Amentum Holdings, Inc. 10-Q

Item 1. Financial Statements (Unaudited) AMENTUM HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except per share data) December 27, 2024 September 27, 2024 ASSETS Current assets: Cash and cash equivalents $ 522 $ 452 Accounts receivable, net 2,405 2,401 Prepaid expenses and other current assets 213 231 Total current assets 3,140 3,084 Property and equipment, net 140 144 Equity method investments 124 123 Goodwill 5,588 5,556 Intangible assets, net 2,503 2,623 Other long-term assets 424 444 Total assets $ 11,919 $ 11,974 LIABILITIES Current liabilities: Current portion of long-term debt $ 44 $ 36 Accounts payable 726 764 Accrued compensation and benefits 691 696 Contract liabilities 143 113 Other current liabilities 367 356 Total current liabilities 1,971 1,965 Long-term debt, net of current portion 4,636 4,643 Deferred tax liabilities 347 370 Other long-term liabilities 402 444 Total liabilities 7,356 7,422 Commitments and contingencies (Note 14) SHAREHOLDERS' EQUITY Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 243,302,257 shares issued and outstanding at December 27, 2024 and 243,302,173 shares issued and outstanding at September 27, 2024. 2 2 Additional paid-in capital 4,965 4,962 Retained deficit ( 515 ) ( 527 ) Accumulated other comprehensive income 23 23 Total Amentum shareholders' equity 4,475 4,460 Non-controlling interests 88 92 Total shareholders' equity 4,563 4,552 Total liabilities and shareholders' equity $ 11,919 $ 11,974 See notes to unaudited condensed consolidated financial statements 4 AMENTUM HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in millions, except per share data) Three Months Ended December 27, 2024 December 29, 2023 Revenues $ 3,416 $ 1,983 Cost of revenues ( 3,055 ) ( 1,789 ) Selling, general, and administrative expenses ( 130 ) ( 67 ) Amortization of intangibles ( 120 ) ( 56 ) Equity earnings of non-consolidated subsidiaries 21 15 Operating income 132 86 Interest expense and other, net ( 87 ) ( 111 ) Income (loss) before income taxes 45 ( 25 ) Provision for income taxes ( 24 ) ( 14 ) Net income (loss) 21 ( 39 ) Less: net income attributable to non-controlling interests ( 9 ) ( 2 ) Net income (loss) attributable to common shareholders $ 12 $ ( 41 ) Earnings (loss) per share: Basic $ 0.05 $ ( 0.46 ) Diluted $ 0.05 $ ( 0.46 ) See notes to unaudited condensed consolidated financial statements 5 AMENTUM HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in millions) Three Months Ended December 27, 2024 December 29, 2023 Net income (loss) $ 21 $ ( 39 ) Other comprehensive income (loss): Net unrealized gain (loss) on interest rate swaps 22 ( 29 ) Foreign currency translation adjustments ( 18 ) 6 Other comprehensive income (loss) 4 ( 23 ) Income tax (provision) benefit related to items of other comprehensive income (loss) ( 4 ) 4 Other comprehensive loss, net of tax — ( 19 ) Comprehensive income (loss) 21 ( 58 ) Non-controlling interests ( 9 ) ( 2 ) Comprehensive income (loss) attributable to common shareholders $ 12 $ ( 60 ) See notes to unaudited condensed consolidated financial statements 6 AMENTUM HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (in millions) Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Attributable to Amentum Holdings, Inc. Non-controlling Interests Total Shareholders' Equity Balance at September 29, 2023 $ 772 $ ( 445 ) $ 48 $ 375 $ 41 $ 416 Net loss — ( 41 ) — ( 41 ) 2 ( 39 ) Other comprehensive loss, net of tax — — ( 19 ) ( 19 ) — ( 19 ) Equity based compensation and other 3 — — 3 ( 3 ) — Balance at December 29, 2023 $ 775 $ ( 486 ) $ 29 $ 318 $ 40 $ 358 Common Stock Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Attributable to Amentum Holdings, Inc. Non-controlling Interests Total Shareholders' Equity Shares Amount Balance at September 27, 2024 243 $ 2 $ 4,962 $ ( 527 ) $ 23 $ 4,460 $ 92 $ 4,552 Net income — — — 12 — 12 9 21 Distributions to non-controlling interests — — — — — — ( 13 ) ( 13 ) Equity based compensation and other — — 3 — — 3 — 3 Balance at December 27, 2024 243 $ 2 $ 4,965 $ ( 515 ) $ 23 $ 4,475 $ 88 $ 4,563 See notes to unaudited condensed consolidated financial statements 7 AMENTUM HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Three Months Ended December 27, 2024 December 29, 2023 Cash flows from operating activities Net income (loss) $ 21 $ ( 39 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 9 7 Amortization of intangibles 120 56 Amortization of deferred loan costs and original issue discount 3 5 Derivative instruments 3 15 Equity earnings of non-consolidated subsidiaries ( 21 ) ( 15 ) Distributions from equity method investments 21 17 Deferred income taxes ( 15 ) ( 12 ) Equity-based compensation 3 1 Other ( 1 ) ( 2 ) Changes in assets and liabilities, net of effects of business acquisition: Accounts receivable, net ( 27 ) ( 103 ) Prepaid expenses and other assets 35 8 Accounts payable, contract liabilities, and other current liabilities ( 31 ) ( 27 ) Accrued employee compensation and benefits ( 6 ) 8 Other long-term liabilities ( 4 ) ( 2 ) Net cash provided by (used in) operating activities 110 ( 83 ) Cash flows from investing activities Payments for property and equipment ( 8 ) ( 2 ) Contributions to equity method investments ( 1 ) — Other 1 ( 1 ) Net cash used in investing activities ( 8 ) ( 3 ) Cash flows from financing activities Borrowings on revolving credit facilities 210 200 Payments on revolving credit facilities ( 210 ) ( 200 ) Repayments of borrowings under the credit agreement — ( 8 ) Repayments of borrowings under other agreements ( 2 ) ( 3 ) Distributions to non-controlling interests ( 13 ) ( 1 ) Other ( 1 ) ( 2 ) Net cash used in financing activities ( 16 ) ( 14 ) Effect of exchange rate changes on cash ( 16 ) 6 Net change in cash and cash equivalents 70 ( 94 ) Cash and cash equivalents, beginning of period 452 305 Cash and cash equivalents, end of period $ 522 $ 211 Supplemental disclosure of cash flow information Income (taxes paid) tax refunds received, net of receipts $ ( 6 ) $ 2 Interest paid $ ( 39 ) $ ( 94 ) See notes to unaudited condensed consolidated financial statements 8 AMENTUM HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 — Basis of Presentation Amentum Holdings, Inc. (collectively with its subsidiaries, “we,” “us,” “our,” “Amentum,” or the “Company”) is a global advanced engineering and technology solutions provider to a broad base of U.S. and allied government agencies, supporting programs of critical national importance across energy and environmental, intelligence, space, defense, civilian and commercial end-markets. We offer a broad reach of capabilities including intelligence and counter threat solutions, data fusion and analytics, engineering and integration, environmental solutions, advanced test, training and readiness, and citizen solutions. As a leading provider of differentiated technology solutions, we have built a repertoire of deep customer knowledge, enabling us to engage our customers across multiple capabilities and markets. During the three months ended December 27, 2024, we announced the realignment of our reporting structure, which resulted in the identification of two reportable segments: Digital Solutions (“DS”) and Global Engineering Solutions (“GES”). The Digital Solutions segment provides advanced digital and data-driven solutions including intelligence analytics, space system development, cybersecurity, and next generation IT across the federal government and commercial clients. The Global Engineering Solutions segment provides large-scale environmental remediation, clean energy, platform engineering, sustainment and supply chain management across all seven continents for the U.S. government and allied nations. As a result of this change, prior year segment disclosures have been recast to reflect the current reportable segment structure. On September 27, 2024, the spin-off of the Jacobs Solutions Inc. (“Jacobs”) Critical Mission Solutions business and portions of the Jacobs Divergent Solutions business (and, together with the Critical Mission Solutions business, referred to as the “CMS Business” or “CMS”) merged with Amentum Parent Holdings LLC (collectively, the “Transaction”) with the surviving entity renamed Amentum Holdings, Inc. Amentum Parent Holdings LLC is considered the Company’s predecessor, and the historical financial statements of Amentum Parent Holdings LLC prior to September 27, 2024 are reflected in this Quarterly Report on Form 10-Q as the Company’s historical financial statements. Accordingly, the financial results of the Company prior to September 27, 2024 do not include the financial results of CMS, and current and future results will not be comparable to historical results. The accompanying unaudited condensed consolidated financial statements of the Company include the assets, liabilities, results of operations, comprehensive income (loss) and cash flows for the Company, including its wholly-owned subsidiaries and joint ventures that are majority-owned or otherwise controlled by the Company. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the periods presented. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest annual report for the fiscal year ended September 27, 2024. The results of operations for the three months ended December 27, 2024 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year. Note 2 — Recent Accounting Pronouncements Accounting Standards Updates Issued but Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , to improve reportable segment disclosure requirements. This update requires disclosure of significant segment expenses and other segment items in annual and interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendment requires retrospective application to all prior periods presented in the financial statements and early adoption is permitted. We are currently evaluating the impacts of the new standard on our consolidated financial statements. 9 In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , to enhance transparency and usefulness of income tax disclosures. This update requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be applied on a prospective or retrospective basis. Early adoption is permitted. We are currently evaluating the impacts of the new standard on our consolidated financial statements. Note 3 — Acquisition On September 27, 2024, the Company completed its merger with CMS, a leading provider of mission-critical, technology-driven services in government and commercial markets, in a Reverse Morris Trust transaction. Immediately following the Transaction, the Company had approximately 243 million issued and outstanding shares of common stock, of which Jacobs and its shareholders owned 58.5 % of the issued and outstanding shares of common stock, and Amentum Joint Venture LP, our previous parent company (“AJVLP” and “Amentum Equityholder”) owned 37.0 %. Subsequently, Amentum Equityholder distributed its shares of our common stock to certain parties (collectively, “Sponsor Stockholder”). Further, 4.5 % of the issued and outstanding shares of common stock have been placed in escrow, to be released and delivered in the future to Jacobs and its shareholders or to Sponsor Stockholder, depending on the achievement of certain fiscal year 2024 targets by the CMS Business (“Additional Merger Consideration”). The final determination of this Additional Merger Consideration is expected to be completed during the measurement period. The Transaction was accounted for as a business combination. The Company assessed the fair value of the identifiable intangible assets including customer relationships and backlog, which were valued using the excess earnings method of the income approach. This method requires several judgments and assumptions to determine the fair value of the intangible assets including expected future cash flows, weighted-average cost of capital, discount rates, useful lives of assets and expected long-term growth rates. The goodwill recognized was attributable to the synergies expected to be achieved by combining the businesses of Amentum and CMS, expected future contracts and the acquired workforce. The goodwill is partially deductible for tax purposes. The purchase price was allocated, on a preliminary basis, to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess purchase consideration recorded as goodwill. The Company is still evaluating the determination of fair values allocated to various assets and liabilities, including, but not limited to, intangible assets, accounts receivable, other current assets, property and equipment, equity method investments and joint ventures, other long-term assets, income taxes, deferred taxes, accounts payables, other current liabilities, contract liabilities, other long-term liabilities, non-controlling interests, additional merger consideration and goodwill. The allocation of the purchase price is preliminary and subject to change as the Company continues to obtain and assess relevant information that existed as of the acquisition date, including but not limited to, information pertaining to CMS’ legal proceedings, reserves, income taxes, contracts with customers, and pre-acquisition contingencies. Additionally, in connection and in accordance with the terms of the spin-off, prior to the spin-off and Transaction, CMS provided a cash payment to Jacobs of approximately $ 911 million, after adjustments based on the levels of cash, debt and working capital in the CMS Business, which is subject to final settlement between the parties, as set forth in the Merger Agreement, and may result in changes to the purchase price allocation. The Company expects to have sufficient information available to resolve these items within one year of the CMS acquisition date. During the three months ended December 27, 2024, the Company made fair value adjustments which increased goodwill and other current liabilities by $ 32 million and $ 20 million, respectively, and decreased accounts receivable and deferred tax liabilities by $ 22 million and $ 10 million, respectively. The estimated fair value of acquired backlog of $ 270 million is amortized on an accelerated basis over approximately 1 year and the estimated fair value of customer relationship intangible assets of $ 1,590 million is amortized on an accelerated basis over approximately 14 years. The fair value attributed to these intangible assets acquired was based on assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques, and thus represents a Level 3 fair value measurement. The income approach was primarily used to value the intangible assets, consisting primarily of acquired program and contract intangibles and backlog. The income approach indicates value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money. Note 4 — Revenues Disaggregation of Revenues The Company disaggregates revenues by customer, contract type, prime contractor versus subcontractor, geographic location and whether the solution provided is primarily Digital Solutions or Global Engineering Solutions. These categories represent how the nature, amount, timing, and uncertainty of revenues and cash flows are affected. 10 Disaggregated revenues by customer-type were as follows: Three months ended December 27, 2024 December 29, 2023 (Amounts in millions) DS GES Total DS GES Total Department of Defense and U.S. Intelligence Community $ 722 $ 1,046 $ 1,768 $ 351 $ 952 $ 1,303 Other U.S. Government Agencies 416 600 1016 87 373 460 Commercial and International 148 484 632 21 199 220 Total revenues $ 1,286 $ 2,130 $ 3,416 $ 459 $ 1,524 $ 1,983 Disaggregated revenues by contract-type were as follows: Three months ended December 27, 2024 December 29, 2023 (Amounts in millions) DS GES Total DS GES Total Cost-plus-fee $ 785 $ 1,381 $ 2,166 $ 219 $ 1,035 $ 1,254 Fixed-price 359 472 831 155 354 509 Time-and-materials 142 277 419 85 135 220 Total revenues $ 1,286 $ 2,130 $ 3,416 $ 459 $ 1,524 $ 1,983 Disaggregated revenues by prime contractor versus subcontractor were as follows: Three months ended December 27, 2024 December 29, 2023 (Amounts in millions) DS GES Total DS GES Total Prime contractor $ 1,164 $ 1,878 $ 3,042 $ 409 $ 1,351 $ 1,760 Subcontractor 122 252 374 50 173 223 Total revenues $ 1,286 $ 2,130 $ 3,416 $ 459 $ 1,524 $ 1,983 Revenues by geographic location are reported by the country in which the work is performed and were as follows: Three months ended December 27, 2024 December 29, 2023 (Amounts in millions) DS GES Total DS GES Total United States $ 1,222 $ 1,263 $ 2,485 $ 384 $ 1,063 $ 1,447 International 64 867 931 75 461 536 Total revenues $ 1,286 $ 2,130 $ 3,416 $ 459 $ 1,524 $ 1,983 Changes in Estimates on Contracts Changes in estimated contract earnings at completion using the cumulative catch-up method of accounting were recognized in revenues as follows: 11 Three Months Ended ( Amounts in millions) December 27, 2024 December 29, 2023 Favorable earnings at completion adjustments $ 32 $ 24 Unfavorable earnings at completion adjustments ( 24 ) ( 17 ) Net favorable adjustments $ 8 $ 7 Impact on diluted earnings per share attributable to common shareholders (1) $ 0.02 $ 0.07 (1) The impact on diluted loss per share attributable to common shareholders is calculated using our statutory rate. Remaining Performance Obligations As of December 27, 2024, we had a remaining performance obligations balance of $ 12.3 billion and expect to recognize approximately 68 % and 86 % of the remaining performance obligations balance as revenues over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter. Note 5 — Contract Balances The Company's contract balances consisted of the following (in millions): As of Description of Contract Related Balance Classification December 27, 2024 September 27, 2024 Billed and billable receivables Accounts receivable, net $ 1,443 $ 1,378 Contract assets Accounts receivable, net 927 986 Related party receivables Accounts receivable, net 35 37 Long-term contract assets Other long-term assets 138 138 Contract liabilities - deferred revenues and other contract liabilities Contract liabilities ( 143 ) ( 113 ) Contract assets primarily relate to accruals for reimbursable costs and fees in which our right to consideration is conditional. Long-term contract assets relate to a prior acquisition and are discussed further in Note 14 — Legal Proceedings and Commitments and Contingencies. The Company has related party receivables due from our equity method investments, discussed further in Note 10 — Joint Ventures. We recognized revenues of $ 65 million and $ 76 million during the three months ended December 27, 2024 and December 29, 2023, respectively, that was included in Contract liabilities as of September 27, 2024 and September 29, 2023, respectively. Note 6 — Sales of Receivables In March 2024, we entered into a Master Accounts Receivable Purchase Agreement (“MARPA”) with MUFG Bank, Ltd., (the “Purchaser”) for the sale of certain designated eligible U.S. Government receivables. Under the MARPA, the Company can sell certain eligible receivables without recourse for any U.S. Government credit risk. The Company's MARPA activity consisted of the following (in millions): As of and for the Three Months Ended December 27, 2024 Beginning balance: $ 177 Sales of receivables 952 Cash collections ( 945 ) Outstanding balance sold to Purchaser (1) 184 Cash collected, not remitted to Purchaser (2) ( 18 ) Remaining sold receivables $ 166 (1) For the three months ended December 27, 2024, the Company recorded a net cash inflow of $ 7 million in its cash flows from operating activities, respectively, from sold receivables. MARPA cash flows are calculated as the change in the outstanding balance during the fiscal year. 12 (2) Includes the cash collected on behalf of but not yet remitted to the Purchaser as of December 27, 2024. This balance is included in Other accrued liabilities as of the balance sheet date. Note 7 — Goodwill and Intangible Assets Goodwill The table below presents changes in the carrying amount of goodwill for the periods presented: (Amounts in millions) Total Balance as of September 27, 2024 $ 5,556 Acquisition of CMS (1) 32 Balance as of December 27, 2024 $ 5,588 (1) Represents changes to goodwill resulting from measurement period adjustments recorded in fiscal year 2025 associated with the acquisition of CMS purchase price allocation. During the quarter ended December 27, 2024, we performed an interim goodwill impairment test both before and after the business realignment and did not record an impairment charge as a result of the test. Intangible Assets Intangible assets, net consisted of the following: December 27, 2024 September 27, 2024 (Amounts in millions) Gross Carrying Value Accumulated Amortization Net Gross Carrying Value Accumulated Amortization Net Backlog $ 931 $ ( 628 ) $ 303 $ 931 $ ( 552 ) $ 379 Customer relationship intangible assets 2,781 ( 594 ) 2,187 2,781 ( 550 ) 2,231 Capitalized software 23 ( 10 ) 13 23 ( 10 ) 13 Total intangible assets, net $ 3,735 $ ( 1,232 ) $ 2,503 $ 3,735 $ ( 1,112 ) $ 2,623 Amortization expense was $ 120 million and $ 56 million for the three months ended December 27, 2024 and December 29, 2023, respectively. Note 8 — Income Taxes The effective tax rate was 53.3 % and ( 56.0 )% for the three months ended December 27, 2024 and December 29, 2023, respectively. The most significant item contributing to the difference between the statutory U.S. federal corporate tax rate of 21.0% and the Company’s effective tax rate for the three months ended December 27, 2024 and December 29, 2023 was an increase in the valuation allowance against the deferred tax asset related to disallowed interest expense of $ 12 million and $ 23 million, respectively. Note 9 — Debt Debt consisted of the following: 13 As of (Amounts in millions) December 27, 2024 September 27, 2024 Term Loan $ 3,750 $ 3,750 Senior notes 1,000 1,000 Other 15 17 Total debt 4,765 4,767 Unamortized original issue discount and unamortized deferred financing costs ( 85 ) ( 88 ) Total debt, net of original issue discount and deferred financing costs 4,680 4,679 Less current portion of long-term debt ( 44 ) ( 36 ) Total long-term debt, net of current portion $ 4,636 $ 4,643 As amended, the Company’s senior secured credit facility (the “Credit Facility”) consists of a seven year , $ 3,750 million term facility (“Term Loan”) and a five year , $ 850 million revolving facility (“Revolver”), including a $ 200 million letter of credit subfacility and a $ 100 million swingline subfacility. The interest rates applicable to the Term Loan are floating interest rates equal to an Alternate Base Rate or Adjusted Term Secured Overnight Financing Rate plus an applicable margin based upon net leverage ratio. The Term Loan matures on September 27, 2031 and requires quarterly principal amortization payments of $ 9 million commencing March 31, 2025 with the remainder of the principal thereunder being due at maturity. The Revolver matures on September 27, 2029. As of December 27, 2024 and September 27, 2024, the available borrowing capacity under the Credit Facility was $ 788 million and $ 808 million, respectively, and included $ 62 million and $ 42 million, respectively, in issued letters of credit. As of December 27, 2024 and September 27, 2024, there were no amounts borrowed under the Revolver. In August 2024, the Company completed an offering of $ 1,000 million in aggregate principal amount of 7.250 % senior notes due August 1, 2032 (the “Senior Notes”). Interest is payable on February 1 and August 1 of each year, commencing on February 1, 2025. The Credit Facility and the Senior Notes are guaranteed by substantially all of our wholly owned material domestic restricted subsidiaries, subject to customary exceptions set forth in the credit agreement and indenture, respectively. Each of the credit agreement and indenture requires us to comply with certain representations and warranties, customary affirmative and negative covenants and, in the case of the Revolver, under certain circumstances, a financial covenant. We were in compliance with all covenants as of December 27, 2024. Cash Flow Hedges The Company utilizes derivative financial instruments to manage interest rate risk related to its variable rate debt. The Company’s objective is to manage its exposure to interest rate movements and reduce volatility of interest expense. The Company entered into several interest rate swaps with an aggregate notional value of $ 1.9 billion that were designated as cash flow hedges, in which the Company will pay at the fixed rate and receive payment at a floating rate indexed to the three-month term SOFR through maturity. The swaps mature at various dates through January 31, 2027. The change in fair value of the interest rate swaps is presented within accumulated other comprehensive income on our consolidated balance sheet and subsequently reclassified into interest expense and other, net on our consolidated statements of income and comprehensive loss in the period when the hedged transaction affects earnings. Note 10 — Joint Ventures The Company’s joint ventures provide services to customers including program management and operations and maintenance services. Joint ventures, the combination of two or more partners, are generally formed for a specific project. Management of the joint venture is typically controlled by a joint venture executive committee, comprised of representatives from the joint venture partners. The joint venture executive committee normally provides management oversight and controls decisions which could have a significant impact on the joint venture. We account for joint ventures in accordance with ASC 810, Consolidation . The Company analyzes its joint ventures and classifies them as either: 14 • a VIE that must be consolidated because the Company is the primary beneficiary or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or • a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest. The following table presents selected financial information for our consolidated joint ventures that are VIEs as of December 27, 2024 and September 27, 2024: As of (Amounts in millions) December 27, 2024 September 27, 2024 Cash and cash equivalents $ 143 $ 160 Current assets 305 322 Non-current assets 3 2 Total assets $ 451 $ 484 Current liabilities $ 160 $ 190 Non-current liabilities 1 1 Total liabilities 161 191 Total Amentum equity 226 228 Non-controlling interests 64 65 Total equity 290 293 Total liabilities and equity $ 451 $ 484 The following table presents selected financial information for our consolidated joint ventures that are VIEs for the three months ended December 27, 2024 and December 29, 2023: For the three months ended (Amounts in millions) December 27, 2024 December 29, 2023 Revenues $ 376 $ 69 Cost of revenues ( 336 ) ( 58 ) Net income 39 10 The Company has an ownership share in approximately 25 active joint ventures that are accounted for as equity method investments and the Company’s ownership percentages generally range from 10 % to 51 %. Related party receivables due from our equity method investments were $ 35 million and $ 37 million as of December 27, 2024 and September 27, 2024, respectively. These receivables are a result of items purchased and services rendered by us on behalf of our equity method investments. We have assessed these receivables as having minimal collection risk based on our historic experience with these joint ventures and our inherent influence through our ownership interest. The related party revenues earned from our equity method investments was $ 44 million and $ 28 million for the three months ended December 27, 2024 and December 29, 2023, respectively. Many of our joint ventures only perform on a single contract. The modification or termination of a contract under a joint venture could trigger an impairment in the fair value of our investment in these entities. In the aggregate, our maximum exposure to losses was $ 124 million related to our equity method investments as of December 27, 2024. Note 11 — Accumulated Other Comprehensive Income (Loss) The accumulated balances and reporting period activities for the three months ended December 27, 2024 and December 29, 2023 related to accumulated other comprehensive income (loss) are summarized as follows: 15 Gain (Loss) on Derivative Instruments Foreign Currency Translation Adjustments Pension Related Adjustments Income Tax (Provision) Benefit Related to Items of Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) (Amounts in millions) Balance at September 27, 2024 $ ( 22 ) $ 3 $ 55 $ ( 13 ) $ 23 Other comprehensive (loss) income before reclassification 25 ( 18 ) — ( 4 ) 3 Amounts reclassified from accumulated other comprehensive (loss) income ( 3 ) — — — ( 3 ) Balance at December 27, 2024 $ — $ ( 15 ) $ 55 $ ( 17 ) $ 23 Gain (Loss) on Derivative Instruments Foreign Currency Translation Adjustments Pension Related Adjustments Income Tax (Provision) Benefit Related to Items of Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) (Amounts in millions) Balance at September 29, 2023 $ 25 $ ( 5 ) $ 46 $ ( 18 ) $ 48 Other comprehensive (loss) income before reclassification ( 27 ) 6 — 4 ( 17 ) Amounts reclassified from accumulated other comprehensive (loss) income ( 2 ) — — — ( 2 ) Balance at December 29, 2023 $ ( 4 ) $ 1 $ 46 $ ( 14 ) $ 29 Note 12 — Segment Information In the first quarter of fiscal year 2025, we amended our organizational structure, which resulted in the identification of two reportable segments: Digital Solutions (“DS”) and Global Engineering Solutions (“GES”). The Digital Solutions segment provides advanced digital and data-driven solutions including intelligence analytics, space system development, cybersecurity, and next generation IT across the federal government and commercial clients. The Global Engineering Solutions segment provides large-scale environmental remediation, clean energy, platform engineering, sustainment and supply chain management across all seven continents for the U.S. government and allied nations. The presentation of financial results as two reportable segments is consistent with the way the Company operates its business and the manner in which our chief operating decision maker (“CODM”), currently our Chief Executive Officer, manages the operations of the Company for purposes of allocating resources and assessing performance. The CODM evaluates the performance of our segments based on revenues and Adjusted EBITDA. Prior year performance measures have been recast to reflect the current reportable segment structure. The Company’s segment revenues were as follows: Three months ended December 27, 2024 December 29, 2023 (Amounts in millions) DS GES Total DS GES Total Revenues $ 1,286 $ 2,130 $ 3,416 $ 459 $ 1,524 $ 1,983 Adjusted EBITDA is most comparable to net income (loss) attributable to common shareholders prepared based on GAAP. The Company defines Adjusted EBITDA as net income (loss) attributable to common shareholders adjusted for interest expense and other, net, provision for income taxes, depreciation and amortization, and certain discrete items that are not considered in the evaluation of ongoing operating performance. These discrete items include acquisition, transaction, and integration costs, non-cash gains and losses, loss on extinguishment of debt, utilization of certain fair market value adjustments assigned in purchase accounting, and share-based compensation. While we believe Adjusted EBITDA is a useful metric in evaluating operating performance by allowing better evaluation of underlying segment performance and better period-to-period comparability, it is not a metric defined by GAAP and may not be comparable to non-GAAP metrics presented by other companies. The following table reconciles segment Adjusted EBITDA to net income (loss) attributable to common shareholders: 16 Three months ended (Amounts in millions) December 27, 2024 December 29, 2023 Adjusted EBITDA by segment DS $ 100 $ 38 GES 162 116 Adjusted EBITDA attributable to Amentum Holdings, Inc. 262 154 Depreciation expense ( 9 ) ( 7 ) Amortization of intangibles ( 120 ) ( 56 ) Interest expense and other, net ( 87 ) ( 111 ) Non-controlling interests 9 2 Acquisition, transaction and integration costs 1 ( 9 ) ( 7 ) Utilization of fair market value adjustments 2 2 1 Share-based compensation 3 ( 3 ) ( 1 ) Income (loss) before income taxes 45 ( 25 ) Provision for income taxes ( 24 ) ( 14 ) Net income (loss) 21 ( 39 ) Non-controlling interests ( 9 ) ( 2 ) Net income (loss) attributable to common shareholders $ 12 $ ( 41 ) (1) Represents acquisition, transaction and integration costs, including severance, retention, and other adjustments related to acquisition and integration activities. (2) Represents the periodic utilization of the fair market value adjustments assigned to certain equity method investments and non-controlling interests based on the remaining period of performance for the related contract. (3) Represents non-cash compensation expenses recognized for share based arrangements. Asset information by segment is not a key measure of performance used by the CODM. Note 13 — Earnings (Loss) Per Share For the three months ended December 29, 2023, the Company retrospectively adjusted the weighted average shares used in determining loss per share to reflect the conversion of the ownership interests of Amentum Parent Holdings LLC held by AJVLP that converted into 90,021,804 shares of the Company’s common stock at Transaction close. There were no anti-dilutive shares for the three months ended December 29, 2023. Basic and diluted earnings (loss) per share are computed as follows (in millions, except per share data): For the three months ended December 27, 2024 December 29, 2023 Net income (loss) attributable to common shareholders $ 12 $ ( 41 ) Weighted-average number of basic shares outstanding during the period 243 90 Weighted-average number of diluted shares outstanding during the period 243 90 Basic earnings (loss) per share $ 0.05 $ ( 0.46 ) Diluted earnings (loss) per share $ 0.05 $ ( 0.46 ) Note 14 — Legal Proceedings and Commitments and Contingencies The Company is involved in various claims, disputes and administrative proceedings arising in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that an unfavorable result and/or liability will be incurred and the cost of the unfavorable result or liability can be reasonably estimated. Management is of the opinion that any liability or loss associated with such matters, either individually or in the aggregate, will not have a material adverse effect on the Company’s operations and liquidity. 17 Payments to the Company on cost-plus-fee contracts are provisional and are subject to adjustments upon audit by the Defense Contract Audit Agency (“DCAA”). In management’s opinion, audit adjustments that may result from audits not yet completed or started are not expected to have a material adverse effect on the Company’s operations and liquidity. Pending Litigation and Claims Department of Energy Claims In January 2020, the Company purchased assets and assumed liabilities associated with AECOM Energy & Construction, Inc. (the “Acquired Affiliate”) from AECOM (the “Seller”). At the time of the acquisition, the Acquired Affiliate had pending claims against the U.S. Department of Energy (“DOE”) related to a contract performed prior to the acquisition. The Company and the Seller agreed that all future claim recoveries and costs with the DOE would be split 10 % to the Company and 90 % to the Seller. Following the DOE’s denial of the claims, on December 20, 2020, the Acquired Affiliate filed an appeal of these decisions in the U.S. Court of Federal Claims. The Company has estimated and recorded $ 138 million within other long-term assets on the balance sheet and $ 125 million within other long-term liabilities on the balance sheet representing the Company’s payable to the Seller related to this matter. No changes to these amounts have been recorded since the acquisition. The Company intends to cooperate with the Seller in the pursuit of all claimed amounts but can provide no certainty that the Company will recover the claims. The Company does not believe any additional incurred claims or costs related to this matter will have a material adverse effect on the Company’s results of operations. U.S. Government Investigations We primarily sell our services to the U.S. Government. These contracts are subject to extensive legal and regulatory requirements, and we are occasionally the subject of investigations by various agencies of the U.S. Government who investigate whether our operations are being conducted in accordance with these requirements. Such investigations could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed on us, or could lead to suspension or debarment from future U.S. Government contracting. U.S. Government investigations often take years to complete and may result in adverse action against us. Any adverse actions arising from such matters could have a material effect on our ability to invoice and receive timely payment on our contracts, perform contracts or compete for contracts with the U.S. Government and could have a material effect on our operating performance. There are currently no investigations that are expected to have a material impact on our results of operations.