What changed in this filing

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Item 1. Financial Statements

2025-05-06 compared with 2024-10-29 · 235 added, 437 removed, 366 unchanged (65% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 27,

2024 December 29,

in millions, except share and per share data)

in millions, except share and per share data) April 4,

2025 January 3,

Cash and cash equivalents $ 842 $ 849

19 unchanged sentences

Stockholders’ equity:

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

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 128,715,893 and 131,163,899 shares issued and outstanding at April 4, 2025, and January 3, 2025, respectively

Additional paid-in capital 619 1,112

7 unchanged sentences

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

in millions, except per share data)

Three Months Ended

in millions, except per share data) April 4,

2025 March 29,

Revenues $ 4,245 $ 3,975

2 unchanged sentences

Acquisition, integration and restructuring costs 4 4

Goodwill impairment charges — 599 — 599

Asset impairment charges 6 88 6 88

Equity earnings of non-consolidated subsidiaries ( 7 ) ( 7 )

Operating income (loss)

516 ( 336 ) 1,406 260

Operating income 530 415

Non-operating income (expense):

Interest expense, net ( 49 ) ( 49 )

Other income (expense), net

Income (loss) before income taxes

470 ( 388 ) 1,264 93

Other (expense) income, net

Income before income taxes 478 368

Income tax expense ( 113 ) ( 85 )

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

Net income (loss)

362 ( 396 ) 969 ( 22 )

net (loss) income attributable to non-controlling interest

( 2 ) 3 ( 1 ) 8

Net income (loss) attributable to Leidos common stockholders

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

Net income 365 283

net income (loss) attributable to

non-controlling interest

Net income attributable to Leidos common stockholders $ 363 $ 284

Earnings per share:

$ 2.72 $ ( 2.91 ) $ 7.19 $ ( 0.22 )

2.68 ( 2.91 ) 7.13 ( 0.22 )

Basic $ 2.79 $ 2.09

Diluted 2.77 2.07

See accompanying notes to condensed consolidated financial statements.

Leidos Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

Net income (loss)

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

PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

in millions) April 4,

2025 March 29,

Net income $ 365 $ 283

Foreign currency translation adjustments

37 ( 31 ) 18 ( 19 )

Unrecognized loss on derivative instruments

( 5 ) — ( 4 ) ( 1 )

Unrecognized (loss) gain on derivative instruments

Pension adjustments — 1

Total other comprehensive income (loss), net of taxes 27 ( 24 )

31 ( 32 ) 14 ( 22 )

Comprehensive income (loss)

393 ( 428 ) 983 ( 44 )

net (loss) income attributable to non-controlling interest

( 2 ) 3 ( 1 ) 8

Comprehensive income (loss) attributable to Leidos common stockholders

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

Comprehensive income 392 259

net income (loss) attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders

See accompanying notes to condensed consolidated financial statements.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Shares of common stock Additional

in millions, except per share data) Shares of common stock Additional

capital Retained earnings Accumulated

1 unchanged sentence

income (loss) Leidos stockholders' equity Non-controlling interest Total stockholders' equity

in millions, except per share data)

Balance at December 29, 2023 136 $ 1,885 $ 2,364 $ ( 48 ) $ 4,201 $ 57 $ 4,258

Net income (loss) — — 284 — 284 ( 1 ) 283

Other comprehensive loss, net of taxes — — — ( 24 ) ( 24 ) — ( 24 )

Issuances of stock — 14 — — 14 — 14

Repurchases of stock and other

( 1 ) ( 184 ) — — ( 184 ) — ( 184 )

Dividends of $ 0.38 per share

— ( 53 ) — ( 53 ) — ( 53 )

Stock-based compensation — 20 — — 20 — 20

Net capital distributions to non-controlling interest — — — — — ( 1 ) ( 1 )

Balance at March 29, 2024 135 $ 1,735 $ 2,595 $ ( 72 ) $ 4,258 $ 55 $ 4,313

Balance at January 3, 2025 131 $ 1,112 $ 3,410 $ ( 110 ) $ 4,412 $ 48 $ 4,460

Net income — — 363 — 363 2 365

2 unchanged sentences

Repurchases of stock and other

Dividends of $ 0.38 per share

( 3 ) ( 531 ) — — ( 531 ) — ( 531 )

Stock-based compensation — 20 — — 20 — 20

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

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

Net income (loss)

— — 364 — 364 ( 2 ) 362

Other comprehensive income, net of taxes

— — — 31 31 — 31

Issuances of stock — 1 — — 1 — 1

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

Dividends of $ 0.40 per share

1 unchanged sentence

Stock-based compensation — 21 — — 21 — 21

Balance at September 27, 2024

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

See accompanying notes to condensed consolidated financial statements.

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Shares of common stock Additional

Net capital distributions to non-controlling interest — — — — — ( 5 ) ( 5 )

Balance at April 4, 2025 129 $ 619 $ 3,721 $ ( 83 ) $ 4,257 $ 45 $ 4,302

in millions, except per share data) Shares of common stock Additional

capital Retained earnings Accumulated

1 unchanged sentence

income (loss) Leidos stockholders' equity Non-controlling interest Total stockholders' equity

in millions, except per share data)

Balance at December 29, 2023 136 $ 1,885 $ 2,364 $ ( 48 ) $ 4,201 $ 57 $ 4,258

Net income — — 162 — 162 2 164

Other comprehensive income, net of taxes — — — 9 9 — 9

Net income (loss) — — 284 — 284 ( 1 ) 283

Other comprehensive loss, net of taxes — — — ( 24 ) ( 24 ) — ( 24 )

Issuances of stock — 14 — — 14 — 14

6 unchanged sentences

Balance at March 29, 2024 135 $ 1,735 $ 2,595 $ ( 72 ) $ 4,258 $ 55 $ 4,313

Net income — — 207 — 207 3 210

Other comprehensive income, net of taxes

— — — 1 1 — 1

Issuances of stock — 14 — — 14 — 14

Dividends of $ 0.36 per share

— — ( 50 ) — ( 50 ) — ( 50 )

Stock-based compensation — 19 — — 19 — 19

Net capital distributions to non-controlling interest — ( 3 ) — — ( 3 ) ( 2 ) ( 5 )

Balance at June 30, 2023

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

Net (loss) income

— — ( 399 ) — ( 399 ) 3 ( 396 )

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

Issuances of stock 1 12 — — 12 — 12

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

Dividends of $ 0.36 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 20 — — 20 — 20

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

Balance at September 29, 2023

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

See accompanying notes to condensed consolidated financial statements.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 27,

2024 September 29,

Three Months Ended

in millions) April 4,

2025 March 29,

Cash flows from operations:

Net income (loss) $ 969 $ ( 22 )

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

Net income $ 365 $ 283

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

Depreciation and amortization 69 69

1 unchanged sentence

Deferred income taxes ( 24 ) ( 25 )

Goodwill impairment charges — 599

Asset impairment charges 6 88

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

Other ( 1 ) ( 6 )

Change in assets and liabilities

Receivables ( 246 ) ( 281 )

5 unchanged sentences

Cash flows from investing activities:

Acquisition of a business, net of cash acquired — ( 6 )

Payments for property, equipment and software ( 22 ) ( 17 )

Net proceeds from sale of assets 2 —

Net cash used in investing activities ( 22 ) ( 12 )

9 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 7 ( 4 )

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

( 67 ) ( 131 )

Cash, cash equivalents and restricted cash at beginning of period 991 792

4 unchanged sentences

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]

Nine Months Ended

September 27,

2024 September 29,

Three Months Ended

in millions) April 4,

2025 March 29,

Supplementary cash flow information:

3 unchanged sentences

Property, plant and equipment additions

Non-cash financing activity:

Finance lease obligations $ — $ 65

See accompanying notes to condensed consolidated financial statements.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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("Leidos"), a Delaware corporation, is a holding company whose direct 100 %-owned subsidiary and principal operating company is Leidos, Inc.

Leidos, a member of the Fortune 500®, is a dynamic innovation company that is at the forefront of addressing the world’s most challenging issues in national security and health sectors.

With a global workforce of approximately 48,000 , Leidos is committed to developing smarter technology solutions, particularly for customers in highly regulated industries.

Leidos' customers include the U.S.

Leidos, is an industry and technology leader serving government and commercial customers with smarter, more efficient digital and mission innovations.

Headquartered in Reston, Virginia, with 47,000 global employees, Leidos' customers include the U.S.

Department of Defense ("DoD"), the U.S.

Intelligence Community, the U.S.

Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs, National Aeronautics and Space Administration ("NASA") and many other U.S.

Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S.

civilian, state and local government agencies, foreign government agencies and commercial businesses.

1 unchanged sentence

and its consolidated subsidiaries.

During the quarter ended March 29, 2024, we completed a realignment of our segment and reporting structure, which resulted in the identification of four reportable segments:

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

We commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024.

In addition, we separately present the unallocable costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure.

We have a controlling interest in Mission Support Alliance, LLC ("MSA"), a joint venture with Centerra Group, LLC.

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Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

We combined "Deferred tax liabilities" into "Other long-term liabilities" on the condensed consolidated balance sheets.

We changed our Cash and Cash Equivalents policy to exclude outstanding payments from “Cash and cash equivalents” on the condensed consolidated balance sheets.

Prior year financial information has been updated to conform to our current presentation on the condensed consolidated balance sheet and condensed consolidated statement of cash flows.

See the Cash and Cash Equivalents section below for further discussion of the change and the impact on the financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof.

2 unchanged sentences

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ACCOUNTING STANDARDS UPDATES ISSUED BUT NOT YET ADOPTED

ASU 2023-07 Segment Reporting

In November 2023, the FASB issued ASU 2023-07, to improve reportable segment disclosure requirements.

This update requires companies to disclose significant segment expense categories that are regularly provided to the chief operating decision maker ("CODM") on an interim and annual basis and expands disclosure requirements for interim reporting.

Companies must also disclose how segment measures of profit or loss are used by the CODM.

The amendments in this update are effective for public entities for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

The amendments should be adopted on a retrospective basis and early adoption is permitted.

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

ASU 2023-09 Income Taxes

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We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach for annual disclosures in fiscal 2025.

ASU 2024-03 Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, to enhance the transparency of certain expense disclosures.

The update requires disclosure of specific expense categories in the notes to the financial statements at interim and annual reporting periods.

The update requires disaggregated information about certain prescribed expense categories underlying any relevant income statement expense caption.

The amendments in this update are effective for public entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

The amendments may be adopted either prospectively or retrospectively.

Early adoption is permitted.

We are currently evaluating the impacts of this update and plan to adopt these amendments for annual disclosures in fiscal 2027 and interim disclosures in fiscal 2028.

CHANGES IN ESTIMATES ON CONTRACTS

1 unchanged sentence

Changes in estimates on contracts were as follows:

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions, except per share data)

Three Months Ended

(in millions, except per share data) April 4,

2025 March 29,

Favorable impact $ 53 $ 25

2 unchanged sentences

Impact on diluted EPS attributable to Leidos common stockholders

$ 0.17 $ 0.09 $ 0.10 $ 0.22

The unfavorable impact for the nine months ended September 27, 2024, included $ 41 million in write-downs on programs within our UK operations related to cost increases and schedule delays.

The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.

Revenue Recognized from Prior Obligations

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

We recognized revenue of $ 27 million and reduced revenue by $ 2 million from performance obligations satisfied in previous periods for the three months ended April 4, 2025, and March 29, 2024, respectively.

The changes primarily relate to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CASH AND CASH EQUIVALENTS

Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less.

At September 27, 2024, and December 29, 2023, $ 91 million and $ 136 million, respectively, of outstanding payments were included within "Cash and cash equivalents" and "Accounts payable and accrued liabilities" correspondingly on the condensed consolidated balance sheets.

Effective as of the first quarter of fiscal 2025, we changed our policy to exclude outstanding payments from “Cash and cash equivalents” on the condensed consolidated balance sheets.

To reflect the change in accounting policy, we recast "Cash and cash equivalents" and "Accounts payable and accrued liabilities" on the condensed consolidated balance sheet as of of January 3, 2025, reducing both balances by $ 94 million from the previously

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

reported amounts.

The recast of the condensed consolidated statement of cash flows for the three months ended March 29, 2024, resulted in an increase of $ 50 million to net cash provided by operations.

Net cash provided by operations on the condensed consolidated statement of cash flows for the three months ended April 4, 2025, was not materially impacted by the change in accounting policy.

We believe this presentation enhances the usefulness of financial reporting and enhances comparability to align with industry practice.

There is no impact to our condensed consolidated statements of operations, including EPS, condensed consolidated statements of comprehensive income, or condensed consolidated statements of equity.

All periods presented have been adjusted.

RESTRICTED CASH

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Restricted cash balances are included as "Other current assets" in the condensed consolidated balance sheets.

Our restricted cash balances were $ 141 million and $ 151 million at September 27, 2024, and December 29, 2023, respectively.

Our restricted cash balances were $ 82 million and $ 141 million at April 4, 2025, and January 3, 2025, respectively.

Note 2–Revenues

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RPO does not include unexercised option periods and future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ") contracts, General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.

As of September 27, 2024, we had $ 16 billion of RPO and expect to recognize approximately 66 % and 82 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.

As of April 4, 2025, we had $ 17 billion of RPO and expect to recognize approximately 65 % and 81 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.

DISAGGREGATION OF REVENUES

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Disaggregated revenues by customer-type were as follows:

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems Total

(in millions)

Three Months Ended April 4, 2025

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Intelligence Community

5 unchanged sentences

Total $ 1,867 $ 1,286 $ 567 $ 508 $ 4,228

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Three Months Ended March 29, 2024

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Intelligence Community

8 unchanged sentences

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems Total

(in millions)

Intelligence Community $ 3,749 $ 755 $ 29 $ 1,341 $ 5,874

government agencies (1)

1,585 2,867 268 64 4,784

Commercial and non-U.S.

customers 87 48 1,348 86 1,569

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

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems Total

(in millions)

Intelligence Community $ 3,582 $ 797 $ 26 $ 1,219 $ 5,624

government agencies (1)

1,682 2,230 236 91 4,239

Commercial and non-U.S.

customers 99 45 1,319 63 1,526

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

(1) Includes federal government agencies other than the DoD and U.S.

Intelligence Community, as well as state and local government agencies.

Disaggregated revenues by contract-type were as follows:

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Three Months Ended April 4, 2025

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Cost-reimbursement and fixed-price-incentive-fee

4 unchanged sentences

Total $ 1,867 $ 1,286 $ 567 $ 508 $ 4,228

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Three Months Ended March 29, 2024

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Cost-reimbursement and fixed-price-incentive-fee

4 unchanged sentences

Total $ 1,779 $ 1,190 $ 508 $ 474 $ 3,951

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Cost-reimbursement and fixed-price-incentive-fee $ 2,874 $ 1,331 $ 269 $ 940 $ 5,414

Firm-fixed-price 1,497 2,176 1,049 437 5,159

Time-and-materials and fixed-price-level-of-effort 1,050 163 327 114 1,654

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

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Cost-reimbursement and fixed-price-incentive-fee $ 2,876 $ 1,542 $ 263 $ 840 $ 5,521

Firm-fixed-price 1,513 1,394 1,005 425 4,337

Time-and-materials and fixed-price-level-of-effort 974 136 313 108 1,531

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

Disaggregated revenues by geographic location were as follows:

Three Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

United States

$ 1,840 $ 1,222 $ 257 $ 511 $ 3,830

International

7 1 320 11 339

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

Three Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Three Months Ended April 4, 2025

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

United States

3 unchanged sentences

Total $ 1,867 $ 1,286 $ 567 $ 508 $ 4,228

Nine Months Ended September 27, 2024

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

Three Months Ended March 29, 2024

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

United States

3 unchanged sentences

Total $ 1,779 $ 1,190 $ 508 $ 474 $ 3,951

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 17 million and $ 24 million for the three months ended April 4, 2025, and March 29, 2024, respectively.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months Ended September 29, 2023

National Security & Digital

Health & Civil

Commercial & International

Defense Systems

(in millions)

United States

$ 5,336 $ 3,069 $ 630 $ 1,362 $ 10,397

International

27 3 951 11 992

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

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

CONTRACT ASSETS AND LIABILITIES

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

Balance sheet line item September 27,

2024 December 29,

(in millions)

(in millions) Balance sheet line item April 4,

2025 January 3,

Contract assets - current:

7 unchanged sentences

(1) Certain contracts record revenue net of cost of revenues, and therefore, the respective deferred revenue balance will not fully convert to revenue.

The increase in unbilled receivables was primarily due to revenue recognized on certain contracts, partially offset by the timing of billings.

The decrease in deferred revenue was primarily due to revenue recognized during the period, offset by the timing of advanced payments from customers.

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

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

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3–Goodwill and Intangible Assets

During the quarter ended March 29, 2024, the Company completed a business realignment, which resulted in identification of new reportable segments.

The Company commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024 (see "Note 10–Business Segments).

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

The increase in unbilled receivables was primarily due revenue recognized on certain contracts, partially offset the timing of billings on certain contracts.

The increase in deferred revenue was primarily due to the timing of advanced payments from customers, offset by revenue recognized during the period.

For the three months ended April 4, 2025, $ 137 million of revenue recognized was included as a contract liability at January 3, 2025.

For the three months ended March 29, 2024, $ 157 million of revenue recognized was included as a contract liability at December 29, 2023.

Note 3–Acquisitions, Goodwill and Intangible Assets

BUSINESS ACQUISITION

On March 10, 2025, we entered into a definitive agreement to acquire a full spectrum cyber company for a preliminary purchase price of $ 300 million, subject to working capital and other customary adjustments.

The transaction is expected to be completed in the second quarter of 2025, subject to the satisfaction or waiver of customary closing conditions.

The company develops offensive and defensive cyber platforms and other solutions for the U.S.

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

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

(in millions)

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Goodwill at December 29, 2023 (1)

$ 2,758 $ 1,366 $ 800 $ 1,188 $ 6,112

Goodwill impairment — — ( 596 ) — ( 596 )

Acquisitions of a business (1)

— — ( 4 ) — ( 4 )

Foreign currency translation adjustments — — ( 28 ) — ( 28 )

Goodwill at December 29, 2023 (2)

Goodwill at January 3, 2025 (1)

2,758 1,366 772 1,188 6,084

Foreign currency translation adjustments — — 14 — 14

Goodwill at September 27, 2024 (2)

Goodwill at April 4, 2025 (1)

$ 2,758 $ 1,366 $ 786 $ 1,188 $ 6,098

(1) Adjustment to goodwill resulting from a measurement period purchase accounting adjustment.

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

We evaluate qualitative factors that could cause us to consider whether the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners or litigation.

Operations of the Security Enterprise Solutions (“SES”) reporting unit rely heavily on the sales and servicing of security and detection products, which prior to fiscal 2024, have been negatively impacted due to delays in airline travel infrastructure projects as customer budgets recover from the pandemic.

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 higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

Accordingly, we recognized a non-cash goodwill impairment charge of $ 596 million at the SES reporting unit during the fiscal year ended December 29, 2023.

The impairment was recorded within the Commercial & International reportable segment in the condensed consolidated statements of operations.

In the event that there are significant unfavorable changes to the forecasted cash flows, forecasted revenue, terminal growth rates or the cost of capital used in the fair value estimates, we may be required to record an additional impairment of goodwill at a future date.

In conjunction with the change in reportable segments in fiscal 2024, the Company evaluated goodwill for impairment both before and after the segment change and determined that goodwill was not impaired.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the three months ended April 4, 2025, and March 29, 2024, there were no impairments to goodwill.

INTANGIBLE ASSETS

Intangible assets, net consisted of the following:

September 27, 2024 December 29, 2023

Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value

(in millions)

April 4, 2025 January 3, 2025

(in millions) Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value

Finite-lived intangible assets:

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Total intangible assets $ 2,006 $ ( 1,517 ) $ 489 $ 2,003 $ ( 1,486 ) $ 517

Our strategic decisions regarding SES’ product offerings and operating regions (see the goodwill discussion above) caused certain technology and in-process research and development intangible assets to be abandoned and the carrying values of certain program intangible assets to become unrecoverable.

As a result, for the three and nine months ended September 29, 2023, we recognized intangible asset impairment charges of $ 79 million.

The impairment was recorded to “Asset impairment charges” in the condensed consolidated statements of operations within the Commercial & International reportable segment.

Amortization expense was $ 37 million and $ 110 million for the three and nine months ended September 27, 2024, respectively, and $ 50 million and $ 153 million for the three and nine months ended September 29, 2023, respectively.

Amortization expense was $ 30 million and $ 37 million for the three months ended April 4, 2025, and March 29, 2024, respectively.

Program intangible assets are amortized over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows.

Customer relationships and software and technology intangible assets are amortized either on a straight-line basis over their estimated useful lives or over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows, as deemed appropriate.

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

Fiscal year ending

(in millions)

The estimated annual amortization expense as of April 4, 2025, was as follows:

Fiscal year ending (in millions)

2025 (remainder of year) $ 90

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Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5 unchanged sentences

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

September 27, 2024 December 29, 2023

Carrying value Fair value Carrying value Fair value

(in millions)

April 4, 2025 January 3, 2025

(in millions) Carrying value Fair value Carrying value Fair value

Financial assets:

Derivatives $ 3 $ 3 $ 4 $ 4

As of September 27, 2024, and December 29, 2023, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million of the variable rate senior unsecured term loan (see "Note 5–Derivative Instruments").

The fair value of the cash flow interest rate swaps is determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate (Level 2 inputs).

As of April 4, 2025, and January 3, 2025, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million of the variable rate senior unsecured term loan (see "Note 5–Derivative Instruments").

The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values.

As of September 27, 2024, and December 29, 2023, the fair value of debt was $ 4.6 billion for both periods, and the carrying amount was $ 4.7 billion for both periods (see "Note 6–Debt").

As of April 4, 2025, and January 3, 2025, the carrying value of our notes receivable of $ 16 million approximates fair value as the stated interest rates within the agreements are consistent with the current market rates for similar instruments (Level 2 inputs).

Our notes receivable are included within “Other current assets” and "Other long-term assets" on the condensed consolidated balance sheets.

As of April 4, 2025, and January 3, 2025, the fair value of debt was $ 5.1 billion and $ 4.5 billion, respectively, and the carrying amount was $ 5.1 billion and $ 4.7 billion, respectively (see "Note 6–Debt").

The fair value of long-term debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements and our credit rating (Level 2 inputs).

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

The fair values of the assets and liabilities of the SES reporting unit were determined using a blended approach, including discounted cash flow models and market earnings multiples.

The market approach estimates fair value based on profitability and valuation metrics for peer companies and applies a multiple to the reporting unit's operating performance.

The income approach estimates fair value by discounting the reporting unit's estimated future cash flows using a weighted-average cost of capital reflecting current market conditions as well as the risk profile of the reporting unit.

Future cash flows are based on estimates of economic and market assumptions made using the best judgment of management, including growth rates in revenue and margins, and future changes in tax rates and cash expenditures.

Other significant assumptions and estimates include estimates of future capital expenditures, terminal value growth rates, and changes in future working capital requirements.

The fair value of the SES reporting unit was determined using Level 3 inputs.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5–Derivative Instruments

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The fair value of the interest rate swaps was as follows:

Asset derivatives

Balance sheet line item September 27,

2024 December 29,

(in millions)

(in millions) Balance sheet line item April 4,

2025 January 3,

Cash flow interest rate swaps Other current assets

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

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

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CASH FLOW HEDGES

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The interest rate swap transactions are accounted for as cash flow hedges.

The gain/loss on the swaps is reported as a component of other comprehensive (loss) income and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings.

The gain/loss on the swaps is reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings.

A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.

The effect of the cash flow hedges on other comprehensive (loss) income and earnings for the periods presented was as follows:

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:

Three Months Ended

(in millions) April 4,

2025 March 29,

Total interest expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded

$ 46 $ 53 $ 146 $ 163

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

Amount recognized in other comprehensive income — 5

Amount reclassified from accumulated other comprehensive loss to interest expense, net ( 1 ) ( 3 )

We expect to reclassify net gains of $ 2 million from accumulated other comprehensive loss into earnings during the next 12 months.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Our debt consisted of the following:

Stated interest rate Effective interest rate September 27,

2024 December 29,

(in millions)

(in millions) Stated interest rate Effective interest rate April 4,

2025 January 3,

Senior unsecured term loan:

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2.30 % 2.38 % 1,000 1,000

$ 500 million notes, due March 2032

5.40 % 5.42 % 500 —

$ 250 million notes, due July 2032

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5.50 % 5.88 % 161 161

$ 500 million notes, due March 2035

5.50 % 5.55 % 500 —

$ 300 million notes, due December 2040

5.95 % 6.03 % 218 218

Finance leases due on various dates through fiscal 2032

Various 1.84 %- 6.31 %

Finance leases due on various dates through fiscal 2032 Various 1.84 %- 6.31 %

unamortized debt discounts and deferred debt issuance costs ( 40 ) ( 32 )

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Total long-term debt, net of current portion $ 5,014 $ 4,052

$ 4,081 $ 4,664

Term Loans and Revolving Credit Facility

On March 10, 2023 (the “Closing Date”), we entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of $ 1.0 billion (the “Term Loan Facility”) and a $ 1.0 billion senior unsecured revolving facility (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”).

The Credit Facilities will mature in March 2028.

The Revolving Facility is subject to an annual commitment fee rate of 0.125 % on the unused credit availability and permits two additional one-year extensions subject to lender consent.

As of September 27, 2024, and December 29, 2023, there were no borrowings outstanding under the Revolving Facility.

The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all indebtedness, terminate all commitments and discharge all guarantees existing in connection with a predecessor $ 1.9 billion senior unsecured term loan facility and a $ 750 million senior unsecured revolving facility.

Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a Term SOFR rate with a 0.10 % per annum Term SOFR adjustment, plus, in each case, an applicable margin that varies depending on our credit rating.

The applicable margin range for Term SOFR-denominated borrowings is from 1.00 % to 1.50 %.

Based on our current ratings, the applicable margin for Term SOFR-denominated borrowings is 1.25 %.

Principal payments are made quarterly on the Term Loan Facility beginning in March 2025, with the majority of the principal due at maturity.

Interest on the Term Loan Facility for Term SOFR-denominated borrowings is payable on a periodic basis, which must be at least quarterly.

In fiscal 2023, we issued and sold $ 750 million aggregate principal amount of fixed-rate senior notes (the “Notes”) maturing in March 2033.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

REVOLVING CREDIT FACILITY

We have a $ 1.0 billion senior unsecured revolving facility (the “Revolving Facility”).

The Revolving Facility will mature in March 2028 and is subject to an annual commitment fee rate of 0.125 % on the unused credit availability and permits two additional one-year extensions subject to lender consent.

Principal payments are made quarterly, with the majority of the principal due at maturity.

As of April 4, 2025, and January 3, 2025, there were no borrowings outstanding under the Revolving Facility.

On February 20, 2025, we issued and sold $ 500 million senior notes maturing in March 2032 (the "2032 Notes") and $ 500 million senior notes maturing in March 2035 (the "2035 Notes", and together with the 2032 Notes, the "Notes").

The Notes are senior unsecured obligations issued by Leidos, Inc.

and guaranteed by Leidos Holdings, Inc.

The annual interest rate for the Notes is 5.75 % and is payable on a semi-annual basis.

The annual interest rates for the 2032 Notes and the 2035 Notes are 5.40 % and 5.50 %, respectively, and the interest is payable on a semi-annual basis.

In connection with the issuance of the Notes, $ 10 million of debt issuance costs and discount were recognized, which were recorded as an offset against the carrying value of debt.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The proceeds from the Notes were used to retire the $ 500 million senior unsecured notes due May 2025 and repurchase $ 500 million outstanding shares of common stock in connection with the Accelerated Share Repurchase ("ASR") agreement (see "Note 8–Earnings Per Share").

COMMERCIAL PAPER

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The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount.

As of September 27, 2024, and December 29, 2023, we did not have any Commercial Paper Notes outstanding.

The Credit Facilities, Commercial Paper Notes and senior unsecured notes are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.

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

As of April 4, 2025, and January 3, 2025, we did not have any Commercial Paper Notes outstanding.

The senior unsecured term loan, senior unsecured notes and Revolving Facility are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

The financial covenants in the Revolving Facility and the senior unsecured term loan require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.

We were in compliance with all financial covenants as of April 4, 2025.

PRINCIPAL PAYMENTS

Future minimum payments of debt are as follows:

Fiscal Year Ending (in millions)

2025 (remainder of year) $ 90

2030 and thereafter 4,139

Total principal payments 5,173

unamortized debt discount and issuance costs ( 40 )

Total long-term debt $ 5,133

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7–Accumulated Other Comprehensive Income (Loss)

Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows:

Foreign currency translation adjustments Unrecognized gain (loss) on derivative instruments Pension adjustments Total AOCI

(in millions)

(in millions) Foreign currency translation adjustments Unrecognized gain (loss) on derivative instruments Pension adjustments Total AOCI

Balance at December 29, 2023 $ ( 39 ) $ 5 $ ( 14 ) $ ( 48 )

Other comprehensive income (loss) ( 64 ) 5 2 ( 57 )

( 2 ) 1 — ( 1 )

Taxes 5 2 ( 1 ) 6

Reclassification from AOCI — ( 11 ) — ( 11 )

— ( 15 ) — ( 15 )

Balance at December 29, 2023 ( 39 ) 5 ( 14 ) ( 48 )

Other comprehensive income (loss) 23 3 — 26

Balance at January 3, 2025 ( 98 ) 1 ( 13 ) ( 110 )

Other comprehensive income 30 — — 30

Taxes ( 2 ) — — ( 2 )

Reclassification from AOCI — ( 1 ) — ( 1 )

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

Balance at April 4, 2025 $ ( 70 ) $ — $ ( 13 ) $ ( 83 )

Reclassifications from unrecognized gain (loss) on derivative instruments are recorded in "Interest expense, net" in the condensed consolidated statements of operations.

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The following table provides a reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the periods presented:

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

Three Months Ended

(in millions) April 4,

2025 March 29,

Basic weighted average number of shares outstanding 130 136

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Diluted weighted average number of shares outstanding 131 137

(1) Dilutive common share equivalents for the three and nine months ended September 29, 2023, did not include the impact of 1 million potentially dilutive equity awards because the result would have been anti-dilutive due to the net losses.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS.

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

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

There were no share repurchases for the three months ended September 29, 2023.

The total outstanding stock options and vesting stock awards that were anti-dilutive were less than 0.5 million for the three months ended April 4, 2025, and 1 million for the three months ended March 29, 2024.

On February 20, 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock.

We paid $ 500 million to the financial institution and received an initial delivery of 3 million shares at an average price of $ 131.50 per share.

The purchase was recorded to "Additional paid-in capital" in the condensed consolidated balance sheets.

All shares delivered were immediately retired.

The final number of shares to be repurchased will be based on the company's volume-weighted average share price during the term of the agreement, less a discount.

The ASR is expected to be completed in the second quarter of 2025.

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

All shares repurchased were immediately retired.

There were no open market share repurchases during the three months ended April 4, 2025.

Note 9–Income Taxes

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

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

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

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

Note 10–Business Segments

Our operations and reportable segments are organized around the customers and markets we serve.

We define our reportable segments based on the way the CODM, currently our Chief Executive Officer, manages operations for the purposes of allocating resources and assessing performance.

Effective the first day of fiscal 2024, we realigned our business to report into six operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280:

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

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

Additionally, we separately present the unallocable costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure.

National Security & Digital provides technology enabled services and mission software capabilities for defense and intelligence customers in the areas of cyber, logistics, security operations and decision analytics, as well as IT operations and digital transformation programs across all U.S.

federal government customers.

Our advanced capabilities include the delivery of technology-enabled services, mission software capabilities and IT modernization services.

Our capabilities allow us to provide innovative technology solutions in the following categories:

software development, engineering & design, modeling & simulation, analytics, cyber security, intelligence analysis, linguistics and mission operations.

Health & Civil provides services and solutions to federal and commercial customers in the areas of public health, care coordination, life and environmental sciences and transportation.

We are dedicated to delivering effective and affordable solutions that are responsible for the health and well-being of people, including service members and veterans.

Our core capabilities include health information management services, managed health services, systems and infrastructure modernization, and life sciences research and development.

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

For the three months ended April 4, 2025, the effective tax rate was 23.6 % compared to 23.1 % for the three months ended March 29, 2024.

The increase to the effective tax rate was primarily due to a decrease in excess tax benefits related to employee stock-based payment transactions.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our key customers include United Kingdom and Australia government agencies, Transportation Security Administration, U.S.

Customs and Border Protection, airports, and commercial utility providers.

Our offerings include IT modernization, software solutions, mission support and logistics, Command, Control, Computers, Communications, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, cloud services, power grid engineering, energy modernization and security products and services.

Defense Systems develops and produces advanced space, aerial, surface, and sub-surface manned and un-manned defense systems for the U.S.

Department of Defense, Army, Navy, Air Force, Marine Corps, United States Special Operations Command, NASA, Space Force, the Defense Intelligence Agency and International customers.

Our solutions deliver innovative technology, systems engineering, integration and testing, rapid prototyping, software development, intelligence analysis, cybersecurity solutions and C4ISR technologies and services to support critical missions.

Corporate includes the operations of various corporate activities, certain corporate expense items that are not reimbursed by our U.S.

government customers and certain other expense items excluded from a reportable segment's performance.

The segment information for the periods presented was as follows:

Three Months Ended Nine Months Ended

September 27,

2024 September 29,

2023 September 27,

2024 September 29,

(in millions)

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

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

Commercial & International 578 552 1,648 1,588

Defense Systems 522 462 1,491 1,373

Total revenues $ 4,190 $ 3,921 $ 12,297 $ 11,458

Operating income (loss):

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

Health & Civil 287 165 816 412

Commercial & International 41 ( 646 ) 64 ( 599 )

Defense Systems 37 3 92 47

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

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

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

As a result, "Interest expense, net," "Other income (expense), net" and "Income tax expense" as reported in the condensed consolidated statements of operations are not allocated to our segments.

Note 10–Business Segments

Our operations and reportable segments are organized around the customers and markets we serve.

We define our reportable segments based on the way the chief operating decision maker ("CODM"), currently our Chief Executive Officer, manages operations for the purposes of allocating resources and assessing performance.

The CODM considers segment revenue and operating income to assist with the evaluation of strategic business decisions, including potential acquisitions or divestitures, whether to invest in certain products or services, share repurchases and the declaration of dividends.

The following table summarizes business segment information for the periods presented:

Three Months Ended April 4, 2025

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Revenues $ 1,878 $ 1,291 $ 568 $ 508 $ 4,245

Direct labor 503 244 103 109 959

Amortization of intangible assets 5 6 7 12 30

Other segment expense 1,185 742 421 353 2,701

Segment operating income $ 185 $ 299 $ 37 $ 34 $ 555

Corporate expense 25

Total operating income $ 530

Three Months Ended March 29, 2024

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

Revenues $ 1,793 $ 1,199 $ 509 $ 474 $ 3,975

479 236 100 101 916

Amortization of intangible assets 6 6 8 17 37

Other segment expense 1,133 735 367 335 2,570

Segment operating income $ 175 $ 222 $ 34 $ 21 $ 452

Corporate expense

Total operating income $ 415

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

As a result, "Interest expense, net," "Other (expense) income, net" and "Income tax expense" as reported in the condensed consolidated statements of operations are not allocated to our segments.

Other segment expenses include direct program costs such as material and subcontractor expenses, as well as allocable indirect costs such as depreciation and Corporate compensation expenses, but excludes direct labor which is separately presented above.

The Health & Civil and Defense Systems segments also include equity earnings of non-consolidated subsidiaries within operating income.

Government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base.

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Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7 unchanged sentences

Defense Contract Audit Agency

As of September 27, 2024, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2022 and subsequent fiscal years.

As of April 4, 2025, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2022 and subsequent fiscal years.

Although we have recorded contract revenues based upon an estimate of costs that we believe will be approved upon final audit or review, we cannot predict the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed estimates, our profitability may be adversely affected.

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

As of April 4, 2025, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

Other Government Investigations and Reviews

Through its internal processes, the Company discovered, in late 2021, activities by its employees, third party representatives and subcontractors, raising concerns related to a portion of our business that conducts international operations.

The Company is conducting an internal investigation, overseen by an independent committee of the Board of Directors, with the assistance of external legal counsel, to determine whether the identified conduct may have violated the Company’s Code of Conduct and potentially applicable laws, including the U.S.

Foreign Corrupt Practices Act ("FCPA").

The Company has voluntarily self-reported this investigation to the Department of Justice and the Securities and Exchange Commission and is cooperating with both agencies.

Because the investigation is ongoing, the Company cannot anticipate the timing, outcome or possible impact of the investigation, although violations of the FCPA and other applicable laws may result in criminal and civil sanctions, including monetary penalties, and reputational damage.

In September 2022, the Company received a Federal Grand Jury Subpoena related to the criminal investigation by the U.S.

Attorney’s Office for the Southern District of California, in conjunction with the U.S.

Department of Justice’s Fraud Division.

The subpoena requests documents relating to the conduct that is the subject of the Company’s internal investigation.

The Company has responded to the subpoena.

In February 2023, a former employee of the Company who was terminated at the outset of the investigation was indicted on wire fraud and other charges by a Federal Grand Jury in the U.S.

District Court in the Southern District of California.

These charges were later dismissed as a result of the death of the former employee.

As previously disclosed, the Company voluntarily self-reported to the Department of Justice and the Securities and Exchange Commission an investigation related to activities by its employees, third party representatives and subcontractors, raising concerns related to a portion of our business that conducts international operations, and has cooperated with both agencies.

In December 2024, the Company received notification from the U.S.

Department of Justice that it had closed its inquiry.

While the Company has engaged with the SEC, the Company cannot anticipate the timing, outcome or possible impact of an SEC investigation, although violations of applicable laws may result in civil sanctions, including monetary penalties, and reputational damage.

In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S.

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It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines, penalties, or further liabilities in connection with the investigation pursuant to which the subpoena was issued.

As of April 4, 2025, we have outstanding letters of credit of $ 57 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 149 million, principally related to performance and subcontractor payment bonds on contracts.

The value of the surety bonds may vary due to changes in the underlying project status and/or contractual modifications.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of September 27, 2024, we have outstanding letters of credit of $ 67 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 103 million, principally related to performance and subcontractor payment bonds on contracts.

The value of the surety bonds may vary due to changes in the underlying project status and/or contractual modifications.

As of September 27, 2024, the future expirations of the outstanding letters of credit and surety bonds were as follows:

Fiscal year ending

(in millions)

As of April 4, 2025, the future expirations of the outstanding letters of credit and surety bonds were as follows:

Fiscal year ending (in millions)

2025 (remainder of year) $ 125

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Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

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

What changed 10-Q

Item 1. Financial Statements