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Engility Reports Third Quarter 2012 Financial Results

  Engility Reports Third Quarter 2012 Financial Results

  *Achieves total revenue of $409 million and adjusted income from operations
    of $31 million
  *Reiterates fiscal 2012 revenue guidance of $1.6 billion
  *Establishes fiscal 2012 adjusted diluted EPS guidance of between $3.50 and
    $3.75 per share, at the higher end of the prior EPS guidance range on an
    adjusted basis
  *Reports funded backlog of $788 million, up 5% versus the prior quarter
  *Reports GAAP loss from operations of $419 million, which includes a
    non-cash goodwill impairment charge of $426 million and other non-core
    charges of $17 million
  *Goodwill impairment charge has no impact on business operations, cash
    balances, or operating cash flows

Business Wire

CHANTILLY, Va. -- November 13, 2012

Engility Holdings, Inc. (NYSE: EGL), a global provider of technical and
professional services for the U.S. Government, today announced financial
results for the third quarter of fiscal year 2012. The Company reported total
revenue of $409 million and a GAAP loss from operations of $419 million.
Adjusted operating income from operations was $31 million and adjusted
operating margin was 7.5%, which exclude a total of $443 million before tax in
spin-off related transaction costs, realignment expenses, legal settlement
costs, and a non-cash goodwill impairment charge. GAAP net loss attributable
to Engility was $25.80 per fully diluted share. Excluding the goodwill
impairment charge and other non-core charges described above, which totaled
$433 million after tax, adjusted earnings per diluted share (EPS) was $0.83.
Information about Engility’s use of non-GAAP financial information is provided
below under “Non-GAAP Measures.”

“The third quarter was marked by our strong operational performance, as well
as the acceleration of our strategic initiatives to streamline our operations
and redefine Engility as an independent industry-leading provider of
government services,” said Tony Smeraglinolo, President and CEO of Engility.
“We achieved a number of notable new business wins, including a contract for
National Capital Region Security Engineering Services with the U.S. Navy’s
Space and Naval Warfare Systems Center Atlantic, and a key prime role on the
U.S. Army’s Software and Systems Engineering Support NexGen contract vehicle.
We also realized strong orders and a growing funded backlog, coupled with
revenue and adjusted earnings per share that were in-line with our
expectations and progress towards our full year guidance.”

Mr. Smeraglinolo continued, “In addition to our solid operational performance
during the quarter, we accelerated our strategic realignment plan to
reposition the Company. This will allow us to compete more effectively in the
market conditions we expect as an agile, customer-focused and disruptively
competitive organization. One output of our strategic review was the
determination that we needed to approach the market in a more integrated
manner and consolidate our two existing business segments. As we implement our
realignment, our actions will further strengthen our competitiveness and
position Engility for our next phase of growth.”

In connection with the preparation of its third quarter financial statements,
the Company conducted an interim test of its goodwill as of September 28,
2012. The decision to conduct this review was a result of multiple events
following the spin-off, including the change in Engility’s cost of capital as
stand-alone company and its decision in September 2012 to consolidate its
existing reporting unit structure. Following this review, the Company recorded
a goodwill impairment charge of $426 million due to a decline in the estimated
fair value of each reporting unit. The goodwill charge has no impact on
business operations, cash balances, or operating cash flows. The Company also
recorded $17 million in additional non-core charges during quarter, consisting
of $4 million in spin-off-related transaction costs, $5 million in legal
settlement costs, and $8 million in realignment expenses related primarily to
severance and professional fees.

2012 Outlook

Based upon operating and business development performance through the third
quarter of 2012, the Company expects its fiscal year 2012 results will be as
follows:

                                     
                                     2012 Fiscal Year Outlook
Revenue                               $1.6 billion
Adjusted Diluted EPS Estimate*         $3.50 - $3.75
Cash Flow from Continuing Operations  $104 million

* Adjusted Diluted EPS, a Non-GAAP financial measure, excludes impairment
charges, spin-off-related transaction costs, realignment expenses, legal
settlement cost, and other potential adjustments. See “Non-GAAP Measures”
below for additional information regarding Engility’s use of non-GAAP
financial information.

Key Performance Indicators

Funded Backlog
Funded backlog as of the end of the third quarter of 2012 was $788 million,
compared to $753 million as of the end of the second quarter.

Orders
Orders for the third quarter of 2012 were $444 million.

Book-to-Bill
Our book-to-bill ratio was 1.1 for the third quarter of 2012.

Discontinued Operations

The Global Security Solutions business unit, which historically had been
managed by Engility under the Professional Support Services segment, was
retained by L-3 Communications Holdings, Inc. in connection with the spin-off
and is shown as discontinued operations in Engility’s financial statements.

Non-GAAP Measures

The tables under “Engility Holdings, Inc., Reconciliation of Non-GAAP
Measures” present Adjusted Operating Income, Adjusted Operating Margin and
Adjusted Diluted EPS, together with our forecast of Adjusted Diluted EPS,
reconciled to their most directly comparable GAAP measure. These financial
measures are calculated and presented on the basis of methodologies other than
in accordance with U.S. generally accepted accounting principles (“Non-GAAP
Measures”). Engility has provided these Non-GAAP Measures to adjust for the
impact of (i) the goodwill impairment charge, (ii) transaction costs related
to the Company’s July 2012 spin-off from L-3 Communications Holdings, Inc.,
(iii) severance and other costs related to the Company’s strategic realignment
announced in September 2012 and (iv) litigation settlement costs. These items
have been adjusted because they are not considered core to the Company’s
business or otherwise not considered operational or because these charges are
non-cash or non-recurring. The Company presents these Non-GAAP Measures
because management believes that they are meaningful to understanding
Engility’s performance during the periods presented and of the Company’s
ongoing business. Non-GAAP Measures are not prepared in accordance with GAAP
and therefore are not necessarily comparable to the financial results of other
companies. These Non-GAAP Measures should be considered a supplement to, not a
substitute for, or superior to, the corresponding financial measures
calculated in accordance with GAAP.

CONFERENCE CALL INFORMATION

Engility will host a conference call at 5 P.M. EST on Tuesday, November 13,
2012, to discuss the financial results for the third quarter of 2012.

Listeners may access a webcast of the live conference call from the Investor
Relations section of the company's website at
http://www.EngilityCorp.com/investor-relations. Listeners may also access a
slide presentation on the website that will be utilized during the call.
Listeners should go to the website at least 15 minutes before the live event
to download and install any necessary audio software.

Listeners may also participate in the conference call by dialing (800)
573-4840 (domestic) or (617) 224-4326 (international) and entering pass code
64914604.

Approximately two hours after the conference call, a replay will be available
at the same URL on the company's website. A telephonic replay will also be
available for one year at (888) 286-8010 (domestic) or 617-801-6888
(international) and entering pass code 94292435.

ABOUT ENGILITY CORPORATION

Engility is a pure-play Government Services contractor providing
highly-skilled personnel wherever, whenever they are needed, in a cost
effective manner. Headquartered in Chantilly, VA, Engility is a leading
provider of systems engineering services, training, program management, and
operational support for the U.S. government worldwide, with approximately
7,800 employees worldwide.

To learn more about Engility, please visit the company's website at
www.EngilityCorp.com. Our website contains detailed business and financial
information regarding Engility, including the Company’s Registration Statement
on Form 10 and other filings with the Securities and Exchange Commission.

FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 (the Exchange Act) relating to our operations, results of
operations, realignment plans, and other matters that are based on our current
expectations, estimates, assumptions and projections. Words such as “may,”
“will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,”
“projects,” “believes,” “estimates” and similar expressions are used to
identify these forward-looking statements. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions that
are difficult to predict. Forward-looking statements are based upon
assumptions as to future events that may not prove to be accurate. Actual
outcomes and results may differ materially from what is expressed or forecast
in these forward-looking statements. Risks, uncertainties and other factors
that might cause such differences, some of which could be material, include,
but are not limited to: (a) the loss or delay of a significant number of our
contracts; (b) a decline in or a redirection of the U.S. defense budget; (c)
the Department of Defense’s wide-ranging efficiencies initiative, which
targets affordability and cost growth; (d) the intense competition for
contracts in our industry, as well as the frequent protests by unsuccessful
bidders; (e) our indefinite delivery, indefinite quantity (IDIQ) contracts,
which are not firm orders for services, and could generate limited or no
revenue; (f) our government contracts, which contain unfavorable termination
provisions and are subject to audit and modification; (g) the mix of our
cost-plus, time-and-material and fixed-price type contracts; (h) our ability
to attract and retain key management and personnel; (i) the impairment of our
goodwill, which represent a significant portion of the assets on our balance
sheet; (j) changes in regulations or any negative findings from a U.S.
Government audit or investigation; (k) current and future legal and regulatory
proceedings; (l) risks associated with our international operations; (m)
security threats and other disruptions; (n) U.S. federal income tax
liabilities that relate to the distribution in the spin-off of Engility; (o)
our ability to meet the financial reporting and other requirements to which we
are now subject following the spin-off due to inadequate accounting and other
management systems and resources; (p) our ability to achieve some or all of
the benefits that we expect to achieve from the spin-off; (q) our ability to
achieve the expected benefits from our strategic realignment plan; (r) the
reluctance of our customers, prospective customers and suppliers that may be
uncertain as to our financial stability as a stand-alone entity to continue to
do business with us; (s) the level of indebtedness that we incurred in
connection with the spin-off, our ability to comply with the terms of our debt
agreements and our ability to finance our future operations, if necessary; (t)
potential liabilities arising out of state and federal fraudulent conveyance
laws and legal distribution requirements as a result of the spin-off; and (u)
the additional costs that we may incur as an independent company. For a more
detailed discussion of these factors, see the information under the heading
“Risk Factors” in the Information Statement included in our Registration
Statement on Form 10, as amended and filed with the SEC on June 27, 2012, and
other filings with the Securities and Exchange Commission. Forward-looking
statements are made only as of the date hereof, and we undertake no obligation
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. In
addition, historical information should not be considered as an indicator of
future performance.

ENGILITY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                                        
                   Three Months Ended                        Nine Months Ended
                   September    September    Variance      September    September    Variance
                   28, 2012      30, 2011                    28, 2012      30, 2011
Revenue          $ 404,496     $ 448,373     $ (43,877)    $ 1,159,625   $ 1,476,243   $ (316,618)
Revenue from
former             4,888         48,384        (43,496)      100,035       119,502       (19,467)
affiliated
entities
Total revenue      409,384       496,757       (87,373)      1,259,660     1,595,745     (336,085)
Costs and
expenses
Cost of            354,147       377,170       (23,023)      988,487       1,248,736     (260,249)
revenue
Cost of
revenue from
former             4,888         48,384        (43,496)      100,035       119,502       (19,467)
affiliated
entities
Total cost of      359,035       425,554       (66,519)      1,088,522     1,368,238     (279,716)
revenue
Selling,
general and        36,612        31,477        5,135         100,812       92,591        8,221
administrative
expenses
Goodwill
impairment         426,436       —             426,436       426,436       —             426,436
charge
Total costs        822,083       457,031       365,052       1,615,770     1,460,829     154,941
and expenses
Operating          (412,699)     39,726        (452,425)     (356,110)     134,916       (491,026)
income (loss)
Interest           4,833         -             4,833         5,027         -             5,027
expense, net
Other income       (7)           267           (274)         (52)          184           (236)
(expense), net
Income (loss)
from
continuing         (417,539)     39,993        (457,532)     (361,189)     135,100       (496,289)
operations
before income
taxes
Provision
(benefit) for      1,378         15,502        (14,124)      24,997        52,585        (27,588)
income taxes
Income (loss)
from               (418,917)     24,491        (443,408)     (386,186)     82,515        (468,701)
continuing
operations
Income (loss)
from
discontinued       (469)         3,148         (3,617)       (1,017)       6,493         (7,510)
operations
before income
taxes
Provision
(benefit) for      (161)         1,220         (1,381)       (391)         2,527         (2,918)
income taxes
Income (loss)
from               (308)         1,928         (2,236)       (626)         3,966         (4,592)
discontinued
operations
Net income       $ (419,225)   $ 26,419      $ (445,644)   $ (386,812)   $ 86,481      $ (473,293)
(loss)
Less: Net
income
attributable       1,080         1,028         52            4,510         3,030         1,480
to
noncontrolling
interest
Net income
(loss)           $ (420,305)   $ 25,391      $ (445,696)   $ (391,322)   $ 83,451      $ (474,773)
attributable
to Engility
Earnings
(loss) per
share
allocable to
Engility
Holdings, Inc.
common
shareholders
Basic and        $ (25.80)     $ 1.58        $ (27.38)     $ (24.19)     $ 5.18        $ (29.37)
diluted
Engility
Holdings, Inc.
weighted
average common
shares
outstanding
Basic and          16,291        16,118                      16,176        16,118
diluted
                                                                                         

ENGILITY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(in thousands)
                                                               
                                                  As of           As of
                                                  September 28,   December 31,
                                                  2012            2011
Assets:
Current assets:
Cash and cash equivalents                         $19,075         $13,688
Receivables, net                                  369,453         394,842
Other current assets                              36,941          23,114
                                                                  
Total current assets                              425,469         431,644
Property, plant and equipment, net                11,581          12,629
Goodwill                                          477,604         904,040
Identifiable intangible assets, net               104,207         114,035
Other assets                                      15,388          5,473
Assets related to discontinued operations         —               35,426
                                                                  
Total assets                                      $1,034,249      $1,503,247
                                                                  
Liabilities and Equity:
Current liabilities:
Accounts payable, trade                           $31,467         $53,299
Accrued employment costs                          78,765          72,541
Accrued expenses                                  90,636          73,604
Advance payments and billings in excess of        19,546          26,273
costs incurred
Current portion of long-term debt                 25,125          —
Deferred income taxes, current and income taxes   37,418          26,750
payable
Other current liabilities                         17,502          19,170
                                                                  
Total current liabilities                         300,459         271,637
Long-term debt                                    309,875         —
Deferred income taxes, net                        10,114          41,636
Income tax payable                                60,486          58,288
Other liabilities                                 29,476          29,710
Liabilities related to discontinued operations    —               8,372
                                                                  
Total liabilities                                 710,410         409,643
Commitments and contingencies
Equity:
Preferred stock, par value $0.01 per share,
25,000 shares authorized, none issued or          —               —
outstanding as of September 28, 2012 or
December 31, 2011
Common stock, par value $0.01 per share,
175,000 shares authorized, 16,469 shares issued
and outstanding as of September 28, 2012 and 0    165             —
shares issued and outstanding as of December
31, 2011
Additional paid in capital                        731,588         —
Accumulated deficit                               (421,387)       —
Parent company investment                         —               1,083,238
Noncontrolling interest                           13,473          10,366
                                                                  
Total equity                                      323,839         1,093,604
                                                                  
Total liabilities and equity                      $1,034,249      $1,503,247
                                                                  

ENGILITY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
                                     
                                       Nine Months Ended
                                       September 28, 2012  September 30, 2011
Operating activities:
Net income (loss)                      $(386,812     )      $86,481
Less: income from discontinued         (626          )      3,966        
operations, net of tax
Income (loss) from continuing          (386,186      )      82,515
operations
Goodwill impairment charge             426,436              —
Share-based compensation               4,552                —
Depreciation and amortization          13,010               17,491
Deferred income tax benefit            (20,854       )      (9,444       )
Changes in operating assets and
liabilities, excluding acquired
amounts:
Receivables                            25,389               44,669
Other current assets                   (13,362       )      9,866
Accounts payable, trade                (21,832       )      (13,952      )
Accrued employment costs               6,224                7,601
Accrued expenses                       17,032               (8,623       )
Advance payments and billings in       (6,727        )      22,140
excess of costs incurred
Other liabilities                      297                 11,498       
                                                            
Net cash provided by operating
activities from continuing             43,979              163,761      
operations
                                                            
Investing activities:
Capital expenditures                   (1,640        )      (3,862       )
Proceeds from sale of property,        604                 —            
plant, and equipment
                                                            
Net cash used in investing
activities from continuing             (1,036        )      (3,862       )
operations
                                                            
Financing activities:
Gross borrowings from long-term debt   335,000              —
Gross borrowings from revolver         12,190               —
credit facility
Repayments of revolver credit          (12,190       )      —
facility
Debt issuance costs                    (11,005       )      —
Proceeds from share-based payment      484                  —
arrangements
Dividend paid to prior parent          (335,000      )      —
Net transfers to prior parent          (25,633       )      (159,508     )
Net transfers to non-controlling       (1,402        )      (797         )
interest member
                                                            
Net cash used in financing
activities from continuing             (37,556       )      (160,305     )
operations
                                                            
Discontinued Operations:
Net cash provided by operating         25,952               2,298
activities
Net cash used in investing             —                    —
activities
Net cash (used in) provided by         (25,952       )      2,063        
financing activities
                                                            
Net cash provided by (used in)         —                   4,361        
discontinued operations
                                                            
Net increase in cash and cash          5,387                3,955
equivalents
Cash and cash equivalents, beginning   13,688              15,563       
of period
                                                            
Cash and cash equivalents, end of      $19,075             $19,518      
period
                                                                         

ENGILITY HOLDINGS, INC.
UNAUDITED SEGMENT INFORMATION
(in thousands)
                                              
                      Three Months Ended         Nine Months Ended
                      September    September                  
                      28,           30,          September 28,   September 30,
                      2012          2011         2012            2011
                      (in thousands)
Revenue
Professional          $229,696      $274,842     $692,882        $837,490
Support Services
Mission Support       186,062       223,166      579,928         765,695
Services
Elimination of
intercompany          (6,374    )   (1,251   )   (13,150     )   (7,440      )
revenue
                                                                 
Total                 $409,384     $496,757    $1,259,660     $1,595,745  
                                                                 
Operating income
Professional          $11,765       $21,833      $46,310         $66,692
Support Services
Goodwill impairment
charge for the
Professional          (386,237  )   —            (386,237    )   —
Support Services
Segment
Mission Support       18,810        21,593       54,154          71,924
Services
Goodwill impairment
charge for the        (40,199   )   —           (40,199     )   —           
Mission Support
Services Segment
                                                                 
Segments total        (395,861  )   43,426       (325,972    )   138,616
Spin-off-related
transaction,
realignment, and      (16,838   )   (3,700   )   (30,138     )   (3,700      )
legal settlement
costs
                                                                 
Total                 $(412,699 )   $39,726     $(356,110   )   $134,916    
                                                                 

ENGILITY HOLDINGS, INC.
RECONCILIATION OF NON-GAAP MEASURES

The following tables set forth a reconciliation of each of these Non-GAAP
Measures to the most directly comparable GAAP measure for the periods
presented (in thousands, except for ratio and per share amounts).


Operating Income and Margin Reconciliation
                                                
                     Three Months Ended              Nine Months Ended
                                      September                     September
                     September 28,     30,           September 28,   30,
                     2012              2011          2012            2011
                     (in thousands)
Operating income   $ (412,699)       $ 39,726      $ (356,110)     $ 134,916
(loss)
Goodwill
impairment           426,436           —             426,436         —
charge
Realignment          7,560             —             7,560           —
costs
Legal settlement     5,278             —             5,278           —
costs
Spin-off related
transaction         4,000            3,700        17,300         3,700
costs
Adjusted           $ 30,575          $ 43,426      $ 100,464       $ 138,616
operating income
                                                                             
Operating margin     (100.8)    %      8.0     %     (28.3)     %    8.5     %
Adjusted             7.5        %      8.7     %     8.0        %    8.7     %
operating margin
                                                                             

Diluted EPS Reconciliation
                                                     
                                                         Three Months Ended
                                                         September 28, 2012
                                                         (in thousands, except
                                                         earnings per share
                                                         data)
Net from continuing operations before income taxes     $ (417,539)
                                                         
Goodwill impairment charge                               426,436
Realignment costs                                        7,560
Legal settlement costs                                   5,278
Spin-off related transaction costs                       4,000
Provision for income taxes                               (10,088)
                                                         
Adjusted net income from continuing operations         $ 15,647
Loss from discontinued operations                        (308)
Net income attributable to noncontrolling interest       (1,080)
Adjusted net income attributable to Engility           $ 14,259
                                                         
Loss per share attributable to Engility                $ (25.80)
Adjusted net income per share attributable to          $ 0.83
Engility
                                                         
Diluted shares for loss per share attributable to        16,291
Engility
Diluted shares for adjusted net income per share         17,117
attributable to Engility
                                                         

Diluted EPS Guidance Reconciliation
                                   
                                     For the Year Ended
                                     December 31,
                                     2012
                                     Low-End    High-End
Estimated GAAP diluted EPS           $ (21.06)   $ (20.81)
                                                 
Known adjustments, net of tax
Goodwill impairment charge           23.25
Realignment costs                    0.35
Legal settlement costs               0.19
Spin-off related transaction costs   0.77       
                                                 
                                                 
Adjusted diluted EPS guidance        $ 3.50      $ 3.75
                                                 

Adjusted diluted EPS guidance assumes 2012 diluted weighted-average shares of
17 million. Diluted weighted-average shares may differ due to, among other
factors, the exercise of stock options, the settlement of restricted stock
units and purchases under the Company’s 401(k) plan and employee stock
purchase plan. This guidance also assumes (i) a full year adjusted effective
tax rate of 39.2%, and (ii) additional realignment costs of $2.4 million and
spin-off related transaction costs of $0.7 million in the fourth quarter of
2012. Excluded from guidance are any potential future non-cash, non-recurring
or otherwise non-operational or non-core expenses, including without
limitation, additional impairment charges.

Contact:

Engility Holdings, Inc.
Eric Ruff, 703-375-6463
Eric.Ruff@EngilityCorp.com
 
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