What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 92 added, 61 removed, 165 unchanged (48% of the section changed)

26 unchanged sentences

Government Markets

During both of the three months ended March 29, 2024, and March 31, 2023, we generated approximately 87% of total revenues from contracts with the U.S.

During the three and six months ended June 28, 2024, we generated approximately 86% and 87%, respectively, of total revenues from contracts with the U.S.

government, as compared to 85% and 86% for the three and six months ended June 30, 2023, respectively.

Accordingly, our business performance is affected by the overall level of U.S.

government spending, especially on national security, homeland security and intelligence, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S.

Congress avoided a government shutdown by passing two appropriations packages.

The first package passed on March 8, 2024, included Agriculture-FDA, Energy-Water, Military Construction-VA, Transportation-HUD, Interior-Environment and Commerce-Justice-Science funding bills.

The second package passed on March 23, 2024, included Defense, Financial Services, Homeland Security, Labor-HHS-Education, Legislative Branch, and State-Foreign Operations funding bills.

In addition, the $7.3 trillion President’s budget was released on March 11, 2024, which is a 4.7% increase over the current budget and seeks to boost defense spending by 1% and non-defense discretionary spending by 2.4%.

The spending complies with caps that House Republicans pushed in last year's Fiscal Responsibility Act in exchange for raising the debt limit.

Congress will now focus on the government fiscal year ("GFY") 2025 appropriations bills before the GFY 2024 appropriations bills expire at the end of September 2024.

President Biden released the $7.3 trillion government fiscal year ("GFY") 2025 President’s Budget Request on March 11, 2024, which seeks to increase defense spending by 1% and non-defense discretionary spending by 2.4%.

Congress is currently working to pass the 12 appropriations bills that will fund the federal government in GFY 2025.

Failure to pass the appropriations bills or a continuing resolution by September 30, 2024, will result in a full or partial federal government shutdown.

LEIDOS HOLDINGS, INC.

International Markets

Sales to customers in international markets represented approximately 8% of total revenues for both of the three months ended March 29, 2024, and March 31, 2023.

Sales to customers in international markets represented approximately 9% and 8% of total revenues for the three and six months ended June 28, 2024, respectively, as compared to 9% for both the three and six months ended June 30, 2023.

Our international customers include foreign governments and their agencies.

5 unchanged sentences

The following table summarizes our condensed consolidated results of operations for the periods presented:

Three Months Ended

2024 March 31,

Three Months Ended Six Months Ended

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

13 unchanged sentences

Segment and Corporate Results

Three Months Ended

National Security and Digital March 29,

2024 March 31,

Three Months Ended Six Months Ended

National Security and Digital June 28,

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

3 unchanged sentences

Operating margin 10.1 % 9.6 % 9.9 % 8.9 %

The increase in revenues for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to a net increase in volumes on certain programs and program wins, partially offset by the completion of certain contracts.

The increase in operating income for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to a net increase in volumes on certain programs, partially offset by the completion of certain contracts.

Three Months Ended

Health & Civil March 29,

2024 March 31,

The increase in revenues for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily attributable to a net increase in volumes on certain programs and program wins, partially offset by the completion of certain contracts.

The increase in operating income for the three months ended June 28, 2024, as compared to the three months ended June 30, 2023, was primarily attributable to a net increase in volumes and efficiencies on certain programs, partially offset by the completion of certain contracts.

The increase in operating income for the six months ended June 28, 2024, as compared to the six months ended June 30, 2023, was primarily attributable to a net increase in volumes and efficiencies on certain programs, and program wins, partially offset by the completion of certain contracts.

LEIDOS HOLDINGS, INC.

Three Months Ended Six Months Ended

Health & Civil June 28,

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

3 unchanged sentences

Operating margin 24.3 % 13.0 % 21.5 % 12.1 %

The increase in revenues for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to higher volumes in the managed health services business, ramp up on certain programs and program wins.

LEIDOS HOLDINGS, INC.

The increase in operating income for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily driven by a net increase in volumes and favorable business mix in the managed health services business.

Three Months Ended

Commercial & International March 29,

2024 March 31,

The increase in revenues for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily attributable to higher volumes in the managed health services business, write-ups on certain programs and program wins.

The increase in operating income for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily driven by a net increase in volumes and favorable business mix in the managed health services business and write-ups on certain programs.

Three Months Ended Six Months Ended

Commercial & International June 28,

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

1 unchanged sentence

Revenues $ 561 $ 547 $ 14 2.6 % $ 1,070 $ 1,036 $ 34 3.3 %

Operating income 34 13 21 161.5 %

Operating (loss) income (11) 34 (45) (132.4) % 23 47 (24) (51.1) %

Operating margin (2.0) % 6.2 % 2.1 % 4.5 %

The increase in revenues and operating income for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to a net increase in volumes driven by commercial product mix and improved cost control, partially offset by the completion of certain contracts.

Three Months Ended

Defense Systems March 29,

2024 March 31,

The increase in revenues for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily attributable to higher material volumes within our Australia business and program wins.

The increase was partially offset by the impact of write-downs on certain programs within our UK operations for which cost and schedule were rebaselined.

The decrease in operating income for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily driven by the impact of write-downs on certain programs within our UK operations for which cost and schedule were rebaselined, and the completion of certain contracts.

The decrease was partially offset by higher material volumes and program wins.

Three Months Ended Six Months Ended

Defense Systems June 28,

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

3 unchanged sentences

Operating margin 6.9 % 4.5 % 5.7 % 4.8 %

The increase in revenues for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to an increase in volumes on certain programs and program wins.

The decrease in operating income for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to changes in program mix, partially offset by program wins.

Three Months Ended

Corporate March 29,

2024 March 31,

The increase in revenues for the three and six months ended June 28, 2024, as compared to the three and six months ended June 30, 2023, was primarily attributable to program wins, partially offset by the completion of certain contracts.

The increase in operating income for the three months ended June 28, 2024, as compared to the three months ended June 30, 2023, was primarily attributable to program wins and improved program execution on certain programs.

The increase in operating income for the six months ended June 28, 2024, as compared to the six months ended June 30, 2023, was primarily attributable to program wins.

LEIDOS HOLDINGS, INC.

Three Months Ended Six Months Ended

Corporate June 28,

2024 June 30,

2023 Dollar change Percent change June 28,

2024 June 30,

2023 Dollar change Percent change

1 unchanged sentence

Operating loss $ (38) $ (30) $ (8) 26.7 % $ (75) $ (59) $ (16) 27.1 %

The increase in operating loss for the three months ended March 29, 2024, as compared to the three months ended March 31, 2023, was primarily attributable to increased general and administrative expenses.

The increase in operating loss for the three months ended June 28, 2024, as compared to the three months ended June 30, 2023, was primarily attributable to increased general and administrative expenses.

The increase in operating loss for the six months ended June 28, 2024, as compared to the six months ended June 30, 2023, was primarily attributable to increased general and administrative expenses, partially offset by reduced legal fees.

Non-Operating Expense, net

Non-operating expense, net for the three months ended March 29, 2024, was $47 million as compared to $58 million for the three months ended March 31, 2023.

The decrease was primarily due to increased interest income on higher cash balances and favorable exchange rate movements.

Non-operating expense, net for the three months ended June 28, 2024, was $49 million as compared to $57 million for the three months ended June 30, 2023.

The decrease was primarily driven by lower interest expense, as there were no commercial paper borrowings in the current year.

Non-operating expense, net for the six months ended June 28, 2024, was $96 million as compared to $115 million for the six months ended June 30, 2023.

The decrease was primarily driven by lower interest expense, as there were no commercial paper borrowings in the current year, increased interest income on higher cash balances and favorable exchange rate movements.

Provision for Income Taxes

For the three months ended March 29, 2024, our 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.

For the three months ended June 28, 2024, our 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, our 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.

In December 2021, the Organization for Economic Cooperation and Development enacted model rules for a new 15% global minimum tax framework (“Pillar Two”).

Many governments around the world have enacted or are in the process of enacting Pillar Two legislation.

The Pillar Two legislation is effective for certain jurisdictions beginning in fiscal 2024.

We will continue to evaluate the potential impact of the rules as additional legislation gets enacted but currently do not expect them to have a material impact.

The Pillar Two legislation became effective for certain jurisdictions beginning in fiscal 2024.

We will continue to evaluate the impact of the rules as additional legislation gets enacted but currently do not expect them to have a material impact.

LEIDOS HOLDINGS, INC.

Bookings and Backlog

We recorded net bookings worth an estimated $3.7 billion during the three months ended March 29, 2024, as compared to $3.0 billion for the three months ended March 31, 2023.

We recorded net bookings worth an estimated $4.0 billion and $7.7 billion during the three and six months ended June 28, 2024, respectively, as compared to $2.9 billion and $5.9 billion for the three and six months ended June 30, 2023, respectively.

The estimated value of our total backlog was as follows:

March 29, 2024 March 31, 2023

June 28, 2024 June 30, 2023

Segment Funded Unfunded Total Funded Unfunded Total

9 unchanged sentences

Liquidity and Capital Resources

As of March 29, 2024, we had $633 million in cash and cash equivalents.

As of June 28, 2024, we had $823 million in cash and cash equivalents.

We have a senior unsecured revolving credit facility which can provide up to $1 billion in additional borrowing, if required.

As of March 29, 2024, and December 29, 2023, there were no borrowings outstanding under the revolving credit facility.

We had outstanding debt of $4.7 billion at both March 29, 2024, and December 29, 2023.

As of June 28, 2024, and December 29, 2023, there were no borrowings outstanding under the revolving credit facility.

We had outstanding debt of $4.7 billion at both June 28, 2024, and December 29, 2023.

We have a commercial paper program in which we may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") and have maturities of up to 397 days from the date of issuance.

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

We made principal payments, excluding the impacts of our Commercial Paper Notes, on our debt of $4 million and $1,711 million during the three months ended March 29, 2024, and March 31, 2023, respectively.

The activity for the three months ended March 31, 2023, included a $1,210 million payment to discharge the $1.9 billion 5.77% senior unsecured term loan facility and a $498 million payment to discharge the $500 million 2.95% notes, due May 2023.

Our credit facilities, commercial paper notes and senior unsecured notes outstanding as of March 29, 2024, contain financial covenants and customary restrictive covenants.

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

We paid dividends of $53 million and $50 million during the three months ended March 29, 2024, and March 31, 2023, respectively.

As of June 28, 2024, and December 29, 2023, we did not have any Commercial Paper Notes outstanding.

We made principal payments, excluding the impacts of our Commercial Paper Notes, on our debt of $5 million and $9 million during the three and six months ended June 28, 2024, respectively, and $325 million and $2,036 million for the three and six months ended June 30, 2023, respectively.

The activity for the three months ended June 30, 2023, included a required principal payment of $320 million to discharge the 364-day term loan credit agreement.

The activity for the six months ended June 30, 2023, included a $1,210 million payment to discharge the $1.9 billion 5.77% senior unsecured term loan facility and a $498 million payment to discharge the $500 million 2.95% notes, due May 2023.

Our credit facilities, commercial paper notes and senior unsecured notes outstanding as of June 28, 2024, contain financial covenants and customary restrictive covenants.

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

We paid dividends of $51 million and $104 million during the three and six months ended June 28, 2024, respectively, and $50 million and $100 million during the three and six months ended June 30, 2023, respectively.

Stock repurchases of Leidos common stock may be made on the open market or in privately negotiated transactions with third parties including through accelerated share repurchase agreements.

1 unchanged sentence

The repurchase program may be accelerated, suspended, delayed or discontinued at any time.

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

LEIDOS HOLDINGS, INC.

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.

For the next 12 months, we anticipate that we will be able to meet our liquidity needs, including servicing our debt, through cash generated from operations, available cash balances, borrowings from our commercial paper program and, if needed, sales of accounts receivable and borrowings from our revolving credit facility.

1 unchanged sentence

The following table summarizes cash flow information 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)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

$ 374 $ 164 $ 437 $ 66

Net cash used in investing activities (21) (44) (33) (83)

Net cash used in financing activities

Net cash provided by operating activities increased $161 million during the three months ended March 29, 2024, when compared to the prior year quarter.

The increase was primarily due to lower tax payments of $133 million mainly in connection with the Tax Cuts and Jobs Act provision requiring capitalization of research and development costs and a nonrecurring $62 million payment for payroll taxes related to the CARES Act in the prior year quarter, partially offset by a net increase in working capital.

Net cash used in investing activities decreased $27 million for the three months ended March 29, 2024, when compared to the prior year quarter, primarily due to lower capital expenditures in the current year quarter.

Net cash used in financing activities increased $171 million for the three months ended March 29, 2024, when compared to the prior year quarter, primarily due to a net increase of $140 million in stock repurchases and a decrease of $29 million in net proceeds received from borrowings in connection with the issuance of debt in the prior year quarter.

(159) (164) (387) (221)

Net cash provided by operating activities increased $210 million during the three months ended June 28, 2024, when compared to the prior year quarter.

The increase was primarily due to higher earnings and a favorable change in working capital.

Net cash provided by operating activities increased $371 million during the six months ended June 28, 2024, when compared to the prior year.

The increase was primarily due to higher earnings and lower tax payments of $116 million mainly in connection with the Tax Cuts and Jobs Act provision requiring capitalization of research and development costs and a nonrecurring $62 million payment for payroll taxes related to the CARES Act in the prior year, partially offset by an unfavorable change in other working capital.

Net cash used in investing activities decreased $23 million and $50 million, respectively, for the three and six months ended June 28, 2024, when compared to the prior year quarter, primarily due to lower capital expenditures.

Net cash used in financing activities decreased $5 million for the three months ended June 28, 2024, when compared to the prior year quarter, primarily due to a decrease of $120 million in net payments made from debt activities, partially offset by a net increase of $114 million in stock repurchases.

Net cash used in financing activities increased $166 million for the six months ended June 28, 2024, when compared to the prior year.

The increase was primarily due to a net increase of $225 million in open market share repurchases and $29 million increase in shares withheld for tax obligations, partially offset by a decrease of $91 million in net payments made from debt activities.

Off-Balance Sheet Arrangements

44 unchanged sentences

Statement of Operations Information for the Guarantor and Issuer of Registered Notes

Three Months Ended

Six Months Ended

(in millions)

13 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 2. Management’s Discussion and Analysis