Leidos Holdings LDOS · USD

Note 20—Business SegmentsOur 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 the Chief Executive Officer, manages the operations for 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.Our business is aligned into six operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280, Segment Reporting: National Security & Digital, Health & Civil, Commercial & International and Defense Systems. Our reportable segments are focused on specific, defined capability sets that we bring to our customers. Additionally, we separately present the unallocated costs associated with corporate functions as Corporate.Our National Security & Digital business provides leading-edge and technologically advanced services, solutions and products across substantially all U.S. federal government customers. Our advanced capabilities allow us to provide technology-enabled services, software capabilities and IT modernization. Our Health & Civil business provides services and solutions to federal and commercial customers in the areas of public health, care coordination, life and environmental sciences and transportation. We are dedicated to delivering effective and affordable solutions that are responsible for the health and well-being of people, including service members and veterans.Our Commercial & International business delivers a portfolio of products, services, and solutions aimed at securing national assets, modernizing energy and critical infrastructure, and enhancing mission outcomes. Our key customers include Investor-Owned Utilities, government agencies in the United Kingdom and Australia, the Transportation Security Administration, U.S. Customs & Border Protection ("CBP"), as well as airports and ports and borders authorities.

Note 4—Revenues REMAINING PERFORMANCE OBLIGATIONSRemaining 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 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 January 2, 2026, we had $18.5 billion of RPO and expect to recognize approximately 65% and 82% over the next 12 months and 24 months, respectively, with the remaining to be recognized thereafter.DISAGGREGATION OF REVENUESWe disaggregate revenues by customer-type, contract-type and geographic location for each of our reportable segments. These categories represent how the nature, timing and uncertainty of revenues and cash flows are affected.Disaggregated revenues by customer-type were as follows:Year Ended January 2, 2026(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalDoW and U.S. Intelligence Community$5,457 $970 $27 $1,972 $8,426 Other U.S. government agencies(1)1,985 4,003 388 82 6,458 Commercial and non-U.S. customers121 80 1,897 125 2,223 Total$7,563 $5,053 $2,312 $2,179 $17,107 Year Ended January 3, 2025(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalDoW and U.S. Intelligence Community$5,074 $1,032 $44 $1,812 $7,962 Other U.S. government agencies(1)2,115 3,899 379 95 6,488 Commercial and non-U.S. customers115 63 1,825 123 2,126 Total$7,304 $4,994 $2,248 $2,030 $16,576 Year Ended December 29, 2023(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalDoW and U.S. Intelligence Community$4,799 $1,059 $35 $1,684 $7,577 Other U.S. government agencies(1)2,212 3,082 319 121 5,734 Commercial and non-U.S. customers131 61 1,762 74 2,028 Total$7,142 $4,202 $2,116 $1,879 $15,339 (1)Includes federal government agencies other than the DoW and U.S. Intelligence Community, as well as state and local government agencies.The majority of our revenues are generated from U.S.

Note 21—Commitments and ContingenciesLEGAL PROCEEDINGSWe 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.CONTINGENCIESGovernment Investigations and ReviewsWe 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 AgencyAs of January 2, 2026, active indirect cost audits by the DCAA 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 January 2, 2026, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs. Other Government Investigations and ReviewsIn 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.

Note 13—Debt Debt consisted of the following:(in millions)Statedinterest rateEffectiveinterest rateJanuary 2, 2026January 3, 2025Senior unsecured term loan:$1,000 million term loan, due March 20285.12 %5.27 %$500 $1,000 Senior unsecured notes: $500 million notes, due May 20253.63 %3.76 %— 500 $750 million notes, due May 20304.38 %4.50 %750 750 $1,000 million notes, due February 20312.30 %2.38 %1,000 1,000 $500 million notes, due March 20325.40 %5.42 %500 — $250 million notes, due July 20327.13 %7.43 %250 250 $750 million notes, due March 20335.75 %5.81 %750 750 $300 million notes, due July 20335.50 %5.88 %161 161 $500 million notes, due March 20355.50 %5.55 %500 — $300 million notes, due December 20405.95 %6.03 %218 218 Finance leases due on various dates through fiscal 2032Various2.28%-6.31%54 73 Less: unamortized debt discounts and deferred debt issuance costs(35)(32)Total long-term debt 4,648 4,670 Less current portion (20)(618)Total long-term debt, net of current portion $4,628 $4,052 REVOLVING CREDIT FACILITYWe 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 January 2, 2026, and January 3, 2025, there were no borrowings outstanding under the Revolving Facility.SENIOR NOTESOn 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 16—Earnings Per Share").

Note 18—Income TaxesThe provision for income taxes for the periods presented included the following: Year Ended(in millions)January 2,2026January 3,2025December 29,2023Current: U.S. federal$5 $381 $212 State53 84 68 Foreign21 22 23 Deferred: U.S. federal341 (77)(75)State27 (13)(20)Foreign— (9)(13)Total$447 $388 $195 Below is the rate reconciliation pursuant to the disclosure requirements of ASU 2023-09, which represents the reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for the periods presented: Year Ended(dollars in millions)January 2,2026U.S. federal statutory tax rate$401 21.0 %State and local income taxes, net of federal income tax effect(1)39 1.9 Foreign tax effects5 0.3 Effect of cross-border tax laws2 0.1 Tax credits:Research and development tax credits(22)(1.2)Other(1)— Changes in valuation allowances3 0.2 Nontaxable or nondeductible items(2)(0.1)Changes in unrecognized tax benefits25 1.3 Other adjustments(3)(0.1)Effective tax rate$447 23.4 %(1) State taxes in VA and MD made up the majority (greater than 50 percent) of the tax effect in this category.The company has elected to adopt the provisions of ASU 2023-09 on a prospective basis beginning fiscal 2025 as shown above, the rate reconciliation for the periods prior to the adoption of ASU 2023-09, were as follows: (dollars in millions)January 3,2025December 29,2023Amount computed at the statutory federal income tax rate$344 $85 State income taxes, net of federal tax benefit28 26 Goodwill— 104 Research and development credits(25)(19)Excess tax benefits from stock-based compensation(15)(2)Change in valuation allowance for deferred tax assets4 3 Impact of foreign operations(5)(13)Dividends paid to employee stock ownership plan(2)(2)Change in accruals for uncertain tax positions39 14 Other20 (1)Total$388 $195 Effective income tax rate23.7 %48.4 %The decrease to the effective tax rate for fiscal 2025 compared to fiscal 2024 was primarily due to a decrease in unrecognized tax benefits, partially offset by the impacts from cross-border taxes resulting from the H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The decrease in the effective tax rate for fiscal 2024 compared to fiscal 2023 was due to non tax deductible goodwill impairments unfavorably impacting fiscal 2023.

Note 17—Stock-Based Compensation PLAN SUMMARIESAs of January 2, 2026, we had stock-based compensation awards outstanding under the following plans: the 2017 Omnibus Incentive Plan and the 2006 Employee Stock Purchase Plan, as amended (“ESPP”). We issue new shares upon the vesting of stock units or exercising of stock options under these plans.The 2017 Omnibus Incentive Plan provides Leidos and its affiliates’ employees, directors and consultants the opportunity to receive various types of stock-based compensation awards, such as stock options, restricted stock units and performance-based awards, as well as cash awards. We grant service-based awards that generally vest or become exercisable 33% a year over three years, 25% a year over four years or cliff vest in three years. As of January 2, 2026, 2.7 million shares of Leidos’ stock were reserved for future issuance under the 2017 Omnibus Incentive Plan.We offer eligible employees the opportunity to defer restricted stock units into an equity-based deferred equity compensation plan, the Key Executive Stock Deferral Plan (“KESDP”). Prior to 2013, we offered an additional opportunity for deferrals into the Management Stock Compensation Plan (“MSCP”). Benefits from these plans are payable in shares of Leidos’ stock that are held in a trust for the purpose of funding shares to the plans’ participants. Restricted stock units deferred under the KESDP are counted against the total shares available for future issuance under the 2017 Omnibus Incentive Plan. All awards under the MSCP are fully vested and the plan does not provide for a maximum number of shares available for future issuance.Our ESPP allows eligible employees to purchase shares of Leidos’ stock at a discount on the date of purchase. During fiscal 2025, 2024 and 2023, the discount was 10% of the fair market value on the date of purchase. During fiscal 2025, 2024 and 2023, $57 million, $52 million and $48 million, respectively, was received from ESPP plan participants for the issuance of Leidos’ stock. A total of 1.5 million shares remain available for future issuance under the ESPP.

Note 10—Leases LESSEEROU assets and lease liabilities consisted of the following:(in millions)Balance sheet line itemJanuary 2,2026January 3,2025ROU assets:Finance leasesProperty, plant and equipment, net$50 $69 Operating leasesOperating lease right-of-use assets, net526 560 $576 $629 Current lease liabilities:Finance leasesShort-term debt and current portion of long-term debt$20 $19 Operating leasesAccounts payable and accrued liabilities107 123 $127 $142 Non-current lease liabilities:Finance leasesLong-term debt, net of current portion$34 $54 Operating leasesOperating lease liabilities587 621 $621 $675 During fiscal 2025 and 2024, we reduced our leased space by exiting and consolidating underutilized buildings as part of an ongoing facility rationalization effort. We used discounted cash flow models to estimate the fair values of the affected assets and as a result, we recorded impairments of ROU and other assets in the amount of $5 million and $11 million for fiscal 2025 and 2024, respectively. The impairment charges were recorded across our reportable segments.In fiscal 2024, we took occupancy of our newly constructed facility in San Diego, CA. As a result we recorded $117 million of ROU assets and $169 million of lease liabilities.Total lease cost for the periods presented consisted of the following:Year Ended(in millions)January 2,2026January 3,2025December 29,2023Finance lease cost:Amortization of ROU assets$20 $20 $18 Interest on lease liabilities3 4 4 23 24 22 Operating lease cost(1)145 143 148 Variable lease cost35 35 35 Short-term lease cost2 4 2 Less: Sublease income(3)— — Total lease cost$202 $206 $207 (1)Includes ROU lease expense of $115 million, $119 million and $124 million for fiscal 2025, 2024 and 2023, respectively.Lease costs and sublease income are included in “Cost of revenues” and “Selling, general and administrative expenses” within the consolidated statements of operations.Lease terms and discount rates related to leases were as follows:Year EndedJanuary 2,2026January 3,2025December 29,2023Weighted-average remaining lease term (in years):Finance leases3.94.45.2Operating leases9.59.97.3Weighted-average discount rate:Finance leases4.3 %4.7 %4.8 %Operating leases4.6 %4.5 %3.

Note 5—Acquisitions and DivestituresACQUISITIONSWe may acquire businesses as part of our growth strategy to provide new or enhance existing capabilities and offerings to customers. During fiscal 2025, we completed the acquisition of Savanna Industries, Inc. ("Kudu Dynamics").Kudu Dynamics AcquisitionOn May 23, 2025 (the "Purchase Date"), we completed the acquisition of 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 $231 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 Backlog112 Total$72 As of January 2, 2026 we had not finalized the determination of fair values allocated to assets and liabilities, including, but not limited to, accounts receivables, accounts payable and accrued liabilities and other long-term liabilities.For fiscal 2025, $60 million of revenues related to Kudu Dynamics were recognized within the National Security & Digital reportable segment.Integration CostsThe following expenses were incurred related to the Company’s acquisitions:Year Ended(in millions)January 2,2026January 3,2025December 29,2023Integration costs$4 $10 $19 These integration costs have been recorded across our reportable segments and to Corporate and presented in “Acquisition, integration and restructuring costs” on the consolidated statement of operations.DIVESTITURESOn October 31, 2025, the Company completed the divestiture of an immaterial business not aligned to the Company's long term strategy within the Commercial & International reportable segment. The final sales price was approximately $14 million and net assets of $9 million were divested as a result of the transaction. On October 20, 2023, we disposed of an immaterial business within our Defense Systems reportable segment. The final sales price was approximately $2 million and net assets of $7 million were divested as a result of the transaction.