2019 Q1 Form 10-Q Financial Statement

#000133692019000015 Filed on April 30, 2019

View on sec.gov

Income Statement

Concept 2019 Q1 2018 Q1
Revenue $2.577B $2.443B
YoY Change 5.49% -5.31%
Cost Of Revenue $2.221B $2.086B
YoY Change 6.47% -6.58%
Gross Profit $356.0M $357.0M
YoY Change -0.28% 2.88%
Gross Profit Margin 13.81% 14.61%
Selling, General & Admin $166.0M $178.0M
YoY Change -6.74% -1.66%
% of Gross Profit 46.63% 49.86%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $58.00M $63.00M
YoY Change -7.94% -23.17%
% of Gross Profit 16.29% 17.65%
Operating Expenses $166.0M $178.0M
YoY Change -6.74% -1.66%
Operating Profit $192.0M $159.0M
YoY Change 20.75% 12.77%
Interest Expense -$34.00M -$30.00M
YoY Change 13.33% -178.95%
% of Operating Profit -17.71% -18.87%
Other Income/Expense, Net $92.00M $0.00
YoY Change -100.0%
Pretax Income $246.0M $125.0M
YoY Change 96.8% 15.74%
Income Tax $57.00M $23.00M
% Of Pretax Income 23.17% 18.4%
Net Earnings $189.0M $102.0M
YoY Change 85.29% 41.67%
Net Earnings / Revenue 7.33% 4.18%
Basic Earnings Per Share $1.30 $0.67
Diluted Earnings Per Share $1.29 $0.66
COMMON SHARES
Basic Shares Outstanding 145.0M shares 152.0M shares
Diluted Shares Outstanding 147.0M shares 154.0M shares

Balance Sheet

Concept 2019 Q1 2018 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $536.0M $215.0M
YoY Change 149.3% 4.37%
Cash & Equivalents $536.0M $215.0M
Short-Term Investments
Other Short-Term Assets $430.0M
YoY Change
Inventory $506.0M
Prepaid Expenses
Receivables $1.894B $1.914B
Other Receivables $0.00 $0.00
Total Short-Term Assets $2.860B $2.635B
YoY Change 8.54% 10.02%
LONG-TERM ASSETS
Property, Plant & Equipment $220.0M $227.0M
YoY Change -3.08% -4.62%
Goodwill $4.871B $4.976B
YoY Change -2.11% 7.73%
Intangibles $613.0M $806.0M
YoY Change -23.95% -46.97%
Long-Term Investments
YoY Change
Other Assets $390.0M $269.0M
YoY Change 44.98% -23.8%
Total Long-Term Assets $6.500B $6.278B
YoY Change 3.54% -6.92%
TOTAL ASSETS
Total Short-Term Assets $2.860B $2.635B
Total Long-Term Assets $6.500B $6.278B
Total Assets $9.360B $8.913B
YoY Change 5.02% -2.48%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $1.258B $1.622B
YoY Change -22.44% 173.99%
Accrued Expenses $514.0M $379.0M
YoY Change 35.62% -54.72%
Deferred Revenue $484.0M $406.0M
YoY Change 19.21%
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due $66.00M $81.00M
YoY Change -18.52% -3.57%
Total Short-Term Liabilities $2.322B $2.103B
YoY Change 10.41% 6.05%
LONG-TERM LIABILITIES
Long-Term Debt $2.966B $3.007B
YoY Change -1.36% -5.68%
Other Long-Term Liabilities $276.0M $148.0M
YoY Change 86.49% -31.8%
Total Long-Term Liabilities $276.0M $148.0M
YoY Change 86.49% -31.8%
TOTAL LIABILITIES
Total Short-Term Liabilities $2.322B $2.103B
Total Long-Term Liabilities $276.0M $148.0M
Total Liabilities $2.598B $2.251B
YoY Change 15.42% 2.32%
SHAREHOLDERS EQUITY
Retained Earnings $562.0M $37.00M
YoY Change 1418.92% -124.03%
Common Stock $0.00 $0.00
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $3.294B $3.431B
YoY Change
Total Liabilities & Shareholders Equity $9.360B $8.913B
YoY Change 5.02% -2.48%

Cashflow Statement

Concept 2019 Q1 2018 Q1
OPERATING ACTIVITIES
Net Income $189.0M $102.0M
YoY Change 85.29% 41.67%
Depreciation, Depletion And Amortization $58.00M $63.00M
YoY Change -7.94% -23.17%
Cash From Operating Activities $288.0M $22.00M
YoY Change 1209.09% -130.99%
INVESTING ACTIVITIES
Capital Expenditures -$30.00M $15.00M
YoY Change -300.0% 114.29%
Acquisitions $0.00 $81.00M
YoY Change -100.0%
Other Investing Activities $0.00 $0.00
YoY Change -100.0%
Cash From Investing Activities $237.0M -$96.00M
YoY Change -346.88% 1820.0%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $10.00M
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -$297.0M -$91.00M
YoY Change 226.37% 16.67%
NET CHANGE
Cash From Operating Activities $288.0M $22.00M
Cash From Investing Activities $237.0M -$96.00M
Cash From Financing Activities -$297.0M -$91.00M
Net Change In Cash $228.0M -$165.0M
YoY Change -238.18% 7.14%
FREE CASH FLOW
Cash From Operating Activities $288.0M $22.00M
Capital Expenditures -$30.00M $15.00M
Free Cash Flow $318.0M $7.000M
YoY Change 4442.86% -108.97%

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">Note 18&#8211;Contingencies</font><font style="font-family:Arial;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;font-weight:bold;">Legal Proceedings</font><font style="font-family:Arial;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">MSA Joint Venture</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">On November 10, 2015, MSA received a final decision by the Department of Energy ("DoE") contracting officer for the Mission Support Contract concluding that certain payments to MSA by the DoE for the performance of IT services by Lockheed Martin Services, Inc. ("LMSI") under a subcontract to MSA constituted alleged affiliate fees in violation of Federal Acquisition Regulations ("FAR"). Lockheed Martin Integrated Technology LLC (now known as Leidos Integrated Technology LLC) is a member entity of MSA. Subsequent to the contracting officer's final decision, MSA, LMSI, and Lockheed Martin Corporation received notice from the U.S. Attorney's Office for the Eastern District of Washington that the U.S. government had initiated a False Claims Act investigation into the facts surrounding this dispute, and each of MSA, LMSI and Lockheed Martin Corporation have produced information in response to Civil Investigative Demands from the U.S. Attorney's Office. On February 8, 2019, the U.S. Attorney's office filed a complaint in the United States District Court for the Eastern District of Washington against MSA, Lockheed Martin Corporation, Lockheed Martin Services, Inc. and a Lockheed Martin employee. The complaint alleges violations of the False Claims Act, the Anti-Kickback Act and breach of contract with DoE, among other things. The U.S. Attorney's office had previously advised that a parallel criminal investigation was open, although no subjects or targets of the investigation had been identified. The U.S. Attorney's office has informed MSA that is has closed the criminal investigation.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Since this issue first was raised by the DoE, MSA has asserted that the IT services performed by LMSI under a fixed-price/fixed-unit rate subcontract approved by the DoE meet the definition of a "commercial item" under the FAR and any profits earned on that subcontract are permissible. MSA filed an appeal of the contracting officer's decision with the Civilian Board of Contract Appeals and that appeal is pending, but was stayed pending resolution of the False Claims Act investigation and now case. Subsequent to the filing of MSA's appeal, the contracting officer demanded that MSA reimburse the DoE in the amount of </font><font style="font-family:Arial;font-size:10pt;">$64 million</font><font style="font-family:Arial;font-size:10pt;">, which was his estimate of the profits earned during the period from 2010 to 2014 by LMSI. The DoE has deferred collection of </font><font style="font-family:Arial;font-size:10pt;">$32 million</font><font style="font-family:Arial;font-size:10pt;"> of that demand, pending resolution of the appeal and without prejudice to MSA's position that it is not liable for any of the DOE's </font><font style="font-family:Arial;font-size:10pt;">$64 million</font><font style="font-family:Arial;font-size:10pt;"> reimbursement claim. The Company has agreed to indemnify Jacobs Group and Centerra Group, LLC for any liability MSA incurs in this matter. Under the terms of the Separation Agreement, Lockheed Martin agreed to indemnify the Company for </font><font style="font-family:Arial;font-size:10pt;">100%</font><font style="font-family:Arial;font-size:10pt;"> of any damages in excess of </font><font style="font-family:Arial;font-size:10pt;">$38 million</font><font style="font-family:Arial;font-size:10pt;"> up to </font><font style="font-family:Arial;font-size:10pt;">$64 million</font><font style="font-family:Arial;font-size:10pt;">, and </font><font style="font-family:Arial;font-size:10pt;">50%</font><font style="font-family:Arial;font-size:10pt;"> of any damages in excess of </font><font style="font-family:Arial;font-size:10pt;">$64 million</font><font style="font-family:Arial;font-size:10pt;">, with respect to claims asserted against MSA related to this matter. At </font><font style="font-family:Arial;font-size:10pt;">March&#160;29, 2019</font><font style="font-family:Arial;font-size:10pt;">, the Company had a liability of </font><font style="font-family:Arial;font-size:10pt;">$39 million</font><font style="font-family:Arial;font-size:10pt;"> recorded in the condensed consolidated balance sheets.</font></div><div style="line-height:120%;padding-top:8px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Securities Litigation</font></div><div style="line-height:120%;padding-top:8px;text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Between February and April 2012, alleged stockholders filed </font><font style="font-family:Arial;font-size:10pt;">three</font><font style="font-family:Arial;font-size:10pt;"> putative securities class actions against the Company and several former executives relating to the Company's contract to develop and implement an automated time and attendance and workforce management system for certain agencies of the City of New York ("CityTime"). </font><font style="font-family:Arial;font-size:10pt;">One</font><font style="font-family:Arial;font-size:10pt;"> case was withdrawn and </font><font style="font-family:Arial;font-size:10pt;">two</font><font style="font-family:Arial;font-size:10pt;"> cases were consolidated in the U.S. District Court for the Southern District of New York in </font><font style="font-family:Arial;font-size:10pt;font-style:italic;">In Re: SAIC, Inc. Securities Litigation</font><font style="font-family:Arial;font-size:10pt;">. The consolidated securities complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that the Company and individual defendants made misleading statements or omissions about the Company's revenues, operating income and internal controls in connection with disclosures relating to the CityTime project. The plaintiffs sought to recover from the Company and the individual defendants an unspecified amount of damages class members allegedly incurred by buying Leidos' stock at an inflated price. The District Court dismissed the plaintiffs' claims with prejudice and without leave to replead. The plaintiffs then appealed to the United States Court of Appeals for the Second Circuit, which issued an opinion affirming in part, and vacating in part, the District Court's ruling. The Company filed a petition for a writ of certiorari in the U.S. Supreme Court, which was granted on March 27, 2017. The District Court granted the Company's request to stay all proceedings, including discovery, pending the outcome at the Supreme Court. In September 2017, the parties engaged in mediation resulting in an agreement to settle all remaining claims for an immaterial amount to be paid by the Company. The amounts payable by the Company are covered by an insurance policy. The terms of the proposed settlement remain subject to court approval.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Greek Government Contract </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In 2003, the Company entered into an FFP contract with the Hellenic Republic of Greece to provide a Command, Control, Communications, Coordination and Integration System.&#160;The Greek government disputed the contract balance owed to the Company and has not paid the Company's final invoice. In 2013, the Company received an arbitral award by the International Chamber of Commerce for </font><font style="font-family:Arial;font-size:10pt;">&#8364;39 million</font><font style="font-family:Arial;font-size:10pt;">, which has not been satisfied.&#160;In January 2017, the U.S. District Court granted an order to enforce the arbitration award and entered judgment in the Company's favor. The Company has commenced enforcement proceedings against the Greek government in several jurisdictions. Separately, the Greek government has sought to annul the award through separate litigation in the Greek courts, and such a challenge is currently pending. Based on the complex nature of this contractual situation and the difficulties encountered to date, significant uncertainties exist and the Company is unable to reliably estimate the ultimate outcome.&#160; </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Arbitration Proceeding</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The Company is a party to an arbitration proceeding involving a claim by Lockheed Martin for indemnification for </font><font style="font-family:Arial;font-size:10pt;">$56 million</font><font style="font-family:Arial;font-size:10pt;"> in taxes attributable to deferred revenue recognized as a result of the Transactions. Based on the arguments advanced to date, the Company believes that the claim appears to be without merit and intends to vigorously defend itself in arbitration. The Company does not believe that a material loss is probable, and has therefore not recorded any liability for this matter. </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Other</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The Company is also involved in various claims and lawsuits arising in the normal conduct of its business, none of which, in the opinion of the Company's management, based upon current information, will likely have a material adverse effect on the Company's condensed consolidated financial position, results of operations or cash flows.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;font-weight:bold;">Other Contingencies</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">VirnetX, Inc.</font><font style="font-family:Arial;font-size:10pt;"> </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">On September 29, 2017, the federal trial court in the Eastern District of Texas entered a final judgment in the VirnetX v. Apple case referred to as the Apple I case. The court found that Apple willfully infringed the VirnetX patents at issue in the Apple I case and awarded enhanced damages, bringing the total award against Apple to over </font><font style="font-family:Arial;font-size:10pt;">$343 million</font><font style="font-family:Arial;font-size:10pt;"> in pre-interest damages. The court subsequently awarded an additional sum of over </font><font style="font-family:Arial;font-size:10pt;">$96 million</font><font style="font-family:Arial;font-size:10pt;"> for costs, attorneys' fees, and interest, bringing the total award to VirnetX in the Apple I case to over </font><font style="font-family:Arial;font-size:10pt;">$439 million</font><font style="font-family:Arial;font-size:10pt;">. Apple appealed the judgment in the Apple I case with the U.S. Court of Appeals for the Federal Circuit and on January 15, 2019, the court affirmed the </font><font style="font-family:Arial;font-size:10pt;">$439 million</font><font style="font-family:Arial;font-size:10pt;"> judgment. It is expected that Apple will appeal this decision. </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">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 </font><font style="font-family:Arial;font-size:10pt;">$502 million</font><font style="font-family:Arial;font-size:10pt;">. 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&#8217;s verdict of over </font><font style="font-family:Arial;font-size:10pt;">$502 million</font><font style="font-family:Arial;font-size:10pt;"> and granted VirnetX&#8217;s motions for supplemental damages, a sunset royalty and royalty rate of </font><font style="font-family:Arial;font-size:10pt;">$1.20</font><font style="font-family:Arial;font-size:10pt;"> per infringing device, along with pre-judgment and post-judgment interest and costs. The court denied VirnetX&#8217;s motions for enhanced damages, attorneys&#8217; fees, and an injunction. The court also denied Apple&#8217;s motions for judgment as a matter of law and for a new trial. An additional sum of over </font><font style="font-family:Arial;font-size:10pt;">$93 million</font><font style="font-family:Arial;font-size:10pt;"> 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 </font><font style="font-family:Arial;font-size:10pt;">$595 million</font><font style="font-family:Arial;font-size:10pt;">. Apple has filed an appeal of the judgment in the Apple II case with the U.S. Court of Appeals for the Federal Circuit.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Under its agreements with VirnetX, the Company would receive </font><font style="font-family:Arial;font-size:10pt;">25%</font><font style="font-family:Arial;font-size:10pt;"> of the proceeds obtained by VirnetX after reduction for attorneys' fees and costs. However, the verdicts in these cases remain subject to appeal. 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 the Company will receive any proceeds in connection with these jury awards. In addition, if the Company receives any proceeds, the Company is required to pay a royalty to the customer who paid for the development of the technology. </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The Company does not have any assets or liabilities recorded in connection with this matter as of </font><font style="font-family:Arial;font-size:10pt;">March&#160;29, 2019</font><font style="font-family:Arial;font-size:10pt;">.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Government Investigations and Reviews</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The Company is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect to its 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 the Company's business, financial position, results of operations and cash flows due to its reliance on government contracts.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">As of </font><font style="font-family:Arial;font-size:10pt;">March&#160;29, 2019</font><font style="font-family:Arial;font-size:10pt;">, indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2013 and subsequent fiscal years. Although the Company has recorded contract revenues based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company cannot predict the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company's estimates, its profitability may be adversely affected. As of </font><font style="font-family:Arial;font-size:10pt;">March&#160;29, 2019</font><font style="font-family:Arial;font-size:10pt;">, the Company believes it has adequately reserved for potential adjustments from audits or reviews of contract costs.</font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">In February 2019, the Company executed an external restructuring advance agreement with the DoD in accordance with provisions of the Defense Federal Acquisition Regulation Supplement, which allows the Company to recover certain specified external restructuring costs.</font></div></div>

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