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Item 1. Financial Statements

2025-08-05 compared with 2025-05-06 · 230 added, 120 removed, 481 unchanged (42% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

2025 January 3,

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Stockholders’ equity:

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

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 128,295,977 and 131,163,899 shares issued and outstanding at July 4, 2025, and January 3, 2025, respectively

Additional paid-in capital 650 1,112

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

in millions, except per share data) April 4,

2025 March 29,

Three Months Ended Six Months Ended

in millions, except per share data) July 4,

2025 June 28,

Revenues $ 4,253 $ 4,132 $ 8,498 $ 8,107

6 unchanged sentences

Interest expense, net ( 55 ) ( 51 ) ( 104 ) ( 100 )

Other (expense) income, net

Other income (expense), net

Income before income taxes 518 426 996 794

1 unchanged sentence

Net income 393 324 758 607

net income (loss) attributable to

net income attributable to

non-controlling interest

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

in millions) April 4,

2025 March 29,

Three Months Ended Six Months Ended

in millions) July 4,

2025 June 28,

Net income $ 393 $ 324 $ 758 $ 607

Foreign currency translation adjustments

36 8 64 ( 19 )

Unrecognized (loss) gain on derivative instruments

( 1 ) ( 1 ) ( 2 ) 1

Pension adjustments ( 1 ) — ( 1 ) 1

1 unchanged sentence

Comprehensive income 427 331 819 590

net income (loss) attributable to non-controlling interest

net income attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders

$ 425 $ 329 $ 815 $ 589

See accompanying notes to condensed consolidated financial statements.

18 unchanged sentences

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

Net income — — 391 — 391 2 393

Other comprehensive income, net of taxes — — — 34 34 — 34

Issuances of stock — 16 — — 16 — 16

Repurchases of stock and other ( 1 ) ( 10 ) — — ( 10 ) — ( 10 )

Dividends of $ 0.40 per share

— — ( 51 ) — ( 51 ) — ( 51 )

Stock-based compensation — 25 — — 25 — 25

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

Balance at July 4, 2025 128 $ 650 $ 4,061 $ ( 49 ) $ 4,662 $ 45 $ 4,707

See accompanying notes to condensed consolidated financial statements.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

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

13 unchanged sentences

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

Net income — — 322 — 322 2 324

Other comprehensive income, net of taxes — — — 7 7 — 7

Issuances of stock 1 14 — — 14 — 14

Repurchases of stock and other ( 1 ) ( 115 ) — — ( 115 ) ( 115 )

Dividends of $ 0.38 per share

— — ( 51 ) — ( 51 ) — ( 51 )

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

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

in millions) April 4,

2025 March 29,

Six Months Ended

in millions) July 4,

2025 June 28,

Cash flows from operations:

4 unchanged sentences

Deferred income taxes 200 ( 67 )

Other ( 1 ) ( 6 )

Change in assets and liabilities

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

Receivables ( 236 ) ( 185 )

5 unchanged sentences

Cash flows from investing activities:

Acquisition of a business, net of cash acquired ( 285 ) —

Payments for property, equipment and software ( 51 ) ( 40 )

Net proceeds from sale of assets — 2

Net cash used in investing activities ( 336 ) ( 33 )

7 unchanged sentences

Net capital distributions to non-controlling interests ( 7 ) ( 3 )

Other ( 6 ) —

Net cash used in financing activities ( 193 ) ( 387 )

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 14 ( 4 )

Net decrease in cash, cash equivalents and restricted cash

( 67 ) ( 131 )

Net increase in cash, cash equivalents and restricted cash

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]

Three Months Ended

in millions) April 4,

2025 March 29,

Six Months Ended

in millions) July 4,

2025 June 28,

Supplementary cash flow information:

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and its consolidated subsidiaries.

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

We also have a controlling interest in Hanford Mission Integration Solutions, LLC ("HMIS"), the legal entity for the follow-on contract to MSA's contract and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc.

The financial results for MSA and HMIS are consolidated into our unaudited condensed consolidated financial statements.

We have a controlling interest in Hanford Mission Integration Solutions, LLC ("HMIS"), the legal entity for the follow-on contract to Mission Support Alliance, LLC's ("MSA") contract and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc.

During the quarter ended July 4, 2025, we dissolved our controlling interest in MSA.

The financial results for HMIS are consolidated into our unaudited condensed consolidated financial statements.

The unaudited condensed consolidated financial statements also include the balances of all voting interest entities in which Leidos has a controlling voting interest ("subsidiaries") and a variable interest entity ("VIE") in which Leidos is the primary beneficiary.

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Changes in estimates on contracts were as follows:

Three Months Ended

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

2025 March 29,

Three Months Ended Six Months Ended

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

2025 June 28,

Favorable impact $ 42 $ 42 $ 95 $ 67

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Impact on diluted EPS attributable to Leidos common stockholders

$ 0.05 $ ( 0.07 ) $ 0.22 $ ( 0.06 )

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

Revenue Recognized from Prior Obligations

We 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.

We recognized revenue of $ 3 million and $ 24 million for the three and six months ended July 4, 2025, respectively, and reduced revenue by $ 16 million and $ 21 million from performance obligations satisfied in previous periods for the three and six months ended June 28, 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.

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.

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.

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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.

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.

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 January 3, 2025, reducing both balances by $ 94 million from the previously reported amounts.

The recast of the condensed consolidated statement of cash flows for the six months ended June 28, 2024, resulted in an increase of $ 57 million to net cash provided by operations.

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

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

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

Our restricted cash balances were $ 90 million and $ 141 million at July 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 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.

As of July 4, 2025, we had $ 16 billion of RPO and expect to recognize approximately 61 % and 80 % 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 April 4, 2025

Three Months Ended July 4, 2025

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

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Total $ 1,857 $ 1,267 $ 566 $ 543 $ 4,233

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended July 4, 2025

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

Intelligence Community $ 2,650 $ 522 $ 12 $ 940 $ 4,124

government agencies (1)

1,023 1,994 196 47 3,260

Commercial and non-U.S.

customers 51 37 925 64 1,077

Total $ 3,724 $ 2,553 $ 1,133 $ 1,051 $ 8,461

Six Months Ended June 28, 2024

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

Intelligence Community $ 2,468 $ 512 $ 14 $ 866 $ 3,860

government agencies (1)

1,045 1,903 154 46 3,148

Commercial and non-U.S.

customers 61 32 900 57 1,050

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

(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 April 4, 2025

Three Months Ended July 4, 2025

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

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Total $ 1,857 $ 1,267 $ 566 $ 543 $ 4,233

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

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

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Total $ 1,795 $ 1,257 $ 560 $ 495 $ 4,107

Six Months Ended July 4, 2025

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

Cost-reimbursement and fixed-price-incentive-fee $ 2,020 $ 901 $ 185 $ 633 $ 3,739

Firm-fixed-price 1,011 1,546 704 335 3,596

Time-and-materials and fixed-price-level-of-effort 693 106 244 83 1,126

Total $ 3,724 $ 2,553 $ 1,133 $ 1,051 $ 8,461

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended June 28, 2024

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

Cost-reimbursement and fixed-price-incentive-fee $ 1,894 $ 898 $ 175 $ 614 $ 3,581

Firm-fixed-price 986 1,439 671 282 3,378

Time-and-materials and fixed-price-level-of-effort 694 110 222 73 1,099

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

Disaggregated revenues by geographic location were as follows:

Three Months Ended April 4, 2025

Three Months Ended July 4, 2025

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

4 unchanged sentences

Total $ 1,857 $ 1,267 $ 566 $ 543 $ 4,233

Three Months Ended March 29, 2024

Three Months Ended June 28, 2024

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

4 unchanged sentences

Total $ 1,795 $ 1,257 $ 560 $ 495 $ 4,107

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.

Six Months Ended July 4, 2025

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

United States

$ 3,708 $ 2,550 $ 485 $ 1,031 $ 7,774

International

16 3 648 20 687

Total $ 3,724 $ 2,553 $ 1,133 $ 1,051 $ 8,461

Six Months Ended June 28, 2024

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

United States

$ 3,558 $ 2,444 $ 435 $ 947 $ 7,384

International

16 3 633 22 674

Total $ 3,574 $ 2,447 $ 1,068 $ 969 $ 8,058

Revenues by customer-type, contract-type and geographic location exclude lease income of $ 20 million and $ 37 million for the three and six months ended July 4, 2025, respectively, and $ 25 million and $ 49 million for the three and six months ended June 28, 2024, respectively.

Leidos Holdings, Inc.

9 unchanged sentences

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

(in millions) Balance sheet line item April 4,

(in millions) Balance sheet line item July 4,

2025 January 3,

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(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 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.

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

For the three and six months ended July 4, 2025, $ 62 million and $ 199 million, respectively, of revenue recognized was included as a contract liability at January 3, 2025.

For the three and six months ended June 28, 2024, $ 54 million and $ 211 million, respectively, of revenue recognized was included as a contract liability at December 29, 2023.

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.

KUDU DYNAMICS ACQUISITION

On May 23, 2025 (the "Purchase Date"), we completed the acquisition of Savanna Industries, Inc.

("Kudu Dynamics") for preliminary purchase consideration of approximately $ 291 million, net of $ 29 million of cash acquired.

The Kudu Dynamics business provides artificial intelligence enabled cyber capabilities for defense, intelligence and homeland security customers.

The preliminary goodwill recognized of $ 244 million represents intellectual capital and the acquired assembled workforce, neither of which qualify for recognition as a separate intangible asset.

All of the goodwill recognized is tax deductible.

The following table summarizes the preliminary fair value of intangible assets acquired at the Purchase Date and the related weighted average amortization period:

Weighted Amortization Period Fair Value

(in millions)

Programs 7 $ 44

For the three and six months ended July 4, 2025, $ 12 million of revenues related to Kudu Dynamics were recognized within the National Security & Digital reportable segment.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Acquisition of a business 244 — — — 244

Foreign currency translation adjustments — — 31 — 31

Goodwill at April 4, 2025 (1)

Goodwill at July 4, 2025 (1)

$ 3,002 $ 1,366 $ 803 $ 1,188 $ 6,359

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

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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

During the three and six months ended July 4, 2025, and June 28, 2024, there were no impairments to goodwill.

INTANGIBLE ASSETS

Intangible assets, net consisted of the following:

April 4, 2025 January 3, 2025

July 4, 2025 January 3, 2025

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

3 unchanged sentences

264 ( 177 ) 87 261 ( 165 ) 96

13 ( 2 ) 11 — — —

Customer relationships

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Total intangible assets $ 2,067 $ ( 1,552 ) $ 515 $ 2,003 $ ( 1,486 ) $ 517

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

Amortization expense was $ 32 million and $ 62 million for the three and six months ended July 4, 2025, respectively, and $ 36 million and $ 73 million for the three and six months ended June 28, 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.

Backlog intangible assets are amortized on a straight-line basis over their estimated useful lives.

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 April 4, 2025, was as follows:

Fiscal year ending (in millions)

2025 (remainder of year) $ 90

2030 and thereafter 110

Leidos Holdings, Inc.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Fiscal year ending (in millions)

2025 (remainder of year) $ 70

2030 and thereafter 125

Note 4–Fair Value Measurements

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

April 4, 2025 January 3, 2025

July 4, 2025 January 3, 2025

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

1 unchanged sentence

Derivatives $ 1 $ 1 $ 4 $ 4

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 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 as of April 4, 2025, and January 3, 2025 (Level 2 inputs).

As of July 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 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 as of July 4, 2025, and January 3, 2025 (Level 2 inputs).

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

As of 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).

As of July 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 materially 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").

As of July 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).

On May 23, 2025, non-financial instruments measured at fair value on a non-recurring basis were recorded in connection with the acquisition of Kudu Dynamics.

The fair values of the assets acquired and liabilities assumed were determined using Level 3 inputs.

Leidos Holdings, Inc.

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:

(in millions) Balance sheet line item April 4,

(in millions) Balance sheet line item July 4,

2025 January 3,

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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 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,

Three Months Ended Six Months Ended

(in millions) July 4,

2025 June 28,

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

$ 55 $ 51 $ 104 $ 100

Amount recognized in other comprehensive income 1 2 1 7

Amount reclassified from accumulated other comprehensive loss to interest expense, net ( 2 ) ( 3 ) ( 3 ) ( 6 )

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

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Our debt consisted of the following:

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

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

2025 January 3,

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Total long-term debt, net of current portion $ 4,985 $ 4,052

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

REVOLVING CREDIT FACILITY

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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.

As of July 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").

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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 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

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

Leidos Holdings, Inc.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note 7–Accumulated Other Comprehensive Income (Loss)

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

Other comprehensive income 30 — — 30

Other comprehensive income (loss) 69 1 ( 1 ) 69

Taxes ( 5 ) — — ( 5 )

Reclassification from AOCI — ( 3 ) — ( 3 )

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

Balance at July 4, 2025 $ ( 34 ) $ ( 1 ) $ ( 14 ) $ ( 49 )

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

(in millions) April 4,

2025 March 29,

Three Months Ended Six Months Ended

(in millions) July 4,

2025 June 28,

Basic weighted average number of shares outstanding 129 135 129 135

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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 the three months ended April 4, 2025, and 1 million for the three months ended March 29, 2024.

The total outstanding stock options and vesting stock awards that were anti-dilutive were less than 0.5 million for both the three and six months ended July 4, 2025, and not material for both the three and six months ended June 28, 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.

During the three months ended April 4, 2025, 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.

In May 2025, we received the final delivery of 0.6 million shares related to the ASR agreement.

The total number of shares that we received under the ASR agreement was based on the volume-weighted-average-price of $ 138.44 per share, net of a discount, for the period February 20, 2025, to May 20, 2025.

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

During the three and six months ended June 28, 2024, we made open market repurchases of our common stock for an aggregate purchase price of $ 100 million and $ 250 million, respectively.

All shares repurchased were immediately retired.

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

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

Note 9–Income Taxes

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)

On July 4, 2025, tax legislation was enacted in H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”) implementing several corporate tax law changes, including but not limited to, (1) restoring the ability to immediately expense U.S.

research and development costs;

(2) allowing certain taxpayers an election to deduct the unamortized balance of U.S.

research and development costs capitalized in prior years;

and (3) reinstating one hundred percent bonus depreciation for eligible property.

The enactment of the OBBBA resulted in a decrease of $ 150 million to income taxes payable and a decrease of $ 130 million to deferred tax assets as of July 4, 2025.

Based upon our interpretation of the law as currently enacted, we estimate that the fiscal 2025 impact will result in a decrease of approximately $ 280 million to income taxes payable and a decrease of $ 245 million to net deferred taxes.

For the three months ended July 4, 2025, the effective tax rate was 24.1 % compared to 23.9 % for the three months ended June 28, 2024.

The increase to the effective tax rate was primarily due to impacts from the OBBBA, partially offset by a decrease in unrecognized tax benefits.

For the six months ended July 4, 2025, the effective tax rate was 23.9 % compared to 23.6 % for the six months ended June 28, 2024.

The increase to the effective tax rate was primarily due to impacts from the OBBBA and a decrease in excess tax benefits related to employee stock-based payment transactions, partially offset by a decrease in unrecognized tax benefits.

Note 10–Business Segments

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

Three Months Ended April 4, 2025

Three Months Ended July 4, 2025

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

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Total operating income $ 571

Three Months Ended March 29, 2024

Leidos Holdings, Inc.

LEIDOS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended June 28, 2024

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

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Other segment expense 1,133 707 461 340 2,641

Segment operating income (loss)

$ 183 $ 307 $ ( 11 ) $ 34 $ 513

Corporate expense

Total operating income $ 475

Six Months Ended July 4, 2025

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

Revenues $ 3,750 $ 2,563 $ 1,134 $ 1,051 $ 8,498

Direct labor 993 479 208 217 1,897

Amortization of intangible assets 12 12 14 24 62

Other segment expense 2,372 1,462 835 735 5,404

Segment operating income $ 373 $ 610 $ 77 $ 75 $ 1,135

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Total operating income $ 1,101

Six Months Ended June 28, 2024

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

Revenues $ 3,606 $ 2,462 $ 1,070 $ 969 $ 8,107

971 479 203 204 1,857

Amortization of intangible assets 11 13 15 34 73

Other segment expense 2,266 1,441 829 676 5,212

Segment operating income $ 358 $ 529 $ 23 $ 55 $ 965

Corporate expense

Total operating income $ 890

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.

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.

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.

As such, depreciation expense is not separately disclosed on the condensed consolidated statements of operations.

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

Leidos Holdings, Inc.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As such, depreciation expense is not separately disclosed on the condensed consolidated statements of operations.

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

Note 11–Commitments and Contingencies

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Defense Contract Audit Agency

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

As of July 4, 2025, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2023 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 April 4, 2025, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.

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

Other Government Investigations and Reviews

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

As of 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.

As of July 4, 2025, we have outstanding letters of credit of $ 59 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $ 151 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Fiscal year ending (in millions)

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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-Q

Item 1. Financial Statements