我們對Mission Support Alliance，LLC（"MSA"）擁有控股權，這是與Centerra Group，LLC的一家合資企業。我們還對Hanford Mission Integration Solutions，LLC（"HMIS"）擁有控股權，這是繼MSA合同後的合同的法律實體，也是與Centerra Group，LLC和Parsons Government Services，Inc.的一家合資企業。MSA和HMIS的財務結果已被合併到我們的未經審計的簡明合併財務報表中。未經審計的簡明合併財務報表還包括所有Leidos擁有控股表決權的所有表決權實體（"子公司"）和一個Leidos是主要受益人的有限利益實體（"VIE"）的餘額。VIE的合併餘額對所呈報的未經審計的簡明合併財務報表來說不重要。合併公司之間的往來帳戶和交易在合併中已被消除。
Finance leases due on various dates through fiscal 2032
Various
1.84%-6.31%
78
91
Less: unamortized debt discounts and deferred debt issuance costs
(34)
(38)
Total long-term debt
4,673
4,682
Less current portion
(592)
(18)
Total long-term debt, net of current portion
$
4,081
$
4,664
Term Loans and Revolving Credit Facility
On March 10, 2023 (the “Closing Date”), we entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of $1.0 billion (the “Term Loan Facility”) and a $1.0 billion senior unsecured revolving facility (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”). The Credit Facilities will mature in March 2028. 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 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.
Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a Term SOFR rate with a 0.10% per annum Term SOFR adjustment, plus, in each case, an applicable margin that varies depending on our credit rating. The applicable margin range for Term SOFR-denominated borrowings is from 1.00% to 1.50%. Based on our current ratings, the applicable margin for Term SOFR-denominated borrowings is 1.25%. Principal payments are made quarterly on the Term Loan Facility beginning in March 2025, with the majority of the principal due at maturity. Interest on the Term Loan Facility for Term SOFR-denominated borrowings is payable on a periodic basis, which must be at least quarterly.
Senior Notes
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. and guaranteed by Leidos Holdings, Inc. The annual interest rate for the Notes is 5.75% and is payable on a semi-annual basis. 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Commercial Paper
We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $1.0 billion. The proceeds will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases.
The Commercial Paper Notes are issued in minimum denominations of $0.25 million and have maturities of up to 397 days from the date of issuance. The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount. As of September 27, 2024, and December 29, 2023, we did not have any Commercial Paper Notes outstanding.
Covenants
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.
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.
We were in compliance with all covenants as of September 27, 2024.
Note 7–Accumulated Other Comprehensive Income (Loss)
Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows:
Foreign currency translation adjustments
Unrecognized gain (loss) on derivative instruments
Pension adjustments
Total AOCI
(in millions)
Balance at December 30, 2022
$
(73)
$
13
$
(13)
$
(73)
Other comprehensive income (loss)
36
6
(1)
41
Taxes
(2)
1
—
(1)
Reclassification from AOCI
—
(15)
—
(15)
Balance at December 29, 2023
(39)
5
(14)
(48)
Other comprehensive income (loss)
23
3
—
26
Taxes
(5)
2
—
(3)
Reclassification from AOCI
—
(9)
—
(9)
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.
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
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(in millions)
Basic weighted average number of shares outstanding
134
137
135
137
Dilutive common share equivalents—stock options and other stock awards(1)
2
—
1
—
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.
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 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 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
Our operations and reportable segments are organized around the customers and markets we serve. 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.
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 & Digital, Health & Civil, Commercial & International and Defense Systems. Our reportable segments are focused on specific, defined capability sets that we bring to our customers. Additionally, we separately present the unallocable costs associated with corporate functions as Corporate. As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure.
National Security & Digital provides technology enabled services and mission software capabilities for defense and intelligence customers in the areas of cyber, logistics, security operations and decision analytics, as well as IT operations and digital transformation programs across all U.S. federal government customers. Our advanced capabilities include the delivery of technology-enabled services, mission software capabilities and IT modernization services. Our capabilities allow us to provide innovative technology solutions in the following categories: software development, engineering & design, modeling & simulation, analytics, cyber security, intelligence analysis, linguistics and mission operations.
Health & Civil provides services and solutions to federal and commercial customers in the areas of public health, care coordination, life and environmental sciences and transportation. We are dedicated to delivering effective and affordable solutions that are responsible for the health and well-being of people, including service members and veterans. Our core capabilities include health information management services, managed health services, systems and infrastructure modernization, and life sciences research and development. We help customers achieve their missions and take on the connected world with data-driven insights, improved efficiencies and technological advantages.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Commercial & International provides technologically advanced services, solutions and products to commercial and international customers. Our key customers include United Kingdom and Australia government agencies, Transportation Security Administration, U.S. Customs and Border Protection, airports, and commercial utility providers. Our offerings include IT modernization, software solutions, mission support and logistics, Command, Control, Computers, Communications, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, cloud services, power grid engineering, energy modernization and security products and services.
Defense Systems develops and produces advanced space, aerial, surface, and sub-surface manned and un-manned defense systems for the U.S. Department of Defense, Army, Navy, Air Force, Marine Corps, United States Special Operations Command, NASA, Space Force, the Defense Intelligence Agency and International customers. Our solutions deliver innovative technology, systems engineering, integration and testing, rapid prototyping, software development, intelligence analysis, cybersecurity solutions and C4ISR technologies and services to support critical missions.
Corporate includes the operations of various corporate activities, certain corporate expense items that are not reimbursed by our U.S. government customers and certain other expense items excluded from a reportable segment's performance.
The segment information for the periods presented was as follows:
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(in millions)
Revenues:
National Security & Digital
$
1,865
$
1,852
$
5,471
$
5,400
Health & Civil
1,225
1,055
3,687
3,097
Commercial & International
578
552
1,648
1,588
Defense Systems
522
462
1,491
1,373
Total revenues
$
4,190
$
3,921
$
12,297
$
11,458
Operating income (loss):
National Security & Digital
$
187
$
170
$
545
$
487
Health & Civil
287
165
816
412
Commercial & International
41
(646)
64
(599)
Defense Systems
37
3
92
47
Corporate
(36)
(28)
(111)
(87)
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. Under U.S. Government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base. As such, depreciation expense is not separately disclosed on the condensed consolidated statements of operations.
Asset information by segment is not a key measure of performance used by the CODM.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11–Commitments and Contingencies
Legal Proceedings
We are involved in various claims and lawsuits arising in the normal conduct of our business, none of which, in the opinion of management, based upon current information, will likely have a material adverse effect on our financial position, results of operations or cash flows.
Contingencies
Government Investigations and Reviews
We are routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect to our role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. 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.
Defense Contract Audit Agency
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 September 27, 2024, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.
Other Government Investigations and Reviews
Through its internal processes, the Company discovered, in late 2021, activities by its employees, third party representatives and subcontractors, raising concerns related to a portion of our business that conducts international operations. The Company is conducting an internal investigation, overseen by an independent committee of the Board of Directors, with the assistance of external legal counsel, to determine whether the identified conduct may have violated the Company’s Code of Conduct and potentially applicable laws, including the U.S. Foreign Corrupt Practices Act ("FCPA"). The Company has voluntarily self-reported this investigation to the Department of Justice and the Securities and Exchange Commission and is cooperating with both agencies. Because the investigation is ongoing, the Company cannot anticipate the timing, outcome or possible impact of the investigation, although violations of the FCPA and other applicable laws may result in criminal and civil sanctions, including monetary penalties, and reputational damage. In September 2022, the Company received a Federal Grand Jury Subpoena related to the criminal investigation by the U.S. Attorney’s Office for the Southern District of California, in conjunction with the U.S. Department of Justice’s Fraud Division. The subpoena requests documents relating to the conduct that is the subject of the Company’s internal investigation. The Company has responded to the subpoena. In February 2023, a former employee of the Company who was terminated at the outset of the investigation was indicted on wire fraud and other charges by a Federal Grand Jury in the U.S. District Court in the Southern District of California. These charges were later dismissed as a result of the death of the former employee.
In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S. Department of Justice Antitrust Division. The subpoena requests that the Company produce a broad range of documents related to three U.S. Government procurements associated with the Company’s Intelligence Group in 2021 and 2022. We are fully cooperating with the investigation, and we are conducting our own internal investigation with the assistance of outside counsel. 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Commitments
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 September 27, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations, and quantitative and qualitative discussion about business environment and trends should be read in conjunction with Leidos' condensed consolidated financial statements and related notes.
The following discussion contains forward-looking statements, including statements regarding our intent, belief or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, our industry, the impact of our merger and acquisition activity, government budgets and spending, our business contingency plans, interest rates and uncertainties in tax due to new tax legislation or other regulatory developments. In some cases, forward-looking statements can be identified by words such as “will,” “expect,” “estimate,” “plan,” “potential,” “continue” or similar expressions. Such statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward-looking statements as a result of various factors. Some of these factors include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K, as updated by the risk factor in this report under Part II, Item 1A. "Risk Factors" and as may be further updated in subsequent filings with the U.S. Securities and Exchange Commission. Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.
Unless indicated otherwise, references in this report to "we," "us" and "our" refer collectively to Leidos and its consolidated subsidiaries.
Overview
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. We bring domain-specific capability and cross-market innovations to customers in each of these markets by leveraging five technical core capabilities: digital modernization, cyber operations, mission software systems, integrated systems and mission operations. Our customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs, National Aeronautics and Space Administration and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses.
Beginning in fiscal 2024, we realigned our business and operate in four reportable segments that are focused on specific, defined capability sets we bring to our customers. As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure. We now operate in the following reportable segments: National Security & Digital, Health & Civil, Commercial & International and Defense Systems. We also separately present the unallocable costs associated with corporate functions as Corporate (see "Note 10–Business Segments").
Business Environment and Trends
U.S. Government Markets
During the three and nine months ended September 27, 2024, we generated approximately 87% of total revenues from contracts with the U.S. government, as compared to 87% and 86% for the three and nine months ended September 29, 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. government.
On September 26, 2024, Congress avoided a federal government shutdown by passing a continuing resolution that provides government funding through December 20, 2024. The continuing resolution gives lawmakers additional time after the November elections to consider the 12 appropriations bills for government fiscal year 2025, emergency supplemental funding for the recent hurricanes and wildfires, and organize new leadership of the House of Representatives and Senate. Failure to pass the appropriation bills or another continuing resolution by December 20, 2024, will result in a partial or complete federal government shutdown.
Sales to customers in international markets represented approximately 8% of total revenues for both the three and nine months ended September 27, 2024, as compared to 9% for both the three and nine months ended September 29, 2023. Our international customers include foreign governments and their agencies. Our international business increases our exposure to international markets and the associated international regulatory and geopolitical risks.
Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the procurement cost of certain IT hardware used both on our contracts and internally. However, we expect to recover certain portions of these higher tariffs through our cost-plus contracts. We are currently evaluating the impact of higher tariffs, and do not expect the tariffs to have a significant impact to our business.
Results of Operations
The following table summarizes our condensed consolidated results of operations for the periods presented:
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
Dollar change
Percent change
September 27, 2024
September 29, 2023
Dollar change
Percent change
(dollars in millions)
Revenues
$
4,190
$
3,921
$
269
6.9
%
$
12,297
$
11,458
$
839
7.3
%
Operating income (loss)
516
(336)
852
NM
1,406
260
1,146
NM
Non-operating expense, net
(46)
(52)
6
(11.5)
%
(142)
(167)
25
(15.0)
%
Income (loss) before income taxes
470
(388)
858
NM
1,264
93
1,171
NM
Income tax expense
(108)
(8)
(100)
NM
(295)
(115)
(180)
156.5
%
Net income (loss)
362
(396)
758
191.4
%
969
(22)
991
NM
Net income (loss) attributable to Leidos common stockholders
$
364
$
(399)
$
763
191.2
%
$
970
$
(30)
$
1,000
NM
Operating margin
12.3
%
(8.6)
%
11.4
%
2.3
%
NM- Not Meaningful
Segment and Corporate Results
Three Months Ended
Nine Months Ended
National Security & Digital
September 27, 2024
September 29, 2023
Dollar change
Percent change
September 27, 2024
September 29, 2023
Dollar change
Percent change
(dollars in millions)
Revenues
$
1,865
$
1,852
$
13
0.7
%
$
5,471
$
5,400
$
71
1.3
%
Operating income
187
170
17
10.0
%
545
487
58
11.9
%
Operating margin
10.0
%
9.2
%
10.0
%
9.0
%
The increase in revenues for the three and nine months ended September 27, 2024, as compared to the three and nine months ended September 29, 2023, was primarily attributable to program wins and a net increase in volumes on certain contracts, partially offset by the completion of certain contracts.
The increase in operating income for the three and nine months ended September 27, 2024, as compared to the three and nine months ended September 29, 2023, was primarily attributable to contract efficiencies, a net increase in volumes on certain contracts and program wins, partially offset by the completion of certain contracts.
The increase in revenues for the three and nine months ended September 27, 2024, as compared to the three and nine months ended September 29, 2023, was primarily attributable to a net increase in volumes and case complexity within the managed health services business, an increase in net write-ups on certain programs and program wins.
The increase in operating income for the three and nine months ended September 27, 2024, as compared to the three and nine months ended September 29, 2023, was primarily driven by an increase in volumes and case complexity within in the managed health services business and an increase in net write-ups on certain programs.
Three Months Ended
Nine Months Ended
Commercial & International
September 27, 2024
September 29, 2023
Dollar change
Percent change
September 27, 2024
September 29, 2023
Dollar change
Percent change
(dollars in millions)
Revenues
$
578
$
552
$
26
4.7
%
$
1,648
$
1,588
$
60
3.8
%
Operating (loss) income
41
(646)
687
106.3
%
64
(599)
663
110.7
%
Operating margin
7.1
%
(117.0)
%
3.9
%
(37.7)
%
The increase in revenues for the three months ended September 27, 2024, as compared to the three months ended September 29, 2023, was primarily attributable to programs wins and a net increase in volumes, partially offset by the completion of certain programs.
The increase in revenues for the nine months ended September 27, 2024, as compared to the nine months ended September 29, 2023, was primarily attributable to a net increase in volumes and programs wins. This was partially offset by the impact of write-downs on certain programs within our UK operations for which cost and schedule were rebaselined as well as the the completion of certain programs.
The increase in operating income for the three months ended September 27, 2024, as compared to the three months ended September 29, 2023, was primarily driven by impairment charges of $679 million recorded in the prior year.
The increase in operating income for the nine months ended September 27, 2024, as compared to the nine months ended September 29, 2023, was primarily driven by impairment charges of $679 million recorded in the prior year, programs wins and a net increase in volumes. This was partially offset by the impact of write-downs on certain programs within our UK operations for which cost and schedule were rebaselined as well as the completion of certain programs.
Three Months Ended
Nine Months Ended
Defense Systems
September 27, 2024
September 29, 2023
Dollar change
Percent change
September 27, 2024
September 29, 2023
Dollar change
Percent change
(dollars in millions)
Revenues
$
522
$
462
$
60
13.0
%
$
1,491
$
1,373
$
118
8.6
%
Operating income
37
3
34
NM
92
47
45
95.7
%
Operating margin
7.1
%
0.6
%
6.2
%
3.4
%
NM- Not Meaningful
The increase in revenues for the three and nine months ended September 27, 2024, as compared to the three and nine months ended September 29, 2023, was primarily attributable to programs wins and a net increase in volumes, partially offset by the completion of certain contracts.
The increase in operating income for the three months ended September 27, 2024, as compared to the three months ended September 29, 2023, was primarily attributable to program wins and improved program execution on certain programs.
The increase in operating income for the nine months ended September 27, 2024, as compared to the nine months ended September 29, 2023, was primarily attributable to programs wins, improved program execution and higher integration costs in the prior year.
Three Months Ended
Nine Months Ended
Corporate
September 27, 2024
September 29, 2023
Dollar change
Percent change
September 27, 2024
September 29, 2023
Dollar change
Percent change
(dollars in millions)
Operating loss
$
(36)
$
(28)
$
(8)
28.6
%
$
(111)
$
(87)
$
(24)
27.6
%
The increase in operating loss for the three months ended September 27, 2024, as compared to the three months ended September 29, 2023, was primarily attributable to increased general and administrative expenses and legal fees.
The increase in operating loss for the nine months ended September 27, 2024, as compared to the nine months ended September 29, 2023, was primarily attributable to increased general and administrative expenses.
Non-Operating Expense, net
Non-operating expense, net for the three months ended September 27, 2024, was $46 million as compared to $52 million for the three months ended September 29, 2023. The decrease was primarily driven by increased interest income due to higher cash balances.
Non-operating expense, net for the nine months ended September 27, 2024, was $142 million as compared to $167 million for the nine months ended September 29, 2023. The decrease was primarily driven by increased interest income due to higher cash balances, lower interest expense driven by commercial paper borrowings in the prior year and favorable exchange rate movements.
Provision for Income Taxes
For the three months ended September 27, 2024, our 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, our 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.
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 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.
We recorded net bookings worth an estimated $8.1 billion and $15.8 billion during the three and nine months ended September 27, 2024, respectively, as compared to $7.9 billion and $13.8 billion for the three and nine months ended September 29, 2023, respectively.
The estimated value of our total backlog was as follows:
September 27, 2024
September 29, 2023
Segment
Funded
Unfunded
Total
Funded
Unfunded
Total
(in millions)
National Security & Digital
$
3,323
$
16,532
$
19,855
$
3,146
$
14,802
$
17,948
Health & Civil
1,536
9,835
11,371
2,022
10,141
12,163
Commercial & International
2,631
2,022
4,653
2,586
1,012
3,598
Defense Systems
1,602
3,080
4,682
1,293
3,041
4,334
Total
$
9,092
$
31,469
$
40,561
$
9,047
$
28,996
$
38,043
Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts, both funded and unfunded. Backlog 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.
Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements.
Liquidity and Capital Resources
Overview
As of September 27, 2024, we had $1,185 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 September 27, 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 September 27, 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 September 27, 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 $14 million during the three and nine months ended September 27, 2024, respectively, and $5 million and $2,041 million for the three and nine months ended September 29, 2023, respectively. The activity for the nine months ended September 29, 2023, included a $1,210 million payment to discharge the $1.9 billion 5.77% senior unsecured term loan facility, a $498 million payment to discharge the $500 million 2.95% notes, due May 2023, and a required principal payment of $320 million to discharge the 364-day term loan credit agreement.
Our credit facilities, commercial paper notes and senior unsecured notes outstanding as of September 27, 2024, contain financial covenants and customary restrictive covenants. We were in compliance with all covenants as of September 27, 2024.
We paid dividends of $51 million and $155 million during the three and nine months ended September 27, 2024, respectively, and $50 million and $150 million during the three and nine months ended September 29, 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. Whether repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors including price, corporate capital requirements, other market conditions and regulatory requirements. The repurchase program may be accelerated, suspended, delayed or discontinued at any time.
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.
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.
Summary of Cash Flows
The following table summarizes cash flow information for the periods presented:
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(in millions)
Net cash provided by operating activities
$
656
$
795
$
1,093
$
861
Net cash used in investing activities
(23)
(52)
(56)
(135)
Net cash used in financing activities
(257)
(249)
(644)
(470)
Net cash provided by operating activities decreased $139 million during the three months ended September 27, 2024, when compared to the prior year quarter. The decrease was primarily due to unfavorable changes in working capital, partially offset by higher earnings and the timing of payroll and employee benefit accruals.
Net cash provided by operating activities increased $232 million during the nine months ended September 27, 2024, when compared to the prior year. The increase was primarily due to higher earnings and lower tax payments of $49 million primarily due to payments made in the prior year for the TCJA provision and payroll taxes related to the CARES act.
Net cash used in investing activities decreased $29 million and $79 million during the three and nine months ended September 27, 2024, respectively, when compared to the prior year. The decreases were primarily due to lower capital expenditures of $27 million and $66 million for the three and nine months ended September 27, 2024, respectively.
Net cash used in financing activities increased $8 million for the three months ended September 27, 2024, when compared to the prior year quarter, primarily due to a $202 million increase in stock repurchases, partially offset by $200 million in commercial paper net proceeds received in the prior year.
Net cash used in financing activities increased $174 million for the nine months ended September 27, 2024, when compared to the prior year. The increase was primarily due to a $425 million increase in stock repurchases, a $31 million increase in shares withheld for tax obligations, partially offset by a decrease of $291 million in net payments made on debt activities.
Off-Balance Sheet Arrangements
We have outstanding performance guarantees and cross-indemnity agreements in connection with certain aspects of our business. We also have letters of credit outstanding principally related to performance guarantees on contracts and surety bonds outstanding principally related to performance and subcontractor payment bonds as described in "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. These arrangements have not had, and management does not believe it is likely that they will in the future have, a material effect on our liquidity, capital expenditures or capital resources, operations or financial condition.
Leidos Holdings, Inc. (“Guarantor”) has fully and unconditionally guaranteed the debt securities of its subsidiary, Leidos, Inc. (“Issuer”), that were issued pursuant to transactions that were registered under the Securities Act of 1933, as amended (collectively, the “Registered Notes”). The following is a list of the Registered Notes guaranteed by Leidos Holdings, Inc.
Senior unsecured Registered Notes issued by Leidos, Inc.:
$500 million 3.625% notes, due May 2025
$750 million 4.375% notes, due May 2030
$1,000 million 2.300% notes, due February 2031
$750 million 5.750% notes, due March 2033
Leidos Holdings, Inc. has also fully and unconditionally guaranteed debt securities of Leidos, Inc. that were issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The following is a list of unregistered debt securities guaranteed by Leidos Holdings, Inc.
Senior unsecured unregistered debt securities issued by Leidos, Inc.:
$250 million 7.125% notes, due July 2032
$300 million 5.500% notes, due July 2033
Additionally, Leidos, Inc. has fully and unconditionally guaranteed debt securities of Leidos Holding, Inc. that were issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The following is a list of unregistered debt securities guaranteed by Leidos, Inc.
Senior unsecured unregistered debt securities issued by Leidos Holdings, Inc.:
$300 million 5.950% notes, due December 2040
The following summarized financial information includes the assets, liabilities and results of operations for the Guarantor and Issuer of the Registered Notes described above. Intercompany balances and transactions between the Issuer and Guarantor have been eliminated from the financial information below. Investments in the consolidated subsidiaries of the Issuer and Guarantor that do not guarantee the senior unsecured notes have been excluded from the financial information. Intercompany payables represent amounts due to non-guarantor subsidiaries of the Issuer.
Balance Sheet Information for the Guarantor and Issuer of Registered Notes
Statement of Operations Information for the Guarantor and Issuer of Registered Notes
Nine Months Ended
September 27, 2024
(in millions)
Revenues, net
$
7,820
Operating income
652
Net income attributable to Leidos common stockholders
131
Contractual Obligations and Commitments
We are subject to a number of reviews, investigations, claims, lawsuits, other uncertainties and future obligations related to our business. For a discussion of these items, see "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
Critical Accounting Policies
There were no material changes to our critical accounting policies, estimates or judgments during the period covered by this report from those discussed in our Annual Report on Form 10-K for the year ended December 29, 2023.
Recently Adopted and Issued Accounting Standards
For a discussion of these items, see "Note 1–Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
There were no material changes in our market risk exposure from those discussed in our Annual Report on Form 10-K for the year ended December 29, 2023.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of September 27, 2024. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 27, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have furnished information relating to legal proceedings, and any investigations and reviews that we are involved with in "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
Item 1A.Risk Factors.
There were no material changes to the risks described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
(a)None
(b)None
(c)Purchases of Equity Securities by the Issuer
The following table presents information related to the repurchases of our common stock during the quarter ended September 27, 2024.
Period
Total Number of Shares(1)
(or Units)
Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares
(or Units) Purchased as
Part of Publicly Announced Repurchase Plans or
Programs(2)
Maximum Number of Shares (or Units) that May Yet Be
Purchased Under the Plans or Programs(2)
June 29, 2024 - June 30, 2024
—
$
—
—
11,160,405
July 1, 2024 - July 31, 2024
57,518
146.39
—
11,160,405
August 1, 2024 - August 31, 2024
1,073,970
147.68
1,073,970
10,086,435
September 1, 2024 - September 27, 2024
266,933
155.10
266,933
9,819,502
Total
1,398,421
$
149.04
1,340,903
(1) The total number of shares purchased includes shares surrendered to satisfy statutory tax withholding obligations related to vesting of restricted stock units.
(2) In February 2022, our Board of Directors authorized a share repurchase program of up to 20 million shares of our outstanding common stock. The shares may be repurchased from time to time in one or more open market repurchases or privately negotiated transactions, including accelerated share repurchase transactions. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the market price of our common stock, general market and economic conditions, applicable legal requirements, compliance with the terms of our outstanding indebtedness and other considerations. There is no assurance as to the number of shares that will be repurchased, and the repurchase program may be suspended or discontinued at any time at our Board of Directors' discretion. This share repurchase authorization replaces the previous share repurchase authorization announced in February 2018.
Item 3.Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
Rule 10b5-1 trading arrangement
During the three months ended September 27, 2024, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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104
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 29, 2024
Leidos Holdings, Inc.
/s/ Christopher R. Cage
Christopher R. Cage Executive Vice President and Chief Financial Officer and as a duly authorized officer
