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.
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The following tables present the reconciliation of the non-GAAP measures identified above to the most directly comparable GAAP measures: | ||||||||||||||||||||||||
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Quarter Ended December 30, 2016 | ||||||||||||||||||||||
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As reported |
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Asset
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|
Acquisition
|
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Amortization
|
|
Restructuring
|
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Non-GAAP
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Revenue |
|
$ |
2,575 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,575 |
|
Cost of revenues |
|
2,266 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,266 |
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Selling, general and administrative
|
|
133 |
|
|
— |
|
|
— |
|
|
54 |
|
|
— |
|
|
79 |
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Asset impairment charges |
|
4 |
|
|
4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
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Acquisition and integration costs |
|
22 |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
— |
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Restructuring expenses |
|
8 |
|
|
— |
|
|
— |
|
|
— |
|
|
8 |
|
|
— |
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Equity earnings of non-consolidated
|
|
(10) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10) |
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Operating income |
|
152 |
|
|
(4) |
|
|
(22) |
|
|
(54) |
|
|
(8) |
|
|
240 |
| ||||||
Non-operating expense, net |
|
(47) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(47) |
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Income from continuing operations,
|
|
105 |
|
|
(4) |
|
|
(22) |
|
|
(54) |
|
|
(8) |
|
|
193 |
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Income tax expense 2 |
|
(45) |
|
|
2 |
|
|
6 |
|
|
21 |
|
|
3 |
|
|
(77) |
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Income from continuing operations |
|
60 |
|
|
(2) |
|
|
(16) |
|
|
(33) |
|
|
(5) |
|
|
116 |
| ||||||
Less: net income attributable to
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
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Net income attributable to Leidos
|
|
$ |
59 |
|
|
$ |
(2) |
|
|
$ |
(16) |
|
|
$ |
(33) |
|
|
$ |
(5) |
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted EPS from continuing
|
|
$ |
0.39 |
|
|
$ |
(0.01) |
|
|
$ |
(0.10) |
|
|
$ |
(0.22) |
|
|
$ |
(0.03) |
|
|
$ |
0.75 |
|
Diluted shares |
|
153 |
|
|
153 |
|
|
153 |
|
|
153 |
|
|
153 |
|
|
153 |
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(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. |