 
         

 

 

 

LEIDOS HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

                 
   

Three Months Ended

 

Twelve Months Ended

   

December 30,
2016

 

January 1,
2016

 

December 30, 
2016

 

January 1,
2016

Cash flows from operations:

               

Net income

 

$

60

   

$

127

   

$

246

   

$

254

 

Income from discontinued operations

 

   

   

   

(18)

 

Adjustments to reconcile net income to net cash 
     provided by operations:

               

Depreciation and amortization

 

68

   

9

   

122

   

44

 

Stock-based compensation

 

10

   

8

   

35

   

31

 

Asset impairment charges

 

4

   

   

4

   

73

 

Gain on a real estate sale

 

   

(82)

   

   

(82)

 

Other

 

2

   

   

   

8

 

Change in assets and liabilities, net of effects of 
     acquisitions and dispositions:

               

Receivables

 

(17)

   

(70)

   

123

   

75

 

Inventory, prepaid expenses and other current 
     assets

 

23

   

8

   

(101)

   

(14)

 

Accounts payable and accrued liabilities

 

(61)

   

30

   

(25)

   

101

 

Accrued payroll and employee benefits

 

28

   

   

26

   

(26)

 

Deferred income taxes and income taxes 
receivable/payable

 

55

   

32

   

36

   

12

 

Other long-term assets/ liabilities

 

(10)

   

(30)

   

(20)

   

(48)

 

Total cash flows provided by operating activities of 
     continuing operations

 

162

   

32

   

446

   

410

 

Cash flows from investing activities:

               

Payments for property, plant and equipment

 

(9)

   

(12)

   

(29)

   

(27)

 

Acquisitions of businesses

 

   

(2)

   

25

   

(2)

 

Payments on accrued purchase price related to prior 
     acquisition

 

   

   

   

(13)

 

Net proceeds from sale of assets

 

   

70

   

3

   

79

 

Proceeds from disposition of business

 

   

   

23

   

27

 

Proceeds from collections on promissory note

 

   

   

4

   

 

Other

 

1

   

   

   

 

Total cash flows (used in) provided by investing activities 
     of continuing operations

 

(8)

   

56

   

26

   

64

 

Cash flows from financing activities:

               

Payments of long-term debt

 

(175)

   

(13)

   

(277)

   

(62)

 

Proceeds from debt issuance

 

   

   

690

   

 

Payments for debt issuance costs

 

   

   

(30)

   

 

Payments on real estate financing transaction

 

   

(8)

   

   

(8)

 

Proceeds from issuances of stock

 

   

2

   

25

   

6

 

Repurchases of stock and other

 

(4)

   

(4)

   

(24)

   

(120)

 

Special cash dividend payment

 

   

   

(993)

   

 

Dividend payments

 

(48)

   

(46)

   

(142)

   

(117)

 

Other

 

   

2

   

   

5

 

Total cash flows used in financing activities of continuing 
     operations

 

(227)

   

(67)

   

(751)

   

(296)

 

(Decrease) increase in cash and cash equivalents from 
     continuing operations

 

(73)

   

21

   

(279)

   

178

 

Cash flows from discontinued operations:

               

Cash provided by operating activities of discontinued 
     operations

 

   

   

   

13

 

Cash (used in) provided by investing activities of 
     discontinued operations

 

   

   

(1)

   

6

 

(Decrease) increase in cash and cash equivalents from 
     discontinued operations

 

   

   

(1)

   

19

 

Total (decrease) increase in cash and cash equivalents

 

(73)

   

21

   

(280)

   

197

 

Cash and cash equivalents at beginning of year

 

449

   

635

   

656

   

459

 

Cash and cash equivalents at end of year

 

$

376

   

$

656

   

$

376

   

$

656

 

 

 

LEIDOS HOLDINGS, INC.

UNAUDITED SEGMENT OPERATING RESULTS

(in millions)

 
   

Three Months Ended

 

Twelve Months Ended

   

December 30,
 2016

 

January 1,
 2016

 

Dollar 
change

 

Percent 
change

 

December 30,
 2016

 

January 1,
 2016

 

Dollar 
change

 

Percent 
change

Revenues:

                               

National Security 
     Solutions

 

$

876

   

$

848

   

$

28

   

3.3

%

 

$

3,610

   

$

3,467

   

$

143

   

4.1

%

Information Systems & 
     Global Solutions

 

1,351

   

   

1,351

   

NM

 

1,971

   

   

1,971

   

NM

Health and 
     Infrastructure

 

348

   

432

   

(84)

   

(19.4)

%

 

1,463

   

1,614

   

(151)

   

(9.4)

%

Corporate and Other

 

   

1

   

(1)

   

NM

 

(1)

   

5

   

(6)

   

NM

Total

 

$

2,575

   

$

1,281

   

$

1,294

   

101.0

%

 

$

7,043

   

$

5,086

   

$

1,957

   

38.5

%

                                 

Operating income 
(loss):

                               

National Security 
     Solutions

 

$

68

   

$

65

   

$

3

   

4.6

%

 

$

292

   

$

279

   

$

13

   

4.7

%

Information Systems & 
     Global Solutions

 

88

   

   

88

   

NM

 

114

   

   

114

   

NM

Health and 
     Infrastructure

 

46

   

46

   

   

%

 

162

   

45

   

117

   

NM

Corporate and Other

 

(50)

   

(9)

   

(41)

   

NM

 

(151)

   

(26)

   

(125)

   

NM

Total

 

$

152

   

$

102

   

$

50

   

49.0

%

 

$

417

   

$

298

   

$

119

   

39.9

%

                                 

Operating income 
margin:

                               

National Security 
     Solutions

 

7.8

%

 

7.7

%

         

8.1

%

 

8.0

%

       

Information Systems & 
     Global Solutions

 

6.5

%

 

NM

         

5.8

%

 

NM

       

Health and 
     Infrastructure

 

13.2

%

 

10.6

%

         

11.1

%

 

2.8

%

       

Total

 

5.9

%

 

8.0

%

         

5.9

%

 

5.9

%

       
                                         

NM - Not Meaningful

                                     

 

LEIDOS HOLDINGS, INC.
UNAUDITED BACKLOG BY REPORTABLE SEGMENT
(in millions)

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements.

Funded backlog for contracts with the U.S. Government represents the value on contracts for which funding is appropriated less revenues previously recognized on these contracts. Funded backlog for contracts with non-U.S. Government agencies and commercial customers represents the estimated value on contracts, which may cover multiple future years, under which Leidos is obligated to perform, less revenue previously recognized on the contracts.

Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from (1) contracts for which funding has not been appropriated and (2) unexercised priced contract options. Negotiated unfunded backlog does not include future potential task orders expected to be awarded under indefinite delivery/indefinite quantity, General Services Administration Schedule or other master agreement contract vehicles.

The estimated value of backlog as of the dates presented was as follows:

 

   

December 30,
 2016

 

January 1,
 2016

National Security Solutions:

       

Funded backlog

 

$

1,436

   

$

1,472

 

Negotiated unfunded backlog

 

6,131

   

6,554

 

Total National Security Solutions backlog

 

$

7,567

   

$

8,026

 

Information Systems & Global Solutions:

       

Funded backlog

 

$

3,572

   

$

 

Negotiated unfunded backlog

 

4,793

   

 

Total Information Systems & Global Solutions backlog

 

$

8,365

   

$

 

Health and Infrastructure Sector:

       

Funded backlog

 

$

967

   

$

1,049

 

Negotiated unfunded backlog

 

837

   

820

 

Total Health and Infrastructure Sector backlog

 

$

1,804

   

$

1,869

 

Total:

       

Funded backlog

 

$

5,975

   

$

2,521

 

Negotiated unfunded backlog

 

11,761

   

7,374

 

Total backlog

 

$

17,736

   

$

9,895

 

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(in millions, except per share amounts)

The Company uses and refers to non-GAAP operating income, adjusted EBITDA, non-GAAP income from continuing operations and non-GAAP EPS from continuing operations, which 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.

Non-GAAP operating income is computed by excluding the following items from income (loss) from continuing operations: (i) other (expense) income, net; (ii) interest expense; (iii) interest income; (iv) income tax expense adjusted to reflect non-GAAP adjustments; and (v) the following discrete items:

  • Acquisition and integration costs - Represents costs related to the acquisition and integration of the IS&GS business.
  • Amortization of acquired intangible assets - Represents the amortization expense associated with acquired intangible assets.
  • Restructuring expenses - Represents costs associated with lease termination, severance, and costs related to the Company's acquisition of IS&GS and the September 2013 spin-off of its former technical services.
  • Gains and losses on disposal of assets and businesses - Represents the gains or losses on certain sales of real estate and businesses.
  • Asset impairment charges - Represents impairments of long-lived intangible and tangible assets.

Non-GAAP income from continuing operations is computed by excluding the discrete items as identified above from income from continuing operations and adjusting income tax expense for the effect of such exclusions.

Non-GAAP operating margin from continuing operations is computed by adding back the discrete items as identified above from GAAP operating income from continuing operations and dividing by GAAP revenue.

Adjusted EBITDA is computed by excluding the following items from income from continuing operations, before income taxes: (i) discrete items as identified above; (ii) interest expense; (iii) interest income; and (iv) depreciation expense.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)

 

The following tables present the reconciliation of the non-GAAP measures identified above to the most directly comparable GAAP measures:

 
   

Quarter Ended December 30, 2016

   

As reported

 

Asset 
impairment 
charges

 

Acquisition
and
integration
costs

 

Amortization 
of intangibles

 

Restructuring 
expenses

 

Non-GAAP 
results

Revenue

 

$

2,575

   

$

   

$

   

$

   

$

   

$

2,575

 

Cost of revenues

 

2,266

   

   

   

   

   

2,266

 

Selling, general and administrative 
     expenses1

 

133

   

   

   

54

   

   

79

 

Asset impairment charges

 

4

   

4

   

   

   

   

 

Acquisition and integration costs

 

22

   

   

22

   

   

   

 

Restructuring expenses

 

8

   

   

   

   

8

   

 

Equity earnings of non-consolidated 
     subsidiaries

 

(10)

   

   

   

   

   

(10)

 

Operating income

 

152

   

(4)

   

(22)

   

(54)

   

(8)

   

240

 

Non-operating expense, net

 

(47)

   

   

   

   

   

(47)

 

Income from continuing operations, 
     before income taxes

 

105

   

(4)

   

(22)

   

(54)

   

(8)

   

193

 

Income tax expense2

 

(45)

   

2

   

6

   

21

   

3

   

(77)

 

Income from continuing operations

 

60

   

(2)

   

(16)

   

(33)

   

(5)

   

116

 

Less: net income attributable to 
     non-controlling interest, net of 
     taxes

 

1

   

   

   

   

   

1

 

Net income attributable to Leidos 
     common stockholders

 

$

59

   

$

(2)

   

$

(16)

   

$

(33)

   

$

(5)

   

$

115

 
                         

Diluted EPS from continuing 
     operations attributable to Leidos 
     common stockholders

 

$

0.39

   

$

(0.01)

   

$

(0.10)

   

$

(0.22)

   

$

(0.03)

   

$

0.75

 

Diluted shares

 

153

   

153

   

153

   

153

   

153

   

153

 
                                     

(1) Selling, general and administrative expenses includes bad debt expense of $2 million.

(2) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.

 

   

Quarter Ended December 30, 2016

   

As reported

 

Asset 
impairment 
charges

 

Acquisition
and 
integration 
costs

 

Amortization
of intangibles

 

Restructuring 
expenses

 

Non-GAAP 
results

Income from continuing operations, 
     before income taxes

 

$

105

   

$

(4)

   

$

(22)

   

$

(54)

   

$

(8)

   

$

193

 

Depreciation expense

 

14

   

   

   

   

   

14

 

Amortization expense

 

54

   

   

   

54

   

   

 

Interest expense, net

 

37

   

   

   

   

   

37

 

EBITDA

 

$

210

   

$

(4)

   

$

(22)

   

$

   

$

(8)

   

$

244

 

 

 

LEIDOS HOLDINGS, INC.

UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]

(in millions, except per share amounts)

 
   

Quarter Ended January 1, 2016

   

As reported

 

Amortization 
of 
intangibles1

 

Restructuring 
expenses

 

Gain on a
real estate 
sale

 

Non-GAAP
results

Revenue

 

$

1,281

   

$

   

$

   

$

   

$

1,281

 

Cost of revenues

 

1,124

   

   

   

   

1,124

 

Selling, general and administrative expenses2

 

52

   

2

   

   

   

50

 

Restructuring expenses

 

3

   

   

3

   

   

 

Operating income

 

102

   

(2)

   

(3)

   

   

107

 

Non-operating income (expense), net

 

71

   

   

   

82

   

(11)

 

Income from continuing operations, before 
     income taxes

 

173

   

(2)

   

(3)

   

82

   

96

 

Income tax expense3

 

(46)

   

1

   

1

   

(11)

   

(37)

 

Income from continuing operations

 

$

127

   

$

(1)

   

$

(2)

   

$

71

   

$

59

 

Net income

 

$

127

   

$

(1)

   

$

(2)

   

$

71

   

$

59

 
                     

Diluted EPS from continuing operations

 

$

1.72

   

$

(0.01)

   

$

(0.03)

   

$

0.96

   

$

0.80

 

Diluted shares

 

74

   

74

   

74

   

74

   

74

 
 

(1) Prior period has been recast to reflect amortization of acquired intangible assets as a non-GAAP adjustment.

(2) Selling, general and administrative expenses includes bad debt expense of ($1) million.

(3) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.

 

   

Quarter Ended January 1, 2016

   

As reported

 

Amortization 
of
intangibles1

 

Restructuring
expenses

 

Gain on a
real estate
sale

 

Non-GAAP 
results

Income from continuing operations, before 
     income taxes

 

$

173

   

$

(2)

   

$

(3)

   

$

82

   

$

96

 

Depreciation expense

 

7

   

   

   

   

7

 

Amortization expense

 

2