UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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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 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33072
Leidos Holdings, Inc.
(Exact name of registrant as specified in its charter)
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
x
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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. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
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 1, 2022, 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
$13,863,703,025.
The number of shares issued and outstanding of the registrant’s class of common stock as of February 7, 2023, was 136,937,673 shares ($.0001 par value
per share).
Portions of Leidos Holdings, Inc.'s definitive Proxy Statement for the 2022 Annual Meeting of Stockholders ("2023 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
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Executive Officers of the Registrant
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
[Reserved]
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative 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 9B.
Other Information
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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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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developments in the U.S. government defense and non-defense budgets, including budget reductions,
sequestration, implementation of spending limits or changes in budgetary priorities, delays in the U.S.
government budget process or a government shutdown, or the U.S. government’s failure to raise the debt
ceiling, which increases the possibility of a default by the U.S. government on its debt obligations, related
credit-rating downgrades, or an economic recession;
uncertainties in tax due to new tax legislation or other regulatory developments;
rising inflationary pressures and fluctuations in interest rates;
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;
the effects of COVID-19 or other health epidemics, pandemics and similar outbreaks may have on our
business, financial position, results of operations and/or cash flows;
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, including cost increases due to inflation, 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 comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar
worldwide anti-corruption and anti-bribery laws and regulations;
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 54 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 capabilities:
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 86% of revenues for the fiscal year ended December 30, 2022, ("fiscal
2022") 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 30, 2022, 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.
Approximately 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 modernization, mission systems and integration, Command, Control, Computers,
Communications, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, maritime
solutions, transformative software, analytics, intelligence analysis, mission support and logistics services, weapons
systems and space systems and solutions. 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 Space Development Agency, 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. We are heavily
engaged in the top defense Research Development Test and Evaluation priorities that are driven by critical evolving
threat-driven needs. 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 57% of total revenues for fiscal 2022,
58% of total revenues for the fiscal year ended December 31, 2021 ("fiscal 2021") and 60% of total revenues for the
fiscal year ended January 1, 2021 ("fiscal 2020").
Leidos Holdings, Inc. Annual Report - 3
PART I
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Digital Modernization – As an industry leader in cyber and enterprise IT, we provide extensive worldwide
digital support 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, Command and Control ("C2"), Joint All-Domain Command and
Control ("JADC2") and Multi-Domain Operations. We provide multi-spectral, airborne, ground, maritime and
space-based ISR collection, algorithm development 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 government and Leidos-owned fixed wing,
rotary wing and unmanned aircraft. We apply an open architecture approach to digitally connect the joint
force across air, land, sea, cyber and space domains in support of the DoD’s JADC2 imperative and support
through innovative solutions, essential services and enriched data management tools facilitating critical
decision making.
• Maritime Solutions – On and under the sea, we offer a wide range of capabilities. 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. In space we provide
sensor, algorithm development and integrated payload capabilities to identify and track threats and cue
defensive systems. We have developed and delivered full integrated small satellite systems. 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. Our Gibbs & Cox subsidiary is the
largest independent naval architecture and marine engineering firm by headcount in the United States. Our
naval architecture services span the entire ship’s lifetime, from early-stage concept designs through detailed
design, shipyard construction support, full lifecycle and sustainment support, ship alterations, service life
extensions, and disposal. Our Marine Engineering involves a wide range of activities, beginning with
concept and feasibility design and continues through detailed design, construction support, life-cycle
support and into ship-alt design for service-life extensions.
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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. We offer reverse engineering, classified manufacturing and design, and
threat exploitation services to a wide breadth of Intelligence Community customers.
Leidos Holdings, Inc. Annual Report - 4
PART I
• 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, thermal protection 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, sensors 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. Our unique autonomy algorithms provide
decision support for the heavily-burdened warfighter and support coordinated man-autonomous machine
operations.
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Space Systems and Solutions – 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 space systems and key launch vehicle subsystems such as avionics/mission computing,
guidance, navigation and control, boosters and structures. We provide expertise in the design,
manufacturing, and integration of satellite propulsion, structures, and space-based EO/IR, multi/
hyperspectral, EW/SIGINT and communications payloads.
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 digital modernization, energy
infrastructure, integrated missions, transportation applications and security detection. Civil represented 24% of total
revenues for fiscal 2022, 23% of total revenues for fiscal 2021 and 24% of total revenues for fiscal 2020.
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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 Technologies
and Oceanic Procedures ("ATOP"), Time Based Flow Management, Terminal Flight Data Manager,
Enterprise-Information Display System, Geo-7 and Future Flight Services. Leidos 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 Enterprise Solutions ("SES") – Leidos is an industry leader of fully-integrated security detection
solutions, making security screening and checkpoints safer for aviation, ports and borders, and critical
infrastructure customers around the world. With more than 24,000 products deployed across over 120
countries, the SES business has the most widespread global footprint within the Civil Group portfolio. We
are a leader in aviation screening equipment, computed tomography carry-on baggage scanners, people
scanners and explosive trace detectors, facilitating secure and efficient passenger movement in airports
worldwide. We also have cutting-edge screening technologies for checked baggage and cargo. Leidos is
the leading supplier of mobile non-intrusive inspection systems to U.S. Customs and Border Protection
("CBP"). For CBP, and other global customers, we help to safeguard the flow of travel and trade through
solutions that effectively detect and mitigate threats across all trade elements, including cargo, vehicles and
people. Leidos is also transforming security detection beyond aviation and ports of entry to help government
agencies and the private sector secure public venues and critical infrastructures.
Leidos Holdings, Inc. Annual Report - 5
PART I
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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. We accelerate enterprise transformation using customizable roadmaps and repeatable
processes, enabling customers to effectively use their resources and advance their objectives. Using our
cyber expertise, we continually enhance our techniques and processes to build systems that operate
resiliently in the face of evolving cyber threats. Leidos is modernizing enterprise IT in classified and
unclassified environments, including programs with the FAA, NASA, Department of Justice, IRS, U.S. MINT,
Department of Commerce, FTC, and HUD.
Climate, Energy and Environment – We are trusted by government agencies and commercial customers
with substantial environmental and sustainability driven-missions. Our reputation across climate science,
environmental management and operations, nuclear security, power grid engineering, 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, energy efficiency
administrators and commercial industrial clients. 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 conduct and support
fundamental and applied research efforts, including providing product and logistical support comprising
strategic business development, technology transfer and agreements and education and outreach support
for the effective and efficient execution of research programs. In addition, we help investor-owned utilities
and industrial clients modernize power delivery systems for improved reliability, implement energy
management strategies, support vehicle electrification, transform digital infrastructure and gain operational
efficiencies to meet evolving energy needs and climate change goals.
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 modernization and life sciences
research and development. Health represented 19% of total revenues for fiscal 2022, 19% of total revenues for
fiscal 2021 and 16% of total revenues for 2020.
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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.
Leidos Holdings, Inc. Annual Report - 6
PART I
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Digital Modernization – 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.
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 2022, we completed the acquisition of Cobham Aviation Services Australia’s Special Mission business.
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. See "Note 5—Acquisitions and Divestitures" in
Part II of this Annual Report on Form 10-K for further information.
During fiscal 2022, we completed the disposition of Aviation & Missile Solutions LLC within our Defense Solutions
segment. 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.
Leidos Holdings, Inc. Annual Report - 7
PART I
Human Capital
Employee and Workforce Demographics
As of December 30, 2022, we employed approximately 45,000 full and part-time employees of whom approximately
41,000 are located in the United States and the remainder of which are located in more than 40 countries
worldwide. Approximately 35% of our employees have degrees in science, technology, engineering or mathematics
fields, approximately 22% of our employees have advanced degrees, 53% of our employees possess U.S. security
clearances and approximately 19% of our employees are military veterans.
As of December 30, 2022, our workforce consisted of the following:
Gender of global employees(1)
Male
Female
Undisclosed
(1) Based on employees who self-identify.
Age of global employees
Less than 30 years
30-50 years
Greater than 50 years
Ethnicity of U.S. employees(1)
White
Black
Asian/Indian
Hispanic/Latino
Other
Undisclosed
(1) Based on employees who self-identify.
Culture and Values
65 %
34 %
1 %
15 %
47 %
38 %
62 %
13 %
10 %
9 %
3 %
3 %
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 performance 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 fifth consecutive year, the Ethisphere Institute named Leidos
one of the World's Most Ethical Companies in 2022.
Leidos Holdings, Inc. Annual Report - 8
PART I
Inclusion and Diversity
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 workplace culture. We have an Enterprise Inclusion Council ("the
Council") to advise on the evolution of our inclusion and diversity strategy and help leverage best practices across
the company. The Council is comprised of volunteers from across the business functions, ERG leaders, key
stakeholders with oversight and guidance from executive leadership and a Board liaison.
Our Executive Mentoring Program is a year-long cohort designed to engage, develop and retain high-potential
employees, most of whom are female and/or ethnically diverse. Our executives are each assigned to mentor at
least one employee nominated through the program to support preparation for advancement opportunities.
Diversity in Talent Acquisition
Leidos is committed to promoting equity in our hiring practices, especially when we are seeking to fill senior level
positions. Our recruiting strategy includes building a pipeline with diverse representation of candidates. Each year
we attend and sponsor national conferences and local career fairs that target our key market segments and talent
from historically underrepresented groups.
We leverage college campuses, military veteran resources as well as our ERGs to recruit and expand our outreach.
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.
Career Mobility, Development and Growth
We have a strong focus on our employees’ career, flexibility and well-being. We call this Leidos Life. It is about
embracing what makes Leidos great and advancing a culture that helps every employee achieve personal and
professional success. Leidos Life is our commitment to make Leidos an even better place to work.
Leidos empowers and challenges employees to continuously seek, share and apply new knowledge, skills and
behaviors. We recognize the value of a high-performing workforce where every member of the team has an
opportunity to feel motivated, valued and fulfilled, and have a purposeful and long career at Leidos. We provide
resources, development, and experiential learning to enable employees to grow. We provide leaders with the
knowledge, skills and resources needed to coach employees and enable employees' career development.
We value and develop a highly-skilled future-ready workforce. We have a strong technical upskilling and reskilling
program to develop and retain talent. We offer formal programs to help employees earn many industry-standard
professional and technical certifications. Additionally, we offer tuition assistance to full-time employees at accredited
universities.
Our Internal Mobility Program has 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 help them gain visibility across the
enterprise. We assist managers and recruiters in identifying internal candidates for their programs.
We conduct formal employee engagement surveys and quarterly pulse surveys to listen to employees and develop
customized strategies to drive engagement, inclusion and retention across the organization.
We invest in our current and future leaders in several ways. We provide a variety of leadership development
programs, targeted for each level of leader, and numerous resources for leader development. 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.
Leidos Holdings, Inc. Annual Report - 9
PART I
Through our ongoing talent planning processes, we identify and develop high-potential employees for future roles.
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 that may
include formal training, mentoring, coaching, sponsorship and experiential learning opportunities.
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 to respond the COVID-19 pandemic has transitioned to a Pandemic Preparedness working group that
continues to monitor and respond to COVID-19 and other issues that pose a health risk to our employees. 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 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 procedures, 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 $116 million, $109 million and $73 million for fiscal 2022, 2021 and 2020,
respectively, which as a percentage of consolidated revenues was 0.8% for both fiscal 2022 and 2021 and 0.6% for
fiscal 2020. 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.
Leidos Holdings, Inc. Annual Report - 10
PART I
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.
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, 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 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 personal 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 United Kingdom’s (“UK’s”) General Data Protection Regulation, which took effect on January 1, 2021,
creates similar compliance obligations for companies that process personal data of UK data subjects as are
imposed by the EU GDPR;
the California Consumer 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”), which took 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, extending the scope of the CCPA to include employees and job applicants
residing in California and creating a new state agency to oversee implementation and enforcement efforts;
and
Leidos Holdings, Inc. Annual Report - 14
PART I
•
the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology
for Economic and Clinical Health Act, establishes privacy and security compliance obligations with respect
to the processing of protected health information by covered entities and business associates, which require
investment in technical and organizational compliance measures and creates the potential for substantial
fines for noncompliance.
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.
Summary of Risk Factors
This risk factor summary contains a high-level summary of risks associated with our business. It does not contain all of
the information that may be important to you, and you should read this risk factor summary together with the more
detailed discussion of risks and uncertainties set forth following this summary. A summary of our risks includes, but is
not limited to, the following:
• 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.
•
•
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.
Because we depend on U.S. government contracts, a delay in the completion of the U.S. government’s budget
and appropriations process could delay procurement of the products, services and solutions we provide and
adversely affect our future revenues.
• 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.
•
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.
• We face intense competition that can impact our ability to obtain contracts and therefore affect our future
revenues and growth prospects.
• 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.
•
•
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.
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.
• Our business is subject to governmental review and investigation, which could adversely affect our financial
position, operating results 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.
Leidos Holdings, Inc. Annual Report - 16
PART I
• Our business and operations expose us to numerous legal and regulatory requirements, and any violation of
these requirements could harm our business.
• Our business is subject to complex and evolving laws and regulations regarding data privacy and 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.
•
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.
• 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.
•
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.
• We may not realize the full amounts reflected in our backlog as revenues, which could adversely affect our
expected future revenues and growth prospects.
• 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 use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues,
our profitability may be adversely affected.
• 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.
•
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.
• Our business is subject to disruption caused by physical or transition risks that could adversely affect our
operations, profitability and overall financial position.
• Customer systems failures could damage our reputation and adversely affect our revenues and profitability.
• Our success depends, in part, on our ability to work with complex and rapidly changing technologies to meet the
needs of our customers.
• We have classified contracts with the U.S. government, which may limit investor insight into portions of our
business.
• We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve
numerous risks and uncertainties.
• 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.
• 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.
• Our services and operations sometimes involve using, handling or disposing of hazardous substances, which
could expose us to potentially significant liabilities.
Leidos Holdings, Inc. Annual Report - 17
PART I
• 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.
• Our insurance, customer indemnifications or other liability protections may be insufficient to protect us from
product and other liability claims or losses.
• We face risks associated with our international 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, defend and enforce our proprietary information and
intellectual property rights could adversely affect our competitive position.
• Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial
results
• 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.
•
Provisions in our charter documents and under Delaware law could delay or prevent transactions that many
stockholders may favor.
Leidos Holdings, Inc. Annual Report - 18
PART I
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.
Our total revenues 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 generated
approximately 86% in fiscal 2022, and 87% in fiscal 2021 and 2020. We expect to continue to derive most of our
revenues from work performed under U.S. government contracts. Our reputation and relationships 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, and enable us to provide informal input and advice to government entities and
agencies prior to the development of a formal bid. In addition, 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, security breaches or other security incidents or other aspects of our business, could harm our reputation
with these agencies and with certain non-U.S. customers. 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 or if we are unable to successfully maintain our relationships with government entities and
agencies, certain customers could cease to do business with us and our ability to bid successfully for new business may
be adversely affected, which could cause our actual results to differ materially and adversely from those anticipated. 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 2022 and 2021, and 49% of our
total revenues for fiscal 2020. 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 potential 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. For example, the military conflict between
Russia and Ukraine has resulted in increased security assistance to Ukraine to help preserve its territorial integrity,
secure its borders, and improve interoperability with NATO. Changes in defense budgetary priorities as a result of such
conflict could have an adverse impact on our results. In addition, 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 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.
Leidos Holdings, Inc. Annual Report - 19
PART I
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. In addition, our ability to grow in advanced technology areas, such as
hypersonics programs, space exploration and classified programs, will also be affected by the overall budget
environment, whether development programs transition to production and the timing of such transition, all of which are
dependent on U.S. Government authorization and funding.
Because we depend on U.S. government contracts, a delay in the completion of the U.S. government's budget
and appropriations 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, if and 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.
Leidos Holdings, Inc. Annual Report - 20
PART I
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 could 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.
Leidos Holdings, Inc. Annual Report - 21
PART I
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
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. From time to time,
new laws and regulations are enacted, and government agencies adopt new interpretations and enforcement priorities
relative to laws and regulations already in effect. 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, including regulations that require reductions and disclosure of greenhouse gas emissions and climate-
related financial risks, 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.
Leidos Holdings, Inc. Annual Report - 22
PART I
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 30, 2022, indirect cost
audits by the DCAA remain open for fiscal 2021 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.
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 United States. 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. 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.
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.
Leidos Holdings, Inc. Annual Report - 23
PART I
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 security, 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 data privacy and 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., at the federal, state and local levels 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 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 applicable security and control requirements, and there is unauthorized access or disclosure of
sensitive information (including personal 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 information technology 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.
Leidos Holdings, Inc. Annual Report - 24
PART I
The overarching complexity of data privacy and security laws and regulations around the world poses 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, our public privacy policies and other public statements about data privacy and
security and other obligations in these areas could result in regulatory or government actions lawsuits against us
(including civil claims, such as representative actions and other class action-type litigation), legal liability, monetary
penalties, fines, sanctions, damages and other costs, orders to cease or change our processing of data, changes to our
business practices, diversion of internal resources, and harm to our reputation, all of which could adversely affect our
business, financial condition and results of operations. We may also incur substantial expenses in implementing and
maintaining compliance with such laws, regulations and other obligations. For additional background on the data privacy
and security 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.
A disease pandemic, such as COVID-19 and its variants, or other widespread health epidemics, pandemics or similar
outbreaks could create economic uncertainty and disruptions to the global economy that could adversely affect our
businesses, or could lead to operational difficulties, including travel limitations, that could impair our ability to manage or
conduct our business.
In addition, the global spread of COVID-19 resulted in a substantial decline in demand for air travel, which 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 by consumers to travel, 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.
Leidos Holdings, Inc. Annual Report - 25
PART I
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.
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 the costs associated with attracting and retaining them is high and made even more
competitive as a result of the external environment, including increasing rates of job transition and low unemployment.
In addition, many U.S. government programs 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 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 30, 2022, our total backlog was $35.8 billion, including $8.4 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.
Leidos Holdings, Inc. Annual Report - 26
PART I
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 38% of our total revenues for fiscal
2022. 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 inflationary pressures and fluctuations in interest rates, 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
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. For a discussion of our use of estimates in the preparation of our consolidated financial statements, see “Critical
Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Report, “Note 3—Summary of Significant Accounting Policies” of the notes to the consolidated
financial statements contained within this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 27
PART I
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 personal, confidential, proprietary and sensitive information, including protected health information, personnel
information, personal information, classified information, controlled unclassified information, intellectual property and
financial information, concerning our business, employees and customers. Therefore, we are continuously exposed to
unauthorized attempts to compromise access, release or otherwise compromise such information through cyber-attacks
and other information security threats, including, among other things, physical break-ins, theft, denial-of-service attacks,
worms, computer viruses, software bugs, malicious or destructive code, social engineering, phishing attacks and
impersonating authorized users, credential stuffing, account takeovers, insider threats, malfeasance or improper access
by employees or service providers, human error, fraud, use of artificial intelligence, “bots” or other automation software,
or other similar disruptions. We are also exposed to hackers that have requested “ransom” in exchange for not
disclosing information or for restoring access to information or systems. These techniques 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 actors). 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, joint ventures or subcontractors, may jeopardize the security of information, including
personal, confidential, proprietary or sensitive information, stored or transmitted through these systems and networks or
stored in those facilities. This could lead to disruptions in mission-critical systems, unauthorized access to or release of
personal, confidential, proprietary, sensitive 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. 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 information security incidents involving certain types of information (including obligations to notify
affected individuals and regulators in the event of cybersecurity breaches involving certain personal information), which
could result from breaches of our service providers, our suppliers or subcontractors.
Although we have implemented policies, procedures and controls designed to protect against, detect and mitigate these
threats and attacks, we and our service providers, suppliers, joint ventures 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 personal,
confidential, proprietary or 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.
Recently, the U.S. government has raised concerns about a potential increase in cyber-attacks generally as a result of
the military conflict between Russia and Ukraine and the related sanctions imposed by the United States and other
countries.
While we generally perform cybersecurity diligence on our key service providers, we do not control our service providers
and our ability to monitor their cybersecurity is limited, so we cannot ensure the cybersecurity measures they take will
be sufficient to protect any information we share with them. Due to applicable laws and regulations or contractual
obligations, we may be held responsible for cybersecurity breaches or other information security incidents attributed to
our service providers as they relate to the information we share with them.
Leidos Holdings, Inc. Annual Report - 28
PART I
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, it could take considerable time for us to obtain full and reliable information about the
extent, amount and type of information compromised, and our remediation efforts may not be completely successful. As
cybersecurity threats continue to evolve, we may be required to expend significant additional resources to continue to
modify or enhance our protective measures or to investigate or remediate any information security vulnerabilities,
cybersecurity breaches or other information security incidents.
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 cyber-
attacks 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 cybersecurity breaches of other information security threats
to our or our service providers', suppliers' or subcontractors' information technology infrastructure, systems or networks
or data, or our failure to make adequate or timely disclosure to the public, regulators, or law enforcement agencies
following any such event, could disrupt our infrastructure, systems, or 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 insurer may deny coverage as to any future claim, 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.
Leidos Holdings, Inc. Annual Report - 29
PART I
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 networks 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 physical or transition risks that could adversely affect our
operations, 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, including places such as Alabama, Florida,
California and Texas. Our subcontractors and suppliers are also subject to physical risks 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. We could also incur significant costs to improve the climate resiliency of our
infrastructure and supply chain and otherwise prepare for, respond to, and mitigate the effects of climate change.
Additionally, transitioning to a low-carbon economy may entail extensive policy, legal, technology and market initiatives.
Such changes could result in laws, regulations or policies that significantly increase our direct and indirect operational
and compliance burdens, which could adversely affect our financial condition and results of operations. We monitor
developments in climate change-related laws, regulations and policies for their potential effect on us, however, we
currently are not able to accurately predict the materiality of any potential costs associated with such developments.
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.
Leidos Holdings, Inc. Annual Report - 30
PART I
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 data 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, unplanned degradation of product performance, and unauthorized use or modifications of our
products and services. 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 - 31
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. We also may enter into relationships with
other businesses to expand our products or our ability to provide services. 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 result in unfavorable public perception or reduce earnings
for a number of reasons, including the amortization of intangible assets, impairment charges, adverse tax
consequences, 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:
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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 may be required to comply with additional laws and
regulations, or to engage in remediation efforts to cause the acquired company to comply with applicable laws
and regulations, or result in liabilities resulting from the acquired company’s failure to comply with applicable
laws or regulations;
we may face litigation or material liabilities that were not identified or were underestimated as part of our due
diligence or for which we are unable to receive a purchase price adjustment or reimbursement through
indemnification, including intellectual property claims and disputes or 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 limitations on other
potential uses for cash, 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.
Leidos Holdings, Inc. Annual Report - 32
PART I
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 30, 2022, goodwill and intangible assets, net was 59% 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. The impairment test is based on
several factors requiring judgment. 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, adverse contract acquisition
performance, 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. For additional information on our accounting policies related to impairment of goodwill,
see our discussion under “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Annual Report on Form 10-K, "Note 3—Summary of Significant Accounting
Policies” and “Note 8—Goodwill and Intangible Assets” of the notes to the consolidated financial statements contained
within this Annual Report on Form 10-K.
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.
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.
Leidos Holdings, Inc. Annual Report - 33
PART I
Our services and operations, which sometimes involve using, handling, or disposing of hazardous substances,
are subject to numerous environmental, health and safety laws and regulations, pursuant to which we could
face potentially significant liabilities, costs or obligations.
Our services are subject to numerous environmental, health and safety laws and regulations. Some of our services and
operations involve using, handling, or disposing of hazardous substances. These activities and our operations generally
subject us to complex and stringent foreign, federal, state, and local environmental, health and safety laws and
regulations, which have tended to become more stringent over time. Among other things, these laws and regulations
require us to incur costs to comply and could impose liability on us for handling or disposing of hazardous substances.
For example, we provide infrastructure and site services necessary to accomplish critical waste management and the
continued environmental cleanup of the Hanford Site in southeastern Washington. In addition, some of our work sites
put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and
manufacturing processes, and highly regulated materials. On some work sites, we may be responsible for safety and
have an obligation to implement effective safety procedures. If we fail to implement these procedures, or if the
procedures we implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose
ourselves to possible litigation.
Failure to comply with these environmental, 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. In addition, our failure to maintain adequate safety standards and equipment
could result in reduced profitability and loss of work or clients. Our current and previous ownership and operation of real
property also subject us to environmental laws and regulations, some of which hold current or previous owners or
operators of businesses and real property jointly and severally liable for hazardous substance releases, even if they did
not know of and were not responsible for the releases. Past business practices at companies that we have acquired
may also expose us to future unknown environmental liabilities. Liabilities related to environmental contamination or
human exposure to hazardous substances, or violations of these laws or regulations, could result in substantial costs to
us, including cleanup costs, fines and civil or criminal sanctions, third-party claims for property damage or personal
injury. Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial
liability and may adversely affect our financial condition and operating results.
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 detection technology and 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 reduce demand for our inspection or detection systems, and adversely affect our business.
Leidos Holdings, Inc. Annual Report - 34
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, including earthquakes, fires, extreme weather
conditions, some of which can be worsened by climate change 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,
making it more difficult for us to compete effectively, and could affect the cost and availability of insurance coverage at
adequate levels in the future.
We face risks associated with our international business.
During fiscal 2022, revenue attributable to our services provided outside of the United States to non-U.S. customers
was approximately 8% of our total revenue. Our international business operations may be subject to additional and
different risks than our U.S. business. These risks and challenges include:
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failure to comply with U.S. government and foreign laws and regulations applicable to international business,
including, without limitation, those related to employment, data privacy and cybersecurity, taxes, technology
transfer, information security, environment, data transfer, import and export controls (including the International
Traffic in Arms Regulations (“ITAR”) administered by the U.S. Department of State and the anti-boycott
provisions of the Export Administration Regulations (“EAR”) administered by the U.S. Department of
Commerce’s Bureau of Industry and Security), sanctions, 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;
political or economic instability, international security concerns and geopolitical conflict 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, inability to
meet our contractual obligations or retaliatory measures taken in respect thereof; and
the ongoing conflict between Russia and Ukraine, which has resulted in the imposition by the U.S. and other
nations of restrictive actions against Russia, Belarus and certain banks, companies and individuals.
Leidos Holdings, Inc. Annual Report - 35
PART I
We are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010 (the “UK Bribery
Act”) and other anti-corruption and anti-bribery laws and regulations in jurisdictions where we do business. These laws
and regulations generally prohibit improper payments or offers of improper payments to government officials, political
parties, or commercial partners to obtain or retain business or secure an improper business advantage. We have
operations, deal with and make sales to governmental or quasi-governmental entities in non-U.S. countries, including
those known to experience corruption, and further expansion of our non-U.S. sales efforts may involve additional
regions. In many countries, particularly countries with developing economies, it may be common for businesses to
engage in practices prohibited by the FCPA or other applicable laws and regulations. Our activities in these countries
pose a heightened risk of unauthorized payments or offers of payments by one of our employees or third-party business
partners, representatives, and agents that could violate various laws, including the FCPA. The FCPA, U.K. Bribery Act
and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery
committed by our third-party business partners, representatives, and agents. We and our third-party business partners,
representatives, and agents may have direct or indirect interactions with officials and employees of government
agencies or state-owned or affiliated entities, and we may be held liable for the corrupt or other illegal activities of our
employees or such third parties even if we do not explicitly authorize such activities. The FCPA or other applicable laws
and regulations also require that we keep accurate books and records and maintain internal controls and compliance
procedures designed to prevent any such actions. While we have implemented policies and procedures to address
compliance with such laws, we cannot assure you that our employees or other third parties working on our behalf have
not engaged or will not engage in conduct in violation of our policies or applicable law for which we might ultimately be
held responsible.
Violations of any of these laws or regulations, including the FCPA and the U.K. Bribery Act, may result in whistleblower
complaints, negative media coverage, investigations, imposition of significant legal fees, loss of export privileges, as
well as severe criminal or civil sanctions, including suspension or debarment from U.S. government contracting. We
may also be subject to other liabilities and adverse effects on our reputation, which could negatively affect our business,
results of operations, financial condition, and growth prospects. In addition, responding to any enforcement action may
result in a significant diversion of management’s attention and resources and significant defense costs and other
professional fees. Although our international operations have historically generated a small proportion of our revenues,
we are seeking to grow our international business. Our exposure for violating these laws will increase as our non-U.S.
presence expands and as we increase sales and operations in foreign jurisdictions.
For additional information regarding government investigations and reviews that we are subject to, see "Government
Investigations and Reviews" in “Note 21—Commitments and Contingencies” of the notes to the consolidated financial
statements contained within this Annual Report on Form 10-K.
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, defend and enforce our proprietary information
and intellectual property rights could adversely affect our competitive position.
We rely on a combination of confidentiality, intellectual property and other contractual arrangements, including licenses
and copyright, trademark and trade secret law to protect much of our proprietary information and intellectual property in
cases where we do not believe patent protection is appropriate or obtainable. 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 and contractual arrangements with our corporate and joint venture partners, employees, consultants,
advisors, service providers, suppliers, subcontractors and customers, 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. In addition, trade secrets are generally difficult to protect and some
courts inside and outside the United States may be less willing or unwilling to protect trade secrets.
Leidos Holdings, Inc. Annual Report - 36
PART I
We may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce
our rights. Our intellectual property rights may be challenged by others, invalidated, narrowed in scope or held
unenforceable through administrative process or litigation in the United States or in foreign jurisdictions. We may be
required to expend significant resources 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. Additionally, because of the substantial amount of discovery
required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. 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 and intellectual property that we develop under government-funded contracts and
subcontracts, which means that the U.S. government may disclose or license our information and intellectual property 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 also
may be limited in our ability to disclose or license such information and intellectual property to third parties and the U.S.
government may also decline to make intellectual property of others available to us under acceptable terms.
Third parties may also, from time to time, claim that we have infringed 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. Even if we believe that intellectual
property-related claims are without merit, litigation may be necessary to determine the scope and validity of intellectual
property or proprietary rights of others or to protect or enforce our intellectual property rights. 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
injunctions and 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 and
time to defend 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 and new
customers, require us to pay substantial royalty or licensing fees, and divert management’s attention, any of which could
harm our business, financial condition and results of operations.
Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial
results
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in U.S. (federal or state) or
foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, could
result in increases in our tax expense and adversely affect our financial results. For example, beginning in 2022, the Tax
Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the
year incurred and requires taxpayers to amortize such expenditures over five years, which likely will materially decrease
our cash from operations unless Congress defers, modifies or repeals this provision with retroactive effect. See
“Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations” contained within this Annual Report on Form 10-K for additional information on the impact of this change.
Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our
business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are
regularly under audit by tax authorities. Although we believe that our tax estimates and tax positions are reasonable,
they could be materially affected by many factors including the final outcome of tax audits and related litigation, the
introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of
earnings, the realizability of deferred tax assets and changes in uncertain tax positions. An increase or decrease in our
effective tax rate, or an ultimate determination that we owe more taxes than the amounts previously accrued, could have
a material adverse impact on our financial condition and results of operations.
Leidos Holdings, Inc. Annual Report - 37
PART I
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.
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.
Decreases in asset values or increases in liabilities, including liabilities associated with employee benefit plans and
assets and liabilities associated with taxes, can reduce cash, net earnings and stockholders' equity. 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 our ability to generate sufficient cash flows from operations in
the future or to borrow money from available financing sources, results of operations, capital requirements, general
business conditions 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 Delaware General
Corporation Law ("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 - 38
PART I
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 30, 2022, we conducted our operations in 416 locations in 42 states, the District of Columbia and
various foreign countries. We occupy approximately 8.6 million square feet of floor space. Of this amount, we own
approximately 1.1 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 30, 2022, we owned the following properties:
Location
Huntsville, Alabama
Columbia, Maryland
Orlando, Florida
Oak Ridge, Tennessee
Decatur, Alabama
Number of
buildings
Square
footage
Acreage
7
1
1
1
1
801,000
90.7
95,000
85,000
83,000
50,000
7.3
8.5
8.4
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 14, 2023) 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
66
Christopher R. Cage
51
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, National Air and Space Museum
board, Lear Corporation board, the National Academy of Engineering, the
Business Roundtable and the Executive Committee of the Aerospace
Industries Association.
Mr. Cage has served as Executive Vice President and Chief Financial Officer
since July 2021. He has served in several capacities throughout his 24-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.
Leidos Holdings, Inc. Annual Report - 39
Name of officer
Carly E. Kimball
Age
47
Gerard A. Fasano
57
Jerald S. Howe, Jr.
67
Steve Cook
55
James R. Moos
53
Elizabeth A. Porter
52
Roy Stevens
54
PART I
Position(s) with the company and prior business experience
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 of Business Development and 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. Cook has served as President of the Dynetics Group since April 2022.
He previously served as Deputy Group President and Operations Manager
of the Leidos Innovations Center from February 2020 to March 2022. He
joined Dynetics in 2009 as the director of space technologies before leading
the Dynetics Space Division and then later overseeing Dynetics’ corporate
development efforts. Prior to joining Dynetics, Mr. Cook enjoyed a long and
successful career at NASA, serving in such roles as the deputy manager of
NASA’s Marshall Space Transportation Programs and Projects Office as well
as the manager of the Ares Projects Office at the Marshall Space Flight
Center in Huntsville.
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 - 40
Name of officer
Debbie Opiekun
Age
60
Thomas C. Sanglier
62
Maureen Waterston
58
James F. Carlini
57
M. Victoria Schmanske
60
PART I
Position(s) with the company and prior business experience
Ms. Opiekun has served as Chief Business Development Officer since
August 2021, and before that, as Senior Vice President and Operations
Manager of Leidos’ Military and Veterans Health Solutions business. She
previously served as Leidos Deputy Health Group President and Senior Vice
President Capture Operations and Excellence. Prior to joining Leidos, Ms.
Opiekun served Lockheed Martin Corporation in a variety of positions for
over 30 years, most recently as Director Capture Operations and Excellence.
Mr. Sanglier has served as Senior Vice President and Chief Audit Executive
since July 2022. Prior to joining Leidos, Mr. Sanglier served as Senior
Director, Internal Audit with Raytheon Technologies from November 2016 to
June 2022 and as a Partner with Ernst & Young’s Advisory practice serving
private and public organizations in the technology, manufacturing and
professional services industries during June 2008 to December 2010. He
currently serves as Chair of the North American Board and a member of the
Global Board of the Institute of Internal Auditors ("IIA"). He has been involved
as a volunteer leader with the IIA since becoming a member in 2011. Mr.
Sanglier has also served as a member of The IIA’s Audit Committee,
Guidance Development Committee, North American Publications Advisory
Committee and multiple task forces.
Ms. Waterston has served as Chief Human Resources Officer for Leidos
since March 2022. Ms. Waterston brings over 25 years of experience
overseeing talent, recruitment, and development; employee and labor
relations; compensation and benefits; and diversity and inclusion across a
global workforce. Prior to joining Leidos, Ms. Waterston served as Chief
Human Resources Officer for Pratt & Whitney from November 2015 to March
2022, Chief Human Resources Officer for United Technologies Building &
Industrial Systems and Global Chief Human Resources Officer for Otis
Elevator Company.
Mr. Carlini has served as Chief Technology Officer of Leidos since June
2019. Prior to joining Leidos, Mr. Carlini founded and operated a national
security consultancy from May 2006 to October 2018. Previously, Mr. Carlini
served at Northrop Grumman Electronic Systems as Vice President of
Advanced Development Programs between July 2002 to May 2006. He also
served at the Defense Advanced Research Projects Agency (DARPA) for six
years, with his last position being Director of the Special Projects Office. Mr.
Carlini is a former member of the United States Army Science Board and the
United States Air Force Scientific Advisory Board. He is currently a member
of the Department of Defense’s Defense Science Board.
Ms. Schmanske has served as the Executive Vice President of Leidos
Corporate Operations since July 2021, and before that, as President for the
Intelligence Group. Ms. Schmanske has also served as the Leidos Chief
Administrative Officer and Deputy President and Chief Operations Officer for
the Health Group. Prior to joining Leidos, Ms. Schmanske served Lockheed
Martin Corporation for over 30 years, most recently as Vice President for
Operations IS&GS. She serves on multiple outside boards to include
Intelligence and National Security Alliance, U.S. Geospatial Intelligence
Foundation and The Women’s Center.
Leidos Holdings, Inc. Annual Report - 41
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 7, 2023, there were approximately 19,798 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 2022 and 2021, we declared and paid quarterly dividends totaling $1.44 and $1.40 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.
Stock Performance Graph
The following graph compares the total cumulative five-year return on Leidos common stock through December 30,
2022 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 29, 2017, 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
Leidos Holdings, Inc. Annual Report - 42
PART II
Company/Market/Peer Group
12/29/2017
12/28/2018
1/3/2020
1/1/2021
12/31/2021
12/30/2022
Leidos Inc.
$ 100.00 $
82.79 $ 159.84 $ 171.33 $ 147.03 $ 176.50
S&P 500 Composite Index
$ 100.00 $
94.80 $ 125.91 $ 148.85 $ 191.58 $ 156.88
S&P 500 IT Services Index
$ 100.00 $ 103.70 $ 147.74 $ 180.40 $ 189.20 $ 154.13
Purchases of Equity Securities
In February 2022, our Board of Directors authorized a share repurchase program of up to 20 million shares of our
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. This share repurchase authorization replaces the previous share
repurchase authorization announced in February 2018. As of December 30, 2022, the maximum number of shares
that may yet be repurchased under the program was 15,203,974.
For the three months ended December 30, 2022, there were no repurchases of our common stock.
Item 6. [Reserved]
Leidos Holdings, Inc. Annual Report - 43
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 30, 2022, compared to the year ended December 31, 2021. For a discussion and analysis
comparing our results for the year ended December 31, 2021, to the year ended January 1, 2021, see our Annual
Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 15, 2022, 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 core 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.
Approximately 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 the first half of fiscal 2021 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 2022, revenues increased $0.7 billion, or 5%, compared to fiscal 2021, primarily due to a net
increase in volumes on certain programs, program wins and a net increase in revenues related to our business
acquisitions. We also received $28 million in recoveries related to stop work orders on certain programs as a result
of COVID-19. The increase was partially offset by the completion of certain contracts and unfavorable exchange
rate movements.
Leidos Holdings, Inc. Annual Report - 44
PART II
Operating Expenses and Income Trend. For fiscal 2022, operating expenses increased by $0.7 billion, or 6%,
compared to fiscal 2021. Operating margin for fiscal 2022 was 7.6% compared to 8.4% for fiscal 2021. Operating
income was $1,088 million, a $64 million decrease compared to fiscal 2021. The decrease in operating income was
primarily attributable to the completion of certain contracts, increase in legal fees and settlement costs and
impairment charges of $37 million related to our ongoing facility rationalization efforts. The decrease in operating
income was partially offset by program wins and $28 million in recoveries related to stop work orders on certain
programs as a result of COVID-19.
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
For fiscal 2022, the COVID-19 pandemic did not have a material impact to revenues and operating income, other
than the receipt of $28 million in recoveries, within our Health segment related to stop work orders on certain
programs. The volume of global passenger air travel remains below pre-pandemic levels, which continues to impact
the operations of our Security Enterprise Solutions reporting unit. 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.
Business Environment and Trends
U.S. Government Markets
In fiscal 2022, we generated approximately 86% 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 2022. 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.
President Biden signed the $1.7 trillion GFY 2023 omnibus spending bill into law on December 29, 2022. The
omnibus spending bill funds the federal government through September 30, 2023. The bill includes $772.5 billion in
non-defense spending and $858.4 billion in defense spending. The bill also includes $85 billion in emergency
spending not included in the discretionary amount. The new 118th Congress will begin to work on the GFY 2024
appropriations bills in the spring of 2023.
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 2022. 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.
Leidos Holdings, Inc. Annual Report - 45
PART II
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
2022 to 2021
December 30,
2022
December 31,
2021
Dollar
change
Percent
change
Revenues
Cost of revenues
Selling, general and administrative expenses
Credit losses (recoveries), net
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
(dollars in millions)
$ 14,396
12,312
950
$ 13,737
11,723
860
$
1
17
40
(12)
1,088
(202)
886
(193)
693
8
685
(9)
27
4
(20)
1,152
(185)
967
(208)
759
6
753
$
$
659
589
90
10
(10)
36
8
(64)
(17)
(81)
15
(66)
2
(68)
5 %
5 %
10 %
(111) %
(37) %
NM
(40) %
(6) %
9 %
(8) %
(7) %
(9) %
33 %
(9) %
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Leidos common stockholders
$
Operating income margin
7.6 %
8.4 %
NM - Not meaningful
Segment and Corporate Results
Defense Solutions
Revenues
Operating income
Operating income margin
Year Ended
2022 to 2021
December 30,
2022
December 31,
2021
Dollar
change
Percent
change
(dollars in millions)
$ 8,244
$ 8,032
$
541
6.6 %
569
7.1 %
212
(28)
3 %
(5) %
The increase in revenues for fiscal 2022 as compared to fiscal 2021 was primarily attributable to program wins, a
net increase in volumes on certain programs and a $63 million net increase in revenues related to our acquisitions
made in the second and third quarters from the prior year and the Cobham Special Mission acquisition made in the
current year. The increase was partially offset by the completion of certain contracts, contracts that were reassigned
from Defense Solutions reportable segment to the Civil reportable segment during the third quarter of fiscal 2021
and $95 million related to unfavorable exchange rate movements.
The decrease in operating income for fiscal 2022 as compared to fiscal 2021 was primarily attributable to the
completion of certain contracts, net write-downs on certain contracts, increased amortization expense of $8 million
and $6 million related to unfavorable exchange rate movements. Fiscal 2022 also included impairment charges of
$12 million related to our ongoing facility rationalization efforts (see "Note 10—Leases"). The decrease was partially
offset by program wins and a net increase in volumes on certain programs.
Leidos Holdings, Inc. Annual Report - 46
Civil
Revenues
Operating income
Operating income margin
PART II
Year Ended
2022 to 2021
December 30,
2022
December 31,
2021
Dollar
change
Percent
change
(dollars in millions)
$ 3,464
$ 3,157
$
234
6.8 %
248
7.9 %
307
(14)
10 %
(6) %
The increase in revenues for fiscal 2022 as compared to fiscal 2021 was primarily attributable to program wins, a
net increase in program volumes and contracts that were reassigned from Defense Solutions reportable segment to
the Civil reportable segment during the third quarter of fiscal 2021. The increase was partially offset by the
completion of certain contracts and $12 million of unfavorable exchange rate movements.
The decrease in operating income for fiscal 2022 as compared to fiscal 2021 was primarily attributable to a $19
million increase in legal fees and settlement costs resulting from an adverse arbitration ruling related to the 2016
acquisition of the Information Systems & Global Solutions business (“IS&GS Business”) from Lockheed Martin and
impairment charges of $14 million related to our ongoing facility rationalization efforts (see "Note 10—Leases"). The
decreases were partially offset by a net increase in program volumes. Operating income for fiscal 2021 included a
$26 million benefit from a legal reserve adjustment related to the Mission Support Alliance joint venture (see "Note 1
—Nature of Operations and Basis of Presentation").
Health
Revenues
Operating income
Operating income margin
Year Ended
2022 to 2021
December 30,
2022
December 31,
2021
Dollar
change
Percent
change
(dollars in millions)
$ 2,688
$ 2,548
$
421
15.7 %
442
17.3 %
140
(21)
5 %
(5) %
The increase in revenues for fiscal 2022 as compared to fiscal 2021 was primarily attributable to a net increase in
program volumes, program wins and $28 million in recoveries related to stop work orders on certain programs as a
result of COVID-19. The increase was partially offset by the completion of certain contracts.
The decrease in operating income for fiscal 2022 as compared to fiscal 2021 was primarily attributable to a net
decrease in volumes on higher margin programs and the completion of certain contracts. The decrease was
partially offset by $28 million in recoveries related to stop work orders on certain programs as a result of COVID-19
and program wins.
Corporate
Operating loss
Year Ended
2022 to 2021
December 30,
2022
December 31,
2021
Dollar
change
Percent
change
$
(108) $
(dollars in millions)
(107) $
(1)
1 %
The increase in operating loss for fiscal 2022 as compared to fiscal 2021 was primarily attributable to an increase in
legal costs partially offset by lower acquisition and integration costs.
Equity earnings of non-consolidated subsidiaries
We have certain non-controlling ownership interests in equity method investments. For fiscal 2022 and fiscal 2021
we recorded earnings of $12 million and $20 million, respectively, from our equity method investments.
Leidos Holdings, Inc. Annual Report - 47
PART II
Non-Operating Expense, Net
Non-operating expense, net increased $17 million for fiscal 2022 as compared to fiscal 2021, primarily due to higher
interest expense driven by increased interest rates.
Provision for Income Taxes
Our effective tax rate was 21.8%, and 21.5% in fiscal 2022 and 2021, respectively. The effective tax rate for fiscal
2022 and 2021 were both favorably impacted primarily by federal research tax credits and excess tax benefits
related to employee stock-based payment transactions.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 ("TCJA") eliminated the option to currently deduct certain
research and development costs for tax purposes and requires taxpayers to capitalize and amortize research costs
over five years. Based upon our interpretation of the law as enacted, we recorded the estimated fiscal 2022 impact,
resulting in increases of $130 million to both our income taxes payable and net deferred tax assets, and our fiscal
2022 unrecognized tax benefits increased by $91 million with a corresponding increase to net deferred tax assets.
We expect this TCJA provision to have a similar impact to income taxes payable, unrecognized tax benefits and net
deferred tax assets during fiscal 2023. The actual impact will depend on the amount of research and development
costs the Company will incur, whether Congress modifies or repeals this provision and whether new guidance and
interpretive rules are issued by the U.S. Treasury, among other factors.
Bookings and Backlog
We had net bookings of $15.4 billion and $15.5 billion during fiscal 2022 and 2021, 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.
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 30, 2022
December 31, 2021
Year ended
Segment
Funded
Unfunded
Total
Funded
Unfunded
Total
Defense Solutions
$
4,442 $
14,155 $
18,597 $
4,393 $
15,274 $
19,667
Civil
Health
Total
1,876
2,064
8,790
4,455
10,666
6,519
1,628
1,428
7,903
3,829
9,531
5,257
$
8,382 $
27,400 $
35,782 $
7,449 $
27,006 $
34,455
(in millions)
Leidos Holdings, Inc. Annual Report - 48
PART II
Total backlog at December 30, 2022, and December 31, 2021, included $610 million and $800 million, respectively,
of backlog acquired during the year through business combinations in our Defense Solutions reportable segment.
The increase in backlog as of December 30, 2022, as compared to December 31, 2021, included an unfavorable
impact of $233 million 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.
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
50 %
38 %
12 %
50 %
37 %
13 %
51 %
36 %
13 %
100 %
100 %
100 %
As of December 30, 2022, we had $516 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 2022
and 2021, there were no borrowings outstanding under the credit facilities.
At December 30, 2022 and December 31, 2021, we had outstanding debt of $4.9 billion and $5.1 billion,
respectively. On May 6, 2022, we entered into a Term Loan Agreement which provided for a senior unsecured term
loan facility in an aggregate principal amount of $380 million.
We have 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 30, 2022, we did not have any commercial paper notes outstanding.
We made principal payments on our debt of $545 million, $106 million and $731 million during fiscal 2022, 2021 and
2020, respectively. This activity included required principal payments on our term loans of $476 million, $96 million
and $72 million during fiscal 2022, 2021 and 2020, respectively. During fiscal 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 30, 2022, contain financial covenants and customary restrictive covenants. We were in compliance with
all covenants as of December 30, 2022.
Leidos Holdings, Inc. Annual Report - 49
PART II
Interest on our Credit Facilities is 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. In December 2022, the FASB issued guidance which provides relief for entities with such LIBOR
denominated credit instruments so that entities may continue to account for contract modifications as a continuation
of the existing contract and the continuation of the hedge accounting arrangement through December 31, 2024.
Although our Credit Facilities 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, $199 million and $196 million for fiscal 2022, 2021 and 2020, respectively.
During fiscal 2022, we sold $209 million of accounts receivable under accounts receivable purchase agreements
and received proceeds of $209 million (see "Note 6—Receivables"). There were no sales of accounts receivable in
the second half of fiscal 2022.
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 and 2020, we made open market repurchases of our common stock for an aggregate purchase
price of $237 million and $67 million, respectively. There were no open market share repurchases in fiscal 2022.
In fiscal 2022, we entered into an ASR with a financial institution to repurchase shares of our outstanding common
stock. We paid $500 million to the financial institution and received 4.8 million shares (see "Note 16—Earnings Per
Share" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K). All
shares delivered were immediately retired.
During fiscal 2022, we made a $25 million payment in connection with the adverse arbitration ruling related to the
2016 acquisition of the IS&GS Business from Lockheed Martin.
Beginning in 2022, a provision in the TCJA which eliminated the option to currently deduct research and
development costs for tax purposes and requires taxpayers to capitalize and amortize the costs over five years
became effective. We anticipate our tax cash payments to increase by $300 million in 2023 primarily to cover both
the 2022 and 2023 tax obligations related to this provision. The actual impact will depend on the amount of research
and development costs the Company will incur during fiscal 2023 and whether new guidance and interpretive rules
are issued by the U.S. Treasury, among other factors. 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.
Leidos Holdings, Inc. Annual Report - 50
PART II
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 financing activities
Year Ended
December 30,
2022
December 31,
2021
(in millions)
$
986 $
1,031
(313)
(865)
(730)
(113)
188
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(192) $
Net cash provided by operating activities decreased $45 million for fiscal 2022 as compared to fiscal 2021. The
decrease was primarily due to a $25 million payment in connection with the adverse arbitration ruling related to the
2016 acquisition of the IS&GS Business from Lockheed Martin and $23 million of payments for other legal and tax
settlements occurred during the current year, partially offset by favorable working capital changes.
Net cash used in investing activities decreased $417 million for fiscal 2022 as compared to fiscal 2021. The
decrease was primarily due to $430 million of less cash paid related to our business acquisitions in current year as
compared to prior year and $15 million of proceeds received from the sale of Aviation & Missile Solutions LLC in the
current year. The decrease was partially offset by $25 million of higher capital expenditures in the current year.
Net cash used in financing activities increased $752 million for fiscal 2022 as compared to fiscal 2021. The increase
was primarily due to $439 million increase in principal payments of our debt, an increase of $272 million in stock
repurchases primarily attributable to the accelerated share repurchase agreement and a $45 million decrease in net
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 have letters of credit outstanding principally related to performance guarantees on contracts
and surety bonds outstanding principally related to performance and subcontractor payment bonds. We also have
future lease commitments for the use of certain aircraft 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
Our future contractual obligations are related to debt, finance and operating leases, long-term liabilities under
deferred compensation arrangements, purchase obligations for long-term purchases and service agreements and
other liabilities. For more information, see "Note 10—Leases", "Note 13—Debt", “Note 19—Retirement Plans” and
"Note 21—Commitments and Contingencies" of the notes to the consolidated financial statements contained within
this Annual Report on Form 10-K.
We have interest payments related to our outstanding debt and finance leases. As of December 30, 2022, future
scheduled interest payments on our outstanding debt and finance leases were $195 million, expected to be paid in
fiscal 2023 and $946 million expected to be paid thereafter.
As of December 30, 2022, future payments on our deferred compensation arrangements and purchase obligations
for long-term purchases and service agreements were $36 million, expected to be paid in fiscal 2023, and $120
million expected to be paid thereafter. Our future payments do not include $92 million of income tax liabilities as a
result of uncertain tax positions arising from certain provisions of the TCJA becoming effective in 2022, and the
timing of such payments, if any, cannot be reasonably estimated. For additional information, see "Note 18—Income
Taxes" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 51
PART II
Guarantors and Issuers of Guaranteed Securities
Leidos Holdings, Inc. (“Guarantor”) has fully and unconditionally guaranteed the debt securities of its subsidiary,
Leidos, Inc. (“Issuer”), that were issued pursuant to transactions that were registered under the Securities Act of
1933, as amended (collectively, the “Registered Notes”). The following is a list of the Registered Notes guaranteed
by Leidos Holdings, Inc.
Senior unsecured Registered Notes:
$500 million 2.950% notes, due May 2023
$500 million 3.625% notes, due May 2025
$750 million 4.375% notes, due May 2030
$1,000 million 2.300% notes, due February 2031
Leidos Holdings, Inc. has also fully and unconditionally guaranteed debt securities of Leidos, Inc. that were issued
pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The following is a
list of unregistered debt securities guaranteed by Leidos Holdings, Inc.
Senior unsecured unregistered debt securities issued by Leidos, Inc.:
$250 million 7.125% notes, due July 2032
$300 million 5.500% notes, due July 2033
Additionally, Leidos, Inc. has fully and unconditionally guaranteed debt securities of Leidos Holding, Inc. that were
issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The
following is a list of unregistered debt securities guaranteed by Leidos, Inc.
Senior unsecured unregistered debt securities issued by Leidos Holdings, Inc.:
$300 million 5.950% notes, due December 2040
The following summarized financial information includes the assets, liabilities and results of operations for the
Guarantor and Issuer of the Registered Notes described above. Intercompany balances and transactions between
the Issuer and Guarantor have been eliminated from the financial information below. Investments in the
consolidated subsidiaries of the Issuer and Guarantor that do not guarantee the senior unsecured notes have been
excluded from the financial information. Intercompany payables represent amounts due to non-guarantor
subsidiaries of the Issuer.
Balance Sheet Information for the Guarantor and Issuer of Registered Notes
Total current assets
Goodwill
Other long-term assets
Total assets
Total current liabilities
Long-term debt, net of current portion
Intercompany payables
Other long-term liabilities
Total liabilities
Leidos Holdings, Inc. Annual Report - 52
December 30,
2022
(in millions)
$
$
$
$
2,115
5,810
1,188
9,113
2,922
3,925
1,695
699
9,241
Statement of Income Information for the Guarantor and Issuer of Registered Notes
PART II
Revenues, net
Operating income
Net income
Commitments and Contingencies
December 30,
2022
(in millions)
$
9,808
698
250
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.
Critical Accounting Estimates
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 work 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. Some of these contracts require us to use estimates of the
revenue and cost associated with the design, manufacture and delivery of our products and services for the
purposes of recognizing revenue.
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. Some of our 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 - 53
PART II
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.
For the impacts of changes in estimates on our contracts, (see "Note 3—Summary of Significant Accounting
Policies").
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 is not amortized, but instead is tested annually, at the beginning of the fourth quarter, for impairment at the
reporting unit level and may be tested more frequently if events or 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.
Goodwill and intangible assets, net, collectively represent 59% and 60% of our total assets as of December 30,
2022 and December 31, 2021, respectively.
We may perform qualitative or quantitative analysis to test for impairment. Qualitative factors may include
macroeconomic, industry and market considerations, overall financial performance, industry, legal and other
relevant events and factors affecting the reporting unit.
For quantitative analysis, we use discounted cash flow models 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.
We performed our annual test for impairment as of October 1, 2022, which resulted in no impairments being
identified. However, through this analysis we determined that our Security Enterprise Solutions reporting unit within
the Civil reportable segment, which holds goodwill in the amount of $899 million as of December 30, 2022, was at
risk of future impairment. The estimated fair value of the Security Enterprise Solutions reporting unit exceeded the
carrying value by approximately 13%. 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 Enterprise Solutions reporting unit assume continued global operations in all
of our existing markets and a gradual improvement in the global aviation security product and related service sales,
reaching pre-COVID-19 levels by fiscal 2025. The fair value of the reporting unit is also negatively impacted by
rising interest rate factored into cost of capital. 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 or intangible assets at a
future date.
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.
Leidos Holdings, Inc. Annual Report - 54
PART II
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 30, 2022 and December 31, 2021, we had $4.9 billion and $5.1 billion, respectively, of debt, which
included $1.5 billion and $1.7 billion, respectively, related to our senior unsecured term loans that have a variable
stated interest rate that is determined based on either the London Interbank Offered Rate ("LIBOR") or the Stated
Overnight Financing Date ("SOFR") rate plus a margin. As a result, we may experience fluctuations in interest
expense.
As of December 30, 2022, we hold $500 million of unsecured notes due May 2023. We anticipate refinancing this
obligation during fiscal 2023, at which time we will be subject to current market rates which may vary significantly
from the existing rates on our debt.
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 30, 2022, 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. The fair value of our interest rate swap
agreements with respect to our Variable Rate Loan was an asset of $20 million, as of December 30, 2022, and a
liability of $53 million, as of December 31, 2021.
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 or SOFR 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 30, 2022 and December 31, 2021, our cash and cash equivalents included investments in several
large institutional money market accounts. For fiscal 2022 and fiscal 2021, 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 2022, 2021
and 2020.
Leidos Holdings, Inc. Annual Report - 55
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 30, 2022 and December 31, 2021
Consolidated Statements of Income for the fiscal years ended December 30, 2022, December 31,
2021, and January 1, 2021
Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2022,
December 31, 2021, and January 1, 2021
Consolidated Statements of Equity for the fiscal years ended December 30, 2022, December 31,
2021, and January 1, 2021
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2022, December
31, 2021, and January 1, 2021
Notes to Consolidated Financial Statements
Page
57
60
61
62
63
64
66
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 - 56
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 30, 2022 and December 31, 2021, the related consolidated statements of income,
comprehensive income, equity, and cash flows, for the fiscal years ended December 30, 2022, December 31, 2021,
and January 1, 2021, 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 30,
2022 and December 31, 2021, and the results of its operations and its cash flows for the fiscal years ended
December 30, 2022, December 31, 2021, and January 1, 2021, 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 30, 2022, 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 14, 2023, 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 - 57
Goodwill Valuation – Security Enterprise Solutions Reporting Unit - Refer to Note 3 and Note 8 to the
financial statements
Critical Audit Matter Description
The Company performed a quantitative impairment evaluation of the goodwill for the Security Enterprise Solutions
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 $6,696 million as of December 30, 2022 of
which $899 million related to the Security Enterprise Solutions reporting unit. The Company’s accounting policy is to
test for impairment on the first day of the fourth quarter of each year and more frequently if events or circumstances
indicate that the carrying value may not be recoverable. As a result of the quantitative assessment, the Company
concluded that the fair value of the reporting unit exceeded the carrying value by $174 million, or 13%, which
resulted in no impairment for the year ended December 30, 2022.
We identified goodwill for the Security Enterprise Solutions reporting unit as a critical audit matter due to the
significant judgments made by management to estimate the fair value of the 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 Enterprise Solutions reporting unit, which included evaluating estimates and assumptions
related to the cost of capital, forecasts of future cash flows, and terminal growth rates 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 Enterprise Solutions 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 forecasted
revenues and cash flows.
• We developed an independent estimate of the fair value of the Security Enterprise Solutions reporting unit
using the income 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.
• We developed an independent estimate of the fair value of the Security Enterprise Solutions reporting unit
using the market approach. We selected guideline peer companies and developed enterprise value
multiples of revenues and earnings before interest, taxes, depreciation and amortization.
• We calculated our independent expectation of the fair value of the reporting unit by weighting the results of
the market and income approaches and compared the resulting fair value to 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 - 58
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 and revenues 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 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 accounting
principles generally accepted in the United States of America 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 14, 2023
We have served as the Company's auditor since fiscal 2000.
Leidos Holdings, Inc. Annual Report - 59
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 long-term 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 (Note 21)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10 million shares authorized and no shares
issued and outstanding at December 30, 2022 and December 31, 2021
Common stock, $0.0001 par value, 500 million shares authorized, 137 million and
140 million shares issued and outstanding at December 30, 2022 and
December 31, 2021, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Leidos stockholders’ equity
Non-controlling interest
Total stockholders' equity
Total liabilities and stockholders' equity
December 30,
2022
December 31,
2021
(in millions)
$
516 $
2,350
287
490
3,643
847
952
6,696
545
388
13,071 $
2,254 $
701
992
3,947
3,928
570
40
233
$
$
$
8,718 $
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
—
—
—
2,005
2,367
—
2,423
1,880
(73)
(12)
4,299
54
4,353
4,291
53
4,344
$
13,071 $
13,261
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 60
39
12
(14)
998
(179)
(38)
781
(152)
629
1
628
4.42
4.36
LEIDOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions, except per share amounts)
14,396 $
12,312
950
1
13,737 $
11,723
860
(9)
12,297
10,560
770
(68)
Revenues
$
Cost of revenues
Selling, general and administrative expenses
Credit losses (recoveries), net
Acquisition, integration and restructuring costs
Asset impairment charges
Equity earnings of non-consolidated subsidiaries
Operating income
Non-operating expense:
Interest expense, net
Other expense, net
Income before income taxes
Income tax expense
Net income
Less: net income attributable to non-controlling interest
17
40
27
4
(12)
(20)
1,088
1,152
(199)
(3)
886
(193)
693
8
(184)
(1)
967
(208)
759
6
Net income attributable to Leidos common stockholders
$
685 $
753 $
Earnings per share:
Basic
Diluted
$
5.00 $
5.34 $
4.96
5.27
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 61
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
LEIDOS HOLDINGS, INC.
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
Net income
$
Foreign currency translation adjustments
Unrecognized gain (loss) on derivative instruments
Pension adjustments
Total other comprehensive (loss) income, net of taxes
Comprehensive income
Less: comprehensive income attributable to non-controlling interest
693 $
(95)
54
(20)
(61)
632
8
759 $
(8)
29
13
34
793
6
Comprehensive income attributable to Leidos common stockholders
$
624 $
787 $
629
63
(37)
(2)
24
653
1
652
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 62
LEIDOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Shares of
common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Leidos
stockholders'
equity
Non-
controlling
interest
Total
stockholders'
equity
(in millions, except for per share amounts)
Balance at January 3, 2020
141 $ 2,587 $
896 $
(70) $
3,413 $
4 $
3,417
Cumulative adjustments
related to ASU adoptions
—
—
(1)
—
(1)
Balance at January 4, 2020
141
2,587
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 from
non-controlling interest
—
—
1
—
—
—
—
—
—
36
(105)
—
62
—
895
628
—
—
—
(195)
—
—
(70)
3,412
—
24
—
—
—
—
—
628
24
36
(105)
(195)
62
—
Balance at January 1, 2021
142
2,580
1,328
(46)
3,862
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 from
non-controlling interest
—
—
—
—
1
(3)
46
(270)
—
—
—
—
67
—
753
—
—
—
(201)
—
—
Balance at December 31, 2021
140
2,423
1,880
Net income
Other comprehensive loss, net
of taxes
Issuances of stock
—
—
1
—
—
51
Repurchases of stock and other
(4)
(542)
Dividends of $1.44 per share
Stock-based compensation
Net capital distributions to non-
controlling interest
—
—
—
—
73
—
685
—
—
—
(198)
—
—
—
34
—
—
—
—
—
753
34
46
(270)
(201)
67
—
(12)
4,291
—
685
(61)
—
—
—
—
—
(61)
51
(542)
(198)
73
—
—
4
1
—
—
—
—
—
4
9
6
—
—
—
—
—
38
53
8
—
—
—
—
—
(1)
3,416
629
24
36
(105)
(195)
62
4
3,871
759
34
46
(270)
(201)
67
38
4,344
693
(61)
51
(542)
(198)
73
(7)
(7)
Balance at December 30, 2022
137 $ 2,005 $ 2,367 $
(73) $
4,299 $
54 $
4,353
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 63
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 on debt extinguishment
Asset impairment charges
Deferred income taxes
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
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt issuance
Repayments of borrowings
Payments for debt issuance and modification costs
Dividend payments
Repurchases of stock and other
Proceeds from issuances of stock
Net capital (distributions to) contributions from non-controlling interests
Other
Net cash (used in) provided by financing activities
Net (decrease) increase 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
Less: restricted cash at end of year
Cash and cash equivalents at end of year
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
693 $
759 $
629
333
73
—
40
(211)
26
(174)
160
(149)
98
97
986
(192)
(129)
15
6
(13)
325
67
—
4
(26)
(7)
282
62
36
12
(4)
14
(5)
(127)
143
(212)
(32)
15
1,031
104
151
161
14
1,334
(622)
(104)
(2,655)
(183)
—
—
(4)
—
12
11
(313)
(730)
(2,815)
380
380
7,225
(545)
(106)
(5,456)
—
(199)
(542)
48
(7)
—
(865)
(192)
875
683
167
—
(199)
(270)
44
38
—
(51)
(196)
(105)
35
4
(5)
(113)
1,451
188
687
875
148
(30)
717
687
163
524
$
516 $
727 $
Leidos Holdings, Inc. Annual Report - 64
CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
LEIDOS HOLDINGS, INC.
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 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
195 $
182 $
217
221
$
$
7 $
4 $
1 $
51 $
161
140
18
12
See accompanying notes to consolidated financial statements.
Leidos Holdings, Inc. Annual Report - 65
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.
Certain amounts in the prior year financial statements have been reclassified to conform to the current year
presentation. We combined "Capital distributions to non-controlling interests" and "Capital contributions from non-
controlling interests" into "Net capital (distributions to) contributions from non-controlling interests", "Collections on
promissory notes" and "Bad debt expense and recoveries" into "Other" on the consolidated statements of cash
flows.
Leidos Holdings, Inc. Annual Report - 66
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2—Accounting Standards
Accounting Standards Updates Adopted
ASU 2021-08, Business Combinations (Topic 805)
In October 2021, the FASB issued ASU 2021-08, which amends how contract assets and liabilities acquired in a
business combination are measured. Current guidance requires contract assets and liabilities to be measured at fair
value in accordance with ASC 805, Business Combinations. The amendments in this Update remove the
requirement to measure contract assets and liabilities at fair value and instead require that they be recognized in
accordance with ASC 606, Revenue from Contracts with Customers.
We adopted the requirements of ASU 2021-08 using the prospective method effective the first day of fiscal 2022.
For business combinations occurring after adoption, we measured contract assets and liabilities acquired in
accordance ASC 606.
Accounting Standards Updates Issued But Not Yet Adopted
ASU 2020-04, ASU 2021-01, and ASU 2022-06 Reference Rate Reform 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. In December 2022, the FASB issued ASU 2022-06 which
extends the deadline for application of ASU 2021-01 through December 31, 2024. 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 the reference rate reform. Except for our
new $380 million term loan entered into on May 6, 2022 (see "Note 13—Debt"), we currently use the one-month
LIBOR for which the rate publication will cease in June 2023.
Note 3—Summary of Significant Accounting Policies
Reporting Periods
Leidos' fiscal year ends on the Friday nearest the end of December. Fiscal 2022 ended December 30, 2022. Fiscal
2022, 2021 and 2020 each included 52 weeks.
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.
Leidos Holdings, Inc. Annual Report - 67
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Leidos Holdings, Inc. Annual Report - 68
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Federal Acquisition Regulation ("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.
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.
Leidos Holdings, Inc. Annual Report - 69
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 - 70
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions, except for per share amounts)
$
$
$
146 $
149 $
(113)
(102)
33 $
47 $
137
(61)
76
0.17 $
0.25 $
0.39
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 2022, 2021 and 2020, revenue recognized from performance obligations satisfied in previous periods
was $9 million, $26 million and $40 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, company-funded
research and development expenses, and legal fees and settlements.
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 $116 million, $109
million and $73 million for fiscal 2022, 2021 and 2020, 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 - 71
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 record liabilities for uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in
which we determine whether it is more likely than not that the tax positions will be sustained on the basis of the
technical merits of the position and for those tax positions that meet the more-likely-than-not recognition threshold,
we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate
settlement with the related tax authority. 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 30, 2022, and December 31, 2021, $158 million and $138 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 $167 million and $148 million at
December 30, 2022, and December 31, 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 Defense Contract Management Agency.
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 - 72
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 may include material costs, labor 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 or
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 of the reporting unit 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 2022 and 2021, 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 value. If we determine that it is more likely than not that a reporting unit's fair
value is less than its carrying value, 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.
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.
Leidos Holdings, Inc. Annual Report - 73
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets with finite lives are amortized over the following periods:
Backlog
Customer relationships
Programs
Software and technology
Trade names
Estimated useful lives (in years)
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
Straight-line or declining-balance
2-15
Buildings
Building improvements and leasehold
improvements
Vehicles and transportation equipment
Straight-line
Straight-line
Straight-line
Office furniture and fixtures
Straight-line or declining-balance
Not to exceed 40
Shorter of useful life of asset
or remaining lease term
2-15
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 value 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.
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 discount rate implicit in 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.
Leidos Holdings, Inc. Annual Report - 74
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 30, 2022, certain of the Company's equipment leases include 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 aircraft, 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 evaluated for impairment in a manner consistent with the treatment of other long-lived assets. 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.
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 on the relative standalone sales price.
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).
Leidos Holdings, Inc. Annual Report - 75
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, net" on the
consolidated statements of income.
Leidos Holdings, Inc. Annual Report - 76
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4—Revenues
Remaining Performance Obligations
Remaining performance obligations ("RPO") represent the expected value of exercised contracts, both funded and
unfunded, less revenue recognized to date. RPO does not include unexercised option periods and future potential
task orders expected to be awarded under 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 30, 2022, we had $15.4 billion of RPO and expect to recognize approximately 57% and 74% 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.
Disaggregated revenues by customer-type were as follows:
DoD and U.S. Intelligence Community
Other U.S. government agencies(1)
Commercial and non-U.S. customers
Total
DoD and U.S. Intelligence Community
Other U.S. government agencies(1)
Commercial and non-U.S. customers
Total
DoD and U.S. Intelligence Community
Other U.S. government agencies(1)
Commercial and non-U.S. customers
Year Ended December 30, 2022
Defense
Solutions
Civil
Health
Total
(in millions)
$
6,027 $
84 $
999 $
1,004
1,211
2,660
618
1,576
108
7,110
5,240
1,937
$
8,242 $
3,362 $
2,683 $
14,287
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
2,418
426
1,329
107
5,985
4,742
1,470
Total
(1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies.
7,339 $
1,955 $
2,903 $
12,197
$
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.
Leidos Holdings, Inc. Annual Report - 77
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregated revenues by contract-type were as follows:
Year Ended December 30, 2022
Defense
Solutions
Civil
Health
Total
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$
4,620 $
1,781 $
712 $
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
2,642
980
1,077
504
1,683
288
7,113
5,402
1,772
Total
$
8,242 $
3,362 $
2,683 $
14,287
Year Ended December 31, 2021
Defense
Solutions
Civil
Health
Total
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$
4,792 $
1,576 $
508 $
Firm-fixed-price
2,290
1,020
1,661
Time-and-materials and fixed-price-level-of-effort
Total
947
8,029 $
448
3,044 $
375
2,544 $
$
6,876
4,971
1,770
13,617
Defense
Solutions
Year Ended January 1, 2021
Civil
Health
Total
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$
4,504 $
1,411 $
280 $
Firm-fixed-price
Time-and-materials and fixed-price-level-of-effort
2,067
768
1,061
431
1,303
372
6,195
4,431
1,571
Total
$
7,339 $
2,903 $
1,955 $
12,197
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.
Leidos Holdings, Inc. Annual Report - 78
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregated revenues by geographic location were as follows:
United States
International
Total
United States
International
Total
United States
International
Total
Year Ended December 30, 2022
Defense
Solutions
Civil
Health
Total
(in millions)
7,212 $
3,203 $
2,683 $
13,098
1,030
159
—
1,189
8,242 $
3,362 $
2,683 $
14,287
Year Ended December 31, 2021
Defense
Solutions
Civil
Health
Total
(in millions)
7,045 $
2,880 $
2,544 $
12,469
984
164
—
1,148
8,029 $
3,044 $
2,544 $
13,617
Defense
Solutions
Year Ended January 1, 2021
Civil
Health
Total
(in millions)
6,501 $
2,738 $
1,955 $
11,194
838
165
—
1,003
7,339 $
2,903 $
1,955 $
12,197
$
$
$
$
$
$
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 $109 million, $120
million and $100 million for fiscal 2022, 2021 and 2020, respectively (see "Note 10—Leases").
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.
Leidos Holdings, Inc. Annual Report - 79
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of contract assets and contract liabilities consisted of the following:
Balance sheet line item
December 30,
2022
December 31,
2021
(in millions)
Contract assets - current:
Unbilled receivables
Receivables, net
$
1,010 $
1,022
Contract liabilities - current:
Deferred revenue(1)
Accounts payable and accrued liabilities
$
380 $
364
Contract liabilities - non-current:
Deferred revenue(1)
Other long-term liabilities
$
29 $
24
(1) Certain contracts record revenue on a net contract basis, and therefore, the respective deferred revenue balance will not fully convert to
revenue.
Revenue recognized during fiscal 2022 and 2021 of $270 million and $340 million, respectively, was included as a
contract liability at December 31, 2021, and January 1, 2021, respectively.
There were no impairment losses recognized on contract assets during fiscal 2022, 2021 and 2020.
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 2022, we completed the acquisition of Cobham Aviation Services Australia’s
Special Mission business ("Cobham Special Mission"). 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").
Cobham Special Mission Acquisition
On October 30, 2022 (the "Agreement Date"), we completed the acquisition of Cobham Special Mission for a
preliminary purchase consideration of $295 million Australian dollars, net of $10 million of Australian dollars
acquired, approximately $190 million United States dollars, net of $6 million of cash acquired, which is subject to
working capital adjustments. Cobham Special Mission provides airborne border surveillance and search and rescue
services to the Australian Federal Government.
The preliminary goodwill recognized of $26 million represents intellectual capital and the acquired assembled
workforce, neither of which qualify for recognition as a separate intangible asset. None of the goodwill recognized is
tax deductible.
In connection with this acquisition, we acquired preliminary fair value of property, plant and equipment of
$147 million at the Agreement Date. The following table summarizes the preliminary fair value of intangible assets
acquired at the Agreement Date and the related weighted average amortization period:
Programs
Technology
Total
Leidos Holdings, Inc. Annual Report - 80
Weighted
average
amortization
period
Fair value
(in years)
(in millions)
7 $
9
7 $
21
4
25
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 30, 2022, we had not finalized the determination of fair values allocated to assets and liabilities,
including, but not limited to, property, plant and equipment, intangible assets, accounts receivables, accounts
payable and accrued liabilities and other long-term liabilities.
For fiscal 2022, $21 million of revenues related to the Cobham Special Mission acquisition were recognized within
the Defense Solutions reportable segment.
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 final 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
For fiscal 2022 and fiscal 2021, $114 million and $98 million, respectively, of revenues related to the Gibbs & Cox
acquisition were recognized within the Defense Solutions reportable segment.
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 2022 and fiscal 2021, $40 million and $47 million, respectively, of revenues related to the 1901 Group
acquisition were recognized within the Defense Solutions reportable segment.
Strategic Business Acquisition
On September 21, 2021, we completed an immaterial strategic business acquisition for purchase consideration of
approximately $36 million. In connection with the transaction, the Company recognized an $8 million program
intangible asset and goodwill of $25 million.
Leidos Holdings, Inc. Annual Report - 81
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The final fair values of the assets acquired and liabilities assumed at the Transaction Date were as follows (in
millions):
Current assets
Intangible assets
Other assets
Current liabilities
Long-term liabilities
Total identifiable net assets acquired
Goodwill
Purchase price
$
287
355
67
(140)
(97)
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 2022, fiscal 2021 and fiscal 2020, $330 million, $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 - 82
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):
Current assets
Intangible assets
Other assets
Current liabilities
Long-term liabilities
Total identifiable net assets acquired
Goodwill
Purchase price
$
241
528
205
(79)
(24)
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 2022, fiscal 2021 and fiscal 2020, $950 million, $1,065 million and $937 million, respectively, of revenues
related to Dynetics were recognized within the Defense Solutions reportable segment.
Acquisition and Integration Costs
The following expenses were incurred related to the acquisitions of Dynetics, the SD&A Businesses, 1901 Group,
Gibbs & Cox, Cobham Special Mission and our strategic business acquisition:
Acquisition costs
Integration costs
Total acquisition and integration costs
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
$
— $
16
16 $
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, our Defense Solutions reportable segment signed a definitive agreement to dispose of its
AMS business in order to focus on leading-edge and technologically advanced services, solutions and products.
The divestiture was completed on April 29, 2022. The net sales price was $15 million and net assets of $19 million
were divested. The loss was recorded in "Other expense, 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 - 83
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 credit losses
Sale of Accounts Receivable
December 30,
2022
December 31,
2021
(in millions)
$
1,368 $
1,010
(28)
1,194
1,022
(27)
$
2,350 $
2,189
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 2022, 2021 and 2020, we sold $209 million, $693 million and $1,866 million, respectively, of
accounts receivable under the agreements and received proceeds of $209 million, $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 had been legally isolated from Leidos, the
financial institution had the right to pledge or exchange the assets received and we did not maintain effective control
over the transferred accounts receivable. As of December 30, 2022, and December 31, 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 30,
2022
December 31,
2021
(in millions)
$
180 $
34
73
$
287 $
154
27
93
274
Note 8—Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amount of goodwill by reportable segment:
Goodwill at January 1, 2021(1)
Acquisitions of businesses
Divestiture of a business
Goodwill re-allocation
Foreign currency translation adjustments
Goodwill at December 31, 2021(1)
Acquisitions of businesses
Divestiture of a business
Foreign currency translation adjustments
Goodwill at December 30, 2022(1)
Defense
Solutions
Civil
Health
Total
(in millions)
$
3,300 $
2,047 $
966 $
6,313
425
(1)
(17)
(26)
5
—
17
28
—
—
—
—
430
(1)
—
2
3,681
2,097
966
6,744
26
(6)
(37)
—
—
(31)
—
—
—
26
(6)
(68)
$
3,664 $
2,066 $
966 $
6,696
(1) Carrying amount includes accumulated impairment losses of $369 million and $117 million within the Health and Civil segments, respectively.
Leidos Holdings, Inc. Annual Report - 84
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the fourth quarter of fiscal 2022, 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. We performed a quantitative analysis for certain reporting units and concluded that these
reporting units were not impaired as their fair values exceeded their carrying values. The quantitative analysis for
the Security Enterprise Solutions reporting unit, which holds goodwill of $899 million as of December 30, 2022,
showed that fair value exceeded carrying value by 13%. 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 Enterprise Solutions reporting unit assume continued global
operations in all of our existing markets and 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 or intangible assets at a future date.
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
Enterprise Solutions 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.
In the fourth quarter of fiscal 2020, 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 - 85
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets, net consisted of the following:
December 30, 2022
December 31, 2021
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
(in millions)
Accumulated
amortization
Net
carrying
value
$
1,721 $
(1,016) $
705 $
1,722 $
(830) $
225
87
—
1
(136)
(25)
—
(1)
89
62
—
—
230
97
38
1
(121)
(18)
(37)
(1)
892
109
79
1
—
Finite-lived intangible assets:
Programs
Software and technology
Customer relationships
Backlog
Trade names
Total finite-lived intangible assets
2,034
(1,178)
856
2,088
(1,007)
1,081
Indefinite-lived intangible assets:
In-process research and
development (1)
Trade names
Total indefinite-lived intangible
assets
92
4
96
—
—
—
92
4
96
92
4
96
—
—
—
92
4
96
Total intangible assets
$
2,130 $
(1,178) $
952 $
2,184 $
(1,007) $
1,177
(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.
Amortization expense related to intangible assets was $230 million, $228 million and $198 million for fiscal 2022,
2021 and 2020, respectively.
The estimated annual amortization expense related to finite-lived intangible assets as of December 30, 2022, is as
follows:
Fiscal Year Ending
2023
2024
2025
2026
2027
2028 and thereafter
(in millions)
$
$
208
153
124
99
71
201
856
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 2022, we evaluated indefinite-lived intangibles for impairment and concluded that no
impairment was necessary.
Leidos Holdings, Inc. Annual Report - 86
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
Vehicles and transportation equipment
Buildings and improvements
Office furniture and fixtures
Land
Construction in progress
Less: accumulated depreciation and amortization
December 30,
2022
December 31,
2021
(in millions)
$
399 $
404
210
138
64
17
147
1,379
(532)
$
847 $
373
367
99
140
65
18
78
1,140
(470)
670
Depreciation expense was $103 million, $97 million and $84 million for fiscal 2022, 2021 and 2020, respectively.
Leidos Holdings, Inc. Annual Report - 87
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 30,
2022
December 31,
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
$
$
$
43 $
545
588 $
6 $
130
136 $
38 $
570
608 $
51
612
663
9
140
149
43
589
632
During fiscal 2022, we reduced our leased space by exiting and consolidating underutilized buildings as part of an
ongoing facility rationalization effort. We used discounted cash flow models to estimate the fair values of the
affected assets and as a result, we recorded impairments of ROU and other assets in the amount of $37 million.
The impairment charges were allocated across our reportable segments and to Corporate.
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
9 $
11 $
1
10
1
12
9
—
9
161
172
169
42
3
(6)
90
4
(8)
$
210 $
270 $
103
8
(11)
278
(1) Includes ROU lease expense of $134 million, $150 million and $145 million for fiscal 2022, 2021 and 2020, 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 - 88
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
ROU assets obtained in exchange for lease liabilities:
Finance lease liabilities
Operating lease liabilities
December 30,
2022
December 31,
2021
January 1,
2021
8.2
7.5
2.6 %
3.3 %
8.4
6.8
2.5 %
3.2 %
2.9
7.3
2.7 %
3.5 %
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
1 $
1 $
168
9
174
11
$
1 $
51 $
122
161
—
164
9
12
314
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 30, 2022, were as follows:
Fiscal Year Ending
2023
2024
2025
2026
2027
2028 and thereafter
Total undiscounted cash flows
Less: imputed interest
Lease liability as of December 30, 2022
Lessor
Finance lease
commitments
Operating lease
commitments
$
$
(in millions)
8 $
5
5
5
5
21
49
152
143
103
79
57
266
800
(5)
44 $
(100)
700
As of December 30, 2022 and December 31, 2021, we had a total net investment in sales-type leases, which
relates to lease payment receivables, of $103 million and $93 million, respectively. The current and non-current
portions of net investment in sales-type leases are included within "Other current assets" and "Other long-term
assets", respectively, on the consolidated balance sheets.
Leidos Holdings, Inc. Annual Report - 89
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease income were as follows:
Income statement line item
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
Year Ended
Sales-type leases:
Selling price at lease commencement Revenues
Cost of underlying asset
Cost of revenues
$
65 $
(52)
80 $
(60)
Operating income
Interest income on lease receivables
Revenues
Operating lease income
Total lease income
Revenues
13
9
22
35
20
8
28
32
$
57 $
60 $
61
(47)
14
8
22
31
53
As of December 30, 2022, undiscounted cash flows for sales-type and operating leases for the next five years are
as follows:
Fiscal Year Ending
2023
2024
2025
2026
2027
2028 and thereafter
Total undiscounted cash flows
Present value of lease payments as lease receivables
Difference between undiscounted cash flows and discounted cash flows
Sales-type
leases
Operating
leases
(in millions)
42 $
31
20
11
6
4
114 $
103
11
$
$
$
26
27
29
—
—
—
82
Note 11—Fair Value Measurements
Financial instruments measured on a recurring basis at fair value consisted of the following:
Financial assets:
Derivatives
Financial liabilities:
Derivatives
December 30, 2022
December 31, 2021
Carrying value
Fair value
Carrying value
Fair value
(in millions)
$
$
20 $
20 $
— $
— $
— $
53 $
—
53
As of December 30, 2022, 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.
Leidos Holdings, Inc. Annual Report - 90
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $12 million and $15 million as of December 30, 2022 and December 31,
2021, respectively, 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).
As of December 30, 2022 and December 31, 2021, the fair value of debt was $4.6 billion and $5.4 billion,
respectively, and the carrying amount was $4.9 billion and $5.1 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 October 30, 2022, May 7, 2021, and January 14, 2021, non-financial instruments measured at fair value on a
non-recurring basis were recorded in connection with the acquisitions of Cobham Special Mission, Gibbs & Cox and
1901 Group, 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. As of
December 30, 2022 and December 31, 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
Asset derivatives:
Cash flow interest rate swaps
Other long-term assets
Liability derivatives:
Cash flow interest rate swaps
Other long-term liabilities
December 30,
2022
December 31,
2021
(in millions)
20 $
— $
—
53
$
$
The cash flows associated with the interest rate swaps are classified as operating activities in the consolidated
statements of cash flows.
During fiscal 2022, we entered into a foreign currency forward contract to offset foreign currency fluctuations of the
$310 million Australian dollar preliminary purchase price for the Cobham Special Mission acquisition against the
U.S. dollar. We realized a loss of $18 million resulting from the settlement of the foreign currency forward contract.
The loss was recorded within Corporate and presented in "Other expense, net" on the consolidated statements of
income and the settlement associated with the foreign currency forward contract was classified as investing
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 receive monthly variable interest payments based on the one-month LIBOR rate and 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.
Leidos Holdings, Inc. Annual Report - 91
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented
was as follows:
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
Total interest expense, net presented in the consolidated statements of
income in which the effects of cash flow hedges are recorded
$
199 $
184 $
Amount recognized in other comprehensive income (loss)
Amount reclassified from accumulated other comprehensive income
(loss) to interest expense, net
59
11
18
19
179
(61)
14
We expect to reclassify net gains of $14 million from accumulated other comprehensive loss into earnings during
the next 12 months.
Leidos Holdings, Inc. Annual Report - 92
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13—Debt
Debt consisted of the following:
Short-term debt and current portion of long-term debt:
Senior unsecured term loans:
$380 million term loan, due May 2022
$380 million term loan, due May 2023
Current portion of long-term debt
Stated
interest rate
Effective
interest rate
December 30,
2022
December 31,
2021
(in millions)
1.54 %
5.42 %
1.64 % $
5.51 %
— $
320
672
380
—
103
Total short-term debt and current portion of long-term
debt
$
992 $
483
Long-term debt:
Senior unsecured term loan:
$1,925 million term loan, due January 2025
5.77 %
6.09 % $
1,211 $
1,306
Senior unsecured notes:
$500 million notes, due May 2023
$500 million notes, due May 2025
$750 million notes, due May 2030
$1,000 million notes, due February 2031
$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 %
Notes payable and finance leases due on various dates
through fiscal 2032
Less: unamortized debt discounts and deferred debt
1.84%-4.51%
Various
500
500
750
500
500
750
1,000
1,000
250
161
218
44
250
161
218
54
issuance costs
Total long-term debt
Less: current portion
Total long-term debt, net of current portion
Term Loans and Revolving Credit Facility
(34)
4,600
(672)
(43)
4,696
(103)
$
3,928 $
4,593
On May 6, 2022, we entered into a 364-day term loan credit agreement ("Term Loan Agreement") with certain
financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of
$380 million. The proceeds of the Term Loan Agreement were used to repay the $380 million senior unsecured term
loan entered into on May 7, 2021.
Borrowings under the Term Loan Agreement bear interest at a rate based on the Secured Overnight Financing Rate
plus 1.10%, or an alternate base rate at our option.
The financial covenants in the Term Loan 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 May 7, 2021, we entered into a 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 credit
agreement date. The proceeds were used to fund the acquisition of Gibbs & Cox. The term loan was repaid on May
6, 2022.
Leidos Holdings, Inc. Annual Report - 93
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have 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 are scheduled to mature in January 2025, with the Revolving Facility
subject to two additional one year extensions. As of December 30, 2022, and December 31, 2021, there were no
borrowings outstanding under the Revolving Facility.
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.
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 30, 2022, and
December 31, 2021, we did not have any Commercial Paper Notes outstanding.
Principal Payments and Debt Issuance Costs
We made principal payments on our debt of $545 million, $106 million and $731 million during fiscal 2022, 2021 and
2020, respectively. This activity included required principal payments on our term loans of $476 million, $96 million
and $72 million during fiscal 2022, 2021 and 2020, respectively. During fiscal 2020, we made $4,925 million of
principal repayments for outstanding debt and retired the $450 million senior notes.
Principal payments are made quarterly on our Term Loan Facility, with the majority of the principal due at maturity.
Interest on the Term Loan Facility is payable on a periodic basis, which must be at least quarterly. Principal on the
Term Loan Agreement is due at maturity and interest is paid monthly. Interest on the senior fixed rate unsecured
notes is payable on a semi-annual basis with principal payments due at maturity.
Amortization of debt discount and deferred financing costs was $11 million for both fiscal 2022 and 2021, and $16
million for fiscal 2020.
The Credit Facilities, the Term Loan Agreement, Commercial Paper Notes, senior unsecured term loans and notes
are fully and unconditionally guaranteed and 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 30, 2022.
Leidos Holdings, Inc. Annual Report - 94
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum payments of debt are as follows:
Fiscal Year Ending
2023
2024
2025
2026
2027
2028 and thereafter
Total principal payments
Less: unamortized debt discount and issuance costs
Total short-term and long-term debt
(in millions)
$
996
197
1,353
4
5
2,399
4,954
(34)
$
4,920
Note 14—Accumulated Other Comprehensive Income (Loss)
Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows:
Foreign currency
translation
adjustments
Unrecognized
gain (loss) on
derivative
instruments
Pension
adjustments
Total AOCI
Balance at January 3, 2020
$
(33) $
Other comprehensive income (loss)
Taxes
Reclassification from AOCI
Balance at January 1, 2021
Other comprehensive income (loss)
Taxes
Reclassification from AOCI
Balance at December 31, 2021
Other comprehensive income (loss)
Taxes
Reclassification from AOCI
70
(7)
—
30
(3)
(5)
—
22
(108)
13
—
(in millions)
(33) $
(61)
10
14
(70)
18
(8)
19
(41)
59
(16)
11
(4) $
(3)
1
—
(6)
17
(4)
—
7
(27)
7
—
Balance at December 30, 2022
$
(73) $
13 $
(13) $
(70)
6
4
14
(46)
32
(17)
19
(12)
(76)
4
11
(73)
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 - 95
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15—Composition of Certain Financial Statement Captions
Balance Sheets
Other current assets:
Restricted cash
Transition costs and project assets(1)
Other(2)
Other long-term assets:
Transition costs and project assets(1)
Equity method investments(3)
Other(2)
Accounts payable and accrued liabilities:
Accrued liabilities(4)
Accounts payable
Deferred revenue
Other(2)(4)
Accrued payroll and employee benefits:
Accrued vacation
Salaries, bonuses and amounts withheld from employees’ compensation
December 30,
2022
December 31,
2021
(in millions)
$
$
$
$
$
$
$
$
167 $
132
191
490 $
74 $
18
296
388 $
772 $
733
380
369
2,254 $
356 $
345
701 $
148
110
171
429
121
25
293
439
747
692
364
338
2,141
351
254
605
(1) During the year ended December 30, 2022, and December 31, 2021, $489 million and $428 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 $19 million and $16 million of dividends received during fiscal 2022 and fiscal 2021, respectively, that were recorded in
cash flows provided by operating activities of continuing operations on the consolidated statements of cash flows.
(4) Certain accounts in accrued liabilities were reclassified in the prior year to other to conform to current year presentation.
Statements of Income
Other expense, net:
Loss on debt extinguishment
Loss on sale of businesses
Loss on foreign currencies
Other income, net
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
— $
— $
—
(3)
—
(3)
(1)
3
$
(3) $
(1) $
(36)
—
(4)
2
(38)
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.
Leidos Holdings, Inc. Annual Report - 96
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
141
2
143
137
1
138
142
2
144
Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to
compute diluted EPS. The total outstanding stock options and vesting stock awards that were anti-dilutive were
1 million for both fiscal 2022 and 2021. There were no significant anti-diluted equity awards for fiscal 2020.
Share Repurchases
During fiscal 2021 and 2020, we made open market repurchases of our common stock for an aggregate purchase
price of $237 million and $67 million, respectively. There were no open market share repurchases in fiscal 2022.
In fiscal 2022, we entered into Accelerated Share Repurchase agreement with a financial institution to repurchase
shares of our outstanding common stock. We paid $500 million to the financial institution and received 4.8 million
shares.
The repurchases were 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 30, 2022, 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 30, 2022, 3.5 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.
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 2022, 2021 and 2020, the discount was 10% of the fair market
value on the date of purchase. During fiscal 2022, 2021 and 2020, $45 million, $39 million and $32 million,
respectively, was received from ESPP plan participants for the issuance of Leidos' stock. A total of 2.9 million shares
remain available for future issuance under the ESPP.
Leidos Holdings, Inc. Annual Report - 97
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
73 $
16
67 $
17
62
15
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 2022, 2021 and 2020, 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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
$
24.67 $
20.23 $
19.64
4.7
29.5 %
1.6 %
1.6 %
4.6
29.6 %
0.7 %
1.3 %
4.5
25.0 %
0.6 %
1.3 %
Leidos Holdings, Inc. Annual Report - 98
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity for each of the periods presented was as follows:
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
Options granted
Options forfeited or expired
Options exercised
Outstanding at December 30, 2022
Exercisable at December 30, 2022
Shares of
stock under
stock options
(in millions)
Weighted
average
exercise price
Weighted
average
remaining
contractual
term
Aggregate
intrinsic value
(in years)
(in millions)
2.4 $
46.04
3.8 $
128
0.3
(0.1)
(0.4)
2.2 $
0.3
—
(0.4)
2.1 $
0.3
—
(0.6)
1.8 $
1.0 $
106.73
66.84
35.94
56.01
90.25
85.42
38.79
65.18
105.01
92.10
39.26
81.45
69.70
3.5 $
29
108
3.5 $
3.9 $
2.8 $
3.9 $
27
54
41
42
34
42
Vested and expected to vest in the future as of
December 30, 2022
1.7 $
81.24
As of December 30, 2022, there was $6 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 2022, 2021 and 2020 were $9 million, $6 million and $7 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 - 99
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 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
Awards granted
Awards forfeited
Awards vested
Unvested stock awards at December 30, 2022
Shares of stock
under stock
awards
(in millions)
Weighted
average grant-
date fair value
1.4 $
0.5
(0.1)
(0.5)
1.3 $
0.7
(0.1)
(0.5)
1.4 $
0.5
(0.1)
(0.5)
1.3 $
60.91
106.38
79.61
56.36
79.05
91.09
89.56
71.60
88.89
104.78
99.38
74.20
98.52
As of December 30, 2022, there was $52 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 2022, 2021 and 2020 was $52 million, $48 million and
$58 million, respectively. In addition, the fair value of dividend equivalents with respect to restricted stock units that
vested in fiscal 2022, 2021 and 2020 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 2022, 2021 and 2020, 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 2022, 2021 and 2020, 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 - 100
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance-based stock award activity for each of the periods presented was as follows:
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
Awards granted
Awards forfeited
Awards vested
Unvested at December 30, 2022
Expected number
of shares of stock
to be issued under
performance-based
stock awards
(in millions)
Weighted
average grant-
date fair value
0.6 $
0.2
(0.1)
(0.2)
0.5 $
0.2
—
(0.2)
0.5 $
0.2
—
(0.2)
0.5 $
63.66
103.34
72.96
58.61
80.20
86.88
89.65
65.30
88.72
114.98
103.06
67.79
106.70
The weighted average grant date fair value for performance-based stock, excluding those with a market condition,
during fiscal 2022, 2021 and 2020 was $105.07, $89.26 and $106.80, respectively. The weighted average grant
date fair value for performance-based stock with market conditions that were granted during fiscal 2022, 2021 and
2020 was $129.42, $88.21 and $127.92, 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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
33.18 %
1.61 %
32.86 %
0.29 %
23.99 %
0.50 %
$ 107.67
$ 90.85
$ 105.12
As of December 30, 2022, there was $21 million of unrecognized compensation cost, net of estimated forfeitures,
which is expected to be recognized over a weighted average period of 1.7 years. The fair value of performance-
based stock awards that vested in fiscal 2022, 2021 and 2020 was $17 million, $19 million, and $25 million,
respectively.
Leidos Holdings, Inc. Annual Report - 101
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
290 $
156 $
80
33
(169)
(36)
(5)
49
29
(20)
(3)
(3)
$
193 $
208 $
90
37
28
13
(11)
(5)
152
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:
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
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
Other
Total
$
186
36
(31)
(13)
3
2
(2)
(1)
13
193
$
$
203
34
(23)
(11)
5
4
(2)
1
(3)
164
20
(26)
(15)
(5)
11
(2)
1
4
$
208
$
152
Effective income tax rate
21.8 %
21.5 %
19.5 %
The effective tax rates for both fiscal 2022 and fiscal 2021 were 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.
Leidos Holdings, Inc. Annual Report - 102
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:
Capitalized research and development
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
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
Deferred revenue
Other
Total deferred tax liabilities
Net deferred tax liabilities
December 30,
2022
December 31,
2021
(in millions)
$
228 $
190
87
40
32
32
27
—
2
13
651
(24)
627 $
(415) $
(140)
(75)
—
(4)
(5)
(639)
$
$
$
(12) $
—
187
91
47
39
26
24
16
—
9
439
(21)
418
(413)
(158)
(63)
(1)
—
(9)
(644)
(226)
At December 30, 2022, we had state net operating losses of $62 million and state tax credits of $2 million. Both will
begin to expire in fiscal 2023; however, we expect to utilize $45 million and $2 million of these state net operating
losses and state tax credits, respectively. We had foreign tax credits of $18 million that will begin to expire in fiscal
2030. We expect to utilize $7 million of these foreign tax credits. We also had foreign net operating losses of $35
million, which do not expire. We expect to utilize $2 million of these foreign net operating losses.
Our valuation allowance for deferred tax assets was $24 million and $21 million as of December 30, 2022 and
December 31, 2021, respectively.
Leidos Holdings, Inc. Annual Report - 103
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 long-term assets:
Deferred tax assets
Accounts payable and accrued liabilities:
Income taxes payable
Deferred tax liabilities
Other long-term liabilities:
Unrecognized tax benefits
December 30,
2022
December 31,
2021
(in millions)
$
$
$
$
$
11 $
28 $
135 $
40 $
6
13
29
239
92 $
2
Unrecognized tax benefits are primarily related to certain recurring deductions customary for our industry. The
changes in the unrecognized tax benefits were as follows:
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
Unrecognized tax benefits at beginning of year
$
2 $
6 $
Additions for tax positions related to current 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
91
—
—
—
(1)
92 $
— $
—
2
(2)
(3)
(1)
2 $
2 $
$
$
5
—
1
—
—
—
6
5
At December 30, 2022, and December 31, 2021, the balance of unrecognized tax benefits included liabilities for
uncertain tax positions of $92 million and $2 million, respectively, 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.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to currently deduct certain
research and development costs for tax purposes and requires taxpayers to capitalize and amortize research costs
over five years. Based upon our interpretation of the law as currently enacted, we recorded the estimated fiscal
2022 impact, resulting in increases of $130 million to both our income taxes payable and net deferred tax assets.
Our unrecognized tax benefits also increased by $91 million with a corresponding increase to net deferred tax
assets. The actual impact will depend on the amount of research and development costs the Company will incur,
whether Congress modifies or repeals this provision and whether new guidance and interpretive rules are issued by
the U.S. Treasury, among other factors.
Leidos Holdings, Inc. Annual Report - 104
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We file income tax returns in the United States and various state and foreign jurisdictions. For the year ended
December 30, 2022, we are participating 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 30, 2022, we are no longer
subject to state, local, or foreign examinations by the tax authorities for fiscal years ended on or before December
28, 2018.
During the next 12 months, we expect our balance of unrecognized tax benefits to decrease by $20 million related
to capitalized research and development costs. 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.
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 $145 million, $131 million and $120 million for fiscal
2022, 2021 and 2020, 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.
On May 20, 2022, the trustee of our UK defined benefit pension plan (the “Plan”) invested the assets of the Plan in a
bulk purchase annuity policy to fully insure the benefits payable to the members of the Plan. As the buy-in
transaction insured the defined benefit obligation, we do not anticipate material future contributions.
The bulk purchase annuity policy is structured to enable the Plan to move to a full buy-out, at which time the insurer
would become directly responsible for all pension payments and we would be relieved of our obligations under the
Plan. At this future date, a settlement loss will be recognized for an amount equal to any unamortized loss
associated with the Plan recorded within AOCI and any remaining net plan assets of the Plan will be remitted to the
Company. As of December 30, 2022, the unamortized loss within AOCI related to the Plan was $20 million and the
Plan had net assets of $7 million.
Leidos Holdings, Inc. Annual Report - 105
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The projected benefit obligation of the Plans as of December 30, 2022 and December 31, 2021, was $101 million
and $160 million, respectively. The decrease in the projected benefit obligation was primarily due to assumption
changes and an actuarial gain.
The fair value of the Plans assets as of December 30, 2022, and December 31, 2021, was $101 million and $189
million, respectively. The decrease was primarily driven by assumption changes to reflect the fair value of the
annuity contract and return on plan assets. The UK Plan funding status was overfunded $7 million and $37 million
as of December 30, 2022, and December 31, 2021, respectively. The Gibbs & Cox defined benefit pension plan
funding status was underfunded $7 million and $8 million as of December 30, 2022, and December 31, 2021,
respectively. The fair value of Plans assets has been included within "Other long-term liabilities" on the consolidated
balance sheets.
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.
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, mission systems and integration, Command, Control, Computers,
Communications, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, maritime
solutions, transformative software, analytics, intelligence analysis, mission support and logistics services, weapons
systems and space systems and solutions. 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 Space Development Agency, the National Aeronautics and Space
Administration, Defense Information Systems Agency, military services, government agencies of U.S. allies abroad
and other federal and commercial customers in the national security industry. We are heavily engaged in the top
defense Research Development Test and Evaluation priorities that are driven by critical evolving threat-driven
needs. 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.
Leidos Holdings, Inc. Annual Report - 106
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 digital modernization, energy
infrastructure, integrated missions, transportation applications and security detection.
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 modernization and life sciences
research and development.
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
Year Ended
December 30,
2022
December 31,
2021
January 1,
2021
(in millions)
$
8,244 $
3,464
2,688
8,032 $
3,157
2,548
$
14,396 $
13,737 $
7,341
2,994
1,962
12,297
$
$
$
$
541 $
234
421
(108)
1,088 $
569 $
248
442
(107)
1,152 $
130 $
121 $
70
30
73
34
230 $
228 $
506
280
235
(23)
998
92
66
40
198
The income statement performance measures used to evaluate segment performance are revenues and operating
income. As a result, "Interest expense, net," "Other expense, net," and "Income tax expense," as reported in the
consolidated financial statements are not allocated to our segments. Under U.S. government Cost Accounting
Standards, 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.
Leidos Holdings, Inc. Annual Report - 107
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We generated approximately 86% of our total revenues in fiscal 2022, and 87% in fiscal 2021 and 2020 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 2022, 44% for fiscal 2021 and 49% for fiscal 2020.
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.
Note 21—Commitments and Contingencies
Legal Proceedings
We are 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.
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.
Leidos Holdings, Inc. Annual Report - 108
LEIDOS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defense Contract Audit Agency
As of December 30, 2022, active indirect cost audits by the DCAA remain open for fiscal 2021 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 30, 2022, we believe we have adequately reserved for potential adjustments from audits or reviews of
contract costs.
Other Government Investigations and Reviews
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. In September 2022, the Company received a Federal Grand Jury Subpoena
related to the criminal investigation by the U.S. Attorney’s Office for the Southern District of California, in conjunction
with the U.S. Department of Justice’s Fraud Section. The subpoena requests documents relating to the conduct that
is the subject of the Company’s internal investigation. The Company is in the process of responding to the
subpoena.
In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation
being conducted by the U.S. Department of Justice Antitrust Division (“DOJ”). The subpoena requests that the
Company produce a broad range of documents related to three U.S. Government procurements associated with the
Company’s Intelligence Group in 2021 and 2022. We intend to fully cooperate with the investigation, and we are
conducting our own internal investigation with the assistance of outside counsel. It is not possible at this time to
determine whether we will incur, or to reasonably estimate the amount of, any fines, penalties, or further liabilities in
connection with the investigation pursuant to which the subpoena was issued.
Commitments
We have outstanding letters of credit of $72 million as of December 30, 2022, principally related to performance
guarantees on contracts. We also have outstanding surety bonds with a notional amount of $100 million as of
December 30, 2022, 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. We also
have future lease commitments of $74 million for the use of certain aircraft.
As of December 30, 2022, the future expirations of the outstanding letters of credit, surety bonds and future lease
commitments were as follows:
Fiscal year ending
2023
2024
2025
2026
2027
2028 and thereafter
(in millions)
$
$
60
104
37
19
22
4
246
Leidos Holdings, Inc. Annual Report - 109
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 30, 2022. 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 fourth quarter of fiscal 2022, we completed our acquisition of Cobham Special Mission. As part of the
ongoing integration of Cobham Special Mission, we are in the process of incorporating the controls and related
procedures of these businesses. Other than incorporating controls for Cobham Special Mission, there have been no
other changes in our internal control over financial reporting that occurred in the fourth quarter of the period ended
December 30, 2022, 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 30, 2022, excludes an assessment of the internal control over
financial reporting of Cobham Special Mission, acquired on October 30, 2022. Cobham Special Mission represents
approximately 1.55% of our consolidated total assets, excluding the preliminary value of goodwill and intangible
assets related to Cobham Special Mission, at December 30, 2022, and 0.15% and 0.28% of our consolidated
revenues and operating income, respectively, for the fiscal year ended December 30, 2022.
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 30, 2022, 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 30, 2022, 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 14, 2023
Leidos Holdings, Inc. Annual Report - 110
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 30, 2022, 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 30, 2022, 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 30, 2022, of the
Company and our report dated February 14, 2023, 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 Cobham Special Mission, which was acquired on October
30, 2022, and whose financial statements constitute total assets of 1.55%, excluding the preliminary value of goodwill
and intangible assets, 0.15% of revenues, and 0.28% of operating income of the consolidated financial statement
amounts as of and for the fiscal year ended December 30, 2022. Accordingly, our audit did not include the internal
control over financial reporting at Cobham Special Mission.
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 14, 2023
Leidos Holdings, Inc. Annual Report - 111
PART II
Item 9B. Other Information
On February 10, 2023, the Board of Directors amended our Amended and Restated Bylaws (as amended,
"Bylaws"), effective immediately. The amendments update various Bylaws provisions to make technical changes
reflecting Rule 14a-19 promulgated under the Securities Exchange Act of 1934, and the DGCL, including recent
DGCL amendments. The amendments also update the Bylaws to use gender-neutral terms and include various
immaterial modifications that provide clarification and consistency.
The foregoing description of the amendments is qualified in its entirety by reference to the Bylaws, a copy of which
is filed as Exhibit 3.2 to this Annual Report on Form 10-K and incorporated by reference herein.
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 2023 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." Documents available under “Corporate Governance” in the Investor Relations section of our website also
include our Certificate of Incorporation, Bylaws, Corporate Governance Guidelines, and charters for the Audit and
Finance Committee, Human Resources and Compensation Committee, Corporate Governance and Ethics
Committee, and Technology and Information Security Committee of the Board of Directors.
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 2023 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 2023 Proxy Statement, which is
incorporated by reference into this Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 112
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 2023 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 30, 2022, 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))
3,541,752 (2) $
81.45 (3)
10,584,324 (4)
—
3,541,752 (2) $
—
81.45 (3)
— (5)
10,584,324
(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) 1,785,729 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 239,934 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) 7,423 shares of Leidos common stock issuable pursuant to dividend equivalent rights and
(iii) 1,748,600 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 7,687,280 and 2,897,044 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 2023 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 2023 Proxy Statement, which is incorporated by reference into this
Annual Report on Form 10-K.
Leidos Holdings, Inc. Annual Report - 113
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
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
4.1**
4.2
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.
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)
Leidos Holdings, Inc. Annual Report - 114
Exhibit
Number
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1*
10.2 *
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
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.
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.
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. Amended and Restated 2017 Omnibus Incentive Plan
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.
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.
Leidos Holdings, Inc. Annual Report - 115
Exhibit
Number
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*
10.26
10.27
10.28
PART IV
Description of Exhibit
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.
Amended and Restated 2017 Omnibus Incentive 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. Amended and
Restated 2017 Omnibus Incentive Plan.
Form of Notice of Grant of Restricted Stock Unit Awards (Performance-Vesting) for Employees under
the Leidos Holdings, Inc. Amended and Restated 2017 Omnibus Incentive Plan.
Form of Notice of Grant of Performance Share Awards for Employees under the Leidos Holdings, Inc.
Amended and Restated 2017 Omnibus Incentive Plan.
Form of Notice of Grant of Restricted Stock Unit Awards (Time-Vesting) for Employees under the
Leidos Holdings, Inc. Amended and Restated 2017 Omnibus Incentive Plan.
Form of Notice of Grant of Restricted Stock Unit Awards (Time-Vesting) for Non-Employee Directors
under the Leidos Holdings, Inc. Amended and Restated 2017 Omnibus Incentive Plan. Incorporated by
reference to Exhibit 10.27 to our Annual Report on Form 10-K filed with the SEC on February 23, 2018.
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.
Leidos Holdings, Inc. Annual Report - 116
Exhibit
Number
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
PART IV
Description of Exhibit
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.
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.
Leidos Holdings, Inc. Annual Report - 117
PART IV
Description of Exhibit
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.
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.
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.
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.
Exhibit
Number
10.42
10.43
10.44
10.45
10.46
10.47
21
22
23.1
31.1
31.2
32.1
32.2
99.1
99.2†
99.3
99.4
99.5
99.6
Leidos Holdings, Inc. Annual Report - 118
PART IV
Description of Exhibit
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
99.7†
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 - 119
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 14, 2023
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/ Noel B. Geer
Noel B. Geer
/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/ Patrick M. Shanahan
Patrick M. Shanahan
/s/ Robert S. Shapard
Robert S. Shapard
/s/ Susan M. Stalnecker
Susan M. Stalnecker
Title
Date
Principal Executive Officer
February 14, 2023
Principal Financial Officer
February 14, 2023
Principal Accounting Officer
February 14, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
February 14, 2023
Leidos Holdings, Inc. Annual Report - 120
Intentionally Left Blank
Intentionally Left Blank