UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Delaware
(State or other jurisdiction of incorporation or organization)
1750 Presidents Street, Reston, Virginia
(Address of principal executive offices)
20-3562868
(I.R.S. Employer Identification No.)
20190
(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 class
Common stock, par value $.0001 per share
Trading symbol(s)
LDOS
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 filer
Non-accelerated filer
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Accelerated filer
Smaller reporting company
Emerging growth company
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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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of July 2, 2021, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of Leidos
Holdings, Inc. common stock (based upon the closing price of the stock on the New York Stock Exchange) held by non-affiliates of the registrant was
$14,463,896,796.
The number of shares issued and outstanding of the registrant’s class of common stock as of February 8, 2022 was 140,505,454 shares ($.0001 par value
per share).
Portions of Leidos Holdings, Inc.'s definitive Proxy Statement for the 2022 Annual Meeting of Stockholders ("2022 Proxy Statement") are incorporated by
reference in Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
LEIDOS HOLDINGS, INC.
FORM 10-K
TABLE OF CONTENTS
(cid:37)(cid:49)(cid:65)(cid:67) (cid:30)
Item 1.
(cid:28)usiness
Item 1A.
Risk Factors
Item 1(cid:28).
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
(cid:26)(cid:71)(cid:53)(cid:51)(cid:68)(cid:67)(cid:57)(cid:69)(cid:53) (cid:36)(cid:54)(cid:54)(cid:57)(cid:51)(cid:53)(cid:65)(cid:66) (cid:62)(cid:54) (cid:67)(cid:56)(cid:53) (cid:39)(cid:53)(cid:55)(cid:57)(cid:66)(cid:67)(cid:65)(cid:49)(cid:61)(cid:67)
(cid:37)(cid:49)(cid:65)(cid:67) (cid:30)(cid:30)
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
(cid:43)uantitative and (cid:43)ualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9(cid:28).
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
(cid:37)(cid:49)(cid:65)(cid:67) (cid:30)(cid:30)(cid:30)
Item 12.
Security Ownership of Certain (cid:28)eneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
(cid:37)(cid:49)(cid:65)(cid:67) (cid:30)(cid:43)
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
(cid:40)(cid:57)(cid:55)(cid:61)(cid:49)(cid:67)(cid:68)(cid:65)(cid:53)(cid:66)
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LEIDOS HOLDINGS, INC.
FORM 10-K
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that are based on our management’s belief and assumptions about the future in light
of information currently available to our management. In some cases, you can identify forward-looking statements
by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases. These
statements relate to future events or our future financial performance, and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking
statements are reasonable when made, we cannot guarantee future results, levels of activity, performance or
achievements. There are a number of important factors that could cause our actual results to differ materially from
those results anticipated by our forward-looking statements, which include, but are not limited to:
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the impact of the coronavirus pandemic ("COVID-19") or future epidemics on our business, including the
potential for facility closures, re-evaluation of U.S. government spending levels and priorities, delay of new
contract awards, our ability to recover costs under contracts, the availability, acceptance and efficacy of
vaccinations and laws and regulations with respect to vaccinations and insurance challenges;
developments in the U.S. government defense and non-defense budgets, including budget reductions,
sequestration, implementation of spending limits or changes in budgetary priorities, or delays in the U.S.
government budget process or approval of raising the debt ceiling;
uncertainties in tax due to new tax legislation or other regulatory developments;
rates of inflation;
delays in the U.S. government contract procurement process or the award of contracts and delays or loss of
contracts as a result of competitor protests;
changes in U.S. government procurement rules, regulations and practices;
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 and win contracts with the U.S. government and other customers;
our reliance on information technology spending by hospitals/healthcare organizations;
our reliance on infrastructure investments by industrial and natural resources organizations;
energy efficiency and alternative energy sourcing investments;
investments by U.S. government and commercial organizations in environmental impact and remediation
projects;
our ability to attract, train and retain skilled employees, including our management team, and to obtain
security clearances for our employees;
our ability to accurately estimate costs associated with our firm-fixed-price ("FFP") contracts and other
contracts;
resolution of legal and other disputes with our customers and others or legal or regulatory compliance
issues;
cybersecurity, data security or other security threats, system failures or other disruptions of our business;
our compliance with international, federal, state and local laws and regulations regarding privacy, data
security, protection, storage, retention, transfer and disposal, technology protection and personal
information;
the damage and disruption to our business resulting from natural disasters and the effects of climate
change;
Leidos Holdings, Inc. Annual Report - 1
LEIDOS HOLDINGS, INC.
FORM 10-K
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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;
the failure of our inspection or detection systems to detect threats;
the adequacy of our insurance programs, customer indemnifications or other liability protections designed to
protect us from significant product or other liability claims, including cybersecurity attacks;
our ability to manage risks associated with our international business;
our ability to protect our intellectual property and other proprietary rights by third parties of infringement,
misappropriation or other violations by us of their intellectual property rights;
our ability to prevail in litigation brought by third parties of infringement, misappropriation or other violations
by us of their intellectual property rights;
our ability to declare or increase future dividends based on our earnings, financial condition, capital
requirements and other factors, including compliance with applicable law and our agreements;
our ability to grow our commercial health and infrastructure businesses, which could be negatively affected
by budgetary constraints faced by hospitals and by developers of energy and infrastructure projects;
our ability to successfully integrate acquired businesses; 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.
We do not undertake any obligation to update or revise any of the forward-looking statements to reflect events,
circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those
statements or to conform these statements to actual results.
Leidos Holdings, Inc. Annual Report - 2
PART I
Item 1. Business
Our Company
Leidos Holdings, Inc. ("Leidos"), a Delaware corporation, is a holding company whose direct 100%-owned
subsidiary and principal operating company is Leidos, Inc. Leidos was founded in 1969 by physicist Dr. Robert
Beyster. Since our founding 53 years ago, we have applied our expertise in science, research and engineering in
rapidly-evolving technologies and markets to solve complex problems of global concern.
We use the terms "we," "us" and "our" to refer collectively to Leidos Holdings, Inc. and its consolidated subsidiaries.
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. We bring domain-specific
capabilities and innovations to customers in each of these markets by leveraging five technical core competencies:
digital modernization, cyber operations, mission software systems, integrated systems and mission operations.
Applying our technically-advanced solutions to help solve our customers' most difficult problems has enabled us to
build strong relationships with key customers. Our customers include the U.S. Department of Defense ("DoD"), the
U.S. Intelligence Community, the U.S. Department of Homeland Security ("DHS"), the Federal Aviation
Administration ("FAA"), the Department of Veterans Affairs ("VA") and many other U.S. civilian, state and local
government agencies, foreign government agencies and commercial businesses. With a focus on delivering
mission-critical solutions, Leidos generated 87% of revenues for the fiscal year ended December 31, 2021 ("fiscal
2021") from U.S. government contracts.
By leveraging expertise in multiple disciplines, tailoring our services and solutions to the particular needs of our
targeted markets and using advanced analytics, we work to securely deliver services and solutions that not only
meet customers' current goals, but also support their future missions.
For additional discussion and analysis related to recent business developments, see "Business Environment and
Trends" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of
this Annual Report on Form 10-K.
Our Business Segments
At December 31, 2021, our business is aligned into three reportable segments (Defense Solutions, Civil and
Health). Additionally, we separately present the unallocable costs associated with corporate functions as Corporate.
Our operations and reportable segments are organized around the customers and markets we serve. We provide a
wide array of scientific, engineering and technical services and solutions across these reportable segments. Less
than 8% of our revenues and tangible long-lived assets are generated by or owned by entities located outside of the
United States.
Defense Solutions
Defense Solutions provides leading-edge and technologically advanced services, solutions and products to a broad
customer base. Our ever-changing technologies and innovations cover a wide spectrum of markets with primary
areas of concentration in digital transformation, Command, Control, Communications, Computers, Intelligence,
Surveillance and Reconnaissance ("C4ISR") technologies and services, transformative software, analytics,
intelligence analysis, mission support and logistics services, weapons systems and human space exploration. We
are dedicated to delivering cost-effective solutions backed by innovation-generating research and development to
meet the evolving missions of our customers. We provide a diverse portfolio of national security solutions and
systems for air, land, sea, space and cyberspace for the U.S. Intelligence Community, the DoD, the National
Aeronautics and Space Administration ("NASA"), Defense Information Systems Agency ("DISA"), military services,
government agencies of U.S. allies abroad and other federal and commercial customers in the national security
industry. Our solutions deliver innovative technology, large-scale systems, command and control platforms, data
analytics, logistics and cybersecurity solutions, as well as intelligence analysis and operations support to critical
missions around the world. Defense Solutions represented 58% of total revenues for fiscal 2021, 60% of total
revenues for the fiscal year ended January 1, 2021 ("fiscal 2020") and 57% of total revenues for the fiscal year
ended January 3, 2020 ("fiscal 2019").
Leidos Holdings, Inc. Annual Report - 3
PART I
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Digital Transformation – As an industry leader in enterprise IT, we provide extensive worldwide digital
support operations for our nation's largest and most critical infrastructure. We design, develop, implement
and maintain IT environments to provide stability and flexibility to mission needs. Our capabilities support
offerings including cybersecurity, data analytics, and operations and logistics. Our cybersecurity solutions
help detect and manage the most sophisticated cyber threats.
C4ISR Technologies and Services – We offer a wide range of technologies and services in multiple
domains that address the nation's most critical threats and deliver solutions to the U.S. Intelligence
Community, DoD and military services. Our market concentration is on airborne and ground intelligence,
surveillance and reconnaissance ("ISR"), maritime systems, electronic warfare systems, distributed sensor
systems, autonomous systems, sensors and Command and Control ("C2"). We provide multi-spectral,
airborne, ground and maritime ISR collection and processing systems, advanced sensor design, C2
solutions and training systems. We also provide laser and radio frequency-based communications systems
for airborne, ground, naval and space platforms. We link our high-end solutions to other key services
demanded by our customers. In the air, we support a fleet of over 100 government and Leidos-owned fixed
wing, rotary wing and unmanned aircraft. On the ground, we provide mission-critical Command, Control and
ISR and support through innovative solutions, essential services and enriched data management tools
facilitating critical decision making. On and under the sea, we continue to enhance our surface and
subsurface autonomous and unmanned technologies to help make maritime operations safer and more
efficient for government and industry by providing leading sensor systems, signal processing,
communications hardware and software to support these vital missions. We are among the market leaders
in submarine collection technologies and anti-submarine warfare system installation and maintenance and
are expanding our capabilities in these areas to meet market demand for this growing threat. We also
provide prototyping and research and development support services to a wide variety of DoD customers
from concept analysis to classified manufacturing.
Transformative Software, Analytics – We offer extensive software development capabilities for C2,
intelligence and information systems and deliver mission and enterprise-level solutions to the U.S. and
allied defense and intelligence organizations. We offer innovative data analytics capabilities and we design,
develop, integrate, deploy and support information-centric software and enterprise IT systems for complex,
data-driven national security challenges. Our capabilities are enhanced by our advanced software factories,
providing the brainpower to deliver the optimum software solutions for our customer base. Across the U.S.
Army we perform complex software development projects, develop training simulators for Army vehicles,
maintain and conduct soldier training for field C2 equipment, and we are installing our cloud-based Army
base access control system throughout the U.S.
Intelligence Analysis, Mission Support and Logistics Services – We deliver high-end services to the U.S.
Intelligence Community, DoD and allied governments. Operating throughout the world we provide
intelligence analysis, operational support, logistics operations, security, linguistics and training. In addition,
we deliver tailored IT services and solutions to our customers across the globe. We offer product support
and lifecycle sustainment services to our U.S. Army, Navy and Air Force customers including planning and
managing the cost and performance across the product’s lifecycle. We deliver turn-key logistics support to
U.S. and key allies and we provide enterprise solutions, including large-scale, end-to-end supply chain
optimization and modernization.
• Weapons Systems – We offer tactical weapons components and systems for surface-launched missiles,
cruise missiles, air-to-air, air-to-ground and anti-ship missiles and guided munitions and rockets across the
DoD. We also deliver offensive boost-glide, launcher and air-breathing systems and hypersonic defense
systems. We have capabilities in integrated force protection in both directed energy (such as high-energy
lasers and microwave systems) and area defense (such as counter-unmanned aviation systems, radar
systems and kinetic weapon launchers). In addition, we provide cyber-physical systems in the development
of offensive and defensive cyber command and control, toolkits and exploits, as well as offensive cyber
operations. We also support autonomous systems in the areas of unmanned aerial systems, surface ships,
undersea vehicles and ground vehicles as well as autonomy software and hardware for autonomous
vehicles and platforms.
Leidos Holdings, Inc. Annual Report - 4
PART I
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Human Space Exploration – We provide integrated design, manufacturing, integration of human-rated and
exploration spacecraft for NASA and commercial customers. We have the capability to design and
manufacture for satellite propulsion, structures and avionics and key launch vehicle subsystems such as
avionics/mission computing, guidance, navigation and control, boosters and structures.
Civil
Our Civil business is focused on modernizing infrastructure, systems and security for government and commercial
customers both domestically and internationally. By applying leading science, innovative technologies and business
acumen, our talented employees help customers achieve their missions and take on the connected world with data-
driven insights, improved efficiencies and technological advantages in the areas of transportation solutions, security
detection and automation, digital transformation services and environment, energy and infrastructure. Civil
represented 23% of total revenues for fiscal 2021, 24% of total revenues for fiscal 2020 and 25% of total revenues
for fiscal 2019.
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Transportation Solutions – Leidos is a trusted systems developer, service provider and integrator serving Air
Navigation Service Providers around the world, including the FAA. We provide air traffic control systems
that help manage the world's most complex airspace. We deliver many of the FAA's key automation
systems and services, including the En Route Automation Modernization ("ERAM"), Advanced Technology
Oceanic Procedures ("ATOP"), Time Based Flow Management, Terminal Flight Data Management,
Enterprise-Information Display System, Geo-7 and Future Flight Services. Leidos recently received 10+
year extensions to the ERAM and ATOP contracts for continued delivery of the evolving National Airspace
System needs. In addition, under the Mode S Beacon Replacement Systems contract, Leidos is supporting
the replacement of the FAA's Mode S Beacon Systems, which are secondary surveillance radar capable of
providing surveillance and specific aircraft information necessary to support Air Traffic Control automation in
all traffic environments. We also provide key air traffic control systems around the world, including New
Zealand and South Korea.
Security Detection and Automation – Our comprehensive suite of fully-integrated security detection and
automation solutions help increase security for aviation, ports and borders and critical infrastructure
customers around the world. With more than 24,000 products deployed across over 120 countries, this
business has the most widespread global footprint within the Civil portfolio. Leveraging this portfolio, our
core technical strengths and robust research and development initiatives, we are positioned to address
emerging and evolving threats through rapid development of innovative solutions for our global customers.
We are also a leader in aviation screening equipment, facilitating secure and efficient passenger movement
through fully-integrated solutions in airports worldwide. Our aviation solutions include best-in-class
checkpoint computed tomography, people scanners, explosive trace detectors and checked baggage
screening. For ports and borders worldwide, Leidos is helping safeguard the flow of regulated commerce
through innovations in screening technologies, common interfaces and artificial intelligence and machine
learning to effectively detect and mitigate threats across all trade elements, including cargo, vehicles and
people. We are the leading supplier of mobile non-intrusive inspection systems to U.S. Customs and Border
Protection ("CBP"). Leidos implemented the CBP “Port of the Future” pilot at Brownsville, Texas border
crossing aimed at achieving CPB cargo and privately-owned vehicle border screening goals. In addition, we
are transforming security detection beyond ports of entry to deliver fully-integrated and frictionless security
solutions for public venues and critical infrastructure.
Digital Transformation – We deliver secure, user-centric IT solutions in cloud computing, mobility,
application modernization, DevOps, data center and network modernization, asset management, help desk
operations and digital workplace enablement. We help our customers achieve their missions and business
goals by delivering purpose-built solutions, cybersecurity as a standard, efficient project delivery and end-
user satisfaction. Leidos is modernizing enterprise IT in classified and unclassified environments, including
programs with the FAA, NASA, IRS and the Department of Justice.
Leidos Holdings, Inc. Annual Report - 5
PART I
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Climate, Energy and Environment – We are trusted by government agencies and commercial customers
with substantial environmental and sustainability driven missions. Our reputation across environmental
management, nuclear security, energy efficiency, infrastructure management, mission support and IT
modernization provides the applicable expertise needed to transform operations while modernizing aging
infrastructure and maintaining environmental stewardship. We support the critical missions of the
Department of Energy ("DoE"), National Nuclear Security Administration, National Science Foundation,
utilities, energy investors and developers and energy efficiency administrators. At the DoE Hanford site, we
provide site-wide infrastructure management and operation including oversight of land and logistics, public
works, information technology, fleet transportation, environmental sustainability and compliance, first
responder services and future project planning. At the National Energy Technology Laboratory, we actively
perform and provide support for fundamental and applied research efforts, including providing product and
logistical support comprising of strategic business development, technology transfer and agreements and
education and outreach support for the effective and efficient conduct of research. In addition, we help
investor-owned utilities modernize power delivery systems, implement energy management strategies,
transform digital infrastructure and gain operational efficiencies to meet evolving energy needs.
Health
Our Health business focuses on delivering effective and affordable solutions to federal and commercial customers
that are responsible for the health and well-being of people worldwide, including service members and
veterans. Our solutions enable customers to deliver on the health mission of providing high-quality, cost-effective
care, and are accomplished through the integration of information technology, engineering, life sciences, health
services, clinical insights and health policy. The capabilities we provide predominantly fall in four major areas of
activity: health information management services, managed health services, digital transformation and life sciences
research and development. Health represented 19% of total revenues for fiscal 2021, 16% of total revenues for
fiscal 2020 and 18% of total revenues for 2019.
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Health Information Management Services – Leidos employs holistic-systems thinking in fielding applied
technology solutions across the entire continuum of healthcare. In our work delivering a single, common
electronic health record to both DoD and VA hospitals and treatment facilities worldwide, our responsibilities
range from integrating software for the electronic healthcare record vendor and dental record vendors to
integrating picture archiving and communications software and more. We support cybersecurity across all
integrated systems. We also provide enterprise IT solutions to the VA, National Institutes of Health ("NIH"),
DoD and other federal health customers to help operate mission critical infrastructure reliably and at a
reasonable cost. Commercially, we are leveraging these same Leidos-wide capabilities to manage critical
infrastructure to one of the largest health systems in the United States.
• Managed Health Services – We deploy a national footprint of health clinics and health providers to support
care delivery services, including medical disability and behavioral health examinations for the VA, as well as
serving other independent medical exam markets. We have developed unique capabilities in behavioral
health management through many decades of experience with a special emphasis on substance abuse
services. We believe that these capabilities can be expanded into other clinical adjacencies. Our managed
health services activities leverage our IT and mission enablement capabilities, which underpin solutions we
offer to our customers across all of our served markets.
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Digital Transformation – We manage the entire lifecycle of the IT journey for our customers. Our expertise
includes IT strategic planning, outsourcing and management of large scale data centers, agile software
development and system transformation, cloud migration and application modernization, digitization and big
data management and advanced analytics. Our customers include the Centers for Medicare & Medicaid
Services, Food and Drug Administration, Social Security Administration, VA, Defense Health Agency
("DHA") and commercial customers. Leidos helps transform our customers' IT environments in support of
their most critical missions, accomplished in a highly secure manner by leveraging our cybersecurity
domain expertise and our Leidos rapid application development software platform.
Leidos Holdings, Inc. Annual Report - 6
PART I
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Life Sciences Research & Development – We provide life science research and development support to the
NIH, Center for Disease Control, Army Medical Research community and commercial biotech companies.
Most notably, on behalf of the U.S. government and the public trust, we operate the Frederick National
Laboratory for Cancer Research, where we employ thousands of scientists, technicians, administrators and
support staff. Our professionals operate a wide range of leading-edge research and development
laboratories in the areas of genetics and genomics, proteins and proteomics, advanced biomedical
computing and information technology, biopharmaceutical development and manufacturing, nanotechnology
characterization and clinical trials management.
From the biomedical sciences to implementing and optimizing electronic health records and enabling providers to
perform care coordination and population health management, Leidos is pioneering the use of the depth and
breadth of systems integration principles, processes and technologies to transform the health industry’s evolution
towards better quality and more efficient and effective care.
Corporate
Corporate includes the operations of various corporate activities, certain expense items that are not reimbursed by
our U.S. government customers and certain other expense items excluded from a reportable segment's
performance.
Acquisitions and Divestitures
During fiscal 2021, we completed the acquisitions of Gibbs & Cox, 1901 Group, LLC, and an immaterial strategic
business acquisition. During fiscal 2020, we completed the acquisitions of L3Harris Technologies' ("L3Harris")
security detection and automation businesses and Dynetics, Inc. Additionally, during fiscal 2019, we completed the
acquisition of acquired IMX Medical Management Services and its affiliated businesses. See "Note 5—Acquisitions
and Divestitures" in Part II of this Annual Report on Form 10-K for further information.
During fiscal 2021, we signed a definitive agreement to dispose of Aviation & Missile Solutions LLC within our
Defense Solutions segment. During fiscal 2019, we divested of our commercial cybersecurity and health staff
augmentation businesses. For further information, see "Note 5—Acquisitions and Divestitures" in Part II of this
Annual Report on Form 10-K.
Key Customers
The majority of our revenues are generated in the United States. Our consolidated revenues are largely attributable
to prime contracts or to subcontracts with other contractors engaged in work for the U.S. government, with the
remaining attributable to international customers, including the U.K. Ministry of Defence and Australian Ministry of
Defence, and customers across a variety of commercial markets. Within the U.S. government, our revenues are
diversified across many agencies, including various intelligence agencies, the U.S. Army, Navy and Air Force, DHS,
DISA, FAA, Transportation Security Administration, CBP, DHA, VA, Department of Health and Human Services,
NASA, National Science Foundation, DoE, the Environmental Protection Agency and research agencies such as
Defense Advanced Research Projects Agency.
These customers have a number of subsidiary agencies that have separate budgets and procurement functions.
Our contracts may be with the highest level of these agencies or with the subsidiary agencies of these customers.
Human Capital
Employee and Workforce Demographics
As of December 31, 2021, we employed approximately 43,000 full and part-time employees of whom approximately
39,000 are located in the United States and the remainder of which are located in more than 39 countries
worldwide. Approximately 35% of our employees have degrees in science, technology, engineering or mathematics
fields, approximately 22% of our employees have advanced degrees, 49% of our employees possess U.S. security
clearances and approximately 20% of our employees are military veterans.
Leidos Holdings, Inc. Annual Report - 7
As of December 31, 2021, our workforce consisted of the following:
PART I
Gender of global employees
Global workforce
(1) Based on employees who self-identify.
Age of global employees
Less than 30 years
30-50 years
Greater than 50 years
Ethnicity of US employees(1)
White
Black
Asian/Indian
Hispanic/Latino
Other
Undisclosed
(1) Based on employees who self-identify.
Inclusion and Diversity
Male(1)
Female(1)
66 %
34 %
15 %
49 %
36 %
64 %
13 %
9 %
8 %
3 %
3 %
Our inclusion and diversity strategy and approach focuses on extensive education and best practices to enable
leader accountability, improve enterprise representation and evolve an inclusive culture. To further incorporate
inclusion in all areas of our business processes and practices, all leaders and employees are required to take
inclusion training annually to recognize challenges and mitigate barriers to inclusion in the workplace.
Our employees are encouraged to create and join multiple employee resource groups (“ERGs”) where they can
continue to develop cultural competence across various categories of diversity, enhance their personal networks,
develop leadership skills, and actively contribute to making Leidos a great place to work. In fiscal 2020, we
launched our inaugural Enterprise Inclusion Council to advise on the evolution of our inclusion and diversity strategy
and help leverage best practices across the company. The Council is chaired by two senior executives, a board
member who serves as a senior advisor and volunteers from across the business lines and functions.
Our Executive Mentoring Program is a year-long cohort designed to engage, develop and retain high-potential
employees, most of which are female and/or ethnically diverse participants. Our executives are each assigned to
mentor at least one employee nominated through the program to provide advice and guidance on development and
preparation for advancement opportunities.
Culture and Values
We have six core values that make us who we are as individuals and collectively as a company – integrity, inclusion,
innovation, agility, collaboration and commitment. These values provide a roadmap for our behavior and help to
guide our decisions in the workplace. They are a key component of our corporate culture and are integrated into all
employees' annual assessments to reinforce expectations. Our practices are based on our commitment to do the
right thing for our customers, our employees and our community. Our values are demonstrated by our employees as
they help our customers execute important missions on the front lines of the world’s most complex markets.
Our policies, procedures, training and communications form a comprehensive program that promotes a culture of
integrity as a foundation for employee conduct. For the fourth consecutive year, the Ethisphere Institute named
Leidos one of the World's Most Ethical Companies in 2021.
Leidos Holdings, Inc. Annual Report - 8
PART I
Career Mobility, Development and Growth
We recognize the value of a high-performing workforce and are committed to providing opportunities for employees
by encouraging career growth and movement across the enterprise. We view career development as a partnership
between employees, leaders and the company with a focus on building skills and experiences through internal
mobility, experiential learning, specialized programs (such as rotational opportunities), feedback and mentoring. We
provide a variety of career development resources, training and engagement sessions for employees and leaders.
We are dedicated to undertaking efforts to retain and strengthen our highly-skilled workforce. We recognize the
importance of technical upskilling and reskilling to support evolving workforce needs, and we offer programs which
allow us to develop and retain internal talent while providing employees with career growth. We have an Internal
Mobility Program with a dedicated team that proactively focuses on the redeployment of our employees. We teach
employees how to use the tools and resources available to them, and gain visibility across the enterprise. We assist
managers and recruiters in identifying internal candidates for their programs. We also conduct formal employee
engagement surveys and run quarterly pulse surveys to drive engagement, inclusion and retention across the
organization.
We offer instructor-led, virtual training and self-paced learning and development programs that develop and
enhance employee skills. We offer formal programs to help employees prepare for certifications including the
Project Management Institute and International Council on Systems Engineering as well as resources to prepare for
over 95 industry-standard professional and technical certifications. Additionally, we offer tuition assistance to all U.S.
full-time employees at accredited universities.
We invest in our current and future leaders in a number of ways. We have the Leidos Leadership program, which
develops effective and inclusive leaders, where our managers and executive leaders participate in leadership
development programs targeted towards the competencies and skills needed at their level. Annually we host a two-
day Leadership Summit for approximately 350 of our most senior leaders aligning business strategy and
transformation initiatives, alongside emphasizing the core values of our organization.
We have an annual succession planning rhythm and process that identifies and develops high-potential employees
at all levels of the organization. We create succession plans for all executive-level positions as well as for other
roles throughout the organization considered vital to our success. In addition, we establish development and
engagement plans for top talent comprised of formal and informal training, mentoring, coaching and experiential
learning opportunities.
Diversity in Talent Acquisition
Leidos is committed to promoting diversity and inclusion in our hiring practices, especially when we are seeking to
fill senior level positions. Our recruiting strategy includes building a pipeline of diverse candidates. Each year we
attend and sponsor a variety of national conferences and local career fairs that specifically engage talent across
various dimensions of diversity including ethnically diverse, gender, military status and sexual orientation.
We leverage our college campus and military veteran outreach as well as our ERGs to recruit diverse candidates.
Our college campus outreach engages talent from multiple university sources including the Leidos Strategic
University Alliances, Historically Black Colleges and Universities, Hispanic and other minority-serving institutions.
Our military veteran outreach program attracts, retains and supports current veterans, transitioning service
members and military spouses.
Health and Workplace Safety
Our primary focus is on the health and safety of our employees. Our multi-functional working group established in
fiscal 2020 continues to monitor and respond to COVID-19. This group closely follows the recommendations of the
World Health Organization and the U.S. Centers for Disease Control and Prevention, as well as national and local
authorities in the regions where we perform work for our customers. We have taken steps to support increased
teleworking and working environments. We have established a COVID-19 Safety Policy to ensure safety protocols
are implemented throughout the pandemic. Employees are also required to review our self-screening checklist to
ensure they are not experiencing symptoms prior to coming into a facility.
Leidos Holdings, Inc. Annual Report - 9
PART I
On September 9, 2021, President Biden issued a series of executive orders to combat COVID-19, one of which
requires us, as a federal contractor, to have our employees fully vaccinated unless the employee is legally entitled
to a religious or medical exemption. That executive order is currently under a nationwide injunction and its future is
uncertain. We are prepared to comply with the executive order in the event the injunction is lifted.
We believe we are a leader in the field of occupational health and safety (“OH&S”) and we place a strong emphasis
on these activities, both internally and on behalf of our customers. Internally, we emphasize direct management
responsibility, corporate policies and directives, OH&S program implementation, employee training and compliance
assessments. Our corporate policies and procedures support compliance with OH&S regulations at work locations.
We have a proactive compliance program of employee education, training, auditing and reporting that, through
employee awareness and integration into our business operations, supports our commitment to a safe and healthy
work environment.
Environmental Matters
Our operations are subject to various foreign, federal, state and local environmental protection and health and
safety laws and regulations. In addition, our operations may become subject to future laws and regulations,
including those related to climate change and environmental sustainability. See "Risk Factors" in this Annual Report
on Form 10-K for further details. Although we do not currently anticipate that the costs of complying with, or the
liabilities associated with, environmental laws will materially and adversely affect us, we cannot ensure that we will
not incur material costs or liabilities in the future.
Research and Development
We conduct research and development activities under customer-funded contracts and with company-funded
research and development funds. Company-funded research and development includes independent research and
development ("IR&D") and commercial and international research and development. Company-funded research and
development expenses are included in selling, general and administrative expenses. Our company-funded research
and development expense was $109 million, $73 million and $49 million for fiscal 2021, 2020 and 2019,
respectively, which as a percentage of consolidated revenues was 0.8%, 0.6% and 0.4% for fiscal 2021, 2020 and
2019, respectively. We charge expenses for research and development activities performed under customer
contracts directly to cost of revenues for those contracts.
Intellectual Property Rights
Our technical services and products are not generally dependent upon patent protection, although we do selectively
seek patent protection. We claim a proprietary interest in certain of our products, software programs, methodologies
and know-how. This proprietary information is protected in confidence as trade secrets, using non-disclosure and
other definitive agreements. We selectively pursue opportunities to license or transfer our technologies to third
parties.
In connection with the performance of services and solutions, the U.S. government has certain rights to inventions,
data, software codes and related material that we develop under U.S. government-funded contracts and
subcontracts. Generally, the U.S. government may disclose or license such information to third parties, including, in
some instances, our competitors. In the case of some subcontracts that we perform, the prime contractor generally
obtains rights to use the programs and products that we deliver under the subcontract to perform its prime contract
obligations.
Competition
Competition for contracts is significant, and we often compete against a large number of well-established
corporations that may have greater name and brand recognition. We also compete against smaller, more
specialized companies that concentrate their resources on particular areas, the U.S. government’s own capabilities
and federal non-profit contract research centers. As a result of the diverse requirements of the U.S. government and
our commercial customers, we frequently collaborate with other companies to compete for large contracts and bid
against these same companies in other situations.
Leidos Holdings, Inc. Annual Report - 10
PART I
We believe that our principal competitors currently include the following companies: Amentum Services Inc., Booz
Allen Hamilton Inc., CACI International Inc., General Dynamics Corporation, Jacobs Engineering Group Inc., KBR
Inc., L3Harris, Lockheed Martin Corporation, ManTech International Corporation, Northrop Grumman Corporation,
Raytheon Technologies Corporation, SAIC and Peraton. These companies span across sectors that include
engineering and technical services divisions of large defense contractors, diversified U.S. and international IT
providers and contractors focused solely on technical services, supply chain management, other logistics services
and major systems operations and maintenance, homeland security and health solutions.
We compete on various factors, including our technical expertise and qualified professional and/or security-cleared
personnel, our ability to deliver innovative cost-effective solutions in a timely manner, successful program execution,
our reputation and standing with customers, pricing, the size and geographic presence of our company and past
performance credentials.
Contract Procurement
Our business is heavily regulated, and we must comply with and are affected by laws and regulations relating to the
formation, administration and performance of U.S. government and other contracts. The U.S. government
procurement environment has evolved due to statutory and regulatory procurement reform initiatives. Today, U.S.
government customers employ several contracting methods to purchase services and products. Budgetary
pressures and reforms in the procurement process have caused many U.S. government customers to increasingly
purchase services and products using contracting methods that give them the ability to select multiple contract
winners or pre-qualify certain contractors to provide services or products on established general terms and
conditions rather than through single-award contracts. The predominant contracting methods through which U.S.
government agencies procure services and products include the following:
•
•
Definitive Award Contracts. U.S. government agencies may procure services and products through single
definitive award contracts which specify the scope of services or products purchased and identify the
contractor that will provide the specified services or products. When an agency has a requirement, the
agency will issue a solicitation or request for proposal to which interested contractors can submit a
proposal. The bidding and selection process can take a year or more to complete. For the contractor, this
method of contracting may provide greater certainty of the timing and amounts to be received at the time of
contract award because it generally results in the customer contracting for a specific scope of services or
products from the single definitive successful awardee.
Indefinite Delivery/Indefinite Quantity ("IDIQ") Contracts. The U.S. government uses IDIQ contracts to
obtain commitments from contractors to provide certain services or products on pre-established terms and
conditions. The U.S. government then issues task orders under the IDIQ contracts to purchase the specific
services or products it needs. IDIQ contracts are awarded to one or more contractors following a
competitive procurement process. Under a single-award IDIQ contract, all task orders under that contract
are awarded to one pre-established contractor. Under a multiple-award IDIQ contract, task orders can be
awarded to any of the pre-established contractors, which can result in further limited competition for the
award of task orders. Multiple-award IDIQ contracts that are open for any government agency to use for
procurement are commonly referred to as "government-wide acquisition contracts." IDIQ contracts often
have multi-year terms and unfunded ceiling amounts, therefore enabling, but not committing, the U.S.
government to purchase substantial amounts of services or products from one or more contractors. At the
time an IDIQ contract is awarded (prior to the award of any task orders), a contractor may have limited or no
visibility as to the ultimate amount of services or products that the U.S. government will purchase under the
contract, and in the case of a multiple-award IDIQ, the contractor from which such purchases may be made.
Leidos Holdings, Inc. Annual Report - 11
PART I
•
U.S. General Services Administration ("GSA") Schedule Contracts. The GSA maintains listings of approved
suppliers of services and products with agreed-upon prices for use throughout the U.S. government. In
order for a company to provide services under a GSA Schedule contract, a company must be pre-qualified
and awarded a contract by the GSA. When an agency uses a GSA Schedule contract to meet its
requirements, the agency, or the GSA on behalf of the agency, conducts the procurement. The user agency,
or the GSA on its behalf, evaluates the user agency’s requirements and initiates a competition limited to
GSA Schedule qualified contractors. GSA Schedule contracts are designed to provide the user agency with
reduced procurement time and lower procurement costs. Similar to IDIQ contracts, at the time a GSA
Schedule contract is awarded, a contractor may have limited or no visibility as to the ultimate amount of
services or products that the U.S. government will purchase under the contract.
• Other Transaction Authority (“OTA”) agreements. Under certain circumstances, U.S. government agencies
can enter into OTA agreements instead of traditional contracts. These agreements are used for two primary
purposes: (1) to carry out basic, applied or advanced research projects that typically relate to technology
stimulation or research, and (2) to carry out prototype projects that are directly relevant to enhancing the
mission effectiveness of military personnel and the supporting platforms, systems, components or materials
proposed to be acquired or developed by the DoD, or to improve platforms, systems, components or
materials in use by DoD components and agencies. OTA agreements are generally exempt from federal
procurement regulations. These exemptions grant the U.S. government the flexibility to include, amend or
exclude contract clauses and requirements that are mandatory in traditional procurements. OTA
agreements also grant more flexibility to structure agreements in numerous ways, including joint ventures,
partnerships or multiple agencies joining together to fund an agreement encompassing multiple providers.
We often partner with other companies, including our competitors, to submit bids for large U.S. government
procurements or other opportunities where we believe that the combination of services and products that we can
provide as a team will help us win and perform the contract. Our relationships with our partners, including whether
we serve as the prime contractor or as a subcontractor, vary with each contract opportunity and typically depend on
the program, contract or customer requirements, as well as the relative size, qualifications, capabilities, customer
relationships and experience of our company and our partners.
Contracting with the U.S. government also subjects us to substantial regulation and unique risks, including the U.S.
government’s ability to cancel any contract at any time through a termination for the convenience of the U.S.
government. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our
incurred costs and fees for work performed where the U.S. government issues a termination for convenience. These
regulations and risks are described in more detail below under "Business–Regulation" and "Risk Factors" in this
Annual Report on Form 10-K.
Contract Types
Generally, the type of contract for our services and products is determined by or negotiated with the U.S.
government and may depend on certain factors, including the type and complexity of the work to be performed,
degree and timing of the responsibility to be assumed by the contractor for the costs of performance, the extent of
price competition and the amount and nature of the profit incentive offered to the contractor for achieving or
exceeding specified standards or goals. We generate revenues under several types of contracts, including the
following:
•
Cost-reimbursement contracts include cost-plus-fixed-fee, award-fee and incentive-fee contracts. These
contracts provide for reimbursement of our direct contract costs and allocable indirect costs, plus a fee.
These contracts are typically used when uncertainties involved in contract performance do not permit costs
to be estimated with sufficient accuracy to use a fixed-price contract. Cost-reimbursement contracts
generally subject us to lower risk but require us to use our best efforts to accomplish the scope of the work
within a specified time and budget. Award and incentive fees are generally based on performance criteria
such as cost, schedule, quality and/or technical performance. Award fees are determined and earned based
on customer evaluation of the company's performance against contractual criteria. Incentive fees that are
based on cost provide for an initially negotiated fee to be adjusted later, typically using a formula to
measure performance against the associated criteria, based on the relationship of total allowable costs to
total target costs.
Leidos Holdings, Inc. Annual Report - 12
PART I
•
•
•
•
Fixed-price-incentive-fee ("FP-IF") contracts are substantially similar to cost-plus-incentive-fee contracts
except they require specified targets for cost and profit, price ceiling (but not a profit ceiling or floor) and
profit adjustment formula. Under an FP-IF contract, the allowable costs incurred are eligible for
reimbursement but are subject to a cost-share arrangement, which affects profitability. Generally, if our
costs exceed the contract target cost or are not allowable under the applicable regulations, we may not be
able to obtain reimbursement for all costs and may have our fees reduced or eliminated.
Time-and-materials ("T&M") contracts typically provide for negotiated fixed hourly rates for specified
categories of direct labor plus reimbursement of other direct costs. This type of contract is generally used
when there is uncertainty about the extent or duration of the work to be performed by the contractor at the
time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. On
T&M contracts, we assume the risk of providing appropriately qualified staff to perform these contracts at
the hourly rates set forth in the contracts over the period of performance of the contracts.
Fixed-price-level-of-effort ("FP-LOE") contracts are substantially similar to T&M contracts except they
require a specified level of effort over a stated period of time on work that can be stated only in general
terms. This type of contract is generally used when the contractor is required to perform an investigation or
study in a specific research and development area and to provide a report showing the results achieved
based on the level of effort. Payment is based on the effort expended rather than the results achieved.
Firm-Fixed-Price (“FFP”) contracts provide for a fixed price for specified products, systems and/or services.
This type of contract is typically used when the customer acquires products and services on the basis of
reasonably definitive specifications that have a determinable fair and reasonable price. These contracts
offer us potential increased profits if we can complete the work at lower costs than planned, but FFP
contracts increase our exposure to the risk of cost overruns.
Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues
derived from each type of contract and the nature of services or products provided, as well as the achievement of
performance objectives and the stage of performance at which the right to receive fees, particularly under incentive-
fee and award-fee contracts, is finally determined. Cost-reimbursement and T&M contracts generally have lower
profitability than FFP contracts.
Seasonality
The U.S. government's fiscal year ends on September 30 of each year. While not certain, it is not uncommon for
U.S. government agencies to award extra tasks or complete other contract actions in the timeframe leading up to
the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds, which may favorably impact our
third fiscal quarter. In addition, our quarterly results may be impacted by the number of working days in a given
quarter. We tend to generate less revenue from our labor services during the fourth quarter as a result of the holiday
season.
Regulation
We are heavily regulated in most of the fields in which we operate. We provide services and products to numerous
U.S. government agencies and entities, including to the DoD, the U.S. Intelligence Community and the DHS. When
working with these and other U.S. government agencies and entities, we must comply with various laws and
regulations relating to the formation, administration and performance of contracts. Some significant laws and
regulations that affect us include:
•
•
•
the Federal Acquisition Regulation ("FAR") and supplements, including the DoD Federal Federal Acquisition
Regulation Supplement ("DFARS"), which regulate the formation, administration and performance of U.S.
government contracts;
the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in
connection with certain contract negotiations;
the Procurement Integrity Act, which regulates access to competitor bid and proposal information and
government source selection information and our ability to provide compensation to certain former
government officials;
Leidos Holdings, Inc. Annual Report - 13
PART I
•
•
•
the Civil False Claims Act, which provides for substantial civil penalties for violations, including for
submission of a false or fraudulent claim to the U.S. government for payment or approval;
the False Statements Act, which imposes civil and criminal liability for making false statements to the U.S.
government; and
the U.S. government Cost Accounting Standards ("CAS"), which imposes accounting requirements that
govern our right to reimbursement under certain cost-based U.S. government contracts.
These regulations impose a broad range of requirements, many of which are unique to government contracting,
including various procurement, import and export, security, contract pricing and cost, contract termination and
adjustment and audit requirements. Among other things, these laws and regulations:
•
•
•
•
•
•
require certification and disclosure of all cost and pricing data in connection with certain contract
negotiations;
define allowable and unallowable costs and otherwise govern our right to reimbursement under various
cost-type U.S. government contracts;
require compliance with U.S. government CAS;
require reviews by the Defense Contract Audit Agency ("DCAA"), Defense Contract Management Agency
("DCMA") and other U.S. government agencies of compliance with government requirements for a
contractor’s business systems;
restrict the use and dissemination of and require the protection of unclassified contract-related information
and information classified for national security purposes and the export of certain products and technical
data; and
require us not to compete for work if an actual or potential organizational conflict of interest, as defined by
these laws and regulations, related to such work exists and/or cannot be appropriately mitigated,
neutralized or avoided.
The U.S. government may revise its procurement practices or adopt new contract rules and regulations at any time.
In order to help ensure compliance with these complex laws and regulations, all of our employees are required to
complete ethics and other compliance trainings relevant to their position.
Privacy and Data Security Laws
Some of our operations and service offerings involve access to and use by us of personally identifiable information
and/or protected health information. These activities are regulated by extensive federal, state and international
privacy and data security laws requiring organizations to provide certain privacy protections and security safeguards
for such information. For example:
•
•
•
•
the European Union's ("EU’s") General Data Protection Regulation (“GDPR”), which took effect in May
2018, has created new compliance obligations for companies that process data of EU data subjects, which
require investment into ongoing data protection activities and documentation requirements, and creates the
potential for significantly increased fines for noncompliance;
the California Consumer Protection Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020,
provides new consumer privacy rights to natural persons residing in California by regulating the processing
of personal information of California residents and increasing the obligations on businesses in connection
with such activities;
the California Privacy Rights Act (“CPRA”), will take effect in most material respects on January 1, 2023.
The CPRA modifies the CCPA significantly, including by expanding consumers’ rights with respect to certain
sensitive personal information and creating a new state agency to oversee implementation and enforcement
efforts; and
the Virginia Consumer Data Protection Act (“VCDPA”), which will go into effect on January 1, 2023, grants
Virginia residents the rights to access, correct, delete, know and opt-out of the sale and processing for
targeted advertising purposes of their personal information, similar to the CCPA and CPRA. The VCDPA
also provides for additional data protection assessment requirements.
Leidos Holdings, Inc. Annual Report - 14
PART I
Company Website and Information
Our corporate headquarters is located at 1750 Presidents Street, Reston, VA 20190 and our telephone number is
(571) 526-6000. Our website can be accessed at www.leidos.com. The website contains information about our
company and operations. Through a link on the Investor Relations section of our website, copies of each of our
filings with the U.S. Securities and Exchange Commission ("SEC") on Form 10-K, Form 10-Q and Form 8-K, and all
amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable
after the reports and amendments are electronically filed with or furnished to the SEC. The SEC also maintains a
website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including Leidos. The information on our website is not incorporated by
reference into and is not a part of this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 15
PART I
Item 1A. Risk Factors
In your evaluation of our company and business, you should carefully consider the risks and uncertainties described
below, together with information disclosed elsewhere in this Annual Report on Form 10-K, including our consolidated
financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II of this Annual Report, and other documents we file with the SEC. The risks and
uncertainties described below are those that we have identified as material but are not the only risks and uncertainties
facing us. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results
could be materially harmed and our stock price could decline. Our business is also subject to general risks and
uncertainties that affect many other companies, such as our ability to collect receivables, overall U.S. and global
economic and industry conditions, geopolitical events, changes in laws or accounting rules, fluctuations in interest,
exchange rates and inflation, terrorism, international conflicts, major health concerns, climate change or other
disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us
or that we currently believe are immaterial also may materially harm our business, financial condition or operating
results and result in a decline in our stock price.
Industry and Economic Risks
We depend on government agencies as our primary customers and if our reputation or relationships with these
agencies were harmed, our future revenues and growth prospects could be adversely affected.
We generated approximately 87% of our total revenues during fiscal 2021, 2020 and 2019 from contracts with the U.S.
government (including all branches of the U.S. military), either as a prime contractor or a subcontractor to other
contractors engaged in work for the U.S. government. We expect to continue to derive most of our revenues from work
performed under U.S. government contracts. Our reputation and relationship with the U.S. government, particularly with
the agencies of the DoD and the U.S. Intelligence Community, are key factors in maintaining and growing our revenues.
Negative publicity, including reports from the press or social media coverage, regardless of accuracy or completeness,
and which could pertain to employee or subcontractor misconduct, conflicts of interest, poor contract performance,
deficiencies in services, reports, products or other deliverables, information security breaches or other aspects of our
business, could harm our reputation, particularly with these agencies. Due to the sensitive nature of our work and our
confidentiality obligations to our customers, and despite our ongoing efforts to provide transparency, we may be unable
to or limited in our ability to respond to such negative publicity, which could also harm our reputation and our business. If
our reputation is negatively affected, certain customers could cease to do business with us. In addition, our ability to hire
or retain employees and our standing in professional communities, to which we contribute and receive expert
knowledge, could be diminished. If any of the foregoing occurs, the amount of business with the U.S. government and
other customers could decrease, and our business, future revenues, financial condition and growth prospects could be
adversely affected.
A decline in the U.S. government budget, changes in spending or budgetary priorities or delays in contract
awards may significantly and adversely affect our future revenues and limit our growth prospects.
Revenues under contracts with the DoD and U.S. Intelligence Community, either as a prime contractor or subcontractor
to other contractors, represented approximately 44% of our total revenues for fiscal 2021, 49% of our total revenues for
fiscal 2020 and 48% of our total revenues for fiscal 2019. Levels of U.S. government and DoD spending are difficult to
predict and subject to significant risk. Laws and plans adopted by the U.S. government relating to, along with pressures
on and uncertainty surrounding the U.S. federal budget, potential changes in budgetary priorities and defense spending
levels, the appropriations process and the permissible federal debt limit, could adversely affect the funding for individual
programs and delay purchasing or payment decisions by our customers. Considerable uncertainty exists regarding how
future budget and program decisions will unfold, including the defense spending priorities of the U.S. Presidential
Administration and Congress and what challenges budget reductions will present for us and our industry generally.
Current U.S. government spending levels for defense-related or other programs may not be sustained and future
spending and program authorizations may not increase or may decrease or shift to programs in areas where we do not
provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary
priorities may occur as a result of uncertainty surrounding the federal budget, increasing political pressure and
legislation, shifts in spending priorities from defense-related or other programs as a result of competing demands for
federal funds, the number and intensity of military conflicts or other factors. If government funding relating to our
contracts with the U.S. government or DoD becomes unavailable, or is reduced or delayed, or planned orders are
reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. government or
Leidos Holdings, Inc. Annual Report - 16
PART I
the prime contractor. Our operating results could also be adversely affected by spending caps or changes in the
budgetary priorities of the U.S. government or the DoD, as well as delays in program starts or the award of contracts or
task orders under contracts.
The U.S. government also conducts periodic reviews of U.S. defense strategies and priorities, which may shift DoD or
other budgetary priorities, reduce overall U.S. government spending or delay contract or task order awards for defense-
related or other programs from which we would otherwise expect to derive a significant portion of our future revenues. In
addition, changes to the federal or DoD acquisition system and contracting models could affect whether and how we
pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S.
government spending, including in the areas of national security, intelligence and homeland security, a significant shift in
its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant
delays in contract or task order awards for large programs could adversely affect our future revenues and results of
operations and limit our growth prospects.
Because we depend on U.S. government contracts, a delay in the completion of the U.S. government's budget
and appropriation process could delay procurement of the products, services and solutions we provide and
adversely affect our future revenues.
The funding of U.S. government programs is subject to an annual congressional budget authorization and
appropriations process. In years when the U.S. government does not complete its appropriations before the beginning
of the new fiscal year on October 1, government operations are typically funded pursuant to a "continuing resolution,"
which allows federal government agencies to operate at spending levels approved in the previous appropriations cycle,
but does not authorize new spending initiatives. When the U.S. government operates under a continuing resolution,
delays can occur in the procurement of the products, services and solutions that we provide and may result in new
initiatives being canceled. From time to time, we have experienced a decline in revenues in our fourth quarter as a
result of this annual appropriations cycle, and we could experience similar declines in revenues from future delays in the
appropriations process. When the U.S. government fails to complete its appropriations process or provide for a
continuing resolution, a full or partial federal government shutdown may result. A federal government shutdown could, in
turn, result in our incurrence of substantial labor or other costs without reimbursement under customer contracts, the
delay or cancellation of key programs or the delay of contract payments, which could have a negative effect on our cash
flows and adversely affect our future results of operations. Congress appropriates funds on an annual fiscal year basis
for many programs, even though the program performance period may extend over several years. Consequently,
programs are often partially funded initially and additional funds are committed only as Congress makes further
appropriations. If we incur costs in excess of funds obligated on a contract, we may be at risk for reimbursement of
those costs unless or until additional funds are obligated to the contract. In addition, when supplemental appropriations
are required to operate the U.S. government or fund specific programs and passage of legislation needed to approve
any supplemental appropriations bill is delayed, the overall funding environment for our business could be adversely
affected.
Due to the competitive process to obtain contracts and the likelihood of bid protests, we may be unable to
achieve or sustain revenue growth and profitability.
We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive
bidding process. The U.S. government has increasingly relied on contracts that are subject to a continuing competitive
bidding process, including GSA Schedule and other multi-award contracts, which has resulted in greater competition
and increased pricing pressure. The competitive bidding process involves substantial costs, including significant cost
and managerial time to prepare bids and proposals for contracts that may not be awarded to us, may be split among
competitors or that may be awarded but for which we do not receive meaningful task orders, and several risks, including
the risk of inaccurately estimating the resources and costs that will be required to fulfill any contract we win. Following
contract award, we may encounter significant expense, delay, contract modifications or even contract loss as a result of
our competitors protesting the award of contracts to us in competitive bidding. Any resulting loss or delay of start-up and
funding of work under protested contract awards may adversely affect our revenues and profitability. In addition, multi-
award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result,
we may not be able to obtain these task orders or recognize revenues under these multi-award contracts. We are also
experiencing increased competition generally, which impacts our ability to obtain contracts; see the risk factor “We face
intense competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth
prospects.” Our failure to compete effectively in this procurement environment would adversely affect our revenues and
profitability.
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The U.S. government may terminate, cancel, modify or curtail our contracts at any time prior to their completion
and, if we do not replace them, this may adversely affect our future revenues and profitability.
Many of the U.S. government programs in which we participate as a contractor or subcontractor extend for several
years and include one or more base years and one or more option years. These programs are typically funded on an
annual basis. Under our contracts, the U.S. government generally has the right not to exercise options to extend or
expand our contracts and may otherwise terminate, cancel, modify or curtail our contracts at its convenience. Any
decisions by the U.S. government to not exercise contract options or to terminate, cancel, modify or curtail our major
programs or contracts would adversely affect our revenues, revenue growth and profitability.
We have experienced and continue to experience periodic performance issues under certain of our contracts. Some of
our contracts involve developing complex systems and products to achieve challenging customer goals in a competitive
procurement environment. As a result, we sometimes experience technological or other performance difficulties, which
have in the past and may in the future result in delays, cost overruns and failures in our performance of these contracts.
If a government customer terminates a contract for default, we may be exposed to liability, including for excess costs
incurred by the customer in procuring undelivered services and products from another source. Depending on the nature
and value of the contract, a performance issue or termination for default could cause our actual results to differ from
those anticipated and could harm our reputation.
We face intense competition that can impact our ability to obtain contracts and therefore affect our future
revenues and growth prospects.
Our business is highly competitive and we compete with larger companies with greater name recognition, financial
resources and a larger technical staff. We also compete with smaller, more specialized companies that can concentrate
their resources on particular areas. Additionally, we compete with the U.S. government’s own capabilities and federal
non-profit contract research centers. For example, some customers, including the DoD, are turning to commercial
contractors, rather than traditional defense contractors, for some products and services, and may utilize small business
contractors or determine to source work internally rather than hiring a contractor. The markets in which we operate are
characterized by rapidly changing customer needs and technology and our success depends on our ability to invest in
and develop services and products that address such needs. To remain competitive, we must consistently provide
superior service, technology and performance on a cost-effective basis to our customers while understanding customer
priorities and maintaining customer relationships. Our competitors may be able to provide our customers with different
or greater capabilities or technologies or better contract terms than we can provide, including technical qualifications,
past contract experience, geographic presence, price and the availability of qualified professional personnel, or be
willing to accept more risk or lower profitability in competing for contracts.
Some of our competitors have made or could make acquisitions of businesses, or establish teaming or other
agreements among themselves or third parties, which allow them to offer more competitive and comprehensive
solutions. As a result of such acquisitions or arrangements, our current or potential competitors may be able to
accelerate the adoption of new technologies that better address customer needs, devote more significant resources to
bring these products and services to market, initiate or withstand substantial price competition, develop and expand
their product and service offerings more quickly than we do or limit our access to certain suppliers. These competitive
pressures in our market or our failure to compete effectively may result in fewer orders, reduced revenue and margins
and loss of market share. Further industry consolidation may also impact customers’ perceptions of the viability of
smaller or even mid-size software firms and consequently customers’ willingness to purchase from such firms.
Legal and Regulatory Risks
Our failure to comply with various complex procurement rules and regulations could result in our being liable
for penalties, including termination of our U.S. government contracts, disqualification from bidding on future
U.S. government contracts and suspension or debarment from U.S. government contracting.
We must comply with laws and regulations relating to the formation, administration and performance of U.S. government
contracts, which affect how we do business with our customers. Such laws and regulations may potentially impose
added costs on our business and our failure to comply with them may lead to civil or criminal penalties, termination of
our U.S. government contracts, or suspension or debarment from contracting with federal agencies. For additional
background on the regulations that apply to our business and the related compliance risks, see “Regulation” within Item
1 of this Annual Report on Form 10-K and the risk factor “Our business is subject to governmental review and
investigation, which could adversely affect our financial position, operating results and growth prospects." The FAR and
Leidos Holdings, Inc. Annual Report - 18
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many of our U.S. government contracts contain organizational conflict of interest clauses that may limit our ability to
compete for or perform certain other contracts or other types of services for particular customers. Organizational
conflicts of interest arise when we engage in activities that may make us unable to render impartial assistance or advice
to the U.S. government, impair our objectivity in performing contract work or provide us with an unfair competitive
advantage. A conflict of interest issue that precludes our competition for or performance on a significant program or
contract could harm our prospects.
The U.S. government may adopt new contract rules and regulations or revise its procurement practices in a
manner adverse to us at any time.
Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as
a result of an increased focus on affordability, efficiencies and recovery of costs, among other items. U.S. government
agencies may face restrictions or pressure regarding the type and amount of services that they may obtain from private
contractors. Legislation, regulations and initiatives dealing with procurement reform, mitigation of potential conflicts of
interest and environmental responsibility or sustainability, as well as any resulting shifts in the buying practices of U.S.
government agencies, such as increased usage of fixed-price contracts, multiple-award contracts and small business
set-aside contracts, could have adverse effects on government contractors, including us. Any of these changes could
impair our ability to obtain new contracts or renew our existing contracts when customers recompete those contracts.
Any new contracting requirements or procurement methods could be costly or administratively difficult to implement and
could adversely affect our future revenues, profitability and prospects.
As a U.S. government contractor, our partners and we are subject to reviews, audits and cost adjustments by
the U.S. government, which could adversely affect our profitability, cash position or growth prospects if
resolved unfavorably to us.
U.S. government contractors (including their subcontractors and others with whom they do business) operate in a highly
regulated environment and are routinely audited and reviewed by the U.S. government and its agencies, including the
DCAA, DCMA, the DoD Inspector General and others. These agencies review a contractor's performance on
government contracts, cost structure, indirect rates and pricing practices, compliance with applicable contracting and
procurement laws, regulations, terms and standards, and the adequacy of our systems and processes in meeting
government requirements. They also review the adequacy of the contractor’s compliance with government standards for
its business systems, including a contractor's accounting system, earned value management system, estimating
system, materials management and accounting system, property management system and purchasing system.
As a result of increased scrutiny on contractors and U.S. government agencies, audits and reviews are conducted
rigorously and the applicable standards are strictly interpreted, increasing the likelihood of an audit or review resulting in
an adverse outcome. A finding of significant control deficiencies in our system audits or other reviews can result in
decremented billing rates to our U.S. government customers until the control deficiencies are corrected and the DCMA
accepts our remediations. Government audits and reviews may conclude that our practices are not consistent with
applicable laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Such
adjustments can be applied retroactively, which could result in significant customer refunds. Our receipt of adverse audit
findings or the failure to obtain an "approved" determination of our various business systems from the responsible U.S.
government agency could significantly and adversely affect our business, including our ability to bid on new contracts
and our competitive position in the bidding process. A determination of noncompliance could also result in the U.S.
government imposing penalties and sanctions against us, including reductions of the value of contracts, contract
modifications or termination, withholding of payments, the loss of export/import privileges, administrative or civil
judgments and liabilities, criminal judgments or convictions, liabilities and consent or other voluntary decrees or
agreements, other sanctions, the assessment of penalties, fines or compensatory, treble or other damages or non-
monetary relief or actions, suspension or debarment, suspension of payments and increased government scrutiny that
could negatively impact our reputation, delay or adversely affect our ability to invoice and receive timely payment on
contracts, perform contracts or compete for contracts with the U.S. government. As of December 31, 2021, indirect cost
audits by the DCAA remain open for fiscal 2016 and subsequent fiscal years. Although we have recorded contract
revenues based upon our estimate of costs that we believe will be approved upon final audit or review, we cannot
predict the outcome of any ongoing or future audits or reviews and adjustments and, if future adjustments exceed our
estimates, our profitability may be adversely affected.
Leidos Holdings, Inc. Annual Report - 19
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Our business is subject to governmental review and investigation, which could adversely affect our financial
position, operating results and growth prospects.
We are routinely subject to governmental investigations relating to compliance with various laws and regulations with
respect to our role as a contractor to federal, state and local government customers and in connection with performing
services in countries outside the U.S. If a review or investigation identifies improper or illegal activities, we may be
subject to disgorgement of profits, fines, damages, litigation, civil or criminal penalties, exclusion from sales channels or
sales opportunities, injunctions or administrative sanctions, including the termination of contracts, the triggering of price
reduction clauses, suspension of payments, suspension or debarment from doing business with governmental agencies
or other consequences. We may suffer harm to our reputation if allegations of impropriety are made against us, which
would impair our ability to win new contract awards or receive contract renewals. Penalties and sanctions are not
uncommon in our industry. If we incur a material penalty or administrative sanction or otherwise suffer harm to our
reputation, our revenues, profitability, cash position and future prospects could be adversely affected. More generally,
increases in scrutiny and investigations from government organizations, legislative bodies or agencies into business
practices and major programs supported by contractors may lead to increased legal costs and may harm our reputation,
revenues, profitability and growth prospects.
Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration or other legal proceedings
could require us to pay potentially large damage awards and could be costly to defend, which would adversely
affect our cash balances and profitability, and could damage our reputation.
We are subject to and may become a party to various other litigation, claims, investigations, audits, enforcement
actions, arbitrations or other legal proceedings that arise from time to time in the ordinary course of our business.
Adverse judgments or settlements in some or all of these legal disputes may result in significant monetary damages,
penalties or injunctive relief against us. Any claims or litigation could be costly to defend, and even if we are successful
or fully indemnified or insured, they could damage our reputation and make it more difficult to compete effectively or
obtain adequate insurance in the future, and responding to any action may result in a significant diversion of
management's attention and resources. Litigation and other claims are subject to inherent uncertainties and
management’s view of these matters may change in the future. For a description of our current legal proceedings, see
"Item 3. Legal Proceedings" along with "Note 21—Commitments and Contingencies" of the notes to the consolidated
financial statements contained within this Annual Report on Form 10-K.
Our business and operations expose us to numerous legal and regulatory requirements, and any violation of
these requirements could harm our business.
We are subject to numerous state, federal and international laws and directives and regulations in the U.S. and abroad
that involve matters central to our business, including data privacy and protection, employment and labor relations,
immigration, taxation, anti-corruption, anti-bribery, import-export controls, trade restrictions, internal and disclosure
control obligations, securities regulation and anti-competition. Compliance with legal requirements is costly, time-
consuming and requires significant resources. We also conduct business in certain identified growth areas, such as
health information technology, energy and environmental services, which are highly regulated and may expose us to
increased compliance risk. Violations of one or more of these legal requirements in the conduct of our business could
result in significant fines and other damages, criminal sanctions against us or our officers, prohibitions on doing
business and damage to our reputation. Violations of these regulations or contractual obligations related to regulatory
compliance in connection with the performance of customer contracts could also result in liability for significant
monetary damages, fines and criminal prosecution, unfavorable publicity and other reputational damage, restrictions on
our ability to compete for certain work and allegations by our customers that we have not performed our contractual
obligations.
Our business is subject to complex and evolving laws and regulations regarding privacy and data security
which could subject us to investigations, claims or monetary penalties against us, require us to change our
business practices or otherwise adversely affect our revenues and profitability.
We are subject to a variety of laws and regulations in the U.S. and abroad relating to data privacy and security. These
laws and regulations are complex, constantly evolving, and may be subject to significant change in the future. In
addition, the application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in
new and rapidly evolving areas of technology, and may differ in material respects among jurisdictions, interpreted and
Leidos Holdings, Inc. Annual Report - 20
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applied inconsistently among jurisdictions or in a manner that is inconsistent with our current policies and practices, all
of which can make compliance challenging and costly, and expose us to related risks and liabilities.
As a contractor supporting defense, health care, and national security clients, we are also subject to certain additional,
specific regulatory compliance requirements relating to data privacy and security. Under DFARS and other federal
regulations, we are required to implement the security and privacy controls in National Institute of Standards and
Technology Special Publications on certain of our networks and information technology systems. To the extent that we
do not comply with the applicable security and control requirements, and there is unauthorized access or disclosure of
sensitive information, this could potentially result in a contract termination or information security issues, which could
materially and adversely affect our business and financial results and lead to reputational harm. We will also be subject
to the DoD Cybersecurity Maturity Model Certification (“CMMC”) requirements, which will require contractors processing
critical national security information on their IT systems to receive specific third-party certifications relating to specified
cybersecurity standards to be eligible for contract awards. In addition, our subcontractors, and in some cases our
vendors, also may be required to adhere to the CMMC program requirements and, potentially, to achieve certification.
Should our supply chain fail to meet compliance requirements or achieve certification, this may adversely affect our
ability to receive awards or execute on relevant government programs. We are in the process of evaluating our
readiness and preparing for the CMMC, but to the extent we are unable to achieve certification in advance of contract
awards that specify the requirement in the future, we will be unable to bid on such contract awards or follow-on awards
for existing work with the DoD, depending on the level of standard as required for each solicitation, which could
adversely impact our revenue and profitability. In addition, any obligations that may be imposed on us under the CMMC
may be different from or in addition to those otherwise required by applicable laws and regulations, which may cause
additional expense for compliance.
The overarching complexity of data privacy and security laws and regulations around the world pose a compliance
challenge that could manifest in costs, damages or liability in other forms as a result of failure to implement proper
programmatic controls, failure to adhere to those controls, or the breach of applicable data privacy and security
requirements by us, our employees, our business partners (including our service providers, suppliers or subcontractors)
or our customers. We also expect that there will continue to be new proposed laws, regulations and industry standards
concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and
standards, or amendments to or re-interpretations of existing laws, regulations or standards, may have on our business.
Any failure or perceived failure by us, our service providers, suppliers, subcontractors or other business partners to
comply with applicable laws, regulations and other obligations in these areas could result in regulatory actions or
lawsuits against us, legal liability, fines, damages and other costs. We may also incur substantial expenses in
implementing and maintaining compliance with such laws, regulations and other obligations. For additional background
on the privacy laws that apply to our business and the related compliance risks, see “Regulation” within Item 1 of this
Annual Report on Form 10-K.
Business and Operational Risks
The extent to which our business will be adversely affected by COVID-19 or other health epidemics, pandemics
and similar outbreaks is highly uncertain and cannot be predicted.
The outbreak and global spread of COVID-19, and the preventative or protective actions that governments,
corporations, individuals and we are taking and may continue to take in an effort to limit the impact of COVID-19, have
resulted in a period of business disruption and increased economic uncertainty. The spread of COVID-19 has caused us
to modify our business practices, including vaccination and testing requirements, employee travel, access to customer
sites, employee and contractor remote work and restrictions to physical participation in meetings, events and
conferences. Illness, travel restrictions or other workforce disruptions could adversely affect our supply chain and our
access to suppliers of important technologies and components, our ability to timely and satisfactorily complete our
clients’ projects, our ability to provide services to our clients or our other business processes. We may take further
actions that we determine are in the best interests of our employees, customers and business partners or may be
required by government authorities. For example, on September 9, 2021, President Biden issued a series of executive
orders to combat COVID-19, including an executive order that would have required us, as a federal contractor, to have
our employees fully vaccinated unless the employee is legally entitled to a religious or medical exemption. That
executive order is currently under a nationwide injunction and its future is uncertain. In any event, there is no certainty
that such measures will be sufficient to mitigate the risks posed by COVID-19. In addition, as local conditions and
regulations continue to permit the return of employees to business generally, our workforce may not be able to return to
work in person immediately, if at all, or may instead choose to pursue competing employment opportunities, including as
Leidos Holdings, Inc. Annual Report - 21
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a result of transportation, childcare, and ongoing health issues, which could negatively affect our business. If significant
portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions,
increased employee attrition, facility closures or other restrictions due to COVID-19, or do not comply with our
COVID-19 mitigation efforts or facility access requirements, our business and results of operations could be materially
and adversely impacted.
Government agencies are our primary customers and the long-term impact of increased government spending in
response to COVID-19 is uncertain. This could result in a re-evaluation of U.S. government spending levels and
priorities, which could impact our business performance. The situation surrounding COVID-19 remains fluid and the
likelihood of an impact on us that could be material increases the longer the virus impacts activity levels in the locations
in which we operate. In particular, the emergence of new and more transmissible COVID-19 variants, including the
efficacy of vaccines against such variants, booster vaccinations, or a lack of public acceptance of vaccines and low
vaccination rates in certain parts of the U.S., may delay economic recovery. Further, even if vaccines are widely
distributed and accepted, there can be no assurance that vaccines will ultimately be successful in limiting or stopping
the spread of COVID-19.
The global spread of COVID-19 has resulted in a substantial decline in demand for air travel, which has adversely
impacted the demand for products and services related to our airport security detection and automation business. We
are not able to predict whether COVID-19 will result in permanent changes to air travel behaviors, including a
permanent reduction in business travel as a result of the increased use of teleconferencing products and, more broadly,
a general reluctance to travel by consumers, each of which has, and could continue to, impact our business. Further,
new contract awards have been and may continue to be delayed and our ability to perform on our existing contracts has
been and may continue to be delayed or impaired, which will negatively impact our revenues. In addition, our program
costs have increased as a result of COVID-19, and these cost increases may not be fully recoverable or adequately
covered by insurance or equitable adjustments to contract prices.
Misconduct of employees, subcontractors, agents, suppliers, business partners or joint ventures and others
working on our behalf could cause us to lose existing contracts or customers and adversely affect our ability to
obtain new contracts and customers and could have a significant adverse impact on our business and
reputation.
Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of
laws, such as the Anti-Kickback Act, and the failure to comply with our policies and procedures or with federal, state or
local government procurement regulations, regulations regarding the use and safeguarding of classified or other
protected information, legislation regarding the pricing of labor and other costs in government contracts, laws and
regulations relating to environmental, health or safety matters, bribery of foreign government officials, import-export
control, lobbying or similar activities and any other applicable laws or regulations. Any data loss or information security
lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified
information could result in claims, remediation costs, regulatory investigations or sanctions against us, corruption or
disruption of our systems or those of our customers, impairment of our ability to provide services to our customers, loss
of current and future contracts, indemnity obligations, serious harm to our reputation and other potential liabilities. See
also the risk factor “Cybersecurity breaches and other information security incidents could negatively impact our
business and financial results, impair our ability to effectively provide our services to our clients and cause harm to our
reputation or competitive position.” Although we have implemented policies, procedures, training and other compliance
controls to prevent and detect these activities, these precautions may not prevent all misconduct, and as a result, we
could face unknown risks or losses. This risk of improper conduct may increase as we continue to expand and do
business with new partners. In the ordinary course of our business we form and are members of joint ventures (meaning
joint efforts or business arrangements of any type). Our failure to comply with applicable laws or regulations could
damage our reputation and subject us to administrative, civil or criminal investigations and enforcement actions, fines
and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts,
loss of privileges and other sanctions, including suspension or debarment from contracting with federal, state or local
government agencies, any of which would adversely affect our business, reputation and our future results.
Leidos Holdings, Inc. Annual Report - 22
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A failure to attract, train, retain and motivate skilled employees, including our management team, would
adversely affect our ability to execute our strategy and may disrupt our operations.
Our continued success and ability to compete in a highly competitive environment depend on our ability to recruit and
retain highly trained and skilled science, engineering, technical, math and professional personnel. Competition for
skilled personnel is intense and many U.S. government programs also require contractors to have security clearances,
certain of which can be difficult and time-consuming to obtain and personnel with such security clearances are in great
demand. As a result, it is difficult to retain employees and meet all of our needs for employees in a timely manner, which
may affect our growth. Although we intend to continue to devote significant resources to recruit, train and retain qualified
employees, we may not be able to attract, effectively train and retain these employees. Any failure to do so could impair
our ability to perform our contractual obligations efficiently and timely meet our customers’ needs and win new business,
which could adversely affect our future results. In addition, certain personnel may be required to receive various security
clearances to work on certain customer engagements or to perform certain tasks. Necessary security clearances may
be delayed or not obtained, which may negatively impact our ability to perform on such engagements in a timely matter
or at all. We believe that our success will also depend on the continued employment of a highly qualified and
experienced senior management team and its ability to retain existing business, generate new business, execute on our
business plans in an efficient and effective manner, and continually develop new members of senior management. An
inability to retain appropriately qualified and experienced senior executives or our failure to continue to develop new
members could cause us to lose customers or new business opportunities.
We may not realize the full amounts reflected in our backlog as revenues, which could adversely affect our
expected future revenues and growth prospects.
As of December 31, 2021, our total backlog was $34.5 billion, including $7.4 billion in funded backlog. Due to the U.S.
government's ability to not exercise contract options or to terminate, modify or curtail our programs or contracts and the
rights of our non-U.S. government customers to cancel contracts and purchase orders in certain circumstances, we may
realize less than expected revenues or may never realize revenues from some of the contracts that are included in our
backlog. Our unfunded backlog, in particular, contains management’s estimate of amounts expected to be realized on
unfunded contract work that may never be realized as revenues. If we fail to realize as revenues amounts included in
our backlog, our future revenues, profitability and growth prospects could be adversely affected.
Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our
failure to estimate and manage costs, time and resources accurately.
We generate revenues under various types of contracts, including cost-reimbursement, FP-IF, T&M, FP-LOE and FFP
contracts. Our earnings and profitability may vary materially depending on changes in the proportionate amount of
revenues derived from each type of contract, the nature of services or products provided, as well as the achievement of
performance objectives and the stage of performance at which the right to receive fees, particularly under incentive-fee
and award-fee contracts, is finally determined. Cost-reimbursement and T&M contracts are generally less profitable than
FFP contracts. Our operating results in any period may also be affected, positively or negatively, by customers' variable
purchasing patterns of our more profitable proprietary products.
Our profitability is adversely affected when we incur contract costs that we cannot bill to our customers. To varying
degrees, each of our contract types involves some risk underestimating the costs and resources necessary to fulfill the
contract. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the
risk of cost overruns. Revenues from FFP contracts represented approximately 37% of our total revenues for fiscal
2021. When making proposals on these types of contracts, we rely heavily on our estimates of costs and timing to
complete the associated projects, as well as assumptions regarding technical issues. In each case, our failure to
accurately estimate costs or the resources and technology needed to perform our contracts or to effectively manage and
control our costs during performance could result, and in some instances has resulted, in reduced profits or losses.
More generally, any increased or unexpected costs or unanticipated delays in the performance of our contracts,
including costs and delays caused by contractual disputes or other factors outside of our control, such as performance
failures of our subcontractors, rising inflation, natural disasters or other force majeure events, could make our contracts
less profitable than expected or unprofitable.
We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues,
our profitability may be adversely affected.
We recognize revenue on our service-based contracts primarily over time as there is a continuous transfer of control to
the customer throughout the contract as we perform the promised services, which generally requires estimates of total
Leidos Holdings, Inc. Annual Report - 23
PART I
costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical
nature of the services performed and the long-term nature of certain contracts, is complex and involves significant
judgment. Adjustments to original estimates are often required as work progresses, experience is gained and additional
information becomes known, even though the scope of the work required under the contract may not change. Any
adjustment as a result of a change in estimate is recognized as events become known. Changes in the underlying
assumptions, circumstances or estimates could result in adjustments that may adversely affect our future financial
results.
Cybersecurity breaches and other information security incidents could negatively impact our business and
financial results, impair our ability to effectively provide our services to our clients and cause harm to our
reputation or competitive position.
As a government contractor and a provider of information technology services operating in multiple regulated industries
and geographies, we and our service providers, suppliers and subcontractors collect, store, transmit and otherwise
process sensitive information, including personally identifiable information, protected health information, personnel
information, classified information, contractor unclassified information, intellectual property and financial information,
concerning our business, employees and customers. Therefore, we are continuously exposed to unauthorized attempts
to compromise such sensitive information through cyber-attacks, insider threats and other information security threats,
including physical break-ins and malicious insiders. Any electronic or physical break-in or other security breach or
compromise of our information technology systems and networks or facilities, or those of our service providers,
suppliers or subcontractors, may jeopardize the security of information stored or transmitted through these systems and
networks or stored in those facilities. This could lead to disruptions in mission-critical systems, unauthorized release of
confidential or otherwise protected information and corruption of data or systems. We could also be potentially subject to
operational downtimes and delays and other detrimental impacts on our operations or ability to provide products and
services to our customers. Some of these risks may be heightened due to protocols related to remote work
implemented as a result of the COVID-19 pandemic. We are also increasingly subject to customer-driven cybersecurity
certification requirements, which are expected to be necessary to win future contracts. Such security incidents also
could result in liability or trigger other obligations under such contracts or increase the difficulty of winning future
contracts. Many statutory requirements, both in the U.S. and abroad, also include obligations for companies to provide
notice of data security incidents involving certain types of data (including obligations to notify affected individuals and
regulators in the event of security breaches involving certain personal data), which could result from breaches of our
service providers, our suppliers or subcontractors.
Although we have implemented policies, procedures and controls to protect against, detect and mitigate these threats
and attacks, we and our service providers, suppliers and subcontractors have faced and continue to face advanced and
persistent attacks on our information systems. We cannot guarantee that future incidents will not occur, and if an
incident does occur, our incident response planning may not prove fully adequate. We may also not be able to mitigate
its impacts successfully. Techniques used by others to gain unauthorized access to sensitive information or disrupt
systems and networks for economic or strategic gain are constantly evolving, increasingly sophisticated, and
increasingly difficult to detect and successfully defend against. These techniques include cyberattacks, phishing and
impersonating authorized users, among others, and may be perpetrated by internal bad actors, such as employees or
contractors, or by third parties (including traditional computer hackers, persons involved with well-funded organized
crime or state-sponsored efforts).
We seek to detect and investigate all information security incidents and to prevent their occurrence, prolongation or
recurrence. We continue to invest in and improve our threat protection, detection and mitigation policies, procedures
and controls. In addition, we work with other companies in the industry and government participants on increased
awareness and enhanced protections against information security and malicious insider threats. However, because of
the evolving nature and sophistication of these security threats, which can be difficult to detect, there can be no
assurance that our policies, procedures and controls, or those of our service providers, suppliers or subcontractors,
have protected against, detected, mitigated or will detect, prevent or mitigate, any of these threats and we cannot
predict the full impact of any such past or future incident. We may be currently unaware of certain vulnerabilities or lack
the capability to detect them, which may allow them to persist in our information technology environment over long
periods and, even if discovered, our remediation efforts may not be completely successful.
Leidos Holdings, Inc. Annual Report - 24
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We also may experience similar security threats to the information technology systems that we develop, install or
maintain under customer contracts. Although we work cooperatively with our customers and other business partners,
including our service providers, suppliers and subcontractors, to seek to minimize the potential for and impact of
cyberattacks and other security threats, we must rely on the safeguards put in place by those entities. See also the risk
factor “Internal system or service failures, or failures in the systems or services of third parties on which we rely, could
disrupt our business and impair our ability to effectively provide our services and products to our customers, which could
damage our reputation and adversely affect our revenues and profitability.”
The occurrence of any unauthorized access to, attacks on or security breaches of our or our service providers',
suppliers' or subcontractors' information technology infrastructure, systems or networks or data, could disrupt our
infrastructure, systems, networks or those of our customers, impair our ability to provide services to our customers and
may jeopardize the security of data collected, stored, transmitted or otherwise processed through our information
technology infrastructure, systems and networks. As a result, we could be exposed to claims, fines, penalties, loss of
revenues, product development delays, compromise, corruption or loss of confidential, proprietary or sensitive
information (including personal information or technical business information), contract terminations and damages,
remediation costs and other costs and expenses, regulatory investigations or sanctions, indemnity obligations and other
potential liabilities. Any of the foregoing could adversely affect our reputation, ability to win work on sensitive contracts or
loss of current and future contracts (including sensitive U.S. government contracts), business operations and financial
results. We have insurance against some cyber-risks and attacks; however, our insurance coverage may not be
sufficient to offset the impact of a material loss event, and such insurance may increase in cost or cease to be available
on commercial terms in the future.
Internal system or service failures, or failures in the systems or services of third parties on which we rely, could
disrupt our business and impair our ability to effectively provide our services and products to our customers,
which could damage our reputation and adversely affect our revenues and profitability.
Any system or service disruptions, including those caused by ongoing projects to improve our information technology
systems and the delivery of services, whether through our shared services organization or outsourced services, if not
anticipated and appropriately mitigated, could materially and adversely affect our business including, among other
things, an adverse effect on our ability to perform on contracts, bill our customers for work performed on our contracts,
collect the amounts that have been billed and produce accurate financial statements in a timely manner. We, and the
service providers, suppliers and subcontractors on which we rely, are also subject to systems failures, including
network, software or hardware failures, whether caused by us, third-party service providers, cybersecurity threats,
malicious insiders, natural disasters, power shortages, terrorist attacks, pandemics or other events, which could cause
loss of data and interruptions or delays in our business, cause us to incur remediation costs, subject us to claims and
damage our reputation. In addition, the failure or disruption of our communications, or those of our service providers,
suppliers or subcontractors, could cause us to interrupt or suspend our operations or otherwise adversely affect our
business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may
occur as a result of any system or operational failure or disruption.
Our business is subject to disruption caused by natural disasters that could adversely affect our profitability
and overall financial position.
We have significant operations, including infrastructure, information technology systems, research facilities and centers
of excellence, located in regions that may be exposed to physical risks, such as hurricanes, earthquakes, other
damaging storms, water levels, wildfires and other natural disasters. Our subcontractors and suppliers are also subject
to natural disasters that could affect their ability to deliver or perform under a contract, including as a result of
disruptions to their workforce and critical industrial infrastructure needed for normal business operations. Although we
maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to
deliver our services to our customers, could decrease demand for our services, could make existing customers unable
or unwilling to fulfill their contractual requirements to us, including their payment obligations, and could cause us to incur
substantial expense, including expenses or liabilities arising from potential litigation. If insurance or other risk transfer
mechanisms are unavailable or insufficient to recover all costs or if we experience a significant disruption to our
business due to a natural disaster, it could adversely affect our financial position, results of operations and cash flows.
There is also an increasing concern over the risks of climate change and related environmental sustainability matters. In
addition to physical risks, climate change risk includes longer-term shifts in climate patterns, such as extreme heat, sea
level rise, and more frequent and prolonged drought. Such events could disrupt our operations or those of our
customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply
chain disruption and market volatility. Additionally, transitioning to a low-carbon economy may entail extensive policy,
Leidos Holdings, Inc. Annual Report - 25
PART I
legal, technology and market initiatives. Transition risks, including changes in consumer preferences and additional
regulatory requirements or taxes, could increase our expenses and undermine our strategies. In addition, our reputation
and client relationships may be damaged as a result of our practices related to climate change, including our
involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate
change, as well as any decisions we make to continue to conduct or change our activities in response to considerations
relating to climate change.
Customer systems failures could damage our reputation and adversely affect our revenues and profitability.
Many of the systems and networks that we develop, install and maintain for our customers involve managing and
protecting personal information and information relating to national security and other sensitive government functions.
While we have programs designed to comply with relevant privacy and security laws and restrictions, if a system or
network that we develop, install or maintain were to fail or experience a security breach or service interruption, whether
caused by us, third-party service providers, cybersecurity threats or other events, we may experience loss of revenue,
remediation costs or face claims for damages or contract termination. Any such event could cause serious harm to our
reputation and prevent us from having access to or being eligible for further work on such systems and networks. Our
errors and omissions liability insurance may be inadequate to compensate us for all of the damages that we may incur
and, as a result, our future results could be adversely affected.
Our success depends, in part, on our ability to work with complex and rapidly changing technologies to meet
the needs of our customers.
We design and develop technologically advanced and innovative products and services applied by our customers in
various environments. The needs of our customers change and evolve regularly and in particular by complex and
rapidly evolving technologies. Our success depends upon our ability to identify emerging technological trends, develop
technologically advanced, innovative and cost-effective products and services and market these products and services
to our customers. Our success also depends on our continued access to suppliers of important technologies and
components. Many of our contracts contain performance obligations that require innovative design capabilities, are
technologically complex, or depend on factors not wholly within our control. Problems and delays in development or
delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve
assumptions or materials and components could prevent us from achieving such contractual requirements. Failure to
meet these obligations could adversely affect our profitability and future prospects. In addition, our offerings cannot be
tested and proven in all situations and are otherwise subject to unforeseen problems that could negatively affect
revenue and profitability, such as problems with quality and workmanship, country of origin, delivery of subcontractor
components or services and unplanned degradation of product performance. Among the factors that may affect revenue
and profits could be unforeseen costs and expenses not covered by insurance or indemnification from the customer,
diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain
contracts, repayment to the government customer of contract costs and fee payments we previously received.
We have classified contracts with the U.S. government, which may limit investor insight into portions of our
business.
We derive a portion of our revenues from programs with the U.S. government and its agencies that are subject to
security restrictions (e.g., contracts involving classified information and classified programs), which preclude the
dissemination of information and technology that is classified for national security purposes under applicable law and
regulation. In general, access to classified information, technology, facilities or programs requires appropriate personnel
security clearances, is subject to additional contract oversight and potential liability and may also require appropriate
facility clearances and other specialized infrastructure. In the event of a security incident involving classified information,
technology, facilities, programs or personnel holding clearances, we may be subject to legal, financial, operational and
reputational harm. We are limited in our ability to provide information about these classified programs, their risks or any
disputes or claims relating to such programs. As a result, investors have less insight into our classified business or our
business overall. However, historically the business risks associated with our work on classified programs have not
differed materially from those of our other government contracts.
Leidos Holdings, Inc. Annual Report - 26
PART I
We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve
numerous risks and uncertainties.
We selectively pursue strategic acquisitions, investments and joint ventures. These transactions require a significant
investment of time and resources and may disrupt our business and distract our management from other
responsibilities. Even if successful, these transactions could reduce earnings for a number of reasons, including the
amortization of intangible assets, impairment charges, acquired operations that are not yet profitable or the payment of
additional consideration under earn-out arrangements if an acquisition performs better than expected. Acquisitions,
investments and joint ventures pose many other risks that could adversely affect our reputation, operations or financial
results, including that we may not be able to identify, compete effectively for or complete suitable acquisitions and
investments at prices we consider attractive; we may not be able to accurately estimate the financial effect of
acquisitions and investments on our business or realize anticipated synergies, business growth or profitability and may
be unable to recover investments in any such acquisitions and investments; we may not be able to manage the
integration process for acquisitions successfully, and the integration process may divert management time and focus
from operating our business, including as a result of incompatible accounting, information management or other control
systems; acquired technologies, capabilities, products and service offerings, particularly those that are still in
development when acquired, may not perform as expected, may have defects or may not be integrated into our
business as expected; we may have trouble retaining key employees and customers of an acquired business; we may
need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have
lacked sufficiently effective controls, procedures and policies, including those relating to financial reporting, revenue
recognition or other financial or control deficiencies; we may assume legal or regulatory risks, particularly with respect to
smaller businesses that have immature business processes and compliance programs, or we may face litigation or
material liabilities that were not identified as part of our due diligence or for which we are unable to receive a purchase
price adjustment or reimbursement through indemnification, including claims from terminated employees, customers,
former stockholders or other third parties, or there may be other unanticipated write-offs or charges; we may be required
to spend a significant amount of cash or to incur debt, resulting in increased fixed payment obligations or covenants or
other restrictions on us, or issue shares of our common stock or convertible debt, resulting in dilution of ownership; we
may not be able to influence the operations of our joint ventures effectively, or we may be exposed to certain liabilities if
our joint venture partners do not fulfill their obligations; and if our acquisitions, investments or joint ventures fail, perform
poorly, or their value is otherwise impaired for any reason, including contractions in credit markets and global economic
conditions, our business and financial results could be adversely affected.
In addition, we periodically divest businesses, including businesses that are no longer a part of our ongoing strategic
plan. These divestitures similarly require a significant investment of time and resources, may disrupt our business,
distract management from other responsibilities and may result in losses on disposal or continued financial involvement
in the divested business, including through indemnification, guarantee or other financial arrangements, for a period of
time following the transaction, which would adversely affect our financial results.
Goodwill and other intangible assets represent significant assets on our balance sheet and any impairment of
these assets could negatively impact our results of operations.
As of December 31, 2021, goodwill and intangible assets, net was 60% of our total assets. The amount of our goodwill
may substantially increase in the future as a result of any acquisitions that we make. Intangible assets and goodwill are
tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable and at least annually in the case of intangible assets with indefinite lives. Examples of events or changes in
circumstances indicating that the carrying value of intangible assets may not be recoverable could include a significant
adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator,
unanticipated competition, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a
significant portion of a reporting unit will be sold or otherwise disposed. Adverse changes in fiscal and economic
conditions, such as those related to federal budget cuts and the nation’s debt ceiling, deteriorating market conditions for
companies in our industry and unfavorable changes in discount rates could result in an impairment of goodwill and other
intangibles. Any future impairment of goodwill or other intangible assets would have a negative impact on our results of
operations in the period in which they are recognized.
We depend on our teaming arrangements and relationships with other contractors and subcontractors. If we
are not able to maintain these relationships, or if these parties fail to satisfy their obligations to us or the
customer, our revenues, profitability and growth prospects could be adversely affected.
Leidos Holdings, Inc. Annual Report - 27
PART I
We rely on our teaming relationships with other prime contractors and subcontractors, who are also often our
competitors in other contexts, to submit bids for large procurements or other opportunities where we believe the
combination of services and products provided by us and other companies will help us to win and perform the contract.
Our future revenues and growth prospects could be adversely affected if other contractors eliminate or reduce their
contract relationships with us or if the U.S. government terminates or reduces these other contractors’ programs, does
not award them new contracts or refuses to pay under a contract. Companies that do not have access to U.S.
government contracts may perform services as our subcontractor, and that exposure could enhance such companies’
prospect of securing a future position as a prime U.S. government contractor, which could increase competition for
future contracts and impair our ability to perform on contracts. We may have disputes with our subcontractors arising
from, among other things, the quality and timeliness of work performed by the subcontractor, customer concerns about
the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, our hiring of a
subcontractor’s personnel or the subcontractor’s failure to comply with applicable law. If any of our subcontractors fail to
timely meet their contractual obligations or have regulatory compliance or other problems, our ability to fulfill our
obligations as a prime contractor or higher tier subcontractor may be jeopardized. Significant losses could arise in future
periods and subcontractor performance deficiencies could result in our termination for default. A termination for default
could eliminate a revenue source, expose us to liability and have an adverse effect on our ability to compete for future
contracts and task orders, especially if the customer is an agency of the U.S. government.
Our services and operations sometimes involve using, handling or disposing of hazardous substances, which
could expose us to potentially significant liabilities.
Some of our services and operations involve the assessment or remediation of environmental hazards, and the use,
handling or disposal of hazardous substances. These activities and our operations generally subject us to extensive
foreign, federal, state and local environmental protection and health and safety laws and regulations, which, among
other things, require us to incur costs to comply with these regulations and could impose liability on us for handling or
disposing of hazardous substances. Failure to comply with these environmental protection and health and safety laws
and regulations could result in civil, criminal, regulatory, administrative or contractual sanctions, including fines,
penalties or suspension or debarment from contracting with the U.S. government. Our current and previous ownership
and operation of real property also subject us to environmental protection laws, some of which hold current or previous
owners or operators of businesses and real property liable for hazardous substance releases, even if they did not know
of and were not responsible for the releases. If we violate or incur liabilities pursuant to these laws or regulations, our
financial condition and operating results could be adversely affected.
We could incur significant liabilities and suffer negative publicity if our inspection or detection systems fail to
detect bombs, explosives, weapons, contraband or other threats.
We design, develop, manufacture, sell, service, and maintain various inspection systems and related integration and
automation systems designed to assist in detecting bombs, explosives, weapons, contraband or other threats. In some
instances, we also train operators of such systems. Such systems utilize software algorithms to interpret data produced
by the system and signal to the operator when a dangerous object or substance may be present. Such algorithms are
probabilistic in nature and are generally designed to meet requirements established by regulatory agencies. Many of
these systems require that an operator interpret an image of suspicious items within a bag, parcel, container, vehicle or
other vessel. Others signal to the operator that further investigation is required, and the training, reliability and
competence of the customer's operator are crucial to the detection of suspicious items. Nevertheless, if such a system
were to fail to signal to an operator when an explosive or other contraband was, in fact, present, resulting in significant
damage, we could become the subject of significant product liability claims. There are many factors, some of which are
beyond our control, which could result in the failure of our products to help detect the presence of bombs, explosives,
weapons, contraband or other threats. Some of these factors could include inherent limitations in our systems and
misuse or malfunction of our systems. The failure of our systems to help detect the presence of any of these dangerous
materials could lead to injury, death and extensive property damage and may lead to product liability, professional
liability or other claims against us. Further, if our security and inspection systems fail to, or are perceived to have failed
to, help detect a threat, we could experience negative publicity and reputational harm, which could adversely affect our
business.
Leidos Holdings, Inc. Annual Report - 28
PART I
Our insurance, customer indemnifications or other liability protections may be insufficient to protect us from
product and other liability claims or losses.
We maintain insurance coverage with third-party insurers as part of our overall risk management strategy and because
some of our contracts require us to maintain specific insurance coverage limits. Not every risk or liability is or can be
protected by insurance, and, for those risks we insure, the limits of coverage that are reasonably obtainable may not be
sufficient to cover all actual losses or liabilities incurred. We are limited in the amount of insurance we can obtain to
cover certain risks, such as cybersecurity risks and natural hazards, such as earthquakes, fires, extreme weather
conditions and pandemics. If any of our third-party insurers fail, becomes insolvent, cancel our coverage or otherwise
are unable to provide us with adequate insurance coverage, then our overall risk exposure and our operational
expenses would increase, and the management of our business operations would be disrupted. Our insurance may be
insufficient to protect us from significant product and other liability claims or losses. Moreover, there is a risk that
commercially available liability insurance will not continue to be available to us at a reasonable cost, if at all. In some
circumstances we are entitled to certain legal protections or indemnifications from our customers through contractual
provisions, laws, regulations or otherwise. However, these protections are not always available, can be difficult to obtain,
are typically subject to certain terms or limitations, including the availability of funds, and may not be sufficient to cover
all losses or liabilities incurred. If liability claims or losses exceed our current or available insurance coverage, customer
indemnifications or other legal protections, our business, financial position, operating results and prospects may be
harmed. Any significant claim may have an adverse effect on our industry and market reputation, leading to a
substantial decrease in demand for our products and services and reduced revenues.
We face risks associated with our international business.
Our international business operations may be subject to additional and different risks than our U.S. business. These
risks and challenges include failure to comply with U.S. government and foreign laws and regulations applicable to
international business, including, without limitation, those related to employment, privacy, taxes, data protection,
technology transfer, information security, environment, data transfer, import and export controls (including the ITAR and
the anti-boycott provisions of the EAR), sanctions, anti-bribery (including the FCPA, the U.K. Bribery Act and similar
foreign anti-corruption laws) and other administrative, legislative or regulatory actions that could materially interfere with
our ability to offer our products or services in certain countries or have an adverse impact on our business with the U.S.
government, and expose us to risks and costs of noncompliance with such laws and regulations, in addition to
administrative, civil or criminal penalties; increased financial and legal risks arising, for example, from foreign exchange
rate variability, imposition of tariffs or additional taxes, inflation, restrictive trade policies, longer payment cycles, delays
or failures to collect amounts due to us and differing legal systems, and which may adversely affect the performance of
our services, sale of our products or repatriation of our profits; and political or economic instability in countries where we
provide services and products in support of the U.S. government and other customers in countries, which increases the
risk of an incident resulting in injury or loss of life, damage or destruction of property or inability to meet our contractual
obligations. Our failure to comply with these laws might subject us to civil and criminal penalties that might have a
materially adverse impact on our business operations and our financial position or results of operations. Although our
international operations have historically generated a small proportion of our revenues, we are seeking to grow our
international business, in which case these regulatory, geopolitical and other factors may have a greater impact on our
business in the future and could adversely affect our business.
We have only a limited ability to protect or exploit intellectual property rights, which are important to our
success. Our failure to adequately obtain, maintain, protect and enforce our proprietary information and
intellectual property rights could adversely affect our competitive position.
We rely principally on trade secrets to protect much of our intellectual property in cases where we do not believe patent
protection is appropriate or obtainable. However, trade secrets are generally difficult to protect. Despite our efforts to
protect our intellectual property and other proprietary rights, third parties may attempt to obtain, copy, use or disclose
our intellectual property or other proprietary information or technology without our authorization. In addition to protection
under the law, we rely on confidentiality or license agreements that we generally enter into with our corporate partners,
employees, consultants, advisors, service providers, suppliers, subcontractors and customers, and we generally attempt
to limit access to and distribution of our proprietary information. Although our employees and contractors are subject to
confidentiality obligations and use restrictions, this protection may be inadequate to deter or prevent them from
infringing, misappropriating or otherwise violating our confidential information, technology or other intellectual property
or proprietary rights, and can be difficult to enforce. We may be unable to detect unauthorized use of our intellectual
property or otherwise take appropriate steps to enforce our rights. We may be required to expend significant resources
Leidos Holdings, Inc. Annual Report - 29
PART I
and efforts to monitor and protect our intellectual property and other proprietary rights, and we may conclude that, in at
least some instances, the benefits of protecting our intellectual property or other proprietary rights may be outweighed
by the expense or distraction to our management. We may initiate claims or litigation against third parties for
infringement, misappropriation or other violations of our intellectual property or other proprietary rights or to establish the
validity of our intellectual property or other proprietary rights, but outcomes in any such litigation can be difficult to
predict, and could be time-consuming, result in significant expense to us and divert the efforts of our technical and
management personnel. If we are unable to detect or prevent third parties from infringing, misappropriating or otherwise
violating our rights in our patents, copyrights, trademarks, trade secrets or other proprietary rights or information, our
competitive position could be adversely affected. Also, in connection with our performance of services for the U.S.
government, the U.S. government has certain rights to inventions, data, software codes and related material that we
develop under government-funded contracts and subcontracts, which means that the U.S. government may disclose or
license our information to third parties, including, in some instances, our competitors. Any exercise by the U.S.
government of such rights could adversely affect our competitive position, business, financial condition, results of
operations and prospects.
We may also, from time to time, inadvertently infringe the intellectual property rights of others, resulting in claims against
our customers or us, or we may face allegations that we or our service providers, suppliers, subcontractors, or
customers have violated the intellectual property rights of others. If, with respect to any claim against us for violation of
third-party intellectual property rights, we are unable to prevail in the litigation, retain or obtain sufficient rights, develop
non-infringing solutions or otherwise alter our business practices on a timely or cost-efficient basis, our business and
competitive position may be adversely affected. Such claims also could subject us to significant liability for damages,
potentially including treble damages if we are found to have willfully infringed a third party's intellectual property rights.
In addition, our contracts generally indemnify our customers for third-party claims for intellectual property infringement
by the services and products we provide. Besides the expense of defending such claims and the cost of any large
indemnity payments, any dispute with a customer with respect to such obligations also could have adverse effects on
our relationship with that customer and other existing customers and new customers, any of which could harm our
business, financial condition and results of operations.
Risks Relating to Our Stock
We cannot assure you that we will continue to pay or increase dividends on our common stock or to
repurchase shares of our common stock at current levels.
The timing, declaration, amount and payment of any future dividends fall within the discretion of our Board and depend
on many factors, including our available cash, estimated cash needs, cash deployment alternatives, earnings, financial
condition, operating results and capital requirements, as well as limitations in our contractual agreements, applicable
law, regulatory constraints, industry practice and other business considerations that our Board considers relevant. In
addition, the timing and amount of share repurchases under Board-approved share repurchase plans is within the
discretion of management and will depend on many factors, including results of operations, capital requirements and
applicable law. Our payment of dividends and share repurchases could vary from historical practices or our stated
expectations. A change in our dividend or share repurchase programs could have an adverse effect on the market price
of our common stock.
Provisions in our charter documents and under Delaware law could delay or prevent transactions that many
stockholders may favor.
Some provisions of our certificate of incorporation and bylaws may have the effect of delaying, discouraging or
preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which
stockholders might receive a premium for their shares. These restrictions, which may also make it more difficult for our
stockholders to elect directors not endorsed by our current directors and management, include mergers and certain
other business combinations between a related person and us requiring approval by the holders of a majority of the
voting power of such securities that are not owned by the related person unless approved by a majority of continuing
directors or certain other exceptions; our stockholders may not act by written consent; our Board may issue, without
stockholder approval, shares of undesignated preferred stock, the terms of which may be determined by the Board; and
we are also subject to certain restrictions on business combinations under Section 203 of the DGCL, which imposes
additional requirements for business combinations, and may prevent our stockholders from receiving the benefit from
any premium to the market price of our common stock offered by a bidder in a takeover context.
Leidos Holdings, Inc. Annual Report - 30
PART I
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2021, we conducted our operations in 433 locations in 40 states, the District of Columbia and
various foreign countries. We occupy approximately 8.9 million square feet of floor space. Of this amount, we own
approximately 1.2 million square feet, and the remaining balance is leased. Our major locations are in the
Washington, D.C., metropolitan area, where we occupy a combination of leased and owned floor space of
approximately 2.2 million square feet. We also have employees working at customer sites throughout the United
States and in other countries.
As of December 31, 2021, we owned the following properties:
Location
Huntsville, Alabama
Columbia, Maryland
Orlando, Florida
Oak Ridge, Tennessee
Reston, Virginia
Decatur, Alabama
Number of
buildings
Square
footage
801,000
95,000
85,000
83,000
62,000
50,000
7
1
1
1
1
1
Acreage
90.7
7.3
8.5
8.4
2.6
5.0
The nature of our business is such that there is no practicable way to relate occupied space to our reportable
segments.
Item 3. Legal Proceedings
We have provided information about legal proceedings in which we are involved in "Note 21—Commitments and
Contingencies" of the notes to the consolidated financial statements contained within this Annual Report on Form
10-K.
In addition, we are routinely subject to investigations and reviews relating to compliance with various laws and
regulations. Additional information regarding such investigations and reviews is set forth in "Note 21—Commitments
and Contingencies” of the notes to the consolidated financial statements contained within this Annual Report on
Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
The following is a list of the names and ages (as of February 15, 2022) of our executive officers, indicating all
positions and offices held by each such person and each such person’s business experience during at least the past
five years. All such persons have been elected to serve until their successors are elected and qualified or until their
earlier resignation or removal.
Name of officer
Roger A. Krone
Age
65
Position(s) with the company and prior business experience
Mr. Krone is Chairman and Chief Executive Officer of Leidos. He joined
Leidos as CEO in July 2014. Mr. Krone has held leadership roles at The
Boeing Company, McDonnell Douglas Corp. and General Dynamics. He is a
member of the Georgia Tech Foundation Board of Trustees, WETA Public
Television and Radio in Washington board, the Greater Washington Urban
League chapter advisory board, the Business Roundtable, the Aircraft
Owners and Pilots Association Foundation’s Board of Advisors and a
member of the Executive Committee of the Aerospace Industries
Association.
Leidos Holdings, Inc. Annual Report - 31
Name of officer
Christopher R. Cage
Age
50
Carly E. Kimball
46
Gerard A. Fasano
56
Jerald S. Howe, Jr.
66
David A. King
60
James R. Moos
52
Elizabeth A. Porter
51
Roy Stevens
53
PART I
Position(s) with the company and prior business experience
Mr. Cage has served as Executive Vice President and Chief Financial Officer
since July 2021. He has served in several capacities throughout his 23-year
tenure with Leidos, including Senior Vice President, Chief Accounting Officer
and Corporate Controller, Senior Vice President for Financial Planning and
Analysis and Chief Financial Officer for the Health Group.
Ms. Kimball has served as Senior Vice President, Chief Accounting Officer
and Corporate Controller since July 2021. Previously, she served as the
Company’s Assistant Corporate Controller. Ms. Kimball brings over 20 years
of experience leading large teams and has extensive proficiency in
accounting, auditing, financial reporting, acquisitions and integrations, as
well as business operations. Prior to joining Leidos, she served as Chief
Financial Officer of CACI Products Company Inc. and senior manager in
Ernst & Young’s Aerospace and Defense audit practice.
Mr. Fasano has served as President for our Defense Group since October
2018, and before that, as Chief Business Development Strategy Officer. Mr.
Fasano led the separation from Lockheed Martin and the integration of the
Information Systems & Global Solutions Business into Leidos. Prior to joining
Leidos, Mr. Fasano served Lockheed Martin Corporation for over 30 years.
Mr. Howe has served as Executive Vice President and General Counsel
since July 2017. Prior to joining Leidos, Mr. Howe was a partner at Fried,
Frank, Harris, Shriver & Jacobson LLP, where he served in the firm’s
litigation, government contracts, mergers and acquisitions and aerospace
and defense practices. Prior to joining Fried Frank, Mr. Howe held general
counsel positions at TASC, a leading aerospace and defense company, and
at Veridian Corporation, a publicly traded company that provided advanced
technology services and solutions to the intelligence community, military and
homeland defense agencies.
Mr. King has served as Chief Executive Officer of Dynetics, Inc. since 2015.
In February 2020, following Leidos' acquisition of Dynetics, Mr. King was
elected as a Group President of Leidos with responsibility for the Dynetics
business. Mr. King previously served as the Executive Vice President for
special programs and President of Dynetics. Prior to joining Dynetics, he
spent 25 years with NASA, as Space Shuttle Launch Director and Director of
Shuttle Processing, and most recently as the Center Director of NASA
Marshall Space Flight Center.
Mr. Moos has served as President for our Civil Group since February 2020.
He previously served as Senior Vice President and Acting Group President
for the Civil Group since October 2019, and before that, as Deputy President
and Chief Operations Officer for the Civil Group. Prior to that, Mr. Moos has
served Leidos for over 20 years in several capacities, including Senior Vice
President and General Manager of Leidos' former Engineering Solutions
Group.
Ms. Porter has served as President for our Health Group since August 2020
and, before that, as Acting Group President for the Health Group since
March 2020. She previously served as Senior Vice President and Operation
Manager for Leidos’ Federal Energy and Environment business. Prior to that
role, Ms. Porter served as the Department of Defense Information Networks
& Mission Partner Program Director. Prior to joining Leidos, Ms. Porter
served Lockheed Martin Corporation for over 20 years in several capacities,
most recently as Director of Energy Initiatives, Corporate Engineering &
Technology.
Mr. Stevens has served as President for our Intelligence Group since July
2021, and before that, as Chief of Business Development and Strategy. Prior
to joining Leidos, Mr. Stevens served Lockheed Martin Corporation in a
variety of executive level positions for over 20 years, most recently as Vice
President of Global Solutions under the Information Systems & Global
Solutions business, and has also been integral to the merger and acquisition
of several companies during his career. He serves on the Board of Directors
for Cornerstones.
Leidos Holdings, Inc. Annual Report - 32
PART I
Name of officer
Paul Engola
Age
50
Position(s) with the company and prior business experience
Mr. Engola has served as Chief National Security Space Officer since July
2021 and before that, as Executive Vice President and Chief Human
Resources Officer and Head of Business Partnerships, and as Chief
Administrative Officer and Deputy President, Defense and Intelligence
Group. Prior to joining Leidos, Mr. Engola served Lockheed Martin
Corporation for more than 10 years, most recently as Vice President,
Transportation & Financial Solutions in their former Information Systems &
Global Solutions business.
Leidos Holdings, Inc. Annual Report - 33
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "LDOS."
Holders of Common Stock
As of February 8, 2022, there were approximately 20,047 holders of record of Leidos common stock. The number of
stockholders of record of our common stock is not representative of the number of beneficial owners due to the fact
that many shares are held by depositories, brokers or nominees.
Dividend Policy
During fiscal 2021 and 2020, we declared and paid quarterly dividends totaling $1.40 and $1.36 per share,
respectively, of Leidos common stock. We currently intend to continue paying dividends on a quarterly basis,
although the declaration of any future dividends will be determined by our Board of Directors and will depend on
many factors, including available cash, estimated cash needs, earnings, financial condition, operating results and
capital requirements, as well as limitations in our contractual agreements, applicable law, regulatory constraints,
industry practice and other business considerations that the Board of Directors considers relevant. Our ability to
declare and pay future dividends on Leidos stock may be restricted by the provisions of Delaware law and
covenants in our then-existing indebtedness arrangements.
Leidos Holdings, Inc. Annual Report - 34
PART II
Stock Performance Graph
The following graph compares the total cumulative five-year return on Leidos common stock through December 31,
2021 to two indices: (i) the Standard & Poor's 500 Composite index and (ii) the Standard & Poor's 500 IT Services
Industry index. The graph assumes an initial investment of $100 on December 31, 2016, and that dividends, if any,
have been reinvested. The comparisons in the graph are required by the SEC, based upon historical data and are
not intended to forecast or be indicative of possible future performance of Leidos common stock.
Comparison of Cumulative Total Return
Company/Market/Peer Group
12/30/2016
12/29/2017
12/28/2018
1/3/2020
1/1/2021
12/31/2021
Leidos Inc.
S&P 500 Composite Index
S&P 500 IT Services Index
$
$
$
100.00 $
129.10 $
106.88 $
206.36 $
221.19 $
189.82
100.00 $
121.83 $
115.49 $
153.40 $
181.35 $
233.41
100.00 $
131.22 $
136.07 $
193.86 $
236.72 $
248.27
Purchases of Equity Securities
We have a share repurchase program of up to 20 million shares of Leidos 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 Leidos common stock, general
market and economic conditions, applicable legal requirements, compliance with the terms of our 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 our Board of Directors' discretion. As
of December 31, 2021, the maximum number of shares that may yet be repurchased under the program was
4,554,346.
For the three months ended December 31, 2021, there were no repurchases of our common stock.
Item 6. Selected Financial Data
Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussion of
selected financial data included within this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 35
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations
and quantitative and qualitative disclosures about business environment and trends and market risk should be read
in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report
on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this
Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties, including those described under the heading
“Forward-Looking Statements.” You should also review the disclosure under Part I, Item 1A, “Risk Factors” in this
Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially
from the results described in or implied by the forward-looking statements contained in the following discussion and
analysis.
Unless indicated otherwise, references in this report to “we,” “us” and “our” refer collectively to Leidos and its
consolidated subsidiaries.
In this section, we discuss our financial condition, changes in financial condition and results of our operations for the
year ended December 31, 2021 compared to the year ended January 1, 2021. For a discussion and analysis
comparing our results for the year ended January 1, 2021 to the year ended January 3, 2020, see our Annual
Report on Form 10-K for the year ended January 1, 2021, filed with the SEC on February 23, 2021, under Part II,
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Overview
We are 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. We bring domain-specific
capabilities and innovations to customers in each of these markets by leveraging five technical capabilities: digital
modernization, cyber operations, mission software systems, integrated systems and mission operations. Our
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. Less than
8% of our revenues and tangible long-lived assets are generated by or owned by entities located outside of the
United States. We operate in three reportable segments: Defense Solutions, Civil and Health. Additionally, we
separately present the unallocable costs associated with corporate functions as Corporate.
Effective July 3, 2021, certain contracts were reassigned from the Defense Solutions reportable segment to the Civil
reportable segment. Impact on prior year segment results were determined to be immaterial and have not been
recast to reflect this change.
For additional information regarding our reportable segments, see “Business” in Part I and "Note 20—Business
Segments" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.
Our significant initiatives include the following:
•
•
•
•
achieving annual revenue growth through internal collaboration and better leveraging of key differentiators
across our company and the deployment of resources and investments into higher growth markets;
increasing headcount and internal direct labor content on our contract portfolio;
continued improvement in our back office infrastructure and related business processes for greater
effectiveness and efficiency across all business functions; and
disciplined deployment of our cash resources and use of our capital structure to enhance shareholder value
while retaining an appropriate amount of financial leverage.
Sales Trend. For fiscal 2021, revenues increased $1.4 billion, or 12%, compared to fiscal 2020, primarily due to
program wins and a net increase in volumes on certain programs, partially offset with the completion of certain
contracts. In addition, revenue had a positive impact from business acquisitions in the Defense Solutions segment
and a reduction of the negative impacts from COVID-19 experienced during the prior year.
Leidos Holdings, Inc. Annual Report - 36
PART II
Operating Expenses and Income Trend. For fiscal 2021, operating expenses increased by $1.3 billion, or 11%,
compared to fiscal 2020. Operating margin for fiscal 2021 was 8.4% compared to 8.1% for fiscal 2020. Operating
income was $1,152 million, a $154 million increase compared to fiscal 2020. The increase in operating income was
primarily attributable to a net increase in volumes on certain programs, a reduction of the negative impacts from
COVID-19 experienced during the prior year and program wins, partially offset by the completion of certain
contracts.
From a macroeconomic perspective, our industry is under general competitive pressures associated with spending
from our largest customer, the U.S. government, and requires a high level of cost management focus to allow us to
remain competitive. Although the U.S. Presidential Administration has not indicated a desire to reduce spending in
the defense and homeland security sectors, the likelihood, extent and duration of current spending levels in these
areas remains unclear. We continue to review our cost structure against our anticipated sales and undertake cost
management actions and efficiency initiatives where necessary.
COVID-19
The COVID-19 pandemic is affecting major economic and financial markets, and effectively all industries and
governments are facing challenges, which has resulted in a period of business disruption, the length and severity of
which cannot be predicted. The pandemic has resulted in travel restrictions, government orders to “shelter-in-place”,
quarantine restrictions and disruption of the financial markets. We have acted to protect the health and safety of our
employees, comply with workplace health and safety regulations and work with our customers to minimize
disruptions.
For fiscal 2021, while we continue to navigate impacts associated with COVID-19, primarily relating to supply chain
matters, we believe that COVID-19 did not have a material impact to revenues and operating income as compared
to prior year results. The full extent of the impact of the COVID-19 pandemic on our operational and financial
performance, including our ability to execute on programs in the expected timeframe, will depend on future
developments, including the duration and spread of the pandemic and the distribution of vaccines, all of which are
uncertain and cannot be predicted. Section 3610 of the CARES Act, a $2 trillion coronavirus response bill providing
widespread emergency relief, authorized the government to reimburse qualifying contractors for the cost of certain
impacts of COVID-19. While a portion of the recoveries that we have made are a result of Section 3610 of the
CARES Act, the Act expired on September 30, 2021.
On September 9, 2021, President Biden issued a series of executive orders to combat COVID-19, one of which
requires us, as a federal contractor, to have our employees fully vaccinated unless the employee is legally entitled
to a religious or medical exemption. This vaccine mandate is currently under a nationwide injunction, while courts
adjudicate constitutional challenges to the executive order. We are prepared to comply with the executive order in
the event the injunction is lifted.
Business Environment and Trends
U.S. Government Markets
In fiscal 2021, we generated approximately 87% of our total revenues from contracts with the U.S. government,
either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. government.
Revenues under contracts with the DoD and U.S. Intelligence Community, including subcontracts under which the
DoD or the U.S. Intelligence Community is the ultimate purchaser, represented approximately 44% of our total
revenues for fiscal 2021. Accordingly, our business performance is affected by the overall level of U.S. government
spending, especially national security, homeland security and intelligence spending, and the alignment of our
service and product offerings and capabilities with current and future budget priorities of the U.S. government.
Congress received the GFY 2022 President’s Budget Request on May 28, 2021 and passed a Continuing
Resolution ("CR") before the GFY deadline of September 30, 2021. The CR fully funded the federal government at
current levels through December 3, 2021 and provides $28.6 billion in disaster relief and $6.3 billion to support
Afghanistan evacuees. On December 2, 2021, Congress passed a second continuing resolution to fund the federal
government at GFY 2021 levels until February 18, 2022. The Senate plans to vote on a House-passed continuing
resolution the week of February 14, 2022, that would extend government funding through March 11, 2022.
Congressional negotiations continue on defense and non-defense spending levels and controversial policy riders in
the GFY 2022 appropriations bills. President Biden is expected to release the GFY 2023 President’s Budget
Request this spring.
Leidos Holdings, Inc. Annual Report - 37
PART II
Trends in the U.S. government contracting process, including a shift towards multiple-awards contracts, in which
certain contractors are preapproved using IDIQ and U.S. General Services Administration ("GSA") contract vehicles,
have increased competition for U.S. government contracts, reduced backlogs by shortening periods of performance
on contracts and increased pricing pressure. We expect that a majority of the business that we seek in the
foreseeable future will be awarded through a competitive bidding process. For more information on these risks and
uncertainties, see “Risk Factors” in Part I of this Annual Report on Form 10-K.
International Markets
Sales to customers in international markets represented approximately 8% of total revenues for fiscal 2021. Our
international customers include foreign governments and their agencies. Our international business increases our
exposure to international markets and the associated international regulatory, foreign currency exchange rate and
geopolitical risks.
Changes in international trade policies, including higher tariffs on imported goods and materials, may increase our
procurement costs of certain IT hardware used both on our contracts and for internal use. However, we expect to
recover certain portions of these higher tariffs through our cost-plus contracts. While we evaluate the impact of
higher tariffs, currently, we do not expect tariffs to have a significant impact to our business.
Key Performance Measures
The primary financial performance measures we use to manage our business and monitor results of operations are
revenue, operating income, cash flows from operations and diluted earnings per share. Bookings and backlog are
also useful measures for management and investors to evaluate our performance and potential future revenues. In
addition, we consider business performance by contract type to be useful to management and investors when
evaluating our operating income and margin performance.
Results of Operations
Our results of operations for the periods presented were as follows:
Year Ended
2021 to 2020
December 31,
2021
January 1,
2021
Dollar
change
Percent
change
(dollars in millions)
Revenues
Cost of revenues
Selling, general and administrative expenses
Bad debt expense and recoveries
Acquisition, integration and restructuring costs
Asset impairment charges
Equity earnings of non-consolidated subsidiaries
Operating income
Non-operating expense, net
Income before income taxes
Income tax expense
Net income
Less: net income attributable to non-controlling interest
$
$ 13,737
11,723
860
(9)
27
4
(20)
$ 12,297
10,560
770
(68)
39
12
(14)
1,152
(185)
967
(208)
759
6
998
(217)
781
(152)
629
1
Net income attributable to Leidos common stockholders
Operating income margin
$
$
753
8.4 %
$
628
8.1 %
1,440
1,163
90
59
(12)
(8)
(6)
154
32
186
(56)
130
5
125
12 %
11 %
12 %
(87)%
(31)%
(67)%
43 %
15 %
NM
24 %
37 %
21 %
NM
20 %
NM - Not meaningful
Leidos Holdings, Inc. Annual Report - 38
Segment and Corporate Results
Defense Solutions
Revenues
Operating income
Operating income margin
PART II
Year Ended
2021 to 2020
December 31,
2021
January 1,
2021
Dollar
change
Percent
change
$
8,032
$
(dollars in millions)
7,341
$
569
7.1 %
506
6.9 %
691
63
9 %
12 %
The increase in revenues for fiscal 2021 as compared to fiscal 2020 was primarily attributable to program wins, a
net increase in volumes on certain programs, $149 million of revenues from new business acquisitions and a
reduction of the negative impacts from COVID-19 experienced during the prior year. The increase was partially
offset by the completion of certain contracts and contracts that were reassigned from the Defense Solutions
reportable segment to the Civil reportable segment during the third quarter. In addition, in fiscal 2021, there was a
$67 million benefit in exchange rate movements.
The increase in operating income for fiscal 2021 as compared to fiscal 2020 was primarily attributable to program
wins, a net increase in program volumes on certain contracts, $18 million of operating income from new business
acquisitions and a reduction of the negative impacts from COVID-19 experienced during the prior year, partially
offset by the completion of certain contracts and an increase in amortization expense.
Civil
Revenues
Operating income
Operating income margin
Year Ended
2021 to 2020
December 31,
2021
January 1,
2021
Dollar
change
Percent
change
$
$
3,157
248
7.9 %
$
(dollars in millions)
2,994
280
9.4 %
163
(32)
5 %
(11)%
The increase in revenues for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net increase of
$48 million of revenues related to L3 Harris Technologies' security and detection businesses (the "SD&A
Businesses") acquired in the prior year, a net increase in program volumes, program wins and a reduction of the
negative impacts from COVID-19 experienced during the prior year. The revenue growth was also attributable to
certain contracts that were reassigned from the Defense Solutions reportable segment to the Civil reportable
segment during the third quarter.
The decrease in operating income for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net
decrease in volumes on certain products and product deliveries, partially offset by a $26 million benefit from an
adjustment to legal reserves related to the Mission Support Alliance joint venture during the first quarter of fiscal
2021.
Health
Revenues
Operating income
Operating income margin
Year Ended
2021 to 2020
December 31,
2021
January 1,
2021
Dollar
change
Percent
change
$
2,548
$
(dollars in millions)
1,962
$
442
17.3 %
235
12.0 %
586
207
30 %
88 %
The increase in revenues for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net increase in
volumes on certain programs, including a reduction of the negative impacts from COVID-19 experienced during the
prior year and program wins, partially offset by the completion of certain contracts.
The increase in operating income for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net
increase in volumes on higher margin programs, including a reduction of the negative impacts from COVID-19
experienced during the prior year, program wins and a net decrease in asset impairment charges.
Leidos Holdings, Inc. Annual Report - 39
Corporate
Operating loss
NM - Not Meaningful
PART II
Year Ended
2021 to 2020
December 31,
2021
January 1,
2021
Dollar
change
Percent
change
$
(107) $
(dollars in millions)
(23) $
(84)
NM
The increase in operating loss for fiscal 2021 as compared to fiscal 2020 was primarily attributable to an $81 million
net gain recognized during the second quarter of fiscal 2020 upon receipt of proceeds related to the VirnetX, Inc.
legal matter and higher indirect expenses, partially offset by a decrease in acquisition, integration and restructuring
costs.
Equity earnings of non-consolidated subsidiaries
We have certain non-controlling ownership interests in equity method investments. For fiscal 2021 we recorded
earnings of $20 million from our equity method investments. For fiscal 2020 we recorded $16 million, partially offset
by amortization of $2 million.
Non-Operating Expense, Net
Non-operating expense, net decreased $32 million for fiscal 2021 as compared to fiscal 2020, primarily due to $36
million of debt discount and deferred financing costs written off related to refinancing activities in the prior year,
partially offset by higher interest expenses.
Provision for Income Taxes
Our effective tax rate was 21.5%, and 19.5% in fiscal 2021 and 2020, respectively. The effective tax rate for fiscal
2021 was favorably impacted primarily by federal research tax credits and excess tax benefits related to employee
stock-based payment transactions.
The effective tax rate for fiscal 2020 was favorably impacted primarily by federal research tax credits and excess tax
benefits related to employee stock-based payment transactions, partially offset by taxes related to foreign
operations.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and
development costs for tax purposes and requires taxpayers to capitalize and amortize research costs over five
years. Although it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive
effect, we have no assurance that Congress will take any action with respect to this provision. If the 2022 effective
date remains in place, based on the law as currently enacted, our initial assessment is that our cash from
operations will decrease by approximately $150 million in fiscal 2022 and our net deferred tax assets will increase
by a similar amount. The actual impact on fiscal 2022 cash from operations will depend on the amount of research
and development costs the Company will incur, on whether Congress modifies or repeals this provision and on
whether new guidance and interpretive rules are issued by the US Treasury, among other factors.
Non-controlling Interest
We have an 88% controlling interest in Mission Support Alliance, LLC ("MSA"), a joint venture with Centerra Group,
LLC, which includes 41% purchased from Jacobs Group, LLC on January 26, 2018. MSA’s contract ended on
January 24, 2021. We also have a 53% 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. We include the financial results for MSA and HMIS in our consolidated financial
statements. Net income attributable to non-controlling interest was $6 million and $1 million for fiscal 2021 and
2020, respectively.
Bookings and Backlog
We had net bookings of $15.5 billion and $17.8 billion during fiscal 2021 and 2020, respectively. Net bookings
represent the estimated amount of revenue to be earned in the future from funded and unfunded contract awards
that were received during the year, net of any adjustments to previously awarded backlog amounts. We calculate
net bookings as the year’s ending backlog, plus the year’s revenues, less the prior year’s ending backlog and any
impacts from foreign currency or acquisitions and divestitures.
Leidos Holdings, Inc. Annual Report - 40
PART II
Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts. We
segregate our backlog into two categories as follows:
•
•
Funded Backlog. 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 we are obligated to perform, less
revenues previously recognized on the contracts.
Negotiated Unfunded Backlog. 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 unexercised option periods and future
potential task orders expected to be awarded under IDIQ, GSA 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.
The estimated value of our total backlog for the periods presented was as follows:
December 31, 2021
January 1, 2021
Year ended
Segment
Funded
Unfunded
Total
Funded
Unfunded
Total
(in millions)
Defense Solutions
Civil
Health
Total
$
$
4,393 $
15,274 $
19,667 $
3,710 $
14,721 $
18,431
1,628
1,428
7,903
3,829
9,531
5,257
1,398
1,486
7,051
3,546
8,449
5,032
7,449 $
27,006 $
34,455 $
6,594 $
25,318 $
31,912
The increase in backlog includes $800 million of backlog acquired in fiscal 2021 through business combinations in
our Defense Solutions reportable segment.
Total backlog included an unfavorable impact of $52 million at December 31, 2021, and favorable impact of
$119 million at January 1, 2021, primarily due to the movements in the British pound and Australian dollar when
compared to the U.S dollar.
Bookings and backlog fluctuate from period to period depending on our success rate in winning contracts and the
timing of contract awards, renewals, modifications and cancellations, as well as foreign currency movements.
Contract awards may be negatively impacted by ongoing industry-wide delays in procurement decisions and budget
cuts by the U.S. government as discussed in “Business Environment and Trends” in this Annual Report on Form 10-
K.
We expect to recognize a substantial portion of our funded backlog as revenues within the next 12 months.
However, the U.S. government may cancel any contract at any time through a termination for the convenience of
the U.S. government. In addition, certain contracts with commercial or non-U.S. government customers may include
provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would
permit us to recover all or a portion of our incurred costs and fees for work performed.
Leidos Holdings, Inc. Annual Report - 41
PART II
Contract Types
Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues
derived from each type of contract. For a discussion of the types of contracts under which we generate revenues,
see “Business—Contract Types” in Part I of this Annual Report on Form 10-K. Revenues by contract type as a
percentage of our total revenues for the periods presented were as follows:
Cost-reimbursement and fixed-price-incentive-fee
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
Total
Liquidity and Capital Resources
Overview of Liquidity
December 31,
2021
Year Ended
January 1,
2021
January 3,
2020
50 %
37 %
13 %
51 %
36 %
13 %
54 %
33 %
13 %
100 %
100 %
100 %
As of December 31, 2021, we had $727 million in cash and cash equivalents. Additionally, we have an unsecured
revolving credit facility which can provide up to $750 million in additional borrowing, if required. During fiscal 2021
and 2020, there were no borrowings outstanding under the credit facilities and we were in compliance with the
related financial covenants.
At December 31, 2021 and January 1, 2021, we had outstanding debt of $5.1 billion and $4.7 billion, respectively.
On May 7, 2021, we entered into a Credit Agreement which provided for a senior unsecured term loan facility in an
aggregate principal amount of $380 million.
Additionally, on July 12, 2021, Leidos, Inc. established a commercial paper program in which we may issue short-
term unsecured commercial paper notes not to exceed $750 million and have maturities of up to 397 days from the
date of issuance (see "Note 13—Debt"). As of December 31, 2021, we did not have any Commercial Paper Notes
outstanding.
We made principal payments on our long-term debt of $106 million, $731 million, and $80 million during fiscal 2021,
2020 and 2019, respectively. This activity included required principal payments on our term loans of $96 million, $72
million and $69 million during fiscal 2021, 2020 and 2019, respectively. During fiscal year 2020, we made $4,925
million of principal repayments for outstanding debt and retired the $450 million senior notes.The notes outstanding
as of December 31, 2021, contain financial covenants and customary restrictive covenants. We were in compliance
with all covenants as of December 31, 2021.
Interest on our Credit Facilities and 2021 Credit Agreement are calculated based on the London Interbank Offered
Rate (“LIBOR”). On July 27, 2017, the U.K.’s Financial Conduct Authority announced that LIBOR would be
discontinued or become unavailable as a reference rate by the end of 2021 and LIBOR will be fully discontinued or
become unavailable as a benchmark rate by June 2023. Although our Credit Facilities and the 2021 Credit
Agreement include mechanics to facilitate the adoption by us and our lenders of an alternative benchmark rate for
use in place of LIBOR, no assurance can be made that such alternative benchmark rate will perform in a manner
similar to LIBOR or result in interest rates that are at least as favorable to us as those that would have resulted had
LIBOR remained in effect, which could result in an increase in our interest expense and other debt service
obligations. In addition, the overall credit market may be disrupted as a result of the replacement of LIBOR or in the
anticipation thereof, which could have an adverse impact on our ability to refinance, reprice, or amend our existing
indebtedness or incur additional indebtedness on favorable terms.
We paid dividends of $199 million, $196 million and $198 million for fiscal 2021, 2020 and 2019, respectively.
During the first and second quarter of fiscal 2021, we sold $693 million of accounts receivable under accounts
receivable purchase agreements and received proceeds of $693 million (see "Note 6—Receivables"). There were
no sales of accounts receivable in the second half of fiscal 2021.
Leidos Holdings, Inc. Annual Report - 42
PART II
We may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open
market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be
material.
Stock repurchases of Leidos common stock may be made on the open market or in privately negotiated
transactions with third parties including through accelerated share repurchase ("ASR") agreements. Whether
repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors
including price, corporate capital requirements, other market conditions and regulatory requirements. The
repurchase program may be accelerated, suspended, delayed or discontinued at any time.
During fiscal 2021, 2020 and 2019, we made open market repurchases of our common stock for an aggregate
purchase price of $237 million, $67 million and $25 million, respectively.
Additionally, during fiscal 2019, we entered into ASR agreements with financial institutions, whereby we paid an
aggregate of $400 million and received approximately 5.6 million shares of Leidos outstanding shares (see "Note 16
—Earnings Per Share" of the notes to the consolidated financial statements contained within this Annual Report on
Form 10-K). The purchases were recorded to "Additional paid-in capital" in the consolidated balance sheets. All
shares delivered were immediately retired.
Beginning in 2022, a provision in the Tax Cuts and Jobs Act of 2017 (“TCJA”) which eliminates the option to
currently deduct research and development costs for tax purposes and requires taxpayers to capitalize and
amortize the costs over five years becomes effective. Congress may defer, modify or repeal the provision, but the
ultimate outcome is uncertain. The uncertainty surrounding the TCJA provision and the potential for COVID-19 to
affect the financial markets may impact our liquidity. If the 2022 effective date of the TCJA research cost
capitalization provision remains in place, our initial assessment indicates we will have a negative impact to cash of
approximately $150 million in fiscal 2022 and our net deferred tax assets will increase by a similar amount. We will
continue to assess our liquidity needs as the tax legislation and pandemic evolve.
For the next 12 months, we anticipate that we will be able to meet our liquidity needs, including servicing our debt,
through cash generated from operations, available cash balances, sales of accounts receivable and, if needed,
borrowings from our revolving credit facility and commercial paper program.
Summary of Cash Flows
The following table summarizes cash flow information for the periods presented:
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Year Ended
December 31,
2021
January 1,
2021
(in millions)
1,031 $
(730)
(113)
188 $
1,334
(2,815)
1,451
(30)
$
$
Net cash provided by operating activities decreased $303 million for fiscal 2021 as compared to fiscal 2020. The
decrease was primarily due to the timing of customer advance payments, $62 million of deferral for employer payroll
tax payments in the prior year and the receipt of $85 million of proceeds related to the VirnetX legal matter in the
prior year, partially offset with improved collections on trade accounts receivable.
Net cash used in investing activities decreased $2,085 million for fiscal 2021 as compared to fiscal 2020. The
decrease was primarily due to larger acquisitions made in the prior year for Dynetics and the SD&A Businesses
compared to our current year acquisitions (see "Note 5–Acquisitions and Divestitures") and lower capital
expenditures in the current year.
Leidos Holdings, Inc. Annual Report - 43
PART II
Net cash used in financing activities increased $1,564 million for fiscal 2021 as compared to fiscal 2020. The
increase was primarily due to a decrease of approximately $1,444 million from the net change of proceeds received
from the issuance of debt, principal payments and payments for debt issuance costs, an increase of $170 million of
open market stock repurchases, partially offset by a net $34 million increase in capital contributions received from
our non-controlling interest.
Off-Balance Sheet Arrangements
We have outstanding performance guarantees and cross-indemnity agreements in connection with certain aspects
of our business. We also have letters of credit outstanding principally related to performance guarantees on
contracts and surety bonds outstanding principally related to performance and subcontractor payment bonds as
described in "Note 21—Commitments and Contingencies" of the notes to the consolidated financial statements
contained within this Annual Report on Form 10-K. These arrangements have not had, and management does not
believe it is likely that they will in the future have, a material effect on our liquidity, capital resources, operations or
financial condition.
Contractual Obligations
The following table summarizes our obligations to make future payments pursuant to certain contracts or
arrangements as of December 31, 2021:
Contractual obligations:
Long-term debt (including current portion)
Interest payments
Operating lease obligations
Finance lease obligations
Other long-term liabilities and purchase obligations
Total contractual obligations
Total
Due in FY22
(in millions)
$
$
5,067 $
1,191
817
52
308
7,435 $
477
150
162
9
35
833
The table above excludes purchase orders for services or products to be delivered pursuant to U.S. government
contracts for which we are entitled to full recourse under normal contract termination clauses.
Interest payments relate to our outstanding debt and finance leases. The total interest payments on our outstanding
term loan debt are calculated based on the stated variable rates of the notes as of December 31, 2021. For more
information on the Company’s debt and interest payments, see "Note 13—Debt " of the notes to the consolidated
financial statements contained within this Annual Report on Form 10-K.
For more information on our finance and operating lease commitments, see "Note 10—Leases" of the notes to the
consolidated financial statements contained within this Annual Report on Form 10-K.
Other long-term liabilities include liabilities under deferred compensation arrangements and purchase obligations for
long-term purchases and service agreements. There is no obligation included for our foreign defined benefit pension
plan, as the plan is overfunded as of December 31, 2021. For a discussion of potential changes in these pension
obligations, see "Note 19—Retirement Plans" of the notes to the consolidated financial statements contained within
this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 44
PART II
Guarantors and Issuers of Guaranteed Securities
Leidos Holdings, Inc. has fully and unconditionally guaranteed the obligations of its subsidiary, Leidos, Inc., under its
$500 million notes due May 2023, $500 million notes due May 2025, $750 million due May 2030 and $1,000 million
notes due February 2031 (collectively, "the Notes"). The underlying subsidiaries of Leidos, Inc. do not guarantee
these obligations and have been excluded from the financial information presented below.
We have entered into registration rights agreements, pursuant to which we agreed to use reasonable best efforts to
file registration statements to permit the exchange of the Notes and related guarantees for registered notes having
terms substantially identical thereto, or in the alternative, the registered resale of the Notes and related guarantees
under certain circumstances. Pursuant to these registration rights agreements, we filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission on May 6, 2021, which was declared effective on May 19,
2021.
Summarized financial information for Leidos and Leidos Inc., net of eliminations, for the year ended December 31,
2021 was as follows (in millions):
Balance Sheet
Total current assets
Goodwill
Investments in consolidated subsidiaries
Other long-term assets
Total current liabilities
Long-term debt, net of current portion
Intercompany payables
Other long-term liabilities
Total liabilities
Total equity
Income Statement
Revenues, net
Operating income
Net income attributable to Leidos common stockholders
Commitments and Contingencies
$
$
$
2,229
4,171
4,918
1,362
12,680
2,400
4,590
1,438
849
9,277
3,403
$
12,680
$
9,240
664
274
We are subject to a number of reviews, investigations, claims, lawsuits, other uncertainties and future obligations
related to our business. For a discussion of these items, see "Note 10—Leases" and "Note 21—Commitments and
Contingencies" of the notes to the consolidated financial statements contained within this Annual Report on Form
10-K.
Leidos Holdings, Inc. Annual Report - 45
PART II
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which are prepared in accordance with accounting principles generally accepted in the United
States of America ("GAAP"). The preparation of these financial statements in accordance 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. Our estimates and assumptions have been prepared by management on the basis of the most current and
best available information. The results of these estimates form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these
estimates under different assumptions and conditions.
We have identified the following accounting policies as critical because they require significant judgments and
assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates
and assumptions could have a material impact on our results of operations or financial condition.
•
Revenue Recognition
• Goodwill and Intangible Assets
Revenue Recognition
We perform under various types of contracts, which include firm-fixed-price ("FFP"), time-and-materials ("T&M"),
fixed-price-level-of-effort ("FP-LOE"), cost-plus-fixed-fee ("CPFF"), cost-plus-award-fee, cost-plus-incentive-fee and
fixed-price-incentive-fee contracts.
To determine the proper revenue recognition, we first evaluate whether we have a duly approved and enforceable
contract with a customer, in which the rights of the parties and payment terms are identified, and collectability is
probable. We also evaluate whether two or more contracts should be combined and accounted for as a single
contract, including the task orders issued under an IDIQ award. In addition, we assess contract modifications to
determine whether changes to existing contracts should be accounted for as part of the original contract or as a
separate contract. If contract modifications add distinct goods or services and increase the contract value by an
amount that reflects the standalone selling price, those modifications are accounted for as separate contracts.
In cases where our contracts contain multiple promises, we assess if the multiple promises should be accounted for
as separate performance obligations or combined into a single performance obligation. We generally separate
multiple promises in a contract as separate performance obligations if those promises are distinct, both individually
and in the context of the contract. If multiple promises in a contract are highly interrelated or require significant
integration or customization within a group, they are combined and accounted for as a single performance
obligation.
Our contracts with the U.S. government often contain options to renew existing contracts for an additional period of
time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not
provide the customer any material rights under the contract. We account for renewal options as separate contracts
when they include distinct goods or services at standalone selling prices.
Contracts with the U.S. government are subject to the FAR and priced on estimated or actual costs of providing the
goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods
and services provided to the U.S. government and its agencies. Each contract is competitively priced and bid
separately. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations
with each customer. In circumstances where the standalone selling price is not directly observable, we estimate the
standalone selling price using the expected cost-plus margin approach. Any taxes collected or imposed when
determining the transaction price are excluded.
Certain cost-plus and fixed-price contracts contain award fees, incentive fees or other provisions that may either
increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of
certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We
estimate variable consideration at the most probable amount that we expect to be entitled to, based on the
assessment of the contractual variable fee criteria, complexity of work and related risks, extent of customer
discretion, amount of variable consideration received historically and the potential of significant reversal of revenue.
Leidos Holdings, Inc. Annual Report - 46
PART II
We allocate the transaction price of a contract to its performance obligations in the proportion of its respective
standalone selling prices. The standalone selling price of the performance obligations is generally based on an
expected cost-plus margin approach, in accordance with the FAR. For certain product sales, prices from other
standalone sales are used.
We recognize revenue on our service-based contracts primarily over time as there is continuous transfer of control
to the customer over the duration of the contract as the promised services are performed. For U.S. government
contracts, continuous transfer of control to the customer is evidenced by clauses in the contract that allow the
customer to unilaterally terminate the contract for convenience, pay for costs incurred plus a reasonable profit and
take control of any work-in-process. Similarly, for non-U.S. government contracts, the customer typically controls the
work-in-process as evidenced by rights to payment for work performed to date plus a reasonable profit to deliver
products or services for which we do not have an alternate use. Anticipated losses on service-based contracts are
recognized when incurred (generally on a straight-line basis) over the contract term. In certain product sales, where
the products have an alternate use, revenue is recognized at a point in time when the customer takes control of the
asset usually denoted by possession, transfer of legal title and acceptance by the customer.
On FFP contracts requiring system integration and cost-plus contracts with variable consideration, revenue is
recognized over time generally using a method that measures the extent of progress towards completion of a
performance obligation, principally using a cost-input method (referred to as the cost-to-cost method). Under the
cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to estimated total costs-
at-completion ("EAC"). A performance obligation's EAC includes all direct costs such as materials, labor,
subcontract costs, overhead and a ratable portion of general and administrative costs. In addition, an EAC of a
performance obligation includes future losses estimated to be incurred on onerous contracts, as and when known.
On certain other contracts, principally T&M, FP-LOE and CPFF, revenue is recognized using the right-to-invoice
practical expedient as we are contractually able to invoice the customer based on the control transferred to the
customer. Additionally, on maintenance (generally FFP) performance obligations, revenue is recognized over time
using a straight-line method as the control of the services is provided to the customer evenly over the period of
performance.
For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the
goods or service to the customer, do not have inventory risk and do not have discretion in establishing the price for
the goods or service, we recognize revenue on a net basis.
Goodwill and Intangible Assets
Goodwill represents the excess of the fair value of consideration transferred, plus the fair value of any non-
controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the
acquisition date. We recognize purchased intangible assets in connection with our business acquisitions at fair
value on the acquisition date.
Goodwill and intangible assets, net collectively represent 60% of our total assets as of December 31, 2021 and
January 1, 2021.
Goodwill is not amortized, but instead is tested annually for impairment at the reporting unit level and tested more
frequently if events or circumstances indicate that the carrying value may not be recoverable. Our policy is to
perform our annual goodwill impairment evaluation as of the first day of the fourth quarter of our fiscal year using
either a qualitative or quantitative approach. During both fiscal 2021 and 2020, we had seven reporting units.
In our qualitative assessment, we determine whether it is more likely than not that an impairment exists based on
qualitative factors. Qualitative factors include macroeconomic, industry and market considerations, overall financial
performance, industry, legal and other relevant events and factors affecting the reporting unit.
Leidos Holdings, Inc. Annual Report - 47
PART II
Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors
above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value. If the
qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative
assessment is performed. We use discounted cash flow analyses and market multiple analyses in order to estimate
reporting unit fair values. Discounted cash flow analyses rely on significant judgement and assumptions about
expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and
operating margins. These assumptions are based on estimates of future sales and earnings after considering such
factors as general market conditions, customer budgets, existing firm and future orders, changes in working capital,
long term business plans and recent operating performance. Market multiple analyses incorporate significant
judgments and assumptions related to the selection of guideline public companies, our forecast earnings before
interest, taxes, depreciation and amortization (“EBITDA”), forecast EBITDA of guideline public companies and
control premium estimates. A significant change to these estimates and assumptions could cause the estimated fair
values of our reporting units and intangible assets to decline and increase the risk of an impairment charge to
earnings. Intangible assets with finite lives are assessed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
We performed our annual test for impairment as of October 2, 2021, which resulted in no impairments being
identified. However, through this analysis we determined that our Security Products reporting unit within the Civil
reportable segment, which holds goodwill in the amount of $926 million as of December 31, 2021, was at risk of
future impairment. The estimated fair value of the Security Products reporting unit exceeded the carrying value by
approximately 6%. Operations of the reporting unit rely heavily on the sales and servicing of security and detection
products, which have been negatively impacted by COVID-19. The forecasts utilized to estimate the fair value of the
Security Products reporting unit assume a gradual improvement in the global aviation security product and related
service sales, reaching pre-COVID-19 levels by fiscal 2025. In the event that there are significant unfavorable
changes to the forecasted cash flows of the reporting unit (including if the impact of COVID-19 on passenger travel
levels is more prolonged or severe than what is incorporated into our forecast), terminal growth rates or the cost of
capital used in the fair value estimates, we may be required to record a material impairment of goodwill at a future
date.
Intangible assets with indefinite lives are not amortized but are assessed for impairment at the beginning of the
fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable.
Each quarter, we evaluate impairment indicators to determine whether there is a triggering event warranting a
goodwill and intangible asset impairment analysis.
Recently Adopted and Issued Accounting Pronouncements
For a discussion of these items, see "Note 2—Accounting Standards" of the notes to the consolidated financial
statements contained within this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the normal course of business. Our current market risk exposures are
primarily related to interest rates and foreign currency fluctuations. The following information about our market
sensitive financial instruments contains forward-looking statements.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to long-term debt obligations and
derivatives. Our policy authorizes, with Board of Directors' approval, the limited use of derivative instruments to
hedge specific interest rate risks.
Debt and derivatives
At December 31, 2021 and January 1, 2021, we had $5.1 billion and $4.7 billion, respectively, of short-term and
long-term debt, which included $1.7 billion and $1.4 billion, respectively, related to our senior unsecured term loans
that have a variable stated interest rate that is determined based on the London Interbank Offered Rate ("LIBOR")
rate plus a margin. As a result, we may experience fluctuations in interest expense.
Leidos Holdings, Inc. Annual Report - 48
PART II
We have interest rate swap agreements to hedge the cash flows of a portion of our variable rate senior unsecured
term loan ("Variable Rate Loan"). Under the terms of the interest rate swap agreements, we receive variable interest
payments based on the one-month LIBOR rate and pay interest at a fixed rate. As of December 31, 2021, the
notional value of the interest rate swap agreements was $1.0 billion. The interest rate swap agreements effectively
converted a portion of our variable rate borrowing to a fixed rate borrowing. As of December 31, 2021 and
January 1, 2021, the fair value of our interest rate swap agreements with respect to our Variable Rate Loan was a
liability of $53 million and $103 million, respectively.
The counterparties to these agreements are financial institutions. We do not hold or issue derivative financial
instruments for trading or speculative purposes. We cannot predict future market fluctuations in interest rates and
their impact on our interest rate swaps. The net hypothetical 10% movement in the one-month LIBOR rate would
not have a significant impact on our annual interest expense. For additional information related to our interest rate
swap agreements and debt, see "Note 12—Derivative Instruments" and "Note 13—Debt," respectively, of the notes
to the consolidated financial statements contained within this Annual Report on Form 10-K.
Cash and Cash Equivalents
As of December 31, 2021 and January 1, 2021, our cash and cash equivalents included investments in several
large institutional money market accounts. For fiscal 2021 and fiscal 2020, a hypothetical 10% interest rate
movement would not have a significant impact on the value of our holdings or on interest income.
Foreign Currency Risk
Although the majority of our transactions are denominated in U.S. dollars, some of our transactions are
denominated in foreign currencies. Our foreign currency exchange rate risk relates to receipts from customers,
payments to suppliers and certain intercompany transactions denominated in currencies other than our (or one of
our subsidiaries') functional currency. Our foreign operations represented 8% of total revenues for fiscal 2021, 2020
and 2019.
Leidos Holdings, Inc. Annual Report - 49
Item 8. Financial Statements and Supplementary Data
PART II
LEIDOS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets as of December 31, 2021 and January 1, 2021
Consolidated Statements of Income for the fiscal years ended December 31, 2021, January 1, 2021
and January 3, 2020
Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2021,
January 1, 2021 and January 3, 2020
Consolidated Statements of Equity for the fiscal years ended December 31, 2021, January 1, 2021
and January 3, 2020
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2021, January 1,
2021 and January 3, 2020
Notes to Consolidated Financial Statements
Page
51
54
55
56
57
58
60
Financial statement schedules are omitted because they are not applicable or the required information is presented
in the consolidated financial statements or the notes thereto.
Leidos Holdings, Inc. Annual Report - 50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Leidos Holdings, Inc.
Reston, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Leidos Holdings, Inc. and subsidiaries (the
"Company") as of December 31, 2021 and January 1, 2021, the related consolidated statements of income,
comprehensive income, equity, and cash flows, for the fiscal years ended December 31, 2021, January 1, 2021,
and January 3, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2021 and January 1, 2021, and the results of its operations and its cash flows for the fiscal years ended
December 31, 2021, January 1, 2021, and January 3, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 15, 2022, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Leidos Holdings, Inc. Annual Report - 51
Goodwill Valuation – Security Products Reporting Unit - Refer to Note 3, Note 5 and Note 8 to the financial
statements
Critical Audit Matter Description
The Company performed a quantitative impairment evaluation of the goodwill for the Security Products reporting
unit by comparing the estimated fair value of the reporting unit to its carrying value. Estimating the fair value of a
reporting unit requires the exercise of significant judgment and assumptions including judgments about expected
future cash flows, weighted-average cost of capital, discount rates and expected long-term growth rates. Changes
in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any
goodwill impairment charge, or both. The goodwill balance was $6,744 million as of December 31, 2021 of which
$926 million related to the Security Products reporting unit. The Company’s accounting policy is to test for
impairment on the first day of the fourth quarter of each year. As a result of the quantitative assessment, the
Company concluded that the fair value of the reporting unit exceeded the carrying value by approximately 6%,
which resulted in no impairment for the year ended December 31, 2021.
Given the significant judgments made by management to estimate the fair value of the Security Products reporting
unit and the difference between its fair value and carrying value, performing audit procedures to develop an
independent estimate of the fair value of the Security Products reporting unit, which included evaluating estimates
and assumptions related to the cost of capital, forecasts of future cash flows, and terminal growth rates specifically
due to the sensitivity of the operations to changes in global aviation security products and related services markets,
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair
value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rate, terminal growth rate and forecasts of future
revenues and cash flows for the Security Products reporting unit included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over the selection of the discount rate, terminal growth rate and management’s development of forecasts of
future revenues and cash flows.
• We developed an independent estimate of the fair value of the Security Products reporting unit using both
the income as well as the market approach. We utilized historical results of the reporting unit and inspected
third-party industry reports for the global aviation security products and related services markets to develop
projections. Additionally, we developed the discount rate and terminal year growth rate with the assistance
of our fair value specialists.
•
The market approach analysis was performed by selecting guideline peer companies and developing
enterprise value multiples of revenues and Earnings Before Interest, Taxes, Depreciation and Amortization.
We reconciled the results of the market approach with the discounted cash flow approach.
• We evaluated the carrying value of the reporting unit.
Revenues — Refer to Note 3 and Note 4 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue on service-based contracts primarily over time as there is continuous transfer of
control to the customer over the duration of the contract as the Company performs the promised services. The
accounting conclusions for contracts involves judgment, particularly as it relates to determining whether multiple
promises within a single contract are highly interrelated and represent a single performance obligation, and whether
the Company is acting as a principal in the fulfillment of the identified performance obligations on certain contracts.
Leidos Holdings, Inc. Annual Report - 52
On firm-fixed-price (FFP) contracts requiring system integration and cost-plus contracts with variable consideration,
revenue is recognized over time generally using a method that measures the extent of progress towards completion
of a performance obligation, principally using a cost-input method (referred to as the cost-to-cost method). Under
the cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to estimated total
costs-at-completion ("EAC"). A performance obligation's EAC includes all direct costs such as materials, labor,
subcontract costs, overhead and a ratable portion of general and administrative costs. The accounting for these
contracts involves judgment, particularly as it relates to the process of estimating total costs for the performance
obligation.
Given the judgments necessary to determine whether multiple promises within a single contract represent a single
performance obligation, whether or not the Company is acting as principal in the fulfillment of the identified
performance obligations on certain contracts, and estimates of total costs for the performance obligations that
recognize revenue using the cost-to-cost method, auditing such accounting conclusions and estimates required
extensive audit effort due to the volume and complexity of these contracts and a high degree of auditor judgment
when performing audit procedures and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s conclusions regarding whether multiple promises within a single
contract represent a single performance obligation, whether or not the Company is acting as a principal or an agent
in fulfilling identified performance obligations on certain contracts, and estimates of total costs for the performance
obligations that recognize revenue using the cost-to-cost method included the following, among others:
• We tested the effectiveness of controls over contract revenue, including management’s controls
over the initial setup of new contract arrangements and the estimates of total costs for identified
performance obligations.
• We tested recorded revenue using a combination of analytical procedures and detailed contract
testing.
•
For a selection of contracts, we performed elements of the following for each contract:
◦
Evaluated the terms and conditions of each contract and the appropriateness of the
accounting treatment in accordance with generally accepted accounting principles, by:
▪
▪
Inspecting the executed contract to verify that the facts on which management’s
conclusions were reached were consistent with the actual terms and conditions of
the contract.
Evaluating the contract within the context of the five-step model prescribed by ASC
606 and that management’s conclusions were appropriate by evaluating the nature
of the promises within the contract, the interrelationship of the promised services
provided, the pattern by which obligations are fulfilled, the number of performance
obligations identified, and which party is acting as principal in the fulfillment of the
identified performance obligations.
•
Tested the mathematical accuracy of management’s calculation of revenue for the
performance obligation.
• We analyzed cumulative adjustments recorded during the year and tested those with characteristics
of audit interest to determine that the adjustments were the result of changes in facts and
circumstances and not estimates that were previously inaccurate.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 15, 2022
We have served as the Company's auditor since fiscal 2000.
Leidos Holdings, Inc. Annual Report - 53
LEIDOS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
Assets:
Cash and cash equivalents
Receivables, net
Inventory, net
Other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets, net
Other assets
Total assets
Liabilities:
Accounts payable and accrued liabilities
Accrued payroll and employee benefits
Short-term debt and current portion of long-term debt
Total current liabilities
Long-term debt, net of current portion
Operating lease liabilities
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Notes 21)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10 million shares authorized and no shares
issued and outstanding at December 31, 2021 and January 1, 2021
Common stock, $0.0001 par value, 500 million shares authorized, 140 million and
142 million shares issued and outstanding at December 31, 2021 and January 1,
2021, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Leidos stockholders’ equity
Non-controlling interest
Total stockholders' equity
December 31,
2021
January 1,
2021
(in millions)
$
727 $
2,189
274
429
3,619
670
1,177
6,744
612
439
13,261 $
2,141 $
605
483
3,229
4,593
589
239
267
8,917 $
$
$
$
524
2,137
276
402
3,339
604
1,216
6,313
581
458
12,511
2,175
632
100
2,907
4,644
564
234
291
8,640
—
—
—
2,423
1,880
(12)
4,291
53
4,344
—
2,580
1,328
(46)
3,862
9
3,871
12,511
Total liabilities and stockholders' equity
$
13,261 $
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 54
LEIDOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
December 31,
2021
Year Ended
January 1,
2021
January 3,
2020
Revenues
Cost of revenues
Selling, general and administrative expenses
Bad debt expense and recoveries
Acquisition, integration and restructuring costs
Asset impairment charges
Equity earnings of non-consolidated subsidiaries
Operating income
Non-operating expense:
Interest expense, net
Other (expense) income, net
Income before income taxes
Income tax expense
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Leidos common stockholders
Earnings per share:
Basic
Diluted
$
$
$
(in millions, except per share amounts)
13,737 $
11,723
860
(9)
12,297 $
10,560
770
(68)
11,094
9,546
689
(40)
27
4
(20)
1,152
(184)
(1)
967
(208)
759
6
753 $
39
12
(14)
998
(179)
(38)
781
(152)
629
1
628 $
5
—
(18)
912
(133)
87
866
(196)
670
3
667
5.34 $
5.27
4.42 $
4.36
4.66
4.60
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 55
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
LEIDOS HOLDINGS, INC.
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
Net income
$
759 $
629 $
Foreign currency translation adjustments
Unrecognized gain (loss) on derivative instruments
Pension adjustments
Total other comprehensive income (loss), net of taxes
Comprehensive income
Less: comprehensive income attributable to non-controlling interest
(8)
29
13
34
793
6
63
(37)
(2)
24
653
1
Comprehensive income attributable to Leidos common stockholders
$
787 $
652 $
670
8
(47)
(1)
(40)
630
3
627
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 56
LEIDOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Shares of
common
stock
Additional
paid-in
capital
Leidos
Accumulated
Holdings, Inc.
other
stockholders'
comprehensive
Retained
equity
loss
earnings
(in millions, except for per share amounts)
Non-
controlling
interest
Total
146 $ 2,966 $
372 $
(30) $
3,308 $
3 $ 3,311
Balance at December 28, 2018
Cumulative adjustments
related to ASU adoptions
Balance at December 28, 2018
Net income
Other comprehensive loss, net
of taxes
Issuances of stock
Repurchases of stock and other
Dividends of $1.32 per share
Stock-based compensation
Other
—
146
—
—
2,966
—
—
1
(6)
—
—
—
—
28
(458)
—
52
(1)
Balance at January 3, 2020
141
2,587
Cumulative adjustments related
to ASU adoptions
Balance at January 4, 2020
Net income
Other comprehensive income,
net of taxes
Issuances of stock
Repurchases of stock and other
Dividends of $1.36 per share
Stock-based compensation
Net capital contributions to non-
controlling interest
Balance at January 1, 2021
Net income
Other comprehensive income,
net of taxes
Issuances of stock
Repurchases of stock and other
Dividends of $1.40 per share
Stock-based compensation
Net capital contributions to non-
controlling interest
—
141
—
—
1
—
—
—
—
142
—
—
1
(3)
—
—
—
—
2,587
—
—
36
(105)
—
62
—
2,580
—
—
46
(270)
—
67
—
Balance at December 31, 2021
140 $ 2,423 $
48
420
667
—
—
—
(191)
—
—
896
(1)
895
628
—
—
—
(195)
—
—
1,328
753
—
—
—
(201)
—
—
(30)
—
(40)
—
—
—
—
—
(70)
—
(70)
—
24
—
—
—
—
—
(46)
—
34
—
—
—
—
48
3,356
667
(40)
28
(458)
(191)
52
(1)
3,413
(1)
3,412
628
24
36
(105)
(195)
62
—
3,862
753
34
46
(270)
(201)
67
—
3
3
—
—
—
—
—
(2)
4
—
4
1
—
—
—
—
—
4
9
6
—
—
—
—
—
48
3,359
670
(40)
28
(458)
(191)
52
(3)
3,417
(1)
3,416
629
24
36
(105)
(195)
62
4
3,871
759
34
46
(270)
(201)
67
—
1,880 $
—
(12) $
—
4,291 $
38
38
53 $ 4,344
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 57
LEIDOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operations:
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization
Stock-based compensation
Loss (gain) on sale of businesses
Loss on debt extinguishment
Asset impairment charges
Deferred income taxes
Bad debt expense and recoveries
Other
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Receivables
Other current assets and other long-term assets
Accounts payable and accrued liabilities and other long-term liabilities
Accrued payroll and employee benefits
Income taxes receivable/payable
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired
Payments for property, equipment and software
Proceeds from disposition of businesses
Net proceeds from sale of assets
Collections on promissory notes
Other
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from debt issuance
Payments of long-term debt
Payments for debt issuance and modification costs
Dividend payments
Repurchases of stock and other
Proceeds from issuances of stock
Capital distributions to non-controlling interests
Capital contributions from non-controlling interests
Other
Net cash (used in) provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Leidos Holdings, Inc. Annual Report - 58
Year Ended
December 31,
2021
January 1,
2021
January 3,
2020
(in millions)
$
759 $
629 $
670
325
67
3
—
4
(26)
(9)
(1)
(5)
143
(212)
(32)
15
1,031
(622)
(104)
—
—
—
(4)
(730)
380
(106)
—
(199)
(270)
44
(3)
41
—
282
62
—
36
12
(4)
13
1
(127)
104
151
161
14
1,334
(2,655)
(183)
—
12
5
6
(2,815)
7,225
(5,456)
(51)
(196)
(105)
35
—
4
(5)
(113)
1,451
188
687
875
(30)
717
687
234
52
(88)
—
—
18
12
3
116
41
(71)
(29)
34
992
(94)
(121)
178
96
5
1
65
—
(80)
—
(198)
(458)
27
—
—
—
(709)
348
369
717
CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
LEIDOS HOLDINGS, INC.
Less: restricted cash at end of year
Cash and cash equivalents at end of year
Supplementary cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Non-cash investing activity:
Property, plant and equipment additions
Non-cash financing activity:
Finance lease obligations
Year Ended
December 31,
2021
January 1,
2021
January 3,
2020
(in millions)
148
163
727 $
524 $
182 $
161 $
221
140
4 $
18 $
51 $
12 $
$
$
$
$
49
668
172
142
27
—
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 59
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Nature of Operations and Basis of Presentation
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 an 88% controlling interest in Mission Support Alliance, LLC ("MSA"), a joint venture with Centerra Group,
LLC, which includes 41% purchased from Jacobs Group, LLC on January 26, 2018. MSA’s contract ended on
January 24, 2021. We also have a 53% 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. We consolidate the financial results for MSA and HMIS into our consolidated
financial statements.
The 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 consolidated financial statements for the
periods presented. Intercompany accounts and transactions between consolidated companies have been
eliminated in consolidation.
Effective July 3, 2021, certain contracts were reassigned from the Defense Solutions reportable segment to the Civil
reportable segment. Impact on prior year segment results were determined to be immaterial and have not been
recast to reflect this change.
Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the
Defense Solutions reportable segment. Fiscal 2019 segment results and disclosures have been recast to reflect this
change.
Note 2—Accounting Standards
Accounting Standards Updates 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.
Leidos Holdings, Inc. Annual Report - 60
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 plan to adopt 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 ASC 606.
Note 3—Summary of Significant Accounting Policies
Reporting Periods
Leidos' fiscal year ends on the Friday nearest the end of December. Fiscal 2021 ended December 31, 2021. Fiscal
2021 and 2020 each included 52 weeks and fiscal 2019 included 53 weeks.
Leidos Holdings, Inc. Annual Report - 61
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America ("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 ("ROU") assets and lease
liabilities, fair value and impairment of intangible assets and goodwill, income taxes, pension benefits, 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.
Operating Cycle
Our operating cycle for long-term contracts may be greater than one year and is measured by the average time
intervening between the inception and the completion of those contracts.
Business Combinations, Investments and Variable Interest Entities
Business Combinations
The accounting for business combinations requires management to make judgments and estimates related to the
fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities and
contingencies assumed. Such judgments and estimates directly impact the amount of goodwill recognized in
connection with an acquisition. Estimating the fair value of acquired assets and assumed liabilities, including
intangibles, requires judgments about expected future cash flows, weighted-average cost of capital, discount rates
and expected long-term growth rates.
Investments
Investments in entities and corporate joint ventures where we have a non-controlling ownership interest but over
which we have the ability to exercise significant influence, are accounted for under the equity method of accounting.
We recognize our proportionate share of the entities' net income or loss and do not consolidate the entities' assets
and liabilities.
Equity investments in entities over which we do not have the ability to exercise significant influence and whose
securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary
impairments.
Variable Interest Entities
We occasionally form joint ventures and/or enter into arrangements with special purpose limited liability companies
for the purpose of bidding and executing on specific projects. We analyze each such arrangement to determine
whether it represents a VIE. If the arrangement is determined to be a VIE, we assess whether we are the primary
beneficiary of the VIE and are consequently required to consolidate the VIE.
Divestitures
From time-to-time, we may dispose (or management may commit to plans to dispose) of strategic or non-strategic
components of the business. Divestitures representing a strategic shift that has (or will have) a major effect in
operations and financial results are classified as discontinued operations, whereas non-strategic divestitures remain
in continuing operations.
Leidos Holdings, Inc. Annual Report - 62
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring Expenses
Restructuring expenses are incurred in connection with programs aimed at reducing our costs. Restructuring costs
may include one-time termination of benefits, costs to terminate contracts and other permanent exit costs to
consolidate or close facilities directly related to the restructuring program.
One-time involuntary termination benefits are recognized as a liability at estimated fair value when the plan of
termination has been communicated to employees and certain other criteria are met. Ongoing termination benefit
arrangements are recognized as a liability at estimated fair value when it is probable that amounts will be paid and
such amounts are reasonably estimable. Costs associated with exit or disposal activities, including the related one-
time and ongoing involuntary termination benefits, are included as "Acquisition, integration and restructuring costs"
on the consolidated statements of income.
Revenue Recognition
Our revenues from contracts with customers are from offerings including digital modernization, cyber operations,
mission software systems, integrated systems and mission operations, primarily with the U.S. government and its
agencies. We also serve various state and local governments, foreign governments and commercial customers.
We perform under various types of contracts, which include firm-fixed-price ("FFP"), time-and-materials ("T&M"),
fixed-price-level-of-effort ("FP-LOE"), cost-plus-fixed-fee ("CPFF"), cost-plus-award-fee, cost-plus-incentive-fee and
fixed-price-incentive-fee ("FP-IF") contracts.
To determine the proper revenue recognition, we first evaluate whether we have a duly approved and enforceable
contract with a customer, in which the rights of the parties and payment terms are identified, and collectability is
probable. We also evaluate whether two or more contracts should be combined and accounted for as a single
contract, including the task orders issued under an indefinite delivery/indefinite quantity ("IDIQ") award. In addition,
we assess contract modifications to determine whether changes to existing contracts should be accounted for as
part of the original contract or as a separate contract. Contract modifications generally relate to changes in contract
specifications and requirements and do not add distinct services, and therefore are accounted for as part of the
original contract. If contract modifications add distinct goods or services and increase the contract value by an
amount that reflects the standalone selling price, those modifications are accounted for as separate contracts.
Most of our contracts are comprised of multiple promises including the design and build of software-based systems,
integration of hardware and software solutions, running and maintaining of IT infrastructure and procurement
services. In all cases, we assess if the multiple promises should be accounted for as separate performance
obligations or combined into a single performance obligation. We generally separate multiple promises in a contract
as separate performance obligations if those promises are distinct, both individually and in the context of the
contract. If multiple promises in a contract are highly interrelated or require significant integration or customization
within a group, they are combined and accounted for as a single performance obligation.
Our contracts with the U.S. government often contain options to renew existing contracts for an additional period of
time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not
provide the customer any material rights under the contract. We account for renewal options as separate contracts
when they include distinct goods or services at standalone selling prices.
Contracts with the U.S. government are subject to the FAR and priced on estimated or actual costs of providing the
goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods
and services provided to the U.S. government and its agencies. Each contract is competitively priced and bid
separately. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations
with each customer. In circumstances where the standalone selling price is not directly observable, we estimate the
standalone selling price using the expected cost-plus margin approach. Any taxes collected or imposed when
determining the transaction price are excluded.
Certain cost-plus and fixed-price contracts contain award fees, incentive fees or other provisions that may either
increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of
certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We
estimate variable consideration at the most probable amount that we expect to be entitled to, based on the
assessment of the contractual variable fee criteria, complexity of work and related risks, extent of customer
discretion, amount of variable consideration received historically and the potential of significant reversal of revenue.
Leidos Holdings, Inc. Annual Report - 63
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We allocate the transaction price of a contract to its performance obligations in the proportion of its respective
standalone selling prices. The standalone selling price of the performance obligations is generally based on an
expected cost-plus margin approach, in accordance with the FAR. For certain product sales, prices from other
standalone sales are used. Substantially all of our contracts do not contain a significant financing component, which
would require an adjustment to the transaction price of the contract.
We recognize revenue on our service-based contracts primarily over time as there is continuous transfer of control
to the customer over the duration of the contract as the promised services are performed. For U.S. government
contracts, continuous transfer of control to the customer is evidenced by clauses in the contract that allow the
customer to unilaterally terminate the contract for convenience, pay for costs incurred plus a reasonable profit and
take control of any work-in-process. Similarly, for non-U.S. government contracts, the customer typically controls the
work-in-process as evidenced by rights to payment for work performed to date plus a reasonable profit to deliver
products or services for which we do not have an alternate use. Anticipated losses on service-based contracts are
recognized when incurred (generally on a straight-line basis) over the contract term. In certain product sales, where
the products have an alternate use, revenue is recognized at a point in time when the customer takes control of the
asset usually denoted by possession, transfer of legal title and acceptance by the customer.
On FFP contracts requiring system integration and cost-plus contracts with variable consideration, revenue is
recognized over time generally using a method that measures the extent of progress towards completion of a
performance obligation, principally using a cost-input method (referred to as the cost-to-cost method). Under the
cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to estimated total costs-
at-completion ("EAC"). A performance obligation's EAC includes all direct costs such as materials, labor,
subcontract costs, overhead and a ratable portion of general and administrative costs. In addition, an EAC of a
performance obligation includes future losses estimated to be incurred on onerous contracts, as and when known.
On certain other contracts, principally T&M, FP-LOE and CPFF, revenue is generally recognized using the right-to-
invoice practical expedient as we are contractually able to invoice the customer based on the control transferred to
the customer. Additionally, on maintenance (generally FFP) performance obligations, revenue is recognized over
time using a straight-line method as the control of the services is provided to the customer evenly over the period of
performance.
For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the
goods or service to the customer, do not have inventory risk and do not have discretion in establishing the price for
the goods or service, we recognize revenue on a net basis.
Contract Costs
Contract costs generally include direct costs such as labor, materials, subcontract costs and indirect costs
identifiable with or allocable to a specific contract. Costs are expensed as incurred unless they qualify for deferral
and capitalization. Contract costs incurred for U.S. government contracts, including indirect costs, are subject to
audit and adjustment by the Defense Contract Audit Agency ("DCAA") (see "Note 21—Commitments and
Contingencies").
Pre-contract Costs
Costs incurred on projects as pre-contract costs are deferred as assets when we have been requested by the
customer to begin work under a new arrangement prior to contract execution and it is probable that we will recover
the costs through the issuance of a contract. Pre-contract costs are amortized over the contract period of
performance or a specified period of performance.
Transition Costs
Under certain service contracts, costs are incurred, usually at the beginning of the contract performance, to
transition the services, employees and equipment to or from the customer, a prior contract or prior contractor. These
costs are generally capitalized as deferred assets and amortized on a straight-line basis over the anticipated term of
the contract or a specified period of performance, including unexercised option periods that are reasonably certain
of being exercised.
Leidos Holdings, Inc. Annual Report - 64
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Project Assets
Purchases of project assets are capitalized for specific contracts where we maintain ownership of the asset over the
life of the contract and the benefit is received over a period of time. Project assets include enterprise software
licenses, dedicated hardware, maintenance agreements and significant material purchases and other costs incurred
on contracts. Project assets are amortized from the balance sheet using the straight-line method over the estimated
useful life of the asset or over the expected term of the period of performance, whichever is shorter.
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 for the periods presented were as follows:
Favorable impact
Unfavorable impact
Net favorable impact to income before income taxes
Impact on diluted EPS attributable to Leidos common stockholders
December 31,
2021
Year Ended
January 1,
2021
January 3,
2020
(in millions, except for per share amounts)
$
$
$
149 $
(102)
47 $
137 $
(61)
76 $
95
(52)
43
0.25 $
0.39 $
0.23
The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using
our statutory tax rate.
Revenue Recognized from Prior Obligations
During fiscal 2021, 2020 and 2019, revenue recognized from performance obligations satisfied in previous periods
was $26 million, $40 million and $56 million, respectively. The changes primarily relate 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 due to true-ups of contract estimates at the end of contract
performance.
Selling, General and Administrative Expenses
We classify indirect costs incurred within or allocated to our U.S. government customers as overhead (included in
"Cost of revenues") or general and administrative expenses in the same manner as such costs are defined in our
disclosure statements under U.S. government Cost Accounting Standards.
Selling, general and administrative expenses include general and administrative, bid and proposal and company-
funded research and development expenses.
We conduct research and development activities under customer-funded contracts and with company-funded
research and development funds. Company-funded research and development expense was $109 million, $73
million and $49 million for fiscal 2021, 2020 and 2019, respectively. Expenses for research and development
activities performed under customer contracts are charged directly to cost of revenues for those contracts.
Income Taxes
We account for income taxes under the asset and liability method in accordance with the accounting standard for
income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets
and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such
changes are enacted.
Leidos Holdings, Inc. Annual Report - 65
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In
making such determination, we consider all available positive and negative evidence, including future reversals of
existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of
operations. If we were to determine that we would be able to realize our deferred income tax assets in the future in
excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the
future as currently recorded, we would make an adjustment to the valuation allowance which would decrease or
increase the provision for income taxes.
The provision for federal, state, foreign and local income taxes is calculated on income before income taxes based
on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in
determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because
certain items of income and expense are recognized in different reporting periods for financial reporting purposes
than for income tax purposes.
We recognize liabilities for uncertain tax positions when it is more likely than not that a tax position will not be
sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are
measured based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate
settlement. We recognize interest and penalties related to uncertain tax positions in our income tax expense.
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. Outstanding payments are included within "Cash and cash
equivalents" and "Accounts payable and accrued liabilities" correspondingly on the consolidated balance sheets. At
December 31, 2021 and January 1, 2021, $138 million and $237 million, respectively, of outstanding payments were
included within "Cash and cash equivalents."
Restricted Cash
We have restricted cash balances, primarily representing advances from customers that are restricted as to use for
certain expenditures related to that customer's contract. Restricted cash balances are included as "Other current
assets" on the consolidated balance sheets. Our restricted cash balances were $148 million and $163 million at
December 31, 2021 and January 1, 2021, respectively.
Receivables
Receivables include amounts billed and currently due from customers, amounts billable where the right to
consideration is unconditional and amounts unbilled. Amounts billable and unbilled amounts are recognized at
estimated realizable value and consist of costs and fees, substantially all of which are expected to be billed and
collected generally within one year. Unbilled amounts also include rate variances that are billable upon negotiation
of final indirect rates with the DCAA.
Cost-reimbursable and T&M contracts are generally billed as costs are incurred. FFP contracts are billed either
based on milestones, which are the achievement of specific events as defined in the contract, or based on progress
payments, which are interim payments up to a designated amount of costs incurred as work progresses. On certain
contracts, the customer withholds a certain percentage of the contract price (retainage). These withheld amounts
are included within unbilled receivables and are billed upon contract completion or the occurrence of a specified
event, and when negotiation of final indirect rates with the U.S. government is complete. Based on our historical
experience, the write-offs of retention balances have not been significant.
When events or conditions indicate that amounts outstanding from customers may become uncollectible, an
allowance is estimated and recorded.
Amounts billed and collected on contracts but not yet recorded as revenue because we have not performed our
obligation under the arrangement with a customer are deferred and included within "Accounts payable and accrued
liabilities" or "Other long-term liabilities" on the consolidated balance sheets.
Leidos Holdings, Inc. Annual Report - 66
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of accounts
receivable and derivatives. Since our receivables are primarily with the U.S. government, we do not have exposure
to a material credit risk. We manage our credit risk related to derivatives through the use of multiple counterparties
with high credit standards.
Inventories
Inventories are valued at the lower of cost or estimated net realizable value. Generally, raw material inventory is
valued using the average cost method. Work-in-process inventory includes raw material costs plus labor costs,
including fringe benefits and allocable overhead costs. The majority of finished goods inventory consists of
technology and security products, inspection systems, baggage scanning equipment and small glide munitions.
Inventory is evaluated against historical and planned usage to determine appropriate provisions for obsolete
inventory.
Goodwill
Goodwill represents the excess of the fair value of consideration transferred, plus the fair value of any non-
controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the
acquisition date. Goodwill is not amortized, but instead is tested annually for impairment at the reporting unit level
and tested more frequently if events or circumstances indicate that the carrying value may not be recoverable. Our
policy is to perform our annual goodwill impairment evaluation as of the first day of the fourth quarter of our fiscal
year. During both fiscal 2021 and 2020, we had seven reporting units for the purpose of testing goodwill for
impairment.
Goodwill is evaluated for impairment either under a qualitative assessment option or a quantitative approach, which
depends on the facts and circumstances of a reporting unit, consideration of the excess of a reporting unit's fair
value over its carrying amount in previous assessments and changes in business environment.
When performing a qualitative assessment, we consider factors including, but not limited to, current macroeconomic
conditions, industry and market conditions, cost factors, financial performance and other events relevant to the
entity or reporting unit under evaluation to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If we determine that it is more likely than not that a reporting unit's fair
value is less than its carrying amount, a quantitative goodwill impairment test is performed.
When performing a quantitative goodwill impairment test, the reporting unit carrying value is compared to its fair
value. Goodwill is deemed impaired if, and the impairment loss is recognized for the amount by which, the reporting
unit carrying value exceeds its fair value.
We estimate the fair value of each reporting unit using Level 3 inputs when a quantitative analysis is performed.
These analyses rely on significant judgements and assumptions about expected future cash flows, weighted-
average cost of capital, discount rates, expected long-term growth rates, operating margins and on the selection of
guideline public companies.
Leidos Holdings, Inc. Annual Report - 67
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Acquired intangible assets with finite lives and internally developed software are amortized using the method that
best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably
determined, on a straight-line basis over their estimated useful lives. Program intangible assets are amortized over
their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future
discounted cash flows. Backlog and trade name intangible assets are amortized on a straight-line basis over their
estimated useful lives. Customer relationships and software and technology intangible assets are amortized either
on a straight-line basis over their estimated useful lives or over their respective estimated useful lives in proportion
to the pattern of economic benefit based on expected future discounted cash flows, as deemed appropriate.
Intangible assets with finite lives are amortized over the following periods:
Estimated useful lives (in years)
Backlog
Customer relationships
Programs
Software and technology
Trade names
1
8-10
4-13
3-15
3
Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Intangible assets with indefinite lives are not amortized but are assessed for impairment at the beginning of the
fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable.
Property, Plant and Equipment
Purchases of property, plant and equipment, including purchases of software and software licenses, as well as
costs associated with major renewals and improvements are capitalized. Maintenance, repairs and minor renewals
and improvements are expensed as incurred.
Construction in Progress ("CIP") is used to accumulate all costs for projects that are not yet complete. CIP balances
are transferred to the appropriate asset account when the asset is capitalized and ready for its intended use.
When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are
removed from the accounts and any resulting gain or loss is recognized. Depreciation is recognized using the
methods and estimated useful lives as follows:
Depreciation method
Estimated useful lives (in years)
Computers and other equipment
Buildings
Building improvements and leasehold
improvements
Straight-line or declining-balance
Straight-line
Straight-line
Office furniture and fixtures
Straight-line or declining-balance
2-15
Not to exceed 40
Shorter of useful life of asset
or remaining lease term
6-9
We evaluate our long-lived assets for potential impairment whenever there is evidence that events or changes in
circumstances indicate that the carrying value may not be recoverable and the carrying amount of the asset
exceeds its estimated fair value.
Leases
Lessee
We have facilities and equipment lease arrangements. An arrangement is determined to be a lease at inception if it
conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for
consideration. Right-of-use ("ROU") assets represent the right to use an underlying asset over the lease term and
lease liabilities represent the obligation to make lease payments arising from the lease.
Leidos Holdings, Inc. Annual Report - 68
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROU assets and lease liabilities are recorded on the consolidated balance sheet at lease commencement date
based on the present value of the future minimum lease payments over the lease term. We generally do not know
the implicit rate for our leases; therefore, the discount rate used is our incremental borrowing rate which is
determined based on the rate of interest that we would have to pay to borrow an amount equal to the lease
payments on a collateralized basis over a similar term. An ROU asset is initially measured by the present value of
the remaining lease payments, plus initial direct costs and prepaid lease payments, less any lease incentives
received before commencement. The remaining lease cost is allocated over the remaining lease term on a straight-
line basis unless another systematic or rational basis is more representative of the pattern in which the underlying
asset is expected to be used. ROU assets are evaluated for impairment in a manner consistent with the treatment of
other long-lived assets.
Certain facility leases contain options to renew or extend the terms of the lease which are included in the
determination of the ROU assets and lease liabilities when it is reasonably certain that we will exercise the option.
Leases may also include variable lease payments such as an escalation clause based on consumer price index
rates, maintenance costs and utilities. Variable lease payments that depend on an index or a rate are included in the
determination of ROU assets and lease liabilities using the index or rate at the lease commencement date, whereas
variable lease payments that do not depend on an index or rate are recorded as lease expense in the period
incurred. At December 31, 2021, we did not have any lease agreements with residual value guarantees.
We use the practical expedient to not separate non-lease components from lease components and instead account
for both components as a single lease. The practical expedient is applied to all material classes of leased assets
except for aircrafts, for which we account for the lease component and non-lease component separately.
The related lease payments on short-term facilities and equipment leases are recognized as expense on a straight-
line basis over the lease term.
ROU assets are assessed for potential impairment whenever there is evidence that events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable and the carrying amount of the
asset exceeds its estimated fair value. This includes an establishment of a plan of abandonment, which occurs
when we have committed to a plan to abandon the lease before the end of its previously estimated useful life and
there is no expectation that we will re-enter or re-purpose the space, including the fact that it cannot be subleased
or transferred to another program within Leidos.
Lessor
We are a lessor on certain equipment sales-type and operating lease arrangements with our customers. To be
considered lease revenue, the contract must contain a specified asset, we must not have a substantive substitution
right, the customer must have the right to direct the use of the specified asset during the period of use and the
customer must have the right to obtain substantially all of the economic benefit of the specified asset.
Certain arrangements may contain variable payments that depend on an index or rate and are measured using the
index or rate on the commencement date. Variable payments that are not included in the net investments are
recorded as revenue as incurred. Arrangements may also contain options to renew or extend the performance
period. Option periods are included in the lease term if we determine that it is reasonably certain the customer will
exercise an option.
We have arrangements that contain both lease and non-lease components. We account for them as one unit of
account if the timing and pattern of transfer is identical for both the lease and the non-lease components and the
lease component would be classified as an operating lease if accounted for separately. If both criteria are met and
the predominant component is a lease, then the entire arrangement will be accounted for in accordance with ASC
842. If we account for an arrangement both as a lease and non-lease component, then the allocation of
consideration for each component will be based the relative standalone sales price.
Leidos Holdings, Inc. Annual Report - 69
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes
the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level
1); inputs other than quoted prices in active markets for identical assets or liabilities that are observable either
directly or indirectly or quoted prices that are not active (Level 2); and unobservable inputs in which there is little or
no market data (e.g., discounted cash flow and other similar pricing models), which requires us to develop our own
assumptions about the assumptions that market participants would use in pricing the asset or liability (Level 3).
The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and
minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the
irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair
value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made
fair value option elections on any of our financial assets and liabilities.
The fair value of financial instruments is determined based on quoted market prices, if available, or management's
best estimate (see "Financial Instruments" below).
Management evaluates its investments for other-than-temporary impairment at each balance sheet date. When
testing long-term investments for recovery of carrying value, the fair value of long-term investments is determined
using various valuation techniques and factors, such as market prices of comparable companies (Level 2 input),
discounted cash flow models (Level 3 input). If management determines that an other-than-temporary decline in the
fair value of an investment has occurred, an impairment loss is recognized to reduce the investment to its estimated
fair value.
Our non-financial instruments measured at fair value on a non-recurring basis include goodwill, indefinite-lived
intangible assets and long-lived tangible assets. The valuation methods used to determine fair value require a
significant degree of management judgment to determine the key assumptions. As such, we generally classify non-
financial instruments as either Level 2 or Level 3 fair value measurements.
Financial Instruments
We are exposed to certain market risks which are inherent in certain transactions entered into during the normal
course of business. These transactions include sales or purchase contracts denominated in foreign currencies and
exposure to changing interest rates. We manage our risk to changes in interest rates and foreign currency
exchange rates through the use of derivative instruments.
For fixed rate borrowings, we use variable interest rate swaps, effectively converting fixed rate borrowings to
variable rate borrowings. These swaps are designated as fair value hedges. The fair value of these interest rate
swaps is determined based on observed values for underlying interest rates on the LIBOR yield curve (Level 2).
For variable rate borrowings, we use fixed interest rate swaps, effectively converting a portion of the variable
interest rate payments to fixed interest rate payments. These swaps are designated as cash flow hedges. The fair
value of these interest rate swaps is determined based on observed values for the underlying interest rates (Level
2).
We enter into foreign currency forward contracts in order to mitigate fluctuations in our earnings and cash flows due
to changes in foreign currency exchange rates. The foreign currency forward contracts are not designated as
hedges and hedge accounting does not apply. We do not hold derivative instruments for trading or speculative
purposes.
Our defined benefit plan assets consist of investments in pooled funds that contain investments with values based
on quoted market prices, but for which the pools are not valued on a daily quoted market basis (Level 2).
Stock-Based Compensation
We account for stock-based compensation at the grant date based on the fair value of the award and recognize
expense over the requisite service period, which is generally the vesting period, net of an estimated forfeiture rate.
The fair value of restricted stock awards and performance-based stock awards is based on the closing price of
Leidos common stock on the date of grant. The fair value of performance-based stock awards with market
conditions is based on using a Monte Carlo simulation.
Leidos Holdings, Inc. Annual Report - 70
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of stock option awards granted is based on using the Black-Scholes-Merton option pricing model. The
estimation of stock option fair value requires management to make estimates and judgments about, among other
things, employee exercise behavior, forfeiture rates and the expected volatility of Leidos common stock over the
expected option term. These judgments directly affect the amount of compensation expense that will ultimately be
recognized.
Foreign Currency
The financial statements of consolidated international subsidiaries, for which the functional currency is not the U.S.
dollar, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities
and a weighted average exchange rate over the reporting period for revenues, expenses, gains and losses.
Translation adjustments are recorded as accumulated other comprehensive loss in stockholders' equity. Gains and
losses due to movements in foreign currency exchange rates are recognized as "Other (expense) income, net" on
the consolidated statements of income.
Note 4—Revenues
Remaining Performance Obligations
Remaining performance obligations 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 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 December 31, 2021, we had $15.6 billion of remaining performance obligations and expect to recognize
approximately 53% and 71% over the next 12 months and 24 months, respectively, with the remaining 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.
Fiscal 2019 amounts have been recast for certain contracts that were reassigned from the Civil reportable segment
to the Defense Solutions reportable segment (see "Note 20—Business Segments").
Leidos Holdings, Inc. Annual Report - 71
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregated revenues by customer-type were as follows:
DoD and U.S. Intelligence Community
Other government agencies(1)
Commercial and non-U.S. customers
Total
DoD and U.S. Intelligence Community
Other government agencies(1)
Commercial and non-U.S. customers
Total
Year Ended December 31, 2021
Defense
Solutions
Civil
Health
Total
(in millions)
5,939 $
54 $
756 $
964
1,126
2,447
543
1,681
107
6,749
5,092
1,776
8,029 $
3,044 $
2,544 $
13,617
Defense
Solutions
Year Ended January 1, 2021
Civil
Health
Total
(in millions)
5,407 $
59 $
519 $
995
937
7,339 $
2,418
426
2,903 $
1,329
107
1,955 $
5,985
4,742
1,470
12,197
$
$
$
$
Defense
Solutions
Year Ended January 3, 2020
Civil
Health
Total
(in millions)
5,325
DoD and U.S. Intelligence Community
Other government agencies(1)
4,308
1,343
Commercial and non-U.S. customers
Total
10,976
(1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies.
4,767 $
685
847
6,299 $
1,332
151
1,974 $
2,291
345
2,703 $
491 $
67 $
$
$
The majority of our revenues are generated from U.S. government contracts, either as a prime contractor or as a
subcontractor to other contractors. Revenues from the U.S. government can be adversely impacted by spending
caps or changes in budgetary priorities of the U.S. government, as well as delays in program start dates or the
award of a contract.
Disaggregated revenues by contract-type were as follows:
Cost-reimbursement and fixed-price-incentive-fee
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
Total
Cost-reimbursement and fixed-price-incentive-fee
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
Total
Year Ended December 31, 2021
Defense
Solutions
Civil
Health
Total
4,792 $
2,290
947
8,029 $
(in millions)
1,576 $
1,020
448
3,044 $
508 $
1,661
375
2,544 $
6,876
4,971
1,770
13,617
Defense
Solutions
Year Ended January 1, 2021
Civil
Health
Total
(in millions)
4,504 $
1,411 $
280 $
2,067
768
1,061
431
1,303
372
6,195
4,431
1,571
7,339 $
2,903 $
1,955 $
12,197
$
$
$
$
Leidos Holdings, Inc. Annual Report - 72
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cost-reimbursement and fixed-price-incentive-fee
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
Total
Defense
Solutions
Year Ended January 3, 2020
Civil
Health
Total
(in millions)
$
$
4,070 $
1,624 $
234 $
1,642
587
636
443
1,296
444
5,928
3,574
1,474
6,299 $
2,703 $
1,974 $
10,976
Cost-reimbursement and FP-IF contracts are generally lower risk and have lower profits. T&M and FP-LOE
contracts are also lower risk but profits may vary depending on actual labor costs compared to negotiated contract
billing rates. FFP contracts offer the potential for higher profits while increasing the exposure to risk of cost
overruns.
Disaggregated revenues by geographic location were as follows:
United States
International
Total
United States
International
Total
United States
International
Total
Year Ended December 31, 2021
Defense
Solutions
Civil
Health
Total
7,045 $
984
8,029 $
(in millions)
2,880 $
164
3,044 $
2,544 $
—
2,544 $
12,469
1,148
13,617
Year Ended January 1, 2021
Defense
Solutions
Civil
Health
Total
6,501 $
838
7,339 $
(in millions)
2,738 $
165
2,903 $
1,955 $
—
1,955 $
11,194
1,003
12,197
Year Ended January 3, 2020
Defense
Solutions
Civil
Health
Total
5,494 $
805
6,299 $
(in millions)
2,632 $
71
2,703 $
1,974 $
—
1,974 $
10,100
876
10,976
$
$
$
$
$
$
Our international business operations, primarily located in Australia and the U.K., are subject to additional and
different risks than our U.S. business. Failure to comply with U.S. government laws and regulations applicable to
international business, such as the Foreign Corrupt Practices Act or U.S. export control regulations, could have an
adverse impact on our business with the U.S. government.
In some countries, there is an increased chance for economic, legal or political changes that may adversely affect
the performance of our services, sales of products or repatriation of profits. International transactions can also
involve increased financial and legal risks arising from foreign exchange variability, imposition of tariffs or additional
taxes and restrictive trade policies and delays or failure to collect amounts due to differing legal systems.
Revenues by contract-type, customer-type and geographic location exclude lease income of $120 million, $100
million and $118 million for fiscal 2021, 2020 and 2019, respectively (see "Note 10—Leases").
Leidos Holdings, Inc. Annual Report - 73
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract Assets and Liabilities
Performance obligations are satisfied either over time as work progresses or at a point in time. Firm-fixed-price
contracts are typically billed to the customer using milestone payments while cost-reimbursable and time and
materials contracts are typically billed to the customer on a monthly or bi-weekly basis as indicated by the
negotiated billing terms and conditions of the contract. As a result, the timing of revenue recognition, customer
billings and cash collections for each contract results in a net contract asset or liability at the end of each reporting
period.
Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount
billed to the customer, where right to payment is not solely subject to the passage of time. Unbilled receivables
exclude amounts billable where the right to consideration is unconditional. Contract liabilities consist of deferred
revenue, which represents cash advances received prior to performance for programs and billings in excess of
revenue recognized.
The components of contract assets and contract liabilities consisted of the following:
Balance sheet line item
Contract assets - current:
Unbilled receivables
Receivables, net
Contract liabilities - current:
Deferred revenue(1)
Accounts payable and accrued liabilities
Contract liabilities - non-current:
Deferred revenue(1)
Other long-term liabilities
December 31,
2021
January 1,
2021
(in millions)
$
$
$
1,022 $
906
364 $
481
24 $
20
(1) Certain contracts record revenue on a net contract basis, and therefore, the respective deferred revenue balance will not fully convert to
revenue.
The increase in unbilled receivables was primarily due to revenue recognized on certain contracts partially offset by
the timing of billings. The decrease in deferred revenue was primarily due to the timing of advance payments and
revenue recognized during the period.
Revenue recognized during fiscal 2021 and 2020 of $340 million and $275 million, respectively, was included as a
contract liability at January 1, 2021 and January 3, 2020, respectively.
There were no impairment losses recognized on contract assets during fiscal 2021, 2020 and 2019.
Note 5—Acquisitions and Divestitures
Acquisitions
We may acquire businesses as part of our growth strategy to provide new or enhance existing capabilities and
offerings to customers. During fiscal 2021, we completed the acquisitions of Gibbs & Cox, 1901 Group, LLC ("1901
Group"), and an immaterial strategic acquisition. During fiscal 2020, we completed the acquisitions of L3Harris
Technologies' security detection and automation businesses (the "SD&A Businesses") and Dynetics, Inc.
("Dynetics"). During fiscal 2019, we completed the acquisition of IMX Medical Management Services, Inc. and its
affiliated businesses ("IMX").
Leidos Holdings, Inc. Annual Report - 74
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gibbs & Cox Acquisition
On May 7, 2021 (the "Purchase Date"), we completed the acquisition of Gibbs & Cox for purchase consideration of
approximately $375 million, net of $1 million of cash acquired. Gibbs & Cox is an independent engineering and
design firm specializing in naval architecture, marine engineering, management support and engineering consulting.
The preliminary goodwill recognized of $276 million represents intellectual capital and the acquired assembled
workforce, neither of which qualify for recognition as a separate intangible asset. All of the goodwill recognized is tax
deductible.
The following table summarizes the fair value of intangible assets acquired at the Purchase Date and the related
weighted average amortization period:
Programs
Weighted
average
amortization
period
Fair value
(in years)
(in millions)
12 $
89
As of December 31, 2021, we had not finalized the determination of fair values allocated to assets and liabilities,
including, but not limited to accounts receivables and accounts payable and accrued liabilities.
1901 Group Acquisition
On January 14, 2021 (the "Closing Date"), we completed the acquisition of 1901 Group for purchase consideration
of $212 million, net of $2 million of cash acquired.
As of December 31, 2021, we had completed the determination of fair values of the acquired assets and liabilities
assumed. The final goodwill recognized of $123 million represents intellectual capital and the acquired assembled
workforce, none of which qualify for recognition as separate intangible assets. Of the goodwill recognized, $118
million is tax deductible.
The following table summarizes the fair value of intangible assets acquired at the Closing Date and the related
weighted average amortization period:
Technology
Programs
Backlog
Total
Weighted
average
amortization
period
Fair value
(in years)
(in millions)
8 $
10
1
8 $
43
37
6
86
For fiscal 2021, $145 million of revenues related to the Gibbs & Cox and 1901 Group acquisitions were recognized
within the Defense Solutions reportable segment.
On September 21, 2021, we completed an immaterial strategic business acquisition for preliminary purchase
consideration of approximately $36 million. In connection with the transaction, the Company recognized an $8
million program intangible asset and preliminary goodwill of $24 million.
SD&A Businesses Acquisition
On May 4, 2020 (the "Transaction Date"), we completed the acquisition of the SD&A Businesses. The SD&A
Businesses were acquired for cash consideration of $1,019 million, net of $27 million of cash acquired. The
purchase consideration includes the initial cash payment of $1,015 million plus a $31 million payment for contractual
net working capital acquired. The SD&A Businesses provide airport and critical infrastructure screening products,
automated tray return systems and other industrial automation products. The addition of the SD&A Businesses will
expand the scope and scale of our global security detection and automation offerings.
Leidos Holdings, Inc. Annual Report - 75
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The final fair values of the assets acquired and liabilities assumed at the Transaction Date were as follows (in
millions):
Cash
Receivables
Inventory
Other current assets
Operating lease right-of-use assets
Property, plant and equipment
Intangible assets
Accounts payable and accrued liabilities
Accrued payroll and employee benefits
Operating lease liabilities
Deferred tax liabilities
Other long-term liabilities
Total identifiable net assets acquired
Goodwill
Purchase price
$
27
128
106
26
35
32
355
(132)
(8)
(32)
(52)
(13)
472
574
$
1,046
As of May 4, 2021, we had completed the determination of fair values of the acquired assets and liabilities
assumed. The goodwill represents intellectual capital and the acquired assembled workforce. Of the goodwill
recognized, $432 million is deductible for tax purposes.
The following table summarizes the final fair value of intangible assets acquired at the Transaction Date and the
related weighted average amortization period:
Programs
Customer relationships
Technology
In-process research and development ("IPR&D")(1)
Total
Weighted
average
amortization
period
Fair value
(in years)
(in millions)
13 $
10
10
11 $
141
49
73
92
355
(1) IPR&D assets are indefinite-lived at the acquisition date until placed into service, at which time such assets will be reclassified to a finite-lived
amortizable intangible asset.
For fiscal 2021 and fiscal 2020, $291 million and $243 million, respectively, of revenues related to the SD&A
Businesses were recognized within the Civil reportable segment.
Dynetics Acquisition
On January 31, 2020 (the "Acquisition Date"), we completed our acquisition of Dynetics, an industry-leading applied
research and national security solutions company. The addition of Dynetics will accelerate opportunities within our
innovation engine that researches and develops new technologies and solutions to address the most challenging
needs of our customers. All of the issued and outstanding shares of common stock of Dynetics were purchased for
$1.64 billion, net of cash acquired.
Leidos Holdings, Inc. Annual Report - 76
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The final fair values of the assets acquired and liabilities assumed at the Acquisition Date were as follows (in
millions):
Cash
Receivables
Inventory
Other current assets
Operating lease right-of-use assets
Property, plant and equipment
Intangible assets
Other assets
Accounts payable and accrued liabilities
Accrued payroll and employee benefits
Operating lease liabilities
Other long-term liabilities
Total identifiable net assets acquired
Goodwill
Purchase price
$
18
158
47
18
25
172
528
8
(50)
(29)
(20)
(4)
871
789
$
1,660
As of January 31, 2021, we had completed the determination of fair values of the acquired assets and liabilities
assumed. The goodwill represents intellectual capital and the acquired assembled workforce. All of the goodwill
recognized is deductible for tax purposes.
The following table summarizes the final fair value of intangible assets acquired at the Acquisition Date and the
related weighted average amortization period:
Programs
Backlog
Technology
Total
Weighted
average
amortization
period
Fair value
(in years)
(in millions)
13 $
1
11
12 $
485
32
11
528
For fiscal 2021 and fiscal 2020, $1,065 million and $937 million, respectively, of revenues related to Dynetics were
recognized within the Defense Solutions reportable segment.
IMX Acquisition
On August 15, 2019, we completed the acquisition of IMX for purchase consideration of $94 million. The acquisition
extends our independent medical evaluation coverage area for commercial and federal customers.
We recorded $50 million of goodwill, which is deductible for tax purposes, and $42 million of intangible assets. The
intangible assets primarily consist of $41 million for customer relationships. The amortization period for the
customer relationships is 10 years.
Leidos Holdings, Inc. Annual Report - 77
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition and Integration Costs
The following expenses were incurred related to the acquisitions of Dynetics, the SD&A Businesses, 1901 Group
and Gibbs & Cox:
Acquisition costs
Integration costs
Total acquisition and integration costs
Year Ended
December 31,
2021
January 1,
2021
(in millions)
4 $
20
24 $
23
12
35
$
$
These acquisition and integration costs have been primarily recorded within Corporate and presented in
"Acquisition, integration and restructuring costs" on the consolidated statement of income.
Divestitures
Aviation & Missile Solutions LLC ("AMS")
On November 22, 2021, we signed a definitive agreement within our Defense Solutions segment to dispose of its
AMS business in order to focus on leading-edge and technologically advanced services, solutions and products.
The sales price will be approximately $18 million, subject to certain adjustments and is expected to be completed
during fiscal year 2022.
Health Staff Augmentation Business
On September 12, 2019, our Health segment disposed of its health staff augmentation business that was primarily
focused on implementation and optimization services to hospital centers. During the quarter ended January 3, 2020,
working capital adjustments were finalized, resulting in a final sales price of $13 million. This consideration included
$12 million of cash proceeds and expenses the buyer paid on Leidos' behalf. Net assets of $12 million were
divested. This disposition did not meet the criteria to be classified as a discontinued operation in the financial
statements.
Commercial Cybersecurity Business
On February 20, 2019, our Civil segment disposed of its commercial cybersecurity business in order to focus on
providing solutions, including cybersecurity, to our core markets of governments and highly regulated industries. The
commercial cybersecurity business was divested for a final sales price of $166 million. A pre-tax gain on sale of $88
million was recorded, net of $68 million of assets divested and $10 million in transaction related costs. The net
assets divested included $14 million of receivables, $57 million of goodwill and $13 million of accounts payable and
accrued liabilities. The gain was recorded in "Other (expense) income, net" on the consolidated statements of
income. This disposition did not meet the criteria to be classified as a discontinued operation in the financial
statements.
Leidos Holdings, Inc. Annual Report - 78
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6—Receivables
The components of receivables, net consisted of the following:
Billed and billable receivables
Unbilled receivables
Allowance for doubtful accounts
Sale of Accounts Receivable
December 31,
2021
January 1,
2021
(in millions)
1,194 $
1,270
1,022
(27)
906
(39)
2,189 $
2,137
$
$
We have entered into purchase agreements with a financial institution which provide us the election to sell accounts
receivable at a discount. The receivables sold are typically collectable from our customers within 30 days of the sale
date. During fiscal 2021 and 2020, we sold $693 million and $1,866 million, respectively, of accounts receivable
under the agreements and received proceeds of $693 million and $1,864 million, respectively. These activities are
classified as operating activities in the consolidated statements of cash flows.
These transfers have been recognized as a sale, as the receivables have been legally isolated from Leidos, the
financial institution has the right to pledge or exchange the assets received and we do not maintain effective control
over the transferred accounts receivable. The difference between the carrying amount of the receivables sold and
the net cash received was recognized as a loss on sale and was recorded within "Selling, general and
administrative expenses" on the consolidated statements of income. As of December 31, 2021 and January 1, 2021,
all sold receivables had been remitted to the financial institution.
Note 7—Inventory
The components of inventory, net consisted of the following:
Raw materials
Work in process
Finished goods
December 31,
2021
January 1,
2021
(in millions)
154 $
27
93
274 $
136
41
99
276
$
$
Leidos Holdings, Inc. Annual Report - 79
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8—Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amount of goodwill by reportable segment:
Goodwill at January 3, 2020(1)
Goodwill re-allocation
Acquisitions of businesses
Foreign currency translation adjustments
Goodwill at January 1, 2021(1)
Acquisitions of businesses
Divestiture of a business
Goodwill re-allocation
Defense
Solutions
Civil
Health
Total
(in millions)
$
2,039 $
1,907 $
966 $
4,912
429
788
44
(429)
569
—
3,300
2,047
425
(1)
(17)
5
—
17
—
—
—
966
—
—
—
—
1,357
44
6,313
430
(1)
—
Foreign currency translation adjustments
Goodwill at December 31, 2021(1)
(26)
3,681 $
28
2,097 $
$
—
966 $
2
6,744
(1) Carrying amount includes accumulated impairment losses of $369 million and $117 million within the Health and Civil segments, respectively.
Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the
Defense Solutions reportable segment (see "Note 20—Business Segments"). This change resulted in the
reallocation of $429 million of goodwill between the reporting units within the two reportable segments. We
evaluated goodwill for impairment for certain reporting units using either a quantitative step one analysis or
qualitative analysis, both before and after the changes were made, and determined that goodwill was not impaired.
In the fourth quarter of fiscal 2021, we performed a qualitative analysis for certain reporting units which determined
that it was more likely than not that the fair values of these reporting units were in excess of the individual reporting
units' carrying values. For reporting units whose composition was affected by a reorganization, or those for which an
indication of impairment exists, a quantitative assessment was performed. The quantitative analysis for the Security
Products reporting unit within the Civil reportable segment, which holds goodwill in the amount of $926 million as of
December 31, 2021, showed that the fair value of the reporting unit exceeded the carrying value by approximately
6%. Operations of the reporting unit rely heavily on the sales and servicing of security and detection products, which
have been negatively impacted by COVID-19. The forecasts utilized to estimate the fair value of the Security
Products reporting unit assume a gradual improvement in the global aviation security product and related service
sales, reaching pre-COVID-19 levels by fiscal 2025. In the event that there are significant unfavorable changes to
the forecasted cash flows of the reporting unit (including if the impact of COVID-19 on passenger travel levels is
more prolonged or severe than what is incorporated into our forecast), terminal growth rates or the cost of capital
used in the fair value estimates, we may be required to record a material impairment of goodwill at a future date.
In the fourth quarter of fiscal 2020 and 2019, we performed a qualitative analysis for all reporting units and
determined that it was more likely than not that the fair values of the reporting units were in excess of the individual
reporting units carrying values, and as a result, a quantitative step one analysis was not necessary.
As a result, no goodwill impairments were identified as part of the annual goodwill impairment evaluation for the
periods mentioned above.
Leidos Holdings, Inc. Annual Report - 80
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets, net consisted of the following:
December 31, 2021
January 1, 2021
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
(in millions)
Accumulated
amortization
Net
carrying
value
$
1,722 $
(830) $
892 $
1,632 $
(687) $
945
230
97
38
1
(121)
(18)
(37)
(1)
109
79
1
—
188
93
32
1
(100)
(10)
(29)
—
88
83
3
1
Finite-lived intangible assets:
Programs
Software and technology
Customer relationships
Backlog
Trade names
Total finite-lived intangible assets
2,088
(1,007)
1,081
1,946
(826)
1,120
Indefinite-lived intangible assets:
In-process research and
development
Trade names
Total indefinite-lived intangible
assets
Total intangible assets
92
4
—
—
92
4
92
4
—
—
92
4
96
2,184 $
—
(1,007) $
96
1,177 $
96
2,042 $
$
—
(826) $
96
1,216
Amortization expense related to intangible assets was $228 million, $198 million and $173 million for fiscal 2021,
2020 and 2019, respectively.
The estimated annual amortization expense related to finite-lived intangible assets as of December 31, 2021, is as
follows:
Fiscal Year Ending
2022
2023
2024
2025
2026
2027 and thereafter
(in millions)
$
$
234
204
151
121
97
274
1,081
Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions,
divestitures, impairments, the outcome and timing of completion of in-process research and development projects
and other factors.
In the fourth quarter of fiscal 2021, in connection with the annual goodwill assessment, we evaluated indefinite-lived
intangibles for impairment and concluded that no impairment was necessary.
Leidos Holdings, Inc. Annual Report - 81
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9—Property, Plant and Equipment
Property, plant and equipment, net consisted of the following:
Computers and other equipment
Leasehold improvements
Buildings and improvements
Office furniture and fixtures
Land
Construction in progress
Less: accumulated depreciation and amortization
December 31,
2021
January 1,
2021
(in millions)
$
472 $
367
140
65
18
78
1,140
(470)
$
670 $
386
321
142
60
18
72
999
(395)
604
Depreciation expense was $97 million, $84 million and $61 million for fiscal 2021, 2020 and 2019, respectively.
Sale and Leaseback Agreements
Gaithersburg, MD Property
On December 31, 2018, we closed the sale and leaseback agreement relating to our land and building in
Gaithersburg, MD. We received proceeds of $31 million, net of selling costs, for the property, which had a carrying
value of $31 million. The proceeds received in fiscal 2019 were recorded as investing activities on the consolidated
statements of cash flows.
San Diego, CA Properties
On December 28, 2018, we closed the sale and leaseback agreement relating to two buildings and the adjacent
land in San Diego, CA for consideration of $79 million, net of selling costs. The carrying value of the land and
buildings was $14 million. We received cash proceeds of $14 million upon closing, which were recorded as
financing activities on the consolidated statements of cash flows, and recognized a short-term receivable for the
remaining $65 million of consideration.
Prior to the adoption of ASC 842, the consideration of $79 million was accounted for as a financing transaction and
a note payable was recorded. Under ASC 842, the transaction qualified as a sale-leaseback and consequently the
debt of $79 million and the carrying value of the property of $14 million, net of the related tax impact of $17 million,
were reclassified into retained earnings as a cumulative effect adjustment. The proceeds of $65 million received in
fiscal 2019 were recorded as investing activities on the consolidated statements of cash flows.
Leidos Holdings, Inc. Annual Report - 82
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10—Leases
Lessee
ROU assets and lease liabilities consisted of the following:
Balance sheet line item
December 31,
2021
January 1,
2021
(in millions)
ROU assets:
Finance leases
Operating leases
Current lease liabilities:
Finance leases
Operating leases
Property, plant and equipment, net
Operating lease right-of-use assets, net
$
$
Short-term debt and current portion of long-term debt $
Accounts payable and accrued liabilities
Non-current lease liabilities:
Finance leases
Operating leases
Long-term debt, net of current portion
Operating lease liabilities
$
$
$
51 $
612
663 $
9 $
140
149 $
43 $
589
632 $
10
581
591
6
127
133
5
564
569
In March 2020, we took occupancy of our new corporate headquarters in Reston, VA. As a result, we recorded $104
million of ROU assets and $132 million of lease liabilities.
During fiscal 2020, we made a decision to vacate one of our facilities. The carrying amount was determined to be
less than the expected recovery from sublease income and as a result, we recorded an impairment charge of $11
million, which was recorded within our Health reportable segment.
Total lease cost for the periods presented consisted of the following:
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Operating lease cost(1)
Variable lease cost
Short-term lease cost
Less: Sublease income
Total lease cost
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
11 $
1
12
172
90
4
9 $
—
9
169
103
8
(8)
270 $
(11)
278 $
$
8
1
9
155
107
7
(6)
272
(1) Includes ROU lease expense of $150 million, $145 million and $136 million for fiscal 2021, 2020 and 2019, respectively.
Lease costs and sublease income are included in "Cost of revenues" and "Selling, general and administrative
expenses" within the consolidated statements of income.
Leidos Holdings, Inc. Annual Report - 83
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease terms and discount rates related to leases were as follows:
Weighted-average remaining lease term (in years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
Other information related to leases was as follows:
Cash paid for amounts included in measurement of lease liabilities:
Operating cash related to finance leases
Operating cash related to operating leases
Financing cash flows related to finance leases
Lease liabilities arising from obtaining ROU assets:
Finance lease liabilities
Operating lease liabilities
December 31,
2021
January 1,
2021
January 3,
2020
8.4
6.8
2.5 %
3.2 %
2.9
7.3
2.7 %
3.5 %
2.4
5.7
4.2 %
4.1 %
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
$
1 $
— $
174
11
51 $
161
164
9
12
314
$
1
163
8
—
141
The change in operating ROU assets and lease liabilities are presented within cash flows from operations on the
consolidated statements of cash flows.
Future minimum lease commitments of our finance and operating leases on an undiscounted basis, reconciled to
the respective lease liability at December 31, 2021, were as follows:
Fiscal Year Ending
2022
2023
2024
2025
2026
2027 and thereafter
Total undiscounted cash flows
Less: imputed interest
Lease liability as of December 31, 2021
Lessor
Finance lease
commitments
Operating
lease
commitments
$
$
(in millions)
10 $
7
5
5
5
26
58
(6)
52 $
162
144
129
90
68
224
817
(88)
729
As of December 31, 2021 and January 1, 2021, we had a total net investment in sales-type leases, which relates to
lease payment receivables, of $93 million and $64 million, respectively. The current and non-current portions of net
investment in sales-type leases are included within "Other current assets" and "Other assets", respectively, on the
consolidated balance sheets.
Leidos Holdings, Inc. Annual Report - 84
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease income were as follows:
Income statement line item
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
Sales-type leases:
Selling price at lease commencement Revenues
Cost of underlying asset
Operating income (loss)
Cost of revenues
Interest income on lease receivables
Revenues
Operating lease income
Total lease income
Revenues
$
80 $
(60)
61 $
(47)
20
8
28
32
14
8
22
31
$
60 $
53 $
84
(86)
(2)
6
4
28
32
As of December 31, 2021, undiscounted cash flows for sales-type and operating leases for the next five years are
as follows:
Fiscal Year Ending
2022
2023
2024
2025
2026
Total undiscounted cash flows
Present value of lease payments as lease receivables
Difference between undiscounted cash flows and discounted cash flows
Note 11—Fair Value Measurements
Sales-type
leases
Operating
leases
(in millions)
$
$
$
44 $
29
18
11
3
105 $
93
12
23
26
27
—
—
76
Financial instruments measured on a recurring basis at fair value consisted of the following:
Financial liabilities:
Derivatives
December 31, 2021
January 1, 2021
Carrying value
Fair value
Carrying value
Fair value
(in millions)
$
53 $
53 $
103 $
103
As of December 31, 2021, our derivatives primarily consisted of the cash flow interest rate swaps on $1.0 billion of
the variable rate senior unsecured term loan (see "Note 12—Derivative Instruments"). The fair value of the cash
flow interest rate swaps is determined based on observed values for underlying interest rates on the LIBOR yield
curve (Level 2 inputs).
Financial instruments measured on a recurring basis at fair value also include our defined benefit plan assets (Level
2 inputs). See "Note 19—Retirement Plans" for further details on these investments.
The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts
receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values. The
carrying value of our notes receivable of $15 million as of December 31, 2021 and January 1, 2021 approximates
fair value as the stated interest rates within the agreements are consistent with the current market rates used in
notes with similar terms in the market (Level 2 inputs).
Leidos Holdings, Inc. Annual Report - 85
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and January 1, 2021, the fair value of debt was $5.4 billion and $5.2 billion, respectively,
and the carrying amount was $5.1 billion and $4.7 billion, respectively (see "Note 13—Debt"). The fair value of debt
is determined based on current interest rates available for debt with terms and maturities similar to our existing debt
arrangements (Level 2 inputs).
On May 7, 2021, January 14, 2021, May 4, 2020 and January 31, 2020, non-financial instruments measured at fair
value on a non-recurring basis were recorded in connection with the acquisitions of Gibbs & Cox, 1901 Group,
SD&A Businesses and Dynetics, respectively. The fair values of the assets acquired and liabilities assumed were
determined using Level 3 inputs. See "Note 5—Acquisitions and Divestitures" for further details on these
acquisitions. We also had real estate property measured at fair value, using Level 2 inputs, on July 3, 2020, which
resulted in an impairment charge of $11 million (see "Note 10—Leases"). As of December 31, 2021 and January 1,
2021, we did not have any assets or liabilities measured at fair value on a non-recurring basis.
Note 12—Derivative Instruments
The fair value of the interest rate swaps was as follows:
Balance sheet line item
Liability derivatives
December 31,
2021
January 1,
2021
(in millions)
Cash flow interest rate swaps
Other long-term liabilities
$
53 $
103
The cash flows associated with the interest rate swaps are classified as operating activities in the consolidated
statements of cash flows.
Cash Flow Hedges
We have interest rate swap agreements to hedge the cash flows of $1.0 billion of the variable rate senior unsecured
term loan (the "Variable Rate Loan"). These interest rate swap agreements have a maturity date of August 2025 and
a fixed interest rate of 3.00%. The objective of these instruments is to reduce variability in the forecasted interest
payments of the Variable Rate Loan, which are based on the LIBOR rate. Under the terms of the interest rate swap
agreements, we will receive monthly variable interest payments based on the one-month LIBOR rate and will pay
interest at a fixed rate.
The interest rate swap transactions were accounted for as cash flow hedges. The gain (loss) on the swap is
reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest
payments on the underlying hedged items impact earnings. A qualitative assessment of hedge effectiveness is
performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly
effective.
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented
was as follows:
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
Total interest expense, net presented in the consolidated statements of
income in which the effects of cash flow hedges are recorded
$
184 $
179 $
Amount recognized in other comprehensive income (loss)
Amount reclassified from accumulated other comprehensive loss to
interest expense, net
18
19
(61)
14
133
(55)
(7)
We expect to reclassify losses of $26 million from accumulated other comprehensive loss into earnings during the
next 12 months.
Leidos Holdings, Inc. Annual Report - 86
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13—Debt
Debt consisted of the following:
Short-term debt:
Senior unsecured term loans:
Stated
interest rate
Effective
interest rate
December 31,
2021(1)
January 1,
2021(1)
(in millions)
$380 million term loan, due May 2022
1.24 %
1.34 % $
380 $
—
Long-term debt:
Senior unsecured term loan:
$1,925 million Term Loan, due January 2025
1.49 %
1.75 % $
1,298 $
1,391
Senior unsecured notes:
$500 million notes, due May 2023(2)
$500 million notes, due May 2025(2)
$750 million notes, due May 2030(2)
$1,000 million notes, due February 2031(2)
$250 million notes, due July 2032
$300 million notes, due July 2033
$300 million notes, due December 2040
2.95 %
3.63 %
4.38 %
2.30 %
7.13 %
5.50 %
5.95 %
3.17 %
3.76 %
4.50 %
2.38 %
7.43 %
5.88 %
6.03 %
498
497
738
990
247
158
216
497
496
737
989
247
158
216
Notes payable and finance leases due on various dates
through fiscal 2032
1.56%-4.18%
Various
Total long-term debt
Less: current portion
Total long-term debt, net of current portion
54
4,696
(103)
4,593 $
13
4,744
(100)
4,644
$
(1) The carrying amounts of the senior term loans and notes as of December 31, 2021 and January 1, 2021, include the remaining principal
outstanding of $5,065 million and $4,782 million, respectively, less total unamortized debt discounts and deferred debt issuance costs of $43
million and $51 million, respectively.
(2) We filed a Registration Statement on Form S-4 with the Securities and Exchange Commission on May 6, 2021, which was declared effective
on May 19, 2021.
Term Loans and Revolving Credit Facility
On May 7, 2021, we entered into a Credit Agreement (the "2021 Credit Agreement") with certain financial
institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of $380 million
with maturity 364 days after the 2021 Credit Agreement date. The proceeds were used to fund the acquisition of
Gibbs & Cox.
Borrowings under the 2021 Credit Agreement bear interest at a rate determined, at our option, based on either an
alternate base rate plus 0.13% or a LIBOR rate plus 1.13%. The financial covenants in the 2021 Credit Agreement
require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to
consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 following a material
acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.
On January 17, 2020 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement") with certain
financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of
$1.9 billion (the "Term Loan Facility") and a $750 million senior unsecured revolving facility (the "Revolving Facility"
and, together with the Term Loan Facility, the "Credit Facilities"). The Credit Facilities will mature five years from the
Closing Date, with the Revolving Facility subject to two additional one year extensions.
Leidos Holdings, Inc. Annual Report - 87
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all
indebtedness, and terminate all commitments, under, and discharge and release all guarantees and liens existing in
connection with the credit agreements entered into in August 2016 (the "Terminated Credit Agreements"). As a
result of the termination of the liens under the Terminated Credit Agreements, the liens securing the $450 million
notes due 2020 and $300 million notes due 2040 were also released and such notes became senior unsecured
obligations.
Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an
alternate base rate or a LIBOR rate plus, in each case, an applicable margin that varies depending on our credit
rating. The applicable margin range for LIBOR-denominated borrowings is from 1.13% to 1.75%. Based on our
current ratings, the applicable margin for LIBOR-denominated borrowings is 1.38%.
The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a
ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to two
increases to 4.50 to 1.00 following a material acquisition, and a ratio of EBITDA to consolidated interest expense of
not less than 3.50 to 1.00.
Senior Notes
On October 8, 2020, we issued and sold $1.0 billion aggregate principal amount of fixed-rate senior notes maturing
in February 2031 (the "2031 Notes"). The 2031 Notes are senior unsecured obligations issued by Leidos, Inc. and
guaranteed by Leidos Holdings, Inc. The annual interest rate for the 2031 Notes is 2.30%.
The proceeds from the 2031 Notes were used for general corporate purposes, including to repay all of the
outstanding obligations in respect of principal, interest and fees under the 364-day Term Loan and to repay a portion
of the outstanding loans under the five-year Term Loan Facility.
Additionally, on May 12, 2020, we issued and sold $500 million senior notes maturing in May 2023 (the "2023
Notes"), $500 million senior notes maturing in May 2025 (the "2025 Notes") and $750 million senior notes maturing
in May 2030 (the "2030 Notes", and together with the 2023 Notes and 2025 Notes, the "Notes"). The annual interest
rate for the 2023 Notes, 2025 Notes and 2030 Notes is 2.95%, 3.63% and 4.38%, respectively.
The proceeds from the Notes were used to repay all of the outstanding obligations in respect of principal, interest
and fees under the January 31, 2020 Bridge Credit Agreement and to repay a portion of the outstanding loans under
the February 12, 2020 Facility.
Commercial Paper
On July 12, 2021, we established a commercial paper program in which the Company may issue short-term
unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $750 million. The proceeds will be
used for general corporate purposes, including working capital, capital expenditures, acquisitions and share
repurchases.
The Commercial Paper Notes will be issued in minimum denominations of $0.25 million and will have maturities of
up to 397 days from the date of issuance. The Commercial Paper Notes will bear either a stated or floating interest
rate, if interest bearing, or will be sold at a discount from the face amount. As of December 31, 2021, we did not
have any Commercial Paper Notes outstanding.
Principal Payments and Debt Issuance Costs
We made principal payments on our long-term debt of $106 million, $731 million, and $80 million during fiscal 2021,
2020 and 2019, respectively. This activity included required principal payments on our term loans of $96 million, $72
million, and $69 million during fiscal 2021, 2020 and 2019, respectively. During fiscal year 2020, we made $4,925
million of principal repayments for outstanding debt and retired the $450 million senior notes. During fiscal 2021 and
2020, there were no borrowings under the credit facilities.
Principal payments are made quarterly on our variable rate senior unsecured term loan, with the majority of the
principal due at maturity. Interest on the variable rate senior unsecured term loan is payable on a periodic basis,
which must be at least quarterly. Interest on the senior fixed rate unsecured notes is payable on a semi-annual
basis with principal payments due at maturity.
Leidos Holdings, Inc. Annual Report - 88
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the financing activity from prior year, $68 million of debt discount and debt issuance costs related
to the debt and revolving credit facility were recognized, which were recorded as an offset against the carrying value
of debt and capitalized within "Other assets" in the consolidated balance sheets, respectively. For fiscal 2020,
$36 million of debt discount and debt issuance costs were written off related to the Terminated Credit Agreements
and loan facility repayments. Amortization of debt discount and debt issuance costs was $11 million, $16 million and
$10 million for fiscal 2021, 2020 and 2019, respectively.
Our borrowings under the Credit Facilities, 2021 Credit Agreement, the Notes and the Commercial Paper Notes are
fully and unconditionally guaranteed by intercompany guarantees. In addition, the agreements governing debt
outstanding under the Credit Facilities, 2021 Credit Agreement, and the Notes contain certain customary restrictive
covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback
transactions under certain circumstances. We were in compliance with all covenants as of December 31, 2021.
Future minimum payments of debt are as follows:
Fiscal Year Ending
2022
2023
2024
2025
2026
2027 and thereafter
Total principal payments
Less: unamortized debt discount and issuance costs
Total short-term and long-term debt
(in millions)
$
$
486
675
197
1,353
4
2,404
5,119
(43)
5,076
Leidos Holdings, Inc. Annual Report - 89
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14—Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss were as follows:
Foreign currency
translation
adjustments
Unrecognized
loss on derivative
instruments
Pension
adjustments
Total accumulated
other comprehensive
loss
(in millions)
Balance at December 28, 2018
$
(41) $
14 $
(3) $
Other comprehensive income (loss)
Taxes
Reclassification from accumulated other
comprehensive loss
Balance at January 3, 2020
Other comprehensive income (loss)
Taxes
Reclassification from accumulated other
comprehensive loss
Balance at January 1, 2021
Other comprehensive income (loss)
Taxes
Reclassification from accumulated other
comprehensive loss
Balance at December 31, 2021
$
5
3
—
(33)
70
(7)
—
30
(3)
(5)
(55)
15
(7)
(33)
(61)
10
14
(70)
18
(8)
(1)
—
—
(4)
(3)
1
—
(6)
17
(4)
—
22 $
19
(41) $
—
7 $
(30)
(51)
18
(7)
(70)
6
4
14
(46)
32
(17)
19
(12)
Reclassifications for unrecognized gain (loss) on derivative instruments are associated with outstanding debt and
are recorded in "Interest expense, net" on the consolidated statements of income. See "Note 12—Derivative
Instruments" for more information on our interest rate swap agreements.
Leidos Holdings, Inc. Annual Report - 90
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15—Composition of Certain Financial Statement Captions
Balance Sheet
Other current assets:
Restricted cash
Transition costs and project assets(1)
Pre-contract costs
Other(2)
Other assets:
Transition costs and project assets(1)
Equity method investments(3)
Other(2)
Accounts payable and accrued liabilities:
Accrued liabilities
Accounts payable
Deferred revenue
Other(2)
Accrued payroll and employee benefits:
Accrued vacation
Salaries, bonuses and amounts withheld from employees’ compensation
December 31,
2021
January 1,
2021
(in millions)
$
$
$
$
$
$
$
$
148 $
110
5
166
429 $
121 $
25
293
439 $
1,053 $
692
364
32
2,141 $
351 $
254
605 $
163
104
7
128
402
187
15
256
458
939
731
481
24
2,175
329
303
632
(1) During the year ended December 31, 2021 and January 1, 2021, $428 million and $575 million, respectively, of amortization was recognized
related to transition costs and project assets.
(2) Balance represents items that are not individually significant to disclose separately.
(3) Balances are net of $16 million and $23 million of dividends received during fiscal 2021 and fiscal 2020, respectively, that were recorded in
cash flows provided by operating activities of continuing operations on the consolidated statements of cash flows.
Income Statement
Interest expense, net:
Interest expense
Interest income
Other (expense) income, net:
Loss on debt extinguishment
(Loss) gain on sale of businesses
Loss on foreign currencies
Other income, net
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
$
$
$
(185) $
1
(184) $
(182) $
3
(179) $
— $
(36) $
(3)
(1)
3
(1) $
—
(4)
2
(38) $
(147)
14
(133)
—
88
(1)
—
87
Leidos Holdings, Inc. Annual Report - 91
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16—Earnings Per Share ("EPS")
Basic EPS is computed by dividing net income attributable to Leidos common stockholders by the basic weighted
average number of shares outstanding. Diluted EPS is calculated to give effect to all potentially dilutive common
shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based
compensation awards is reflected in diluted EPS by application of the treasury stock method, only in periods in
which such effect would have been dilutive for the period.
We issue unvested stock awards that have forfeitable rights to dividends or dividend equivalents. These stock
awards are dilutive common share equivalents subject to the treasury stock method.
The weighted average number of shares used to compute basic and diluted EPS attributable to Leidos stockholders
were:
Basic weighted average number of shares outstanding
Dilutive common share equivalents—stock options and other stock
awards
Diluted weighted average number of shares outstanding
December 31,
2021
141
2
143
Year Ended
January 1,
2021
(in millions)
142
2
144
January 3,
2020
143
2
145
Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to
compute diluted EPS. For fiscal 2021, there was 1 million of outstanding stock options and vesting stock awards
that were anti-dilutive. For fiscal 2020 and 2019, there were no significant anti-diluted equity awards.
Share Repurchases
During fiscal 2021, 2020 and 2019, we made open market repurchases of our common stock for an aggregate
purchase price of $237 million, $67 million and $25 million, respectively. All shares repurchased were immediately
retired.
In fiscal 2019, we entered into accelerated share repurchase agreements with two financial institutions to
repurchase shares of our outstanding common stock. We paid $400 million to the financial institutions and received
5.6 million shares. The purchase was recorded to "Additional paid-in capital" in the consolidated balance sheets. All
shares delivered were immediately retired.
Note 17—Stock-Based Compensation
Plan Summaries
As of December 31, 2021, we had stock-based compensation awards outstanding under the following plans: the
2017 Omnibus Incentive Plan, the 2006 Equity Incentive Plan, as amended, and the 2006 Employee Stock
Purchase Plan, as amended ("ESPP"). We issue new shares upon the vesting of stock units or exercising of stock
options under these plans.
The 2017 Omnibus Incentive Plan provides Leidos and its affiliates' employees, directors and consultants the
opportunity to receive various types of stock-based compensation awards, such as stock options, restricted stock
units and performance-based awards, as well as cash awards. We grant service-based awards that generally vest
or become exercisable 25% a year over four years or cliff vest in three years. As of December 31, 2021, 3.9 million
shares of Leidos' stock were reserved for future issuance under the 2017 Omnibus Incentive Plan and the 2006
Equity Incentive Plan.
We offer eligible employees the opportunity to defer restricted stock units into an equity-based deferred equity
compensation plan, the Key Executive Stock Deferral Plan ("KESDP"). Prior to 2013, we offered an additional
opportunity for deferrals into the Management Stock Compensation Plan ("MSCP"). Benefits from these plans are
payable in shares of Leidos' stock that are held in a trust for the purpose of funding shares to the plans' participants.
Restricted stock units deferred under the KESDP are counted against the total shares available for future issuance
under the 2017 Omnibus Incentive Plan. All awards under the MSCP are fully vested and the plan does not provide
for a maximum number of shares available for future issuance.
Leidos Holdings, Inc. Annual Report - 92
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our ESPP allows eligible employees to purchase shares of Leidos' stock at a discount of up to 15% of the fair
market value on the date of purchase. During fiscal 2021, 2020 and 2019, the discount was 10% of the fair market
value on the date of purchase. During fiscal 2021, 2020 and 2019, $39 million, $32 million and $25 million,
respectively, was received from ESPP plan participants for the issuance of Leidos' stock. A total of 3.4 million shares
remain available for future issuance under the ESPP.
Stock-based compensation and related tax benefits recognized under all plans were as follows:
Total stock-based compensation expense
Tax benefits recognized from stock-based compensation
Stock Options
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
67 $
17
62 $
15
52
13
Stock options are granted with exercise prices equal to the fair market value of Leidos' common stock on the date of
grant and for terms not greater than ten years. Stock options have a term of seven years and a vesting period of
four years, except for stock options granted to our outside directors, which have a vesting period of the earlier of
one year from grant date or the next annual meeting of stockholders following grant date.
The fair value of the stock option awards is estimated on the date of grant using the Black-Scholes-Merton option-
pricing model. The fair value of the stock option awards to employees are expensed on a straight-line basis over the
vesting period of four years, except for stock options granted to our outside directors, which is recognized over the
vesting period of one year or less.
During fiscal 2021, 2020 and 2019, we used a blended approach to measure expected volatility that is based on our
weighted average historical and implied volatilities.
The risk-free rate is derived using the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the
expected term of the stock option on the grant date. To determine the expected term, we use the midpoint scenario
with a one-year grant date filter assumption for outstanding options and we use historical data to estimate
forfeitures. The weighted average grant-date fair value and assumptions used to determine fair value of stock
options granted for the periods presented were as follows:
Weighted average grant-date fair value
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
December 31,
2021
Year Ended
January 1,
2021
January 3,
2020
$
20.23
$
19.64
$
11.89
4.6
29.6 %
0.7 %
1.3 %
4.5
25.0 %
0.6 %
1.3 %
4.4
24.3 %
2.4 %
2.2 %
Leidos Holdings, Inc. Annual Report - 93
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity for each of the periods presented was as follows:
Outstanding at December 28, 2018
Options granted
Options forfeited or expired
Options exercised
Outstanding at January 3, 2020
Options granted
Options forfeited or expired
Options exercised
Outstanding at January 1, 2021
Options granted
Options forfeited or expired
Options exercised
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Vested and expected to vest in the future as of
December 31, 2021
Shares of
stock under
stock options
(in millions)
Weighted
average
exercise price
2.4 $
0.5
—
(0.5)
2.4 $
0.3
(0.1)
(0.4)
2.2 $
0.3
—
(0.4)
2.1 $
1.2 $
39.41
63.61
58.08
30.86
46.04
106.73
66.84
35.94
56.01
90.25
85.42
38.79
65.18
51.47
2.0 $
64.91
Weighted
average
remaining
contractual
term
Aggregate
intrinsic value
(in years)
(in millions)
3.8 $
36
3.8 $
3.5 $
3.5 $
2.3 $
3.4 $
21
128
29
108
27
54
48
54
As of December 31, 2021, there was $5 million of unrecognized compensation cost, net of estimated forfeitures,
related to stock options, which is expected to be recognized over a weighted-average period of 2.1 years. Tax
benefits from stock options exercised for fiscal 2021, 2020 and 2019 were $6 million, $7 million and $5 million,
respectively.
Restricted Stock Units and Awards
Compensation expense is measured at the grant date fair value and generally recognized over the vesting period of
either three to four years based upon required service conditions and in some cases revenue or EPS-based
performance conditions.
Leidos Holdings, Inc. Annual Report - 94
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted stock units and awards activity for each of the periods presented was as follows:
Unvested stock awards at December 28, 2018
Awards granted
Awards forfeited
Awards vested
Unvested stock awards at January 3, 2020
Awards granted
Awards forfeited
Awards vested
Unvested stock awards at January 1, 2021
Awards granted
Awards forfeited
Awards vested
Unvested stock awards at December 31, 2021
Shares of stock
under stock
awards
(in millions)
Weighted
average grant-
date fair value
2.0 $
0.6
(0.1)
(1.1)
1.4 $
0.5
(0.1)
(0.5)
1.3 $
0.7
(0.1)
(0.5)
1.4 $
50.85
64.70
60.20
44.10
60.91
106.38
79.61
56.36
79.05
91.09
89.56
71.60
88.89
As of December 31, 2021, there was $50 million of unrecognized compensation cost, net of estimated forfeitures,
related to restricted stock units, which is expected to be recognized over a weighted average period of 2.0 years.
The fair value of restricted stock units that vested in fiscal 2021, 2020 and 2019 was $48 million, $58 million and
$66 million, respectively. In addition, the fair value of dividend equivalents with respect to restricted stock units that
vested in fiscal 2021, 2020 and 2019 was immaterial.
Performance-Based Stock Awards
Performance-based stock awards vest and the stock is issued at the end of a three-year period based upon the
achievement of specific performance criteria, with the number of shares ultimately awarded, if any, ranging up to
150% of the specified target awards. If performance is below the threshold level of performance, no shares will be
issued.
For awards granted during fiscal 2021, 2020 and 2019, the target number of shares of stock granted under the
awards will vest and the stock will be issued at the end of a three-year period based on a three-year cycle
performance period and the actual number of shares to be issued will be based upon the achievement of the three-
year cycle's performance criteria. Also, during fiscal 2021, 2020 and 2019, we granted performance-based awards
with market conditions. These market conditions grants represent the target number of shares and the actual
number of shares to be awarded upon vesting may be higher or lower depending upon the achievement of the
relevant market conditions. The target number of shares granted under the market conditions grants will vest and
the stock will be issued at the end of a three-year period based on the attainment of certain total shareholder return
performance measures and the employee's continued service through the vest date.
Leidos Holdings, Inc. Annual Report - 95
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance-based stock award activity for each of the periods presented was as follows:
Unvested at December 28, 2018
Awards granted
Awards forfeited
Awards vested
Unvested at January 3, 2020
Awards granted
Awards forfeited
Awards vested
Unvested at January 1, 2021
Awards granted
Awards forfeited
Awards vested
Unvested at December 31, 2021
Expected number
of shares of stock
to be issued under
performance-based
stock awards
(in millions)
Weighted
average grant-
date fair value
0.5 $
0.2
—
(0.1)
0.6 $
0.2
(0.1)
(0.2)
0.5 $
0.2
—
(0.2)
0.5 $
57.36
66.92
66.72
45.83
63.66
103.34
72.96
58.61
80.20
86.88
89.65
65.30
88.72
The weighted average grant date fair value for performance-based stock, excluding those with a market condition,
during fiscal 2021, 2020 and 2019 was $89.26, $106.80 and $62.66, respectively. The weighted average grant date
fair value for performance-based stock with market conditions that were granted during fiscal 2021, 2020 and 2019
was $88.21, $127.92 and $72.53, respectively, and was calculated using the Monte Carlo simulation.
The Monte Carlo simulation assumptions used for the periods presented were as follows:
Expected volatility
Risk free rate of return
Weighted average grant date stock price
December 31,
2021
Year Ended
January 1,
2021
January 3,
2020
32.86 %
0.29 %
23.99 %
0.50 %
22.02 %
2.39 %
$
90.85
$ 105.12
$
62.66
As of December 31, 2021, there was $18 million of unrecognized compensation cost, net of estimated forfeitures,
which is expected to be recognized over a weighted average period of 1.6 years. The fair value of performance-
based stock awards that vested in fiscal 2021, 2020 and 2019 was $19 million, $25 million, and $9 million,
respectively.
Leidos Holdings, Inc. Annual Report - 96
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18—Income Taxes
The provision for income taxes for the periods presented included the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
156 $
90 $
49
29
(20)
(3)
(3)
37
28
13
(11)
(5)
122
31
25
26
(3)
(5)
$
208 $
152 $
196
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income
tax rate to income before income taxes for the periods presented was as follows:
Amount computed at the statutory federal income tax rate
State income taxes, net of federal tax benefit
Research and development credits
Excess tax benefits from stock-based compensation
Change in valuation allowance for deferred tax assets
Impact of foreign operations
Dividends paid to employee stock ownership plan
Change in accruals for uncertain tax positions
Stock basis in subsidiary held for sale
Other
Total
Effective income tax rate
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
$
$
$
203
34
(23)
(11)
5
4
(2)
1
—
(3)
208
21.5 %
$
$
164
20
(26)
(15)
(5)
11
(2)
1
—
4
152
19.5 %
182
22
(11)
(11)
6
2
(2)
4
5
(1)
196
22.6 %
The effective tax rate for fiscal 2021 was favorably impacted primarily by federal research tax credits and excess tax
benefits related to employee stock-based payment transactions.
The effective tax rate for fiscal 2020 was favorably impacted primarily by federal research tax credits and excess tax
benefits related to employee stock-based payment transactions, partially offset by taxes related to foreign
operations.
The effective tax rate for fiscal 2019 was favorably impacted primarily by excess tax benefits related to employee
stock-based payment transactions and federal research tax credits, partially offset by an increase in valuation
allowances arising from foreign withholding tax and an increase in taxes related to the sale of the commercial
cybersecurity business.
Leidos Holdings, Inc. Annual Report - 97
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting
purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of the following:
Operating lease liabilities
Accrued vacation and bonuses
Reserves
Deferred compensation
Credits and net operating losses carryovers
Vesting stock awards
Deferred revenue
Accumulated other comprehensive loss
Investments
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Purchased intangible assets
Operating lease right-of-use assets
Property, plant and equipment
Accumulated other comprehensive income
Employee benefit contributions
Deferred revenue
Other
Total deferred tax liabilities
Net deferred tax liabilities
December 31,
2021
January 1,
2021
(in millions)
$
187 $
176
91
47
39
26
24
16
—
—
9
439
(21)
418 $
(413) $
(158)
(63)
(1)
—
—
(9)
(644)
(226) $
87
62
31
22
22
—
16
1
7
424
(16)
408
(409)
(148)
(63)
—
(7)
(1)
(5)
(633)
(225)
$
$
$
At December 31, 2021, we had state net operating losses of $90 million and state tax credits of $3 million. Both will
begin to expire in fiscal 2022; however, we expect to utilize $72 million and $3 million of these state net operating
losses and state tax credits, respectively. We also had foreign net operating losses of $39 million, which do not
expire. We expect to utilize $4 million of these foreign net operating losses.
Our valuation allowance for deferred tax assets was $21 million and $16 million as of December 31, 2021 and
January 1, 2021, respectively. The valuation allowance increased by $5 million primarily due to an increase related
to foreign tax credits partially offset by a decrease related to state attributes expected to be utilized.
Leidos Holdings, Inc. Annual Report - 98
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax balance sheet items are included in the accompanying consolidated balance sheets as follows:
Other current assets:
Prepaid income taxes and tax refunds receivable
Other assets:
Deferred tax assets
Accounts payable and accrued liabilities:
Income taxes payable
Deferred tax liabilities
Other long-term liabilities:
Unrecognized tax benefits
December 31,
2021
January 1,
2021
(in millions)
$
$
$
$
$
6 $
13 $
29 $
239 $
12
9
21
234
2 $
4
Unrecognized tax benefits are primarily related to certain recurring deductions customary for our industry. The
changes in the unrecognized tax benefits were as follows:
Unrecognized tax benefits at beginning of year
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Settlements with taxing authorities
Lapse of statute of limitations
Unrecognized tax benefits at end of year
Unrecognized tax benefits that, if recognized, would affect the effective
income tax rate
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
$
$
6 $
2
(2)
(3)
(1)
2 $
2 $
5 $
1
—
—
—
6 $
5 $
6
11
(1)
(11)
—
5
4
At December 31, 2021, the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $2
million, which were classified as other long-term liabilities on the consolidated balance sheets. At January 1, 2021,
the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $6 million, $4 million of
which were classified as other long-term liabilities on the consolidated balance sheets. At January 3, 2020, the
balance of unrecognized tax benefits included liabilities for uncertain tax positions of $5 million, $1 million of which
were classified as other long-term liabilities on the consolidated balance sheets.
We file income tax returns in the United States and various state and foreign jurisdictions. We participate in the
Internal Revenue Service (“IRS”) Compliance Assurance Process ("CAP"), a real-time audit of our consolidated
federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through the
year ended January 3, 2020. For the years ended January 1, 2021 and December 31, 2021, we were selected to
participate in the phase of CAP reserved for taxpayers whose risk of noncompliance does not warrant use of IRS
resources. We believe that participation in CAP should reduce tax-related uncertainties, if any. Additionally, with a
few exceptions, as of December 31, 2021, we are no longer subject to state, local, or foreign examinations by the
tax authorities for fiscal years ending on or before December 29, 2017.
During the next 12 months, it is reasonably possible that resolution of reviews by taxing authorities, both domestic
and international, could be reached with respect to $2 million of our unrecognized tax benefits, depending on the
timing of ongoing examinations, any litigation and expiration of statute of limitations, either because the tax positions
are sustained or because we agree to their disallowance and pay the related income tax. While we believe we have
adequate accruals for uncertain tax positions, the tax authorities may determine that we owe taxes in excess of
recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax
authorities.
Leidos Holdings, Inc. Annual Report - 99
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19—Retirement Plans
Defined Contribution Plans
We sponsor various defined contribution plans in which most employees are eligible to participate. These plans
allow eligible participants to contribute a portion of their income through payroll deductions and Leidos may also
make discretionary contributions. Company contributions were $131 million, $120 million and $105 million for fiscal
2021, 2020 and 2019, respectively.
Deferred Compensation Plans
We maintain three deferred compensation plans, the Keystaff Deferral Plan ("KDP"), the KESDP and the MSCP (the
"Plans"), for the benefit of certain management or highly compensated employees or members of the Board of
Directors. The Plans allow eligible participants to elect to defer a portion of their salary, and all or a portion of certain
bonuses, including restricted stock unit awards. Directors may also elect to defer their cash compensation in
addition to their restricted stock unit awards. Deferred balances in the Plans are paid in lump sum or installments
upon retirement, termination or the elected specified date.
We do not make any contributions to the KDP but maintain participant accounts for deferred amounts and
investments. We maintain a rabbi trust for the purpose of funding benefit payments to the KDP participants.
Participants may allocate deferred salary and cash bonus amounts into a variety of designated investment options,
with gains and losses based on the elected investment option performance with the participant assuming all risks
related to future returns of their contributions.
Under the KESDP, eligible participants may elect to defer in share units all or a portion of certain cash bonuses and
restricted stock unit awards granted under the previous 2006 Equity Incentive Plan and the current 2017 Omnibus
Incentive Plan (see "Note 17—Stock-Based Compensation"). Under the MSCP, restricted stock share units are fully
vested and no further deferrals into the plan are made. We do not make any contributions to the accounts of KESDP
or MSCP participants. Benefits from the KESDP and MSCP are payable in shares of Leidos common stock held in a
rabbi trust for the purpose of funding benefit payments to KESDP and MSCP participants.
Defined Benefit Plans
We sponsor two frozen defined benefit pension plans ("the Plans"), one in the United Kingdom ("UK") for former
employees on an expired customer contract and another assumed as a result of the Gibbs & Cox acquisition.
We have continuing defined benefit pension obligations with respect to certain plan participants relating to the UK
defined benefit pension plan. In fiscal 2012, we sold certain components of our business, including the component
that contained the UK pension and employed the pension plan participants. Pursuant to the definitive sale
agreement, we retained the assets and obligations of this defined benefit pension plan. As a result of retaining the
pension obligation, the remaining immaterial components of ongoing pension expense, primarily interest costs and
assumed return on plan assets subsequent to the sale, are recorded in continuing operations.
The projected benefit obligation of the Plans as of December 31, 2021 and January 1, 2021, was $160 million and
$138 million, respectively. The increase in the projected benefit obligation was primarily due to the defined benefit
pension plan assumed through the acquisition of Gibbs & Cox.
The fair value of the Plans assets as of December 31, 2021 and January 1, 2021, was $189 million and $157
million, respectively. The UK defined benefit pension plan funding status was overfunded $37 million and $19 million
as of December 31, 2021 and January 1, 2021, respectively, and included within "Other assets" on the consolidated
balance sheets. The Gibbs & Cox defined benefit pension plan funding status was underfunded $8 million as of
December 31, 2021, and included within "Other long-term liabilities" on the consolidated balance sheets.
Leidos Holdings, Inc. Annual Report - 100
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other
We also sponsor multiemployer defined benefit pension plans and a defined contribution plan (a 401(k) plan) (the
"Sponsored Plans") for employees working on two U.S. government contracts. As part of the contractual
agreements, the customers reimburse Leidos for contributions made to these Sponsored Plans as these costs are
allowable under government contract cost accounting requirements. If we were to cease being the contractor as a
result of a recompetition process, the defined benefit pension plans and related plan assets and liabilities would
transfer to the new contractor. If the contract expires or is terminated with no transfer of the pension plan to a
successor contractor, any amount by which the plan liabilities exceed plan assets, as of that date, will be
reimbursed by the U.S. government customer. Since we are not responsible for the current or future funded status
of the pension plans, no assets or liabilities arising from their funded status are recorded in the consolidated
financial statements and no amounts associated with these pension plans are included in the defined benefit plan
disclosures above.
Note 20—Business Segments
Our operations and reportable segments are organized around the customers and markets we serve. We define our
reportable segments based on the way the chief operating decision maker ("CODM"), currently the Chairman and
Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance.
Our business is aligned into three reportable segments (Defense Solutions, Civil and Health). Additionally, we
separately present the unallocable costs associated with corporate functions as Corporate.
Effective July 3, 2021, certain contracts were reassigned from the Defense Solutions reportable segment to the Civil
reportable segment. Impact on prior year segment results were determined to be immaterial and have not been
recast to reflect this change.
Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the
Defense Solutions reportable segment to better align operations within the reportable segments to the customers
they serve. Fiscal 2019 segment results have been recast to reflect this change.
Defense Solutions provides leading-edge and technologically advanced services, solutions and products to a broad
customer base. Our ever-changing technologies and innovations cover a wide spectrum of markets with primary
areas of concentration in digital modernization and integrated systems, Command, Control, Communications,
Computers, Intelligence, Surveillance and Reconnaissance technologies and services, transformative software,
analytics, intelligence analysis, mission support and logistics services, weapons systems and human space
exploration. We are dedicated to delivering cost-effective solutions backed by innovation-generating research and
development to meet the evolving missions of our customers. We provide a diverse portfolio of national security
solutions and systems for air, land, sea, space and cyberspace for the U.S. Intelligence Community, the DoD, the
National Aeronautics and Space Administration, military services, government agencies of U.S. allies abroad and
other federal and commercial customers in the national security industry. Our solutions deliver innovative
technology, large-scale systems, command and control platforms, data analytics, logistics and cybersecurity
solutions, as well as intelligence analysis and operations support to critical missions around the world.
Our Civil business is focused on modernizing infrastructure, systems and security for government and commercial
customers both domestically and internationally. By applying leading science, innovative technologies and business
acumen, our talented employees help customers achieve their missions and take on the connected world with data-
driven insights, improved efficiencies and technological advantages in the areas of transportation solutions, security
detection and automation, digital transformation services and environment, energy and infrastructure.
Our Health business focuses on delivering effective and affordable solutions to federal and commercial customers
that are responsible for the health and well-being of people worldwide, including service members and
veterans. Our solutions enable customers to deliver on the health mission of providing high-quality, cost-effective
care, and are accomplished through the integration of information technology, engineering, life sciences, health
services, clinical insights and health policy. The capabilities we provide predominantly fall in four major areas of
activity: health information management services, managed health services, digital transformation and life sciences
research and development.
Leidos Holdings, Inc. Annual Report - 101
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Corporate includes the operations of various corporate activities, certain corporate expense items that are not
reimbursed by our U.S. government customers and certain other expense items excluded from a reportable
segment's performance.
The following table summarizes business segment information for the periods presented:
Revenues:
Defense Solutions
Civil
Health
Total revenues
Operating income (loss):
Defense Solutions
Civil
Health
Corporate
Total operating income
Amortization of intangible assets:
Defense Solutions
Civil
Health
Total amortization of intangible assets
December 31,
2021
Year Ended
January 1,
2021
(in millions)
January 3,
2020
$
8,032 $
3,157
2,548
7,341 $
2,994
1,962
$
13,737 $
12,297 $
6,300
2,796
1,998
11,094
$
$
$
$
569 $
248
442
(107)
1,152 $
121 $
73
34
506 $
280
235
(23)
998 $
92 $
66
40
228 $
198 $
471
231
242
(32)
912
64
63
46
173
The income statement performance measures used to evaluate segment performance are revenues and operating
income. As a result, "Interest expense, net," "Other (expense) income, net," and "Income tax expense," as reported
in the consolidated financial statements are not allocated to our segments. Under U.S. government CAS, indirect
costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated out to
the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the
costs in the base. While depreciation expense is a component of the allocated costs, the allocation process
precludes depreciation expense from being specifically identified by the individual reportable segments. For this
reason, depreciation expense by reportable segment has not been reported above.
Asset information by segment is not a key measure of performance used by the CODM.
We generated approximately 87% of our total revenues in fiscal 2021, 2020 and 2019 from contracts with the U.S.
government, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S.
government. Revenues under contracts with the DoD and U.S. Intelligence Community, including subcontracts
under which the DoD or the U.S. Intelligence Community is the ultimate purchaser, represented approximately 44%
of our total revenues for fiscal 2021, 49% for fiscal 2020 and 48% for fiscal 2019.
Approximately 8% of our revenues and tangible long-lived assets are generated by or owned by entities outside of
the United States. As such, additional financial information by geographic location is not presented.
Leidos Holdings, Inc. Annual Report - 102
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21—Commitments and Contingencies
Legal Proceedings
Class Action Lawsuit
On March 2, 2021, Leidos and certain current officers of Leidos were named as defendants in a putative class
action securities lawsuit filed in the U.S. District Court for the Southern District of New York. The complaint alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder relating to alleged misstatements or omissions in Leidos' public filings with the SEC and
other public statements during the period from May 4, 2020 to February 23, 2021 relating, among other things, to
Leidos' acquisition of the SD&A Businesses. The plaintiff sought to recover from the Company and the individual
defendants an unspecified amount of damages at this time. On July 30, 2021, the District Court appointed a lead
plaintiff and lead counsel. On September 28, 2021, the lead plaintiff voluntarily dismissed the action without
prejudice.
MSA Joint Venture
On November 10, 2015, MSA received a final decision by the Department of Energy ("DoE") contracting officer for
the Mission Support Contract concluding that certain payments to MSA by the DoE for the performance of IT
services by Lockheed Martin Services, Inc. ("LMSI") under a subcontract to MSA constituted alleged affiliate fees in
violation of Federal Acquisition Regulations ("FAR"). Lockheed Martin Integrated Technology LLC (now known as
Leidos Integrated Technology LLC) is a member entity of MSA. Subsequent to the contracting officer's final
decision, MSA, LMSI, and Lockheed Martin Corporation received notice from the U.S. Attorney's Office for the
Eastern District of Washington that the U.S. government had initiated a False Claims Act investigation into the facts
surrounding this dispute. On February 8, 2019, the Department of Justice filed a complaint in the United States
District Court for the Eastern District of Washington against MSA, Lockheed Martin Corporation, Lockheed Martin
Services, Inc. and a Lockheed Martin employee ("Defendants"). The complaint alleges violations of the False
Claims Act, the Anti-Kickback Act and breach of contract with the DoE, among other things. On January 13, 2020,
the Defendants' motions to dismiss were granted in part and denied in part. Litigation would proceed for the False
Claims Act and other common law claims, although the Anti-Kickback Act claim has been dismissed with prejudice.
The U.S. Attorney's office had previously advised that a parallel criminal investigation was open, although no
subjects or targets of the investigation had been identified. The U.S. Attorney's office has informed MSA that it has
closed the criminal investigation.
Since this issue first was raised by the DoE, MSA has asserted that the IT services performed by LMSI under a
fixed-price/fixed-unit rate subcontract approved by the DoE meet the definition of a "commercial item" under the
FAR and any profits earned on that subcontract are permissible. MSA filed an appeal of the contracting officer's
decision with the Civilian Board of Contract Appeals ("CBCA"), which was stayed pending resolution of the False
Claims Act matter. Subsequent to the filing of MSA's appeal, the contracting officer demanded that MSA reimburse
the DoE in the amount of $64 million, which was his estimate of the profits earned during the period from 2010 to
2014 by LMSI. The DoE has deferred collection of $32 million of that demand, pending resolution of the appeal and
without prejudice to MSA's position that it is not liable for any of the DoE's $64 million reimbursement claim. On
December 10, 2019, MSA received a second final decision by the DoE contracting officer, estimating approximately
$29 million in alleged unallowable profit and associated general and administrative costs during the period from
2015 to 2016 by LMSI. MSA filed an appeal of the second contracting officer's decision, which has been
consolidated with the prior proceeding before the CBCA and stayed pending resolution of the False Claims Act
matter. The DoE and MSA also executed an agreement to defer the entire amount of the disallowed costs from the
second contracting officer's final decision until the CBCA proceedings are finally resolved. Leidos has agreed to
indemnify Jacobs Group, LLC and Centerra Group, LLC for any liability MSA incurs in this matter. Under the terms
of the Separation Agreement, Lockheed Martin agreed to indemnify Leidos for 100% of any damages in excess of
$38 million up to $64 million, and 50% of any damages in excess of $64 million, with respect to claims asserted
against MSA related to this matter.
On April 5, 2021, MSA finalized the settlement of the False Claims Act litigation in the Eastern District of Washington
and the related contract claim at the CBCA. Pursuant to the settlement agreement, DoE paid MSA approximately
$37 million on April 19, 2021 and MSA paid the Department of Justice $3 million on April 22, 2021. Accordingly,
following joint motions by the parties, the CBCA dismissed the claim before the Board with prejudice on April 28,
2021 and the District Court dismissed the False Claims Act litigation with prejudice on April 30, 2021.
Leidos Holdings, Inc. Annual Report - 103
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There remain other outstanding matters in dispute between DoE and MSA as the two parties work to close out the
Mission Support Contract. As of December 31, 2021, we believe we have adequately reserved for any potential
liabilities related to these disputes.
Other
We are also involved in various claims and lawsuits arising in the normal conduct of our business, none of which, in
the opinion of management, based upon current information, will likely have a material adverse effect on our
financial position, results of operations or cash flows.
Other Contingencies
VirnetX, Inc. ("VirnetX")
On April 10, 2018, a jury trial concluded in an additional patent infringement case brought by VirnetX against Apple,
referred to as the Apple II case, in which the jury returned a verdict against Apple for infringement and awarded
VirnetX damages in the amount of over $502 million. On April 11, 2018, in a second phase of the Apple II trial, the
jury found Apple's infringement to be willful. On August 30, 2018, the federal trial court in the Eastern District of
Texas entered a final judgment and rulings on post-trial motions in the Apple II case. The court affirmed the jury’s
verdict of over $502 million and granted VirnetX’s motions for supplemental damages, a sunset royalty and royalty
rate of $1.20 per infringing device, along with pre-judgment and post-judgment interest and costs. The court denied
VirnetX’s motions for enhanced damages, attorneys’ fees and an injunction. The court also denied Apple’s motions
for judgment as a matter of law and for a new trial. An additional sum of over $93 million for costs and pre-judgment
interest was subsequently agreed upon pursuant to a court order, bringing the total award to VirnetX in the Apple II
case to over $595 million. Apple filed an appeal of the judgment in the Apple II case with the U.S. Court of Appeals
for the Federal Circuit, and on November 22, 2019, the Federal Circuit affirmed in part, reversed in part and
remanded the Apple II case back to the District Court. The Federal Circuit affirmed that Apple infringed two of the
patents at issue in the case, and ruled that Apple is precluded from making certain patent invalidity arguments.
However, the Federal Circuit reversed the judgment that Apple infringed two other patents at issue, vacated the
prior damages awarded in the Apple II case, and remanded the Apple II case back to the District Court for further
proceedings regarding damages. On April 23, 2020, the District Court ordered a new trial on damages in the Apple II
case, which was delayed by the coronavirus pandemic and started on October 26, 2020. On October 30, 2020, the
jury awarded VirnetX $503 million in damages and specified a royalty rate of $0.84 per infringing device. In January
2021, the District Court entered final judgment affirming the jury award and the parties separately agreed on
additional costs and interest of over $75 million, subject to Apple's appeal. On February 4, 2021, Apple filed a notice
of appeal with the U.S. Court of Appeals for the Federal Circuit in the Apple II case.
Under our agreements with VirnetX, Leidos would receive 25% of the proceeds obtained by VirnetX after reduction
for attorneys' fees and costs. However, the verdict in the Apple II case remains subject to the ongoing and potential
future proceedings and appeals. In addition, the patents at issue in these cases are subject to U.S. Patent and
Trademark Office post-grant inter partes review and/or reexamination proceedings and related appeals, which may
result in all or part of these patents being invalidated or the claims of the patents being limited. Thus, no assurances
can be given when or if we will receive any proceeds in connection with these jury awards. In addition, if Leidos
receives any proceeds, we are required to pay a royalty to the customer who paid for the development of the
technology.
Government Investigations and Reviews
We are routinely subject to investigations and reviews relating to compliance with various laws and regulations with
respect to our role as a contractor to federal, state and local government customers and in connection with
performing services in countries outside of the United States. Adverse findings could have a material effect on our
business, financial position, results of operations and cash flows due to our reliance on government contracts.
As of December 31, 2021, indirect cost audits by the DCAA remain open for fiscal 2016 and subsequent fiscal
years. Although we have recorded contract revenues based upon an estimate of costs that we believe will be
approved upon final audit or review, we cannot predict the outcome of any ongoing or future audits or reviews and
adjustments and, if future adjustments exceed estimates, our profitability may be adversely affected. As of
December 31, 2021, we believe we have adequately reserved for potential adjustments from audits or reviews of
contract costs.
Leidos Holdings, Inc. Annual Report - 104
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Through its internal processes, the Company discovered, in late 2021, activities by its employees, third party
representatives and subcontractors, raising concerns related to a portion of our business that conducts international
operations. The Company is conducting an internal investigation, overseen by an independent committee of the
Board of Directors, with the assistance of external legal counsel, to determine whether the identified conduct may
have violated the Company’s Code of Conduct and potentially applicable laws, including the U.S. Foreign Corrupt
Practices Act ("FCPA"). The Company has voluntarily self-reported this investigation to the Department of Justice
and the Securities and Exchange Commission and is cooperating with both agencies. Because the investigation is
ongoing, the Company cannot anticipate the timing, outcome or possible impact of the investigation, although
violations of the FCPA and other applicable laws may result in criminal and civil sanctions, including monetary
penalties, and reputational damage.
Commitments
We have outstanding letters of credit of $55 million as of December 31, 2021, principally related to performance
guarantees on contracts. We also have outstanding surety bonds with a notional amount of $100 million as of
December 31, 2021, principally related to performance and subcontractor payment bonds on contracts. The value of
the surety bonds may vary due to changes in the underlying project status and/or contractual modifications.
As of December 31, 2021, the future expirations of the outstanding letters of credit and surety bonds were as
follows:
Fiscal year ending
2022
2023
2024
2025
2026
2027 and thereafter
(in millions)
51
5
82
1
2
14
155
$
$
Leidos Holdings, Inc. Annual Report - 105
PART II
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer (our Chairman and Chief Executive Officer)
and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934) as of December 31, 2021. Based upon that evaluation, our principal executive
officer and principal financial officer have concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the U.S. Securities and Exchange Commission ("SEC"). These disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and
communicated to our management, including our principal executive officer and our principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the first and second quarter of fiscal 2021, we completed our acquisition of 1901 Group and Gibbs & Cox,
respectively. As part of the ongoing integration of 1901 Group and Gibbs & Cox, we are in the process of
incorporating the controls and related procedures of these businesses. Other than incorporating controls for 1901
Group and Gibbs & Cox, there have been no other changes in our internal control over financial reporting that
occurred in the fourth quarter of the period ended December 31, 2021, covered by this Annual Report that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America.
As permitted by the SEC rules, management's assessment and conclusion on the effectiveness of our internal
control over financial reporting as of December 31, 2021, excludes an assessment of the internal control over
financial reporting of 1901 Group and Gibbs & Cox, acquired on January 14, 2021 and May 7, 2021, respectively.
Our management, with the participation of our principal executive officer and principal financial officer, has
evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Our management has assessed the effectiveness of our internal
control over financial reporting as of December 31, 2021, and has concluded that our internal control over financial
reporting as of that date was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, audited our consolidated financial
statements included in this Annual Report on Form 10-K and our internal control over financial reporting, and that
firm’s report on our internal control over financial reporting is set forth below.
February 15, 2022
Leidos Holdings, Inc. Annual Report - 106
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Leidos Holdings, Inc.
Reston, Virginia
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Leidos Holdings, Inc. and subsidiaries (the "Company")
as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based
on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended December 31,
2021, of the Company and our report dated February 15, 2022, expressed an unqualified opinion on those financial
statements.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at 1901 Group and Gibbs & Cox, which were acquired on
January 14, 2021 and May 7, 2021, respectively, whose financial statements reflect total assets of 1.45% and 3.03%,
respectively, and revenues constituting 0.35% and 0.71%, respectively, of the consolidated financial statement
amounts as of and for the fiscal year ended December 31, 2021. Accordingly, our audit did not include the internal
control over financial reporting at 1901 Group and Gibbs & Cox.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 15, 2022
Leidos Holdings, Inc. Annual Report - 107
PART II
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
For certain information required by Item 10 with respect to executive officers, see "Executive Officers of the
Registrant" at the end of Part I of this Annual Report on Form 10-K. For additional information required by Item 10
with respect to executive officers and directors, including audit committee and audit committee financial experts,
procedures by which stockholders may recommend nominees to the Board of Directors and compliance with
Section 16(a) of the Securities Exchange Act of 1934, see the information set forth under the captions "Proposal 1–
Election of Directors," "Corporate Governance" and "Other Information" appearing in the 2022 Proxy Statement,
which required information is incorporated by reference into this Annual Report on Form 10-K.
We have a code of conduct that applies to our principal executive officer and our senior financial officers. A copy of
our code of conduct is available on the Investor Relations section of our website free of charge at www.leidos.com
by clicking on the links entitled "Investors" then "Corporate Governance" then "Overview" and then "Code of
Conduct." We intend to post on our website any material changes to or waivers from our code of business ethics.
The information on our website is not incorporated by reference into and is not a part of this Annual Report on Form
10-K.
Item 11. Executive Compensation
For information required by Item 11 with respect to executive compensation and director compensation, see the
information set forth under the captions "Compensation Discussion and Analysis," "Executive Compensation" and
"Corporate Governance" in the 2022 Proxy Statement, which is incorporated by reference into this Annual Report on
Form 10-K.
For information required by Item 11 with respect to compensation committee interlocks and insider participation, see
the information set forth under the caption "Corporate Governance" in the 2022 Proxy Statement, which is
incorporated by reference into this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 108
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
For information required by Item 12 with respect to the security ownership of certain beneficial owners and
management, see the information set forth under the caption "Other Information" in the 2022 Proxy Statement,
which is incorporated by reference into this Annual Report on Form 10-K.
Information with respect to our equity compensation plans as of December 31, 2021, is set forth below:
Plan Category
Equity compensation plans approved by security
holders (1)
Equity compensation plans not approved by security
holders (5)
Total
(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(b)
Weighted-
average
exercise price of
outstanding
options, warrants
and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
3,919,100 (2) $
65.18 (3)
11,388,105 (4)
—
3,919,100 (2) $
—
65.18 (3)
— (5)
11,388,105
(1) The following equity compensation plans approved by security holders are included in this plan category: the 2017 Omnibus Incentive Plan,
the 2006 Equity Incentive Plan, as amended, and the 2006 Employee Stock Purchase Plan, as amended.
(2) Represents (i) 1,850,479 shares of Leidos common stock reserved for future issuance for service-based awards and performance and market-
based awards assuming achievement of the target level of performance for unearned performance and market-based awards (does not
include an additional 250,249 shares if the maximum level of performance is achieved) and other stock awards under the 2017 Omnibus
Incentive Plan and 2006 Equity Incentive Plan, (ii) 9,744 shares of Leidos common stock issuable pursuant to dividend equivalent rights and
(iii) 2,058,877 shares of Leidos common stock reserved for future issuance upon the exercise of outstanding options awarded under the 2017
Omnibus Incentive Plan and 2006 Equity Incentive Plan. Does not include shares to be issued pursuant to purchase rights under the 2006
Employee Stock Purchase Plan.
(3) Does not include shares to be issued for performance-based and other stock awards and shares of stock issuable pursuant to dividend
equivalent rights.
(4) Represents 7,992,462 and 3,395,643 shares of Leidos common stock under the 2017 Omnibus Incentive Plan and 2006 Employee Stock
Purchase Plan, respectively. The maximum number of shares initially available for issuance under the 2017 Omnibus Incentive Plan was 7.5
million. The 2006 Equity Incentive Plan was amended in June 2012 to provide that the maximum number of shares available for issuance
thereunder is 12.5 million. The 2006 Employee Stock Purchase Plan was amended in September 2016 to provide that the maximum number
of shares available for issuance thereunder is 5.0 million. Those shares (i) that are issued under the 2017 Omnibus Incentive Plan and 2006
Equity Incentive Plan that are forfeited or repurchased at the original purchase price or less or that are issuable upon exercise of awards
granted under the plan that expire or become unexercisable for any reason after their grant date without having been exercised in full, (ii) that
are withheld from an option or stock award pursuant to a Company-approved net exercise provision, or (iii) that are not delivered to or are
award shares surrendered by a holder in consideration for applicable tax withholding will continue to be available for issuance under the 2017
Omnibus Incentive Plan.
(5) The Management Stock Compensation Plan has not been approved by security holders and is included in this plan category. This plan does
not provide for a maximum number of shares available for future issuance. For further information on this plan, see "Note 17—Stock-Based
Compensation" of the notes to the consolidated financial statements contained within Part II of this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For information required by Item 13 with respect to certain relationships and related transactions and the
independence of directors and nominees, see the information set forth under the caption "Corporate Governance" in
the 2022 Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.
Item 14. Principal Accounting Fees and Services
For information required by Item 14 with respect to principal accounting fees and services, see the information set
forth under the caption "Audit Matters" in the 2022 Proxy Statement, which is incorporated by reference into this
Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 109
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of the report:
1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or the required information is
shown in our consolidated financial statements or the notes thereto.
3. Exhibits
Description of Exhibit
Distribution Agreement dated September 25, 2013. Incorporated by reference to Exhibit 2.1 to our
Current Report on Form 8-K filed with the SEC on October 1, 2013.
Agreement and Plan of Merger, dated January 26, 2016, among Leidos Holdings, Inc., Lockheed
Martin Corporation, Abacus Innovations Corporation, and Lion Merger Co. Incorporated by reference to
Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on January 28, 2016.
Separation Agreement, dated January 26, 2016, between Lockheed Martin Corporation and Abacus
Innovations Corporation. Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K
filed with the SEC on January 28, 2016.
Amendment to Agreement and Plan of Merger, dated as of June 27, 2016, among Lockheed Martin
Corporation, Leidos Holdings, Inc., Abacus Innovations Corporation and Lion Merger Co. Incorporated
by reference to Exhibit 2.7 to our Registrant Statement on Form S-4 with the SEC on June 28, 2016.
Amendment to Separation Agreement, dated as of June 27, 2016, between Lockheed Martin
Corporation and Abacus Innovations Corporation. Incorporated by reference to Exhibit 2.8 to our
Registration Statement on Form S-4 filed with the SEC on June 28, 2016.
Stock Purchase Agreement, dated December 17, 2019, by and among Leidos Holdings, Inc., Leidos,
Inc., DYHC, Inc. and Dynetics, Inc. Employee Stock Ownership Trust, as amended (which is part of the
Dynetics, Inc. Employee Stock Ownership Plan). Incorporated by reference to Exhibit 2.1 to our
Current Report on Form 8-K filed with the SEC on December 18, 2019.
Sale Agreement dated as of February 3, 2020, by and among L3 Harris Technologies, Inc., Leidos, Inc.
and Leidos Holdings, Inc. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K
filed with the SEC on February 4, 2020.
Amended and Restated Certificate of Incorporation of Leidos Holdings, Inc. Incorporated by reference
to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on May 15, 2020.
Amended and Restated Bylaws of Leidos Holdings, Inc. Incorporated by reference to Exhibit 3.2 to our
Current Report on Form 8-K filed with the SEC on May 15, 2020.
Indenture dated June 28, 2002, between Leidos, Inc. and JPMorgan Chase Bank, as trustee.
Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on July
3, 2002. (SEC File No. 000-12771)
First Supplemental Indenture, dated October 13, 2006, by and among Leidos, Inc., Leidos Holdings,
Inc. and The Bank of New York Trust Company, N.A., as successor trustee to JPMorgan Chase Bank,
N.A. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on
October 17, 2006. (SEC File No. 001-33072)
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
4.1**
4.2
Leidos Holdings, Inc. Annual Report - 110
PART IV
Description of Exhibit
Indenture dated as of December 20, 2010, among Leidos Holdings, Inc., Leidos, Inc., and The Bank of
New York Mellon Trust Company, N.A. as Trustee. Incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K with the SEC on December 22, 2010.
Bridge Credit Agreement dated as of January 31, 2020, among Leidos Holdings, Inc., Leidos, Inc. and
Citibank, N.A. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the
SEC on January 31, 2020.
Indenture relating to the 2.950% Senior Notes due 2023, 3.625% Senior Notes due 2025 and the
4.375% Senior Notes due 2030, dated as of May 12, 2020, by and among Leidos, Inc., as issuer,
Leidos Holdings, Inc., as guarantor, and Citibank, N.A., as trustee. Incorporated by reference to Exhibit
4.1 to our Current Report on Form 8-K filed with the SEC on May 12, 2020.
Form of 2.950% Senior Notes due 2023. Incorporated by reference to Exhibit 4.2 to our Current Report
on Form 8-K filed with the SEC on May 12, 2020.
Form of 3.625% Senior Notes due 2025. Incorporated by reference to Exhibit 4.3 to our Current Report
on Form 8-K filed with the SEC on May 12, 2020.
Form of 4.375% Senior Notes due 2030. Incorporated by reference to Exhibit 4.4 to our Current Report
on Form 8-K filed with the SEC on May 12, 2020.
Exchange and Registration Rights Agreement, dated May 12, 2020, by and among Leidos, Inc., Leidos
Holdings, Inc., Citigroup Global Markets Inc., MUFG Securities Americas Inc. and BofA Securities, Inc.
Incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K filed with the SEC on May
12, 2020.
Indenture relating to the 2.300% Senior Notes due 2031, dated as of October 8, 2020 among Leidos,
Inc., Leidos Holdings, Inc, as guarantor, and Citibank, N.A., as trustee. Incorporated by reference to
Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on October 9, 2020.
Form of 2.300% Senior Notes due 2031. Incorporated by reference to Exhibit 4.2 to our Current Report
on Form 8-K filed with the SEC on October 9, 2020.
Registration Rights Agreement, dated October 8, 2020, among Leidos, Inc., Leidos Holdings, Inc., BofA
Securities, Inc., Citigroup Global Markets Inc. and MUFG Securities Americas Inc. Incorporated by
reference to Exhibit 4.3 to our Current Report on Form 8-K filed with the SEC on October 9, 2020.
Description of Common Stock. Incorporate by reference to Exhibit 4.13 to our Annual Report on Form
10-K filed with the SEC on February 23, 2021.
Leidos Holdings, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 to our
Annual Report on Form 10-K filed with the SEC on March 27, 2014.
Leidos Holdings, Inc.'s 2017 Omnibus Incentive Plan. Incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form S-8 filed with the SEC on June 1, 2017.
Leidos, Inc. Stock Compensation Plan. Incorporated by reference to Exhibit 10.2 to our Annual Report
on Form 10-K filed with the SEC on March 27, 2014.
Leidos, Inc.’s Management Stock Compensation Plan. Incorporated by reference to Exhibit 10.3 to our
Annual Report on Form 10-K filed with the SEC on March 27, 2014.
Amended and Restated Leidos, Inc.'s Keystaff Deferral Plan. Incorporated by reference to Exhibit 10.4
to our Transition Report on Form 10-K filed with the SEC on February 26, 2016.
Amended and Restated Leidos, Inc.’s Key Executive Stock Deferral Plan. Incorporated by reference to
Exhibit 10.5 to our Transition Report on Form 10-K filed with the SEC on February 26, 2016.
Amended and Restated Leidos Holdings, Inc.’s 2006 Employee Stock Purchase Plan. Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2017.
Leidos, Inc.’s 401(k) Excess Deferral Plan. Incorporated by reference to Exhibit 10.7 to our Annual
Report on Form 10-K filed with the SEC on March 27, 2014.
Exhibit
Number
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Leidos Holdings, Inc. Annual Report - 111
PART IV
Description of Exhibit
Form of Nonstatutory Stock Option Agreement of Leidos Holdings, Inc.’s 2006 Equity Incentive Plan.
Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K filed with the SEC on
March 27, 2014.
Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) of Leidos Holdings, Inc.’s
2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.11 to our Annual Report on Form
10-K filed with the SEC on March 27, 2014.
Form of Restricted Stock Unit Award Agreement of Leidos Holdings, Inc.’s 2006 Equity Incentive Plan.
Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K filed with the SEC on
March 27, 2014.
Form of Restricted Unit Award Agreement (Management) of Leidos Holdings, Inc.’s 2006 Equity
Incentive Plan. Incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K filed as
with the SEC on March 27, 2014.
Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.19 to our Annual Report on
Form 10-K filed with the SEC on March 25, 2015.
Amended and Restated Executive Severance Plan. Incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed with the SEC on October 29, 2019.
Executive Employment Agreement dated June 30, 2014. Incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed with the SEC on July, 2, 2014.
Form of Performance Share Award Agreement of Leidos Holdings, Inc.'s 2006 Equity Incentive Plan
(for Performance Share Award Agreements entered into on or after April 3, 2015). Incorporated by
reference to Exhibit 10.33 to our Annual Report on Form 10-K filed with the SEC on March 25, 2015.
Form of Restricted Stock Unit Award Agreement of Leidos Holdings, Inc.’s 2006 Equity Incentive Plan.
Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed with the SEC on
May 5, 2017.
Form of Nonstatutory Stock Option Agreement of Leidos Holdings, Inc.’s 2006 Equity Incentive Plan
(for Nonstatutory Stock Option Agreements granted on March 3, 2017). Incorporated by reference to
Exhibit 10.4 to our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2017.
Form of Performance Share Award Agreement of Leidos Holdings, Inc.'s 2006 Equity Incentive Plan
(for Performance Share Award Agreements granted on March 3, 2017). Incorporated by reference to
Exhibit 10.5 to our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2017.
Form of Notice of Grant of Options for Non-Employee Directors under the Leidos Holdings, Inc. 2017
Omnibus Plan. Incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K filed with
the SEC on February 23, 2018.
Form of Notice of Grant of Options for Employees under the Leidos Holdings, Inc. 2017 Omnibus Plan.
Incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10-K filed with the SEC on
February 23, 2018.
Form of Notice of Grant of Restricted Stock Unit Awards (Performance-Vesting) for Employees under
the Leidos Holdings, Inc. 2017 Omnibus Plan. Incorporated by reference to Exhibit 10.24 to our Annual
Report on Form 10-K filed with the SEC on February 23, 2018.
Form of Notice of Grant of Performance Share Awards for Employees under the Leidos Holdings, Inc.
2017 Omnibus Plan. Incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K
filed with the SEC on February 23, 2018.
Form of Notice of Grant of Restricted Stock Unit Awards (Time-Vesting) for Employees under the
Leidos Holdings, Inc. 2017 Omnibus Plan. Incorporated by reference to Exhibit 10.26 to our Annual
Report on Form 10-K filed with the SEC on February 23, 2018.
Form of Notice of Grant of Restricted Stock Unit Awards (Time-Vesting) for Non-Employee Directors
under the Leidos Holdings, Inc. 2017 Omnibus Plan. Incorporated by reference to Exhibit 10.27 to our
Annual Report on Form 10-K filed with the SEC on February 23, 2018.
Exhibit
Number
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
Leidos Holdings, Inc. Annual Report - 112
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
PART IV
Description of Exhibit
Agreement, dated October 11, 2013, by and among Leidos Renewable Energy, LLC, Plainfield
Renewable Energy Owner, LLC and Plainfield Renewable Energy Holdings, LLC. Incorporated by
reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed with the SEC on December 10,
2013.
Membership Interest Purchase Agreement by and among Leidos Engineering, LLC, Greenleaf Power
Consolidated, LLC and Plainfield Renewable Energy, LLC dated March 24, 2015. Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 25, 2015.
Amendment to Membership Interest Purchase Agreement by and among Leidos Engineering, LLC,
Greenleaf Power Consolidated, LLC and Plainfield Renewable Energy, LLC dated July 17, 2015.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July
23, 2015.
Credit Agreement dated August 16, 2016, among Leidos Holdings, Inc., Leidos, Inc., as Borrower, the
lenders party thereto and Citibank, N.A., as administrative agent. Incorporated by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q filed with the SEC on November 4, 2016.
First Amendment, dated August 16, 2017, to the Credit Agreement dated August 16, 2016, by and
among Leidos, Inc., as borrower, Leidos Holdings, Inc., Citibank, N.A., as administrative agent and the
other lending institutions party to the amendment. Incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed with the SEC on November 3, 2017.
Second Amendment, dated August 22, 2018, to the Credit Agreement dated as of August 16, 2016, by
and among Leidos, Inc., as borrower, Leidos Holdings, Inc., Citibank, N.A., as administrative agent and
the other lending institutions party to the amendment. Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed with the SEC on August 28, 2018.
Credit Agreement dated August 16, 2016, among Leidos Innovations Corporation (formerly Abacus
Innovations Corporation) as Borrower, the lenders party thereto, and Citibank, N.A., as administrative
agent. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed with the
SEC on November 4, 2016.
First Amendment, dated February 16, 2017, to the Credit Agreement dated as of August 16, 2016, by
and among Leidos Innovations (f/k/a Abacus Innovations Corporation), as borrower, Leidos Holdings,
Inc., Citibank, N.A., as administrative agent and the other lending institutions party to the amendment.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on
February 21, 2017.
Second Amendment, dated August 16, 2017, to the Credit Agreement dated as of August 16, 2016, by
and among Leidos Innovations Corporation (f/k/a Abacus Innovations Corporation), as borrower,
Leidos Holdings, Inc., Citibank, N.A., as administrative agent and the other lending institutions party to
the amendment. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed
with the SEC on November 3, 2017.
Third Amendment, dated March 15, 2018, to the Credit Agreement dated as of August 16, 2016, by and
among Leidos Innovations (f/k/a Abacus Innovations Corporation), as borrower, Leidos Holdings, Inc.,
Citibank, N.A., as administrative agent and the other lending institutions party to the amendment.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on
March 20, 2018.
Fourth Amendment, dated August 22, 2018, to the Credit Agreement dated as of August 16, 2016, by
and among Leidos Innovations (f/k/a Abacus Innovations Corporation), as borrower, Leidos Holdings,
Inc., Citibank, N.A., as administrative agent and the other lending institutions party to the amendment.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on
August 28, 2018.
Fifth Amendment, dated November 19, 2018, to the Credit Agreement dated as of August 16, 2016, by
and among Leidos Innovations (f/k/a Abacus Innovations Corporation), as borrower, Leidos Holdings,
Inc., Citibank, N.A., as administrative agent and the other lending institutions party to the amendment.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on
November 20, 2018.
Leidos Holdings, Inc. Annual Report - 113
PART IV
Description of Exhibit
Intellectual Property Matters Agreement, dated August 16, 2016, between Lockheed Martin
Corporation and Abacus Innovations Corporation. Incorporated by reference to Exhibit 10.3 to our
Quarterly Report on Form 10-Q filed with the SEC on November 4, 2016.
Shared Contracts Agreement - Shared Contracts (Parent Companies), dated August 16, 2016,
between Lockheed Martin Corporation and Splitco. Incorporated by reference to Exhibit 10.4 to our
Quarterly Report on Form 10-Q filed with the SEC on November 4, 2016.
Shared Contracts Agreement - Shared Contracts (Splitco Companies), dated August 16, 2016,
between Lockheed Martin Corporation and Splitco. Incorporated by reference to Exhibit 10.5 to our
Quarterly Report on Form 10-Q filed with the SEC on November 4, 2016.
Subcontract Pending Novation and Consent (Parent to Splitco), dated August 16, 2016, between
Lockheed Martin Corporation and Splitco. Incorporated by reference to Exhibit 10.6 to our Quarterly
Report on Form 10-Q filed with the SEC on November 4, 2016.
Supply Agreement (Parent to Splitco), dated August 16, 2016, between Lockheed Martin Corporation
and Splitco. Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q filed with
the SEC on November 4, 2016.
Supply Agreement (Splitco to Parent), dated August 16, 2016, between Lockheed Martin Corporation
and Splitco. Incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q filed with
the SEC on November 4, 2016.
Transition Services Agreement (Parent to Splitco), dated August 16, 2016, between Lockheed Martin
Corporation and Splitco. Incorporated by reference to Exhibit 10.9 to our Quarterly Report on Form 10-
Q filed with the SEC on November 4, 2016.
Credit Agreement dated as of January 17, 2020, among Leidos Holdings, Inc., Leidos, Inc. and
Citibank, N.A. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with
the SEC on January 17, 2020.
Term Loan Credit Agreement dated as of February 12, 2020, among Leidos Holdings, Inc., Leidos, Inc.
and Citibank, N.A. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
with the SEC on February 14, 2020.
364-Day Term Loan Credit Agreement, dated as of June 18, 2020, by and among Leidos Holdings,
Inc., Leidos, Inc., the guarantors party thereto, the lenders party thereto and Mizuho Bank, Ltd., as
administrative agent. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
with the SEC on June 18, 2020.
Form of Commercial Paper Dealer Agreement, dated July 12, 2021, between Leidos, Inc., as issuer,
the Company, as guarantor, and the applicable Dealer party thereto. Incorporated by reference to
Exhibit 10.1 to our Form 8-K filed with the U.S. Securities and Exchange Commission on July 12, 2021.
Subsidiaries of the Registrant.
List of Guarantors and Subsidiary Issuers of Guaranteed Securities. Incorporated herein by reference
from the Company's Registration Statement on Form S-4, filed with the U.S. Securities and Exchange
Commission on May 6, 2021.
Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
Number
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
21
22
23.1
31.1
31.2
32.1
32.2
Leidos Holdings, Inc. Annual Report - 114
PART IV
Description of Exhibit
Patent License and Assignment Agreement dated as of August 12, 2005, between Leidos, Inc. and
VirnetX, Inc. Incorporated by reference to Exhibit 99.1 to our Annual Report on Form 10-K filed with the
SEC on April 1, 2010.
Amendment No. 1 dated as of November 2, 2006, to Patent License and Assignment Agreement
between Leidos, Inc. and VirnetX, Inc. Incorporated by reference to Exhibit 99.2 to our Annual Report
on Form 10-K filed with the SEC on April 1, 2010.
Amendment No. 2 dated as of March 12, 2008, to Patent License and Assignment Agreement between
Leidos, Inc. and VirnetX, Inc. Incorporated by reference to Exhibit 99.3 to our Form 10-K filed with the
SEC on April 1, 2010.
Employee Matters Agreement, dated as of January 26, 2016, among Lockheed Martin Corporation,
Abacus Innovations Corporation and Leidos Holdings, Inc. Incorporated by reference to Exhibit 99.1 to
our Registration Statement on Form S-4 filed with the SEC on April 18, 2016.
Tax Matters Agreement, dated as of January 26, 2016, among Lockheed Martin Corporation, Abacus
Innovations Corporation and Leidos Holdings, Inc. Incorporated by reference to Exhibit 99.2 to our
Registration Statement on Form S-4 filed with the SEC on April 18, 2016.
First Amendment to Employee Matters Agreement, dated June 27, 2016, among Lockheed Martin
Corporation, Abacus Innovations Corporation and Leidos Holdings, Inc. Incorporated by reference to
Exhibit 99.13 to our Registration Statement on Form S-4 filed with the SEC on June 28, 2016.
Professional Services Contract effective September 7, 1999, between Leidos, Inc. and In-Q-Tel, Inc. (f/
k/a In-Q-It, Inc.). Incorporated by reference to Exhibit 99.4 to our Annual Report on Form 10-K filed with
the SEC on April 1, 2010.
Interactive Data File.
Cover Page Interactive Data File. The cover page interactive data file does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit
Number
99.1
99.2†
99.3
99.4
99.5
99.6
99.7†
101
104
* Executive Compensation Plans and Arrangements
** Paper filing
† Confidential treatment has been granted with respect to certain portions of these exhibits
Item 16. Form 10-K Summary
None.
Leidos Holdings, Inc. Annual Report - 115
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Leidos Holdings, Inc.
By
/s/ Christopher R. Cage
Christopher R. Cage
Executive Vice President and Chief Financial Officer
Dated: February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of Leidos Holdings, Inc., in the capacities and on the dates indicated.
Signature
/s/ Roger A. Krone
Roger A. Krone
/s/ Christopher R. Cage
Christopher R. Cage
/s/ Carly E. Kimball
Carly E. Kimball
/s/ Gregory R. Dahlberg
Gregory R. Dahlberg
/s/ David G. Fubini
David G. Fubini
/s/ Miriam E. John
Miriam E. John
/s/ Robert C. Kovarik, Jr.
Robert C. Kovarik, Jr.
/s/ Harry M. J. Kraemer, Jr.
Harry M. J. Kraemer, Jr.
/s/ Gary S. May
Gary S. May
/s/ Surya N. Mohapatra
Surya N. Mohapatra
/s/ Robert S. Shapard
Robert S. Shapard
/s/ Susan M. Stalnecker
Susan M. Stalnecker
/s/ Noel B. Williams
Noel B. Williams
Title
Date
Principal Executive Officer
February 15, 2022
Principal Financial Officer
February 15, 2022
Principal Accounting Officer
February 15, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
Leidos Holdings, Inc. Annual Report - 116
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