2020 Q2 Form 10-Q Financial Statement

#000133692020000038 Filed on May 05, 2020

View on sec.gov

Income Statement

Concept 2020 Q2 2019 Q1
Revenue $2.889B $2.577B
YoY Change 5.9% 5.49%
Cost Of Revenue $2.494B $2.221B
YoY Change 6.22% 6.47%
Gross Profit $395.0M $356.0M
YoY Change 3.95% -0.28%
Gross Profit Margin 13.67% 13.81%
Selling, General & Admin $197.0M $166.0M
YoY Change 12.57% -6.74%
% of Gross Profit 49.87% 46.63%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $61.00M $58.00M
YoY Change 335.71% -7.94%
% of Gross Profit 15.44% 16.29%
Operating Expenses $197.0M $166.0M
YoY Change 12.57% -6.74%
Operating Profit $192.0M $192.0M
YoY Change -8.57% 20.75%
Interest Expense -$42.00M -$34.00M
YoY Change 55.56% 13.33%
% of Operating Profit -21.88% -17.71%
Other Income/Expense, Net -$14.00M $92.00M
YoY Change -800.0%
Pretax Income $130.0M $246.0M
YoY Change -27.37% 96.8%
Income Tax $15.00M $57.00M
% Of Pretax Income 11.54% 23.17%
Net Earnings $115.0M $189.0M
YoY Change -15.44% 85.29%
Net Earnings / Revenue 3.98% 7.33%
Basic Earnings Per Share $0.81 $1.30
Diluted Earnings Per Share $0.80 $1.29
COMMON SHARES
Basic Shares Outstanding 142.0M shares 145.0M shares
Diluted Shares Outstanding 144.0M shares 147.0M shares

Balance Sheet

Concept 2020 Q2 2019 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $445.0M $536.0M
YoY Change -32.58% 149.3%
Cash & Equivalents $445.0M $536.0M
Short-Term Investments
Other Short-Term Assets $630.0M $430.0M
YoY Change 52.91%
Inventory
Prepaid Expenses
Receivables $1.793B $1.894B
Other Receivables $0.00 $0.00
Total Short-Term Assets $2.868B $2.860B
YoY Change -1.58% 8.54%
LONG-TERM ASSETS
Property, Plant & Equipment $490.0M $220.0M
YoY Change 126.85% -3.08%
Goodwill $5.719B $4.871B
YoY Change 17.65% -2.11%
Intangibles $950.0M $613.0M
YoY Change 66.37% -23.95%
Long-Term Investments
YoY Change
Other Assets $422.0M $390.0M
YoY Change 10.47% 44.98%
Total Long-Term Assets $8.120B $6.500B
YoY Change 26.62% 3.54%
TOTAL ASSETS
Total Short-Term Assets $2.868B $2.860B
Total Long-Term Assets $8.120B $6.500B
Total Assets $10.99B $9.360B
YoY Change 17.81% 5.02%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $1.413B $1.258B
YoY Change 14.51% -22.44%
Accrued Expenses $664.0M $514.0M
YoY Change 9.03% 35.62%
Deferred Revenue $420.0M $484.0M
YoY Change 24.26% 19.21%
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due $1.793B $66.00M
YoY Change 2658.46% -18.52%
Total Short-Term Liabilities $4.290B $2.322B
YoY Change 91.01% 10.41%
LONG-TERM LIABILITIES
Long-Term Debt $2.444B $2.966B
YoY Change -17.26% -1.36%
Other Long-Term Liabilities $219.0M $276.0M
YoY Change -25.76% 86.49%
Total Long-Term Liabilities $219.0M $276.0M
YoY Change -25.76% 86.49%
TOTAL LIABILITIES
Total Short-Term Liabilities $4.290B $2.322B
Total Long-Term Liabilities $219.0M $276.0M
Total Liabilities $4.509B $2.598B
YoY Change 77.45% 15.42%
SHAREHOLDERS EQUITY
Retained Earnings $961.0M $562.0M
YoY Change 47.39% 1418.92%
Common Stock $0.00 $0.00
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $3.355B $3.294B
YoY Change
Total Liabilities & Shareholders Equity $10.99B $9.360B
YoY Change 17.81% 5.02%

Cashflow Statement

Concept 2020 Q2 2019 Q1
OPERATING ACTIVITIES
Net Income $115.0M $189.0M
YoY Change -15.44% 85.29%
Depreciation, Depletion And Amortization $61.00M $58.00M
YoY Change 335.71% -7.94%
Cash From Operating Activities $372.0M $288.0M
YoY Change 100.0% 1209.09%
INVESTING ACTIVITIES
Capital Expenditures -$44.00M -$30.00M
YoY Change 175.0% -300.0%
Acquisitions $1.642B $0.00
YoY Change -100.0%
Other Investing Activities -$1.000M $0.00
YoY Change
Cash From Investing Activities -$1.685B $237.0M
YoY Change 10431.25% -346.88%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $8.000M
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities $1.161B -$297.0M
YoY Change -1914.06% 226.37%
NET CHANGE
Cash From Operating Activities $372.0M $288.0M
Cash From Investing Activities -$1.685B $237.0M
Cash From Financing Activities $1.161B -$297.0M
Net Change In Cash -$152.0M $228.0M
YoY Change -243.4% -238.18%
FREE CASH FLOW
Cash From Operating Activities $372.0M $288.0M
Capital Expenditures -$44.00M -$30.00M
Free Cash Flow $416.0M $318.0M
YoY Change 105.94% 4442.86%

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<div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:700;line-height:120%;">Note 14–Contingencies </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:120%;">Legal Proceedings</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:700;line-height:120%;"> </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">MSA Joint Venture</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">On November 10, 2015, MSA received a final decision by the Department of Energy ("DoE") contracting officer for the Mission Support Contract concluding that certain payments to MSA by the DoE for the performance of IT services by Lockheed Martin Services, Inc. ("LMSI") under a subcontract to MSA constituted alleged affiliate fees in violation of Federal Acquisition Regulations ("FAR"). Lockheed Martin Integrated Technology LLC (now known as Leidos Integrated Technology LLC) is a member entity of MSA. Subsequent to the contracting officer's final decision, MSA, LMSI, and Lockheed Martin Corporation received notice from the U.S. Attorney's Office for the Eastern District of Washington that the U.S. government had initiated a False Claims Act investigation into the facts surrounding this dispute. On February 8, 2019, the Department of Justice filed a complaint in the United States District Court for the Eastern District of Washington against MSA, Lockheed Martin Corporation, Lockheed Martin Services, Inc. and a Lockheed Martin employee ("Defendants"). The complaint alleges violations of the False Claims Act, the Anti-Kickback Act and breach of contract with the DoE, among other things. On January 13, 2020, the Defendants' motions to dismiss were granted in part and denied in part. Litigation will proceed for the False Claims Act and other common law claims, although the Anti-Kickback Act claim has been dismissed with prejudice. The U.S. Attorney's office had previously advised that a parallel criminal investigation was open, although no subjects or targets of the investigation had been identified. The U.S. Attorney's office has informed MSA that it has closed the criminal investigation.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">Since this issue first was raised by the DoE, MSA has asserted that the IT services performed by LMSI under a fixed-price/fixed-unit rate subcontract approved by the DoE meet the definition of a "commercial item" under the FAR and any profits earned on that subcontract are permissible. MSA filed an appeal of the contracting officer's decision with the Civilian Board of Contract Appeals ("CBCA"), which was stayed pending resolution of the False Claims Act matter. Subsequent to the filing of MSA's appeal, the contracting officer demanded that MSA reimburse the DoE in the amount of $64 million, which was his estimate of the profits earned during the period from 2010 to 2014 by LMSI. The DoE has deferred collection of $32 million of that demand, pending resolution of the appeal and without prejudice to MSA's position that it is not liable for any of the DOE's $64 million reimbursement claim. On December 10, 2019, MSA received a second final decision by the DoE contracting officer, estimating approximately $29 million in alleged unallowable profit and associated general and administrative costs during the period from 2015 to 2016 by LMSI. MSA filed an appeal of the second contracting officer's decision, which has been consolidated with the prior proceeding before the CBCA and stayed pending resolution of the False Claims Act matter. The DoE and MSA also executed an agreement to defer the entire amount of the disallowed costs from the second contracting officer's final decision until the CBCA proceedings are finally resolved. Leidos has agreed to indemnify Jacobs Group, LLC and Centerra Group, LLC for any liability MSA incurs in this matter. Under the terms of the Separation Agreement, Lockheed Martin agreed to indemnify Leidos for 100% of any damages in excess of $38 million up to $64 million, and 50% of any damages in excess of $64 million, with respect to claims asserted against MSA related to this matter. </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">At April 3, 2020, we had a liability of $42 million recorded in the condensed consolidated balance sheets for this matter. The amount of possible loss ultimately incurred, if any, is subject to a range of complex factors and potential outcomes that remain to be determined, including information gathered during the course of litigation, pretrial and trial rulings and other litigation-related developments.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">Securities Litigation</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">Between February and April 2012, alleged stockholders filed three putative securities class actions against Leidos and several former executives relating to a contract to develop and implement an automated time and attendance and workforce management system for certain agencies of the City of New York ("CityTime"). One case was withdrawn and two cases were consolidated in the U.S. District Court for the Southern District of New York in </span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">In Re: SAIC, Inc. Securities Litigation</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">. The consolidated securities complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that Leidos and individual defendants made misleading statements or omissions about revenues, operating income and internal controls in connection with disclosures relating to the CityTime project. The plaintiffs sought to recover from Leidos 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. Leidos 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 Leidos' 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 Leidos. On October 2, 2019, the court granted preliminary approval of the proposed settlement. The amounts payable by Leidos are covered by an insurance policy.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">Arbitration Proceeding</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">Leidos is a party to an arbitration proceeding involving a claim by Lockheed Martin for indemnification for $56 million in taxes attributable to deferred revenue recognized as a result of the acquisition of Lockheed Martin's Information Systems &amp; Global Solutions business. Based on the arguments advanced to date, Leidos believes that the claim appears to be without merit and intends to vigorously defend itself in arbitration. We do not believe that a material loss is probable, and have therefore not recorded any liability for this matter. </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">Other</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">We are also involved in various claims and lawsuits arising in the normal conduct of our business, none of which, in the opinion of management, based upon current information, will likely have a material adverse effect on our financial position, results of operations or cash flows.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:120%;">Other Contingencies</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">VirnetX, Inc.</span><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;"> </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">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 $343 million in pre-interest damages. The court subsequently awarded an additional sum of over $96 million for costs, attorneys' fees, and interest, bringing the total award to VirnetX in the Apple I case to over $439 million. 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 $439 million judgment. On August 1, 2019, the U.S. Court of Appeals for the Federal Circuit denied Apple’s petition for panel and en banc rehearing, but Apple subsequently filed motions to stay and vacate the judgment, and for leave to file a second petition for rehearing. These motions were denied by the court on October 1, 2019. On December 27, 2019, Apple filed a petition in the Apple I matter for a writ of certiorari with the United States Supreme Court, which was denied on February 24, 2020. On February 20, 2020, Apple filed a Motion for Relief from Judgment in the U.S. District Court for the Eastern District of Texas, further arguing that VirnetX should not be allowed to recover the large amount of damages awarded in this case. On March 13, 2020, VirnetX announced that it had received payment from Apple of over $454 million, which represents the judgment with interest for the Apple I matter. However, the Motion remains pending, with Apple indicating it may seek restitution of its payment to VirnetX.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">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.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">Under our agreements with VirnetX, Leidos would receive 25% of the proceeds obtained by VirnetX after reduction for attorneys' fees and costs. However, the verdicts in these cases remain 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. </span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">We do not have any assets or liabilities recorded in connection with this matter as of April 3, 2020.</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-style:italic;font-weight:400;line-height:120%;">Government Investigations and Reviews</span></div><div style="margin-top:6pt;"><span style="background-color:rgb(255,255,255, 0.0);color:#000000;font-family:'Arial',sans-serif;font-size:10pt;font-weight:400;line-height:120%;">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.</span></div>As of April 3, 2020, indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2013 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 April 3, 2020, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

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