What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-04 compared with 2026-05-05 · 99 added, 77 removed, 162 unchanged (52% of the section changed)

12 unchanged sentences

Headquartered in Reston, Virginia, with 50,000 global employees, we pursue strategic growth across five pillars:

space and maritime;

defense tech;

energy infrastructure;

digital modernization and cyber;

mission software;

mission and digital solutions;

and managed health services.

11 unchanged sentences

GOVERNMENT MARKETS

During the three months ended April 3, 2026, and April 4, 2025, we generated approximately 86% and 87% respectively, of total revenues from contracts with the U.S.

During the three and six months ended July 3, 2026, we generated approximately 83% and 85%, respectively, of total revenues from contracts with the U.S.

government, as compared to 87% for both the three and six months ended July 4, 2025.

Accordingly, our business performance is affected by the overall level of U.S.

government spending, especially national security, homeland security and intelligence spending, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S.

On April 30, 2026, Congress passed legislation to fund all non-immigration agencies and offices within the Department of Homeland Security agencies ending the government shutdown.

While Congress continues to advance the government fiscal year 2027 appropriations bills, it is increasingly expected that lawmakers will rely on a short-term continuing resolution ("CR") to keep the government funded beyond the September 30, 2026 deadline.

Failure to pass the appropriations bills or a CR by September 30, 2026, will result in a full or partial federal government shutdown.

Leidos Holdings, Inc.

1 unchanged sentence

INTERNATIONAL MARKETS

Sales to customers in international markets represented approximately 8% of total revenues for both the three months ended April 3, 2026, and April 4, 2025.

Sales to customers in international markets represented approximately 9% and 8% of total revenues for the three and six months ended July 3, 2026, respectively, and as compared to 8% of total revenues for both the three and six months ended July 4, 2025.

Our international customers include foreign governments and their agencies.

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The following table summarizes our condensed consolidated results of operations for the periods presented:

Three Months Ended

(dollars in millions) April 3,

Three Months Ended Six Months Ended

(dollars in millions) July 3,

2025 Percent change July 3,

2025 Percent change

Revenues $ 4,558

$ 4,253 7.2 % $ 8,958 $ 8,498 5.4 %

Operating income

571 (10.0 %) 1,022

1,101 (7.2 %)

Non-operating expense, net

(53) 18.9 % (142)

Income before income taxes 451

518 (12.9 %) 880

Income tax expense (95)

(125) (24.0 %) (189)

(238) (20.6 %)

Net income 356

393 (9.4 %) 691

Net income attributable to Leidos common stockholders $ 354

$ 391 (9.5) % $ 682

$ 754 (9.5) %

Operating margin 11.3 %

13.4 % 11.4 %

SEGMENT AND CORPORATE RESULTS

Three Months Ended

Three Months Ended Six Months Ended

Intelligence & Digital

(dollars in millions)

2026 April 4,

2025 Percent change July 3,

2025 Percent change

2 unchanged sentences

Operating margin 9.5 % 9.6 % 9.6 %

The increase in revenues for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to program wins and $22 million recognized from the acquisition of Kudu Dynamics, partially offset by the completion of programs and a net decrease in volumes.

The increase in operating income for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to program wins and improved efficiencies, partially offset by a net decrease in volumes and the completion of programs.

The increase in revenues and operating income for the three months ended July 3, 2026, as compared to the three months ended July 4, 2025, was primarily attributable to program wins, partially offset by the completion of certain contracts.

The increase in revenues for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to program wins and $27 million of increased revenues recognized from the acquisition of Savanna Industries, Inc.

("Kudu Dynamics"), partially offset by the completion of certain contracts.

The increase in operating income for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to program wins and improved margins from program mix, partially offset by the completion of certain contracts.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

Three Months Ended

Three Months Ended Six Months Ended

(dollars in millions)

2026 April 4,

2025 Percent change July 3,

2025 Percent change

2 unchanged sentences

Operating margin 23.4 % 25.8 % 23.7 %

Revenues remained consistent while operating income slightly decreased for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025.

This was primarily attributable to a net decrease in volumes, offset by net write-ups on certain programs within the managed health services business.

Three Months Ended

The decrease in revenues and operating income for the three and six months ended July 3, 2026, as compared to the three and six months ended July 4, 2025, was primarily attributable to a net decrease in volumes.

Three Months Ended Six Months Ended

(dollars in millions)

2026 April 4,

2025 Percent change July 3,

2025 Percent change

2 unchanged sentences

Operating margin 9.0 % 8.3 % 6.8 %

The increase in revenues for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to a net increase in volumes, $23 million favorable impact from exchange rate movements, program wins and $11 million recognized from the acquisition of Entrust.

The increase was partially offset by net write-downs on certain programs.

The decrease in operating income for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to an increase of $25 million in acquisition, integration and restructuring costs, driven by the Entrust transaction and net write-downs on certain programs.

The decrease was partially offset by a net increase in volumes.

Three Months Ended

The increase in revenues for the three months ended July 3, 2026, as compared to the three months ended July 4, 2025, was primarily attributable to a net increase in volumes, program wins, $141 million recognized from the acquisition of Entrust and a $14 million favorable impact from exchange rate movements, partially offset by the completion of certain contracts.

The increase in revenues for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to a net increase in volumes, program wins, $152 million recognized from the acquisition of Entrust and a $37 million favorable impact from exchange rate movements, partially offset by the completion of certain contracts and write-downs on certain programs.

The increase in operating income for the three and six months ended July 3, 2026, as compared to the three and six months ended July 4, 2025, was primarily attributable to a net increase in volumes, program wins and the contribution from the acquisition of Entrust.

The increase was partially offset by increased amortization, acquisition and restructuring expenses.

Three Months Ended Six Months Ended

(dollars in millions)

2026 April 4,

2025 Percent change July 3,

2025 Percent change

2 unchanged sentences

Operating margin 8.8 % 8.7 % 7.9 %

The increase in revenues for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to program wins, partially offset by completion of certain contracts.

The decrease in operating income for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to the completion of contracts and write-downs on certain programs in the current year, partially offset by program wins.

Three Months Ended

The increase in revenues for the three and six months ended July 3, 2026, as compared to the three and six months ended July 4, 2025, was primarily attributable to program wins and increased volumes on existing contracts, partially offset by the completion of certain contracts.

The increase in operating income for the three months ended July 3, 2026, as compared to the three months ended July 4, 2025, was primarily attributable to program wins, partially offset by the completion of certain contracts.

The decrease in operating income for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to the completion of higher-margin contracts, partially offset by program wins.

Three Months Ended Six Months Ended

(dollars in millions)

2026 April 4,

2025 Percent change July 3,

2025 Percent change

Operating loss $ (17) $ (25) (32.0 %)

The decrease in operating loss for the three months ended April 3, 2026, as compared to the three months ended April 4, 2025, was primarily attributable to a $15 million insurance reimbursement for legal costs incurred prior to fiscal 2026, partially offset by an increase in acquisition and integration costs.

NON-OPERATING EXPENSE, NET

Non-operating expense, net for the three months ended April 3, 2026, was $79 million as compared to $52 million for the three months ended April 4, 2025.

The increase was primarily driven by a $23 million settlement loss from the buy-out of our UK defined benefit pension plan and increased interest expense from the termination of our senior unsecured bridge loan facility and issuance of our $600 million and $800 million senior notes.

Operating loss $ (58) $ (9) NM $ (75) $ (34) 120.6 %

NM - Not Meaningful

The increase in operating loss for the three months ended July 3, 2026, as compared to the three months ended July 4, 2025, was primarily attributable to the receipt of a $25 million insurance reimbursement in the prior year for legal costs primarily incurred prior to fiscal year 2025, and increased acquisition and integration costs in the current year.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

The increase in operating loss for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to higher insurance reimbursements for legal costs in the prior year, and increased acquisition and integration costs in the current year.

NON-OPERATING EXPENSE, NET

Non-operating expense, net for the three months ended July 3, 2026, was $63 million as compared to $53 million for the three months ended July 4, 2025.

The increase was primarily attributable to increased interest expense from the termination of our senior unsecured bridge loan facility and issuance of our $600 million and $800 million senior notes.

Non-operating expense, net for the six months ended July 3, 2026, was $142 million as compared to $105 million for the six months ended July 4, 2025.

The increase was primarily attributable to a $23 million settlement loss from the buy-out of our UK defined benefit pension plan and increased interest expense from the termination of our senior unsecured bridge loan facility and issuance of our $600 million and $800 million senior notes.

PROVISION FOR INCOME TAXES

For the three months ended April 3, 2026, our effective tax rate was 21.9% compared to 23.6% for the three months ended April 4, 2025.

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

The effective tax rate was 21.1% for the three months ended July 3, 2026, compared to 24.1% for the three months ended July 4, 2025, and 21.5% for the six months ended July 3, 2026, compared to 23.9% for the six months ended July 4, 2025.

The decrease in both periods was primarily due to a decrease in unrecognized tax benefits.

BOOKINGS AND BACKLOG

We recorded net bookings worth an estimated $3.3 billion during the three months ended April 3, 2026, as compared to $2.1 billion for the three months ended April 4, 2025.

We recorded net bookings worth an estimated $4.9 billion and $8.2 billion during the three and six months ended July 3, 2026, respectively, as compared to $3.9 billion and $6.0 billion for the three and six months ended July 4, 2025, respectively.

The estimated value of our total backlog was as follows:

April 3, 2026 April 4, 2025

July 3, 2026 July 4, 2025

(in millions) Funded Unfunded Total Funded Unfunded Total

4 unchanged sentences

Total $ 10,223 $ 38,488 $ 48,711 $ 7,122 $ 39,088 $ 46,210

Backlog at April 3, 2026, includes $371 million acquired through the acquisition of Entrust within the Homeland reportable segment.

Backlog at July 3, 2026, includes amounts acquired as part of the Entrust transaction.

As of March 27, 2026, the acquisition date, Entrust had $371 million of backlog that was included within the Homeland reportable segment.

Backlog represents the revenues we expect to recognize under negotiated contracts and unissued task orders on sole source IDIQ contracts, to the extent we believe their execution and funding to be probable.

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OVERVIEW OF LIQUIDITY

As of April 3, 2026, we had $457 million in cash and cash equivalents.

We have a senior unsecured revolving credit facility which can provide up to $1.5 billion in additional borrowing, if required.

As of April 3, 2026, and January 2, 2026, there were no borrowings outstanding under the revolving credit facility.

We had outstanding debt of $6.3 billion and $4.6 billion at April 3, 2026, and January 2, 2026 respectively.

In March 2026, we issued and sold $600 million 4.10% and $800 million 5.00% senior unsecured notes maturing in March 2029 and March 2036, respectively.

The annual interest rate is payable on a semi-annual basis.

The proceeds from the notes were used to fund a portion of the consideration payable in connection with the acquisition of Entrust and for general corporate purposes.

We have a commercial paper program in which we may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") and have maturities of up to 397 days from the date of issuance.

As of April 3, 2026, we had $300 million of Commercial Paper Notes outstanding.

As of January 2, 2026, we did not have any Commercial Paper Notes outstanding.

We made $5 million and $529 million principal payments on our long-term debt during the three months ended April 3, 2026 and April 4, 2025, respectively.

The activity for the three months ended April 4, 2025, included a $500 million payment to discharge the $500 million notes due May 2025.

Our senior unsecured revolving credit facility, Commercial Paper Notes, senior unsecured term loan and notes outstanding as of April 3, 2026, contain financial covenants and customary restrictive covenants.

We were in compliance with all financial covenants as of April 3, 2026.

We paid dividends of $55 million and $53 million during the three months ended April 3, 2026, and April 4, 2025, respectively.

As of July 3, 2026, we had $748 million in cash and cash equivalents.

We have a senior unsecured revolving credit facility which can provide up to $1.5 billion in additional borrowing, if required, and a commercial paper program under which we may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $1.5 billion, with maturities of up to 397 days from the date of issuance.

As of July 3, 2026, and January 2, 2026, there were no borrowings outstanding under the revolving credit facility and no Commercial Paper Notes outstanding.

We had outstanding debt of $6.0 billion and $4.6 billion at July 3, 2026, and January 2, 2026, respectively.

In March 2026, we issued and sold $600 million 4.10% and $800 million 5.00% senior unsecured notes maturing in March 2029 and March 2036,

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

respectively.

The annual interest rate is payable on a semi-annual basis.

The proceeds from the notes were used to fund a portion of the consideration payable in connection with the acquisition of Entrust and for general corporate purposes.

We made $5 million and $10 million principal payments on our long-term debt during the three and six months ended July 3, 2026, respectively, and $30 million and $559 million during the three and six months July 4, 2025, respectively.

The activity for the six months ended July 4, 2025, included a $500 million payment to discharge the $500 million notes due May 2025.

Our senior unsecured revolving credit facility, Commercial Paper Notes, senior unsecured term loan and notes outstanding as of July 3, 2026, contain financial covenants and customary restrictive covenants.

We were in compliance with all financial covenants as of July 3, 2026.

We paid dividends of $55 million and $110 million during the three and six months ended July 3, 2026, respectively, and $52 million and $105 million for the three and six months ended July 4, 2025, respectively.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise.

4 unchanged sentences

The repurchase program may be accelerated, suspended, delayed or discontinued at any time.

We made open market repurchases of our common stock for an aggregate purchase price of $200 million during the three months ended April 3, 2026.

During the three months ended April 4, 2025, we did not make any open market repurchases;

however, we repurchased $500 million of shares under an accelerated share repurchase agreement.

During the three months ended April 3, 2026, we invested $6 million in an investment fund as a limited partner, In connection with this investment, we have committed to invest an additional $94 million over the next five years.

We made open market repurchases of our common stock for an aggregate purchase price of $66 million and $266 million during the three and six months ended July 3, 2026, respectively.

During the three and six months ended July 4, 2025, we did not make any open market repurchases;

however, we repurchased $500 million of shares under an accelerated share repurchase agreement during the six months ended July 4, 2025.

During the three and six months ended July 3, 2026, we invested $12 million and $18 million, respectively, in an investment fund as a limited partner.

In connection with this investment, we have committed to invest an additional $82 million over the next five years.

We expect to fund this investment with cash on hand and cash generated through our operations.

2 unchanged sentences

The following table summarizes cash flow information for the periods presented:

Three Months Ended

(in millions) April 3,

2026 April 4,

Three Months Ended Six Months Ended

(in millions) July 3,

Net cash provided by operating activities

$ 793 $ 486 $ 1,094 $ 544

Net cash used in investing activities (38) (314) (2,397) (336)

Net cash provided by (used in) financing activities

Net cash provided by operating activities increased $243 million during the three months ended April 3, 2026, when compared to the prior year quarter.

The increase was primarily due to favorable changes in working capital.

Net cash used in investing activities increased $2,337 million for the three months ended April 3, 2026, when compared to the prior year quarter.

The increase was primarily due to $2,338 million of net cash paid in connection with the acquisition of Entrust.

Net cash provided by financing activities increased $1,503 million for the three months ended April 3, 2026, when compared to the prior year quarter.

The increase was primarily due a net increase of $1,216 million in cash inflows from debt activity, consisting of proceeds from debt issuances and payments for borrowings and debt issuance costs.

The increase was also related to a $300 million net decrease in stock repurchases primarily attributable to the prior year accelerated share repurchase activities.

Net cash (used in) provided by financing activities (423) (83) 970 (193)

Net cash provided by operating activities increased $307 million and $550 million for the three and six months ended July 3, 2026, respectively when compared to the prior year.

The increases were primarily due to favorable changes in working capital, excess tax payments made in the prior year and the timing of payroll and employee benefit payments.

Net cash used in investing activities decreased $276 million for the three months ended July 3, 2026, when compared to the prior year quarter primarily due to $285 million of net cash paid related to the acquisition of Kudu Dynamics in the prior year quarter.

Net cash used in investing activities increased $2,061 million for the six months ended July 3, 2026, when compared to the prior year.

The increase was primarily due to $2,338 million of cash paid in connection with the acquisition of Entrust, net of cash acquired.

Net cash used in financing activities increased $340 million for the three months ended July 3, 2026, when compared to the prior year quarter.

The increase was primarily due to a $300 million repayment on our commercial paper program.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

Net cash provided by financing activities increased $1,163 million for the six months ended July 3, 2026, when compared to the prior year.

The increase was primarily due to a net increase of $941 million in cash inflows from debt activity, consisting of proceeds from debt issuances and payments for borrowings and debt issuance costs.

The increase was also related to $234 million net decrease in stock repurchases, primarily attributable to the prior year accelerated share repurchase activities.

OFF-BALANCE SHEET ARRANGEMENTS

2 unchanged sentences

These arrangements have not had, and management does not believe it is likely that they will in the future have, a material effect on our liquidity, capital expenditures or capital resources, operations or financial condition.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

GUARANTOR AND ISSUER OF GUARANTEED SECURITIES

19 unchanged sentences

Additionally, Leidos, Inc.

has fully and unconditionally guaranteed debt securities of Leidos Holding, Inc.

that were issued pursuant to transactions that programs were not registered under the Securities Act of 1933, as amended.

has fully and unconditionally guaranteed debt securities of Leidos Holdings, Inc.

that were issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended.

The following is a list of unregistered debt securities guaranteed by Leidos, Inc.

5 unchanged sentences

Intercompany payables represent amounts due to non-guarantor subsidiaries of the Issuer.

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

BALANCE SHEET INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES

(in millions) April 3,

(in millions) July 3,

2026 January 2,

8 unchanged sentences

Total liabilities $ 14,432 $ 12,230

Leidos Holdings, Inc.

PART I—FINANCIAL INFORMATION

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

Three Months Ended

(in millions) April 3,

Six Months Ended

(in millions) July 3,

Revenues, net $ 5,473

13 unchanged sentences

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 2. Management’s Discussion and Analysis