What changed in this filing

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Item 1A. Risk Factors

2025-02-11 compared with 2024-02-13 · 208 added, 213 removed, 492 unchanged (46% of the section changed)

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In that event, the trading price of our stock could decline, and you could lose part or all of your investment.

Leidos Holdings, Inc.

Annual Report

SUMMARY OF RISK FACTORS

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A summary of our risks includes, but is not limited to, the following:

• We depend on government agencies as our primary customers and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects could be adversely affected.

• A decline in the U.S.

u We depend on government agencies as our primary customers and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects could be adversely affected.

u A decline in the U.S.

government budget, changes in spending or budgetary priorities or delays in contract awards may significantly and adversely affect our future revenues and limit our growth prospects.

• Because we depend on U.S.

u Because we depend on U.S.

government contracts, a delay in the completion of the U.S.

government’s budget and appropriations process could delay procurement of the products, services and solutions we provide and adversely affect our future revenues.

• Due to the competitive process to obtain contracts and the likelihood of bid protests, we may be unable to achieve or sustain revenue growth and profitability.

u Due to the competitive process to obtain contracts and the likelihood of bid protests, we may be unable to achieve or sustain revenue growth and profitability.

government may terminate, cancel, modify, renew on less favorable terms or curtail our contracts at any time prior to their completion and, if we do not replace them, this may adversely affect our future revenues and profitability.

• We face intense competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth prospects.

• Deterioration of economic conditions or weakening in credit or capital markets may have a material adverse effect on our business, results of operations and financial condition.

• We cannot predict the consequences of current or future geopolitical events, but they may adversely affect the markets in which we operate and our results of operations.

• Global supply chain issues and inflationary pressures have disrupted supply and increased the prices of goods and services, which could raise the costs associated with providing our services, diminish our ability to compete for new contracts or task orders and reduce customer buying power.

• Our failure to comply with various complex procurement rules and regulations could result in our being liable for penalties, including termination of our U.S.

u We face intense competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth prospects.

u Deterioration of economic conditions or weakening in credit or capital markets may have a material adverse effect on our business, results of operations and financial condition.

u We cannot predict the consequences of current or future geopolitical events, but they may adversely affect the markets in which we operate and our results of operations.

u Global supply chain issues and inflationary pressures have disrupted supply and increased the prices of goods and services, which could raise the costs associated with providing our services, diminish our ability to compete for new contracts or task orders and reduce customer buying power.

u Our failure to comply with various complex procurement rules and regulations could result in our being liable for penalties, including termination of our U.S.

government contracts, disqualification from bidding on future U.S.

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government may adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.

Leidos Holdings, Inc.

Annual Report - 16

• Efforts by the U.S.

government to revise its organizational conflict of interest rules could limit our ability to successfully compete for new contracts or task orders, which would adversely affect our results of operations.

u Application of the U.S.

government's organizational conflict of interest (OCI) rules could limit our ability to successfully compete for new contracts or task orders, which would adversely affect our results of operations.

government contractor, our partners and we are subject to reviews, audits and cost adjustments by the U.S.

government, which could adversely affect our profitability, cash position or growth prospects if resolved unfavorably to us.

• Our business is subject to governmental review and investigation, which could adversely affect our financial position, operating results and growth prospects.

• Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration or other legal proceedings could require us to pay potentially large damage awards or penalties and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.

• Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.

• Our business is subject to complex and evolving laws and regulations regarding data privacy and security which could subject us to investigations, claims or monetary penalties against us, require us to change our business practices or otherwise adversely affect our revenues and profitability.

• We utilize artificial intelligence, which could expose us to liability or adversely affect our business, especially if we are unable to compete effectively with others in adopting artificial intelligence.

• Misconduct of employees, subcontractors, agents, suppliers, business partners or joint ventures and others working on our behalf could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and customers and could have a material adverse impact on our business, reputation and future results.

• A failure to attract, train, retain and motivate skilled employees, including our management team, would adversely affect our ability to execute our strategy and may disrupt our operations.

• We may not realize the full amounts reflected in our backlog as revenues, which could adversely affect our expected future revenues and growth prospects.

• Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to estimate and manage costs, time and resources accurately.

• We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.

• Cybersecurity breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our customers and cause harm to our reputation or competitive position.

• Internal system or service failures, or failures in the systems or services of third parties on which we rely, could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

• Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

• Our success depends, in part, on our ability to work with complex and rapidly changing technologies to meet the needs of our customers.

• We have classified contracts with the U.S.

government, which may limit investor insight into portions of our business.

u Our business is subject to governmental review and investigation, which could adversely affect our financial position, operating results and growth prospects.

u Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration or other legal proceedings could require us to pay potentially large damage awards or penalties and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.

u Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.

u Our business is subject to complex and evolving laws and regulations regarding data privacy and security which could subject us to investigations, claims or monetary penalties against us, require us to change our business practices or otherwise adversely affect our revenues and profitability.

u Misconduct of employees, subcontractors, agents, suppliers, business partners or joint ventures and others working on our behalf could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and could have a material adverse impact on our business, reputation and future results.

Leidos Holdings, Inc.

Annual Report

• We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve numerous risks and uncertainties.

• Goodwill and other intangible assets represent significant assets on our balance sheet and any impairment of these assets could negatively impact our results of operations, and shareholders' equity.

• We depend on our teaming arrangements and relationships with other contractors and subcontractors.

u A failure to attract, retain, and develop talent with critical skills, including our leadership team, would adversely affect our ability to execute our strategy and may disrupt our operations.

u We may not realize the full amounts reflected in our backlog as revenues, which could adversely affect our expected future revenues and growth prospects.

u Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to estimate and manage costs, time and resources accurately.

u We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.

u Cybersecurity breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our customers and cause harm to our reputation or competitive position.

u Internal system or service failures, or failures in the systems or services of third parties on which we rely, could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

u Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

u Our success depends, in part, on our ability to work with complex and rapidly changing technologies to meet the needs of our customers.

u We utilize artificial intelligence, which could expose us to liability or adversely affect our business, especially if we are unable to compete effectively with others in adopting artificial intelligence.

u We have classified contracts with the U.S.

government, which may limit investor insight into portions of our business.

u We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve numerous risks and uncertainties.

u Goodwill represents a significant asset on our balance sheet and any impairment of this asset could negatively impact our results of operations, and shareholders’ equity.

u We depend on our teaming arrangements and relationships with other contractors and subcontractors.

If we are not able to maintain these relationships, or if these parties fail to satisfy their obligations to us or the customer, our revenues, profitability and growth prospects could be adversely affected.

• We could incur significant liabilities and suffer negative publicity if our inspection or detection systems fail to detect bombs, explosives, weapons, contraband or other threats.

• We face risks associated with our international business.

• Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.

u We could incur significant liabilities and suffer negative publicity if our inspection or detection systems fail to detect bombs, explosives, weapons, contraband or other threats.

u We face risks associated with our international business.

u Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.

Leidos Holdings, Inc.

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We depend on government agencies as our primary customers and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects could be adversely affected.

Our total revenues from contracts with the U.S.

Our revenues from contracts with the U.S.

government (including all branches of the U.S.

military), either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S.

government generated approximately 87% in fiscal 2023, 86% in fiscal 2022, and 87% in fiscal 2021.

government, generated approximately 87% of our total revenue in both fiscal 2024 and 2023, and 86% in fiscal 2022.

We expect to continue to derive most of our revenues from work performed under U.S.

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Revenues under contracts with the DoD and U.S.

Intelligence Community, either as a prime contractor or subcontractor to other contractors, represented approximately 49% of our total revenues for fiscal 2023, and 44% of our total revenues for both fiscal 2022 and 2021.

Intelligence Community, either as a prime contractor or subcontractor to other contractors, represented approximately 48% of our total revenues for fiscal 2024, 49% of our total revenues for fiscal 2023 and 44% of our total revenues for fiscal 2022.

government and DoD spending levels are difficult to predict and subject to significant risk.

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Such changes in spending authorizations and budgetary priorities may occur as a result of uncertainty surrounding the federal budget and the federal government’s ability to meet its debt obligations, changes in the priorities of the U.S.

Presidential Administration as a result of the upcoming election cycle, increasing political pressure and legislation, shifts in spending priorities from defense-related or other programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors.

For example, the conflicts between Russia and Ukraine and Israel and Hamas have resulted in increased security assistance to each of Ukraine and Israel to help preserve their territorial integrity, secure their borders, and with respect to the Russia/Ukraine conflict, improve interoperability with NATO.

Changes in defense budgetary priorities as a result of such conflict could have an adverse impact on our results.

Presidential Administration as a result of the recent election cycle, increasing political pressure and legislation, shifts in spending priorities from defense-related or other programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors.

For example, the conflicts between Russia and Ukraine and in the Middle East have resulted in increased security assistance to each of Ukraine and Israel to help preserve their territorial integrity, secure their borders, and with respect to the Russia/Ukraine conflict, improve interoperability with NATO.

Changes in the priorities of the U.S.

Presidential Administration in respect thereto could have an adverse impact on our results.

In addition, if government funding relating to our contracts with the U.S.

government or DoD becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S.

government or DoD becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contracts or subcontracts under such programs may be terminated or adjusted by the U.S.

government or the prime contractor.

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A significant decline in overall U.S.

government spending, including in the areas of national security, intelligence, and homeland security, a significant shift in its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant delays in contract or task order awards for large programs could adversely affect our future revenues and results of operations and limit our growth prospects.

In addition, our ability to grow in advanced technology areas, such as hypersonics programs, space exploration, and classified programs, will also be affected by the overall budget environment, whether development programs transition to production and the timing of such transition, all of which are dependent on U.S.

government spending, including in the areas of national security, intelligence, homeland security, and health and civilian services, a significant shift in its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant delays in contract or task order awards for large programs could adversely affect our future revenues and results of operations and limit our growth prospects.

In addition, our ability to grow in advanced technology areas, such as hypersonics programs, space systems, maritime and undersea systems, and classified programs, will also be affected by the overall budget environment, whether development programs transition to production and the timing of such transition, all of which are dependent on U.S.

Government authorization and funding.

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government has increasingly relied on contracts that are subject to a continuing competitive bidding process, including GSA Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure.

The competitive bidding process involves substantial costs, including significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, may be split among competitors, or that may be awarded but for which we do not receive meaningful task orders, and several risks, including the risk of inaccurately estimating the resources and costs that will be required to fulfill any contract we win.

Following contract award, we may encounter significant expense, delay, contract modifications, or even contract loss as a result of our competitors protesting the award of contracts to us in competitive bidding.

The competitive bidding process involves substantial costs, including labor cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, may be split among competitors, or that may be awarded but for which we do not receive meaningful task orders, and several risks, including the risk of inaccurately estimating the resources and costs that will be required to fulfill any contract we win.

Following contract award, we may encounter significant expense, delay, contract modifications, or even cancellation of the contract award as a result of our competitors protesting the award of contracts to us.

Any resulting loss or delay of start-up and funding of work under protested contract awards may adversely affect our revenues and profitability.

In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract.

As a result, we may not be able to obtain these task orders or recognize revenues under these multi-award contracts.

In addition, multiple-award contracts require that we make sustained post-award efforts to obtain task orders under the contract.

As a result, we may not be able to obtain these task orders or recognize revenues under these multiple-award contracts.

We are also experiencing increased competition, which impacts our ability to obtain contracts;

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government to not exercise contract options or to terminate, cancel, modify, renew on less favorable terms or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.

In addition, we have experienced and continue to experience performance issues under certain of our contracts.

In addition, we have experienced performance issues under certain of our contracts.

Some of our contracts involve developing complex systems and products to achieve challenging customer goals in a competitive procurement environment.

As a result, we sometimes experience technological or other performance difficulties, which have in the past and may in the future result in delays, cost overruns and failures in our performance of these contracts.

As a result, we sometimes experience technological, schedule or other performance difficulties, which have in the past and may in the future result in delays, cost overruns and failures in our performance of these contracts.

If a government customer terminates a contract for default, we may be exposed to liability, including for excess costs incurred by the customer in procuring undelivered services and products from another source.

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government’s own capabilities and federal non-profit contract research centers.

For example, some customers, including the DoD, are turning to commercial contractors, rather than traditional defense contractors, for some products and services, and may utilize small business contractors or determine to source work internally rather than hiring a contractor .

The markets in which we operate are characterized by rapidly changing customer needs and technology and our success depends on our ability to invest in and develop services and products that address such needs.

To remain competitive, we must consistently provide superior service, technology, and performance to our customers on a cost-effective basis while understanding customer priorities and maintaining customer relationships.

For example, some customers, including the DoD, are turning to commercial contractors, rather than traditional defense contractors, for some products and services, and may utilize small business contractors or source work internally rather than hiring a contractor.

The markets in which we operate are characterized by rapidly changing customer needs and technology and our success depends on our ability to invest in and develop products and services that address such needs.

To remain competitive, we must consistently provide high value differentiated solutions to our customers that incorporate technology, superior service, and performance to our customers on a cost-effective basis while understanding customer priorities and maintaining customer relationships.

Our competitors may be able to provide our customers with different or greater capabilities or technologies or better contract terms than we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional personnel, or be willing to accept more risk or lower profitability in competing for contracts.

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Annual Report

Moreover, instability in the credit or capital markets in the U.S., including as a result of failures of financial institutions and any related market-wide reduction in liquidity, or concerns or rumors about events of these kinds or similar risks, could affect the availability of credit or our credit ratings, making it relatively difficult or expensive to obtain additional capital at competitive rates, on commercially reasonable terms or in sufficient amounts, or at all, thus making it more difficult or expensive for us to access funds or refinance our existing indebtedness, or obtain financing for acquisitions.

Moreover, instability in the credit or capital markets in the U.S.

and related market-wide reduction in liquidity, or concerns or rumors about events of these kinds or similar risks, could affect the availability of credit or our credit ratings, making it relatively difficult or expensive to obtain additional capital at competitive rates, on commercially reasonable terms or in sufficient amounts, or at all, thus making it more difficult or expensive for us to access funds or refinance our existing indebtedness, or obtain financing for strategic projects and acquisitions.

Such instability could also cause counterparties, including vendors, suppliers, and subcontractors, to be unable to perform their obligations or to breach their obligations to us under our contracts with them.

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We cannot predict the consequences of current or future geopolitical events, but they may adversely affect the markets in which we operate and our results of operations.

Ongoing instability and current conflicts in global markets, including in Eastern Europe, the Middle East, and Asia, and the potential for other conflicts and future terrorist activities and other recent geopolitical events throughout the world, including the ongoing conflict between Russia and Ukraine, the ongoing Israel/Hamas conflict and its regional effects, and increased tensions in Asia, have created and may continue to create economic and political uncertainties and impacts that could have a material adverse effect on our business, operations, and profitability.

Ongoing instability and current conflicts in global markets, including in Eastern Europe, the Middle East, and Asia, and the potential for other conflicts and future terrorist activities and other recent geopolitical events throughout the world, including the ongoing conflict between Russia and Ukraine, the ongoing conflict in the Middle East, which continues to expand, and increased tensions in Asia, have created and may continue to create economic and political uncertainties and impacts that could have a material adverse effect on our business, operations, and profitability.

These types of matters cause uncertainty in financial markets and may significantly increase the political, economic and social instability in the geographic areas in which we operate.

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For a variety of reasons, the global economy in which we operate has faced, and may continue to face, heightened inflationary pressure, impacting the cost of doing business in both supply and labor markets.

These inflationary pressures have been and could continue to be exacerbated by geopolitical turmoil and economic policy actions, and the duration of such pressures is uncertain.

Although inflation has moderated somewhat in 2024, these inflationary pressures have been and could continue to be exacerbated by geopolitical turmoil and economic policy actions.

We generate revenue through various fixed-price and multi-year government contracts, our primary customer being the U.S.

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In the competitive environment in which we operate as a government contractor, the lack of pricing leverage and power to renegotiate long-term, multi-year contracts, coupled with reduced customer buying power as a result of inflation, could reduce our profits, disrupt our business or otherwise materially adversely affect our results of operations.

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Annual Report - 22

LEGAL AND REGULATORY RISKS

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government contracts, or suspension or debarment from contracting with federal agencies.

For additional background on the regulations that apply to our business and the related compliance risks, see “Regulation” within Item 1 of this Annual Report on Form 10-K and the risk factor “Our business is subject to governmental review and investigation, which could adversely affect our financial position, operating results and growth prospects ." The FAR and many of our U.S.

government contracts contain organizational conflict of interest clauses that may limit our ability to compete for or perform certain other contracts or other types of services for particular customers.

Organizational conflicts of interest arise when we engage in activities that may make us unable to render impartial assistance or advice to the U.S.

government, impair our objectivity in performing contract work, or provide us with an unfair competitive advantage.

A conflict-of-interest issue that precludes our competition for or performance on a significant program or contract could harm our prospects.

Leidos Holdings, Inc.

Annual Report

Government contract laws and regulations can impose terms or obligations that are different than those typically found in commercial transactions.

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Generally, prime contractors have a similar right under subcontracts related to government contracts.

However, to the extent insufficient funds have been appropriated by the U.S.

Government to the program to cover our costs upon termination for convenience, the U.S.

Government may assert that it is not required to appropriate additional funding.

If a contract is terminated for convenience, we typically would be entitled to receive payments for our allowable costs incurred and the proportionate share of fees or earnings for the work performed, but we would receive no payment or other consideration for the loss of revenue or profit associated with the future work that was cancelled.

If a contract is terminated for default, the U.S.

Government could make claims to reduce the contract value or recover its procurement costs and could assess other special penalties, exposing us to liability and adversely affecting our ability to compete for future contracts and orders.

Government could seek the return of any amounts previously paid to us under the contract and also seek to recover from us any added costs for having another contractor complete the work, exposing us to liability and adversely affecting our ability to compete for future contracts and orders.

In addition, the U.S.

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Similarly, the U.S.

Government could indirectly terminate a program or contract by not funding it.

Government could indirectly terminate a program or contract by not funding it, or by reducing the amount of funding previously obligated to the program or contract.

The decision to terminate programs or contracts for convenience or default could adversely affect our business and future financial performance.

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government agencies may face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors.

Legislation, regulations and initiatives dealing with procurement reform, mitigation of potential conflicts of interest and environmental responsibility or sustainability (including regulations that require reductions and disclosure of greenhouse gas emissions and climate-related financial risks) as well as any resulting shifts in the buying practices of U.S.

government agencies (such as increased usage of fixed-price contracts, multiple-award contracts and small business set-aside contracts) could have adverse effects on government contractors, including us.

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Any new contracting requirements or procurement methods could be costly or administratively difficult to implement and could adversely affect our future revenues, profitability, and prospects.

Leidos Holdings, Inc.

Annual Report - 23

Additionally, the DoD and other customers are increasingly pursuing rapid acquisition pathways and procedures for new technologies, including through so-called “other transaction authority” agreements ("OTAs").

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If we cannot successfully adapt to our customers’ rapid acquisition processes, then we may lose strategic new business opportunities in high-growth areas, and our future performance and results could be adversely affected.

Efforts by the U.S.

government to reform its procurement practices have focused on, among other areas, the separation of certain types of work to facilitate objectivity and avoid or mitigate organizational conflicts of interest and the strengthening of regulations governing organizational conflicts of interest.

Organizational conflicts of interest may arise from circumstances in which a contractor has:

• impaired objectivity during performance;

• unfair access to non-public information;

• the ability to set the “ground rules” for another procurement for which the contractor competes.

A focus on organizational conflicts of interest issues has resulted in legislation and a proposed regulation aimed at increasing organizational conflicts of interest requirements, including, among other things, separating sellers of products and providers of advisory services in major defense acquisition programs.

The passage of a new federal law in December 2022 requires the FAR council within eighteen months to provide and update definitions of each of the above types of conflicts of interest and provide illustrative examples of various relationships that contractors could have that would give rise to potential conflicts of interest.

The passage of this legislation comes as this topic continues to garner increased scrutiny of such alleged conflicts among federal contractors.

The resulting rule-making process, as well as continuing reform initiatives in procurement practices, may, however, result in future amendments to the FAR, increasing the restrictions in current organizational conflicts of interest regulations and rules.

Similarly, organizational conflicts of interest remain an active area of bid protest litigation, increasing the likelihood that competitors may leverage such arguments in an attempt to overturn agency award decisions.

To the extent that proposed and future organizational conflicts of interest laws, regulations, and rules or interpretations thereof limit our ability to successfully compete for new contracts or task orders with the U.S.

government, either because of organizational conflicts of interest issues arising from our business, or because companies with which we are affiliated, or with which we otherwise conduct business, create organizational conflicts of interest issues for us, our financial metrics and results of operations could be materially and adversely affected.

Application of the U.S.

government's organizational conflict of interest (OCI) rules could limit our ability to successfully compete for new contracts or task orders, which would adversely affect our results of operations.

government has adopted rules and practices that are designed to avoid or mitigate organizational conflicts of interest ("OCIs").

OCIs may arise from circumstances in which a contractor has:

u impaired objectivity during performance;

u unequal access to non-public information;

u the ability to set the “ground rules” for another procurement for which the contractor intends to compete.

federal contacting rules require that government contracting officers identify, analyze and address potential OCIs for each acquisition they conduct.

The rules specify a number of methods contracting officers may use to address OCIs, and each contracting officer has significant discretion in deciding whether an OCI exists, and if so, how it should be addressed.

As a result, it may be difficult for us to predict whether a given contracting opportunity will be found to pose an actual or potential OCI, whether such an OCI will be determined to be disqualifying, and if not disqualifying what steps we would be required to take in order to be found eligible to compete for and perform the work.

Leidos Holdings, Inc.

Annual Report

Similarly, OCIs remain an active area of bid protest litigation, increasing the likelihood that competitors may leverage such arguments in an attempt to overturn agency award decisions.

To the extent that the U.S.

government's OCI laws, regulations, and rules or interpretations thereof limit our ability to successfully compete for new contracts or task orders with the U.S.

government, either because of OCI issues arising from our business, or because companies with which we are affiliated, or with which we otherwise conduct business, create OCI interest issues for us, our financial metrics and results of operations could be materially and adversely affected.

government contractor, our partners and we are subject to reviews, audits and cost adjustments by the U.S.

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They also review the adequacy of the contractor’s compliance with government standards for its business systems, including a contractor’s accounting system, earned value management system, estimating system, materials management and accounting system, property management system, and purchasing system.

Leidos Holdings, Inc.

Annual Report - 24

As a result of increased scrutiny on contractors and U.S.

government agencies, audits and reviews are conducted rigorously and the applicable standards are strictly interpreted, increasing the likelihood of an audit or review resulting in an adverse outcome.

A finding of significant control deficiencies in our system audits or other reviews can result in decremented billing rates to our U.S.

A finding of significant control deficiencies in our business system audits or other reviews can result in the suspension of payments or lower billing rates to our U.S.

government customers until the control deficiencies are corrected and the DCMA accepts our remediations.

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government imposing penalties and sanctions against us, including reductions of the value of contracts, contract modifications reflecting less favorable terms or termination, withholding of payments, the loss of export/import privileges, administrative or civil judgments and liabilities, criminal judgments or convictions, liabilities and consent or other voluntary decrees or agreements, other sanctions, the assessment of penalties, fines or compensatory, treble or other damages or non-monetary relief or actions, suspension or debarment, suspension of payments and increased government scrutiny that could negatively impact our reputation, delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S.

As of December 29, 2023, indirect cost audits by the DCAA remain open for fiscal 2021 and subsequent fiscal years.

As of January 3, 2025, indirect cost audits by the DCAA remain open for fiscal 2022 and subsequent fiscal years.

Although we have recorded contract revenues based upon our 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 our estimates, our profitability may be adversely affected.

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We are routinely subject to governmental investigations 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 the United States.

If a review or investigation identifies improper or illegal activities, we may be subject to disgorgement of profits, fines, damages, litigation, civil or criminal penalties, exclusion from sales channels or sales opportunities, injunctions, or administrative sanctions, including the termination of contracts, the triggering of price reduction clauses, suspension of payments, suspension or debarment from doing business with governmental agencies or other consequences.

If a review or investigation identifies improper or unlawful activities, we may be subject to disgorgement of profits, fines, damages, litigation, civil or criminal penalties, exclusion from sales channels or sales opportunities, injunctions, or administrative sanctions, including the termination of contracts, the triggering of price reduction clauses, suspension of payments, suspension or debarment from doing business with governmental agencies or other consequences.

We may suffer harm to our reputation if allegations of impropriety are made against us, which would impair our ability to win new contract awards or receive contract renewals.

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

Leidos Holdings, Inc.

Annual Report

Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration, or other legal proceedings could require us to pay potentially large damage awards or penalties and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.

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

Leidos Holdings, Inc.

Annual Report - 25

Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.

We are subject to numerous state, federal and international laws and directives and regulations in the U.S.

and abroad that involve matters central to our business, including data privacy and security, employment and labor relations, immigration, taxation, anti-corruption, anti-bribery, import-export controls, trade restrictions, internal and disclosure control obligations, securities regulation and anti-competition.

and abroad that involve matters central to our business, including but not limited to, data privacy and security, employment and labor relations, immigration, taxation, anti-corruption, anti-bribery, import-export controls, trade restrictions, internal and disclosure control obligations, securities regulation and anti-competition restrictions.

Compliance with legal requirements is costly, time-consuming and requires significant resources.

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Should we or our supply chain fail to implement these new requirements, this may adversely affect our ability to receive awards or execute on relevant government programs.

We are in the process of evaluating our readiness against these new requirements and while we have confidence we will meet or exceed requirements, to the extent we do not, we will be unable to bid on such contract awards, which could adversely impact our revenue and our profitability.

We are in the process of evaluating our readiness against these new requirements and while we have confidence we will meet or

Leidos Holdings, Inc.

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exceed requirements, to the extent we do not, we will be unable to bid on such contract awards, which could adversely impact our revenue and our profitability.

The overarching complexity of data privacy and security laws and regulations around the world poses a compliance challenge that could manifest in costs, damages, or liability in other forms as a result of failure to implement proper programmatic controls, failure to adhere to those controls, or the breach of applicable data privacy and security requirements by us, our employees, our business partners (including our service providers, suppliers or subcontractors) or our customers.

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The impact of these factors is difficult to predict, but one or more of them could harm our reputation and business and have a material adverse effect on our financial position, results of operations and cash flows.

Increasing scrutiny and changing expectations from governmental organizations, customers, and our employees with respect to our ESG-related practices may impose additional costs on us or expose us to new or additional risks.

There is increased scrutiny from governmental organizations, customers, and employees on companies' environmental, social, and governance (“ESG”) practices and disclosures such as DEI, workplace culture, community investment, environmental management, climate impact, and information security.

We have expended and may further expend resources to monitor, report on, and adopt policies and practices that we believe will improve alignment with our evolving ESG strategy and goals, as well as ESG-related standards and expectations of legal regimes and stakeholders such as customers, investors, stockholders, raters, employees, and business partners.

Increasing attention and changing expectations from governmental authorities, customers, and our employees with respect to our ESG-related practices may impose additional costs on us or expose us to new or additional risks.

There is increased attention from governmental organizations, customers, employees, and other stakeholders globally on companies’ environmental, social, and governance (“ESG”) practices and disclosures such as diversity, equity and inclusion, workplace culture, community investment, environmental management, climate impact, and information security.

We may be expected to expend resources to monitor, report on, and adopt policies and practices that we believe will improve alignment with our evolving ESG strategy and goals, as well as ESG-related standards and expectations of legal regimes and stakeholders such as customers, investors, stockholders, raters, employees, and business partners.

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If our ESG practices, including our goals for DEI, environmental sustainability, and information security, do not meet evolving rules and regulations or stakeholder expectations and standards (or if we are viewed negatively based on positions we do or do not take or work we do or do not perform or cannot publicly disclose for certain customers and industries), then our reputation, our ability to attract or retain leading experts, employees and other professionals and our ability to attract new business and customers could be negatively impacted, as could our attractiveness as an investment, service provider, employer, or business partner.

Similarly, our failure or perceived failure in our efforts to execute our ESG strategy and achieve our current or future ESG-related goals, targets, and objectives, or to satisfy various reporting standards within the timelines expected by stakeholders or at all, could also result in similar negative impacts.

If our practices and disclosures do not meet evolving rules and regulations or our stakeholder expectations and standards (or if we are viewed negatively based on positions we do or do not take or work we do or do not perform or cannot publicly disclose for certain customers and industries), then our reputation, our ability to attract or retain leading experts, employees and other professionals and our ability to attract new business and customers could be negatively impacted, as could our attractiveness as an investment, service provider, employer, or business partner.

Similarly, our failure or perceived failure in our efforts to execute our ESG strategy, or to satisfy various reporting standards within the timelines expected by us and stakeholders or at all, could also result in similar negative impacts.

Organizations that provide information to investors on corporate governance and related matters have developed rating processes for evaluating companies on their approach to ESG matters, and unfavorable ratings of our ESG efforts may lead to negative investor sentiment, diversion of investment to other companies, and difficulty in hiring skilled employees.

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In addition, our share price and demand for our securities could be adversely affected.

We utilize artificial intelligence, which could expose us to liability or adversely affect our business, especially if we are unable to compete effectively with others in adopting artificial intelligence.

We utilize artificial intelligence, including generative artificial intelligence, machine learning, and similar tools and technologies that collect, aggregate, analyze, or generate data or other materials or content (collectively, “AI”) in connection with our business.

There are significant risks involved in using AI and no assurance can be provided that our use of AI will enhance our products or services, produce the intended results, or keep pace with our competitors.

For example, AI algorithms may be flawed, insufficient, of poor quality, rely upon incorrect or inaccurate data, reflect unwanted forms of bias, or contain other errors or inadequacies, any of which may not be easily detectable;

AI has been known to produce false or “hallucinatory” inferences or outputs;

our use of AI can present ethical issues and may subject us to new or heightened legal, regulatory, ethical, or other challenges;

and inappropriate or controversial data practices by developers and end-users, or other factors adversely affecting public opinion of AI, could impair the acceptance of AI solutions, including those incorporated in our products and services.

If the AI tools that we use are deficient, inaccurate, or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results.

If we do not have sufficient rights to use the data or other material or content on which the AI tools we use rely, we also may incur liability through the violation of applicable laws and regulations, third-party intellectual property, data privacy, or other rights, or contracts to which we are a party.

In addition, AI regulation is rapidly evolving worldwide as legislators and regulators increasingly focus on these powerful emerging technologies.

The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, data privacy and security, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations.

AI is the subject of ongoing review by various U.S.

governmental and regulatory agencies, and various U.S.

states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, data privacy, and security laws and regulations to AI or are considering general legal frameworks for AI.

We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions.

Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational, or technological risks that may arise relating to the use of AI.

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BUSINESS AND OPERATIONAL RISKS

The effects of an epidemic, pandemic, or similar outbreak have negatively impacted and could negatively impact, our business and financial results.

Any epidemics, pandemics, or similar outbreaks such as COVID-19 and its variants could create economic uncertainty and disruptions to the global economy that could adversely affect our businesses, or could lead to operational difficulties, including travel limitations, that could impair our ability to manage or conduct our business.

For example, the spread of COVID-19 and mitigating measures caused unprecedented disruptions to the global economy and normal business operations across sectors and countries, including the sectors in which we, our customers and other third parties operate.

Further, new contract awards have been and may continue to be delayed and our ability to perform on our existing contracts has been and may continue to be delayed or impaired, which will negatively impact our revenues.

In addition, our program costs have increased as a result of COVID-19, and these cost increases may not be fully recoverable or adequately covered by insurance or equitable adjustments to contract prices.

Any future epidemic, pandemic, or similar outbreak may have similar impacts, and we cannot currently anticipate the potential impact on our business and results of operations due to any such outbreak.

Misconduct of employees, subcontractors, agents, suppliers, business partners or joint ventures and others working on our behalf could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and customers and could have a material adverse impact on our business, reputation and future results.

Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of laws, such as the Anti-Kickback Act, and the failure to comply with our policies and procedures or with federal, state, or local government procurement regulations, regulations regarding the use and safeguarding of classified or other protected information, legislation regarding the pricing of labor and other costs in government contracts, laws and regulations relating to environmental, health or safety matters, bribery of foreign government officials, import-export control, lobbying or similar activities and any other applicable laws or regulations.

Any data loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory investigations or sanctions against us, corruption or disruption of our systems or those of our customers, impairment of our ability to provide services to our customers, loss of current and future contracts, indemnity obligations, serious harm to our reputation and other potential liabilities.

See also the risk factor “Cybersecurity breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our customers and cause harm to our reputation or competitive position .

” Although we have implemented policies, procedures, training, and other compliance controls to prevent and detect these activities, these precautions may not prevent all misconduct, and as a result, we could face unknown risks or losses.

This risk of improper conduct may increase as we continue to expand and do business with new partners.

In the ordinary course of our business, we form and are members of joint ventures (meaning joint efforts or business arrangements of any type).

Our failure to comply with applicable laws or regulations could damage our reputation and subject us to administrative, civil, or criminal investigations and enforcement actions, fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts, loss of privileges and other sanctions, including suspension or debarment from contracting with federal, state or local government agencies, any of which would adversely affect our business, reputation and our future results.

Any epidemics, pandemics, or similar outbreaks have in the past created (as in the case of COVID-19 and its variants) and could again create economic uncertainty and disruptions to the global economy that could adversely affect our businesses, or could lead to operational difficulties, including travel limitations, that could impair our ability to manage or conduct our business.

Any future epidemic, pandemic, or similar outbreak may have similar impacts, and we cannot currently anticipate the potential impact on our business and results of operations.

Misconduct of employees, subcontractors, agents, suppliers, business partners or joint ventures and others working on our behalf could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and could have a material adverse impact on our business, reputation and future results.

Misconduct encompasses a wide range of improper activities that could pose risks to our business.

This includes fraud, falsifying time records or other documentation, and violations of laws such as the Anti-Kickback Act.

Non-compliance with our internal policies and procedures, as well as failure to adhere to federal, state, or local government procurement regulations—including those related to the use and protection of classified or sensitive information—also constitute misconduct.

Examples include failure to comply with legislation on labor pricing and costs in government contracts, violating environmental, health, or safety laws, engaging in bribery of foreign government officials, breaching import-export controls, and participating in improper lobbying or similar activities.

Any incidents of data loss or information security lapses that compromise personal information or lead to the improper use or disclosure of sensitive or classified data could negatively impact us.

We could face legal claims, incur remediation costs, and be subjected to regulatory investigations or sanctions.

Such events might corrupt or disrupt our systems or those of our customers, impair our ability to provide services, result in the loss of existing and future contracts, and impose indemnity obligations.

The damage to our reputation could be significant, leading to other potential liabilities.

See also the risk factor:

“Cybersecurity breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our customers and cause harm to our reputation or competitive position.”

While we have established policies, procedures, training programs, and other compliance controls designed to prevent and detect misconduct, these measures may not be effective, exposing us to unforeseen risks or losses.

This risk may increase as we continue to grow and engage with new partners.

In our regular business operations, we form and participate in joint ventures—joint efforts or business arrangements of various types—which can introduce additional compliance complexities.

Failure to comply with applicable laws or regulations could damage our reputation and subject us to administrative, civil, or criminal investigations and enforcement actions.

Potential repercussions include fines and penalties, restitution or other damages, and the loss of security clearances.

We might also face the loss of current and future customer contracts, revocation of privileges, and other sanctions such as suspension or debarment from contracting with federal, state, or local government agencies.

Any of these outcomes would adversely affect our business, reputation, and future results.

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A failure to attract, train, retain, and motivate skilled employees, including our management team, would adversely affect our ability to execute our strategy and may disrupt our operations.

Our continued success and ability to compete in a highly competitive environment depend on our ability to recruit and retain highly trained and skilled science, engineering, technical, math, and professional personnel.

Competition for skilled personnel is intense, and the costs associated with attracting and retaining them are high and made even more competitive as a result of the external environment, including increasing rates of job transition and low unemployment.

A failure to attract, retain, and develop talent with critical skills, including our leadership team, would adversely affect our ability to execute our strategy and may disrupt our operations.

Our continued success and ability to compete in a highly competitive environment depends on our ability to attract, retain and develop highly trained and skilled technical and professional talent.

Competition for skilled talent is intense, and the costs associated with attracting and retaining them are high and made even more competitive as a result of the external environment, including increasing rates of job transition and low unemployment.

In addition, many U.S.

government programs require contractors to have security clearances, certain of which can be difficult and time-consuming to obtain and personnel with such security clearances are in great demand.

government programs require contractors to have security clearances, some of which can be difficult and time-consuming to obtain and talent with such security clearances are in great demand.

As a result, it is difficult to retain employees and meet all of our needs for employees in a timely manner, which may affect our growth.

Although we intend to continue to devote significant resources to recruiting, training and retaining qualified employees, we may not be able to attract, effectively train and retain these employees.

Any failure to do so could impair our ability to perform our contractual obligations efficiently and timely meet our customers’ needs and win new business, which could adversely affect our future results.

In addition, certain personnel may be required to receive various security clearances to work on certain customer engagements or to perform certain tasks.

Necessary security clearances may be delayed or not obtained, which may negatively impact our ability to perform on such engagements in a timely matter or at all.

We believe our success will also depend on the continued employment of a highly qualified and experienced senior management team and its ability to retain existing business, generate new business, execute our business plans in an efficient and effective manner, and our ability to adequately plan for the succession of our senior management team and continually develop new members of senior management.

An inability to retain appropriately qualified and experienced senior executives, our failure to do adequately succession planning, or our failure to continue to develop new members could cause us to lose customers or new business opportunities.

Although we intend to continue to devote significant resources to attracting, retaining and developing qualified employees, we may not be able to attract, retain, and effectively develop these employees.

Any failure to do so could impair our ability to perform our contractual obligations efficiently and on schedule to meet our customers’ needs and win new business, which could adversely affect our future results.

We believe our success will also depend on the continued employment of a highly qualified and experienced senior leadership team and its ability to retain existing business, generate new business, execute our business plans in an efficient and effective manner, and our ability to adequately plan for the succession of our senior leadership team and continually develop new members of senior leadership.

An inability to retain appropriately qualified and experienced senior executives, our failure to do adequately succession planning, or our failure to continue to develop new leaders could cause us to lose customers or new business.

We may not realize the full amounts reflected in our backlog as revenues, which could adversely affect our expected future revenues and growth prospects.

As of December 29, 2023, our total backlog was $37.0 billion, including $8.8 billion in funded backlog.

As of January 3, 2025, our total backlog was $43.6 billion, including $8.4 billion in funded backlog.

Due to the U.S.

government’s ability to not exercise contract options or to terminate, modify, or curtail our programs or contracts and the rights of our non-U.S.

government customers to cancel contracts and purchase orders in certain circumstances, we may realize less than expected revenues or may never realize revenues from some of the contracts that are included in our backlog.

government customers to terminate contracts and purchase orders in certain circumstances, we may realize less than expected revenues or may never realize revenues from some of the contracts that are included in our backlog.

Our unfunded backlog, in particular, contains management’s estimate of amounts expected to be realized on unfunded contract work that may never be realized as revenues.

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Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to estimate and manage costs, time, and resources accurately.

We generate revenues under various types of contracts, including cost-reimbursement, FP-IF, T&M, FP-LOE and FFP contracts.

We generate revenues under various types of contracts, including cost-reimbursement, FPIF, T&M, FPLOE and FFP contracts.

Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract, the nature of services or products provided, the achievement of performance objectives, and the stage of performance at which the right to receive fees, particularly under incentive-fee and award-fee contracts, is finally determined.

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Our operating results in any period may also be affected, positively or negatively, by customers’ variable purchasing patterns of our more profitable proprietary products.

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Our profitability is adversely affected when we incur contract costs that we cannot bill to our customers.

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More generally, any increased or unexpected costs or unanticipated delays in the performance of our contracts, including costs and delays caused by contractual disputes or other factors outside of our control, such as performance failures of our subcontractors, rising inflationary pressures, and fluctuations in interest rates, natural disasters or other force majeure events, could make our contracts less profitable than expected or unprofitable.

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We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report, “Note 3—Summary of Significant Accounting Policies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

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Cybersecurity breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our customers and cause harm to our reputation or competitive position.

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These techniques may be perpetrated by internal bad actors, such as employees or contractors, or by third parties (including traditional computer hackers, persons involved with well-funded organized crime or state-sponsored actors).

Any electronic or physical break-in or other security breach or compromise of our information technology systems and networks or facilities, or those of our service providers, suppliers, joint ventures or subcontractors, may jeopardize the confidential integrity or availability of information, including personal, confidential, proprietary or sensitive information, stored or transmitted through these systems and networks or stored in those facilities.

Any electronic or physical break-in or other security breach or compromise of our information technology systems and networks or facilities, or those of our service providers, suppliers, joint ventures or subcontractors, may jeopardize the confidentiality, integrity or availability of information, including personal, confidential, proprietary or sensitive information, stored or transmitted through these systems and networks or stored in those facilities.

This could lead to disruptions in mission- critical systems, unauthorized access to or release of personal, confidential, proprietary, sensitive or otherwise protected information and corruption of data or systems.

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and abroad, also include different obligations for companies to provide notice of information security incidents involving certain types of information (including obligations to notify affected individuals and regulators in the event of cybersecurity breaches involving certain personal information), which could result from breaches of our service providers, our suppliers or subcontractors.

Although we have implemented policies, procedures and controls designed to protect against, detect and mitigate these threats and attacks, we and our service providers, suppliers, joint ventures, and subcontractors have faced and continue to face advanced and persistent attacks on our information systems.

We cannot guarantee that future incidents will not occur, and if an incident does occur, our incident response planning may not prove fully adequate.

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Techniques used by others to gain unauthorized access to personal, confidential, proprietary, or sensitive information or disrupt systems and networks for economic or strategic gain are constantly evolving, increasingly sophisticated, increasingly difficult to detect and successfully defend against and may see their frequency increased, and effectiveness enhanced, by the use of AI.

Further, cybersecurity risks maybe heightened as a result of ongoing global conflicts such as the military conflict between Russia and Ukraine and the related sanctions imposed by the United States and other countries, or the ongoing Israel/Hamas conflict and its regional effects.

While we generally perform cybersecurity diligence on our key service providers, we do not control our service providers and our ability to monitor their cybersecurity is limited, so we cannot ensure the cybersecurity measures they take will be sufficient to protect any information we share with them.

Due to applicable laws and regulations or contractual obligations, we may be held accountable for cybersecurity breaches or other information security incidents attributed to our service providers as they relate to the information we share with them.

Further, cybersecurity risks may be heightened as a result of ongoing global conflicts such as the military conflict between Russia and Ukraine and the related sanctions imposed by the United States and other countries, or the ongoing conflict in the Middle East, which continues to expand.

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We do not control our service providers and our ability to monitor their cybersecurity is limited, so we cannot ensure the cybersecurity measures they take will be sufficient to protect any information we share with them.

We seek to detect and investigate all information security incidents and to prevent their occurrence, prolongation, or recurrence.

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government contracts), business operations and financial results.

We have insurance against some cyber-risks and attacks;

however, our insurer may deny coverage as to any future claim, our insurance coverage may not be sufficient to offset the impact of a material loss event, and such insurance may increase in cost or cease to be available on commercial terms in the future.

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While we have insurance against some cyber-risks and attacks, our insurer may deny coverage as to any future claim, our insurance coverage may not be sufficient to offset the impact of a material loss event, and such insurance may increase in cost or cease to be available on commercial terms in the future.

Internal system or service failures, or failures in the systems or services of third parties on which we rely, could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

Any system or service disruptions, including those caused by ongoing projects to improve our information technology systems and networks and the delivery of services, whether through our shared services organization or outsourced services, if not anticipated and appropriately mitigated, could materially and adversely affect our business including, among other things, an adverse effect on our ability to perform on contracts, bill our customers for work performed on our contracts, collect the amounts that have been billed and produce accurate financial statements in a timely manner.

We, and the service providers, suppliers and subcontractors on which we rely, are also subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, cybersecurity threats, malicious insiders, natural disasters, power shortages, terrorist attacks, pandemics or other events, which could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs, subject us to claims and damage our reputation.

We, and the service providers, suppliers and subcontractors on which we rely, are also subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, cybersecurity threats, malicious insiders, software bugs or errors, natural disasters, power shortages, terrorist attacks, pandemics or other events, which could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs, subject us to claims and damage our reputation.

In addition, the failure or disruption of our communications, or those of our service providers, suppliers or subcontractors, could cause us to interrupt or suspend our operations or otherwise adversely affect our business.

Our property and business interruption insurance may be inadequate to compensate us for all losses resulting from any system or operational failure or disruption.

Our property and business

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interruption insurance may be inadequate to compensate us for all losses resulting from any system or operational failure or disruption.

Our business is subject to disruption caused by physical or transition risks that could adversely affect our operations, profitability and overall financial position.

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If insurance or other risk transfer mechanisms are unavailable or insufficient to recover all costs or if we experience a significant disruption to our business due to a natural disaster, it could adversely affect our financial position, results of operations, and cash flows.

There is also an increasing concern over the risks of climate change and related environmental sustainability matters.

There are also concerns over the risks of climate change and related environmental sustainability matters.

In addition to physical risks, climate change risks include longer-term shifts in climate patterns, such as extreme heat, rising sea levels, and more frequent and prolonged drought.

Such events could disrupt our operations or those of our customers or third parties on which we rely, including direct damage to assets and indirect impacts from supply chain disruption and market volatility.

Such events could disrupt certain of our operations or those of our customers or third parties on which we rely, including direct damage to assets and indirect impacts from supply chain disruption and market volatility.

We could also incur significant costs to improve the climate resiliency of our infrastructure and supply chain and otherwise prepare for, respond to, and mitigate the effects of climate change.

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However, we currently are not able to accurately predict the materiality of any potential costs associated with such developments.

In addition, our reputation and customer relationships may be damaged as a result of our practices related to climate change, including our involvement, or our customers’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

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In addition, our reputation and customer relationships may be negatively impacted as a result of our practices and policies, actual or perceived, related to climate change, including our involvement, or our customers’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

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We design and develop technologically advanced and innovative products and services applied by our customers in various environments.

The needs of our customers change and evolve regularly, particularly by complex and rapidly evolving technologies.

The needs of our customers change and evolve regularly, particularly driven by complex and rapidly evolving technologies.

Our success depends upon our ability to identify emerging technological trends, develop technologically advanced, innovative, and cost-effective products and services, and market these products and services to our customers.

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Failure to meet these obligations could adversely affect our profitability and future prospects.

In addition, our offerings cannot be tested and proven in all situations and are otherwise subject to unforeseen problems that could negatively affect revenue and profitability, such as problems with quality and workmanship, country of origin, delivery of subcontractor components or services, unplanned degradation of product performance, and unauthorized use or modifications of our products and services.

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workmanship, country of origin, delivery of subcontractor components or services, unplanned degradation of product performance, and unauthorized use or modifications of our products and services.

Among the factors that may affect revenue and profits could be unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain contracts, repayment to the government customer of contract costs and fee payments we previously received.

AI has been known to produce false or “hallucinatory” inferences or outputs;

our use of AI can present ethical issues and may subject us to new or heightened legal, regulatory, ethical, or other challenges;

In addition, AI regulation is rapidly evolving worldwide as legislators and regulators increasingly focus on these powerful emerging technologies.

AI is the subject of ongoing review by various U.S.

governmental and regulatory agencies, and various U.S.

For example, the EU’s Artificial Intelligence Act (the “AI Act”), which entered into force on August 1, 2024, establishes, among other things, a risk-based governance framework for regulating AI systems operating in the EU.

We have classified contracts with the U.S.

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Acquisitions, investments and joint ventures pose many other risks that could adversely affect our reputation, operations, or financial results, including that:

• we may not be able to identify, compete effectively for or complete suitable acquisitions and investments at prices we consider attractive;

• we may not be able to accurately estimate the financial effect of acquisitions and investments on our business or realize anticipated synergies, business growth, or profitability and may be unable to recover investments in any such acquisitions and investments;

• we may not be able to manage the integration process for acquisitions successfully, and the integration process may divert management time and focus from operating our business, including as a result of incompatible accounting, information management, or other control systems;

• acquired technologies, capabilities, products, and service offerings, particularly those that are still in development when acquired, may not perform as expected, may have defects or may not be integrated into our business as expected;

• we may have trouble retaining key employees and customers of an acquired business;

• we may need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies, including those relating to financial reporting, revenue recognition or other financial or control deficiencies;

• we may assume legal or regulatory risks, particularly with respect to smaller businesses that have immature business processes and compliance programs, or may be required to comply with additional laws and regulations or to engage in remediation efforts to cause the acquired company to comply with applicable laws and regulations, or result in liabilities resulting from the acquired company’s failure to comply with applicable laws or regulations;

• we may face litigation or material liabilities that were not identified or were underestimated as part of our due diligence or for which we are unable to receive a purchase price adjustment or reimbursement through indemnification, including intellectual property claims and disputes or claims from terminated employees, customers, former stockholders or other third parties, or there may be other unanticipated write-offs or charges;

• we may be required to spend a significant amount of cash or to incur debt, resulting in limitations on other potential uses for cash, increased fixed payment obligations or covenants or other restrictions on us, or issue shares of our common stock or convertible debt, resulting in dilution of ownership;

• we may not be able to influence the operations of our joint ventures effectively, or we may be exposed to certain liabilities if our joint venture partners do not fulfill their obligations;

• if our acquisitions, investments, or joint ventures fail, perform poorly, or their value is otherwise impaired for any reason, including contractions in credit markets and global economic conditions, our business and financial results could be adversely affected.

u we may not be able to identify, compete effectively for or complete suitable acquisitions and investments at prices we consider attractive;

u we may not be able to accurately estimate the financial effect of acquisitions and investments on our business or realize anticipated synergies, business growth, or profitability and may be unable to recover investments in any such acquisitions and investments;

u we may not be able to manage the integration process for acquisitions successfully, and the integration process may divert management time and focus from operating our business, including as a result of incompatible accounting, information management, or other control systems;

u acquired technologies, capabilities, products, and service offerings, particularly those that are still in development when acquired, may not perform as expected, may have defects or may not be integrated into our business as expected;

u we may have trouble retaining key employees and customers of an acquired business;

u we may need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies, including those relating to financial reporting, revenue recognition or other financial or control deficiencies;

u we may assume legal or regulatory risks, particularly with respect to smaller businesses that have immature business processes and compliance programs, or may be required to comply with additional laws and regulations or to engage in remediation efforts to cause the acquired company to comply with applicable laws and regulations, or result in liabilities resulting from the acquired company’s failure to comply with applicable laws or regulations;

u we may face litigation or material liabilities that were not identified or were underestimated as part of our due diligence or for which we are unable to receive a purchase price adjustment or reimbursement through indemnification, including intellectual property claims and disputes or claims from terminated employees, customers, former stockholders or other third parties, or there may be other unanticipated write-offs or charges;

u we may be required to spend a significant amount of cash or to incur debt, resulting in limitations on other potential uses for cash, increased fixed payment obligations or covenants or other restrictions on us, or issue shares of our common stock or convertible debt, resulting in dilution of ownership;

u we may not be able to influence the operations of our joint ventures effectively, or we may be exposed to certain liabilities if our joint venture partners do not fulfill their obligations;

u if our acquisitions, investments, or joint ventures fail, perform poorly, or their value is otherwise impaired for any reason, including contractions in credit markets and global economic conditions, our business and financial results could be adversely affected.

In addition, we periodically divest businesses, including businesses that are no longer a part of our ongoing strategic plan.

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Goodwill and other intangible assets represent significant assets on our balance sheet and any impairment of these assets could negatively impact our results of operations, and shareholders' equity.

As of December 29, 2023, goodwill and intangible assets, net was 53% of our total assets .

Goodwill represents a significant asset on our balance sheet and any impairment of this asset could negatively impact our results of operations, and shareholders ’ equity.

As of January 3, 2025, goodwill was 46% of our total assets.

The amount of our goodwill may substantially increase in the future as a result of any acquisitions that we make.

Intangible assets and goodwill are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable and at least annually in the case of goodwill and intangible assets with indefinite lives.

Goodwill is tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable and at least annually.

The impairment test is based on several factors requiring judgment.

Examples of events or changes in circumstances indicating that the carrying value of intangible assets may not be recoverable could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, adverse contract acquisition performance, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed.

Adverse changes in fiscal and economic conditions, such as those related to federal budget cuts and the nation’s debt ceiling, deteriorating market conditions for companies in our industry and unfavorable changes in discount rates could result in an impairment of goodwill and other intangibles.

Examples of events could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, adverse contract acquisition performance, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed.

For example, during fiscal 2023, the SES reporting unit refined its portfolio and made strategic business decisions to exit certain product offerings, and cease operations in certain countries in order to align the operations of the reporting unit with its strategic business plan.

These decisions, along with the delays in airline travel infrastructure projects and disruptions in and higher than anticipated costs of servicing, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

These decisions, along with the delays in airline travel infrastructure projects and higher than anticipated costs of servicing, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

As a result, we conducted a quantitative goodwill impairment analysis, and our estimates led us to determine that the carrying value of the SES reporting unit exceeded its estimated fair value.

Accordingly, we recognized a non-cash goodwill impairment charge of $596 million and had $308 million of goodwill remaining at the SES reporting unit as of December 29, 2023.

Any future impairment of goodwill or other intangible assets could have a negative impact on our results of operations and shareholders' equity in the period in which they are recognized.

Accordingly, we recognized a non-cash goodwill impairment charge of $596 million in fiscal 2023.

Any future impairment of goodwill could have a negative impact on our results of operations and shareholders’ equity in the period in which they are recognized.

For additional information on our accounting policies related to impairment of goodwill, see our discussion under “Critical Accounting Estimates” in “Item 7.

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Companies that do not have access to U.S.

government contracts may perform services as our subcontractor, and that exposure could enhance such companies’ prospect of securing a future position as a prime U.S.

government contracts may perform services as our subcontractor, and that experience could enhance such companies’ prospect of securing a future position as a prime U.S.

government contractor, which could increase competition for future contracts and impair our ability to perform on contracts.

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A termination for default could eliminate a revenue source, expose us to liability and have an adverse effect on our ability to compete for future contracts and task orders, especially if the customer is an agency of the U.S.

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Our services and operations, which sometimes involve using, handling, or disposing of hazardous substances, are subject to numerous environmental, health and safety laws and regulations, pursuant to which we could face potentially significant liabilities, costs or obligations.

Our services are subject to numerous environmental, health, and safety laws and regulations.

Some of our services and operations involve using, handling, or disposing of hazardous substances.

Some of our services and operations involve using, handling, or disposing of hazardous substances, including explosive, chemical, biological, or radioactive materials.

These activities and our operations generally subject us to complex and stringent foreign, federal, state, and local environmental, health, and safety laws and regulations, which have tended to become more stringent over time.

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For example, we provide infrastructure and site services necessary to accomplish critical waste management and the continued environmental cleanup of the Hanford Site in southeastern Washington.

In addition, some of our work sites put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials.

In addition, some of our work sites put our employees and others in close proximity with mechanized

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equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials.

On some work sites, we may be responsible for safety and have an obligation to implement effective safety procedures.

If we fail to implement these procedures, or if the procedures we implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose ourselves to possible litigation.

Failure to comply with these environmental, health and safety laws and regulations could result in civil, criminal, regulatory, administrative, or contractual sanctions, including fines, penalties, or suspension or debarment from contracting with the U.S.

Failure to comply with these environmental, health and safety laws and regulations could result in civil, criminal, regulatory, administrative, or contractual sanctions, including fines, penalties, suspension or debarment from contracting with the U.S.

government, or reputational harm.

In addition, our failure to maintain adequate safety standards and equipment could result in reduced profitability and loss of work or customers.

Our current and previous ownership and operation of real property also subject us to environmental laws and regulations, some of which hold current or previous owners or operators of businesses and real property jointly and severally liable for hazardous substance releases, even if they did not know of and were not responsible for the releases.

Our current and previous ownership, leasing and operation of real property, and disposal of hazardous substances also subject us to environmental laws and regulations, some of which hold current or previous owners or operators of businesses and real property jointly and severally liable for hazardous substance releases, even if they did not know of and were not responsible for the releases.

Past business practices at companies that we have acquired may also expose us to future unknown environmental liabilities.

Liabilities related to environmental contamination or human exposure to hazardous substances, or violations of these laws or regulations, could result in substantial costs to us, including cleanup costs, fines, civil or criminal sanctions, and third-party claims for property damage or personal injury.

Liabilities related to environmental contamination, human exposure to hazardous substances, or violations of these laws or regulations, could result in substantial costs to us, including cleanup costs, fines, civil or criminal sanctions, and third-party claims for property loss or damage or personal injury.

Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability and may adversely affect our financial condition and operating results.

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Further, if our security and inspection systems fail to, or are perceived to have failed to, help detect a threat, we could experience negative publicity and reputational harm, which could reduce demand for our inspection or detection systems and adversely affect our business.

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Our insurance, customer indemnifications or other liability protections may be insufficient to protect us from product and other liability claims or losses.

We maintain insurance coverage with third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits.

Not every risk or liability is or can be protected by insurance, and for those risks we insure, the limits of coverage that are reasonably obtainable may not be sufficient to cover all actual losses or liabilities incurred.

Not every risk or liability we face is or can be protected by insurance, and for those risks we insure, the limits of coverage that are reasonably obtainable may not be sufficient to cover all actual losses or liabilities incurred.

We are limited in the amount of insurance we can obtain to cover certain risks, such as cybersecurity risks and natural hazards, including earthquakes, fires, and extreme weather conditions, some of which can be worsened by climate change and pandemics.

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Any significant claim may have an adverse effect on our industry and market reputation, leading to a substantial decrease in demand for our products and services and reduced revenues, making it more difficult for us to compete effectively, and could affect the cost and availability of insurance coverage at adequate levels in the future.

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We face risks associated with our international business.

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These risks and challenges include:

• failure to comply with U.S.

u failure to comply with U.S.

government and foreign laws and regulations applicable to international business, including, without limitation, those related to employment, data privacy and security, taxes, technology transfer, information security, environment, data transfer, import and export controls (including the International Traffic in Arms Regulations (“ITAR”) administered by the U.S.

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government, and expose us to risks and costs of noncompliance with such laws and regulations, in addition to administrative, civil or criminal penalties;

• increased financial and legal risks arising, for example, from foreign exchange rate variability, imposition of tariffs or additional taxes, inflation, restrictive trade policies, longer payment cycles, delays or failures to collect amounts due to us and differing legal systems, and which may adversely affect the performance of our services, sale of our products or repatriation of our profits;

• political or economic instability, international security concerns and geopolitical conflict in countries where we provide services and products in support of the U.S.

u increased financial and legal risks arising, for example, from foreign exchange rate variability, imposition of tariffs or additional taxes, inflation, restrictive trade policies, longer payment cycles, delays or failures to collect amounts due to us and differing legal systems, and which may adversely affect the performance of our services, sale of our products or repatriation of our profits;

u political or economic instability, international security concerns and geopolitical conflict in countries where we provide services and products in support of the U.S.

government and other customers in countries, which increases the risk of an incident resulting in injury or loss of life, damage or destruction of property, inability to meet our contractual obligations or retaliatory measures taken in respect thereof;

• the ongoing conflict between Russia and Ukraine, which has resulted in the imposition by the U.S.

u the ongoing conflict between Russia and Ukraine, which has resulted in the imposition by the U.S.

and other nations of restrictive actions against Russia, Belarus and certain banks, companies and individuals;

• the ongoing Israel/Hamas conflict and its regional effects.

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u the ongoing conflict in the Middle East, which continues to expand.

We are also subject to the U.S.

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presence expands and as we increase sales and operations in foreign jurisdictions.

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For additional information regarding government investigations and reviews we are subject to, see “Government Investigations and Reviews” in “Note 21—Commitments and Contingencies” of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

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In addition, trade secrets are generally difficult to protect, and some courts inside and outside the United States may be less willing or unwilling to protect trade secrets.

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We may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.

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Besides the expense and time to defend such claims and the cost of any large indemnity payments, any dispute with a customer with respect to such obligations could also have adverse effects on our relationship with that customer and other existing and new customers, requiring us to pay substantial royalty or licensing fees, and divert management’s attention, any of which could harm our business, financial condition and results of operations.

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Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.

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(federal or state) or foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, could result in increases in our tax expense and adversely affect our financial results.

For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years, which likely will materially decrease our cash from operations unless Congress defers, modifies or repeals this provision with retroactive effect.

See “Liquidity and Capital Resources” in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained within this Annual Report on Form 10-K for additional information on the impact of this change.

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Significant judgment is required in determining our worldwide provision for income taxes.

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A change in our dividend or share repurchase programs could have an adverse effect on the market price of our common stock.

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Provisions in our charter documents and under Delaware law could delay or prevent transactions that many stockholders may favor.

Some provisions of our certificate of incorporation and bylaws may delay, discourage, or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders might receive a premium for their shares.

These restrictions, which may also make it more difficult for our stockholders to elect directors not endorsed by our current directors and management, include mergers and certain other business combinations between a related person and us requiring approval by the holders of a majority of the voting power of such securities that are not owned by the related person unless approved by a majority of continuing directors or certain other exceptions;

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us requiring approval by the holders of a majority of the voting power of such securities that are not owned by the related person unless approved by a majority of continuing directors or certain other exceptions;

our stockholders may not act by written consent;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors