What changed in this filing

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Item 1. Financial Statements

2024-04-30 compared with 2023-10-31 · 199 added, 310 removed, 455 unchanged (53% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 29,

2024 December 29,

13 unchanged sentences

Accrued payroll and employee benefits 740 695

Short-term debt and current portion of long-term debt 18 992

Current portion of long-term debt 43 18

Total current liabilities 3,084 2,990

1 unchanged sentence

Operating lease liabilities 495 516

Deferred tax liabilities 6 40

Other long-term liabilities 289 267

2 unchanged sentences

Stockholders’ equity:

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 137,506,136 and 136,926,990 shares issued and outstanding at September 29, 2023, and December 30, 2022, respectively

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 135,097,654 and 135,766,419 shares issued and outstanding at March 29, 2024, and December 29, 2023, respectively

Additional paid-in capital 1,735 1,885

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

Three Months Ended

2024 March 31,

in millions, except per share data)

3 unchanged sentences

Acquisition, integration and restructuring costs 4 3

Goodwill impairment charges 599 — 599 —

Asset impairment charges 88 — 88 3

Equity earnings of non-consolidated subsidiaries ( 7 ) ( 6 )

Operating (loss) income

( 336 ) 281 260 823

Operating income

Non-operating income (expense):

1 unchanged sentence

Other income (expense), net

1 ( 10 ) ( 4 ) ( 7 )

(Loss) income before income taxes

( 388 ) 221 93 668

Income before income taxes

Income tax expense

( 85 ) ( 43 )

Net (loss) income

$ ( 396 ) $ 164 $ ( 22 ) $ 513

net income attributable to non-controlling interest 3 2 8 5

Net (loss) income attributable to Leidos common stockholders

$ ( 399 ) $ 162 $ ( 30 ) $ 508

net (loss) income attributable to non-controlling interest

Net income attributable to Leidos common stockholders

Earnings per share:

$ 2.09 $ 1.18

( 2.91 ) 1.17 ( 0.22 ) 3.68

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

Net (loss) income

$ ( 396 ) $ 164 $ ( 22 ) $ 513

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

2024 March 31,

Foreign currency translation adjustments

( 31 ) ( 75 ) ( 19 ) ( 158 )

Unrecognized gain (loss) on derivative instruments

— 18 ( 1 ) 54

Pension adjustments

( 1 ) 1 ( 2 ) ( 19 )

Total other comprehensive (loss) income, net of taxes

( 32 ) ( 56 ) ( 22 ) ( 123 )

Comprehensive (loss) income

( 428 ) 108 ( 44 ) 390

net income attributable to non-controlling interest 3 2 8 5

Comprehensive (loss) income attributable to Leidos common stockholders

$ ( 431 ) $ 106 $ ( 52 ) $ 385

Comprehensive income

net (loss) income attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders

See accompanying notes to condensed consolidated financial statements.

7 unchanged sentences

Balance at December 29, 2023 136 $ 1,885 $ 2,364 $ ( 48 ) $ 4,201 $ 57 $ 4,258

Net income — — 162 — 162 2 164

Other comprehensive income, net of taxes — — — 9 9 — 9

Issuances of stock — 14 — — 14 — 14

Repurchases of stock and other

— ( 43 ) — — ( 43 ) — ( 43 )

Dividends of $ 0.36 per share

— — ( 50 ) — ( 50 ) — ( 50 )

Stock-based compensation — 18 — — 18 — 18

Net capital distributions to non-controlling interest — — — — — ( 1 ) ( 1 )

Balance at March 31, 2023 137 $ 1,994 $ 2,479 $ ( 64 ) $ 4,409 $ 55 $ 4,464

Net income — — 207 — 207 3 210

Other comprehensive income, net of taxes

— — — 1 1 — 1

Issuances of stock — 14 — — 14 — 14

Dividends of $ 0.36 per share

— — ( 50 ) — ( 50 ) — ( 50 )

Stock-based compensation — 19 — — 19 — 19

Net capital distributions to non-controlling interest — ( 3 ) — — ( 3 ) ( 2 ) ( 5 )

Balance at June 30, 2023 137 $ 2,024 $ 2,636 $ ( 63 ) $ 4,597 $ 56 $ 4,653

Net (loss) income — — ( 399 ) — ( 399 ) 3 ( 396 )

Net income (loss) — — 284 — 284 ( 1 ) 283

Other comprehensive loss, net of taxes — — — ( 24 ) ( 24 ) — ( 24 )

6 unchanged sentences

Net capital distributions to non-controlling interest — — — — — ( 1 ) ( 1 )

Balance at September 29, 2023 138 $ 2,055 $ 2,186 $ ( 95 ) $ 4,146 $ 57 $ 4,203

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Balance at March 29, 2024 135 $ 1,735 $ 2,595 $ ( 72 ) $ 4,258 $ 55 $ 4,313

Shares of common stock Additional

13 unchanged sentences

Net capital distributions to non-controlling interest — — — — — ( 1 ) ( 1 )

Balance at April 1, 2022 137 $ 1,928 $ 2,007 $ 20 $ 3,955 $ 53 $ 4,008

Net income — — 171 — 171 1 172

Other comprehensive loss, net of taxes — — — ( 99 ) ( 99 ) — ( 99 )

Issuances of stock — 10 — — 10 — 10

Repurchases of stock and other

— ( 2 ) — — ( 2 ) — ( 2 )

Dividends of $ 0.36 per share

— — ( 50 ) — ( 50 ) — ( 50 )

Stock-based compensation — 19 — — 19 — 19

Net capital distributions to non-controlling interest — — — — — ( 1 ) ( 1 )

Balance at July 1, 2022 137 $ 1,955 $ 2,128 $ ( 79 ) $ 4,004 $ 53 $ 4,057

Net income — — 162 — 162 2 164

Other comprehensive loss, net of taxes — — — ( 56 ) ( 56 ) — ( 56 )

Issuances of stock — 13 — — 13 — 13

Repurchases of stock and other

— ( 4 ) — — ( 4 ) — ( 4 )

Dividends of $ 0.36 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 18 — — 18 — 18

Net capital distributions to non-controlling interest — — — — — ( 2 ) ( 2 )

Balance at September 30, 2022 137 $ 1,982 $ 2,239 $ ( 135 ) $ 4,086 $ 53 $ 4,139

Balance at March 31, 2023 137 $ 1,994 $ 2,479 $ ( 64 ) $ 4,409 $ 55 $ 4,464

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 29,

2023 September 30,

Three Months Ended

2024 March 31,

Cash flows from operations:

Net (loss) income $ ( 22 ) $ 513

Adjustments to reconcile net (loss) income to net cash provided by operations:

Net income $ 283 $ 164

Adjustments to reconcile net income to net cash provided by (used in) operations:

Depreciation and amortization 69 82

1 unchanged sentence

Deferred income taxes ( 25 ) ( 43 )

Goodwill impairment charges 599 —

Asset impairment charges 88 3

Change in assets and liabilities, net of effects of acquisitions and dispositions:

Other ( 6 ) 5

Change in assets and liabilities:

Receivables ( 281 ) ( 166 )

3 unchanged sentences

Income taxes receivable/payable 91 ( 65 )

Net cash provided by operating activities 861 867

Net cash provided by (used in) operating activities 63 ( 98 )

Cash flows from investing activities:

Acquisition of a business, net of cash acquired ( 6 ) ( 2 )

Divestiture of a business

Payments for property, equipment and software ( 17 ) ( 39 )

Net proceeds from sale of assets — 6

Net cash used in investing activities ( 12 ) ( 39 )

9 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 4 ) 2

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

( 181 ) ( 192 )

Cash, cash equivalents and restricted cash at beginning of period 928 683

2 unchanged sentences

Cash and cash equivalents at end of period $ 633 $ 379

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 29,

2023 September 30,

Supplementary cash flow information:

12 unchanged sentences

("Leidos"), a Delaware corporation, is a holding company whose direct 100 %-owned subsidiary and principal operating company is Leidos, Inc.

Leidos is a FORTUNE 500 ® technology, engineering, and science company that provides services and solutions in the defense, intelligence, civil and health markets, both domestically and internationally.

Leidos, recognized as a member of the Fortune 500®, is a dynamic innovation company that is at the forefront of addressing the world’s most challenging issues in national security and health sectors.

With a global workforce of approximately 47,000 , Leidos is committed to developing smarter technology solutions, particularly for customers in highly regulated industries.

Leidos' customers include the U.S.

1 unchanged sentence

Intelligence Community, the U.S.

Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S.

Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs, National Aeronautics and Space Administration ("NASA") and many other U.S.

civilian, state and local government agencies, foreign government agencies and commercial businesses.

1 unchanged sentence

and its consolidated subsidiaries.

We operate in three reportable segments:

Defense Solutions, Civil and Health.

Additionally, we separately present the unallocable costs associated with corporate functions as Corporate.

During the quarter ended March 29, 2024, we completed a realignment of our segment and reporting structure, which resulted in the identification of four reportable segments:

National Security and Digital, Health & Civil, Commercial & International and Defense Systems.

We commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024.

In addition, we separately present the unallocable costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure.

We have a controlling interest in Mission Support Alliance, LLC ("MSA"), a joint venture with Centerra Group, LLC.

4 unchanged sentences

Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements has been prepared in accordance with the rules of the U.S.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules of the U.S.

Securities and Exchange Commission and accounting principles generally accepted in the United States of America ("GAAP").

5 unchanged sentences

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

We combined "Bad debt expense and recoveries" into "Selling, general and administrative expenses" on the condensed consolidated statements of operations.

We have certain entities where the functional currency is not the U.S.

dollar and have separately presented the effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies as a separate line in the condensed consolidated statements of cash flows.

We combined "Deferred tax liabilities" into "Other long-term liabilities" on the condensed consolidated balance sheets.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof.

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Accounting Standards Updates Issued and Adopted

ASU 2020-04, ASU 2021-01 and ASU 2022-06, Reference Rate Reform (ASC 848)

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, which provides companies with optional expedients and exceptions to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

This update provides optional expedients for applying accounting guidance to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of the reference rate reform.

The amendments in this update are effective for all entities as of March 2020 and can be adopted using a prospective approach no later than December 31, 2022.

In January 2021, the FASB issued ASU 2021-01 which amends the scope of ASU 2020-04.

The amendments in this update are elective and provide optional relief for entities with hedge accounting and contract modifications affected by the transition from LIBOR through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06 which extends the deadline for application of ASU 2021-01 through December 31, 2024.

Under this relief, entities may continue to account for contract modifications as a continuation of the existing contract and the continuation of the hedge accounting arrangement.

In the first half of fiscal 2023, we adopted certain practical expedients available under ASC 848.

Our term loans are based on a Secured Overnight Financing Rate (“SOFR”) rate (see "Note 6–Debt").

Additionally, we modified our interest rate swap agreements to reference SOFR (see "Note 5–Derivative Instruments") in conformity with the relief available under ASC 848.

The standard did not have a material impact on our financial position, results of operations or earnings per share.

Accounting Standards Updates Issued But Not Yet Adopted

ASU 2023-07 Segment Reporting

In November 2023, the FASB issued ASU 2023-07, to improve reportable segment disclosure requirements.

This update requires companies to disclose significant segment expense categories that are regularly provided to the chief operating decision maker ("CODM") on an interim and annual basis and expands disclosure requirements for interim reporting.

Companies must also disclose how segment measures of profit or loss are used by the CODM.

The amendments in this update are effective for public entities for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

The amendments should be adopted on a retrospective basis and early adoption is permitted.

We are evaluating the impact of the update and plan to adopt the amendments for annual disclosures in fiscal 2024.

ASU 2023-09 Income Taxes

In December 2023, the FASB issued ASU 2023-09, to enhance the transparency and usefulness of income tax disclosures.

The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold.

The update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold.

The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis.

Early adoption is permitted.

We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach for annual disclosures in fiscal 2025.

Changes in Estimates on Contracts

1 unchanged sentence

Changes in estimates on contracts were as follows:

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

Three Months Ended

2024 March 31,

(in millions, except per share data)

1 unchanged sentence

Unfavorable impact ( 25 ) ( 16 )

Net impact to (loss) income before income taxes $ 16 $ 7 $ 40 $ 41

Net impact to income before income taxes $ — $ 6

Impact on diluted EPS attributable to Leidos common stockholders

$ 0.09 $ 0.03 $ 0.22 $ 0.22

The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.

Revenue Recognized from Prior Obligations

Revenue recognized from performance obligations satisfied in previous periods was $ 13 million and $ 14 million for the three and nine months ended September 29, 2023, respectively, and $ 6 million and $ 38 million for the three and nine months ended September 30, 2022, respectively.

The changes primarily related to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.

We reduced revenue by $ 2 million and recognized revenue of $ 5 million from performance obligations satisfied in previous periods for the three months ended March 29, 2024, and March 31, 2023, respectively.

The changes are primarily related to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.

Cash and Cash Equivalents

Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less.

At September 29, 2023, and December 30, 2022, $ 64 million and $ 158 million, respectively, of outstanding payments were included within "Cash and cash equivalents" and "Accounts payable and accrued liabilities" correspondingly on the condensed consolidated balance sheets.

At March 29, 2024, and December 29, 2023, $ 86 million and $ 136 million, respectively, of outstanding payments were included within "Cash and cash equivalents" and "Accounts payable and accrued liabilities" correspondingly on the condensed consolidated balance sheets.

LEIDOS HOLDINGS, INC.

3 unchanged sentences

Restricted cash balances are included as "Other current assets" in the condensed consolidated balance sheets.

Our restricted cash balances were $ 189 million and $ 167 million at September 29, 2023, and December 30, 2022, respectively.

Our restricted cash balances were $ 114 million and $ 151 million at March 29, 2024, and December 29, 2023, respectively.

Note 2–Revenues

2 unchanged sentences

RPO does not include unexercised option periods and future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ") contracts, General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.

As of September 29, 2023, we had $ 15.5 billion of RPO and expect to recognize approximately 63 % and 79 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.

As of March 29, 2024, we had $ 14.3 billion of RPO and expect to recognize approximately 62 % and 78 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.

Disaggregation of Revenues

1 unchanged sentence

Disaggregated revenues by customer-type were as follows:

Three Months Ended September 29, 2023 Nine Months Ended September 29, 2023

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 29, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

6 unchanged sentences

Total $ 1,779 $ 1,190 $ 508 $ 474 $ 3,951

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 31, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

11 unchanged sentences

Disaggregated revenues by contract-type were as follows:

Three Months Ended September 29, 2023 Nine Months Ended September 29, 2023

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 29, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

5 unchanged sentences

Total $ 1,779 $ 1,190 $ 508 $ 474 $ 3,951

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 31, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

6 unchanged sentences

Disaggregated revenues by geographic location were as follows:

Three Months Ended September 29, 2023 Nine Months Ended September 29, 2023

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 29, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

4 unchanged sentences

Total $ 1,779 $ 1,190 $ 508 $ 474 $ 3,951

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Defense Solutions Civil Health Total Defense Solutions Civil Health Total

Three Months Ended March 31, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

4 unchanged sentences

Total $ 1,746 $ 999 $ 489 $ 445 $ 3,679

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 24 million and $ 69 million for the three and nine months ended September 29, 2023, respectively, and $ 29 million and $ 75 million for the three and nine months ended September 30, 2022, respectively.

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 24 million and $ 20 million for the three months ended March 29, 2024, and March 31, 2023, respectively.

Contract Assets and Liabilities

8 unchanged sentences

The components of contract assets and contract liabilities consisted of the following:

Balance sheet line item September 29,

Balance sheet line item March 29,

2024 December 29,

9 unchanged sentences

(1) Certain contracts record revenue net of cost of revenues, and therefore, the respective deferred revenue balance will not fully convert to revenue.

Revenue recognized for the three and nine months ended September 29, 2023, of $ 28 million and $ 215 million, respectively, was included as a contract liability at December 30, 2022.

Revenue recognized for the three and nine months ended September 30, 2022, of $ 17 million and $ 257 million, respectively, was included as a contract liability at December 31, 2021.

Note 3–Acquisitions, Divestitures, Goodwill and Intangible Assets

Business Acquisition

On October 30, 2022 (the "Agreement Date"), we completed the acquisition of Cobham Special Mission for purchase consideration of $ 298 million Australian dollars, net of $ 10 million of Australian dollars acquired, or $ 192 million United States dollars, net of $ 6 million of cash acquired.

Cobham Special Mission provides airborne border surveillance and search and rescue services to the Australian Federal Government.

As of September 29, 2023, we completed the determination of fair values of the assets acquired and liabilities assumed.The final goodwill recognized of $ 22 million represents intellectual capital and the acquired assembled workforce, neither of which qualify for recognition as a separate intangible asset.

None of the goodwill recognized is tax deductible.

In connection with this acquisition, we acquired property, plant and equipment with a fair value of $ 148 million at the Agreement Date.

The following table summarizes the fair value of intangible assets acquired at the Agreement Date and the related weighted average amortization period:

Weighted average amortization period Fair value

(in years) (in millions)

Programs 11 $ 19

Technology 10 5

Total 11 $ 24

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three and nine months ended September 29, 2023, $ 28 million and $ 86 million of revenues related to the Cobham Special Mission acquisition were recognized within the Defense Solutions reportable segmen t.

The increase in unbilled receivables was primarily due to revenue recognized on certain contracts, partially offset by the timing of billings.

The decrease in deferred revenue was primarily due to revenue recognized during the period, offset by the timing of advanced payments from customers.

For the three months ended March 29, 2024, $ 157 million of revenue recognized was included as a contract liability at December 29, 2023.

For the three months ended March 31, 2023, $ 155 million of revenue recognized was included as a contract liability at December 30, 2022.

Note 3–Goodwill and Intangible Assets

During the quarter ended March 29, 2024, the Company completed a business realignment, which resulted in identification of new reportable segments.

The Company commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024 (see "Note 10–Business Segments).

Goodwill was allocated to the new reportable segments based on a relative fair value approach.

The following table presents changes in the carrying amount of goodwill by reportable segment:

Defense Solutions Civil Health Total

National Security and Digital Health & Civil Commercial & International Defense Systems Total

(in millions)

1 unchanged sentence

$ 2,755 $ 1,366 $ 1,389 $ 1,186 $ 6,696

Acquisition of businesses 26 — — 26

Divestiture of a business ( 6 ) — — ( 6 )

Goodwill Impairment — — ( 596 ) — ( 596 )

Acquisitions of a business (1)

— — ( 4 ) — ( 4 )

Foreign currency translation adjustments 3 — 11 2 16

1 unchanged sentence

$ 2,758 $ 1,366 $ 800 $ 1,188 $ 6,112

Goodwill impairment — ( 599 ) — ( 599 )

Acquisition of a business (2)

( 4 ) — — ( 4 )

Foreign currency translation adjustments — — ( 13 ) — ( 13 )

Goodwill at September 29, 2023 (3)

Goodwill at March 29, 2024 (2)

$ 2,758 $ 1,366 $ 787 $ 1,188 $ 6,099

(1) Carrying amount includes accumulated impairment losses of $ 369 million and $ 117 million within the Health and Civil segments, respectively.

(1) Adjustment to goodwill resulting from a measurement period purchase accounting adjustment.

(3) Carrying amount includes accumulated impairment losses of $ 369 million and $ 716 million within the Health and Civil segments, respectively.

(2) Carrying amount includes accumulated impairment loss of $ 596 million within the Commercial & International segment.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We evaluate qualitative factors that could cause us to believe the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners or litigation.

Operations of the Security Enterprise Solutions (“SES”) reporting unit rely heavily on the sales and servicing of security and detection products, which continue to be negatively impacted due to delays in airline travel infrastructure projects as customer budgetary restraints recover from reduced travel activity post-pandemic.

During the third quarter of fiscal 2023, the SES reporting unit refined its portfolio and made strategic business decisions to exit certain product offerings, as well as cease operations in certain countries in order to align the operations of the reporting unit with its strategic business plan.

Operations of the Security Enterprise Solutions (“SES”) reporting unit rely heavily on the sales and servicing of security and detection products, which prior to fiscal 2024, have been negatively impacted due to delays in airline travel infrastructure projects as customer budgets recover from the pandemic.

During fiscal 2023, the SES reporting unit refined its portfolio and made strategic business decisions to exit certain product offerings, and cease operations in certain countries in order to align the operations of the reporting unit with its strategic business plan.

These decisions, along with the delays in airline travel infrastructure projects and higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

As a result, we conducted an interim quantitative goodwill impairment analysis and our estimates led us to determine that the carrying value of the SES reporting unit exceeded its estimated fair value (see “Note 4–Fair Value Measurements”).

Accordingly, we recognized a non-cash goodwill impairment charge of $ 599 million for the three and nine months ended September 29, 2023, leaving $ 303 million of goodwill at the SES reporting unit.

The impairment was recorded within the Civil reportable segment in the condensed consolidated statements of operations.

Accordingly, we recognized a non-cash goodwill impairment charge of $ 596 million at the SES reporting unit during the fiscal year ended December 29, 2023.

The impairment was recorded within the Commercial & International reportable segment in the condensed consolidated statements of operations.

In the event that there are significant unfavorable changes to the forecasted cash flows, forecasted revenue, terminal growth rates or the cost of capital used in the fair value estimates, we may be required to record an additional impairment of goodwill at a future date.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In conjunction with the change in reportable segments in fiscal 2024, the Company evaluated goodwill for impairment both before and after the segment change and determined that goodwill was not impaired.

Intangible Assets

Intangible assets, net consisted of the following:

September 29, 2023 December 30, 2022

March 29, 2024 December 29, 2023

Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value

6 unchanged sentences

52 ( 23 ) 29 52 ( 22 ) 30

1 ( 1 ) — 1 ( 1 ) —

Total finite-lived intangible assets

1 unchanged sentence

Indefinite-lived intangible assets:

In-process research and development ("IPR&D") (1)

59 — 59 92 — 92

Trade names 4 — 4 4 — 4

Total indefinite-lived intangible assets 63 — 63 96 — 96

Total intangible assets $ 2,005 $ ( 1,376 ) $ 629 $ 2,008 $ ( 1,341 ) $ 667

(1) IPR&D assets are indefinite-lived at the acquisition date until placed into service, at which time such assets will be reclassified to a finite-lived amortizable intangible asset.

Our strategic decisions regarding SES’ product offerings and operating regions (see the goodwill discussion on page 13) caused certain technology and IPR&D intangible assets to be abandoned and the carrying values of certain program intangible assets to become unrecoverable.

As a result, for the three and nine months ended September 29, 2023, we recognized intangible asset impairment charges of $ 79 million.

The impairment was recorded to “Asset impairment charges” in the condensed consolidated statements of operations within the Civil reportable segment.

In the event that we are required to make an additional impairment of goodwill at a future date for any of the reasons identified in our discussion of goodwill or if other events occur that negatively impact these intangible assets, we may also be required to record an additional impairment of intangible assets at that time.

Amortization expense was $ 50 million and $ 153 million for the three and nine months ended September 29, 2023, respectively and $ 57 million and $ 173 million for the three and nine months ended September 30, 2022, respectively.

Amortization expense was $ 37 million and $ 52 million for the three months ended March 29, 2024, and March 31, 2023, respectively.

Program intangible assets are amortized over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows.

Backlog and finite-lived trade name intangible assets are amortized on a straight-line basis over their estimated useful lives.

Customer relationships and software and technology intangible assets are amortized either on a straight-line basis over their estimated useful lives or over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows, as deemed appropriate.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The estimated annual amortization expense as of September 29, 2023, was as follows:

The estimated annual amortization expense as of March 29, 2024, was as follows:

Fiscal year ending

8 unchanged sentences

The financial instruments measured at fair value on a recurring basis primarily consisted of the following:

September 29, 2023 December 30, 2022

March 29, 2024 December 29, 2023

Carrying value Fair value Carrying value Fair value

2 unchanged sentences

Derivatives $ 13 $ 13 $ 11 $ 11

As of September 29, 2023, and December 30, 2022, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million and $ 1.0 billion, respectively, of the variable rate senior unsecured term loan (see "Note 5–Derivative Instruments").

The fair value of the cash flow interest rate swaps is determined based on observed values for underlying interest rates on the one-month SOFR rate as of September 29, 2023 and the LIBOR yield curve as of December 30, 2022 (Level 2 inputs).

As of March 29, 2024, and December 29, 2023, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million of the variable rate senior unsecured term loan (see "Note 5–Derivative Instruments").

The fair value of the cash flow interest rate swaps is determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate (Level 2 inputs).

The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values.

As of September 29, 2023, and December 30, 2022, the fair value of debt was $ 4.3 billion and $ 4.6 billion, respectively, and the carrying amount was $ 4.7 billion and $ 4.9 billion, respectively (see "Note 6–Debt").

As of March 29, 2024, and December 29, 2023, the fair value of debt was $ 4.5 billion and $ 4.6 billion, respectively, and the carrying amount was $ 4.7 billion for both periods (see "Note 6–Debt").

The fair value of long-term debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs).

During the three months ended September 29, 2023, we recorded impairment charges of SES' goodwill (see "Note 3–Acquisitions, Divestitures, Goodwill and Intangible Assets").

The fair values of the assets and liabilities of the SES reporting unit were determined using a blended approach, including discounted cash flow models and market earnings multiples.

The market approach estimates fair value based on profitability and valuation metrics for peer companies and applies a multiple to the reporting unit's operating performance.

The income approach estimates fair value by discounting the reporting unit's estimated future cash flows using a weighted-average cost of capital reflecting current market conditions as well as the risk profile of the reporting unit.

Future cash flows are based on estimates of economic and market assumptions made using the best judgment of management, including growth rates in revenue and margins, and future changes in tax rates and cash expenditures.

Other significant assumptions and estimates include estimates of future capital expenditures, terminal value growth rates, and changes in future working capital requirements.

The fair value of the SES reporting unit was determined using Level 3 inputs.

On October 30, 2022, non-financial instruments measured at fair value on a non-recurring basis were recorded in connection with the completed acquisitions of Cobham Special Mission.

The fair values of the assets acquired and liabilities assumed were determined using Level 3 inputs.

As of March 29, 2024, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

LEIDOS HOLDINGS, INC.

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Asset derivatives

Balance sheet line item September 29,

Balance sheet line item March 29,

2024 December 29,

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The objective of these instruments is to reduce variability in the forecasted interest payments of the Variable Rate Loan.

During fiscal 2023, we modified our interest rate swap agreements to receive monthly variable interest payments based on the one-month SOFR rate, as compared to LIBOR, and will continue to pay interest at a fixed rate.

We applied the guidance of ASC 848 which permits the continuation of hedge accounting for such modification.

Under the terms of the interest rate swap agreements, we will receive monthly variable interest payments based on the one-month SOFR and will pay interest at a fixed rate.

The interest rate swap transactions are accounted for as cash flow hedges.

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A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

The effect of the cash flow hedges on other comprehensive (loss) income and earnings for the periods presented was as follows:

Three Months Ended

2024 March 31,

(in millions)

Total interest expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded

$ 53 $ 50 $ 163 $ 148

Amount recognized in other comprehensive income (loss) $ 5 $ ( 2 )

Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net $ ( 3 ) $ 2 $ ( 12 ) $ 13

Amount reclassified from accumulated other comprehensive loss to interest expense, net $ ( 3 ) $ ( 4 )

We expect to reclassify net gains of $ 10 million from accumulated other comprehensive loss into earnings during the next 12 months.

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Our debt consisted of the following:

Stated interest rate Effective interest rate September 29,

Stated interest rate Effective interest rate March 29,

2024 December 29, 2023

(in millions)

Short-term debt and current portion of long-term debt:

Senior unsecured term loans:

$ 380 million term loan, due May 2023

6.08 % 6.17 % $ — $ 320

Current portion of long-term debt 18 672

Total short-term debt and current portion of long-term debt $ 18 $ 992

Long-term debt:

Senior unsecured term loans:

$ 1,925 million term loan, due January 2025

5.77 % 6.09 % $ — $ 1,211

Senior unsecured term loan:

$ 1,000 million term loan, due March 2028

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4.38 % 4.50 % 750 750

$ 750 million notes due May 2030

4.38 % 4.50 % 750 750

$ 750 million notes due March 2033

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The Revolving Facility permits two additional one-year extensions subject to lender consent.

As of September 29, 2023, there were no borrowings outstanding under the Revolving Facility.

The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all indebtedness, terminate all commitments and discharge all guarantees existing in connection with the credit agreement related to the $ 1.9 billion senior unsecured term loan facility and $ 750 million senior unsecured revolving facility.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of March 29, 2024, there were no borrowings outstanding under the Revolving Facility.

The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all indebtedness, terminate all commitments and discharge all guarantees existing in connection with a predecessor $ 1.9 billion senior unsecured term loan facility and a $ 750 million senior unsecured revolving facility.

Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a Term SOFR rate with a 0.10 % per annum Term SOFR adjustment, plus, in each case, an applicable margin that varies depending on our credit rating.

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Interest on the Term Loan Facility for Term SOFR-denominated borrowings is payable on a periodic basis, which must be at least quarterly.

The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to two increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.

The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.

On February 28, 2023, we issued and sold $ 750 million aggregate principal amount of fixed-rate senior notes (the “Notes”) maturing in March 2033.

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In connection with the issuance of the Notes, $ 11 million of debt issuance costs and discount were recognized, which were recorded as an offset against the carrying value of debt.

The proceeds from the Notes were used to repay all of the outstanding obligations in respect of principal, interest and fees on the $ 500 million 2.95 % notes, due May 2023, the majority of which were retired on February 28, 2023.

The remaining proceeds from the Notes were used to repay $ 210 million of the outstanding balance on the $ 1.9 billion senior unsecured term loan facility, due January 2025, and fund general corporate purposes.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Commercial Paper

We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes ("Commercial Paper Notes").

On May 26, 2023, we increased the size of the commercial paper program by $ 250 million, or not to exceed $ 1.0 billion.

We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $ 1.0 billion.

The proceeds will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases.

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The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount.

As of September 29, 2023, we did not have any Commercial Paper Notes outstanding.

The Credit Facilities, Commercial Paper Notes, senior unsecured term loans and notes are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

We were in compliance with all covenants as of September 29, 2023.

Finance Leases

In fiscal 2022, the Company entered into a Master Lease Agreement whereby we agreed to lease two aircraft from the time each aircraft is accepted through June 30, 2027.

In March 2023, we took possession of both aircraft and recognized a $ 64 million finance lease obligation and a corresponding property, plant and equipment asset.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Principal Payments

Future minimum payments of debt are as follows:

Fiscal year ending

(in millions)

2023 (remainder of year) $ 5

2028 and thereafter 3,849

Total principal payments 4,725

unamortized debt discounts and deferred debt issuance costs ( 40 )

Total short-term and long-term debt $ 4,685

As of March 29, 2024, and December 29, 2023, we did not have any Commercial Paper Notes outstanding.

The Credit Facilities, Commercial Paper Notes and senior unsecured notes are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

We were in compliance with all covenants as of March 29, 2024.

Note 7–Accumulated Other Comprehensive Income (Loss)

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Reclassification from AOCI

— ( 15 ) — ( 15 )

Balance at December 29, 2023 ( 39 ) 5 ( 14 ) ( 48 )

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Reclassification from AOCI — ( 3 ) — ( 3 )

Balance at September 29, 2023 $ ( 92 ) $ 12 $ ( 15 ) $ ( 95 )

Balance at March 29, 2024 $ ( 66 ) $ 7 $ ( 13 ) $ ( 72 )

Reclassifications from unrecognized gain (loss) on derivative instruments are recorded in "Interest expense, net" in the condensed consolidated statements of operations.

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The following table provides a reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the periods presented:

Three Months Ended Nine Months Ended

September 29, 2023 (1)

September 30,

2022 September 29, 2023 (1)

September 30,

Three Months Ended

2024 March 31,

(in millions)

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Diluted weighted average number of shares outstanding 137 138

(1) Dilutive common share equivalents did not include the impact of 1 million potentially dilutive equity awards because the result would have been anti-dilutive due to the net losses.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS.

For the three and nine months ended September 29, 2023, and September 30, 2022, the total outstanding stock options and vesting stock awards that were anti-dilutive were 2 million and 1 million, respectively.

During the nine months ended September 29, 2023, we made open market repurchases of our common stock for an aggregate purchase price of $ 25 million.

For the three months ended March 29, 2024, and March 31, 2023, the total outstanding stock options and vesting stock awards that were anti-dilutive were 1 million for both periods.

During the three months ended March 29, 2024, and March 31, 2023, we made open market repurchases of our common stock for an aggregate purchase price of $ 150 million and $ 25 million, respectively.

All shares repurchased were immediately retired.

No share repurchases were made under the Company’s share repurchase program during the three months ended September 29, 2023.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9–Income Taxes

For the three months ended September 29, 2023, the effective tax rate was ( 2.1 )% compared to 25.8 % for the three months ended September 30, 2022.

The decrease to the effective tax rate was primarily due to the tax impacts of non-deductible goodwill impairments, see "Note 3–Acquisitions, Divestitures, Goodwill and Intangible Assets" for further information.

For the nine months ended September 29, 2023, the effective tax rate was 123.7 % compared to 23.2 % for the nine months ended September 30, 2022.

The increase to the effective tax rate was primarily due to the tax impacts of non-deductible goodwill impairments, see "Note 3–Acquisitions, Divestitures, Goodwill and Intangible Assets" for further information.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to currently deduct certain research and development costs for tax purposes and requires taxpayers to capitalize and amortize research costs over five years.

TCJA increased both our income taxes payable and net deferred tax assets since the beginning of 2022.

For the nine months ended September 29, 2023, unrecognized tax benefits increased $ 71 million with a corresponding increase to net deferred tax assets as a result of uncertain tax positions arising from capitalizing research and development costs.

Future impacts of TCJA will depend on the amount of research and development costs the Company will incur, whether Congress modifies or repeals this provision and whether new guidance and interpretive rules are issued by the U.S.

Treasury, among other factors.

For the three months ended March 29, 2024, the effective tax rate was 23.1 % compared to 20.8 % for the three months ended March 31, 2023.

The increase to the effective tax rate was primarily due to an increase in unrecognized tax benefits and a reduced benefit in federal research tax credits, partially offset by an increase in excess tax benefits related to employee stock-based payment transactions.

Note 10–Business Segments

Our operations and reportable segments are organized around the customers and markets we serve.

We define our reportable segments based on the way the chief operating decision maker ("CODM"), currently our Chief Executive Officer, manages operations for the purposes of allocating resources and assessing performance.

We define our reportable segments based on the way the CODM, currently our Chief Executive Officer, manages operations for the purposes of allocating resources and assessing performance.

Beginning in fiscal 2024, we realigned our business to report in six operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280:

National Security and Digital, Health & Civil, Commercial & International and Defense Systems.

Our reportable segments are focused on specific, defined capability sets that we bring to our customers.

Additionally, we separately present the unallocable costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure.

National Security and Digital provides technology enabled services and mission software capabilities for defense and intelligence customers in the areas of cyber, logistics, security operations and decision analytics, as well as IT operations and digital transformation programs across all U.S.

federal government customers.

Our advanced capabilities include the delivery of technology-enabled services, mission software capabilities and IT modernization services.

Our capabilities allow us to provide innovative technology solutions in the following categories:

software development, engineering & design, modeling & simulation, analytics, cyber security, intelligence analysis, linguistics and mission operations.

Health & Civil provides services and solutions to federal and commercial customers in the areas of public health, care coordination, life and environmental sciences and transportation.

We are dedicated to delivering effective and affordable solutions that are responsible for the health and well-being of people, including service members and veterans.

Our core capabilities include health information management services, managed health services, systems and infrastructure modernization, and life sciences research and development.

We help customers achieve their missions and take on the connected world with data-driven insights, improved efficiencies and technological advantages.

Commercial & International provides technologically advanced services, solutions and products to commercial and international customers.

Our key customers include United Kingdom and Australia government agencies, Transportation Security Administration, U.S.

Customs and Border Protection, airports, and commercial utility providers.

Our offerings include IT modernization, software solutions, mission support and logistics, Command, Control, Computers, Communications, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, cloud services, power grid engineering, energy modernization and security products and services.

Defense Systems develops and produces advanced space, aerial, surface, and sub-surface manned and un-manned defense systems for the U.S.

Department of Defense, Army, Navy, Air Force, Marine Corps, United States Special Operations Command, NASA, Space Force, the Defense Intelligence Agency and International customers.

Our solutions deliver innovative technology, systems engineering, integration and testing, rapid prototyping, software development, intelligence analysis, cybersecurity solutions and C4ISR technologies and services to support critical missions.

Corporate includes the operations of various corporate activities, certain corporate expense items that are not reimbursed by our U.S.

government customers and certain other expense items excluded from a reportable segment's performance.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The segment information for the periods presented was as follows:

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

Three Months Ended

2024 March 31,

(in millions)

Defense Solutions $ 2,221 $ 2,075 $ 6,520 $ 6,176

Civil 924 874 2,703 2,526

Health 776 659 2,235 1,997

National Security and Digital $ 1,793 $ 1,757

Health & Civil 1,199 1,008

Commercial & International 509 489

Defense Systems 474 445

Total revenues $ 3,975 $ 3,699

Operating (loss) income:

Defense Solutions $ 147 $ 137 $ 469 $ 409

Civil ( 607 ) 79 ( 503 ) 160

Health 152 91 381 335

Operating income (loss):

National Security and Digital $ 175 $ 145

Health & Civil 222 113

Commercial & International 34 13

Defense Systems 21 23

Corporate ( 37 ) ( 29 )

Total operating (loss) income $ ( 336 ) $ 281 $ 260 $ 823

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The income statement performance measures used to evaluate segment performance are revenues and operating (loss) income.

Total operating income $ 415 $ 265

The income statement performance measures used to evaluate segment performance are revenues and operating income.

As a result, "Interest expense, net," "Other income (expense), net" and "Income tax expense" as reported in the condensed consolidated statements of operations are not allocated to our segments.

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Asset information by segment is not a key measure of performance used by the CODM.

Note 11–Commitments and Contingencies

Legal Proceedings

We are 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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11–Commitments and Contingencies

Contingencies

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Under our agreements with VirnetX, Leidos would receive 25 % of the proceeds obtained by VirnetX after reduction for attorneys' fees and costs.

However, the verdict in the Apple II case remains 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 ("USPTO") 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.

However, the above-described verdict in the Apple II case was subject to further proceedings and appeals, as set forth below.

In addition, the patents at issue in these cases were subject to U.S.

Patent and Trademark Office ("USPTO") post-grant inter partes review and/or reexamination proceedings and related appeals, which sought to have all or part of these patents invalidated or the claims of the patents limited.

On March 30, 2023, the U.S.

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On March 31, 2023, the Federal Circuit issued a decision vacating the District Court’s judgment in the Apple II case and remanding it back to the District Court with instructions to dismiss the case as moot.

These Federal Circuit decisions remain subject to potential motions and/or appeals by VirnetX, including potentially seeking rehearing or certiorari review.

On May 1, 2023, VirnetX filed a petition for panel rehearing on the Apple II litigation decision at the Federal Circuit, but this petition was denied by the Federal Circuit on June 27, 2023.

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On September 20, 2023, VirnetX filed a petition for a writ of certiorari with the Supreme Court of the United States to review the Federal Circuit decisions.

Thus, no assurances can be given when or if we will receive any proceeds in connection with the Apple II case.

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.

On February 20, 2024, the Supreme Court of the United States denied VirnetX’s petition for a writ of certiorari, bringing the Apple II case to a close.

Thus, no proceeds were received by Leidos in connection with the Apple II case.

Government Investigations and Reviews

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Defense Contract Audit Agency

As of September 29, 2023, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2021 and subsequent fiscal years.

As of March 29, 2024, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2021 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 September 29, 2023, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

As of March 29, 2024, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

Other Government Investigations and Reviews

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District Court in the Southern District of California.

These charges were later dismissed as a result of the death of the former employee.

In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S.

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It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines, penalties, or further liabilities in connection with the investigation pursuant to which the subpoena was issued.

As of September 29, 2023, we have outstanding letters of credit of $ 60 million , principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 104 million , principally related to performance and subcontractor payment bonds on contracts.

As of March 29, 2024, we have outstanding letters of credit of $ 65 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 104 million, principally related to performance and subcontractor payment bonds on contracts.

The value of the surety bonds may vary due to changes in the underlying project status and/or contractual modifications.

As of September 29, 2023, the future expirations of the outstanding letters of credit and surety bonds were as follows:

As of March 29, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:

Fiscal year ending

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements