Leidos Holdings, Inc. Reports Third Quarter Fiscal Year 2016

Leidos Holdings, Inc. Reports Third Quarter Fiscal Year 2016 Results

Total backlog at September 30, 2016 included $454 million of reduction due to adverse impact of foreign currency movement between the U.S. dollar and the British pound.

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES
(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 income (expense), net; (ii) interest expense; (iii) interest income; (iv) income tax (expense) benefit 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' 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 (loss) from continuing operations and adjusting income tax (expense) benefit for the effect of such exclusions.

Adjusted EBITDA is computed by excluding the following items from income (loss) 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 (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 September 30, 2016
	As reported		Acquisition and integration costs		Amortization of intangibles		Restructuring expenses		Non-GAAP results
Revenue	$	1,868	$	—	$	—	$	—	$	1,868
Cost of revenues	1,630		—		—		—		1,630
Selling, general and administrative expenses¹	88		—		27		—		61
Acquisition and integration costs	44		44		—		—		—
Restructuring expenses	5		—		—		5		—
Operating income	101		(44)		(27)		(5)		177
Non-operating expense, net	(26)		—		—		—		(26)
Income from continuing operations, before income taxes	75		(44)		(27)		(5)		151
Income tax benefit (expense) ²	17		11		11		2		(7)
Income from continuing operations	92		(33)		(16)		(3)		144
Less: net income attributable to non-controlling interest, net of taxes	1		—		—		—		1
Net income attributable to Leidos Holdings, Inc.	$	91	$	(33)	$	(16)	$	(3)	$	143

Diluted EPS from continuing operations attributable to Leidos Holdings, Inc. ³	$	0.80	$	(0.29)	$	(0.14)	$	(0.03)	$	1.25
Diluted shares	114		114		114		114		114

⁽¹⁾ Selling, general and administrative expenses includes bad debt expense of $1 million.
⁽²⁾ Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.
⁽³⁾ Earnings per share is computed independently for each of the non-GAAP adjustment presented and therefore may not sum to the total non-GAAP earnings per share due to rounding.

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