NOTE: All other schedules required by Section 29 CFR 2520.103-10 of the Department of Labors Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1.
|
DESCRIPTION OF THE PLAN
|
The following brief description of the Leidos, Inc. Retirement
Plan (the Plan) is for general information purposes only. Participants should refer to the Plan document and the Summary Plan Description dated September 2013 and Prospectus Supplement dated July 2014 for more complete information
regarding the Plan. Within these financial statements, Leidos, Inc. (the Company) refers to the sponsoring employer, and Leidos Holdings, Inc. (Leidos) refers to the publicly-traded parent of the sponsoring employer.
General
The Plan is a defined contribution plan sponsored by the Company and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA), as amended. The Plan is a defined contribution 401(k) plan with profit-sharing and employee stock ownership plan (ESOP) features. Contributions to the Plan from participants and
the Company are held in a qualified retirement trust fund. The Leidos, Inc. Retirement Plans Committee is the Plans named fiduciary for purposes of Section 402(a) of ERISA.
Investment Funds
As of December 31, 2015, the Plan held investments in twelve mutual funds, sixteen common collective trust
funds, and two Company stock funds: the Leidos Common Stock Fund and the Leidos Closed Stock Fund.
As of December 31, 2014, the Plan also
held stock funds within four other company stock funds: the New SAIC Common Stock Fund, the New SAIC Stock Cash, the New SAIC Closed Stock Cash, and the New SAIC Closed Stock Fund. The Leidos Closed Stock Fund and the four New SAIC funds are closed
funds that are no longer available for investment. As of December 31, 2015 and 2014, all amounts in the Leidos Common Stock Fund and Leidos Closed Stock Fund are invested in Leidos Holdings, Inc. common stock and as of December 31, 2014, all amounts
in the New SAIC Common Stock Fund, New SAIC Stock Cash, New SAIC Closed Stock Cash, and New SAIC Closed Stock Fund were invested in New SAIC common stock, except for estimated cash reserves, which are invested in the Vanguard Prime Money Market Fund
and are primarily used to provide future benefit distributions and facilitate investment exchanges. There were no funds invested in New SAIC common stock as of December 31, 2015.
Eligibility
Employees of the Company and its subsidiaries that have adopted the Plan are eligible to participate in the
Plan. Employees must be in an eligible fringe benefit package to be eligible to receive Company matching 401(k) contributions, profit sharing contributions, and ESOP contributions. Employees may make elective contributions and receive Company
matching 401(k) contributions upon commencing employment.
Participant Contributions
The Plan permits participants to
contribute up to 75% of their eligible compensation to the Plan, subject to statutory limitations. Participants who have attained the age of 50 before the end of the plan year are eligible to make catch-up contributions. Participants may also
contribute amounts representing rollovers from other qualified plans. Participant contributions are invested according to participant direction into any of the available investment funds of the Plan. Participant contributions and rollovers to the
Leidos Common Stock Fund are limited to a maximum 50% of the employee deferral or rollover, as applicable.
Employer
Contributions
The Company may make discretionary contributions, which include matching 401(k) contributions, profit sharing contributions, and ESOP contributions. Effective January 1, 2014, eligible participants may receive Company
matching 401(k) contributions based on a maximum match percentage of 50%, depending on fringe level, of the first 6% of eligible compensation contributed to the Plan (up to a maximum match percentage of 3%), which are invested per participant
direction. Please refer to the Plan document for further details. The Company, at its discretion, may also make additional contributions to the Plan for the benefit of non-highly compensated participants in order to comply with Section 401(k) (3) of
the Internal Revenue Code. The Company made no additional contributions for the benefit of non-highly compensated participants for the Plan years ended December 31, 2015 and 2014. Company contributions to the Plan for the Plan years ended December
31, 2015 and 2014 were made in cash and transfers from the forfeiture account.
For the years ended December 31, 2015 and 2014, the
Company elected to make a profit sharing contribution of 2% of eligible compensation to all eligible employees that meet certain criteria including being employed at the Company on the last business day of the Plan year.
Participant Accounts
In accordance with Plan provisions, individual accounts are maintained for each Plan participant. Each
participants account is credited with the participants contributions, and if eligible, allocations of Company discretionary contributions. Allocations are based on participant eligible compensation, as defined in the Plan document.
Participant accounts also reflect changes from investment income and losses and from distributions. The benefit to which a participant is entitled is the vested balance of his or her account.
5
LEIDOS, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS(Continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Vesting and Forfeitures
Participants elective deferrals and rollover
contributions together with associated earnings vest immediately. Company contributions vest 20% for each calendar year during which the participant works at least 850 hours and become fully vested after the participant completes five years of
vesting service, as defined by the Plan. In addition, participants become fully vested in Company contributions while employed with the Company upon reaching age 59-1/2, permanent disability, or death. Upon termination of employment with the
Company, participants forfeit any portion of Company contributions that have not yet vested. Forfeitures may be applied to future Company matching 401(k) contributions, to provide reinstatements due to military leave, to increase profit sharing or
ESOP contributions, or to pay Plan expenses. During the years ended December 31, 2015 and 2014, the Company applied forfeited non-vested amounts of approximately $2,003,000 and $6,525,000, respectively, primarily toward Company matching 401(k)
contributions. As of December 31, 2015 and 2014, forfeited non-vested accounts available for application by the Company totaled approximately $4,494,000 and $2,292,000, respectively.
Notes Receivable from Participants
Participants may borrow up to 50% of their vested account balance, up to a maximum of
$50,000. Loan repayment periods may not exceed 60 months except for loans used to acquire a principal residence, in which case the repayment period may not exceed 30 years. The loans are secured by the vested account balance in the
participants account and bear interest at a rate commensurate with local prevailing rates as determined monthly by the Plan administrator. Principal and interest are collected ratably through payroll deductions. As of December 31, 2015,
outstanding loans bear interest at rates ranging from 4.25% to 10.0%, and have maturities from January 2016 through November 2045.
Distributions to Participants
For vested account balances less than $5,000, participants receive their vested account
balance in a single lump sum within twelve calendar months following termination of employment with the Company. For vested account balances that exceed $5,000, a participants vested account balance is not distributed unless the participant
elects to take a distribution following the participants termination of employment with the Company. Regardless of the existing account balance, distributions are made to participants who die or become permanently disabled while employed by
the Company. After attaining age 59-1/2, a participant may make withdrawals even if still employed by the Company. A participant may make withdrawals from the Plan prior to attaining age 59-1/2 of their rollover account or if the participant incurs
a financial hardship, as specified by the Plan. Former employees, regardless of their age, may elect to receive up to two distributions in any given Plan year, of all or a portion of their account balance. Total distribution payments declined from
2014 to 2015, due to reduction in employee turnover.
Tax Status
The Internal Revenue Service (IRS) has
determined and informed the Company by a letter dated March 10, 2015, that the Plan was designed in accordance with the applicable requirements of the Internal Revenue Code. Accordingly, no provision for income taxes has been included in the
Plans financial statements. Although the Plan has been amended since receiving the March 10, 2015 letter, the Plan administrator and the Plans tax counsel believe that the Plan is designed, and is currently being operated, in compliance
with the applicable requirements of the Internal Revenue Code and, therefore, believe that the Plan is qualified, and the related trust is tax-exempt.
Termination of the Plan
Although it has not expressed any intent to do so, the Company has the right under the Plan to
discontinue its contributions and to terminate the Plan at any time subject to the provisions of ERISA. Upon termination of the Plan, the participants become 100% vested in any unvested portion of their accounts.
Related-Party Transactions
Certain Plan investments are managed by The Vanguard Group, the Plans record-keeper;
therefore, transactions with these investments qualify as party-in-interest transactions. Fees paid to the record-keeper were approximately $2,369,000 and $2,404,000 for the Plan years ended December 31, 2015 and 2014, respectively. There were no
amounts payable to the Plans record-keeper as of December 31, 2015 and December 31, 2014. Members of the Companys Retirement Plans Committee also participate in the Plan. The Company pays directly any other fees related to the
Plans operation.
At December 31, 2015 and 2014, the following Leidos Holdings, Inc. and New SAIC shares were held by the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Cost
Basis
|
|
|
Fair
Value
|
|
|
|
|
|
|
(in thousands)
|
|
At December 31, 2015:
|
|
|
|
|
|
|
|
|
Leidos Holdings, Inc. common stock
|
|
|
7,152
|
|
|
$
|
210,462
|
|
|
$
|
401,224
|
|
At December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leidos Holdings, Inc. common stock
|
|
|
7,645
|
|
|
$
|
215,278
|
|
|
$
|
332,362
|
|
New SAIC common stock
|
|
|
2,420
|
|
|
$
|
44,685
|
|
|
$
|
98,012
|
|
6
LEIDOS, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS(Continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
The Plans
financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Investment transactions are accounted for on their trade dates.
Investment Valuation and Income Recognition
Investments held by the Plan are carried at fair value as follows:
Investment in Mutual Funds
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan
are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held by the Plan are deemed
to be actively traded.
Investment in Common Collective Trusts
As of December 31, 2015, the Plan held
investments in sixteen common collective trusts (CCTs): a series of Vanguard Target Retirement Trusts Plus; the Wellington Trust Small Cap 2000 Portfolio; the Wellington Trust TIPS Portfolio; the Loomis Sayles Core Plus Fixed Income
Portfolio; and the T. Rowe Price U.S. Mid Cap Value Equity Trust. The Plans investments in CCTs are valued at NAV. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value
of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Participant
transactions (purchases and sales) may occur daily. Were the Plan to initiate a full redemption of the CCTs, the investment advisor reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations
will be carried out in an orderly business manner.
Investment in Common Stock
Investments in shares of Leidos
Holdings, Inc. common stock and New SAIC common stock, which are publicly traded on the New York Stock Exchange, are recorded at their publicly-traded quoted market price as of December 31, 2015 and 2014 for the Leidos Holdings, Inc. common stock
and as of December 31, 2014 for the New SAIC common stock.
I
n
ve
s
tm
e
nt
G
ains
and
Lo
ss
e
s
Realized gains and losses on sales of investments are calculated as the difference between the fair value of the investments upon sale and the fair value of the
investments at purchase. Unrealized appreciation or depreciation is calculated as the difference between the fair value of the investments at the end of the year and the fair value of the investments at the beginning of the year or at purchase if
purchased during the year. Net appreciation in fair value of investments decreased from 2014 to 2015, mainly due to the decline in the fair value of mutual funds and common collective funds. Interest income is recorded on the accrual basis of
accounting. Dividends are recorded on the ex-dividend date.
Notes Receivable from Participants
Notes receivables from
participants are carried at the aggregate unpaid principal balance of loans outstanding. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for
credit losses has been recorded as of December 31, 2015 or 2014. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit
payment is recorded.
Benefits Payable
Benefit payments to participants are recorded upon distribution. There were no
significant benefits payable to participants who had elected to withdraw from the Plan, but had not yet been paid as of December 31, 2015 and 2014.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires Plan management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of additions
and deductions during the reporting periods. Actual results may differ from those estimates.
Administrative
Expenses
Administrative expenses of the Plan are paid by the Plan sponsor or Plan participants as provided in the Plan document.
Reclassifications
Certain reclassifications have been made to prior years financial statements in order to conform
with the current year presentation. These reclassifications had no impact on net assets available for benefits or changes in net assets available for benefits.
Subsequent Events
The Plan has evaluated subsequent events through the date the financial statements were available to be
issued. Besides the event mentioned below, no other material events were identified during that period.
In January 2016, Leidos
announced its intent to merge with Lockheed Martins Information Systems & Global Solutions Business (IS&GS) in a Reverse Morris Trust transaction. Once the transaction is complete, the total number of employees is expected to increase
significantly. Leidos expects to complete the merger before the end of 2016. The potential impact of this merger, if any, on the net assets or future operations of the Plan is unknown at this time.
7
LEIDOS, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS(Continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Recently Issued Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
. The amendments in this ASU remove the requirement to categorize within the fair value hierarchy
all investments for which fair value is measured using the net asset value per share practical expedient. However, sufficient information must be provided to permit reconciliation of the fair value of assets categorized within the fair value
hierarchy to the amounts presented in the statement of financial position. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share
practical expedient. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. Upon adoption, the amendments shall be applied retrospectively to all periods presented. The Plan
adopted this ASU for the 2015 plan year, and it was retrospectively applied to the 2014 plan year. Prior year disclosures have been revised to reflect the retrospective application of this ASU. The impact of adopting this ASU is reflected in Note 3.
In July 2015, the FASB issued ASU No. 2015-12,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution
Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965) (I) Fully Benefit-Responsive Investment Contracts, (II) Plan Investment Disclosures, and (III) Measurement Date Practical Expedient (a consensus of the FASB Emerging
Issues Task Force)
. The purpose of this ASU is to simplify plan accounting.
|
|
|
The amendments in Part I of this ASU designate contract value as the only required measure for direct investments in fully benefit-responsive investment contracts. Fully benefit-responsive investment contracts will be
presented at contract value; accordingly there will no longer be an adjustment from fair value to contract value on the face of the financial statements.
|
|
|
|
The amendments in Part II of this ASU will eliminate the requirements for plans to disclose (1) individual investments that represent 5 percent or more of net assets available for benefits and (2) the net appreciation
or depreciation for investments by general type for both participant directed investments and nonparticipant-directed investments. The net appreciation or depreciation in investments for the period will still be required to be presented in the
aggregate. In addition, if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820 and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of
Employee Benefit Plan, as a direct filing entity, disclosure of that investments strategy will no longer be required.
|
|
|
|
The amendments in Part III of this ASU reduce complexity in employee benefit plan accounting by providing a practical expedient that permits plans to measure investments and investment-related accounts as of a month-end
date that is closest to the plans fiscal year-end, when the fiscal period does not coincide with month-end.
|
This ASU
may be adopted in whole or by part (I, II, and III), as applicable. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. Upon adoption, the amendments in Parts I and II shall be
applied retrospectively to all periods presented; the amendments in Part III shall be applied prospectively. The Plan adopted this ASU for the 2015 plan year, and the amendments in Part II were retrospectively applied to the 2014 plan year. Parts I
and III are not applicable to the Plan. The impact of adopting this ASU is reflected in Note 3.
In January 2016, FASB issued ASU No.
2016-01,
Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. With certain exceptions, early adoption is not permitted. Plan
management is currently evaluating the impact that ASU 2016-01 will have on its financial statements.
8
LEIDOS, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS(Continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
3.
|
FAIR VALUE MEASUREMENTS
|
Accounting guidance has been issued that establishes a framework for measuring
fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
|
|
|
Level 1
|
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.
|
|
|
Level 2
|
|
Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices
that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input
must be observable for substantially the full term of the asset or liability.
|
|
|
Level 3
|
|
Inputs to the valuation methodology are unobservable to the fair value measurement of assets or liabilities and are used to the extent that observable inputs are not available.
|
The availability of observable market data is monitored to assess the appropriate classification of financial instruments
within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the
end of the reporting period.
The following table sets forth by level, within the fair value hierarchy, the Plans investments at fair value, on a
recurring basis as of December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for Identical
Assets
|
|
|
Other Observable Inputs
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Total
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
3,248,483
|
|
|
$
|
3,382,650
|
|
|
$
|
|
|
|
$
|
113,108
|
|
|
$
|
3,248,483
|
|
|
$
|
3,495,758
|
|
Common stock
|
|
|
401,224
|
|
|
|
430,374
|
|
|
|
|
|
|
|
|
|
|
|
401,224
|
|
|
|
430,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
3,649,707
|
|
|
$
|
3,813,024
|
|
|
$
|
|
|
|
$
|
113,108
|
|
|
|
3,649,707
|
|
|
|
3,926,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,910,569
|
|
|
|
1,824,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,560,276
|
|
|
$
|
5,750,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Certain investments that were measured at NAV per share or its equivalent have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the
fair value hierarchy to the line items presented in the statements of net assets available for benefits. These investments, which represent the Plans investments in common collective trust, have no unfunded commitments, have a daily redemption
frequency and do not have a redemption notice period.
|
The Plan did not have any Level 3 investments for the years ended December 31, 2015
and 2014.
9
LEIDOS, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS(Continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
4.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
|
The following is a reconciliation
of net assets available for benefits as of December 31, 2015 and 2014 as reported in the financial statements to Schedule H on Form 5500:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net assets available for benefits as reported in financial statements
|
|
$
|
5,607,154
|
|
|
$
|
5,832,258
|
|
Participant loans deemed distributed
|
|
|
(2,742
|
)
|
|
|
(2,803
|
)
|
Deemed loans repaid
|
|
|
1,763
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits reported on Schedule H on
Form 5500
|
|
$
|
5,606,175
|
|
|
$
|
5,829,891
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of decrease in net assets available for benefits per the financial
statements to net loss per
Form 5500 for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Decrease in net assets available for benefits per the financial statements
|
|
$
|
(225,104
|
)
|
|
$
|
(75,643
|
)
|
Net change in participant loans deemed distributed
|
|
|
61
|
|
|
|
(56
|
)
|
Net change in deemed loans repaid
|
|
|
1,328
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
Net loss per Form 5500
|
|
$
|
(223,715
|
)
|
|
$
|
(75,613
|
)
|
|
|
|
|
|
|
|
|
|
5.
|
RISKS AND UNCERTAINTIES
|
The Plan invests in various securities. Investment
securities, in general, are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with investment securities, it is reasonably possible that changes in the values
of certain investment securities will occur in the near term and that such change could materially affect the amounts reported in the statements of net assets available for benefits.
******
10