What changed in this filing

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Item 1. Financial Statements

2024-07-30 compared with 2024-04-30 · 213 added, 111 removed, 543 unchanged (37% of the section changed)

25 unchanged sentences

Stockholders’ equity:

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

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 134,709,785 and 135,766,419 shares issued and outstanding at June 28, 2024, and December 29, 2023, respectively

Additional paid-in capital 1,654 1,885

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

in millions, except per share data)

5 unchanged sentences

Operating income

475 331 890 596

Non-operating income (expense):

1 unchanged sentence

Other income (expense), net

2 ( 1 ) 4 ( 5 )

Income before income taxes

426 274 794 481

Income tax expense

( 102 ) ( 64 ) ( 187 ) ( 107 )

net (loss) income attributable to non-controlling interest

Net income $ 324 $ 210 $ 607 $ 374

net income attributable to non-controlling interest

Net income attributable to Leidos common stockholders

$ 322 $ 207 $ 606 $ 369

Earnings per share:

$ 2.39 $ 1.51 $ 4.49 $ 2.69

2.37 1.50 4.42 2.67

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Net income $ 324 $ 210 $ 607 $ 374

Foreign currency translation adjustments

Unrecognized gain (loss) on derivative instruments

8 ( 3 ) ( 19 ) 12

Unrecognized (loss) gain on derivative instruments

( 1 ) 4 1 ( 1 )

Pension adjustments — — 1 ( 1 )

Total other comprehensive (loss) income, net of taxes

Total other comprehensive income (loss), net of taxes

7 1 ( 17 ) 10

Comprehensive income 331 211 590 384

net (loss) income attributable to non-controlling interest

net income attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders

$ 329 $ 208 $ 589 $ 379

See accompanying notes to condensed consolidated financial statements.

17 unchanged sentences

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

Net income — — 322 — 322 2 324

Other comprehensive income, net of taxes — — — 7 7 — 7

Issuances of stock 1 14 — — 14 — 14

Repurchases of stock and other ( 1 ) ( 115 ) — — ( 115 ) — ( 115 )

Dividends of $ 0.38 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 20 — — 20 — 20

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

Balance at June 28, 2024

135 $ 1,654 $ 2,866 $ ( 65 ) $ 4,455 $ 55 $ 4,510

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Shares of common stock Additional

14 unchanged sentences

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

2024 March 31,

Six Months Ended

2024 June 30,

Cash flows from operations:

Net income $ 607 $ 374

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

Adjustments to reconcile net income to net cash provided by operations:

Depreciation and amortization 140 166

1 unchanged sentence

Deferred income taxes ( 67 ) ( 88 )

Other ( 6 ) 5

Change in assets and liabilities:

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

Receivables ( 185 ) ( 123 )

3 unchanged sentences

Income taxes receivable/payable 57 ( 125 )

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

Net cash provided by operating activities 437 66

Cash flows from investing activities:

Acquisition of a business, net of cash acquired — ( 4 )

Payments for property, equipment and software ( 40 ) ( 79 )

Net proceeds from sale of assets 2 —

Net cash used in investing activities ( 33 ) ( 83 )

1 unchanged sentence

Proceeds from debt issuance — 1,743

Net proceeds from commercial paper — 200

Repayments of borrowings ( 9 ) ( 2,036 )

6 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 4 ) 3

Net decrease in cash, cash equivalents and restricted cash

( 181 ) ( 192 )

Net increase (decrease) in cash, cash equivalents and restricted cash

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

2 unchanged sentences

Cash and cash equivalents at end of period $ 823 $ 329

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]

Six Months Ended

2024 June 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, 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.

Leidos, 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 48,000 , Leidos is committed to developing smarter technology solutions, particularly for customers in highly regulated industries.

38 unchanged sentences

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.

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

ASU 2023-09 Income Taxes

8 unchanged sentences

Changes in estimates on contracts were as follows:

Three Months Ended

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

(in millions, except per share data)

3 unchanged sentences

Impact on diluted EPS attributable to Leidos common stockholders

$ ( 0.07 ) $ 0.10 $ ( 0.06 ) $ 0.13

The unfavorable impact for the three and six months ended June 28, 2024, included $ 39 million and $ 40 million, respectively, in write-downs on programs within our UK operations related to cost increases and schedule delays.

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

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.

We reduced revenue from performance obligations satisfied in previous periods by $ 16 million and $ 21 million for the three and six months ended June 28, 2024, respectively, and recognized revenue of $ 16 million and $ 15 million for the three and six months ended June 30, 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 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 June 28, 2024, and December 29, 2023, $ 88 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.

Restricted Cash

1 unchanged sentence

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

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

Our restricted cash balances were $ 118 million and $ 151 million at June 28, 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 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.

As of June 28, 2024, we had $ 13.8 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.

Disaggregation of Revenues

1 unchanged sentence

Disaggregated revenues by customer-type were as follows:

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

National Security and Digital

1 unchanged sentence

Commercial & International

Defense Systems

Defense Systems Total

(in millions)

6 unchanged sentences

Total $ 1,795 $ 1,257 $ 560 $ 495 $ 4,107

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

National Security and Digital

14 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 28, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems Total

(in millions)

Intelligence Community $ 2,468 $ 512 $ 14 $ 866 $ 3,860

government agencies (1)

1,045 1,903 154 46 3,148

Commercial and non-U.S.

customers 61 32 900 57 1,050

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

Six Months Ended June 30, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems Total

(in millions)

Intelligence Community $ 2,347 $ 540 $ 15 $ 775 $ 3,677

government agencies (1)

1,112 1,454 145 60 2,771

Commercial and non-U.S.

customers 66 29 873 76 1,044

Total $ 3,525 $ 2,023 $ 1,033 $ 911 $ 7,492

(1) Includes federal government agencies other than the DoD and U.S.

Intelligence Community, as well as state and local government agencies.

Disaggregated revenues by contract-type were as follows:

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

National Security and Digital

9 unchanged sentences

Total $ 1,795 $ 1,257 $ 560 $ 495 $ 4,107

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

National Security and Digital

9 unchanged sentences

Total $ 1,779 $ 1,024 $ 544 $ 466 $ 3,813

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 28, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Cost-reimbursement and fixed-price-incentive-fee $ 1,894 $ 898 $ 175 $ 614 $ 3,581

Firm-fixed-price 986 1,439 671 282 3,378

Time-and-materials and fixed-price-level-of-effort 694 110 222 73 1,099

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

Six Months Ended June 30, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Cost-reimbursement and fixed-price-incentive-fee $ 1,883 $ 1,075 $ 174 $ 539 $ 3,671

Firm-fixed-price 1,004 857 638 291 2,790

Time-and-materials and fixed-price-level-of-effort 638 91 221 81 1,031

Total $ 3,525 $ 2,023 $ 1,033 $ 911 $ 7,492

Disaggregated revenues by geographic location were as follows:

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

National Security and Digital

8 unchanged sentences

Total $ 1,795 $ 1,257 $ 560 $ 495 $ 4,107

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

National Security and Digital

8 unchanged sentences

Total $ 1,779 $ 1,024 $ 544 $ 466 $ 3,813

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.

Six Months Ended June 28, 2024

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

United States

$ 3,558 $ 2,444 $ 435 $ 947 $ 7,384

International

16 3 633 22 674

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 30, 2023

National Security and Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

United States

$ 3,505 $ 2,022 $ 409 $ 904 $ 6,840

International

20 1 624 7 652

Total $ 3,525 $ 2,023 $ 1,033 $ 911 $ 7,492

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 25 million and $ 49 million for the three and six months ended June 28, 2024, respectively, and $ 25 million and $ 45 million for the three and six months ended June 30, 2023, respectively.

Contract Assets and Liabilities

2 unchanged sentences

As a result, the timing of revenue recognition, customer billings and cash collections for each contract results in a net contract asset or liability at the end of each reporting period.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount billed to the customer.

2 unchanged sentences

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

Balance sheet line item March 29,

Balance sheet line item June 28,

2024 December 29,

11 unchanged sentences

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.

For the three and six months ended June 28, 2024, $ 54 million and $ 211 million, respectively, of revenue recognized was included as a contract liability at December 29, 2023.

For the three and six months ended June 30, 2023, $ 32 million and $ 187 million, respectively, of revenue recognized was included as a contract liability at December 30, 2022.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3–Goodwill and Intangible Assets

14 unchanged sentences

Foreign currency translation adjustments — — ( 10 ) — ( 10 )

Goodwill at March 29, 2024 (2)

Goodwill at June 28, 2024 (2)

$ 2,758 $ 1,366 $ 790 $ 1,188 $ 6,102

1 unchanged sentence

(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.

6 unchanged sentences

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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Intangible Assets

Intangible assets, net consisted of the following:

March 29, 2024 December 29, 2023

June 28, 2024 December 29, 2023

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

11 unchanged sentences

Total intangible assets $ 2,005 $ ( 1,413 ) $ 592 $ 2,008 $ ( 1,341 ) $ 667

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

Amortization expense was $ 36 million and $ 73 million for the three and six months ended June 28, 2024, respectively and $ 51 million and $ 103 million for the three and six months ended June 30, 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.

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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The estimated annual amortization expense as of June 28, 2024, was as follows:

Fiscal year ending

2 unchanged sentences

2029 and thereafter 162

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4–Fair Value Measurements

4 unchanged sentences

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

March 29, 2024 December 29, 2023

June 28, 2024 December 29, 2023

Carrying value Fair value Carrying value Fair value

2 unchanged sentences

Derivatives $ 11 $ 11 $ 11 $ 11

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").

As of June 28, 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 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).

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

As of June 28, 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 and our credit rating (Level 2 inputs).

As of June 28, 2024, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

LEIDOS HOLDINGS, INC.

7 unchanged sentences

Asset derivatives

Balance sheet line item March 29,

Balance sheet line item June 28,

2024 December 29,

11 unchanged sentences

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,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

(in millions)

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

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

$ 51 $ 56 $ 100 $ 110

Amount recognized in other comprehensive income $ 2 $ 10 $ 7 $ 8

Amount reclassified from accumulated other comprehensive loss to interest expense, net $ ( 3 ) $ ( 5 ) $ ( 6 ) $ ( 9 )

3 unchanged sentences

Our debt consisted of the following:

Stated interest rate Effective interest rate March 29,

Stated interest rate Effective interest rate June 28,

2024 December 29, 2023

28 unchanged sentences

The Credit Facilities will mature in March 2028.

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

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

The Revolving Facility is subject to an annual commitment fee rate of 0.125 % on the unused credit availability and permits two additional one-year extensions subject to lender consent.

As of June 28, 2024, and December 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 a predecessor $ 1.9 billion senior unsecured term loan facility and a $ 750 million senior unsecured revolving facility.

5 unchanged sentences

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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Notes are senior unsecured obligations issued by Leidos, Inc.

2 unchanged sentences

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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Commercial Paper

3 unchanged sentences

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

As of June 28, 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.

We were in compliance with all covenants as of June 28, 2024.

Note 7–Accumulated Other Comprehensive Income (Loss)

11 unchanged sentences

Reclassification from AOCI — ( 6 ) — ( 6 )

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

Balance at June 28, 2024 $ ( 58 ) $ 6 $ ( 13 ) $ ( 65 )

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

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8–Earnings Per Share

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

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

(in millions)

3 unchanged sentences

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

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.

The total outstanding stock options and vesting stock awards that were anti-dilutive were not material for both the three and six months ended June 28, 2024, and 2 million for both the three and six months ended June 30, 2023.

During the three and six months ended June 28, 2024, we made open market repurchases of our common stock for an aggregate purchase price of $ 100 million and $ 250 million, respectively, and $ 25 million during the six months ended June 30, 2023.

There were no share repurchases for the three months ended June 30, 2023.

All shares repurchased were immediately retired.

Note 9–Income Taxes

For the three months ended June 28, 2024, the effective tax rate was 23.9 % compared to 23.4 % for the three months ended June 30, 2023.

The increase to the effective tax rate was primarily due to a reduced benefit in federal research tax credits, partially offset by a reduction of taxes related to foreign operations.

In addition, our effective tax rate for the three months ended June 30, 2023, included a benefit from the release of an accrual for penalties.

For the six months ended June 28, 2024, the effective tax rate was 23.6 % compared to 22.2 % for the six months ended June 30, 2023.

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

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9–Income Taxes

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

1 unchanged sentence

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:

Effective the first day of fiscal 2024, we realigned our business to report into 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.

23 unchanged sentences

The segment information for the periods presented was as follows:

Three Months Ended

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

(in millions)

19 unchanged sentences

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)

Contingencies

VirnetX, Inc.

On April 10, 2018, a jury trial concluded in an additional patent infringement case brought by VirnetX against Apple, referred to as the Apple II case, in which the jury returned a verdict against Apple for infringement and awarded VirnetX damages in the amount of over $ 502 million.

On April 11, 2018, in a second phase of the Apple II trial, the jury found Apple's infringement to be willful.

On August 30, 2018, the federal trial court in the Eastern District of Texas entered a final judgment and rulings on post-trial motions in the Apple II case.

The court affirmed the jury’s verdict of over $ 502 million and granted VirnetX’s motions for supplemental damages, a sunset royalty and royalty rate of $ 1.20 per infringing device, along with pre-judgment and post-judgment interest and costs.

The court denied VirnetX’s motions for enhanced damages, attorneys’ fees and an injunction.

The court also denied Apple’s motions for judgment as a matter of law and for a new trial.

An additional sum of over $ 93 million for costs and pre-judgment interest was subsequently agreed upon pursuant to a court order, bringing the total award to VirnetX in the Apple II case to over $ 595 million.

Apple filed an appeal of the judgment in the Apple II case with the U.S.

Court of Appeals for the Federal Circuit, and on November 22, 2019, the Federal Circuit affirmed in part, reversed in part and remanded the Apple II case back to the District Court.

The Federal Circuit affirmed that Apple infringed two of the patents at issue in the case, and ruled that Apple is precluded from making certain patent invalidity arguments.

However, the Federal Circuit reversed the judgment that Apple infringed two other patents at issue, vacated the prior damages awarded in the Apple II case, and remanded the Apple II case back to the District Court for further proceedings regarding damages.

On April 23, 2020, the District Court ordered a new trial on damages in the Apple II case, which was delayed by the coronavirus pandemic and started on October 26, 2020.

On October 30, 2020, the jury awarded VirnetX $ 503 million in damages and specified a royalty rate of $ 0.84 per infringing device.

In January 2021, the District Court entered final judgment affirming the jury award and the parties separately agreed on additional costs and interest of over $ 75 million, subject to Apple's appeal.

On February 4, 2021, Apple filed a notice of appeal with the U.S.

Court of Appeals for the Federal Circuit in the Apple II case.

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

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.

Court of Appeals for the Federal Circuit issued a ruling affirming prior decisions of the USPTO’s Patent Trial and Appeal Board finding certain claims of the patents at issue in the Apple II case to be unpatentable.

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.

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.

On June 5, 2023, VirnetX filed a petition for panel rehearing on the Federal Circuit’s decision finding the patents at issue in the Apple II case to be unpatentable, but this petition was denied by the Federal Circuit on June 22, 2023.

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.

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 March 29, 2024, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2021 and subsequent fiscal years.

As of June 28, 2024, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2022 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 March 29, 2024, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

As of June 28, 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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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 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.

As of June 28, 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 March 29, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:

As of June 28, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:

Fiscal year ending

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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