EX-99.1 2 ldos12292017ex991.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

Leidos Holdings, Inc. Reports Fourth Quarter and Fiscal Year 2017 Results

- Revenues: $2.52 billion for fourth quarter; $10.17 billion for the year
- Diluted Earnings per Share: $0.74 for fourth quarter; $2.38 for the year
- Non-GAAP Diluted Earnings per Share: $0.87 for fourth quarter; $3.72 for the year
- Cash Flows from Operations: $164 million for fourth quarter, $526 million for the year
- Announces share repurchase authorization for up to 20 million shares

RESTON, Va., February 22, 2018 – Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science, information technology and engineering leader, today reported financial results for the fourth quarter and fiscal year 2017.
Roger Krone, Leidos Chairman and Chief Executive Officer, commented: “We closed out 2017 with another strong quarter of operational performance, enabling us to achieve strong margins and generate more than half a billion dollars of cash from operations for the year. With the successful completion of most of our integration activities, we shift our focus to growth in the year ahead. Our strong balance sheet and increased cash generation allows us to continue to invest for growth while also returning capital to shareholders. Further, the talent and diversity of our employees, combined with their dedication to delivering mission critical solutions gives us confidence in our ability to continue to deliver value to our customers and shareholders."
Fourth Quarter Summary Results
Revenues for the quarter were $2.52 billion, compared to $2.58 billion in the prior year quarter, reflecting a 2.3% decrease.
Operating income for the quarter was $101 million, compared to $152 million in the prior year quarter. Operating margin decreased to 4.0% from 5.9% in the prior year quarter, due to increases in acquisition and integration costs, amortization of intangible assets, restructuring expenses and amortization of equity method investments. Excluding non-GAAP items, operating margin was 9.2%, compared to 9.3% in the prior year quarter.
Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $0.74, compared to $0.39 in the prior year quarter. Excluding the items mentioned above, non-GAAP diluted EPS attributable to Leidos common stockholders for the fourth quarter was $0.87 compared to $0.75 in the prior year quarter. The weighted average diluted share count for the quarter was 154 million compared to 153 million in the prior year quarter.
Defense Solutions
Defense Solutions revenues for the quarter of $1.22 billion decreased $48 million, or 3.8%, compared to the prior year quarter. The revenue decline was primarily attributable to completion of certain contracts and net volume decreases, partially offset by growth in its airborne programs.
Defense Solutions operating income margin for the quarter was 7.0%, compared to 6.9% in the prior year quarter. On a non-GAAP basis, operating margin for the quarter was 9.3%, compared to 8.0% in the prior year quarter. Operating margins were favorably impacted by profit write-ups on certain contracts.
Civil
Civil revenues for the quarter of $854 million decreased $8 million, or 0.9%, compared to the prior year quarter. The revenue decline was primarily attributable to the timing of our security products business, partially offset by net volume increases on certain contracts.
Civil operating income margin for the quarter was 6.6%, compared to 7.7% in the prior year quarter. On a non-GAAP basis, operating margin for the quarter was 10.7%, compared to 10.2% in the prior year quarter. Operating margins were favorably impacted by profit write-ups on certain contracts.

1




Health
Health revenues of $441 million for the quarter decreased $2 million, or 0.5%, as compared to the prior year quarter. The revenue decline is primarily attributable to net volume decreases on certain contracts offset by growth in our federal health business.
Health operating income margin for the quarter was 10.0%, compared to 10.8% in the prior year quarter. On a non-GAAP basis, operating margin for the quarter was 12.0%, compared to 15.1% in the prior year quarter. Operating margins were impacted by lower volume on high margin contracts.
Fiscal Year 2017 Summary Results
Revenues for fiscal year 2017 were $10.17 billion, compared to $7.04 billion in the prior year, reflecting a 44.4% increase.
Operating income for fiscal year 2017 was $559 million, compared to $417 million in the prior year primarily due to the acquired IS&GS Business. Operating margin for fiscal year 2017 was 5.5%, compared to 5.9% in the prior year primarily due to increases in the non-GAAP items previously mentioned above in the fourth quarter summary results. Excluding these items, the non-GAAP operating margin increased to 9.8% from 8.6% in the prior year.
Diluted EPS attributable to Leidos common stockholders for fiscal year 2017 was $2.38, compared to $2.35 for the prior year. Excluding the impact of items mentioned above, the non-GAAP diluted EPS attributable to Leidos common stockholders for fiscal year 2017 was $3.72, compared to $3.51 in the prior year. The diluted share count was 154 million, up from 104 million in the prior year due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders during the third quarter of fiscal year 2016 in connection with the acquisition of the IS&GS Business.
Defense Solutions
Defense Solutions revenues of $4.96 billion for fiscal year 2017 increased $1.12 billion, or 29.0%, compared to the prior year. The revenue growth was primarily attributable to the acquired IS&GS Business and growth in its airborne programs, partially offset by completion of certain contracts, net volume decreases and a contract write-up in fiscal 2016.
Defense Solutions operating income margin for fiscal year 2017 was 6.2%, compared to 8.1% in the prior year. On a non-GAAP basis, operating margin decreased slightly to 8.4%, compared to 8.6% in the prior year.
Civil
Civil revenues of $3.41 billion for fiscal year 2017 increased $1.33 billion, or 63.7%, compared to the prior year. The revenue growth was primarily attributable to the acquired IS&GS Business, partially offset by fiscal 2016 revenues from the divestiture of the heavy construction business, net volume decreases on certain contracts and lower revenues from our international business, including the adverse impact of foreign currency.
Civil operating income margin for fiscal year 2017 was 6.6%, compared to 7.0% in the prior year. On a non-GAAP basis, operating margin for the year was 10.8%, compared to 8.9% in the prior year. Operating margins were favorably impacted by stronger program performance.
Health
Health revenues for fiscal year 2017 of $1.80 billion increased $685 million, or 61.3%, compared to the prior year. The revenue growth was primarily attributable to the acquired IS&GS Business and growth in our federal health business, partially offset by lower volume in commercial health.
Health operating margin for fiscal year 2017 was 12.7%, compared to 9.8% in the prior year. On a non-GAAP basis, operating margin for the year was 14.9%, compared to 12.4% in the prior year. Operating margins were favorably impacted by higher margins on certain IS&GS contracts.
Cash Flow Summary
Net cash provided by operating activities for the quarter were $164 million compared to $121 million in the prior year quarter. The higher operating cash inflows were primarily due to the favorable timing of working capital changes, partially offset by higher integration and restructuring costs and cash paid for income taxes.

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Net cash used in investing activities for the quarter were $38 million compared to $8 million in the prior year quarter. The increased cash outflows were primarily due to higher purchases of property, plant and equipment.
Net cash used in financing activities for the quarter were $65 million compared to $227 million in the prior year quarter. The decrease in financing cash outflows were primarily due to lower repayments of long-term debt of $160 million.
Net cash provided by operating activities for the fiscal year were $526 million compared to $449 million in the prior year. The higher operating cash inflows were primarily due to the favorable timing of working capital changes, partially offset by higher integration and restructuring costs, higher payments for interest and cash paid for income taxes.
Net cash used in investing activities for the fiscal year were $71 million compared to net cash provided by $26 million in the prior year. The higher cash flows used were primarily due to cash proceeds received from both the acquisition of the IS&GS Business and the divestiture of the heavy construction business in fiscal 2016 and higher purchases of property, plant and equipment.
Net cash used in financing activities for the fiscal year were $429 million compared to $751 million in in the prior year. The decrease in financing cash outflows were primarily due to a special cash dividend payment in the prior year and lower debt repayments partially offset by higher borrowings in the prior year and higher dividend payments.
As of December 29, 2017, the Company had $390 million in cash and cash equivalents and $3.1 billion in long-term debt.
Share Repurchase Authorization
On February 16, 2018, the Company’s Board of Directors authorized a new share repurchase program of up to 20 million shares of the Company’s outstanding common stock. The shares may be repurchased from time to time in one or more open market repurchases or privately negotiated transactions, including accelerated share repurchase transactions. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, applicable legal requirements, compliance with the terms of the Company’s outstanding indebtedness and other considerations. There is no assurance as to the number of shares that will be repurchased, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. This share repurchase authorization replaces the previous share repurchase authorization announced in December 2013.
New Business Awards
Net bookings totaled $2.3 billion in the fourth quarter of fiscal year 2017 and $9.7 billion for fiscal year 2017, representing a book-to-bill ratio of 0.9 and 1.0 for the fourth quarter and fiscal year 2017, respectively.
Notable recent awards received include:
United States Army: Leidos was awarded a competitive task order to provide mission support services to the U.S. Army’s Communications-Electronics Research, Development and Engineering Center Prototyping Integration and Testing Division ("PI&TD"). The single-award task order has a one-year base period of performance, four one-year options, and a total contract value of approximately $230 million. Leidos’ work will help PI&TD integrate C4ISR systems into military and aerospace equipment and weapons systems, as well as support evaluation exercises.
NASA Johnson Space Center: Leidos was awarded a follow-on contract to provide sustained engineering and mission support under the Cargo Mission Contract 3 for the International Space Station ("ISS"). Under the contract, Leidos will apply multiple technology innovations to improve capabilities for cargo packing, as well as customer-focused enhancements that provide the ISS with cost-effective solutions in a dynamic and challenging environment. The single-award cost-plus fixed-fee contract has a two-year base period of performance, three option periods, and a maximum potential value of $159 million.
Office of Naval Research: Leidos was awarded a cost-plus-fixed fee contract for the Sea Hunter II -Autonomous Continuous Trail Unmanned Vessel Hull Number 2. This contract contains options, which if exercised, would bring the contract value to approximately $44 million. Leidos will provide research, development, test and evaluation for the second vessel.

3




U.S. Intelligence Community: The Company was awarded contracts valued at $600 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 at the end of fiscal year 2017 was $17.5 billion, of which $5.0 billion was funded.
Forward Guidance
The Company's outlook for fiscal year 2018 is as follows:
Revenues of $10.25 billion to $10.65 billion;
Adjusted EBITDA margins of 10.1% to 10.4%;
Non-GAAP diluted earnings per share of $4.15 to $4.50; and
Cash flows provided by operating activities at or above $675 million.
Non-GAAP diluted earnings per share excludes amortization of acquired intangible assets, asset impairment charges, restructuring expenses, acquisition and integration costs, amortization of equity method investments, gains and losses on sale of assets and businesses, promissory note impairment and adjustments to the income tax provision to reflect non-GAAP exclusions. See Leidos' non-GAAP financial measures and the related reconciliation included elsewhere in this release.
The Company does not provide a reconciliation of forward-looking adjusted EBITDA margins (non-GAAP) or non-GAAP diluted earnings per share to GAAP net income (loss), due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income (loss) may vary significantly based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income (loss) at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income (loss) and diluted earnings per share being materially less than projected adjusted EBITDA margins (non-GAAP) and non-GAAP diluted earnings per share.
Tax Cuts and Jobs Act
In December 2017, the U.S. Government enacted the Tax Cuts and Jobs Act (“Tax Act”). The Company expects to be impacted by many of the Tax Act provisions, including most notably the reduction in the U.S. federal statutory tax rate from 35% to 21%. The lower rate applies to earnings starting in fiscal year 2018, however due to the Tax Act’s 2017 enactment date, the Company recognized a one-time net benefit of $115 million to our fourth quarter GAAP net income. The majority of the benefit is due to the revaluation of net deferred tax liabilities at the lower rate which contributed $0.75 to GAAP diluted EPS in the quarter. The one-time Tax Act benefit is excluded from our non-GAAP net income and EPS results. Taking into account the Tax Act changes, we expect our normalized fiscal year 2018 GAAP effective tax rate to be approximately 23% to 24%.
ASC Topic 606 Update
Effective the first quarter of fiscal year 2018, we will adopt Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("ASC Topic 606") using the modified retrospective method. The implementation of the new standard will impact some of our contracts as a result of the identification of new performance obligations, and on contracts that currently use the units-of-delivery method of revenue recognition, that will convert to an over-time model from the current point-in-time model. Based on our preliminary assessment, the impact of the adoption of ASC Topic 606 is not expected to be material.
Conference Call Information
Leidos management will discuss operations and financial results in an earnings conference call beginning at 8 A.M. eastern on February 22, 2018. 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 conference ID 13675337.

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About Leidos
Leidos is a Fortune 500® information technology, engineering, and science solutions and services 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 (including on a non-GAAP basis), operating income, earnings, earnings per share (including on a non-GAAP basis), charges, backlog, bookings, contract values, 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.

5




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; 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 22, 2018. 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 M. Freeman
Melissa L. Koskovich
571.526.7686
571.526.6850
ir@leidos.com
koskovichm@leidos.com

6




LEIDOS HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 29,
2017
 
December 30,
2016
 
December 29,
2017
 
December 30,
2016
Revenues
 
$
2,516

 
$
2,575

 
$
10,170

 
$
7,043

Cost of revenues
 
2,231

 
2,266

 
8,923

 
6,191

Selling, general and administrative expenses
 
135

 
131

 
552

 
334

Bad debt expense
 
(1
)
 
2

 
10

 
3

Acquisition and integration costs
 
46

 
22

 
102

 
90

Asset impairment charges
 

 
4

 

 
4

Restructuring expenses
 
12

 
8

 
37

 
14

Equity earnings of non-consolidated subsidiaries
 
(8
)
 
(10
)
 
(13
)
 
(10
)
Operating income
 
101

 
152

 
559

 
417

Interest income
 
3

 
2

 
8

 
10

Interest expense
 
(38
)
 
(39
)
 
(148
)
 
(96
)
Other expense, net
 
(32
)
 
(10
)
 
(26
)
 
(13
)
Income before income taxes
 
34

 
105

 
393

 
318

Income tax benefit (expense)
 
79

 
(45
)
 
(29
)
 
(72
)
Net income
 
113

 
60

 
364

 
246

Less: net (loss) income attributable to non-controlling interest
 
(1
)
 
1

 
(2
)
 
2

Net income attributable to Leidos common stockholders
 
$
114

 
$
59

 
$
366

 
$
244

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.75

 
$
0.39

 
$
2.41

 
$
2.39

Diluted
 
$
0.74

 
$
0.39

 
$
2.38

 
$
2.35

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
152

 
150

 
152

 
102

Diluted
 
154

 
153

 
154

 
104

 
 
 
 
 
 
 
 
 
Cash dividends declared per share
 
$
0.32

 
$
0.32

 
$
1.28

 
$
14.92


7




LEIDOS HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)
 
 
December 29,
2017
 
December 30,
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
390

 
$
376

Receivables, net
 
1,831

 
1,657

Inventory, prepaid expenses and other current assets
 
453

 
348

Total current assets
 
2,674

 
2,381

Property, plant and equipment, net
 
232

 
259

Intangible assets, net
 
856

 
1,589

Goodwill
 
4,974

 
4,622

Deferred tax assets
 

 
16

Other assets
 
254

 
265

 
 
$
8,990

 
$
9,132

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
1,639

 
$
1,427

Accrued payroll and employee benefits
 
487

 
483

Dividends payable
 
17

 
23

Income taxes payable
 
4

 
21

Long-term debt, current portion
 
55

 
62

Total current liabilities
 
2,202

 
2,016

Long-term debt, net of current portion
 
3,056

 
3,225

Deferred tax liabilities
 
220

 
540

Other long-term liabilities
 
129

 
204

Commitments and contingencies
 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock, $.0001 par value,10 million shares authorized and no shares issued and outstanding at December 29, 2017, and December 30, 2016
 

 

Common stock, $.0001 par value, 500 million shares authorized, 151 million and 150 million shares issued and outstanding at December 29, 2017, and December 30, 2016, respectively
 

 

Additional paid-in capital
 
3,344

 
3,316

Accumulated deficit
 
(7
)
 
(177
)
Accumulated other comprehensive income (loss)
 
33

 
(4
)
Total Leidos stockholders’ equity
 
3,370

 
3,135

Non-controlling interest
 
13

 
12

Total equity
 
3,383

 
3,147

 
 
$
8,990

 
$
9,132

 
 
 
 
 


8




LEIDOS HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 29,
2017
 
December 30,
2016
 
December 29,
2017
 
December 30,
2016
Cash flows from operations:
 
 
 
 
 
 
 
 
Net income
 
$
113

 
$
60

 
$
364

 
$
246

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
82

 
68

 
336

 
122

Amortization of equity method investments
 
3

 

 
14

 

Stock-based compensation
 
11

 
10

 
43

 
35

Asset impairment charges
 

 
4

 

 
4

Promissory note impairment
 
33

 

 
33

 

Bad debt expense
 
(1
)
 
2

 
10

 
3

Non-cash interest expense
 
3

 
3

 
12

 
4

Other
 
6

 
(3
)
 
9

 
(7
)
Change in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
 
 
 
 
Receivables
 
(36
)
 
(17
)
 
(191
)
 
123

Inventory, prepaid expenses and other current assets
 
(30
)
 
(18
)
 
(76
)
 
(98
)
Accounts payable and accrued liabilities
 
147

 
(61
)
 
152

 
(25
)
Accrued payroll and employee benefits
 
52

 
28

 
8

 
26

Deferred income taxes and income taxes receivable/payable
 
(101
)
 
55

 
(151
)
 
36

Other long-term assets/ liabilities
 
(118
)
 
(10
)
 
(37
)
 
(20
)
Net cash provided by operating activities of continuing operations
 
164

 
121

 
526

 
449

Cash flows from investing activities:
 
 
 
 
 
 
 
 
Payments for property, plant and equipment
 
(39
)
 
(9
)
 
(81
)
 
(29
)
Acquisitions of businesses
 

 

 

 
25

Net proceeds from sale of assets
 
1

 

 
8

 
3

Proceeds from disposition of business
 

 

 

 
23

Other
 

 
1

 
2

 
4

Net cash (used in) provided by investing activities of continuing operations
 
(38
)
 
(8
)
 
(71
)
 
26

Cash flows from financing activities:
 
 
 
 
 
 
 
 
Payments of long-term debt
 
(15
)
 
(175
)
 
(209
)
 
(277
)
Proceeds from debt issuance
 

 

 

 
690

Payments for debt issuance and modification costs
 

 

 
(4
)
 
(30
)
Proceeds from issuances of stock
 
3

 

 
13

 
25

Repurchases of stock and other
 
(5
)
 
(4
)
 
(31
)
 
(24
)
Special cash dividend payment
 

 

 

 
(993
)
Dividend payments
 
(48
)
 
(48
)
 
(198
)
 
(142
)

9

LEIDOS HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
(in millions)


 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 29,
2017
 
December 30,
2016
 
December 29,
2017
 
December 30,
2016
Net cash used in financing activities of continuing operations
 
(65
)
 
(227
)
 
(429
)
 
(751
)
Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations
 
61

 
(114
)
 
26

 
(276
)
Cash flows from discontinued operations:
 
 
 
 
 
 
 
 
Net cash used in investing activities of discontinued operations
 

 

 

 
(1
)
Net decrease in cash, cash equivalents and restricted cash from discontinued operations
 

 

 

 
(1
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
61

 
(114
)
 
26

 
(277
)
Cash, cash equivalents and restricted cash at beginning of year
 
361

 
510

 
396

 
673

Cash, cash equivalents and restricted cash at end of year
 
$
422

 
$
396

 
$
422

 
$
396



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LEIDOS HOLDINGS, INC.
UNAUDITED SEGMENT OPERATING RESULTS
(in millions)

During the first quarter of fiscal 2017, the Company completed its business reorganization, which resulted in identification of three reportable segments - Defense Solutions, Civil and Health. Additionally, the Company separately presents the costs associated with corporate functions as Corporate. The Company commenced operating and reporting under the new organizational structure effective the beginning of fiscal year 2017. As a result of this change, prior year segment results and disclosures have been recast to reflect the new reportable segments.
The segment information for the periods presented was as follows:
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 29,
2017
 
December 30,
2016
 
Dollar change
 
Percent change
 
December 29,
2017
 
December 30,
2016
 
Dollar change
 
Percent change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense Solutions
 
$
1,221

 
$
1,269

 
$
(48
)
 
(3.8
)%
 
$
4,959

 
$
3,843

 
$
1,116

 
29.0
 %
Civil
 
854

 
862

 
(8
)
 
(0.9
)%
 
3,409

 
2,082

 
1,327

 
63.7
 %
Health
 
441

 
443

 
(2
)
 
(0.5
)%
 
1,802

 
1,117

 
685

 
61.3
 %
Corporate
 

 
1

 
(1
)
 
NM

 

 
1

 
(1
)
 
NM

Total
 
$
2,516

 
$
2,575

 
$
(59
)
 
(2.3
)%
 
$
10,170

 
$
7,043

 
$
3,127

 
44.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense Solutions
 
$
85

 
$
88

 
$
(3
)
 
(3.4
)%
 
$
307

 
$
312

 
$
(5
)
 
(1.6
)%
Civil
 
56

 
66

 
(10
)
 
(15.2
)%
 
226

 
146

 
80

 
54.8
 %
Health
 
44

 
48

 
(4
)
 
(8.3
)%
 
228

 
110

 
118

 
107.3
 %
Corporate
 
(84
)
 
(50
)
 
(34
)
 
68.0
 %
 
(202
)
 
(151
)
 
(51
)
 
33.8
 %
Total
 
$
101

 
$
152

 
$
(51
)
 
(33.6
)%
 
$
559

 
$
417

 
$
142

 
34.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense Solutions
 
7.0
%
 
6.9
%
 
 
 
 
 
6.2
%
 
8.1
%
 
 
 
 
Civil
 
6.6
%
 
7.7
%
 
 
 
 
 
6.6
%
 
7.0
%
 
 
 
 
Health
 
10.0
%
 
10.8
%
 
 
 
 
 
12.7
%
 
9.8
%
 
 
 
 
Total
 
4.0
%
 
5.9
%
 
 
 
 
 
5.5
%
 
5.9
%
 
 
 
 
NM - Not Meaningful


11




LEIDOS HOLDINGS, INC.
UNAUDITED BACKLOG BY REPORTABLE SEGMENT
(in millions)
Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts. Backlog value is based on management’s estimates about volume of services, availability of customer funding and other factors, and excludes contracts that are under protest. Our estimate of backlog comprises both funded and negotiated unfunded backlog. Backlog estimates are subject to change and may be affected by several factors including modifications of contracts, non-exercise of options, foreign currency movements, etc.
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 entities and commercial customers represents the estimated value on contracts, which may cover multiple future years, under which Leidos is obligated to perform, less revenues previously recognized on the contracts.
Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from contracts for which funding has not been appropriated and unexercised priced contract options. Negotiated unfunded backlog does not include future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ"), General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded or separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future task orders is anticipated.
The estimated value of backlog as of the dates presented was as follows:
 
 
December 29,
2017
 
December 30,
2016
Defense Solutions:
 
 
 
 
Funded backlog
 
$
2,384

 
$
3,171

Negotiated unfunded backlog
 
5,285

 
4,936

Total Defense Solutions backlog
 
$
7,669

 
$
8,107

Civil:
 
 
 
 
Funded backlog
 
$
2,064

 
$
1,950

Negotiated unfunded backlog
 
5,321

 
5,250

Total Civil backlog
 
$
7,385

 
$
7,200

Health:
 
 
 
 
Funded backlog
 
$
595

 
$
854

Negotiated unfunded backlog
 
1,827

 
1,575

Total Health backlog
 
$
2,422

 
$
2,429

Total:
 
 
 
 
Funded backlog
 
$
5,043

 
$
5,975

Negotiated unfunded backlog
 
12,433

 
11,761

Total backlog
 
$
17,476

 
$
17,736




12




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 and non-GAAP EPS, 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 net income: (i) other (expense) income, net; (ii) interest expense; (iii) interest income; (iv) the following discrete items (referred to as non-GAAP adjustments); and (v) income tax benefit (expense) adjusted to reflect the non-GAAP adjustments.
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 of the fair value of the acquired intangible assets.
Restructuring expenses - Represents costs associated with lease termination and severance costs related to the Company’s acquisition of the IS&GS Business and other Corporate mandated activities.
Amortization of equity method investments - Represents the amortization of the fair value of equity method investments acquired with the IS&GS Business.
Tax purchase accounting adjustments - Represents the tax purchase accounting adjustments related to the IS&GS acquisition.
Gains and losses on sale 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.
Promissory note impairment - Represents an impairment on a promissory note.
Impact of Tax Act - Represents the cumulative impact from the federal government enacted Tax Act.
Non-GAAP operating margin is computed by dividing non-GAAP operating income by revenue.
Adjusted EBITDA is computed by excluding the following items from income before income taxes: (i) discrete items as identified above; (ii) interest expense; (iii) interest income; and (iv) depreciation expense.
Adjusted EBITDA margin is computed by dividing adjusted EBITDA by revenue.




13




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 29, 2017
 
 
As reported
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Tax purchase accounting adjustments
 
Promissory note impairment
 
Impact of Tax Act
 
Non-GAAP results
Operating income
 
$
101

 
$
46

 
$
69

 
$
12

 
$
3

 
$

 
$

 
$

 
$
231

Non-operating (expense) income, net
 
(67
)
 

 

 

 

 

 
33

 

 
(34
)
Income before income taxes
 
34

 
46

 
69

 
12

 
3

 

 
33

 

 
197

Income tax benefit (expense)1
 
79

 
(5
)
 
(25
)
 
(5
)
 
(1
)
 
8

 

 
(115
)
 
(64
)
Net income
 
113

 
41

 
44

 
7

 
2

 
8

 
33

 
(115
)
 
133

Less: net loss attributable to non-controlling interest, net of taxes
 
(1
)
 

 

 

 

 

 

 

 
(1
)
Net income attributable to Leidos common stockholders
 
$
114

 
$
41

 
$
44

 
$
7

 
$
2

 
$
8

 
$
33

 
$
(115
)
 
$
134

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS attributable to Leidos common stockholders
 
$
0.74

 
$
0.27

 
$
0.29

 
$
0.05

 
$
0.01

 
$
0.05

 
$
0.21

 
$
(0.75
)
 
$
0.87

Diluted shares
 
154

 
154

 
154

 
154

 
154

 
154

 
154

 
154

 
154

(1) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.
 
 
Quarter Ended December 29, 2017
 
 
As reported
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Promissory note impairment
 
Non-GAAP results
Income before income taxes
 
$
34

 
$
46

 
$
69

 
$
12

 
$
3

 
$
33

 
$
197

Depreciation expense
 
13

 

 

 

 

 

 
13

Amortization expense
 
72

 

 
(69
)
 

 
(3
)
 

 

Interest expense, net
 
35

 

 

 

 

 

 
35

EBITDA
 
$
154

 
$
46

 
$

 
$
12

 
$

 
$
33

 
$
245

EBITDA margin
 
6.1
%
 
 
 
 
 
 
 
 
 
 
 
9.7
%


14




LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)
 
 
Quarter Ended December 30, 2016
 
 
As reported
 
Asset impairment charges
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Non-GAAP results
Operating income
 
$
152

 
$
4

 
$
22

 
$
54

 
$
8

 
$
240

Non-operating expense, net
 
(47
)
 

 

 

 

 
(47
)
Income before income taxes
 
105

 
4

 
22

 
54

 
8

 
193

Income tax expense1
 
(45
)
 
(2
)
 
(6
)
 
(21
)
 
(3
)
 
(77
)
Net income
 
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
 
$
0.39

 
$
0.01

 
$
0.10

 
$
0.22

 
$
0.03

 
$
0.75

Diluted shares
 
153

 
153

 
153

 
153

 
153

 
153

(1) 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 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

EBITDA margin
 
8.2
%
 
 
 
 
 
 
 
 
 
9.5
%





15




LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)
 
 
Year Ended December 29, 2017
 
 
As reported
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Tax purchase accounting adjustments
 
Loss on sale of assets and businesses
 
Promissory note impairment
 
Impact of Tax Act
 
Non-GAAP results
Operating income
 
$
559

 
$
102

 
$
281

 
$
37

 
$
14

 
$

 
$

 
$

 
$

 
$
993

Non-operating (expense) income, net
 
(166
)
 

 

 

 

 

 
1

 
33

 

 
(132
)
Income before income taxes
 
393

 
102

 
281

 
37

 
14

 

 
1

 
33

 

 
861

Income tax (expense) benefit1
 
(29
)
 
(32
)
 
(103
)
 
(14
)
 
(5
)
 
8

 

 

 
(115
)
 
(290
)
Net income
 
364

 
70

 
178

 
23

 
9

 
8

 
1

 
33

 
(115
)
 
571

Less: net loss attributable to non-controlling interest, net of taxes
 
(2
)
 

 

 

 

 

 

 

 

 
(2
)
Net income attributable to Leidos common stockholders
 
$
366

 
$
70

 
$
178

 
$
23

 
$
9

 
$
8

 
$
1

 
$
33

 
$
(115
)
 
$
573

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS attributable to Leidos common stockholders
 
$
2.38

 
$
0.45

 
$
1.16

 
$
0.15

 
$
0.06

 
$
0.05

 
$
0.01

 
$
0.21

 
$
(0.75
)
 
$
3.72

Diluted shares
 
154

 
154

 
154

 
154

 
154

 
154

 
154

 
154

 
154

 
154

(1) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.
 
 
Year Ended December 29, 2017
 
 
As reported
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Loss on sale of assets and businesses
 
Promissory note impairment
 
Non-GAAP results
Income before income taxes
 
$
393

 
$
102

 
$
281

 
$
37

 
$
14

 
$
1

 
$
33

 
$
861

Depreciation expense
 
55

 

 

 

 

 

 

 
55

Amortization expense
 
295

 

 
(281
)
 

 
(14
)
 

 

 

Interest expense, net
 
140

 

 

 

 

 

 

 
140

EBITDA
 
$
883

 
$
102


$

 
$
37

 
$

 
$
1

 
$
33

 
$
1,056

EBITDA margin
 
8.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
10.4
%

16




LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)
 
 
Year Ended December 30, 2016
 
 
As reported
 
Asset impairment charges
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Gains on sale of assets and businesses
 
Non-GAAP results
Operating income
 
$
417

 
$
4

 
$
90

 
$
84

 
$
14

 
$

 
$
609

Non-operating expense, net
 
(99
)
 

 

 

 

 
(5
)
 
(104
)
Income before income taxes
 
318

 
4

 
90

 
84

 
14

 
(5
)
 
505

Income tax (expense) benefit1
 
(72
)
 
(2
)
 
(27
)
 
(33
)
 
(5
)
 
1

 
(138
)
Net income
 
246

 
2

 
63

 
51

 
9

 
(4
)
 
367

Less: net income attributable to non-controlling interest, net of taxes
 
2

 

 

 

 

 

 
2

Net income attributable to Leidos common stockholders
 
$
244

 
$
2

 
$
63

 
$
51

 
$
9

 
$
(4
)
 
$
365

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
$
2.35

 
$
0.02

 
$
0.60

 
$
0.49

 
$
0.09

 
$
(0.04
)
 
$
3.51

Diluted shares
 
104

 
104

 
104

 
104

 
104

 
104

 
104

(1) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments.
 
 
Year Ended December 30, 2016
 
 
As reported
 
Asset impairment charges
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Gains on sale of assets and businesses
 
Non-GAAP results
Income before income taxes
 
$
318

 
$
4

 
$
90

 
$
84

 
$
14

 
$
(5
)
 
$
505

Depreciation expense
 
38

 

 

 

 

 

 
38

Amortization expense
 
84

 

 

 
(84
)
 

 

 

Interest expense, net
 
86

 

 

 

 

 

 
86

EBITDA
 
$
526

 
$
4

 
$
90

 
$

 
$
14

 
$
(5
)
 
$
629

EBITDA margin
 
7.5
%
 
 
 
 
 
 
 
 
 
 
 
8.9
%


17




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 operating income by reportable segment and Corporate:
 
 
Quarter Ended December 29, 2017
 
 
 
 
Operating income (loss)
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Non-GAAP operating income (loss)
 
Non-GAAP operating margin
Defense Solutions
 
$
85

 
$

 
$
27

 
$

 
$
1

 
$
113

 
9.3
%
Civil
 
56

 

 
33

 

 
2

 
91

 
10.7
%
Health
 
44

 

 
9

 

 

 
53

 
12.0
%
Corporate
 
(84
)
 
46

 

 
12

 

 
(26
)
 
NM

Total
 
$
101

 
$
46

 
$
69

 
$
12

 
$
3

 
$
231

 
9.2
%
 
 
Quarter Ended December 30, 2016
 
 
 
 
Operating income (loss)
 
Asset impairment charges
 
Acquisition and integration costs
 
Amortization of intangibles1
 
Restructuring expenses
 
Non-GAAP operating income (loss)
 
Non-GAAP operating margin
Defense Solutions
 
$
88

 
$

 
$

 
$
13

 
$

 
$
101

 
8.0
%
Civil
 
66

 

 

 
22

 

 
88

 
10.2
%
Health
 
48

 

 

 
19

 

 
67

 
15.1
%
Corporate
 
(50
)
 
4

 
22

 

 
8

 
(16
)
 
NM

Total
 
$
152

 
$
4

 
$
22

 
$
54

 
$
8

 
$
240

 
9.3
%
 
 
Year Ended December 29, 2017
 
 
 
 
Operating income (loss)
 
Acquisition and integration costs
 
Amortization of intangibles
 
Restructuring expenses
 
Amortization of equity method investments
 
Non-GAAP operating income (loss)
 
Non-GAAP operating margin
Defense Solutions
 
$
307

 
$

 
$
108

 
$

 
$
3

 
$
418

 
8.4
%
Civil
 
226

 

 
132

 

 
11

 
369

 
10.8
%
Health
 
228

 

 
41

 

 

 
269

 
14.9
%
Corporate
 
(202
)
 
102

 

 
37

 

 
(63
)
 
NM

Total
 
$
559

 
$
102

 
$
281

 
$
37

 
$
14

 
$
993

 
9.8
%
 
 
Year Ended December 30, 2016
 
 
 
 
Operating income (loss)
 
Asset impairment charges
 
Acquisition and integration costs
 
Amortization of intangibles1
 
Restructuring expenses
 
Non-GAAP operating income (loss)
 
Non-GAAP operating margin
Defense Solutions
 
$
312

 
$

 
$

 
$
17

 
$

 
$
329

 
8.6
%
Civil
 
146

 

 

 
39

 

 
185

 
8.9
%
Health
 
110

 

 

 
28

 

 
138

 
12.4
%
Corporate
 
(151
)
 
4

 
90