Leidos Holdings, Inc. (LDOS) · Quarterly Report (10-Q) SEC Filing

Part I Financial Information Item 1. Financial Statements LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except share and per share data)July 3, 2026January 2, 2026 Assets: Cash and cash equivalents$748 $1,108 Receivables, net2,968 2,708 Inventory, net94 342 Other current assets493 656 Assets held for sale943 Total current assets5,246 4,814 Property, plant and equipment, net900 961 Intangible assets, net943 458 Goodwill7,663 6,342 Operating lease right-of-use assets, net491 526 Other long-term assets389 392 Total assets$15,632 $13,493 Liabilities: Accounts payable and accrued liabilities$2,180 $1,988 Accrued payroll and employee benefits855 819 Current portion of long-term debt22 20 Liabilities held for sale163 Total current liabilities3,220 2,827 Long-term debt, net of current portion6,009 4,628 Operating lease liabilities547 587 Other long-term liabilities520 489 Total liabilities10,296 8,531 Commitments and contingencies (Note 11) Stockholders equity: Common stock, $0.0001 par value, 500,000,000 shares authorized, 125,492,013 and 126,380,657 shares issued and outstanding at July 3, 2026, and January 2, 2026, respectively Additional paid-in capital88 319 Retained earnings5,219 4,647 Accumulated other comprehensive loss(23)(50) Total Leidos stockholders equity5,284 4,916 Non-controlling interest52 46 Total stockholders' equity5,336 4,962 Total liabilities and stockholders' equity$15,632 $13,493 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 EndedSix Months Ended (unaudited; in millions, except per share data)July 3, 2026July 4, 2025July 3, 2026 July 4, 2025 Revenues$4,558 $4,253 $8,958 $8,498 Cost of revenues3,741 3,471 7,380 6,959 Selling, general and administrative expenses283 217 506 447 Acquisition, integration and restructuring costs27 2 62 6 Equity earnings of non-consolidated subsidiaries(7)(8)(12)(15) Operating income 514 571 1,022 1,101 Non-operating expense: Interest expense, net(69)(55)(124)(104) Other income (expense), net6 2 (18)(1) Income before income taxes451 518 880 996 Income tax expense(95)(125)(189)(238) Net income 356 393 691 758 Less: net income attributable to non-controlling interest2 2 9 4 Net income attributable to Leidos common stockholders$354 $391 $682 $754 Earnings per share: Basic$2.81 $3.03 $5.41 $5.84 Diluted2.81 3.01 5.37 5.80 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 EndedSix Months Ended (unaudited; in millions)July 3, 2026 July 4, 2025July 3, 2026 July 4, 2025 Net income $356 $393 $691 $758 Foreign currency translation adjustments 4 36 12 64 Unrecognized loss on derivative instruments (1) (2) Pension adjustments(2) (1)15 (1) Total other comprehensive income, net of taxes 2 34 27 61 Comprehensive income 358 427 718 819 Less: net income attributable to non-controlling interest 2 2 9 4 Comprehensive income attributable to Leidos common stockholders $356 $425 $709 $815 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 stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Leidos stockholders' equityNon-controlling interestTotal stockholders' equity Balance at January 2, 2026126 $319 $4,647 $(50)$4,916 $46 $4,962 Net income 328 328 7 335 Other comprehensive income, net of taxes 25 25 25 Issuances of stock1 17 17 17 Repurchases of stock and other (1)(244) (244) (244) Dividends of $0.43 per share (54) (54) (54) Stock-based compensation 25 25 25 Net capital distributions to non-controlling interest (2)(2) Balance at April 3, 2026126 $117 $4,921 $(25)$5,013 $51 $5,064 Net income 354 354 2 356 Other comprehensive income, net of taxes 2 2 2 Issuances of stock 18 18 18 Repurchases of stock and other (1)(73) (73) (73) Dividends of 0.43 per share (56) (56) (56) Stock-based compensation 26 26 26 Net capital distributions to non-controlling interest (1)(1) Balance at July 3, 2026125 $88 $5,219 $(23)$5,284 $52 $5,336 Leidos Holdings, Inc. Table of Contents PART I FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY [CONTINUED] (unaudited; in millions, except per share data)Shares of common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Leidos stockholders' equityNon-controlling interestTotal stockholders' equity Balance at January 3, 2025131 $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 stock1 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, 2025129 $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, 2025128 $650 $4,061 $(49)$4,662 $45 $4,707 5 Table of Contents PART I FINANCIAL INFORMATION LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended (unaudited; in millions)July 3, 2026July 4, 2025 Cash flows from operations: Net income $691 $758 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization153 141 Stock-based compensation51 46 Deferred income taxes(2)200 20 Other14 Change in assets and liabilities, net of effects of acquisitions and dispositions: Receivables(193)(236) Other current assets and other long-term assets38 (34) Accounts payable and accrued liabilities and other long-term liabilities97 (260) Accrued payroll and employee benefits34 7 Income taxes receivable/payable191 (78) Net cash provided by operating activities1,094 544 Cash flows from investing activities: Acquisition of a business, net of cash acquired(2,338)(285) Payments for property, equipment and software(63)(51) Divestiture of a business 4 Net proceeds from sale of assets4 Other(4) Net cash used in investing activities(2,397)(336) Cash flows from financing activities: Proceeds from debt issuance1,397 997 Repayments of borrowings(10)(559) Payments for debt issuance costs(15)(7) Dividend payments(110)(105) Repurchases of stock and other(315)(537) Proceeds from issuances of stock33 31 Net capital distributions to non-controlling interests(3)(7) Other(7)(6) Net cash provided by (used in) financing activities970 (193) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 14 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] (unaudited; in millions)July 3, 2026July 4, 2025 Net (decrease) increase in cash, cash equivalents and restricted cash, including cash classified in current assets held for sale(333) 29 Less: change in cash balances classified as assets held for sale41 Net (decrease) increase in cash, cash equivalents and restricted cash(374) 29 Cash, cash equivalents and restricted cash at beginning of period1,204 991 Cash, cash equivalents and restricted cash at end of period830 1,020 Less: restricted cash at end of period82 90 Cash and cash equivalents at end of period$748 $930 Supplementary cash flow information: Cash paid for income taxes$9 $162 Cash paid for interest112 100 Non-cash investing activity: Property, plant and equipment additions$3 $4 Non-cash financing activity: Finance lease obligations$1 $ 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 50,000 global employees, Leidos' customers include the U.S. Department of War ( DoW ), 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. Beginning fiscal 2026, we completed a realignment of our reporting structure, which resulted in the identification of four reportable segments: Intelligence & Digital, Health, Homeland and Defense. Additionally, we separately present the unallocable costs associated with corporate functions as Corporate. We commenced operating and reporting under the new organizational structure effective the first day of fiscal 2026. As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure. We have a controlling interest in Hanford Mission Integration Solutions, LLC ("HMIS") and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc. 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 combined "Deferred tax assets" with "Other long-term assets" and "Deferred tax liabilities" with "Other long-term liabilities" on the condensed consolidated balance sheets. 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 17, 2026. 8 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ACCOUNTING STANDARDS UPDATES ADOPTED 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. Effective fiscal 2026, we adopted the requirements of ASU 2025-06, using the prospective method. The adoption did not have a material impact on our consolidated financial statements and related disclosures. ACCOUNTING STANDARDS UPDATES ISSUED BUT NOT YET ADOPTED ASU 2024-03 Disaggregation of Income Statement Expenses In November 2024, the FASB issued ASU 2024-03, to enhance the transparency of certain expense disclosures. The update requires disclosure of specific expense categories in the notes to the financial statements at interim and annual reporting periods. The update requires disaggregated information about certain prescribed expense categories underlying any relevant income statement expense caption. The amendments in this update are effective for public entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The amendments may be adopted either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impacts of this update and plan to adopt these amendments for annual disclosures in fiscal 2027 and interim disclosures in fiscal 2028. CHANGES IN ESTIMATES ON CONTRACTS 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 EndedSix Months Ended (in millions, except per share data)July 3, 2026 July 4, 2025July 3, 2026July 4, 2025 Favorable impact$46 $42 $83 $95 Unfavorable impact(20)(34)(66)(57) Net impact to income before income taxes$26 $8 $17 $38 Impact on diluted EPS attributable to Leidos common stockholders $0.15 $0.05 $0.10 $0.22 The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate. Revenue Recognized from Prior Obligations We recognized revenue of $21 million and $8 million from performance obligations satisfied in previous periods for the three and six months ended July 3, 2026, respectively, compared to $3 million and $24 million for the three and six months ended July 4, 2025, respectively.The changes primarily relate to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance. Leidos Holdings, Inc. 9 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 July 3, 2026, we had $20 billion of RPO and expect to recognize approximately 63% 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 July 3, 2026 (in millions)Intelligence & Digital Health Homeland Defense Total DoW and U.S. Intelligence Community$1,097 $219 $18 $902 $2,236 Other U.S. government agencies(1) 379 852 298 19 1,548 Commercial and non-U.S. customers 13 15 702 34 764 Total$1,489 $1,086 $1,018 $955 $4,548 Intelligence & DigitalHealthHomelandDefenseTotal$975 $252 $13 $825 $2,065 408 902 280 34 1,624 10 16 478 40 544 $1,393 $1,170 $771 $899 $4,233 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Six Months Ended July 3, 2026 (in millions)Intelligence & Digital Health Homeland Defense Total DoW and U.S. Intelligence Community $2,175 $468 $38 $1,724 $4,405 Other U.S. government agencies(1) 782 1,776 570 46 3,174 Commercial and non-U.S. customers29 30 1,225 68 1,352 Total$2,986 $2,274 $1,833 $1,838 $8,931 Intelligence & DigitalHealthHomelandDefenseTotal$1,933 $521 $36 $1,634 $4,124 837 1,800 555 68 3,260 20 32 949 76 1,077 $2,790 $2,353 $1,540 $1,778 $8,461 Intelligence & Digital Health Homeland Defense Total$904 $388 $193 $541 $2,026 352 665 516 329 1,862 233 33 309 85 660 $1,489 $1,086 $1,018 $955 $4,548 Intelligence & DigitalHealthHomelandDefenseTotal$793 $374 $156 $528 $1,851 355 761 433 278 1,827 245 35 182 93 555 $1,393 $1,170 $771 $899 $4,233 Intelligence & Digital Health Homeland Defense Total$1,808 $816 $367 $1,063 $4,054 696 1,395 951 603 3,645 482 63 515 172 1,232 $2,986 $2,274 $1,833 $1,838 $8,931 11 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Intelligence & DigitalHealthHomelandDefenseTotal$1,588 $781 $325 $1,045 $3,739 698 1,496 867 535 3,596 504 76 348 198 1,126 $2,790 $2,353 $1,540 $1,778 $8,461 Intelligence & Digital Health Homeland Defense Total$1,488 $1,086 $626 $944 $4,144 1 392 11 404 $1,489 $1,086 $1,018 $955 $4,548 Intelligence & DigitalHealthHomelandDefenseTotal$1,392 $1,170 $445 $886 $3,893 1 326 13 340 $1,393 $1,170 $771 $899 $4,233 Intelligence & Digital Health Homeland Defense Total$2,985 $2,274 $1,092 $1,819 $8,170 1 741 19 761 $2,986 $2,274 $1,833 $1,838 $8,931 Intelligence & DigitalHealth HomelandDefense Total$2,789 $2,353 $878 $1,754 $7,774 1 662 24 687 $2,790 $2,353 $1,540 $1,778 $8,461 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 unconditional and not billed. 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 itemJuly 3, 2026January 2, 2026 Contract assets - current: Unbilled receivablesReceivables, net$918 $894 Contract liabilities - current: Deferred revenue(1) Accounts payable and accrued liabilities$359 $348 Contract liabilities - non-current: Deferred revenue(1) Other long-term liabilities$2 $6 (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 the acquisition of Entrust (see "Note 3 Acquisitions and Divestitures") and revenue recognized on certain contracts, partially offset by the timing of billings on certain contracts. For the three and six months ended July 3, 2026, $20 million and $76 million, respectively, of revenue recognized was included as a contract liability at January 2, 2026. For the three and six months ended July 4, 2025, $62 million and $199 million, respectively, of revenue recognized was included as a contract liability at January 3, 2025. Note 3 Acquisitions and Divestitures ACQUISITIONS Entrust Acquisition On March 27, 2026, ("Acquisition Date"), Leidos, Inc. completed the acquisition of KENE Holdings, L.P. and KENE Parent Inc. ("Entrust") to acquire all of the shares of Entrust for a purchase price of $2.4 billion in cash, subject to customary adjustments for Entrust s cash, debt, transaction expenses and net working capital. Entrust is an engineering firm that provides infrastructure design, grid modernization and program management services primarily to electric, gas and pipeline utilities. This acquisition enhances existing energy infrastructure capabilities within our Homeland reportable segment. The preliminary fair values of the assets acquired and liabilities assumed at the Acquisition Date were as follows (in millions): Cash and cash equivalents$47 Receivables162 Other current assets18 Property, plant and equipment12 Intangible assets664 Operating lease right-of-use assets22 Deferred tax liabilities (75) Accounts payable and accrued liabilities(75) Accrued payroll and employee benefits(21) Operating lease liabilities(18) Total identifiable net assets acquired736 Goodwill1,652 Purchase price$2,388 Due to the timing and complexity of the acquisition, the assets acquired and liabilities assumed were recorded at their preliminary estimated fair values. As of July 3, 2026, we had not finalized the determination of fair values for substantially all of the acquired assets and liabilities assumed. The preliminary purchase price allocation is subject to change as we complete Leidos Holdings, Inc. 13 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) our determination of the final working capital and the fair value of the acquired assets and liabilities assumed, the impact of which could be material. The goodwill represents intellectual capital and the acquired assembled workforce, neither of which qualify for recognition as a separate intangible asset. Of the preliminary goodwill recognized, approximately $119 million is tax deductible. The acquired customer relationships and backlog 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. The following table summarizes the preliminary fair value of intangible assets acquired at the Acquisition Date and the related weighted average amortization period: Weighted Amortization Period Fair Value (in years) (in millions) Customer relationships10$621 Backlog243 $664 For the three and six months ended July 3, 2026, $141 million and $152 million, respectively, of revenues related to Entrust were recognized within the Homeland reportable segment. Pro Forma Financial Information The following pro forma financial information presents consolidated results of operations as if the acquisition of Entrust had occurred on January 4, 2025. The pro forma financial information was prepared based on historical financial information and has been adjusted to give effect to the events that are directly attributable to the acquisition of Entrust and factually supportable. These adjustments include amortization and interest expense that are directly attributable to the acquisition. The pro forma results below do not reflect future events that have occurred or may occur after the acquisition, including anticipated synergies or other expected benefits that may be realized from the acquisition. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the acquisition had been completed on January 4, 2025, nor is it intended to be an indication of future operating results. Three Months EndedSix Months Ended (in millions, except per share amounts)July 3, 2026July 4, 2025July 3, 2026July 4, 2025 Revenues$4,558 $4,394 $9,086 $8,772 Net income355 390 697 730 Net income attributable to Leidos common stockholders353 388 688 726 Earnings per share: Basic$2.80 $3.01 $5.46 $5.63 Diluted2.80 2.98 5.41 5.59 The pro forma financial information above includes the following nonrecurring significant adjustment made to account for certain costs incurred as if the acquisition had been completed on January 4, 2025: uAcquisition-related costs of $1 million and $30 million for the three and six months ended July 3, 2026, respectively, were excluded from the pro forma financial information for fiscal 2026 and were included in the pro forma financial information for fiscal 2025. 14 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Kudu Dynamics Acquisition On May 23, 2025 (the "Purchase Date"), we completed the acquisition of Savanna Industries, Inc. ("Kudu Dynamics") for purchase consideration of $293 million, net of $29 million of cash acquired. The final 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 $72 For the three and six months ended July 3, 2026, $17 million and $39 million, respectively, of revenues related to Kudu Dynamics were recognized within the Intelligence & Digital reportable segment. Acquisition, Integration and Restructuring Costs The following expenses were incurred related to the Company's acquisitions, integration and restructuring activities: Three Months Ended Six Months Ended (in millions) July 3, 2026July 4, 2025 July 3, 2026July 4, 2025 Acquisition costs$ $ $29 $ Integration costs3 1 4 1 Restructuring costs27 1 37 5 Total acquisition, integration and restructuring costs$30 $2 $70 $6 These costs were recorded within the Homeland, Health and Intelligence & Digital reportable segments and Corporate, and presented in "Acquisition, integration and restructuring costs," "Cost of revenues," "Selling, general and administrative expenses," and "Interest expense, net" on the condensed consolidated statements of operations. DIVESTITURES On April 14, 2026, Leidos, Inc. entered into a Contribution and Equity Purchase Agreement with certain affiliates of Altaris, LLC to form a new joint venture. The transaction will involve divesting our Security Enterprise Solutions and Industrial Automation businesses ("SES Business"), which will be combined with Analogic Corporation, a portfolio company of Altaris, LLC, in a newly formed joint venture. The joint venture will primarily focus on security product innovation, research and development, manufacturing, screening technologies, artificial Intelligence and 3D imaging solutions. The divestiture of the SES Business is expected to be completed during the second half of fiscal 2026. Upon close of the transaction, Leidos will retain a 41.5% non-controlling equity interest and Altaris will retain a 58.5% controlling interest in the new joint venture. The Company has presented the associated assets and liabilities of the SES Business as held for sale in the Company's condensed consolidated balance sheet as of July 3, 2026. The major classes of assets and liabilities classified as held for sale were as follows: Leidos Holdings, Inc. 15 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in millions) July 3, 2026 Cash and cash equivalents$41 Receivables, net94 Inventory, net250 Other current assets14 Property, plant and equipment, net36 Intangible assets, net112 Goodwill337 Operating lease right-of-use assets, net46 Other long-term assets5 Total assets held for sale$935 Accounts payable and accrued liabilities$76 Accrued payroll and employee benefits18 Operating lease liabilities45 Other long-term liabilities 24 Total liabilities held for sale $163 Upon consummation of the transaction, Leidos will deconsolidate the SES Business and account for our 41.5% minority interest in the joint venture as an equity method investment. As the divestiture of the SES Business does not represent a material strategic shift in operations, the SES Business will not be presented as a discontinued operation. During the quarter ended July 3, 2026, we also reclassified $8 million of aircraft from "Property, plant and equipment, net" to "Assets held for sale" on the condensed consolidated balance sheets, following the execution of sale agreements for those aircraft. The sales are expected to be finalized during the second half of fiscal 2026. Note 4 Goodwill and Intangible Assets GOODWILL Beginning the first day of fiscal 2026, we completed a business realignment, which resulted in new reportable segments (see "Note 10 Business Segments"). Goodwill was allocated to reporting units within the new reportable segments based on a relative fair value approach. The following table presents changes in the carrying amount of goodwill by reportable segment: (in millions)Intelligence & Digital Health Homeland Defense Total Goodwill at January 3, 2025(1) $2,007 $1,336 $950 $1,791 $6,084 Acquisition of a business 231 231 Divestiture of a business (7) (7) Foreign currency translation adjustments 34 34 Goodwill at January 2, 2026(1) 2,238 1,336 977 1,791 6,342 Acquisition of a business 1,652 1,652 Foreign currency translation adjustments 6 6 Transfers to assets held for sale (337) (337) Goodwill at July 3, 2026 $2,238 $1,336 $2,298 $1,791 $7,663 (1) Carrying amount includes accumulated impairment loss of $596 million within the Homeland segment, which is part of the SES Business discussed above. 16 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) We evaluate qualitative factors that could cause us to consider whether the estimated fair value of each of our reporting units may be lower than the carrying value, 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. In conjunction with the change in reportable segments in fiscal 2026, the Company evaluated goodwill for impairment immediately before and after the change and determined that goodwill was not impaired. During the three and six months ended July 3, 2026, and July 4, 2025, there were no impairments to goodwill. INTANGIBLE ASSETS Intangible assets, net consisted of the following: July 3, 2026January 2, 2026 (in millions)Gross carrying valueAccumulated amortizationNet carrying valueGross carrying valueAccumulated amortizationNet carrying value Customer relationships $662 $(37)$625 $53 $(34)$19 Programs 1,626 (1,359)267 1,748 (1,391)357 Backlog 55 (20)35 12 (7)5 Software and technology 93 (77)16 264 (187)77 Total intangible assets$2,436 $(1,493)$943 $2,077 $(1,619)$458 Amortization expense was $40 million and $70 million for the three and six months ended July 3, 2026, respectively, and $32 million and $62 million for the three and six months ended July 4, 2025, respectively. The estimated annual amortization expense as of July 3, 2026, was as follows: Fiscal year ending (in millions) 2026 (remainder of year)$74 2027155 2028150 2029135 2030116 2031 and thereafter313 $943 Note 5 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). The carrying amounts of our financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their respective fair values. We are a limited partner in an investment fund. The investment s fair value is measured using the net asset value ("NAV") practical expedient and is therefore excluded from the fair value hierarchy. Estimated fair value is based on our proportionate share of the fund s NAV. As of July 3, 2026, and January 2, 2026, the fair value of debt was $6.0 billion and $4.7 billion, respectively, and the carrying amount was $6.0 billion and $4.6 billion, respectively (see "Note 6 Debt"). The fair value of long-term debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements and our credit rating (Level 2 inputs). The assets and liabilities acquired in connection with the Kudu Dynamics and Entrust acquisitions were measured at fair value on a non-recurring basis using Level 3 inputs (see "Note 3 Acquisitions and Divestitures"). Leidos Holdings, Inc. 17 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 rateEffective interest rateJuly 3, 2026January 2, 2026 Senior unsecured term loan: $1,000 million term loan, due March 2028 4.97%5.11%$500 $500 Senior unsecured notes: $600 million notes, due March 2029 4.10%4.20%600 $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%500 500 $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%500 500 $800 million notes, due March 2036 5.00%5.03%800 $300 million notes, due December 2040 5.95%6.03%218 218 Finance leases due on various dates through fiscal 2032Various2.28%-6.31% 45 54 Less: unamortized debt discounts and deferred debt issuance costs(43)(35) Total long-term debt6,031 4,648 Less: current portion (22)(20) Total long-term debt, net of current portion$6,009 $4,628 REVOLVING CREDIT FACILITY On February 12, 2026, we amended and restated our existing senior unsecured revolving credit facility (the Revolving Facility ) to increase the borrowing capacity from $1.0 billion to $1.5 billion. The Revolving Facility will mature in February 2031 and permits two additional one-year extensions subject to lender consent. Borrowings under the Revolving Facility will bear interest at a rate determined, at the Company's option, based on either an alternate base rate or term SOFR rate, plus an applicable margin and is subject to an annual commitment fee rate of 0.11% on the unused credit availability. As of July 3, 2026, and January 2, 2026, there were no borrowings outstanding under the Revolving Facility. SENIOR NOTES On March 2, 2026, we issued and sold $600 million senior notes maturing in March 2029 (the "2029 Notes") and $800 million senior notes maturing in March 2036 (the "2036 Notes", and together with the 2029 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 2029 Notes and the 2036 Notes are 4.10% and 5.00%, 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 18 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) recorded as an offset against the carrying value of debt. 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. BRIDGE FACILITY In connection with the acquisition of Entrust, we entered into an agreement with Citigroup Global Markets Inc., which provided for a senior unsecured 364-day bridge loan facility in an aggregate principal amount of $1.4 billion (the "Bridge Facility"). The Bridge Facility was undrawn and terminated following the issuance of the Notes. As a result, we recognized $5 million of fees which were recorded within "Interest expense, net" on the condensed consolidated statements of operations. 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 $1.5 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 $0.25 million and have maturities of up to 397 days from the date of issuance. The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount. As of July 3, 2026, and January 2, 2026, we did not have any Commercial Paper Notes outstanding. COVENANTS The Revolving Facility, Commercial Paper Notes, senior unsecured term loan and notes are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances. The financial covenants in the Revolving Facility and the senior unsecured term loan require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00. We were in compliance with all financial covenants as of July 3, 2026. Note 7 Accumulated Other Comprehensive Income (Loss) Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows: (in millions)Foreign currency translation adjustmentsUnrecognized gain (loss) on derivative instrumentsPension adjustmentsTotal AOCI Balance at January 3, 2025$(98)$1 $(13)$(110) Other comprehensive income (loss)74 1 (3)72 Taxes(8)(1)1 (8) Reclassification from AOCI (4) (4) Balance at January 2, 2026(32)(3)(15)(50) Other comprehensive income13 20 33 Taxes(1) (5)(6) Balance at July 3, 2026$(20)$(3)$ $(23) Reclassifications from unrecognized gain (loss) on derivative instruments are recorded in "Interest expense, net" in the condensed consolidated statements of operations. On May 20, 2022, the trustee of our UK defined benefit pension plan (the Plan ) invested the assets of the Plan in a bulk purchase annuity policy to fully insure the benefits payable to the members of the Plan. The transaction was structured to enable a full buy-out, at which time the insurer would assume direct responsibility for all future pension obligations. Leidos Holdings, Inc. 19 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) On February 11, 2026, the Plan completed a full buy-out, thus relieving the Company of future pension obligations. As a result, we recognized a $23 million settlement loss primarily related to the unamortized loss previously recorded within AOCI. The settlement loss was recorded in "Other income (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 EndedSix Months Ended (in millions)July 3, 2026July 4, 2025July 3, 2026July 4, 2025 Basic weighted average number of shares outstanding126129126129 Dilutive common share equivalents stock options and other stock awards 111 Diluted weighted average number of shares outstanding126130127130 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 1.0 million for the three and six months ended July 3, 2026, and less than 0.5 million for the three and six months ended July 4, 2025. During the three and six months ended July 3, 2026, we made open market repurchases of our common stock for an aggregate purchase price of $66 million and $266 million, respectively. All repurchased shares were immediately retired. There were no open market repurchases during the three and six months ended July 4, 2025. In fiscal 2025, we entered into an accelerated share repurchase agreement with a financial institution to repurchase shares of our outstanding common stock. We paid $500 million to the financial institution and received 3.6 million shares. Note 9 Income Taxes 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. 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. Beginning in fiscal 2026, we realigned our business to report in five operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280: Intelligence & Digital, Health, Homeland and Defense. Our reportable segments are focused on specific, defined capability sets that we bring to our customers. Additionally, we separately present the unallocable costs associated with corporate functions as Corporate. As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure. Our Intelligence & Digital business delivers mission-focused capabilities to the U.S. federal government and the U.S. Intelligence Community. The business integrates intelligence tradecraft, full-spectrum cyber capabilities, and advanced technical solutions at scale to improve decision-making across large, distributed mission networks and classified environments. We conduct technological research and development, software engineering, modeling and simulation, advanced analytics, network modernization, artificial intelligence development, and IT service management, modernizing critical systems and enabling resilient, high-performing mission operations. Our Health business delivers services and solutions to federal and commercial customers in areas of public health, care coordination, and life and environmental sciences. Our offerings include IT infrastructure modernization, software development, research and implementation, response to hazardous material incidents, mission software solutions and wellness exams. 20 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Our Homeland business serves five markets: air traffic, airports and borders, security equipment, commercial energy engineering and international. We provide safety critical software for the automation of air traffic both domestically and internationally. Additionally, we provide protection of the borders and airports through software and logistics programs. We provide security equipment for various end users. Internationally, we support defense and other government customers with software development programs, data analytics, information technology and intelligence operations. Our Defense business develops and produces advanced space, aerial, surface, and sub-surface manned and un-manned defense systems. Our offerings include manufacturing, prototyping, weapons development, analytics and other advanced defense services. Corporate includes the operations of various corporate activities, certain corporate expense items that are not reimbursed by our U.S. government customers and certain other expense items excluded from a reportable segment's performance. The following table summarizes business segment information for the periods presented: Three Months Ended July 3, 2026 (in millions)Intelligence & DigitalHealthHomelandDefenseTotal Revenues$1,499 $1,086 $1,018 $955 $4,558 Less: Direct labor386 197 222 214 1,019 Amortization of intangible assets7 3 19 11 40 Other segment expense964 632 685 646 2,927 Segment operating income$142 $254 $92 $84 $572 Corporate expense58 Total operating income$514 Three Months Ended July 4, 2025 (in millions)Intelligence & DigitalHealthHomelandDefenseTotal Revenues$1,408 $1,175 $771 $899 $4,253 Less: Direct labor 374 199 161 204 938 Amortization of intangible assets7 6 7 12 32 Other segment expense892 667 539 605 2,703 Segment operating income $135 $303 $64 $78 $580 Corporate expense 9 Total operating income$571 Leidos Holdings, Inc. 21 Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Six Months Ended July 3, 2026 (in millions)Intelligence & DigitalHealthHomelandDefenseTotal Revenues$3,012 $2,274 $1,834 $1,838 $8,958 Less: Direct labor786 397 400 438 2,021 Amortization of intangible assets15 7 26 22 70 Other segment expense1,923 1,332 1,283 1,232 5,770 Segment operating income$288 $538 $125 $146 $1,097 Corporate expense75 Total operating income$1,022 Six Months Ended July 4, 2025 (in millions)Intelligence & DigitalHealthHomelandDefenseTotal Revenues$2,816 $2,363 $1,541 $1,778 $8,498 Less: Direct labor 757 405 323 412 1,897 Amortization of intangible assets12 12 14 24 62 Other segment expense1,780 1,355 1,079 1,190 5,404 Segment operating income$267 $591 $125 $152 $1,135 Corporate expense 34 Total operating income$1,101 The statement of operations performance measures used to evaluate segment performance are revenues and operating income. As a result, "Interest expense, net," "Other income (expense), net" and "Income tax expense" as reported in the condensed consolidated statements of operations are not allocated to our segments. Other segment expenses include direct program costs such as material and subcontractor expenses, as well as allocable indirect costs such as depreciation and Corporate compensation expenses, but excludes direct labor which is separately presented above. The Health and Defense segments also include equity earnings of non-consolidated subsidiaries within operating income. 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. 22 Leidos Holdings, Inc. Table of Contents LEIDOS HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 July 3, 2026, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2024 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 July 3, 2026, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs. Other Government Investigations and Reviews 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 July 3, 2026, we have outstanding letters of credit of $111 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $154 million, principally related to performance and subcontractor payment bonds on contracts. The value of the surety bonds may vary due to changes in the underlying project status and/or contractual modifications. As of July 3, 2026, we invested $18 million in an investment fund as a limited partner and have committed to invest an additional $82 million over the next five years. The timing of our capital contributions is uncertain. As of July 3, 2026, the future expirations of the outstanding letters of credit and surety bonds were as follows: Fiscal year ending (in millions) 2026 (remainder of year)$134 202748 202873 20299 2030 2031 and thereafter1 $265 Leidos Holdings, Inc. 23 Table of Contents PART I FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations, and quantitative and qualitative discussion about business environment and trends should be read in conjunction with Leidos' condensed consolidated financial statements and related notes. The following discussion contains forward-looking statements, including statements regarding our intent, belief or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, our industry, the impact of our merger and acquisition activity, government budgets and spending, our business contingency plans, interest rates and uncertainties in tax due to new tax legislation or other regulatory developments. In some cases, forward-looking statements can be identified by words such as will, expect, estimate, plan, potential, continue or similar expressions. Such statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward-looking statements as a result of various factors. Some of these factors include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K, as updated by the risk factor in this report under Part II, Item 1A. "Risk Factors" and as may be further updated in subsequent filings with the U.S. Securities and Exchange Commission. Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments. Unless indicated otherwise, references in this report to "we," "us" and "our" refer collectively to Leidos and its consolidated subsidiaries. OVERVIEW 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 50,000 global employees, we pursue strategic growth across five pillars: defense tech; energy infrastructure; cyber; mission and digital solutions; and managed health services. Our customers include the U.S. Department of War ( DoW ), 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. Beginning in fiscal 2026, we realigned our business and operate in four reportable segments that are focused on specific, defined capability sets we bring to our customers. As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure. We now operate in the following reportable segments: Intelligence & Digital, Health, Homeland and Defense. We also separately present the unallocable costs associated with corporate functions as Corporate (see "Note 10 Business Segments"). BUSINESS ENVIRONMENT AND TRENDS U.S. GOVERNMENT MARKETS 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. government. 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. 24 Leidos Holdings, Inc. Table of Contents PART I FINANCIAL INFORMATION INTERNATIONAL MARKETS 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. Our international business increases our exposure to international markets and the associated international regulatory, foreign currency exchange rate and geopolitical risks. Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the cost of certain goods necessary to fulfill our contractual requirements and for internal purposes. We expect to recover certain portions of the increase to the cost of goods through contractual measures. While we continue to evaluate the tariff environment and potential impacts of higher tariffs, we currently do not expect them to have a significant effect on our business. RESULTS OF OPERATIONS The following table summarizes our condensed consolidated results of operations for the periods presented: Three Months EndedSix Months Ended (dollars in millions)July 3, 2026 July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Revenues$4,558 $4,253 7.2%$8,958 $8,498 5.4% Operating income 514 571 (10.0%)1,022 1,101 (7.2%) Non-operating expense, net (63) (53)18.9%(142) (105)35.2% Income before income taxes451 518 (12.9%)880 996 (11.6%) Income tax expense(95) (125)(24.0%)(189) (238)(20.6%) Net income356 393 (9.4%)691 758 (8.8%) Net income attributable to Leidos common stockholders$354 $391 (9.5)%$682 $754 (9.5)% Operating margin11.3% 13.4%11.4% 13.0% SEGMENT AND CORPORATE RESULTS Three Months EndedSix Months Ended Intelligence & Digital (dollars in millions) July 3, 2026 July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Revenues$1,499 $1,408 6.5%$3,012 $2,816 7.0% Operating income142 135 5.2%288 267 7.9% Operating margin9.5%9.6%9.6% 9.5% 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. 25 Table of Contents PART I FINANCIAL INFORMATION Three Months EndedSix Months Ended Health (dollars in millions) July 3, 2026 July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Revenues$1,086 $1,175 (7.6%)$2,274 $2,363 (3.8%) Operating income254 303 (16.2%)538 591 (9.0%) Operating margin23.4%25.8%23.7% 25.0% 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 EndedSix Months Ended Homeland (dollars in millions) July 3, 2026July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Revenues$1,018 $771 32.0%$1,834 $1,541 19.0% Operating income92 64 43.8%125 125 % Operating margin9.0%8.3%6.8% 8.1% 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 EndedSix Months Ended Defense (dollars in millions) July 3, 2026July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Revenues$955 $899 6.2%$1,838 $1,778 3.4% Operating income84 78 7.7%146 152 (3.9%) Operating margin8.8%8.7%7.9% 8.5% The increase in revenues for the three and six months ended July 3, 2026, as compared to the three and six months ended July 4, 2025, was primarily attributable to program wins and increased volumes on existing contracts, partially offset by the completion of certain contracts. The increase in operating income for the three months ended July 3, 2026, as compared to the three months ended July 4, 2025, was primarily attributable to program wins, partially offset by the completion of certain contracts. The decrease in operating income for the six months ended July 3, 2026, as compared to the six months ended July 4, 2025, was primarily attributable to the completion of higher-margin contracts, partially offset by program wins. Three Months EndedSix Months Ended Corporate (dollars in millions) July 3, 2026July 4, 2025Percent changeJuly 3, 2026 July 4, 2025Percent change Operating loss$(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. 26 Leidos Holdings, Inc. Table of Contents 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 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 $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: July 3, 2026July 4, 2025 (in millions)FundedUnfundedTotalFundedUnfundedTotal Intelligence & Digital$1,922 $16,492 $18,414 $1,667 $16,081 $17,748 Health 1,242 5,369 6,611 504 7,522 8,026 Homeland3,669 6,261 9,930 2,918 6,920 9,838 Defense3,390 10,366 13,756 2,033 8,565 10,598 Total$10,223 $38,488 $48,711 $7,122 $39,088 $46,210 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. Backlog does not include potential task orders expected to be awarded under multiple award IDIQ contracts. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW OF LIQUIDITY 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. 27 Table of Contents 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. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Stock repurchases of Leidos common stock may be made on the open market or in privately negotiated transactions with third parties including through accelerated share repurchase agreements. Whether repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors including price, corporate capital requirements, other market conditions and regulatory requirements. 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 $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. For the next 12 months, we anticipate that we will be able to meet our liquidity needs, including servicing our debt, through cash generated from operations, available cash balances, borrowings from our commercial paper program and, if needed, sales of accounts receivable and borrowings from our revolving credit facility. SUMMARY OF CASH FLOWS The following table summarizes cash flow information for the periods presented: Three Months EndedSix Months Ended (in millions)July 3, 2026 July 4, 2025July 3, 2026July 4, 2025 Net cash provided by operating activities $793 $486 $1,094 $544 Net cash used in investing activities(38)(314)(2,397)(336) 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. 28 Leidos Holdings, Inc. Table of Contents 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 We have outstanding performance guarantees and cross-indemnity agreements in connection with certain aspects of our business and future commitments related to an investment fund. We also have letters of credit outstanding principally related to performance guarantees on contracts and surety bonds outstanding principally related to performance and subcontractor payment bonds as described in "Note 11 Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. 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. GUARANTOR AND ISSUER OF GUARANTEED SECURITIES Leidos Holdings, Inc. ( Guarantor ) has fully and unconditionally guaranteed the debt securities of its subsidiary, Leidos, Inc. ( Issuer ), that were issued pursuant to transactions that were registered under the Securities Act of 1933, as amended (collectively, the Registered Notes ). The following is a list of the Registered Notes guaranteed by Leidos Holdings, Inc. Senior unsecured Registered Notes issued by Leidos, Inc.: $600 million 4.100% notes, due March 2029 $750 million 4.375% notes, due May 2030 $1,000 million 2.300% notes, due February 2031 $500 million 5.400% notes, due March 2032 $750 million 5.750% notes, due March 2033 $500 million 5.500% notes, due March 2035 $800 million 5.000% notes, due March 2036 Leidos Holdings, Inc. has also fully and unconditionally guaranteed debt securities of Leidos, 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 Holdings, Inc. Senior unsecured unregistered debt securities issued by Leidos, Inc.: $250 million 7.125% notes, due July 2032 $300 million 5.500% notes, due July 2033 Additionally, Leidos, Inc. 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. Senior unsecured unregistered debt securities issued by Leidos Holdings, Inc.: $300 million 5.950% notes, due December 2040 The following summarized financial information includes the assets, liabilities and results of operations for the Guarantor and Issuer of the Registered Notes described above. Intercompany balances and transactions between the Issuer and Guarantor have been eliminated from the financial information below. Investments in the consolidated subsidiaries of the Issuer and Guarantor that do not guarantee the senior unsecured notes have been excluded from the financial information. Intercompany payables represent amounts due to non-guarantor subsidiaries of the Issuer. Leidos Holdings, Inc. 29 Table of Contents PART I FINANCIAL INFORMATION BALANCE SHEET INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES (in millions)July 3, 2026January 2, 2026 Total current assets$2,845 $3,036 Goodwill5,424 5,666 Other long-term assets1,145 1,250 Total assets$9,414 $9,952 Total current liabilities$2,169 $1,954 Long-term debt, net of current portion6,009 4,628 Intercompany payables5,324 4,706 Other long-term liabilities930 942 Total liabilities$14,432 $12,230 STATEMENT OF OPERATIONS INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES Six Months Ended (in millions)July 3, 2026 Revenues, net$5,473 Operating income400 Net loss attributable to Leidos common stockholders (25) CONTRACTUAL OBLIGATIONS AND COMMITMENTS We are subject to a number of reviews, investigations, claims, lawsuits, other uncertainties and future obligations related to our business. For a discussion of these items, see "Note 11 Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. CRITICAL ACCOUNTING POLICIES AND ESTIMATES There were no material changes to our critical accounting policies, estimates or judgments that would have a significant impact on earnings during the period covered by this report from those discussed in our Annual Report on Form 10-K for the year ended January 2, 2026. RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS For a discussion of these items, see "Note 1 Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. 30 Leidos Holdings, Inc. Table of Contents PART I FINANCIAL INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in our market risk exposure from those discussed in our Annual Report on Form 10-K for the year ended January 2, 2026. Item 4. Controls and Procedures EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of July 3, 2026. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING On March 27, 2026, we completed the acquisition of Entrust and are in the process of integrating the company into our system of internal control over financial reporting. Other than the Entrust integration, there have been no changes in our internal control over financial reporting during the quarter ended July 3, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Leidos Holdings, Inc. 31 Table of Contents Part II Other Information Item 1. Legal Proceedings We have furnished information relating to legal proceedings, and any investigations and reviews that we are involved with in "Note 11 Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. Item 1A. Risk Factors There were no material changes to the risks described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended January 2, 2026. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (a)None (b)None (c)Purchases of Equity Securities by the Issuer The following table presents information related to the repurchases of our common stock during the quarter ended July 3, 2026. PeriodTotal Number of Shares(1) (or Units) Purchased Average Price Paid per Share (or Unit)Total Number of Shares (or Units) Purchased as Part of Publicly Announced Repurchase Plans or Programs(2) Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) April 4, 2026 - April 30, 2026 $ 512,468 May 1, 2026 - May 31, 2026512,469 (3) 128.04 512,469 June 1, 2026 - June 30, 202631,440 107.12 July 1, 2026 - July 3, 2026 Total543,909 $126.83 512,469 (1)The total number of shares purchased includes shares surrendered to satisfy statutory tax withholding obligations related to vesting of restricted stock units. (2)In February 2022, our Board of Directors authorized a share repurchase program of up to 20 million shares of our outstanding common stock. The shares may be repurchased from time to time in one or more open market repurchases or privately negotiated transactions, including accelerated share repurchase transactions. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the market price of our common stock, general market and economic conditions, applicable legal requirements, compliance with the terms of our outstanding indebtedness and other considerations. There is no assurance as to the number of shares that will be repurchased, and the repurchase program may be suspended or discontinued at any time at our Board of Directors' discretion. In July 2026, our Board of Directors authorized a revised share repurchase program of up to 20 million shares of our outstanding common stock. This updated authorization replaced the 2022 authorization with the same terms as the 2022 authorization. (3)On July 31, 2026, our Board of Directors ratified the purchase of one share of common stock inadvertently purchased in excess of the previously authorized share repurchase program. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. 32 Leidos Holdings, Inc. Table of Contents PART II OTHER INFORMATION Item 5. Other Information RULE 10B5-1 TRADING ARRANGEMENT During the three months ended July 3, 2026, no director or officer of the Company adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(c) of Regulation S-K. Leidos Holdings, Inc. 33 Table of Contents PART II OTHER INFORMATION