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ldos-20211001_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 October 1, 2021
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 $.0001 per shareLDOSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No    
The number of shares issued and outstanding of each of the issuer’s classes of common stock as of October 25, 2021, was 140,339,356 shares of common stock ($.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)
October 1,
2021
January 1,
2021
 (in millions)
Assets:  
Cash and cash equivalents$587 $524 
Receivables, net2,288 2,137 
Inventory, net268 276 
Other current assets426 402 
Total current assets3,569 3,339 
Property, plant and equipment, net662 604 
Intangible assets, net1,321 1,216 
Goodwill6,650 6,313 
Operating lease right-of-use assets, net638 581 
Other assets441 458 
Total assets$13,281 $12,511 
Liabilities:  
Accounts payable and accrued liabilities$2,142 $2,175 
Accrued payroll and employee benefits721 632 
Short-term debt and current portion of long-term debt484 100 
Total current liabilities3,347 2,907 
Long-term debt, net of current portion4,616 4,644 
Operating lease liabilities615 564 
Deferred tax liabilities254 234 
Other long-term liabilities283 291 
Total liabilities9,115 8,640 
Commitments and contingencies (Note 10)
Stockholders’ equity:  
Common stock, $0.0001 par value, 500 million shares authorized, 140 million and 142 million shares issued and outstanding at October 1, 2021 and January 1, 2021, respectively
  
Additional paid-in capital2,397 2,580 
Retained earnings1,758 1,328 
Accumulated other comprehensive loss(40)(46)
Total Leidos stockholders’ equity4,115 3,862 
Non-controlling interest51 9 
Total stockholders' equity4,166 3,871 
Total liabilities and stockholders' equity$13,281 $12,511 

See accompanying notes to condensed consolidated financial statements.

1

LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months EndedNine Months Ended
 October 1,
2021
October 2,
2020
October 1,
2021
October 2,
2020
 (in millions, except per share amounts)
Revenues$3,483 $3,242 $10,246 $9,045 
Cost of revenues2,942 2,774 8,740 7,799 
Selling, general and administrative expenses233 200 625 583 
Bad debt expense and recoveries(1)2 (11)(70)
Acquisition, integration and restructuring costs6 5 21 33 
Asset impairment charges3  3 11 
Equity (earnings) loss of non-consolidated subsidiaries(5)3 (14)(10)
Operating income305 258 882 699 
Non-operating expense:
Interest expense, net(47)(44)(138)(133)
Other income (expense), net2  1 (30)
Income before income taxes
260 214 745 536 
Income tax expense
(52)(51)(162)(104)
Net income$208 $163 $583 $432 
Less: net income attributable to non-controlling interest3  4 1 
Net income attributable to Leidos common stockholders
$205 $163 $579 $431 
Earnings per share:
Basic
$1.45 $1.15 $4.11 $3.04 
Diluted
1.43 1.13 4.05 2.99 

See accompanying notes to condensed consolidated financial statements.

2

LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months EndedNine Months Ended
 October 1,
2021
October 2,
2020
October 1,
2021
October 2,
2020
 (in millions)
Net income$208 $163 $583 $432 
Foreign currency translation adjustments
(29)26 (12)13 
Unrecognized gain (loss) on derivative instruments
4 4 18 (41)
Pension adjustments
 (1)  
Total other comprehensive (loss) income, net of taxes(25)29 6 (28)
Comprehensive income183 192 589 404 
Less: net income attributable to non-controlling interest3  4 1 
Comprehensive income attributable to Leidos common stockholders
$180 $192 $585 $403 

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
loss
Leidos Holdings, Inc. stockholders' equityNon-controlling interestTotal
 (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 interests— — — — — 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 
Net capital contributions from non-controlling interests— — — — — 1 1 
Balance at July 2, 2021142 2,509 1,605 (15)4,099 49 4,148 
Net income— — 205 — 205 3 208 
Other comprehensive loss, net of taxes— — — (25)(25)— (25)
Issuances of stock— 11 — — 11 — 11 
Repurchases of stock and other
(2)(140)— — (140)— (140)
Dividends of $0.36 per share
  (52) (52) (52)
Stock-based compensation— 17 — — 17 — 17 
Net capital contributions to non-controlling interest— — — — — (1)(1)
Balance at October 1, 2021140 $2,397 $1,758 $(40)$4,115 $51 $4,166 















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
loss
Leidos Holdings, Inc. stockholders' equityNon-controlling interestTotal
 (in millions, except for per share amounts)
Balance at January 3, 2020141 $2,587 $896 $(70)$3,413 $4 $3,417 
Cumulative adjustments related to ASU adoption
— — (1)— (1)— (1)
Balance at January 4, 2020141 2,587 895 (70)3,412 4 3,416 
Net income— — 115 — 115 — 115 
Other comprehensive loss, net of taxes
— — — (115)(115)— (115)
Issuances of stock1 9 — — 9 — 9 
Repurchases of stock and other
— (32)— — (32)— (32)
Dividends of $0.34 per share
— — (49)— (49)— (49)
Stock-based compensation— 15 — — 15 — 15 
Balance at April 3, 2020142 2,579 961 (185)3,355 4 3,359 
Net income— — 153 — 153 1 154 
Other comprehensive loss, net of taxes— — — 58 58 — 58 
Issuances of stock— 8 — — 8 — 8 
Repurchases of stock and other— (2)— — (2)— (2)
Dividends of $0.34 per share
— — (49)— (49)— (49)
Stock-based compensation— 15 — — 15 — 15 
Capital contributions from non-controlling interests— — — — — 4 4 
Balance at July 3, 2020142 2,600 1,065 (127)3,538 9 3,547 
Net income— — 163 — 163 — 163 
Other comprehensive income, net of taxes— — — 29 29 — 29 
Issuances of stock— 10 — — 10 — 10 
Repurchases of stock and other
— (1)— — (1)— (1)
Dividends of $0.34 per share
— — (48)— (48)— (48)
Stock-based compensation— 15 — — 15 — 15 
Balance at October 2, 2020142 $2,624 $1,180 $(98)$3,706 $9 $3,715 

See accompanying notes to condensed consolidated financial statements.

5


LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
 October 1,
2021
October 2,
2020
 (in millions)
Cash flows from operations:  
Net income$583 $432 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization244 214 
Stock-based compensation49 45 
Loss on debt extinguishment 31 
Asset impairment charges3 11 
Deferred income taxes4 (2)
Other(11)15 
Change in assets and liabilities, net of effects of acquisitions:
Receivables(103)140 
Other current assets and other long-term assets161 49 
Accounts payable and accrued liabilities and other long-term liabilities(172)211 
Accrued payroll and employee benefits83 247 
Income taxes receivable/payable(20)(7)
Net cash provided by operating activities821 1,386 
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired(622)(2,610)
Payments for property, equipment and software(71)(120)
Net proceeds from sale of assets 10 
Other 6 
Net cash used in investing activities(693)(2,714)
Cash flows from financing activities:
Proceeds from debt issuance380 6,225 
Payments of long-term debt(80)(4,680)
Payments for debt issuance costs (39)
Dividend payments(149)(148)
Repurchases of stock and other(266)(35)
Capital distributions to non-controlling interests(3) 
Capital contributions from non-controlling interests41 4 
Proceeds from issuances of stock33 26 
Net cash (used in) provided by financing activities(44)1,353 
Net increase in cash, cash equivalents and restricted cash84 25 
Cash, cash equivalents and restricted cash at beginning of period687 717 
Cash, cash equivalents and restricted cash at end of period771 742 
Less: restricted cash at end of period184 230 
Cash and cash equivalents at end of period$587 $512 
Supplementary cash flow information:
Cash paid for income taxes, net of refunds$179 $110 
Cash paid for interest128 104 
Non-cash investing activity:
Property, plant and equipment additions$1 $16 
Non-cash financing activity:
Finance lease obligations$50 $12 
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® science, engineering and information technology 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 as well as foreign government agencies. 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.
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 23, 2021.
7


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Accounting Standards Updates ("ASU") Adopted
ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40)
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06 which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separate embedded conversion features from the host convertible instruments. Additionally, the amendments in this update simplify the guidance in Subtopic 815-40 by removing certain criteria that must be satisfied in order to classify a contract as equity. This update also improves the consistency of earnings per share calculations by requiring an entity to use the if-converted method of calculating diluted earnings per share rather than the treasury stock method for convertible instruments and also by requiring the inclusion of the potential effect of shares settled in cash or shares in the diluted earnings per share calculation. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2021, and adopted using either a fully or modified retrospective approach. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.
Effective January 2, 2021, we adopted the requirements of ASU 2020-06 using the modified retrospective method. The adoption did not have an impact to our financial position, results of operations and earnings per share.
ASU 2021-05, Leases (Topic 842) Lessors—Certain Leases with Variable Lease Payments
In July 2021, the FASB issued ASU 2021-05, which amends lessor’s accounting for leases with variable lease payments classified as sales-type or direct financing leases. The amendments in this update modify the lease classification requirements for lessors, whereby leases with variable lease payments that are not dependent on a reference index or a rate will be accounted for as operating leases if classification as a sales-type or direct financing lease would have resulted in a day-one loss. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2021, as well as interim periods within those fiscal years, and can be adopted using either a prospective or retrospective approach. Early adoption is also permitted.
Effective July 3, 2021, we adopted the requirements of ASU 2021-05 using the prospective method. The adoption did not have an impact to our financial position, results of operations and earnings per share.
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. 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.
8


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Changes in estimates on contracts were as follows:
Three Months EndedNine Months Ended
October 1,
2021
October 2,
2020
October 1,
2021
October 2,
2020
(in millions, except per share amounts)
Favorable impact$47 34 $115 $86 
Unfavorable impact(24)(19)(72)(45)
Net impact to income before income taxes$23 $15 $43 $41 
Impact on diluted EPS attributable to Leidos common stockholders
$0.12 $0.07 $0.22 $0.21 
The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.
Revenue Recognized from Prior Obligations
Revenue recognized from performance obligations satisfied in previous periods was $17 million and $35 million for the three and nine months ended October 1, 2021, respectively, and $10 million and $42 million for the three and nine months ended October 2, 2020, 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 October 1, 2021 and January 1, 2021, $180 million and $237 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 $184 million and $163 million at October 1, 2021 and January 1, 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. Remaining performance obligations do 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 October 1, 2021, we had $14.6 billion of RPO and expect to recognize approximately 54% and 71% 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. These categories represent how the nature, timing and uncertainty of revenues and cash flows are affected.
9


LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Disaggregated revenues by customer-type were as follows:
Three Months Ended October 1, 2021Nine Months Ended October 1, 2021
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,513 $19 $203 $1,735 $4,386 $45 $545 $4,976 
Other government agencies(1)
215 619 450 1,284 724 1,849 1,292 3,865 
Commercial and non-U.S. customers
281 121 28 430 859 377 80 1,316 
Total$2,009 $759 $681 $3,449 $5,969 $2,271 $1,917 $10,157 
Three Months Ended October 2, 2020Nine Months Ended October 2, 2020
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,411 $14 $137 $1,562 $4,058 $43 $384 $4,485 
Other government agencies(1)
292 628 358 1,278 675 1,787 980 3,442 
Commercial and non-U.S. customers
248 105 25 378 679 288 80 1,047 
Total$1,951 $747 $520 $3,218 $5,412 $2,118 $1,444 $8,974 
(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 October 1, 2021Nine Months Ended October 1, 2021
Defense SolutionsCivilHealthTotalDefense SolutionsCivilHealthTotal
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$1,230 $397 $137 $