12 (7)5 — — — Total finite-lived intangible assets2,077 (1,619)458 1,999 (1,486)513 Indefinite-lived intangible assets: Trade names— — — 4 — 4 Total intangible assets$2,077 $(1,619)$458 $2,003 $(1,486)$517 Our strategic decisions regarding SES’ product offerings and operating regions (see the goodwill discussion above) caused certain technology, customer relationships and in-process research and development ("IPR&D") intangible assets to be abandoned and the carrying values of certain program intangible assets to become unrecoverable. As a result, we recognized intangible asset impairment charges of $79 million for fiscal 2023, which included $33 million for IPR&D intangible assets. The impairment was recorded to “Asset impairment charges” in the consolidated statements of operations within the Commercial & International reportable segment. In the event that we are required to make an additional impairment of goodwill at a future date or if other events occur that negatively impact these intangible assets, we may also be required to record an additional impairment of intangible assets at that time.Amortization expense related to intangible assets was $130 million, $147 million and $202 million for fiscal 2025, 2024 and 2023, respectively. The estimated annual amortization expense related to finite-lived intangible assets as of January 2, 2026, is as follows:Fiscal year ending (in millions) 2026$111 202785 202876 202963 203050 2031 and thereafter 73 $458 Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors.80Leidos Holdings, Inc. Annual ReportLEIDOS HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 9—Property, Plant and Equipment Property, plant and equipment, net consisted of the following: (in millions)January 2,2026January 3,2025Computers and other equipment$474 $473 Leasehold improvements590 567 Vehicles and transportation equipment400 321 Buildings and improvements137 137 Office furniture and fixtures79 78 Land17 17 Construction-in-progress84 107 1,781 1,700 Less: accumulated depreciation and amortization(820)(709) $961 $991 Depreciation expense was $160 million, $143 million and $129 million for fiscal 2025, 2024 and 2023, respectively. 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.Leidos Holdings, Inc. Annual Report81Total 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 %3.7 %Other information related to leases was as follows:Year Ended(in millions)January 2,2026January 3,2025December 29,2023Cash paid for amounts included in measurement of lease liabilities:Operating cash related to finance leases$3 $4 $4 Operating cash related to operating leases165 163 167 Financing cash flows related to finance leases19 18 17 ROU assets obtained in exchange for lease liabilities:Finance lease liabilities$— $— $63 Operating lease liabilities69 236 97 82Leidos Holdings, Inc. Annual ReportFuture minimum lease commitments of our finance and operating leases on an undiscounted basis, reconciled to the respective lease liability at January 2, 2026, were as follows:Fiscal Year Ending (in millions)Finance lease commitmentsOperating lease commitments2026$22 $134 202715 $106 20285 $102 20295 $88 20305 $80 2031 and thereafter6 376 Total undiscounted cash flows58 886 Less: imputed interest(4)(192)Lease liability as of January 2, 2026$54 $694 LESSORAs of January 2, 2026, and January 3, 2025, we had a total net investment in sales-type leases, which relates to lease payment receivables, of $79 million and $94 million, respectively. The current and non-current portions of net investment in sales-type leases are included within “Other current assets” and “Other long-term assets”, respectively, on the consolidated balance sheets.The components of lease income were as follows:Year Ended(in millions)Statement of operations line itemJanuary 2,2026January 3,2025December 29,2023Sales-type leases:Selling price at lease commencementRevenues$44 $55 $51 Cost of underlying assetCost of revenues(33)(40)(41)Operating income 11 15 10 Interest income on lease receivablesRevenues2 5 9 13 20 19 Operating lease incomeRevenues21 26 39 Total lease income$34 $46 $58 As of January 2, 2026, undiscounted cash flows for sales-type and operating leases for the next five years are as follows:Fiscal Year Ending (in millions)Sales-type leasesOperating-type leases2026$43 $2 202727 $1 202810 $1 20291 — Total undiscounted cash flows$81 $4 Present value of lease payments as lease receivables79 Difference between undiscounted cash flows and discounted cash flows$2 Leidos Holdings, Inc. Annual Report83Note 11—Fair Value Measurements As of January 3, 2025, our derivatives primarily consisted of the cash flow interest rate swaps on $500 million of the variable rate senior unsecured term loan (see “Note 12—Derivative Instruments”). The carrying value and fair value of our cash flow interest rate swap was $4 million. The fair value of the cash flow interest rate swaps was determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate as of January 3, 2025 (Level 2 inputs). The $500 million interest rate swaps matured in August 2025.Financial instruments measured on a recurring basis at fair value also include our defined benefit plan assets (Level 2 inputs). See “Note 19—Retirement Plans” for further details on these investments.The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values. The carrying value of our notes receivable of $15 million and $16 million as of January 2, 2026, and January 3, 2025, respectively, approximates fair value as the stated interest rates within the agreements are consistent with the current market rates used in notes with similar terms in the market (Level 2 inputs). Our notes receivable are included within “Other current assets” and "Other long-term assets" on the consolidated balance sheets.As of January 2, 2026, and January 3, 2025, the fair value of debt was $4.7 billion and $4.5 billion, respectively, and the carrying amount was $4.6 billion and $4.7 billion, respectively (see “Note 13—Debt”). The fair value of debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs). In fiscal 2023, we recorded impairment charges of SES’ goodwill (see “Note 8—Goodwill and Intangible Assets”). The fair values of the assets and liabilities of the SES reporting unit were determined using a blended approach, including discounted cash flow models and market earnings multiples. The market approach estimates fair value based on profitability and valuation metrics for peer companies and applies a multiple to the reporting unit’s operating performance. The income approach estimates fair value by discounting the reporting unit’s estimated future cash flows using a weighted-average cost of capital reflecting current market conditions as well as the risk profile of the reporting unit. Future cash flows are based on estimates of economic and market assumptions made using the best judgment of management, including growth rates in revenue and margins, and future changes in tax rates and cash expenditures. Other significant assumptions and estimates include estimates of future capital expenditures, terminal value growth rates, and changes in future working capital requirements. The fair value of the SES reporting unit was determined using Level 3 inputs.On May 23, 2025, the assets and liabilities acquired in connection with the Kudu Dynamics acquisition were measured at fair value on a non-recurring basis using Level 3 inputs (see "Note 5—Acquisitions and Divestitures"). Note 12—Derivative Instruments The fair value of the interest rate swaps was as follows:(in millions)Balance sheet line itemJanuary 2,2026January 3,2025Cash flow interest rate swapsOther current assets$— $4 The cash flows associated with the interest rate swaps are classified as operating activities in the consolidated statements of cash flows. CASH FLOW HEDGESAs of January 3, 2025, we had 2.96% fixed interest rate swap agreements to hedge the cash flows of $500 million of the variable rate senior unsecured term loan (the “Variable Rate Loan”). The objective of these instruments was to reduce variability in the forecasted interest payments of the Variable Rate Loan. Under the terms of the interest rate swap agreements, we received monthly variable interest payments based on the one-month SOFR and paid interest at a fixed rate. These interest rate swap agreements matured in August 2025.The interest rate swap transactions were accounted for as cash flow hedges. The gain/loss on the swaps was reported as a component of other comprehensive income (loss) and was reclassified into earnings when the interest payments on the underlying hedged items impacted earnings. A qualitative assessment of hedge effectiveness was performed on a quarterly basis. 84Leidos Holdings, Inc. Annual ReportThe effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:Year Ended(in millions)January 2,2026January 3,2025December 29,2023Total interest expense, net presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded$203 $193 $212 Amount recognized in other comprehensive income1 5 6 Amount reclassified from accumulated other comprehensive loss to interest expense, net(4)(11)(15)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 Leidos Holdings, Inc. Annual Report85senior 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").COMMERCIAL PAPERWe have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes (“Commercial Paper Notes”). 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 will bear either a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount. As of January 2, 2026, and January 3, 2025, we did not have any Commercial Paper Notes outstanding.COVENANTSThe senior unsecured term loan, senior unsecured notes and Revolving Facility are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances. The financial covenants in the Credit Agreement 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 covenants as of January 2, 2026.PRINCIPAL PAYMENTSFuture minimum payments of debt are as follows:Fiscal Year Ending (in millions)2026$20 202714 2028504 20295 2030755 2031 and thereafter3,385 Total principal payments4,683 Less: unamortized debt discount and issuance costs(35)Total long-term debt$4,648 86Leidos Holdings, Inc. Annual ReportNote 14—Accumulated Other Comprehensive Income (Loss) Changes in the components of Accumulated Other Comprehensive Income (Loss) (“AOCI”) were as follows:(in millions)Foreign currency translation adjustmentsUnrecognized gain (loss) on derivative instrumentsPension adjustmentsTotal AOCIBalance at December 30, 2022$(73)$13 $(13)$(73)Other comprehensive income (loss)36 6 (1)41 Taxes(2)1 — (1)Reclassification from AOCI— (15)— (15)Balance at December 29, 2023(39)5 (14)(48)Other comprehensive income (loss)(64)5 2 (57)Taxes5 2 (1)6 Reclassification from AOCI— (11)— (11)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)Reclassifications for unrecognized gain (loss) on derivative instruments associated with outstanding debt are recorded in “Interest expense, net” on the consolidated statements of operations. See “Note 12—Derivative Instruments” for more information on our interest rate swap agreements.Leidos Holdings, Inc. Annual Report87Note 15—Composition of Certain Financial Statement Captions Balance Sheets (in millions)January 2,2026January 3,2025Other current assets: Fulfillment costs and project assets(1)$83 $93 Other(2)573 432 $656 $525 Other long-term assets:(3)Fulfillment costs and project assets(1)$30 $16 Other(2)314 305 $344 $321 Accounts payable and accrued liabilities:(4) Accrued liabilities$734 $883 Accounts payable627 611 Deferred revenue348 333 Other(2)279 304 $1,988 $2,131 Accrued payroll and employee benefits: Accrued vacation$358 $366 Accrued bonuses177 164 Salaries and amounts withheld from employees’ compensation284 281 $819 $811 (1)For the year ended January 2, 2026, and January 3, 2025, $346 million and $328 million, respectively, of amortization was recognized related to fulfillment costs and project assets.(2)Balance represents items that are not individually significant to disclose separately.(3)For the year ended January 2, 2026, we disaggregated "Deferred tax assets" from "Other long-term assets" on the consolidated balance sheets. As a result, the prior year activity has been reclassified to conform with the current year presentation.(4)For the year ended January 3, 2025, we recast "Accounts payable and accrued liabilities" on the consolidated balance sheets to reflect a change in accounting policy (see "Note 3—Summary of Significant Accounting Policies").Note 16—Earnings Per Share Basic EPS is computed by dividing net income attributable to Leidos common stockholders by the basic weighted average number of shares outstanding. Diluted EPS is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted EPS by application of the treasury stock method, only in periods in which such effect would have been dilutive for the period. We issue unvested stock awards that have forfeitable rights to dividends or dividend equivalents. These stock awards are dilutive common share equivalents subject to the treasury stock method. The weighted average number of shares used to compute basic and diluted EPS attributable to Leidos stockholders were: Year Ended(in millions)January 2,2026January 3,2025December 29,2023Basic weighted average number of shares outstanding128134137Dilutive common share equivalents—stock options and other stock awards221Diluted weighted average number of shares outstanding130136138Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS. The total number of outstanding stock options and vesting stock awards that were anti-dilutive was less than 0.5 million for both fiscal 2025 and 2024, and was 1 million for fiscal 2023.SHARE REPURCHASESDuring fiscal 2025, 2024 and 2023, we made open market repurchases of our common stock for an aggregate purchase price of $400 million, $850 million, and $225 million, respectively. All repurchased shares were immediately retired.In fiscal 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock. We paid $500 million to the financial institution and received 3.6 million shares.The repurchases were recorded to “Additional paid-in capital” in the consolidated balance sheets. All shares delivered were immediately retired.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.Leidos Holdings, Inc. Annual Report89Stock-based compensation and related tax benefits recognized under all plans were as follows: Year Ended(in millions)January 2, 2026January 3,2025December 29,2023Total stock-based compensation expense$95 $85 $77 Tax benefits recognized from stock-based compensation18 17 17 STOCK OPTIONSStock options are granted with exercise prices equal to the fair market value of Leidos’ common stock using the closing price on the business day prior to the grant date and for terms not greater than ten years. Stock options have a term of seven years and a vesting period of three or four years, except for stock options granted to our outside directors, which have a vesting period of the earlier of one year from grant date or the next annual meeting of stockholders following grant date. The fair value of the stock option awards is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The fair value of the stock option awards to employees are expensed on a straight-line basis over the vesting period of three or four years, except for stock options granted to our outside directors, which is recognized over the vesting period of one year or less. During fiscal 2025, 2024 and 2023, we used a blended approach to measure expected volatility that is based on our weighted average historical and implied volatility.The risk-free rate is derived using the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option on the grant date. To determine the expected term, we use the midpoint scenario with a one-year grant date filter assumption for outstanding options and we use historical data to estimate forfeitures. The weighted average grant-date fair value and assumptions used to determine fair value of stock options granted for the periods presented were as follows: Year Ended January 2,2026January 3,2025December 29,2023Weighted average grant-date fair value$34.99 $35.45 $25.21 Expected term (in years)4.34.54.7Expected volatility27.5%28.7%28.6%Risk-free interest rate4.0%4.1%4.0%Dividend yield1.1%1.3%1.4%90Leidos Holdings, Inc. Annual ReportStock option activity for each of the periods presented was as follows:Shares ofstock understock optionsWeightedaverageexercise priceWeightedaverageremainingcontractualtermAggregateintrinsic value (in millions) (in years)(in millions)Outstanding at December 30, 20221.8 $81.45 3.9$42 Options granted0.3 92.71 Options forfeited or expired— 95.05 Options exercised(0.2)53.78 9 Outstanding at December 29, 20231.9 $86.22 3.7$41 Options granted0.2 130.81 Options forfeited or expired(0.1)106.09 Options exercised(0.8)80.93 43 Outstanding at January 3, 20251.2 $97.53 3.9$58 Options granted0.3 134.00 Options forfeited or expired— 127.52 Options exercised(0.4)85.97 23 Outstanding at January 2, 20261.1 $110.10 4.1$77 Exercisable at January 2, 20260.5 $97.21 2.9$46 Vested and expected to vest in the future as of January 2, 20261.0 $109.90 4$77 As of January 2, 2026, there was $7 million of unrecognized compensation cost, net of estimated forfeitures, related to stock options, which is expected to be recognized over a weighted-average period of 1.5 years. Tax benefits from stock options exercised for fiscal 2025, 2024 and 2023 were $4 million, $7 million and $2 million, respectively.RESTRICTED STOCK UNITS AND AWARDSCompensation expense is measured at the grant date fair value and generally recognized over the vesting period of three or four years based upon required service conditions and in some cases revenue or EPS-based performance conditions.Leidos Holdings, Inc. Annual Report91Restricted stock units and awards activity for each of the periods presented was as follows:Shares of stockunder stockawardsWeightedaverage grant-date fair value(in millions)Unvested stock awards at December 30, 20221.3 $98.52 Awards granted0.6 95.82 Awards forfeited(0.1)97.18 Awards vested(0.4)97.65 Unvested stock awards at December 29, 20231.4 $97.71 Awards granted0.5 133.06 Awards forfeited(0.1)107.67 Awards vested(0.6)94.94 Unvested stock awards at January 3, 20251.2 $111.43 Awards granted0.6 139.50 Awards forfeited— 122.77 Awards vested(0.5)106.56 Unvested stock awards at January 2, 20261.3 $126.60 As of January 2, 2026, there was $70 million of unrecognized compensation cost, net of estimated forfeitures, related to restricted stock units, which is expected to be recognized over a weighted average period of 1.7 years. The fair value of restricted stock units that vested in fiscal 2025, 2024 and 2023 was $72 million, $74 million and $40 million, respectively.PERFORMANCE-BASED STOCK AWARDSPerformance-based stock awards vest and the stock is issued at the end of a three-year period based upon the achievement of specific performance criteria, with the number of shares ultimately awarded, if any, ranging up to 200% of the specified target awards. If performance is below the threshold level of performance, no shares will be issued.For awards granted during fiscal 2025, 2024 and 2023, the target number of shares of stock granted under the awards will vest and the stock will be issued at the end of a three-year period based on a three-year cycle performance period and the actual number of shares to be issued will be based upon the achievement of the three-year cycle’s performance criteria. Also, during fiscal 2025, 2024 and 2023, we granted performance-based awards with market conditions. These market condition awards provide for a target number of shares, with the actual number of shares issued upon vesting determined based on the achievement of applicable market conditions. The awards vest at the end of a three-year performance period based on specified total shareholder return performance measures and the employees continued service through the vesting date.92Leidos Holdings, Inc. Annual ReportPerformance-based stock award activity for each of the periods presented was as follows:Expected numberof shares of stockto be issued underperformance-basedstock awardsWeightedaverage grant-date fair value(in millions)Unvested at December 30, 20220.5 $106.70 Awards granted0.2 99.34 Awards forfeited— 104.90 Awards vested(0.1)116.37 Unvested at December 29, 20230.6 $102.22 Awards granted0.1 176.69 Awards forfeited(0.1)117.15 Awards vested(0.2)88.81 Unvested at January 3, 20250.4 $123.89 Awards granted0.2 146.36 Awards forfeited— 141.83 Awards vested(0.2)119.17 Unvested at January 2, 20260.4 $134.87 The weighted average grant date fair value for performance-based stock, excluding those with a market condition, during fiscal 2025, 2024 and 2023 was $133.06, $130.15 and $93.90, respectively. The weighted average grant date fair value for performance-based stock with market conditions that were granted during fiscal 2025, 2024 and 2023 was $166.24, $186.81 and $108.38, respectively, and was calculated using the Monte Carlo simulation. The Monte Carlo simulation assumptions used for the periods presented were as follows: Year Ended January 2,2026January 3,2025December 29,2023Expected volatility26.08 %24.86 %26.35 %Risk free rate of return3.93 %4.20 %4.33 %Weighted average grant date stock price$133.06 $130.15 $93.90 As of January 2, 2026, there was $27 million of unrecognized compensation cost, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.7 years. The fair value of performance-based stock awards that vested in fiscal 2025, 2024 and 2023 was $24 million, $16 million, and $12 million, respectively. Leidos Holdings, Inc. Annual Report93Note 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.94Leidos Holdings, Inc. Annual ReportThe 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.Leidos Holdings, Inc. Annual Report95Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of the following:(in millions)January 2,2026January 3,2025Capitalized research and development$39 $370 Operating lease liabilities167 179 Accrued vacation and bonuses72 85 Reserves39 39 Deferred compensation42 42 Credits and net operating losses carryovers40 46 Vesting stock awards34 30 Deferred revenue5 9 Accumulated other comprehensive loss3 6 Other28 30 Total deferred tax assets469 836 Valuation allowance(34)(31)Deferred tax assets, net of valuation allowance$435 $805 Purchased intangible assets$(380)$(361)Operating lease right-of-use assets(132)(138)Property, plant and equipment(84)(98)Other(12)(7)Total deferred tax liabilities(608)(604)Net deferred tax assets $(173)$201 On July 4, 2025, the OBBBA implemented several corporate tax law changes, including but not limited to, (1) restoring the ability to immediately expense U.S. research and development costs; (2) allowing certain taxpayers an election to deduct the unamortized balance of U.S. research and development costs capitalized in prior years; and (3) reinstating one hundred percent bonus depreciation for eligible property. Based upon our interpretation of the law as currently enacted, income taxes payable and net deferred taxes were $265 million and $230 million, respectively, lower at fiscal 2025, than our estimates prior to the OBBBA enactment.As of fiscal 2025, we had state net operating losses of $95 million, which we expect to utilize. The losses will begin to expire in fiscal 2034. We had foreign tax credits of $26 million that will begin to expire in fiscal 2030. We expect to utilize $3 million of the foreign tax credits. We also had foreign net operating losses of $32 million, which will not expire and expect to utilize $8 million of the foreign net operating losses.The income tax payments, net of refunds, by jurisdiction as of January 2, 2026 were as follows: (in millions)Income Tax PaymentsIncome Tax RefundsTotalU.S. federal$181 $(2)$179 U.S. state & local:Virginia32 — 32 Other state & local59 (10)49 Foreign:Australia16 (1)15 Other foreign13 (12)1 Total$301 $(25)$276 96Leidos Holdings, Inc. Annual ReportThe changes in the unrecognized tax benefits were as follows: Year Ended(in millions)January 2,2026January 3,2025December 29,2023Unrecognized tax benefits at beginning of year$173 $110 $92 Additions for tax positions related to current year20 81 58 Additions for tax positions related to prior years26 46 15 Reductions for tax positions related to current year(2)(1)(1)Reductions for tax positions related to prior years(116)(59)(54)Settlements with taxing authorities— (3)— Lapse of statute of limitations(2)(1)— Unrecognized tax benefits at end of year$99 $173 $110 Unrecognized tax benefits that, if recognized, would affect the effective income tax rate$90 $57 $15 As of fiscal 2025 and 2023, unrecognized tax benefits were included within "Other long-term liabilities" on the consolidated balance sheets. As of fiscal 2024, $17 million of unrecognized tax benefits were included within "Accounts payable and accrued liabilities," and $156 million was included within "Other long-term liabilities" on the consolidated balance sheets.For fiscal 2025, unrecognized tax benefits decreased $92 million for tax positions related to prior years, primarily as a result of uncertainty regarding capitalized research and development costs for the tax years ended fiscal 2023 and fiscal 2024, partially offset by an increase in uncertain state tax positions. In addition, unrecognized tax benefits increased $18 million for tax positions related to the current year, primarily as a result of uncertain state tax positions.We file income tax returns in the United States and various state and foreign jurisdictions. For the years ended fiscal 2025, 2024 and 2023, we are participating in the Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”), a real-time audit of our consolidated federal corporate income tax returns. The IRS has completed their examination of our consolidated federal income tax returns through the year ended fiscal 2022. We believe that participation in CAP should reduce tax-related uncertainties, if any. As of fiscal 2025, we were no longer subject to state, local, or foreign examinations by the tax authorities for fiscal years ended on or before December 30, 2021, except in certain limited cases.While we believe we have adequate accruals for uncertain tax positions, the tax authorities may determine that we owe taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities.Note 19—Retirement Plans DEFINED CONTRIBUTION PLANSWe sponsor various defined contribution plans in which most employees are eligible to participate. These plans allow eligible participants to contribute a portion of their income through payroll deductions and Leidos may also make discretionary contributions. Company contributions were $197 million, $159 million and $148 million for fiscal 2025, 2024 and 2023, respectively.DEFERRED COMPENSATION PLANSWe maintain three deferred compensation plans, the Keystaff Deferral Plan (“KDP”), the KESDP and the MSCP (the “Deferred Compensation Plans”), for the benefit of certain management or highly compensated employees or members of the Board of Directors. The Deferred Compensation Plans allow eligible participants to elect to defer a portion of their salary, and all or a portion of certain bonuses, including restricted stock unit awards. Directors may also elect to defer their cash compensation in addition to their restricted stock unit awards. Balances in the Deferred Compensation Plans are paid in lump sum or installments upon retirement, termination or the elected specified date. We do not make any contributions to the KDP but maintain participant accounts for deferred amounts and investments. We maintain a rabbi trust for the purpose of funding benefit payments to the KDP participants. Participants may allocate deferred salary and cash bonus amounts into a variety of designated investment options, with gains and losses based on the elected investment option performance with the participant assuming all risks related to future returns of their contributions. Leidos Holdings, Inc. Annual Report97Under the KESDP, eligible participants may elect to defer in share units all or a portion of certain cash bonuses and restricted stock unit awards granted under the current 2017 Omnibus Incentive Plan (see “Note 17—Stock-Based Compensation”). Under the MSCP, restricted stock share units are fully vested and no further deferrals into the plan are made. We do not make any contributions to the accounts of KESDP or MSCP participants. Benefits from the KESDP and MSCP are payable in shares of Leidos common stock held in a rabbi trust for the purpose of funding benefit payments to KESDP and MSCP participants.DEFINED BENEFIT PLANSWe sponsor two frozen defined benefit pension plans (“the Defined Benefit Plans”), one in the United Kingdom (“UK”) and another in the United States ("U.S."). 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. As the buy-in transaction insured the defined benefit obligation, we do not anticipate material future contributions. The bulk purchase annuity policy is structured to enable the Plan to move to a full buy-out, at which time the insurer would become directly responsible for all pension payments and we would be relieved of our obligations under the Plan. As of January 2, 2026, and January 3, 2025, the unamortized loss within AOCI related to the Plan was $22 million and $20 million, respectively. As of January 2, 2026, and January 3, 2025, the Plan had net assets of $6 million and $7 million, respectively. On February 11, 2026, the Plan completed a full buy-out and recognized a settlement loss related to the unamortized loss previously recorded within AOCI. Any remaining net plan assets of the Plan will be remitted to the Company upon completion of the settlement process.The projected benefit obligation of the Defined Benefit Plans as of January 2, 2026, and January 3, 2025, was $89 million and $88 million, respectively. The fair value of the Defined Benefit Plans assets as of January 2, 2026, and January 3, 2025, was $94 million. The UK Plan funding status was overfunded by $6 million and $7 million as of January 2, 2026, and January 3, 2025, respectively, and the U.S. benefit pension plan was underfunded by $1 million as of January 2, 2026, and January 3, 2025. The underfunded and overfunded positions of the Defined Benefit Plans' assets have been included within "Other long-term liabilities" and "Other long-term assets," respectively, on the consolidated balance sheets.OTHERWe also sponsor multiemployer defined benefit pension plans and defined contribution plans (401(k) plans) (the “Sponsored Plans”) for employees working on two U.S. government contracts. As part of the contractual agreements, the customers reimburse Leidos for contributions made to these Sponsored Plans as these costs are allowable under government contract cost accounting requirements. If we were to cease being the contractor as a result of a recompetition process, the defined benefit pension plans and related plan assets and liabilities would transfer to the new contractor. If the contract expires or is terminated with no transfer of the pension plan to a successor contractor, any amount by which the plan liabilities exceed plan assets, as of that date, will be reimbursed by the U.S. government customer. Since we are not responsible for the current or future funded status of the pension plans, no assets or liabilities arising from their funded status are recorded in the consolidated financial statements and no amounts associated with these pension plans are included in the defined benefit plan disclosures above. 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. 98Leidos Holdings, Inc. Annual ReportOur 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. Our Defense Systems business addresses threats facing our nation by rapidly prototyping and delivering advanced hardware, software, and integrated systems solutions for the DoW, Army, Navy, Air Force, Space Force, Marine Corps, United States Special Operations Command, Defense Advanced Research Projects Agency and intelligence agencies. We are heavily engaged in the top defense Research Development Test and Evaluation priorities that are driven by evolving global threats. This business is dedicated to delivering cost-effective solutions and services in the space, airborne, land and maritime domains and supporting critical missions worldwide. 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: Year Ended January 2, 2026(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalRevenues$7,611 $5,069 $2,315 $2,179 $17,174 Less:Direct labor1,955 930 414 427 3,726 Amortization of intangible assets29 24 28 49 130 Other segment expense4,867 2,913 1,707 1,547 11,034 Segment operating income$760 $1,202 $166 $156 $2,284 Corporate expense175 Total operating income$2,109 Year Ended January 3, 2025(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalRevenues$7,365 $5,015 $2,252 $2,030 $16,662 Less:Direct labor1,934 951 407 407 3,699 Amortization of intangible assets23 27 30 67 147 Other segment expense4,688 2,942 1,711 1,462 10,803 Segment operating income$720 $1,095 $104 $94 $2,013 Corporate expense186 Total operating income$1,827 Leidos Holdings, Inc. Annual Report99 Year Ended December 29, 2023(in millions)National Security & DigitalHealth & CivilCommercial & InternationalDefense SystemsTotalRevenues$7,196 $4,238 $2,126 $1,878 $15,438 Less:Direct labor1,838 894 386 378 3,496 Amortization of intangible assets47 40 37 78 202 Other segment expense4,639 2,730 2,263 1,357 10,989 Segment operating income (loss)$672 $574 $(560)$65 $751 Corporate expense130 Total operating income$621 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 consolidated financial statements are not allocated to our segments. Other segment expenses include direct program costs such as materials and subcontractor expenses, as well as allocable indirect costs such as depreciation and Corporate compensation expenses, but excludes direct labor which is separately presented above. The Health & Civil and Defense Systems segments also include equity earnings of non-consolidated subsidiaries within operating income.Under U.S. government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated out to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base. While depreciation expense is a component of the allocated costs, the allocation process precludes depreciation expense from being specifically identified by the individual reportable segments. For this reason, depreciation expense by reportable segment has not been reported above.Asset information by segment is not a key measure of performance used by the CODM. We generated approximately 87% of our total revenues in fiscal 2025, 2024 and 2023 from contracts with the U.S. government, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. government. Revenues under contracts with the DoW and U.S. Intelligence Community, including subcontracts under which the DoW or the U.S. Intelligence Community is the ultimate purchaser, represented approximately 49% of our total revenues for both fiscal 2025 and 2023, and 48% for fiscal 2024.Revenues generated by entities outside of the United States were approximately 8% in both fiscal 2025 and 2024, and 9% in fiscal 2023. As such, additional financial information by geographic location is not presented.
