Leidos Holdings, Inc. (LDOS)

CIK: 0001336920. SIC: 7373 Services-Computer Integrated Systems Design. Latest 10-K as of: 2026-02-17.

SIC breadcrumb: Services > Business Services > SIC 7373 Services-Computer Integrated Systems Design

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1336920. Latest filing source: 0001336920-26-000030.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-17. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001336920.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

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Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-17. Report date: 2026-01-02.

PART II

Item 7. 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 disclosures about business environment and trends and market risk should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties, including those described under the heading “Forward-Looking Statements.” You should also review the disclosure under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless indicated otherwise, references in this report to “we,” “us” and “our” refer collectively to Leidos and its consolidated subsidiaries.

In this section, we discuss our financial condition, changes in financial condition and results of our operations for the year ended January 2, 2026, compared to the year ended January 3, 2025. For a discussion and analysis comparing our results for the year ended January 3, 2025, to the year ended December 29, 2023, see our Annual Report on Form 10-K for the year ended January 3, 2025, filed with the SEC on February 11, 2025, under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

OVERVIEW

Leidos is an industry and technology leader serving government and commercial customers with smarter, more efficient digital and mission innovations. Headquartered in Reston, Virginia, with 47,000 global employees, we pursue strategic growth across five pillars: space and maritime; energy infrastructure; digital modernization and cyber; mission software; and managed health services. Our customers include the U.S. Department of War (“DoW”), the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses. Approximately 8% of our revenues are generated by entities located outside of the United States.

Our business is aligned into four reportable segments that are focused on specific, defined capability sets we bring to our customers. We operate in the following reportable segments: National Security & Digital, Health & Civil, Commercial & International and Defense Systems. We also separately present the unallocated costs associated with corporate functions as Corporate.

For additional information regarding our reportable segments, see “Business” in Part I and “Note 20—Business Segments” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Our significant initiatives include the following:

uachieving annual revenue growth guided by our NorthStar 2030 strategy focusing on the growth pillars aligned with our customers’ priorities;

ucontinual improvements in the effectiveness and efficiency of our business processes driven by our enterprise transformation office leveraging artificial intelligence and automation; and

udisciplined deployment of our cash resources and use of our capital structure to enhance shareholder value while retaining an appropriate amount of financial leverage.

Sales Trend. For fiscal 2025, revenues increased $0.5 billion, or 3%, compared to fiscal 2024, the increase was primarily due to program wins and a net increase in volumes, partially offset by the completion of certain contracts.

Operating Expenses and Income Trend. For fiscal 2025, operating expenses increased by $223 million, or 1%, compared to fiscal 2024. Operating margin for fiscal 2025 was 12% compared to 11% for fiscal 2024. Operating income was $2,109 million, a $282 million increase compared to fiscal 2024. The increase in operating income was primarily attributable to a program wins and a net increase in volumes on certain programs, partially offset by an increase in general & administrative expenses and the completion of programs.

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PART II

From a macroeconomic perspective, our industry is under general competitive pressures associated with spending from our largest customer, the U.S. government, and requires a high level of cost management focus to allow us to remain competitive. Although the U.S. Presidential Administration has not indicated a desire to reduce spending in the defense and homeland security sectors, the likelihood, extent and duration of current spending levels in these areas remains unclear. We continue to review our cost structure against our anticipated sales and undertake cost management actions and efficiency initiatives where necessary.

BUSINESS ENVIRONMENT AND TRENDS

U.S. GOVERNMENT MARKETS

We generated approximately 87% of our total revenues from contracts with the U.S. government in both fiscal 2025 and 2024, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. government. Revenues under contracts with the DoW and U.S. Intelligence Community, including subcontracts under which the DoW or the U.S. Intelligence Community is the ultimate purchaser, represented approximately 49% and 48% of our total revenues for fiscal 2025 and 2024, respectively. Accordingly, our business performance is affected by the overall level of U.S. government spending, especially national security, homeland security and intelligence spending, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S. government.

On February 3, 2026, the House of Representatives passed five of the six remaining appropriations bills to fund the federal government for fiscal year 2026. On February 13, 2026, the Homeland Security bill was not passed and DHS was shutdown until another continuing resolution is agreed upon.

Trends in the U.S. government contracting process, including a shift towards multiple-awards contracts, in which certain contractors are preapproved using IDIQ and U.S. General Services Administration (“GSA”) contract vehicles, have increased competition for U.S. government contracts, reduced backlogs by shortening periods of performance on contracts and increased pricing pressure. We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process. For more information on these risks and uncertainties, see “Risk Factors” in Part I of this Annual Report on Form 10-K.

INTERNATIONAL MARKETS

Sales to customers in international markets represented approximately 8% of total revenues for fiscal 2025 and 2024. Our international customers include foreign governments and their agencies. Our international business increases our exposure to international markets and the associated international regulatory, foreign currency exchange rate and geopolitical risks.

Changes in international trade policies, including higher tariffs on imported goods and materials, may increase our procurement costs of certain IT hardware used both on our contracts and for internal use. However, we expect to recover certain portions of these higher tariffs through our cost-plus contracts. While we evaluate the impact of higher tariffs, currently, we do not expect tariffs to have a significant impact to our business.

KEY PERFORMANCE MEASURES

The primary financial performance measures we use to manage our business and monitor results of operations are revenue, operating income, cash flows from operations and diluted earnings per share. Bookings and backlog are also useful measures for management and investors to evaluate our performance and potential future revenues. In addition, we consider business performance by contract type to be useful to management and investors when evaluating our operating income and margin performance.

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PART II

RESULTS OF OPERATIONS

Our results of operations for the periods presented were as follows:

Year Ended

(dollars in millions)

January 2,

2026

January 3,

2025

Percent

change

Revenues

$

17,174 

$

16,662 

3 

%

Cost of revenues

14,075 

13,864 

2 

%

Selling, general and administrative expenses

999 

983 

2 

%

Acquisition, integration and restructuring costs

18 

16 

13 

%

Asset impairment charges

5 

11 

(55)

%

Equity earnings of non-consolidated subsidiaries

(32)

(39)

(18)

%

Operating income

2,109 

1,827 

15 

%

Non-operating expense, net

(200)

(188)

(6)

%

Income before income taxes

1,909 

1,639 

16 

%

Income tax expense

(447)

(388)

15 

%

Net income

1,462 

1,251 

17 

%

Less: net income (loss) attributable to non-controlling interest

14 

(3)

(567)

%

Net income attributable to Leidos common stockholders

$

1,448 

$

1,254 

15 

%

Operating margin

12.3 

%

11.0 

%

SEGMENT AND CORPORATE RESULTS

Year Ended

National Security & Digital

(dollars in millions)

January 2,

2026

January 3,

2025

Percent

change

Revenues

$

7,611 

$

7,365 

3 

%

Operating income

760 

720 

6 

%

Operating margin

10.0 

%

9.8 

%

The increase in revenues for fiscal 2025 as compared to fiscal 2024, was primarily attributable to program wins, a net increase in volumes and $60 million recognized from the acquisition of Kudu Dynamics, partially offset by program completions and a net decrease in contract write-ups in the current year.

The increase in operating income for fiscal 2025 as compared to fiscal 2024, was primarily attributable to program wins and a net increase in volumes, partially offset by program completions and a net decrease in contract write-ups in the current year.

Year Ended

Health & Civil

(dollars in millions)

January 2,

2026

January 3,

2025

Percent change

Revenues

$

5,069 

$

5,015 

1 

%

Operating income

1,202 

1,095 

10 

%

Operating margin

23.7 

%

21.8 

%

The increase in revenues for fiscal 2025 as compared to fiscal 2024, was primarily attributable to a net increase in write-ups on certain programs primarily within the managed health services business, partially offset by a net decrease in volumes.

The increase in operating income for fiscal 2025 as compared to fiscal 2024, was primarily due to operational efficiencies on certain programs and a net increase in write-ups primarily within the managed health services business, partially offset by increased general and administrative expenses.

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PART II

Year Ended

Commercial & International

(dollars in millions)

January 3,

2025

January 3,

2025

Percent change

Revenues

$

2,315 

$

2,252 

3 

%

Operating income

166 

104 

60 

%

Operating margin

7.2 

%

4.6 

%

The increase in revenues for fiscal 2025 as compared to fiscal 2024, was primarily attributable to program wins, prior year write-downs on certain programs within our UK operations and a $13 million favorable impact from exchange rate movements, partially offset by completion of programs.

The increase in operating income for fiscal 2025 as compared to fiscal 2024, was primarily driven by prior year write-downs on certain programs within our UK operations, program wins and a net increase in volumes, partially offset by the completion of programs and increased in indirect expenses.

Year Ended

Defense Systems

(dollars in millions)

January 2,

2026

January 3,

2025

Percent

change

Revenues

$

2,179 

$

2,030 

7 

%

Operating income

156 

94 

66 

%

Operating margin

7.2 

%

4.6 

%

The increase in revenues for fiscal 2025 as compared to fiscal 2024, was primarily attributable to program wins and a net increase in volumes, partially offset by the completion of programs.

The increase in operating income for fiscal 2025 as compared to fiscal 2024, was primarily attributable to a net increase in volumes, a prior year one-time write-down related to program assets, program wins and lower amortization expense. The increase was partially offset by the completion of programs.

Year Ended

Corporate

(dollars in millions)

January 2,

2026

January 3,

2025

Percent

change

Operating loss

$

(175)

$

(186)

6 

%

The decrease in operating loss for fiscal 2025 as compared to fiscal 2024, was primarily attributable to a decrease in legal costs, partially offset by an increase in research and development activities.

NON-OPERATING EXPENSE, NET

Non-operating expense, net increased by $12 million for fiscal 2025 as compared to fiscal 2024, primarily driven by a net increase in interest expense on borrowings, partially offset by a gain on an immaterial divested business that was not aligned to the Company's long term strategy.

PROVISION FOR INCOME TAXES

Our effective tax rate was 23.4% in fiscal 2025 compared to 23.7% in fiscal 2024. The decrease to the effective tax rate was primarily due to a decrease in unrecognized tax benefits, partially offset by the impacts from cross-border taxes resulting from the H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”).

BOOKINGS AND BACKLOG

Effective fiscal 2025, we changed our backlog policy to include estimated future revenue on task orders expected to be awarded under sole source indefinite delivery/indefinite quantity ("IDIQ") contracts in our reported backlog. We believe this presentation provides enhanced visibility for investors and more accurately reflects the future revenues we expect to generate from our business.

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PART II

We had net bookings of $17.5 billion and $23.2 billion during fiscal 2025 and 2024, respectively. Net bookings represent the estimated amount of revenue to be earned in the future from funded and unfunded contract awards and modifications and unissued task orders on sole source IDIQ contracts that were received during the year, net of any adjustments to previously awarded backlog amounts. We calculate net bookings as the year’s ending backlog, plus the year’s revenues, less the prior year’s ending backlog and any impacts from foreign currency or acquisitions and divestitures.

Backlog represents the revenues we expect to recognize under negotiated contracts and unissued task orders on sole source IDIQ contracts, to the extent we believe their execution and funding to be probable. Backlog does not include potential task orders expected to be awarded under multiple award IDIQ contracts.

We segregate our backlog into two categories as follows:

uFunded Backlog. Funded backlog for contracts with the U.S. government represents the value on contracts for which funding is appropriated less revenues previously recognized on these contracts. Funded backlog for contracts with non-U.S. government entities and commercial customers represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on the contracts.

uNegotiated Unfunded Backlog. Negotiated unfunded backlog represents all remaining value on task orders that is not funded, including options, that we expect to recognize as well as expected future task orders under sole source IDIQ contracts.

The estimated value of our segment backlog for the periods presented was as follows:

January 2, 2026

January 3, 2025(1)

(in millions)

Funded

Unfunded

Total

Funded

Unfunded

Total

National Security & Digital

$

2,749 

$

23,891 

$

26,640 

$

2,881 

$

23,404 

$

26,285 

Health & Civil

2,745 

7,690 

10,435 

1,456 

10,735 

12,191 

Commercial & International

2,588 

2,659 

5,247 

2,456 

1,901 

4,357 

Defense Systems

1,603 

5,107 

6,710 

1,616 

3,941 

5,557 

Total

$

9,685 

$

39,347 

$

49,032 

$

8,409 

$

39,981 

$

48,390 

(1)Amounts have been recast to include estimated future revenue on task orders expected to be awarded under sole source IDIQ contracts. As a result, unfunded backlog increased $4,836 million from our prior year annual report amounts.

Backlog at January 2, 2026, includes $149 million acquired through the acquisition of Kudu Dynamics within our National Security & Digital reportable segment.

Bookings and backlog fluctuate from period to period depending on our success rate in winning contracts and the timing of contract awards, renewals, modifications and cancellations, as well as foreign currency movements. Contract awards may be negatively impacted by ongoing industry-wide delays in procurement decisions and budget cuts by the U.S. government as discussed in “Business Environment and Trends” in this Annual Report on Form 10-K.

We expect to recognize a substantial portion of our funded backlog as revenues within the next 12 months. However, the U.S. government may cancel any contract at any time through a termination for the convenience of the U.S. government. In addition, certain contracts with commercial or non-U.S. government customers may include provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed.

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PART II

CONTRACT TYPES

Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenues, see “Business—Contract Payment Types” in Part I of this Annual Report on Form 10-K. Revenues by contract type as a percentage of our total revenues for the periods presented were as follows:

Year Ended

January 2,

2026

January 3,

2025

Cost-reimbursement and fixed-price-incentive-fee

44 

%

44 

%

Firm-fixed-price

43 

%

43 

%

Time-and-materials and fixed-price-level-of-effort

13 

%

13 

%

Total

100 

%

100 

%

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW OF LIQUIDITY

As of January 2, 2026, we had $1,108 million in cash and cash equivalents. We have a senior unsecured revolving credit facility which can provide up to $1.0 billion in additional borrowing, if required. As of January 2, 2026, and January 3, 2025, there were no borrowings outstanding under any revolving credit facility.

We had outstanding debt of $4.6 billion and $4.7 billion at January 2, 2026, and January 3, 2025, respectively. In fiscal 2025, we issued and sold $500 million 5.40% and $500 million 5.50% senior unsecured notes maturing in March 2032 and March 2035, respectively. The annual interest rate is payable on a semi-annual basis. The proceeds from the issuance of the notes were used to retire the $500 million senior unsecured notes due May 2025 and repurchase $500 million outstanding shares of common stock in an accelerated share repurchase (“ASR”) agreement as discussed below.

We have a commercial paper program in which we may issue short-term unsecured commercial paper notes (“Commercial Paper Notes”) that have maturities of up to 397 days from the date of issuance (see “Note 13—Debt” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K). As of January 2, 2026, and January 3, 2025, 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 $1,019 million, $18 million and $2,045 million during fiscal 2025, 2024 and 2023, respectively. The activity for fiscal 2025 included a prepayment on our senior unsecured term loan of $450 million and a $500 million payment to discharge the $500 million notes due May 2025. The activity for fiscal 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 principal repayment of $320 million to discharge the 364-day term loan credit agreement.

Our credit facility, term loan facility, commercial paper notes and notes outstanding as of January 2, 2026, contain financial covenants and customary restrictive covenants. We were in compliance with all covenants as of January 2, 2026.

We paid dividends of $211 million, $208 million and $201 million for fiscal 2025, 2024 and 2023, respectively.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Stock repurchases of Leidos common stock may be made on the open market or in privately negotiated transactions with third parties including through ASR 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 fiscal 2025, 2024, and 2023, we made open market repurchases of our common stock for an aggregate purchase price of $400 million, $850 million and $225 million, respectively.

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PART II

In fiscal 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock. We paid $500 million to the financial institution and received 3.6 million shares. (see “Note 16—Earnings Per Share” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K). All shares delivered were immediately retired.

On July 4, 2025, tax legislation was enacted as part of the OBBBA, implementing several corporate tax law changes as described above within Results of Operations. We anticipate our income tax payments will decrease by approximately $91 million in fiscal 2026, as compared to our estimates prior to the OBBBA enactment, due to the decrease in our estimated 2025 taxable income related to these changes. The actual decrease may be impacted by future guidance or interpretive rules issued by the U.S. Treasury, among other factors. We will continue to assess the effects on our liquidity as tax legislation evolves.

On January 23, 2026, Leidos, Inc. entered into a stock purchase agreement to acquire all of the shares of Entrust for a purchase price of $2.4 billion in cash, subject to customary adjustments for Entrust’s cash, debt, transaction expenses and net working capital. In connection with the stock purchase agreement, we entered into an agreement with Citigroup Global Markets Inc., which provides for a senior unsecured 364-day bridge loan facility in an aggregate principal amount of $1.4 billion. (See "Note 22—Subsequent Events" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K).

On February 12, 2026 (the “Closing Date”), we amended and restated our existing senior unsecured revolving credit facility to increase the borrowing capacity from $1.0 billion to $1.5 billion. The amended revolving credit facility will mature five years from the Closing Date and permits two additional one-year extensions subject to lender consent. Borrowings under the revolving credit facility will bear interest at a rate determined, at the Company's option, based on either an alternate base rate or term SOFR rate, plus an applicable margin.

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:

Year Ended

(in millions)

January 2,

2026

January 3,

2025

December 29,

2023

Net cash provided by operating activities(1)

$

1,750 

$

1,435 

$

1,187 

Net cash used in investing activities

(405)

(142)

(211)

Net cash used in financing activities

(1,145)

(1,084)

(715)

(1)Net cash provided by operating activities during the year ended January 3, 2025, and December 29, 2023, was recast to reflect a change in the accounting policy, see "Note 3—Summary of Significant Accounting Policies."

Net cash provided by operating activities increased $315 million for fiscal 2025 as compared to fiscal 2024. The increase was primarily due to an increase in tax benefits from the impacts of the OBBBA legislation and favorable changes in net working capital, partially offset by the timing of payroll and employee benefit payments.

Net cash provided by operating activities increased $248 million for fiscal 2024 as compared to fiscal 2023. The increase was primarily due to higher earnings and favorable timing of payroll and employee benefit accruals.

Net cash used in investing activities increased $263 million for fiscal 2025 as compared to fiscal 2024. The increase was primarily due to $293 million of net cash paid in connection with the acquisition of Kudu Dynamics, partially offset by a $24 million decrease in capital expenditures and $9 million of proceeds received from sale of an immaterial business within the Commercial and International segment.

Net cash used in investing activities decreased $69 million for fiscal 2024 as compared to fiscal 2023. The decrease was primarily due to lower capital expenditures of $58 million in the current year.

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PART II

Net cash used in financing activities increased $61 million for fiscal 2025 as compared to fiscal 2024. The increase was primarily due to a $50 million increase in stock repurchases, a $11 million increase in net payments made on debt activities, a $10 million increase in net capital distributions to our non-controlling interest, partially offset by a $12 million decrease in shares withheld for tax obligations.

Net cash used in financing activities increased $369 million for fiscal 2024 as compared to fiscal 2023. The increase was primarily due to a $625 million increase in stock repurchases, a $35 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 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 21—Commitments and Contingencies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K. 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 resources, operations or financial condition.

CONTRACTUAL OBLIGATIONS

Our future contractual obligations are related to debt, finance and operating leases, long-term liabilities under deferred compensation arrangements, purchase obligations for long-term purchases and service agreements and other liabilities. For more information, see “Note 10—Leases”, “Note 13—Debt”, “Note 19—Retirement Plans” and “Note 21—Commitments and Contingencies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

We have interest payments related to our outstanding debt and finance leases. As of January 2, 2026, future scheduled interest payments on our outstanding debt and finance leases were $208 million, expected to be paid in fiscal 2026 and $1.3 billion expected to be paid thereafter.

As of January 2, 2026, future payments on our deferred compensation arrangements and purchase obligations for long-term purchases and service agreements were $101 million, expected to be paid in fiscal 2026, and $429 million expected to be paid thereafter. Our future payments do not include $104 million of income tax liabilities, primarily as a result of uncertain tax positions, and the timing of such payments, if any, cannot be reasonably estimated. For additional information, see “Note 18—Income Taxes” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

GUARANTORS AND ISSUERS OF GUARANTEED SECURITIES

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.:

$750 million 4.375% notes, due May 2030

$1,000 million 2.300% notes, due February 2031

$500 million 5.400% notes, due March 2032

$750 million 5.750% notes, due March 2033

$500 million 5.500% notes, due March 2035

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

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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

(in millions)

January 2,

2026

Total current assets

$

3,036 

Goodwill

5,666 

Other long-term assets

1,250 

Total assets

$

9,952 

Total current liabilities

$

1,954 

Long-term debt, net of current portion

4,628 

Intercompany payables

4,706 

Other long-term liabilities

942 

Total liabilities

$

12,230 

STATEMENT OF OPERATIONS INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES

(in millions)

January 2,

2026

Revenues, net

$

10,696 

Operating income

836 

Net income attributable to Leidos common stockholders

5 

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared by management on the basis of the most current and best available information. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions.

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We have identified the following accounting policies as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition.

uRevenues

uGoodwill

REVENUES

We perform work under various types of contracts, which include firm-fixed-price ("FFP"), time-and-materials ("T&M"), fixed- price-level-of-effort ("FPLOE"), cost-plus-fixed-fee ("CPFF"), cost-plus-award-fee ("CPAF"), cost-plus-incentive-fee ("CPIF") and fixed-price-incentive-fee ("FPIF").

For contracts which involve complex deliverables, such as system integration, we usually recognize revenue over time as the work is completed. For contracts with an FFP component or variable fees, we measure progress using an input method, whereby revenue is recognized based on the percentage of costs incurred to date compared to total costs we anticipate by the end of the contract. Commonly referred to as the “cost-to-cost” method. To do this, we must estimate both the total revenue and total costs needed to design, build, and deliver our products and services. These cost estimates include all direct costs, such as materials, labor, subcontractors, overhead and a ratable portion of general and administrative expenses. If we determine that the total expected cost of completing a contract will be more than the total revenue we expect to receive, we record the entire expected loss when identified.

Some of our cost-plus and fixed-price contracts include award fees, incentive fees, or other terms that can either increase or decrease the total contract price. These amounts are usually earned by meeting specific performance goals, reaching key milestones, staying within cost targets or based on customer judgment. We estimate these variable amounts by determining the most likely amount we expect to earn. This estimate is based on factors such as the contract-specific fee achievement metrics, the complexity and risk of the work, the level of customer discretion involved, our past experience with similar contracts and the risk that recognized revenue could later be reversed.

We allocate the total contract price to each of the performance obligations within the contract proportionally based upon their individual standalone selling prices. We generally determine the standalone price by estimating the cost to perform the work and adding an expected profit margin. For some product sales, we may instead use the standalone prices of similar products or apply a residual value method. Nearly all of our contracts do not include a significant financing element, so we typically do not adjust the contract price for the timing of payments.

For the impacts of changes in estimates on our contracts, see “Note 3—Summary of Significant Accounting Policies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

GOODWILL

Goodwill is recognized when the transaction price for an acquired business is higher than the fair value of identifiable assets and liabilities acquired at the time of purchase. Goodwill is an indefinite-lived asset which is tested for impairment once a year or more frequently if a triggering event occurs which indicates an impairment may exist. The annual goodwill impairment test is performed at the start of the fourth quarter and includes an evaluation of whether the fair values of any of our reporting units are lower than their carrying values. As of January 2, 2026, and January 3, 2025, goodwill represented 47% and 46% of our total assets, respectively.

When testing goodwill for impairment, we use either a qualitative or quantitative analysis. The qualitative analysis considers factors such as overall economic conditions, industry and market trends, the financial performance of the business, and legal or other significant events that could affect the reporting unit.

When we perform a quantitative analysis, we estimate the fair value of a reporting unit using discounted future cash flows and market multiple models. These models require us to make significant assumptions about future cash flows, discount rates, long-term growth, profit margins and in the identification of comparable public companies. These assumptions take into account expected future sales and earnings after considering market conditions, customer spending, existing and expected orders, working capital needs, long-term business plans and recent performance.

Operations of the Security Enterprise Solutions (“SES”) reporting unit within the Commercial & International reportable segment rely heavily on the sales and servicing of security and detection products. In fiscal 2023, SES restructured its portfolio by discontinuing select product offerings and ceasing operations in certain countries to better align with its strategic plan. These changes, along with delays in airline travel infrastructure projects and higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

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In fiscal 2025 and 2024, we performed a quantitative analysis of our SES reporting unit, which holds goodwill in the amount of $311 million and $306 million as of January 2, 2026, and January 3, 2025, respectively. The analysis resulted in the fair value of the reporting unit exceeding the carrying value for both periods.

In fiscal 2025 and 2024, we performed our annual test for impairment as of October 4, 2025, and September 28, 2024, respectively, which resulted in no impairments being identified.

COMMITMENTS AND CONTINGENCIES

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 10—Leases” and “Note 21—Commitments and Contingencies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

For a discussion of these items, see “Note 2—Accounting Standards” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.