What changed in this filing

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Item 1. Financial Statements

2024-10-29 compared with 2024-07-30 · 178 added, 131 removed, 625 unchanged (33% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 27,

2024 December 29,

21 unchanged sentences

Stockholders’ equity:

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

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 133,337,275 and 135,766,419 shares issued and outstanding at September 27, 2024, and December 29, 2023, respectively

Additional paid-in capital 1,469 1,885

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

in millions, except per share data)

3 unchanged sentences

Acquisition, integration and restructuring costs 3 5 14 14

Goodwill impairment charges — 599 — 599

Asset impairment charges 6 88 6 88

Equity earnings of non-consolidated subsidiaries ( 10 ) ( 8 ) ( 25 ) ( 21 )

Operating income

Operating income (loss)

516 ( 336 ) 1,406 260

2 unchanged sentences

Other income (expense), net

2 ( 1 ) 4 ( 5 )

Income before income taxes

Income (loss) before income taxes

470 ( 388 ) 1,264 93

1 unchanged sentence

( 108 ) ( 8 ) ( 295 ) ( 115 )

Net income $ 324 $ 210 $ 607 $ 374

net income attributable to non-controlling interest

Net income attributable to Leidos common stockholders

Net income (loss)

362 ( 396 ) 969 ( 22 )

net (loss) income attributable to non-controlling interest

( 2 ) 3 ( 1 ) 8

Net income (loss) attributable to Leidos common stockholders

$ 364 $ ( 399 ) $ 970 $ ( 30 )

Earnings per share:

3 unchanged sentences

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Net income $ 324 $ 210 $ 607 $ 374

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

Net income (loss)

$ 362 $ ( 396 ) $ 969 $ ( 22 )

Foreign currency translation adjustments

37 ( 31 ) 18 ( 19 )

Unrecognized (loss) gain on derivative instruments

Unrecognized loss on derivative instruments

( 5 ) — ( 4 ) ( 1 )

2 unchanged sentences

31 ( 32 ) 14 ( 22 )

Comprehensive income 331 211 590 384

net income attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders

Comprehensive income (loss)

393 ( 428 ) 983 ( 44 )

net (loss) income attributable to non-controlling interest

( 2 ) 3 ( 1 ) 8

Comprehensive income (loss) attributable to Leidos common stockholders

$ 395 $ ( 431 ) $ 984 $ ( 52 )

See accompanying notes to condensed consolidated financial statements.

26 unchanged sentences

Balance at June 28, 2024 135 $ 1,654 $ 2,866 $ ( 65 ) $ 4,455 $ 55 $ 4,510

Net income (loss)

— — 364 — 364 ( 2 ) 362

Other comprehensive income, net of taxes

— — — 31 31 — 31

Issuances of stock — 1 — — 1 — 1

Repurchases of stock and other ( 2 ) ( 205 ) — — ( 205 ) — ( 205 )

Dividends of $ 0.38 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 19 — — 19 — 19

Balance at September 27, 2024

133 $ 1,469 $ 3,179 $ ( 34 ) $ 4,614 $ 53 $ 4,667

See accompanying notes to condensed consolidated financial statements.

27 unchanged sentences

137 $ 2,024 $ 2,636 $ ( 63 ) $ 4,597 $ 56 $ 4,653

Net (loss) income

— — ( 399 ) — ( 399 ) 3 ( 396 )

Other comprehensive loss, net of taxes — — — ( 32 ) ( 32 ) — ( 32 )

Issuances of stock 1 12 — — 12 — 12

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

Dividends of $ 0.36 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 20 — — 20 — 20

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

Balance at September 29, 2023

138 $ 2,055 $ 2,186 $ ( 95 ) $ 4,146 $ 57 $ 4,203

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

2024 June 30,

Nine Months Ended

September 27,

2024 September 29,

Cash flows from operations:

Net income $ 607 $ 374

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

Net income (loss) $ 969 $ ( 22 )

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

Depreciation and amortization 211 248

1 unchanged sentence

Deferred income taxes ( 96 ) ( 192 )

Goodwill impairment charges — 599

Asset impairment charges 6 88

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

12 unchanged sentences

Proceeds from debt issuance — 1,743

Net proceeds from commercial paper — 200

Repayments of borrowings ( 14 ) ( 2,041 )

6 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 5 —

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

Net increase in cash, cash equivalents and restricted cash

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

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]

Six Months Ended

2024 June 30,

Nine Months Ended

September 27,

2024 September 29,

Supplementary cash flow information:

22 unchanged sentences

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.

National Security & 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.

28 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 will adopt the amendments for annual disclosures in fiscal 2024.

We will adopt these amendments for annual disclosures in fiscal 2024 and interim disclosures in fiscal 2025.

ASU 2023-09 Income Taxes

8 unchanged sentences

Changes in estimates on contracts were as follows:

Three Months Ended Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions, except per share data)

4 unchanged sentences

$ 0.17 $ 0.09 $ 0.10 $ 0.22

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 unfavorable impact for the nine months ended September 27, 2024, included $ 41 million 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 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.

Revenue recognized from performance obligations satisfied in previous periods was $ 78 million and $ 12 million for the three and nine months ended September 27, 2024, respectively, and $ 13 million and $ 14 million for the three and nine months ended September 29, 2023, respectively.

The changes primarily relate 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.

LEIDOS HOLDINGS, INC.

2 unchanged sentences

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.

At September 27, 2024, and December 29, 2023, $ 91 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 $ 118 million and $ 151 million at June 28, 2024, and December 29, 2023, respectively.

Our restricted cash balances were $ 141 million and $ 151 million at September 27, 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 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.

As of September 27, 2024, we had $ 16 billion of RPO and expect to recognize approximately 66 % and 82 % 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 June 28, 2024

National Security and Digital

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

9 unchanged sentences

Total $ 1,847 $ 1,223 $ 577 $ 522 $ 4,169

Three Months Ended June 30, 2023

National Security and Digital

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

13 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 28, 2024

National Security and Digital

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

8 unchanged sentences

Total $ 5,421 $ 3,670 $ 1,645 $ 1,491 $ 12,227

Six Months Ended June 30, 2023

National Security and Digital

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

11 unchanged sentences

Disaggregated revenues by contract-type were as follows:

Three Months Ended June 28, 2024

National Security and Digital

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

8 unchanged sentences

Total $ 1,847 $ 1,223 $ 577 $ 522 $ 4,169

Three Months Ended June 30, 2023

National Security and Digital

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 28, 2024

National Security and Digital

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

6 unchanged sentences

Total $ 5,421 $ 3,670 $ 1,645 $ 1,491 $ 12,227

Six Months Ended June 30, 2023

National Security and Digital

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

7 unchanged sentences

Disaggregated revenues by geographic location were as follows:

Three Months Ended June 28, 2024

National Security and Digital

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

7 unchanged sentences

Total $ 1,847 $ 1,223 $ 577 $ 522 $ 4,169

Three Months Ended June 30, 2023

National Security and Digital

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

7 unchanged sentences

Total $ 1,838 $ 1,049 $ 548 $ 462 $ 3,897

Six Months Ended June 28, 2024

National Security and Digital

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 30, 2023

National Security and Digital

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

7 unchanged sentences

Total $ 5,363 $ 3,072 $ 1,581 $ 1,373 $ 11,389

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.

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 21 million and $ 70 million for the three and nine months ended September 27, 2024, respectively, and $ 24 million and $ 69 million for the three and nine months ended September 29, 2023, respectively.

Contract Assets and Liabilities

6 unchanged sentences

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

Balance sheet line item June 28,

Balance sheet line item September 27,

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 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.

For the three and nine months ended September 27, 2024, $ 45 million and $ 256 million, respectively, of revenue recognized was included as a contract liability at December 29, 2023.

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

LEIDOS HOLDINGS, INC.

3 unchanged sentences

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.

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

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

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

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

(in millions)

8 unchanged sentences

Foreign currency translation adjustments — — 11 — 11

Goodwill at June 28, 2024 (2)

Goodwill at September 27, 2024 (2)

$ 2,758 $ 1,366 $ 811 $ 1,188 $ 6,123

1 unchanged sentence

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

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.

We evaluate qualitative factors that could cause us to consider whether 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 prior to fiscal 2024, have been negatively impacted due to delays in airline travel infrastructure projects as customer budgets recover from the pandemic.

9 unchanged sentences

Intangible assets, net consisted of the following:

June 28, 2024 December 29, 2023

September 27, 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 $ 2,010 $ ( 1,452 ) $ 558 $ 2,008 $ ( 1,341 ) $ 667

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.

Our strategic decisions regarding SES’ product offerings and operating regions (see the goodwill discussion above) caused certain technology and in-process research and development 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 Commercial & International reportable segment.

Amortization expense was $ 37 million and $ 110 million for the three and nine months ended September 27, 2024, respectively, and $ 50 million and $ 153 million for the three and nine months ended September 29, 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.

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

The estimated annual amortization expense as of September 27, 2024, was as follows:

Fiscal year ending

10 unchanged sentences

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

June 28, 2024 December 29, 2023

September 27, 2024 December 29, 2023

Carrying value Fair value Carrying value Fair value

2 unchanged sentences

Derivatives $ 4 $ 4 $ 11 $ 11

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").

As of September 27, 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 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").

As of September 27, 2024, and December 29, 2023, the fair value of debt was $ 4.6 billion for both periods, 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.

During the three months ended September 29, 2023, we recorded impairment charges of SES' goodwill (see "Note 3–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.

LEIDOS HOLDINGS, INC.

7 unchanged sentences

Asset derivatives

Balance sheet line item June 28,

Balance sheet line item September 27,

2024 December 29,

(in millions)

Cash flow interest rate swaps Other long-term assets $ 11 $ 11

Cash flow interest rate swaps Other current assets (1)

(1) As of December 29, 2023, the cash flow interest rate swaps were reported in the "other long-term assets" on the condensed consolidated balance sheet.

The cash flows associated with the interest rate swaps are classified as operating activities in the condensed consolidated statements of cash flows.

8 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 Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

1 unchanged sentence

$ 46 $ 53 $ 146 $ 163

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

Amount recognized in other comprehensive income (loss) $ ( 4 ) $ 3 $ 3 $ 11

Amount reclassified from accumulated other comprehensive loss to interest expense, net $ ( 3 ) $ ( 3 ) $ ( 9 ) $ ( 12 )

3 unchanged sentences

Our debt consisted of the following:

Stated interest rate Effective interest rate June 28,

Stated interest rate Effective interest rate September 27,

2024 December 29,

8 unchanged sentences

4.38 % 4.50 % 750 750

$ 750 million notes, due March 2033

5.75 % 5.81 % 750 750

$ 1,000 million notes, due February 2031

2 unchanged sentences

7.13 % 7.43 % 250 250

$ 750 million notes, due March 2033

5.75 % 5.81 % 750 750

$ 300 million notes, due July 2033

13 unchanged sentences

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.

As of September 27, 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.

4 unchanged sentences

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 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.

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.

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

As of September 27, 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 June 28, 2024.

We were in compliance with all covenants as of September 27, 2024.

Note 7–Accumulated Other Comprehensive Income (Loss)

11 unchanged sentences

Reclassification from AOCI — ( 9 ) — ( 9 )

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

Balance at September 27, 2024 $ ( 21 ) $ 1 $ ( 14 ) $ ( 34 )

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 Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

2 unchanged sentences

Diluted weighted average number of shares outstanding 136 137 136 137

(1) Dilutive common share equivalents for the three and nine months ended September 29, 2023, 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.

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.

The total outstanding stock options and vesting stock awards that were anti-dilutive were less than 0.5 million for both the three and nine months ended September 27, 2024, and 2 million for both the three and nine months ended September 29, 2023.

During the three and nine months ended September 27, 2024, we made open market repurchases of our common stock for an aggregate purchase price of $ 200 million and $ 450 million, respectively, and $ 25 million during the nine months ended September 29, 2023.

There were no share repurchases for the three months ended September 29, 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)

For the three months ended September 27, 2024, the effective tax rate was 23.0 % compared to ( 2.1 )% for the three months ended September 29, 2023.

The increase to the effective tax rate was primarily due to the tax impacts from non-deductible goodwill impairments for the three months ended September 29, 2023, and an increase in unrecognized tax benefits for the three months ended September 27, 2024.

For the nine months ended September 27, 2024, the effective tax rate was 23.3 % compared to 123.7 % for the nine months ended September 29, 2023.

The decrease to the effective tax rate was primarily due to the tax impacts from non-deductible goodwill impairments for the nine months ended September 29, 2023, partially offset by a reduced benefit in federal research tax credits for the nine months ended September 27, 2024.

Note 10–Business Segments

2 unchanged sentences

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.

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

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

1 unchanged sentence

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.

National Security & 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.

6 unchanged sentences

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

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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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 Six Months Ended

2024 June 30,

2023 June 28,

2024 June 30,

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

National Security and Digital $ 1,813 $ 1,791 $ 3,606 $ 3,548

National Security & Digital $ 1,865 $ 1,852 $ 5,471 $ 5,400

Health & Civil 1,225 1,055 3,687 3,097

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Operating income (loss):

National Security and Digital $ 183 $ 172 $ 358 $ 317

National Security & Digital $ 187 $ 170 $ 545 $ 487

Health & Civil 287 165 816 412

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Corporate ( 36 ) ( 28 ) ( 111 ) ( 87 )

Total operating income $ 475 $ 331 $ 890 $ 596

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

Total operating income (loss) $ 516 $ ( 336 ) $ 1,406 $ 260

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

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.

2 unchanged sentences

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

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11–Commitments and Contingencies

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Adverse findings could have a material effect on our business, financial position, results of operations and cash flows due to our reliance on government contracts.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Defense Contract Audit Agency

As of June 28, 2024, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2022 and subsequent fiscal years.

As of September 27, 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 June 28, 2024, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

As of September 27, 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 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.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of September 27, 2024, we have outstanding letters of credit of $ 67 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 103 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 June 28, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:

As of September 27, 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