Leidos Holdings, Inc. 10-Q

Item 1. Financial Statements LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except share and per share data) October 3, 2025 January 3, 2025 Assets: Cash and cash equivalents $ 974 $ 849 Receivables, net 2,970 2,645 Inventory, net 360 315 Other current assets 545 525 Total current assets 4,849 4,334 Property, plant and equipment, net 963 991 Intangible assets, net 496 517 Goodwill 6,342 6,084 Operating lease right-of-use assets, net 512 560 Deferred tax assets 32 203 Other long-term assets 348 321 Total assets $ 13,542 $ 13,010 Liabilities: Accounts payable and accrued liabilities $ 2,158 $ 2,131 Accrued payroll and employee benefits 809 811 Current portion of long-term debt 19 618 Total current liabilities 2,986 3,560 Long-term debt, net of current portion 4,632 4,052 Operating lease liabilities 578 621 Deferred tax liabilities 122 2 Other long-term liabilities 270 315 Total liabilities 8,588 8,550 Commitments and contingencies (Note 11) Stockholders’ equity: Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 127,854,145 and 131,163,899 shares issued and outstanding at October 3, 2025, and January 3, 2025, respectively — — Additional paid-in capital 588 1,112 Retained earnings 4,375 3,410 Accumulated other comprehensive loss ( 54 ) ( 110 ) Total Leidos stockholders’ equity 4,909 4,412 Non-controlling interest 45 48 Total stockholders' equity 4,954 4,460 Total liabilities and stockholders' equity $ 13,542 $ 13,010 See accompanying notes to condensed consolidated financial statements. Leidos Holdings, Inc. 1 Table of Contents PART I—FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended (unaudited; in millions, except per share data) October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024 Revenues $ 4,469 $ 4,190 $ 12,967 $ 12,297 Cost of revenues 3,648 3,428 10,607 10,192 Selling, general and administrative expenses 286 247 733 704 Acquisition, integration and restructuring costs 4 3 10 14 Asset impairment charges 4 6 4 6 Equity earnings of non-consolidated subsidiaries ( 8 ) ( 10 ) ( 23 ) ( 25 ) Operating income 535 516 1,636 1,406 Non-operating income (expense): Interest expense, net ( 51 ) ( 46 ) ( 155 ) ( 146 ) Other (expense) income, net — — ( 1 ) 4 Income before income taxes 484 470 1,480 1,264 Income tax expense ( 115 ) ( 108 ) ( 353 ) ( 295 ) Net income 369 362 1,127 969 Less: net income (loss) attributable to non-controlling interest 2 ( 2 ) 6 ( 1 ) Net income attributable to Leidos common stockholders $ 367 $ 364 $ 1,121 $ 970 Earnings per share: Basic $ 2.87 $ 2.72 $ 8.69 $ 7.19 Diluted 2.82 2.68 8.62 7.13 See accompanying notes to condensed consolidated financial statements. 2 Leidos Holdings, Inc. Table of Contents PART I—FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Nine Months Ended (unaudited; in millions) October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024 Net income $ 369 $ 362 $ 1,127 $ 969 Foreign currency translation adjustments ( 4 ) 37 60 18 Unrecognized loss on derivative instruments ( 2 ) ( 5 ) ( 4 ) ( 4 ) Pension adjustments 1 ( 1 ) — — Total other comprehensive (loss) income, net of taxes ( 5 ) 31 56 14 Comprehensive income 364 393 1,183 983 Less: net income (loss) attributable to non-controlling interest 2 ( 2 ) 6 ( 1 ) Comprehensive income attributable to Leidos common stockholders $ 362 $ 395 $ 1,177 $ 984 See accompanying notes to condensed consolidated financial statements. Leidos Holdings, Inc. 3 Table of Contents PART I—FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited; in millions, except per share data) Shares of common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Leidos stockholders' equity Non-controlling interest Total stockholders' equity Balance at January 3, 2025 131 $ 1,112 $ 3,410 $ ( 110 ) $ 4,412 $ 48 $ 4,460 Net income — — 363 — 363 2 365 Other comprehensive income, net of taxes — — — 27 27 — 27 Issuances of stock 1 17 — — 17 — 17 Repurchases of stock and other ( 3 ) ( 531 ) — — ( 531 ) — ( 531 ) Dividends of $ 0.40 per share — — ( 52 ) — ( 52 ) — ( 52 ) Stock-based compensation — 21 — — 21 — 21 Net capital distributions to non-controlling interest — — — — — ( 5 ) ( 5 ) 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 Net income — — 367 — 367 2 369 Other comprehensive income, net of taxes — — — ( 5 ) ( 5 ) — ( 5 ) Issuances of stock — 15 — — 15 — 15 Repurchases of stock and other — ( 103 ) — — ( 103 ) — ( 103 ) Dividends of $ 0.40 per share — — ( 53 ) — ( 53 ) — ( 53 ) Stock-based compensation — 26 — — 26 — 26 Net capital distributions to non-controlling interest — — — — — ( 2 ) ( 2 ) Balance at October 3, 2025 128 $ 588 $ 4,375 $ ( 54 ) $ 4,909 $ 45 $ 4,954 See accompanying notes to condensed consolidated financial statements. 4 Leidos Holdings, Inc. Table of Contents PART I—FINANCIAL INFORMATION (unaudited; in millions, except per share data) Shares of common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Leidos stockholders' equity Non-controlling interest Total stockholders' equity 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 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 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 $ 0.38 per share — — ( 51 ) — ( 51 ) — ( 51 ) Stock-based compensation — 19 — — 19 — 19 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. 5 Table of Contents PART I—FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended (unaudited; in millions) October 3, 2025 September 27, 2024 Cash flows from operations: Net income $ 1,127 $ 969 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 215 211 Stock-based compensation 72 59 Deferred income taxes 288 ( 96 ) Asset impairment charges 4 6 Other 3 5 Change in assets and liabilities, net of effects of acquisition: Receivables ( 297 ) ( 260 ) Other current assets and other long-term assets 26 102 Accounts payable and accrued liabilities and other long-term liabilities ( 108 ) ( 101 ) Accrued payroll and employee benefits ( 10 ) 208 Income taxes receivable/payable ( 65 ) 38 Net cash provided by operating activities 1,255 1,141 Cash flows from investing activities: Acquisition of a business, net of cash acquired ( 292 ) — Payments for property, equipment and software ( 82 ) ( 63 ) Other 2 7 Net cash used in investing activities ( 372 ) ( 56 ) Cash flows from financing activities: Proceeds from debt issuance 997 — Repayments of borrowings ( 1,014 ) ( 14 ) Payments for debt issuance costs ( 7 ) — Dividend payments ( 156 ) ( 155 ) Repurchases of stock and other ( 639 ) ( 500 ) Proceeds from issuances of stock 47 28 Net capital distributions to non-controlling interests ( 9 ) ( 3 ) Other ( 7 ) — Net cash used in financing activities ( 788 ) ( 644 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 11 5 Net increase in cash, cash equivalents and restricted cash 106 446 Cash, cash equivalents and restricted cash at beginning of period 991 792 Cash, cash equivalents and restricted cash at end of period 1,097 1,238 Less: restricted cash at end of period 123 141 Cash and cash equivalents at end of period $ 974 $ 1,097 See accompanying notes to condensed consolidated financial statements. 6 Leidos Holdings, Inc. Table of Contents PART I—FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED] Nine Months Ended (unaudited; in millions) October 3, 2025 September 27, 2024 Supplementary cash flow information: Cash paid for income taxes, net of refunds $ 179 $ 276 Cash paid for interest 177 167 Non-cash investing activity: Property, plant and equipment additions $ 4 $ 72 See accompanying notes to condensed consolidated financial statements. Leidos Holdings, Inc. 7 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1–Basis of Presentation and Summary of Significant Accounting Policies NATURE OF OPERATIONS AND BASIS OF PRESENTATION Leidos Holdings, Inc. ("Leidos"), a Delaware corporation, is a holding company whose direct 100 %-owned subsidiary and principal operating company is Leidos, Inc. 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 and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses. Unless indicated otherwise, references to "we," "us" and "our" refer collectively to Leidos Holdings, Inc. and its consolidated subsidiaries. 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. The consolidated balances of the VIE are not material to the unaudited condensed consolidated financial statements for the periods presented. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules of the U.S. Securities and Exchange Commission and accounting principles generally accepted in the United States of America ("GAAP"). Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis, including those relating to estimated profitability of long-term contracts, indirect billing rates, allowances for doubtful accounts, inventories, right-of-use assets and lease liabilities, fair value and impairment of intangible assets and goodwill, income taxes, stock-based compensation expense and contingencies. These estimates have been prepared by management on the basis of the most current and best available information; however, actual results could differ materially from those estimates. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. We disaggregated "Deferred tax assets" from "Other long-term assets" and "Deferred tax liabilities" from "Other long-term liabilities" on the condensed consolidated balance sheets. Additionally, we combined "Net proceeds from sale of assets" into "Other" within net cash used in investing activities on the condensed consolidated statements of cash flows. 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. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed on February 11, 2025. 8 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ACCOUNTING STANDARDS UPDATES ISSUED BUT NOT YET ADOPTED ASU 2023-09 Income Taxes In December 2023, the FASB issued ASU 2023-09, to enhance the transparency and usefulness of income tax disclosures. The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold. The update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold. The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. We plan to adopt these amendments using the prospective approach for annual disclosures in fiscal 2025 and do not expect them to have a material impact on our consolidated financial statements and related disclosures. 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. ASU 2025-06 Intangibles - Goodwill and Other-Internal-Use Software In September 2025, the FASB issued ASU 2025-06 which amends certain aspects of the accounting and disclosure of Internal use software costs. Current guidance requires capitalization of internal-use software development costs depending on the nature of the costs and the project stage during which they occur. The amendments in this update remove references to prescriptive and sequential software development stages and require entities to start capitalizing software development costs when a) management authorizes and commits to funding the software project, and b) it is probable that the project will be completed, and the software will be used to perform the intended function. The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2027, including interim periods within those annual reporting periods, and may be adopted on a prospective, modified or retrospective basis. Early adoption is permitted. We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach in fiscal 2026. We do not expect them to have a material impact on our consolidated financial statements and related disclosures. CHANGES IN ESTIMATES ON CONTRACTS Changes in estimates related to contracts accounted for using the cost-to-cost method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes, with the exception of contracts acquired through a business combination, where the adjustment is made for the period commencing from the date of acquisition. Changes in estimates on contracts were as follows: Three Months Ended Nine Months Ended (in millions, except per share data) October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024 Favorable impact $ 52 $ 58 $ 147 $ 125 Unfavorable impact ( 32 ) ( 28 ) ( 89 ) ( 107 ) Net impact to income before income taxes $ 20 $ 30 $ 58 $ 18 Impact on diluted EPS attributable to Leidos common stockholders $ 0.11 $ 0.17 $ 0.34 $ 0.10 Leidos Holdings, Inc. 9 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 $ 18 million and $ 32 million for the three and nine months ended October 3, 2025, respectively, and $ 78 million and $ 12 million for the three and nine months ended September 27, 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 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 nine months ended September 27, 2024, resulted in an increase of $ 48 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. 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 We have restricted cash balances, primarily representing advances from customers that are restricted for use on certain expenditures related to that customer's contract. Restricted cash balances are included as "Other current assets" in the condensed consolidated balance sheets. Our restricted cash balances were $ 123 million and $ 141 million at October 3, 2025, and January 3, 2025, respectively. Note 2–Revenues REMAINING PERFORMANCE OBLIGATIONS Remaining performance obligations ("RPO") represent the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. 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 October 3, 2025, we had $ 17 billion of RPO and expect to recognize approximately 64 % and 82 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter. DISAGGREGATION OF REVENUES We disaggregate revenues by customer-type, contract-type and geographic location for each of our reportable segments. Disaggregated revenues by customer-type were as follows: Three Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total DoD and U.S. Intelligence Community $ 1,456 $ 241 $ 10 $ 536 $ 2,243 Other U.S. government agencies (1) 513 1,034 89 16 1,652 Commercial and non-U.S. customers 32 21 471 30 554 Total $ 2,001 $ 1,296 $ 570 $ 582 $ 4,449 10 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Three Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total DoD and U.S. Intelligence Community $ 1,281 $ 243 $ 15 $ 475 $ 2,014 Other U.S. government agencies (1) 540 964 114 18 1,636 Commercial and non-U.S. customers 26 16 448 29 519 Total $ 1,847 $ 1,223 $ 577 $ 522 $ 4,169 (1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies. Nine Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total DoD and U.S. Intelligence Community $ 4,106 $ 763 $ 22 $ 1,476 $ 6,367 Other U.S. government agencies (1) 1,536 3,028 285 63 4,912 Commercial and non-U.S. customers 83 58 1,396 94 1,631 Total $ 5,725 $ 3,849 $ 1,703 $ 1,633 $ 12,910 Nine Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total DoD and U.S. Intelligence Community $ 3,749 $ 755 $ 29 $ 1,341 $ 5,874 Other U.S. 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 (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 October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Cost-reimbursement and fixed-price-incentive-fee $ 1,107 $ 443 $ 99 $ 345 $ 1,994 Firm-fixed-price 555 809 347 201 1,912 Time-and-materials and fixed-price-level-of-effort 339 44 124 36 543 Total $ 2,001 $ 1,296 $ 570 $ 582 $ 4,449 Three Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Cost-reimbursement and fixed-price-incentive-fee $ 980 $ 433 $ 94 $ 326 $ 1,833 Firm-fixed-price 511 737 378 155 1,781 Time-and-materials and fixed-price-level-of-effort 356 53 105 41 555 Total $ 1,847 $ 1,223 $ 577 $ 522 $ 4,169 Leidos Holdings, Inc. 11 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Nine Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Cost-reimbursement and fixed-price-incentive-fee $ 3,127 $ 1,344 $ 284 $ 978 $ 5,733 Firm-fixed-price 1,566 2,355 1,051 536 5,508 Time-and-materials and fixed-price-level-of-effort 1,032 150 368 119 1,669 Total $ 5,725 $ 3,849 $ 1,703 $ 1,633 $ 12,910 Nine Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total 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 Disaggregated revenues by geographic location were as follows: Three Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total United States $ 1,987 $ 1,293 $ 248 $ 576 $ 4,104 International 14 3 322 6 345 Total $ 2,001 $ 1,296 $ 570 $ 582 $ 4,449 Three Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total 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 Nine Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total United States $ 5,695 $ 3,843 $ 733 $ 1,607 $ 11,878 International 30 6 970 26 1,032 Total $ 5,725 $ 3,849 $ 1,703 $ 1,633 $ 12,910 Nine Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total United States $ 5,398 $ 3,666 $ 692 $ 1,458 $ 11,214 International 23 4 953 33 1,013 Total $ 5,421 $ 3,670 $ 1,645 $ 1,491 $ 12,227 12 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Revenues by customer-type, contract-type and geographic location exclude lease income of $ 20 million and $ 57 million for the three and nine months ended October 3, 2025, respectively, and $ 21 million and $ 70 million for the three and nine months ended September 27, 2024, respectively. CONTRACT ASSETS AND LIABILITIES Performance obligations are satisfied either over time as work progresses or at a point in time. Firm-fixed-price contracts are typically billed to the customer using milestone payments while cost-reimbursable and time and materials contracts are typically billed to the customer on a monthly or bi-weekly basis as indicated by the negotiated billing terms and conditions of the contract. As a result, the timing of revenue recognition, customer billings and cash collections for each contract results in a net contract asset or liability at the end of each reporting period. Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount billed to the customer. Unbilled receivables exclude amounts billable where the right to consideration is solely subject to the passage of time. Contract liabilities consist of deferred revenue, which represents cash advances received prior to performance for programs and billings in excess of revenue recognized. The components of contract assets and contract liabilities consisted of the following: (in millions) Balance sheet line item October 3, 2025 January 3, 2025 Contract assets - current: Unbilled receivables Receivables, net $ 949 $ 842 Contract liabilities - current: Deferred revenue (1) Accounts payable and accrued liabilities $ 396 $ 333 Contract liabilities - non-current: Deferred revenue (1) Other long-term liabilities $ 6 $ 10 (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 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 and nine months ended October 3, 2025, $ 21 million and $ 220 million, respectively, of revenue recognized was included as a contract liability at January 3, 2025. 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. Note 3–Acquisitions, Goodwill and Intangible Assets KUDU DYNAMICS ACQUISITION On May 23, 2025 (the "Purchase Date"), we completed the acquisition of Savanna Industries, Inc. ("Kudu Dynamics") for a final purchase consideration of $ 293 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 $ 229 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 final fair value of intangible assets acquired at the Purchase Date and the related weighted average amortization period: Weighted Amortization Period Fair Value (in years) (in millions) Programs 7 $ 60 Backlog 1 12 Total $ 72 For the three and nine months ended October 3, 2025, $ 26 million and $ 38 million, respectively, of revenues related to Kudu Dynamics were recognized within the National Security & Digital reportable segment. Leidos Holdings, Inc. 13 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) GOODWILL The following table presents changes in the carrying amount of goodwill by reportable segment: (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 Foreign currency translation adjustments — — ( 28 ) — ( 28 ) Goodwill at January 3, 2025 (1) 2,758 1,366 772 1,188 6,084 Acquisition of a business 229 — — — 229 Foreign currency translation adjustments — — 29 — 29 Goodwill at October 3, 2025 (1) $ 2,987 $ 1,366 $ 801 $ 1,188 $ 6,342 (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, 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 and nine months ended October 3, 2025, and September 27, 2024, there were no impairments to goodwill. INTANGIBLE ASSETS Intangible assets, net consisted of the following: October 3, 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: Programs $ 1,748 $ ( 1,366 ) $ 382 $ 1,686 $ ( 1,293 ) $ 393 Software and technology 263 ( 181 ) 82 261 ( 165 ) 96 Backlog 12 ( 4 ) 8 — — — Customer relationships 53 ( 33 ) 20 52 ( 28 ) 24 Total finite-lived intangible assets 2,076 ( 1,584 ) 492 1,999 ( 1,486 ) 513 Indefinite-lived intangible assets: Trade names 4 — 4 4 — 4 Total intangible assets $ 2,080 $ ( 1,584 ) $ 496 $ 2,003 $ ( 1,486 ) $ 517 Amortization expense was $ 34 million and $ 96 million for the three and nine months ended October 3, 2025, respectively, and $ 37 million and $ 110 million for the three and nine months ended September 27, 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. 14 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The estimated annual amortization expense as of October 3, 2025, was as follows: Fiscal year ending (in millions) 2025 (remainder of year) $ 34 2026 111 2027 85 2028 76 2029 63 2030 and thereafter 123 $ 492 Note 4–Fair Value Measurements The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than quoted prices in active markets that are observable, either directly or indirectly, or quoted prices that are not active (Level 2); and unobservable inputs in which there is little or no market data (e.g., discounted cash flow and other similar pricing models), which requires us to develop our own market participant assumptions used in pricing the asset or liability (Level 3). As of 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 value and fair value of our cash flow interest rate swap was $ 4 million. 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 January 3, 2025 (Level 2 inputs). The $ 500 million interest rate swaps matured in August 2025. 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 October 3, 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 October 3, 2025, and January 3, 2025, the fair value of debt was $ 4.7 billion and $ 4.5 billion, respectively, and the carrying amount was $ 4.7 billion for both periods (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). The assets and liabilities acquired in connection with the Kudu Dynamics acquisition were measured at fair value on a non-recurring basis using Level 3 inputs (see "Note 3–Acquisitions, Goodwill and Intangible Assets"). Leidos Holdings, Inc. 15 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 5–Derivative Instruments We manage our risk to changes in interest rates through the use of derivative instruments. We do not hold derivative instruments for trading or speculative purposes. For variable rate borrowings, we use fixed interest rate swaps, effectively converting a portion of the variable interest rate payments to fixed interest rate payments. These swaps are designated as cash flow hedges. The fair value of the interest rate swaps was as follows: (in millions) Balance sheet line item October 3, 2025 January 3, 2025 Cash flow interest rate swaps Other current assets $ — $ 4 The cash flows associated with the interest rate swaps are classified as operating activities in the condensed consolidated statements of cash flows. CASH FLOW HEDGES As of January 3, 2025, we had 2.96 % fixed interest rate swap agreements to hedge the cash flows of $ 500 million of the variable rate senior unsecured term loan (the "Variable Rate Loan"). The objective of these instruments was to reduce variability in the forecasted interest payments of the Variable Rate Loan. Under the terms of the interest rate swap agreements, we received monthly variable interest payments based on the one-month SOFR and paid interest at a fixed rate. These interest rate swap agreements matured in August 2025. The interest rate swap transactions were accounted for as cash flow hedges. The gain/loss on the swaps was reported as a component of other comprehensive income (loss) and was reclassified into earnings when the interest payments on the underlying hedged items impacted earnings. A qualitative assessment of hedge effectiveness was performed on a quarterly basis. The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows: Three Months Ended Nine Months Ended (in millions) October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024 Total interest expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded $ 51 $ 46 $ 155 $ 146 Amount recognized in other comprehensive income (loss) — ( 4 ) 1 3 Amount reclassified from accumulated other comprehensive loss to interest expense, net ( 1 ) ( 3 ) ( 4 ) ( 9 ) 16 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 6–Debt Our debt consisted of the following: (in millions) Stated interest rate Effective interest rate October 3, 2025 January 3, 2025 Senior unsecured term loan: $ 1,000 million term loan, due March 2028 5.54 % 5.70 % $ 500 $ 1,000 Senior unsecured notes: $ 500 million notes, due May 2025 3.63 % 3.76 % — 500 $ 750 million notes, due May 2030 4.38 % 4.50 % 750 750 $ 1,000 million notes, due February 2031 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 7.13 % 7.43 % 250 250 $ 750 million notes, due March 2033 5.75 % 5.81 % 750 750 $ 300 million notes, due July 2033 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 2.28 %- 6.31 % 59 73 Less: unamortized debt discounts and deferred debt issuance costs ( 37 ) ( 32 ) Total long-term debt 4,651 4,670 Less current portion ( 19 ) ( 618 ) Total long-term debt, net of current portion $ 4,632 $ 4,052 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 October 3, 2025, and January 3, 2025, there were no borrowings outstanding under the Revolving Facility. SENIOR NOTES 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 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. 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 We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $ 1.0 billion. The proceeds will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases. The Commercial Paper Notes are issued in minimum denominations of $ 0.25 million and have maturities of up to 397 days from the date of issuance. The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount. As of October 3, 2025, and January 3, 2025, we did not have any Commercial Paper Notes outstanding. Leidos Holdings, Inc. 17 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) COVENANTS 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 October 3, 2025. Note 7–Accumulated Other Comprehensive Income (Loss) Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows: (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 ) Taxes 5 2 ( 1 ) 6 Reclassification from AOCI — ( 11 ) — ( 11 ) Balance at January 3, 2025 ( 98 ) 1 ( 13 ) ( 110 ) Other comprehensive income 65 1 — 66 Taxes ( 5 ) ( 1 ) — ( 6 ) Reclassification from AOCI — ( 4 ) — ( 4 ) Balance at October 3, 2025 $ ( 38 ) $ ( 3 ) $ ( 13 ) $ ( 54 ) Reclassifications from unrecognized gain (loss) on derivative instruments are recorded in "Interest expense, net" in the condensed consolidated statements of operations. Note 8–Earnings Per Share The following table provides a reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the periods presented: Three Months Ended Nine Months Ended (in millions) October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024 Basic weighted average number of shares outstanding 128 134 129 135 Dilutive common share equivalents—stock options and other stock awards 2 2 1 1 Diluted weighted average number of shares outstanding 130 136 130 136 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 0.2 million for both the three and nine months ended October 3, 2025, and less than 0.5 million for both the three and nine months ended September 27, 2024. On February 20, 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock. 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. 18 Leidos Holdings, Inc. Table of Contents 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. We made open market repurchases of our common stock for an aggregate purchase price of $ 100 million during both the three and nine months ended October 3, 2025, and $ 200 million and $ 450 million during the three and nine months ended September 27, 2024, respectively. All repurchased shares were immediately retired. Note 9–Income Taxes 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. Based upon our interpretation of the law as currently enacted, we estimate that income taxes payable and net deferred taxes will be $ 270 million and $ 235 million, respectively, lower at January 2, 2026, than our estimates prior to the OBBBA enactment. For the three months ended October 3, 2025, the effective tax rate was 23.8 % compared to 23.0 % for the three months ended September 27, 2024. The increase to the effective tax rate was primarily due to impacts from the OBBBA, partially offset by a decrease in valuation allowance compared to the prior year quarter. For the nine months ended October 3, 2025, the effective tax rate was 23.9 % compared to 23.3 % for the nine months ended September 27, 2024. The increase to the effective tax rate was primarily due to impacts from the OBBBA. 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 October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Revenues $ 2,015 $ 1,301 $ 571 $ 582 $ 4,469 Less: Direct labor 510 236 109 113 968 Amortization of intangible assets 8 6 7 13 34 Other segment expense 1,306 731 417 419 2,873 Segment operating income $ 191 $ 328 $ 38 $ 37 $ 594 Corporate expense 59 Total operating income $ 535 Leidos Holdings, Inc. 19 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Three Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Revenues $ 1,865 $ 1,225 $ 578 $ 522 $ 4,190 Less: Direct labor 483 232 103 103 921 Amortization of intangible assets 6 8 7 16 37 Other segment expense 1,189 698 427 366 2,680 Segment operating income $ 187 $ 287 $ 41 $ 37 $ 552 Corporate expense 36 Total operating income $ 516 Nine Months Ended October 3, 2025 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Revenues $ 5,765 $ 3,864 $ 1,705 $ 1,633 $ 12,967 Less: Direct labor 1,503 715 317 330 2,865 Amortization of intangible assets 20 18 21 37 96 Other segment expense 3,678 2,193 1,252 1,154 8,277 Segment operating income $ 564 $ 938 $ 115 $ 112 $ 1,729 Corporate expense 93 Total operating income $ 1,636 Nine Months Ended September 27, 2024 (in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total Revenues $ 5,471 $ 3,687 $ 1,648 $ 1,491 $ 12,297 Less: Direct labor 1,454 711 306 307 2,778 Amortization of intangible assets 17 21 22 50 110 Other segment expense 3,455 2,139 1,256 1,042 7,892 Segment operating income $ 545 $ 816 $ 64 $ 92 $ 1,517 Corporate expense 111 Total operating income $ 1,406 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. 20 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Under U.S. Government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base. As such, depreciation expense is not separately disclosed on the condensed consolidated statements of operations. Asset information by segment is not a key measure of performance used by the CODM. Note 11–Commitments and Contingencies LEGAL PROCEEDINGS We are involved in various claims and lawsuits arising in the normal conduct of our business, none of which, in the opinion of management, based upon current information, will likely have a material adverse effect on our financial position, results of operations or cash flows. CONTINGENCIES Government Investigations and Reviews We are routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect to our role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. Adverse findings could have a material effect on our business, financial position, results of operations and cash flows due to our reliance on government contracts. Defense Contract Audit Agency As of October 3, 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 October 3, 2025, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs. Other Government Investigations and Reviews As previously disclosed, the Company voluntarily self-reported to the Department of Justice and the Securities and Exchange Commission ("SEC") 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. Department of Justice Antitrust Division. The subpoena requests that the Company produce a broad range of documents related to three U.S. Government procurements associated with the Company’s Intelligence Group in 2021 and 2022. We are fully cooperating with the investigation, and we are conducting our own internal investigation with the assistance of outside counsel. It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines, penalties, or further liabilities in connection with the investigation pursuant to which the subpoena was issued. COMMITMENTS As of October 3, 2025, we have outstanding letters of credit of $ 114 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. Leidos Holdings, Inc. 21 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of October 3, 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) $ 121 2026 19 2027 44 2028 71 2029 8 2030 and thereafter 2 $ 265 Note 12–Subsequent Events On October 31, 2025, the Company completed the divestiture of an immaterial business not aligned to the Company's long term strategy within the Commercial and International reportable segment. 22 Leidos Holdings, Inc. Table of Contents PART I—FINANCIAL INFORMATION