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ldos-20220401_g1.jpg

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to  
Commission file number 001-33072
Leidos Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-3562868
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1750 Presidents Street,Reston,Virginia20190
(Address of principal executive offices)(Zip Code)
(571) 526-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $.0001 per shareLDOSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No    
The number of shares issued and outstanding of each of the issuer’s classes of common stock as of April 26, 2022, was 136,662,094 shares of common stock ($.0001 par value per share).



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


Table of Contents




PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
April 1,
2022
December 31,
2021
 (in millions)
Assets:  
Cash and cash equivalents$297 $727 
Receivables, net2,419 2,189 
Inventory, net279 274 
Other current assets492 429 
Total current assets3,487 3,619 
Property, plant and equipment, net674 670 
Intangible assets, net1,109 1,177 
Goodwill6,742 6,744 
Operating lease right-of-use assets, net600 612 
Other assets418 439 
Total assets$13,030 $13,261 
Liabilities:  
Accounts payable and accrued liabilities$2,214 $2,141 
Accrued payroll and employee benefits724 605 
Short-term debt and current portion of long-term debt556 483 
Total current liabilities3,494 3,229 
Long-term debt, net of current portion4,569 4,593 
Operating lease liabilities582 589 
Deferred tax liabilities182 239 
Other long-term liabilities195 267 
Total liabilities9,022 8,917 
Commitments and contingencies (Note 11)
Stockholders’ equity:  
Common stock, $0.0001 par value, 500 million shares authorized, 137 million and 140 million shares issued and outstanding at April 1, 2022, and December 31, 2021, respectively
  
Additional paid-in capital1,928 2,423 
Retained earnings2,007 1,880 
Accumulated other comprehensive income (loss)20 (12)
Total Leidos stockholders’ equity3,955 4,291 
Non-controlling interest53 53 
Total stockholders' equity4,008 4,344 
Total liabilities and stockholders' equity$13,030 $13,261 

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents




LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
 April 1,
2022
April 2,
2021
 (in millions, except per share amounts)
Revenues$3,494 $3,315 
Cost of revenues2,982 2,848 
Selling, general and administrative expenses236 159 
Acquisition, integration and restructuring costs3 5 
Equity loss (earnings) of non-consolidated subsidiaries2 (5)
Operating income271 308 
Non-operating expense:
Interest expense, net(48)(45)
Other expense, net(1)(1)
Income before income taxes
222 262 
Income tax expense
(45)(57)
Net income$177 $205 
Less: net income attributable to non-controlling interest2  
Net income attributable to Leidos common stockholders
$175 $205 
Earnings per share:
Basic
$1.26 $1.44 
Diluted
1.25 1.42 

See accompanying notes to condensed consolidated financial statements.

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LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
 April 1,
2022
April 2,
2021
 (in millions)
Net income$177 $205 
Foreign currency translation adjustments
2 (4)
Unrecognized gain on derivative instruments
29 13 
Pension adjustments
1  
Total other comprehensive income, net of taxes32 9 
Comprehensive income209 214 
Less: net income attributable to non-controlling interest2  
Comprehensive income attributable to Leidos common stockholders
$207 $214 

See accompanying notes to condensed consolidated financial statements.

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


 Shares of common stockAdditional
paid-in
capital
Retained earningsAccumulated
other comprehensive
loss
Leidos Holdings, Inc. stockholders' equityNon-controlling interestTotal
 (in millions, except for per share amounts)
Balance at January 1, 2021142 $2,580 $1,328 $(46)$3,862 $9 $3,871 
Net income— — 205 — 205 — 205 
Other comprehensive income, net of taxes— — — 9 9 — 9 
Issuances of stock— 14 — — 14 — 14 
Repurchases of stock and other
(1)(123)— — (123)— (123)
Dividends of $0.34 per share
— — (49)— (49)— (49)
Stock-based compensation— 15 — — 15 — 15 
Capital contributions from non-controlling interest— — — — — 38 38 
Balance at April 2, 2021141 $2,486 $1,484 $(37)$3,933 $47 $3,980 

See accompanying notes to condensed consolidated financial statements.

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LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
 April 1,
2022
April 2,
2021
 (in millions)
Cash flows from operations:  
Net income$177 $205 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization85 77 
Stock-based compensation16 15 
Deferred income taxes(61) 
Other4 (8)
Change in assets and liabilities, net of effects of acquisitions:
Receivables(232)(10)
Other current assets and other long-term assets(28)5 
Accounts payable and accrued liabilities and other long-term liabilities(60)(148)
Accrued payroll and employee benefits124 50 
Income taxes receivable/payable68 53 
Net cash provided by operating activities93 239 
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired(2)(218)
Divestiture of a business
9  
Payments for property, equipment and software(28)(26)
Net cash used in investing activities(21)(244)
Cash flows from financing activities:
Net proceeds from commercial paper75  
Payments of long-term debt(27)(26)
Dividend payments(51)(50)
Repurchases of stock and other(526)(123)
Net capital (distribution to) contributions from non-controlling interests(2)38 
Proceeds from issuances of stock12 13 
Net cash used in financing activities(519)(148)
Net decrease in cash, cash equivalents and restricted cash(447)(153)
Cash, cash equivalents and restricted cash at beginning of period875 687 
Cash, cash equivalents and restricted cash at end of period428 534 
Less: restricted cash at end of period131 157 
Cash and cash equivalents at end of period$297 $377 
Supplementary cash flow information:
Cash paid for income taxes, net of refunds$8 $8 
Cash paid for interest38 35 
Non-cash investing activity:
Property, plant and equipment additions$2 $ 
Non-cash financing activity:
Finance lease obligations$ $45 
See accompanying notes to condensed consolidated financial statements.

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








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







Accounting Standards Updates ("ASU") Adopted
ASU 2021-08, Business Combinations (Topic 805)
In October 2021, the FASB issued ASU 2021-08, which amends how contract assets and liabilities acquired in a business combination are measured. Current guidance requires contract assets and liabilities to be measured at fair value in accordance with ASC 805, Business Combinations. The amendments in this Update remove the requirement to measure contract assets and liabilities at fair value and instead require that they be recognized in accordance with ASC 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and must be applied prospectively. Early adoption is permitted.
We adopted the requirements of ASU 2021-08 using the prospective method effective the first day of fiscal 2022. For business combinations occurring after adoption, we will measure contract assets and liabilities acquired in accordance with ASC 606.
Accounting Standards Updates Issued But Not Yet Adopted
ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU 2020-04 which provides companies with optional expedients and exceptions to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This update provides optional expedients for applying accounting guidance to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of the reference rate reform. The amendments in this update are effective for all entities as of March 2020 and can be adopted using a prospective approach no later than December 31, 2022.
In January 2021, the FASB issued ASU 2021-01 which amends the scope of ASU 2020-04. The amendments in this update are elective and provide optional relief for entities with hedge accounting and contract modifications affected by the discounting transition through December 31, 2022. Under this relief, entities may continue to account for contract modifications as a continuation of the existing contract and the continuation of the hedge accounting arrangement. We are currently evaluating the impacts of reference rate reform. We currently use the one-month LIBOR for which the rate publication will cease in June 2023.
Changes in Estimates on Contracts
Changes in estimates related to contracts accounted for using the cost-to-cost method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes, with the exception of contracts acquired through a business combination, where the adjustment is made for the period commencing from the date of acquisition.
Changes in estimates on contracts were as follows:
Three Months Ended
April 1,
2022
April 2,
2021
(in millions, except per share amounts)
Favorable impact$41 $31 
Unfavorable impact(26)(19)
Net impact to income before income taxes$15 $12 
Impact on diluted EPS attributable to Leidos common stockholders
$0.08 $0.06 
The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Revenue Recognized from Prior Obligations
Revenue recognized from performance obligations satisfied in previous periods was $14 million and $9 million for the three months ended April 1, 2022, and April 2, 2021, respectively. The changes primarily related to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.
Cash and Cash Equivalents
Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less. At April 1, 2022, and December 31, 2021, $176 million and $138 million, respectively, of outstanding payments were included within "Cash and cash equivalents" and "Accounts payable and accrued liabilities" correspondingly on the condensed consolidated balance sheets.
Restricted Cash
We have restricted cash balances, primarily representing advances from customers that are restricted for use on certain expenditures related to that customer's contract and cash collected from the sale of accounts receivable but
not yet remitted to the financial institution (see Note 9–Sale of Accounts Receivable). Restricted cash balances are included as "Other current assets" in the condensed consolidated balance sheets. Our restricted cash balances were $131 million and $148 million at April 1, 2022, and December 31, 2021, respectively.
Note 2–Revenues from Contracts with Customers
Remaining Performance Obligations
Remaining performance obligations ("RPO") represent the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. Remaining performance obligations do not include unexercised option periods and future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ") contracts, General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.
As of April 1, 2022, we had $15.4 billion of RPO and expect to recognize approximately 55% and 73% over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.
Disaggregation of Revenues
We disaggregate revenues by customer-type, contract-type and geographic location for each of our reportable segments. These categories represent how the nature, timing and uncertainty of revenues and cash flows are affected.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Disaggregated revenues by customer-type were as follows:
Three Months Ended April 1, 2022
Defense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,539 $20 $238 $1,797 
Other government agencies(1)
222 613 385 1,220 
Commercial and non-U.S. customers
287 147 27 461 
Total$2,048 $780 $650 $3,478 
Three Months Ended April 2, 2021
Defense SolutionsCivilHealthTotal
(in millions)
DoD and U.S. Intelligence Community
$1,407 $13 $158 $1,578 
Other government agencies(1)
272 605 407 1,284 
Commercial and non-U.S. customers
278 125 26 429 
Total$1,957 $743 $591 $3,291 
(1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies.
Disaggregated revenues by contract-type were as follows:
Three Months Ended April 1, 2022
Defense SolutionsCivilHealthTotal
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$1,183 $408 $167 $1,758 
Firm-fixed-price618 255 417 1,290 
Time-and-materials and fixed-price-level-of-effort
247 117 66 430 
Total$2,048 $780 $650 $3,478 
Three Months Ended April 2, 2021
Defense SolutionsCivilHealthTotal
(in millions)
Cost-reimbursement and fixed-price-incentive-fee
$1,163 $374 $99 $1,636 
Firm-fixed-price553 262 392 1,207 
Time-and-materials and fixed-price-level-of-effort
241 107 100 448 
Total$1,957 $743 $591 $3,291 
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Disaggregated revenues by geographic location were as follows:
Three Months Ended April 1, 2022
Defense SolutionsCivilHealthTotal
(in millions)
United States
$1,810 $741 $650 $3,201 
International
238 39  277 
Total$2,048 $780 $650 $3,478 
Three Months Ended April 2, 2021
Defense SolutionsCivilHealthTotal
(in millions)
United States
$1,713 $704 $591 $3,008 
International
244 39  283 
Total$1,957 $743 $591 $3,291 
Revenues by customer-type, contract-type and geographic location exclude lease income of $16 million and $24 million for the three months ended April 1, 2022 and April 2, 2021, respectively.
Contract Assets and Liabilities
Performance obligations are satisfied either over time as work progresses or at a point in time. Firm-fixed-price contracts are typically billed to the customer using milestone payments while cost-reimbursable and time and materials contracts are typically billed to the customer on a monthly or bi-weekly basis as indicated by the negotiated billing terms and conditions of the contract. As a result, the timing of revenue recognition, customer billings and cash collections for each contract results in a net contract asset or liability at the end of each reporting period.
Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount billed to the customer, where right to payment is not solely subject to the passage of time. Unbilled receivables exclude amounts billable where the right to consideration is unconditional. Contract liabilities consist of deferred revenue, which represents cash advances received prior to performance for programs and billings in excess of revenue recognized.
The components of contract assets and contract liabilities consisted of the following:
Balance sheet line itemApril 1,
2022
December 31,
2021
(in millions)
Contract assets - current:
Unbilled receivablesReceivables, net$1,078 $1,022 
Contract liabilities - current:
Deferred revenue (1)
Accounts payable and accrued liabilities$382 $364 
Contract liabilities - non-current:
Deferred revenue (1)
Other long-term liabilities$25 $24 
(1) Certain contracts record revenue net of cost of revenues, and therefore, the respective deferred revenue balance will not fully convert to revenue.
The increase in unbilled receivables was primarily due to revenue recognized on certain contracts partially offset by the timing of billings.
Revenue recognized for the three months ended April 1, 2022, of $188 million was included as a contract liability at December 31, 2021. Revenue recognized for the three months ended April 2, 2021, of $144 million was included as a contract liability at January 1, 2021.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Note 3–Acquisitions, Divestitures, Goodwill and Intangible Assets
Business Acquisitions
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.
As of April 1, 2022, we had completed the determination of fair values of the acquired assets and liabilities assumed. 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:
Weighted average amortization periodFair value
(in years)(in millions)
Programs12$89 
For the three months ended April 1, 2022, $27 million of revenues related to the Gibbs & Cox acquisition were recognized within the Defense Solutions reportable segment.
On September 21, 2021, we completed an immaterial strategic business acquisition for preliminary purchase consideration of approximately $36 million. In connection with the transaction, we recognized an $8 million program intangible asset and preliminary goodwill of $25 million.
Aviation & Missile Solutions LLC ("AMS") Divestiture
On November 22, 2021, we signed a definitive agreement within our Defense Solutions segment to dispose of its AMS business in order to focus on leading-edge and technologically advanced services, solutions and products. The net sales price is $15 million, and the divestiture was completed on April 29, 2022.
Goodwill
The following table presents changes in the carrying amount of goodwill by reportable segment:
Defense SolutionsCivilHealthTotal
(in millions)
Goodwill at January 1, 2021$3,300 $2,047 $966 $6,313 
Acquisitions of businesses425 5  430 
Divestiture of a business(1)  (1)
Goodwill re-allocation(17)17   
Foreign currency translation adjustments(26)28  2 
Goodwill at December 31, 2021$3,681 $2,097 $966 $6,744 
Acquisition of a business1   1 
Divestiture of a business(4)  (4)
Foreign currency translation adjustments8 (7) 1 
Goodwill at April 1, 2022
$3,686 $2,090 $966 $6,742 
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, the estimated fair value of the Security Products reporting unit within the Civil reportable segment exceeded the carrying value by approximately 6% as of the most recent assessment date. In the event that there are significant unfavorable changes to the forecasted cash flows of the reporting unit (including if the impact of COVID-19 on passenger travel levels is more prolonged or severe than what is incorporated into our forecast), terminal growth rates or the cost of capital used in the fair value estimates, we may be required to record a material impairment of goodwill at a future date. During the three months ended April 1, 2022, and April 2, 2021, there were no impairments to goodwill.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Intangible Assets
Intangible assets, net consisted of the following:
April 1, 2022December 31, 2021
Gross carrying value Accumulated amortizationNet carrying valueGross carrying valueAccumulated amortizationNet carrying value
(in millions)
Finite-lived intangible assets:
Programs
$1,701 $(866)$835 $1,722 $(830)$892 
Software and technology
230 (127)103 230 (121)109 
Customer relationships
91 (16)75 97 (18)79 
Backlog
6 (6) 38 (37)1 
Trade names
1 (1) 1 (1) 
Total finite-lived intangible assets
2,029 (1,016)1,013 2,088 (1,007)1,081 
Indefinite-lived intangible assets:
In-process research and development92  92 92 — 92 
Trade names4  4 4 — 4 
Total indefinite-lived intangible assets96  96 96  96 
Total intangible assets$2,125 $(1,016)$1,109 $2,184 $(1,007)$1,177 
Amortization expense was $59 million and $55 million for the three months ended April 1, 2022 and April 2, 2021, respectively.
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.
The estimated annual amortization expense as of April 1, 2022, was as follows:
Fiscal year ending
(in millions)
2022 (remainder of year)$173 
2023203 
2024150 
2025120 
202696 
2027 and thereafter271 
$1,013 

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







Note 4–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 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 financial instruments measured at fair value on a recurring basis primarily consisted of the following:
April 1, 2022December 31, 2021
Carrying valueFair valueCarrying valueFair value
(in millions)
Financial liabilities:
Derivatives$13 $13 $53 $53 
As of April 1, 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 5–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 and the underlying interest rate (Level 2 inputs).
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.
As of April 1, 2022, and December 31, 2021, the fair value of debt was $5.1 billion and $5.4 billion, respectively, and the carrying amount was $5.1 billion and $5.1 billion, respectively (see "Note 6–Debt"). The fair value of long-term debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs).
On May 7, 2021, and January 14, 2021, non-financial instruments measured at fair value on a non-recurring basis were recorded in connection with the acquisitions of Gibbs & Cox and 1901 Group. The fair values of the assets acquired and liabilities assumed were determined using Level 3 inputs. As of April 1, 2022, we did not have any assets or liabilities measured at fair value on a non-recurring basis.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Note 5–Derivative Instruments
We manage our risk to changes in interest rates through the use of derivative instruments. We do not hold derivative instruments for trading or speculative purposes. 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 the interest rate swaps was as follows:
Liability derivatives
Balance sheet line itemApril 1,
2022
December 31,
2021
(in millions)
Cash flow interest rate swapsOther long-term liabilities$13 $53 
The cash flows associated with the interest rate swaps are classified as operating activities in the condensed consolidated statements of cash flows.
Cash Flow Hedges
We have interest rate swap agreements to hedge the cash flows of $1.0 billion of the variable rate senior unsecured term loan (the "Variable Rate Loan"). These interest rate swap agreements have a maturity date of August 2025 and a fixed interest rate of 3.00%. The objective of these instruments is to reduce variability in the forecasted interest payments of the Variable Rate Loan, which are based on the LIBOR rate. Under the terms of the interest rate swap agreements, we will receive monthly variable interest payments based on the one-month LIBOR rate and will pay interest at a fixed rate.
The interest rate swap transactions were accounted for as cash flow hedges. The gain/loss on the swaps is reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings. A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:
Three Months Ended
April 1,
2022
April 2,
2021
(in millions)
Total interest expense, net presented in the condensed consolidated statements of income in which the effects of cash flow hedges are recorded
$48 $45 
Amount recognized in other comprehensive income $32 $12 
Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net$6 $5 
We expect to reclassify net losses of $15 million from accumulated other comprehensive income into earnings during the next 12 months.
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LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







Note 6–Debt
Our debt consisted of the following:
Stated interest rateEffective interest rate
April 1,
2022(1)
December 31,
 2021(1)
(in millions)
Short-term debt:
Commercial paper
0.52%-1.13%
Various$75 $ 
Senior unsecured term loans:
$380 million term loan, due May 2022
1.59%1.69%380 380 
Total short-term debt$455 $380 
Long-term debt:
Senior unsecured term loans:
$1,925 million term loan, due January 2025
1.84%2.11%$1,275 $1,298 
Senior unsecured notes:
$500 million notes, due May 2023
2.95%3.17%499 498 
$500 million notes, due May 2025
3.63%3.76%497 497 
$750 million notes due May 2030
4.38%4.50%738 738 
$1,000 million notes, due February 2031
2.30%2.38%990 990 
$250 million notes, due July 2032
7.13%7.43%247 247 
$300 million notes, due July 2033
5.50%5.88%158 158 
$300 million notes, due December 2040
5.95%6.03%216 216 
Notes payable and finance leases due on various dates through fiscal 2032

1.56%-4.18%
Various50 54 
Total long-term debt4,670 4,696 
Less current portion(101)(103)
Total long-term debt, net of current portion

$4,569 $4,593 
(1) The carrying amounts of the senior unsecured term loans and notes as of April 1, 2022, and December 31, 2021, include the remaining principal outstanding of $5,041 million and $5,065 million, respectively, less total unamortized debt discounts and deferred debt issuances costs of $41 million and $43 million, respectively.
Term Loans and Revolving Credit Facility
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 will mature in January 2025. The Revolving Facility permits