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ldos-20220701_g1.jpg

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to  
Commission file number 001-33072
Leidos Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-3562868
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1750 Presidents Street,Reston,Virginia20190
(Address of principal executive offices)(Zip Code)
(571) 526-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $.0001 per shareLDOSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No    
The number of shares issued and outstanding of each of the issuer’s classes of common stock as of July 26, 2022, was 136,540,637 shares of common stock ($.0001 par value per share).




LEIDOS HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
Part IPage
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 1,
2022
December 31,
2021
 (in millions)
Assets:  
Cash and cash equivalents$339 $727 
Receivables, net2,423 2,189 
Inventory, net286 274 
Other current assets478 429 
Total current assets3,526 3,619 
Property, plant and equipment, net669 670 
Intangible assets, net1,038 1,177 
Goodwill6,673 6,744 
Operating lease right-of-use assets, net614 612 
Other long-term assets367 439 
Total assets$12,887 $13,261 
Liabilities:  
Accounts payable and accrued liabilities$2,052 $2,141 
Accrued payroll and employee benefits701 605 
Short-term debt and current portion of long-term debt1,153 483 
Total current liabilities3,906 3,229 
Long-term debt, net of current portion4,023 4,593 
Operating lease liabilities614 589 
Deferred tax liabilities89 239 
Other long-term liabilities198 267 
Total liabilities8,830 8,917 
Commitments and contingencies (Note 12)
Stockholders’ equity:  
Common stock, $0.0001 par value, 500 million shares authorized, 137 million and 140 million shares issued and outstanding at July 1, 2022, and December 31, 2021, respectively
  
Additional paid-in capital1,955 2,423 
Retained earnings2,128 1,880 
Accumulated other comprehensive loss(79)(12)
Total Leidos stockholders’ equity4,004 4,291 
Non-controlling interest53 53 
Total stockholders' equity4,057 4,344 
Total liabilities and stockholders' equity$12,887 $13,261 

See accompanying notes to condensed consolidated financial statements.

1

LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months EndedSix Months Ended
 July 1,
2022
July 2,
2021
July 1,
2022
July 2,
2021
 (in millions, except per share amounts)
Revenues$3,597 $3,448 $7,091 $6,763 
Cost of revenues3,059 2,950 6,041 5,798 
Selling, general and administrative expenses260 224 494 392 
Bad debt expense and recoveries2 (1)4 (10)
Acquisition, integration and restructuring costs5 10 8 15 
Asset impairment charges3  3  
Equity earnings of non-consolidated subsidiaries(3)(4)(1)(9)
Operating income271 269 542 577 
Non-operating expense:
Interest expense, net(50)(46)(98)(91)
Other income (expense), net4  3 (1)
Income before income taxes
225 223 447 485 
Income tax expense
(53)(53)(98)(110)
Net income$172 $170 $349 $375 
Less: net income attributable to non-controlling interest1 1 3 1 
Net income attributable to Leidos common stockholders
$171 $169 $346 $374 
Earnings per share:
Basic
$1.25 $1.20 $2.51 $2.65 
Diluted
1.24 1.18 2.49 2.62 

See accompanying notes to condensed consolidated financial statements.

2

LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months EndedSix Months Ended
 July 1,
2022
July 2,
2021
July 1,
2022
July 2,
2021
 (in millions)
Net income$172 $170 $349 $375 
Foreign currency translation adjustments
(85)21 (83)17 
Unrecognized gain on derivative instruments
7 1 36 14 
Pension adjustments
(21) (20) 
Total other comprehensive (loss) income, net of taxes(99)22 (67)31 
Comprehensive income73 192 282 406 
Less: net income attributable to non-controlling interest1 1 3 1 
Comprehensive income attributable to Leidos common stockholders
$72 $191 $279 $405 

See accompanying notes to condensed consolidated financial statements.

3

LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
 Shares of common stockAdditional
paid-in
capital
Retained earningsAccumulated
other comprehensive
income (loss)
Leidos stockholders' equityNon-controlling interestTotal stockholders' equity
 (in millions, except for per share amounts)
Balance at December 31, 2021140 $2,423 $1,880 $(12)$4,291 $53 $4,344 
Net income— — 175 — 175 2 177 
Other comprehensive income, net of taxes— — — 32 32 — 32 
Issuances of stock1 15 — — 15 — 15 
Repurchases of stock and other
(4)(526)— — (526)— (526)
Dividends of $0.36 per share
— — (48)— (48)— (48)
Stock-based compensation— 16 — — 16 — 16 
Capital distributions to non-controlling interests— — — — — (2)(2)
Balance at April 1, 2022137 $1,928 $2,007 $20 $3,955 $53 $4,008 
Net income— — 171 — 171 1 172 
Other comprehensive loss, net of taxes— — — (99)(99)— (99)
Issuances of stock— 10 — — 10 — 10 
Repurchases of stock and other
— (2)— — (2)— (2)
Dividends of $0.36 per share
— — (50)— (50)— (50)
Stock-based compensation— 19 — — 19 — 19 
Capital distributions to non-controlling interests— — — — — (1)(1)
Balance at July 1, 2022137 $1,955 $2,128 $(79)$4,004 $53 $4,057 

























See accompanying notes to condensed consolidated financial statements.

4



LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
 Shares of common stockAdditional
paid-in
capital
Retained earningsAccumulated
other comprehensive
income (loss)
Leidos stockholders' equityNon-controlling interestTotal stockholders' equity
 (in millions, except for per share amounts)
Balance at January 1, 2021142 $2,580 $1,328 $(46)$3,862 $9 $3,871 
Net income— — 205 — 205 — 205 
Other comprehensive income, net of taxes— — — 9 9 — 9 
Issuances of stock— 14 — — 14 — 14 
Repurchases of stock and other
(1)(123)— — (123)— (123)
Dividends of $0.34 per share
— — (49)— (49)— (49)
Stock-based compensation— 15 — — 15 — 15 
Capital contributions from non-controlling interest— — — — — 38 38 
Balance at April 2, 2021141 $2,486 $1,484 $(37)$3,933 $47 $3,980 
Net income— — 169 — 169 1 170 
Other comprehensive income, net of taxes— — — 22 22 — 22 
Issuances of stock1 9 — — 9 — 9 
Repurchases of stock and other— (3)— — (3)— (3)
Dividends of $0.34 per share
— — (48)— (48)— (48)
Stock-based compensation— 17 — — 17 — 17 
Capital contributions from non-controlling interests— — — — — 1 1 
Balance at July 2, 2021142 $2,509 $1,605 $(15)$4,099 $49 $4,148 


See accompanying notes to condensed consolidated financial statements.

5


LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
 July 1,
2022
July 2,
2021
 (in millions)
Cash flows from operations:  
Net income$349 $375 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization168 157 
Stock-based compensation35 32 
Deferred income taxes(136)3 
Other7 (11)
Change in assets and liabilities, net of effects of acquisitions:
Receivables(238)(89)
Other current assets and other long-term assets73 91 
Accounts payable and accrued liabilities and other long-term liabilities(271)(347)
Accrued payroll and employee benefits101 46 
Income taxes receivable/payable45 (1)
Net cash provided by operating activities133 256 
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired(2)(593)
Divestiture of a business
15  
Payments for property, equipment and software(49)(47)
Net proceeds from sale of assets6  
Other1  
Net cash used in investing activities(29)(640)
Cash flows from financing activities:
Proceeds from debt issuance380 380 
Net proceeds from commercial paper150  
Repayments of borrowings(434)(53)
Dividend payments(100)(98)
Repurchases of stock and other(528)(126)
Net capital (distributions to) contributions from non-controlling interests(3)39 
Proceeds from issuances of stock22 23 
Net cash (used in) provided by financing activities(513)165 
Net decrease in cash, cash equivalents and restricted cash(409)(219)
Cash, cash equivalents and restricted cash at beginning of period875 687 
Cash, cash equivalents and restricted cash at end of period466 468 
Less: restricted cash at end of period127 130 
Cash and cash equivalents at end of period$339 $338 
Supplementary cash flow information:
Cash paid for income taxes, net of refunds$127 $110 
Cash paid for interest107 102 
Non-cash investing activity:
Property, plant and equipment additions$5 $ 
Non-cash financing activity:
Finance lease obligations$1 $45 
See accompanying notes to condensed consolidated financial statements.

6


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)









Note 1–Basis of Presentation and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
Leidos Holdings, Inc. ("Leidos"), a Delaware corporation, is a holding company whose direct 100%-owned subsidiary and principal operating company is Leidos, Inc. Leidos is a FORTUNE 500® technology, engineering, and science company that provides services and solutions in the defense, intelligence, civil and health markets, both domestically and internationally. Leidos' customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses. Unless indicated otherwise, references to "we," "us" and "our" refer collectively to Leidos Holdings, Inc. and its consolidated subsidiaries. We operate in three reportable segments: Defense Solutions, Civil and Health. Additionally, we separately present the unallocable costs associated with corporate functions as Corporate.
We have a controlling interest in Mission Support Alliance, LLC ("MSA"), a joint venture with Centerra Group, LLC. We also have a controlling interest in Hanford Mission Integration Solutions, LLC ("HMIS"), the legal entity for the follow-on contract to MSA's contract and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc. The financial results for MSA and HMIS are consolidated into our unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements also include the balances of all voting interest entities in which Leidos has a controlling voting interest ("subsidiaries") and a variable interest entity ("VIE") in which Leidos is the primary beneficiary. The consolidated balances of the VIE are not material to the unaudited condensed consolidated financial statements for the periods presented. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.
The accompanying unaudited condensed financial information has been prepared in accordance with the rules of the U.S. Securities and Exchange Commission and accounting principles generally accepted in the United States of America ("GAAP"). Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis, including those relating to estimated profitability of long-term contracts, indirect billing rates, allowances for doubtful accounts, inventories, right-of-use assets and lease liabilities, fair value and impairment of intangible assets and goodwill, income taxes, stock-based compensation expense and contingencies. These estimates have been prepared by management on the basis of the most current and best available information; however, actual results could differ materially from those estimates.
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. We combined "Capital distributions to non-controlling interests" and "Capital contributions from non-controlling interests" into "Net capital (distributions to) contributions from non-controlling interests" on the condensed consolidated statements of cash flows.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed on February 15, 2022.
7


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








Accounting Standards Updates ("ASU") Adopted
ASU 2021-08, Business Combinations (Topic 805)
In October 2021, the FASB issued ASU 2021-08, which amends how contract assets and liabilities acquired in a business combination are measured. Current guidance requires contract assets and liabilities to be measured at fair value in accordance with ASC 805, Business Combinations. The amendments in this update remove the requirement to measure contract assets and liabilities at fair value and instead require that they be recognized in accordance with ASC 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and must be applied prospectively. Early adoption is permitted.
We adopted the requirements of ASU 2021-08 using the prospective method effective the first day of fiscal 2022. For business combinations occurring after adoption, we will measure contract assets and liabilities acquired in accordance with ASC 606.
Accounting Standards Updates Issued But Not Yet Adopted
ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU 2020-04 which provides companies with optional expedients and exceptions to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This update provides optional expedients for applying accounting guidance to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of the reference rate reform. The amendments in this update are effective for all entities as of March 2020 and can be adopted using a prospective approach no later than December 31, 2022.
In January 2021, the FASB issued ASU 2021-01 which amends the scope of ASU 2020-04. The amendments in this update are elective and provide optional relief for entities with hedge accounting and contract modifications affected by the discounting transition through December 31, 2022. Under this relief, entities may continue to account for contract modifications as a continuation of the existing contract and the continuation of the hedge accounting arrangement. We are currently evaluating the impacts of reference rate reform. Except for our new $380 million term loan entered into on May 6, 2022 (see "Note 6–Debt"), we currently use the one-month LIBOR for which the rate publication will cease in June 2023.
Changes in Estimates on Contracts
Changes in estimates related to contracts accounted for using the cost-to-cost method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes, with the exception of contracts acquired through a business combination, where the adjustment is made for the period commencing from the date of acquisition.
Changes in estimates on contracts were as follows:
Three Months EndedSix Months Ended
July 1,
2022
July 2,
2021
July 1,
2022
July 2,
2021
(in millions, except per share amounts)
Favorable impact$39 $37 $80 $68 
Unfavorable impact(20)(29)(46)(48)
Net impact to income before income taxes$19 $8 $34 $20 
Impact on diluted EPS attributable to Leidos common stockholders
$0.10 $0.04 $0.18 $0.11 
    
The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.
8


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








Revenue Recognized from Prior Obligations
Revenue recognized from performance obligations satisfied in previous periods was $17 million and $34 million for the three and six months ended July 1, 2022, respectively, and $9 million and $18 million for the three and six months ended July 2, 2021, respectively. The changes primarily related to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.
Cash and Cash Equivalents
Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less. At July 1, 2022, and December 31, 2021, $195 million and $138 million, respectively, of outstanding payments were included within "Cash and cash equivalents" and "Accounts payable and accrued liabilities" correspondingly on the condensed consolidated balance sheets.
Restricted Cash
We have restricted cash balances, primarily representing advances from customers that are restricted for use on certain expenditures related to that customer's contract. Restricted cash balances are included as "Other current assets" in the condensed consolidated balance sheets. Our restricted cash balances were $127 million and $148 million at July 1, 2022, and December 31, 2021, respectively.
Note 2–Revenues from Contracts with Customers
Remaining Performance Obligations
Remaining performance obligations ("RPO") represent the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. RPO does not include unexercised option periods and future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ") contracts, General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.
As of July 1, 2022, we had $15.1 billion of RPO and expect to recognize approximately 59% and 76% over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.
Disaggregation of Revenues
We disaggregate revenues by customer-type, contract-type and geographic location for each of our reportable segments.
9


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








Disaggregated revenues by customer-type were as follows:
Three Months Ended July 1, 2022Six Months Ended July 1, 2022
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,522 $20 $239 $1,781 $3,061 $40 $477 $3,578 
Other government agencies(1)
228 660 420 1,308 450 1,273 805 2,528 
Commercial and non-U.S. customers
302 148 28 478 589 295 55 939 
Total$2,052 $828 $687 $3,567 $4,100 $1,608 $1,337 $7,045 
Three Months Ended July 2, 2021Six Months Ended July 2, 2021
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,466 $13 $184 $1,663 $2,873 $26 $342 $3,241 
Other government agencies(1)
237 625 435 1,297 509 1,230 842 2,581 
Commercial and non-U.S. customers
300 131 26 457 578 256 52 886 
Total$2,003 $769 $645 $3,417 $3,960 $1,512 $1,236 $6,708 
(1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies.
Disaggregated revenues by contract-type were as follows:
Three Months Ended July 1, 2022Six Months Ended July 1, 2022
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$1,144 $443 $167 $1,754 $2,327 $851 $334 $3,512 
Firm-fixed-price664 258 454 1,376 1,282 513 871 2,666 
Time-and-materials and fixed-price-level-of-effort
244 127 66 437 491 244 132 867 
Total$2,052 $828 $687 $3,567 $4,100 $1,608 $1,337 $7,045 
Three Months Ended July 2, 2021Six Months Ended July 2, 2021
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$1,234 $405 $125 $1,764 $2,397 $779 $224 $3,400 
Firm-fixed-price526 248 419 1,193 1,079 510 811 2,400 
Time-and-materials and fixed-price-level-of-effort
243 116 101 460 484 223 201 908 
Total$2,003 $769 $645 $3,417 $3,960 $1,512 $1,236 $6,708 
10


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








Disaggregated revenues by geographic location were as follows:
Three Months Ended July 1, 2022Six Months Ended July 1, 2022
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
United States
$1,789 $789 $687 $3,265 $3,599 $