Leidos Holdings (LDOS) 10-K risk factor changes: FY2020 vs FY2019

*In your evaluation of our company and business, you should carefully consider the risks and uncertainties described below, together with information [removed: included] [added: disclosed] elsewhere in this Annual Report on Form [removed: 10-K] [added: 10-K, including our consolidated financial statements] and [added: the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this Annual Report, and] other documents we file with the SEC.

[removed: We] [added: - We] depend on government agencies as our primary customers and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects [removed: would] [added: could] be adversely [removed: affected.][added: affected.]

We generated [removed: 87%, 85%] [added: 87% of our total revenues during fiscal 2020] and [removed: 84%] [added: 2019 and 85%] of our total revenues during fiscal [removed: 2019,] 2018 [removed: and 2017, respectively,] from contracts with the U.S. government (including all branches of the U.S. military), either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. government.

Negative press reports or publicity, [added: regardless of accuracy,] which could pertain to employee or subcontractor [removed: misconduct;] [added: misconduct,] conflicts of [removed: interest;] [added: interest,] poor contract [removed: performance;] [added: performance,] deficiencies in services, reports, products or other [removed: deliverables;] [added: deliverables,] information security breaches or other aspects of our business, [removed: regardless of accuracy,] could harm our reputation, particularly with these agencies.

If [removed: our reputation is negatively affected, or if we are suspended or debarred from contracting with government agencies for] any [removed: reason,] [added: of] the [added: foregoing occurs, the] amount of business with [added: the U.S.] government and other customers [removed: would] [added: could] decrease and our [added: business,] future [removed: revenues] [added: revenues, financial condition] and growth prospects [removed: would] [added: could] be adversely affected.

Revenues under contracts with the DoD and U.S. Intelligence Community, either as a prime contractor or subcontractor to other contractors, represented approximately [added: 49% of our total revenues for fiscal 2020 and] 48% of our total revenues for fiscal [removed: 2019, 2018] [added: 2019] and [removed: 2017.][added: 2018.]

Our operating results could [added: also] be adversely affected by spending caps or changes in the budgetary priorities of the U.S. government or the DoD, as well as delays in program starts or the award of contracts or task orders under contracts.

The U.S. government also conducts periodic reviews of U.S. defense strategies and priorities, which may shift DoD or other budgetary priorities, reduce overall U.S. government spending or delay contract or task order awards for defense-related or other [removed: programs, including] programs from which we [added: would otherwise] expect to derive a significant portion of our future revenues.

A significant decline in overall U.S. government spending, including in the areas of national security, intelligence and homeland security, a significant shift in its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant delays in contract or task order awards for large programs could adversely affect our future revenues and [added: results of operations and] limit our growth prospects.

Leidos Holdings, Inc. Annual Report - [removed: 11][added: 24]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

A federal government shutdown could, in turn, result in our incurrence of substantial labor or other costs without reimbursement under customer contracts, the delay or cancellation of key programs or the delay of contract payments, which could have a negative effect on our cash flows and adversely affect our future [removed: results.][added: results of operations.]

We must comply with laws and regulations relating to the formation, administration and performance of U.S. government contracts, which affect how we do business with our [removed: customers and may impose added costs on our business.][added: customers.]

Some significant [removed: statutes] [added: laws] and regulations that affect us include:

[removed: | • |] [added: -] the FAR and supplements, which regulate the formation, administration and performance of U.S. government contracts; [removed: |]

[removed: | • |] [added: -] the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with certain contract negotiations; [removed: |]

[removed: | • |] [added: -] the Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection information and our ability to provide compensation to certain former government officials; [removed: |]

[removed: | • |] [added: -] the Civil False Claims Act, which provides for substantial civil penalties for violations, including for submission of a false or fraudulent claim to the U.S. government for payment or approval; [removed: and |]

[removed: | • |] [added: -] the U.S. government CAS, which imposes accounting requirements that govern our right to reimbursement under certain cost-based U.S. government contracts. [removed: |]

Leidos Holdings, Inc. Annual Report - [removed: 12][added: 25]

Any of these changes could impair our ability to obtain new contracts or renew our existing contracts when [added: customers recompete] those [removed: contracts are recompeted.][added: contracts.]

[removed: Our business is] [added: - As a U.S. government contractor, we and our partners are] subject to reviews, audits and cost adjustments by the U.S. government, which, if resolved unfavorably to us, could adversely affect our profitability, cash position or growth [removed: prospects.][added: prospects.]

[removed: U.S. government agencies, including the DCAA, DCMA and others, routinely audit and] [added: These agencies] review a contractor's performance on government contracts, [added: cost structure,] indirect rates and pricing practices and compliance with applicable contracting and procurement laws, [removed: regulations] [added: regulations, terms] and [removed: standards.][added: standards, as well as the adequacy of our systems and processes in meeting government requirements.]

They also review the adequacy of the contractor’s compliance with government standards for its business systems, [removed: including;] [added: including] a contractor's accounting system, earned value management system, estimating system, materials management and accounting system, property management system and purchasing system.

A finding of significant control deficiencies in our system audits or other reviews can result in decremented billing rates to our U.S. government customers until the control deficiencies are corrected and our remediations are accepted by [added: the] DCMA.

A determination of non-compliance with applicable contracting and procurement laws, regulations and standards could also result in the U.S. government imposing penalties and sanctions against us, including [added: reductions of the value of contracts, contract modifications or termination,] withholding of payments, [added: the loss of export/import privileges, administrative or civil judgements and liabilities, criminal judgements or convictions, liabilities and consent or other voluntary decrees or agreements, other sanctions, the assessment of penalties, fines or compensatory, treble or other damages or non-monetary relief or actions,] suspension [added: or debarment, suspension] of payments and increased government scrutiny that could [added: negatively impact our reputation,] delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. government.

As of January [removed: 3, 2020,] [added: 1, 2021,] indirect cost audits by the DCAA remain open for fiscal [removed: 2013] [added: 2015] and subsequent fiscal years.

Leidos Holdings, Inc. Annual Report - [removed: 13][added: 26]

[removed: Our] [added: - Our] business is subject to governmental review and [removed: investigation] [added: investigation,] which could adversely affect our financial position, operating results and growth [removed: prospects.][added: prospects.]

[added: We are routinely subject to governmental investigations 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 the U.S.] If a review or investigation identifies improper or illegal activities, we may be subject to [added: disgorgement of profits, fines, damages, litigation,] civil or criminal [removed: penalties] [added: penalties, exclusion from sales channels] or [added: sales opportunities, injunctions or] administrative sanctions, including the termination of contracts, [removed: forfeiture of profits,] the triggering of price reduction clauses, suspension of payments, [removed: fines and] suspension or debarment from doing business with governmental [removed: agencies.][added: agencies or other consequences.]

[removed: Misconduct] [added: - Misconduct] of employees, subcontractors, [removed: agents and] [added: agents, suppliers,] business partners [added: or joint ventures and others working on our behalf] could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and customers and could have a significant adverse impact on our business and [removed: reputation.][added: reputation.]

[removed: Other examples] [added: Misconduct] could include [added: fraud or other improper activities such as falsifying time or other records and violations of laws, such as] the [added: Anti-Kickback Act, and the] failure to comply with our policies and procedures or with federal, state or local government procurement [removed: regulations;] [added: regulations,] regulations regarding the use and safeguarding of classified or other protected [removed: information;] [added: information,] legislation regarding the pricing of labor and other costs in government contracts, laws and regulations relating to environmental, health or safety [removed: matters;] [added: matters,] bribery of foreign government [removed: officials;] [added: officials,] import-export [removed: control;] [added: control,] lobbying or similar activities and any other applicable laws or regulations.

Any data loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory [added: investigations or] sanctions against us, [added: corruption or disruption of our systems or those of our customers, impairment of our ability to provide services to our customers,] loss of current and future [removed: contracts and] [added: contracts, indemnity obligations,] serious harm to our [removed: reputation.][added: reputation and other potential liabilities.]

Although we have implemented policies, [removed: procedures] [added: procedures, training] and [added: other compliance] controls to prevent and detect these activities, these precautions may not prevent all misconduct, and as a result, we could face unknown risks or losses.

Our failure to comply with applicable laws or regulations or misconduct by any of our employees, subcontractors, [removed: agents or] [added: agents, suppliers,] business partners [added: or joint ventures and others working on our behalf] could damage our reputation and subject us to [added: administrative, civil or criminal investigations and enforcement actions,] fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer [removed: contracts] [added: contracts, loss of privileges] and [added: other sanctions, including] suspension or debarment from contracting with federal, state or local government agencies, any of which would adversely affect our business, reputation and our future results.

The U.S. government has increasingly relied on contracts that are subject to a continuing competitive bidding process, including [removed: IDIQ,] GSA Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure.

The competitive bidding process involves substantial costs and a number of risks, including significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, [added: may be split among competitors] or that may be awarded but for which we do not receive meaningful task orders, and to the risk of inaccurately estimating the resources and costs that will be required to fulfill any contract we win.

Leidos Holdings, Inc. Annual Report - [removed: 14][added: 27]

[removed: We] [added: - We] face [removed: aggressive] [added: intense] competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth [removed: prospects.][added: prospects.]

Accordingly, our success depends on our ability to [added: invest in and] develop services and products that address these changing needs and to provide people and technology needed to deliver these services and products.

Summary of Risk Factors

This risk factor summary contains a high-level summary of risks associated with our business.

It does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this summary.

A summary of our risks includes, but is not limited to, the following:

- A decline in the U.S. government budget, changes in spending or budgetary priorities or delays in contract awards may significantly and adversely affect our future revenues and limit our growth prospects.

- Because we depend on U.S. government contracts, a delay in the completion of the U.S. government's budget and appropriation process could delay procurement of the products, services and solutions we provide and have an adverse effect on our future revenues.

- The extent to which our business will be adversely affected by COVID-19 or other health epidemics, pandemics and similar outbreaks is highly uncertain and cannot be predicted.

- Our failure to comply with a variety of complex procurement rules and regulations could result in our being liable for penalties, including termination of our U.S. government contracts, disqualification from bidding on future U.S. government contracts and suspension or debarment from U.S. government contracting.

- The U.S. government may adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.

- Due to the competitive process to obtain contracts and the likelihood of bid protests, we may be unable to achieve or sustain revenue growth and profitability.

- The U.S. government may terminate, cancel, modify or curtail our contracts at any time prior to their completion and, if we do not replace them, this may adversely affect our future revenues and profitability.

- We may not realize as revenues the full amounts reflected in our backlog, which could adversely affect our expected future revenues and growth prospects.

- Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to accurately estimate and manage costs, time and resources.

- Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.

- Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

- Our success depends, in part, on our ability to work with complex and rapidly changing technologies to meet the needs of our customers.

- We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve numerous risks and uncertainties.

- We cannot assure you that we will continue to pay dividends on our common stock.

- Provisions in our charter documents and under Delaware law could delay or prevent transactions that many stockholders may favor.

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Industry and Economic Risks

We depend on government agencies as our primary customers and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects could be adversely affected.

Due to the sensitive nature of our work and our confidentiality obligations to our customers, we may be unable to or limited in our ability to respond to such negative publicity, which could also harm our reputation and our business.

If our reputation is negatively affected, certain customers could cease to do business with us and our ability to hire or retain employees and our standing in professional communities, to which we contribute and from which we receive expert knowledge, could be diminished.

Laws and plans adopted by the U.S. government relating to, along with pressures on and uncertainty surrounding the U.S. federal budget, potential changes in budgetary priorities and defense spending levels, sequestration, the appropriations process and the permissible federal debt limit, could adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers.

Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the U.S. Presidential Administration and Congress, and what challenges budget reductions will present for us and our industry generally.

In the event government funding relating to our contracts with the U.S. government or DoD becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. government or the prime contractor, if applicable.

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For many programs, Congress appropriates funds on an annual fiscal year basis even though the program performance period may extend over several years.

Consequently, programs are often partially funded initially and additional funds are committed only as Congress makes further appropriations.

If we incur costs in excess of funds obligated on a contract, we may be at risk for reimbursement of those costs unless or until additional funds are obligated to the contract.

We are also experiencing increased competition generally which impacts our ability to obtain contracts; see the risk factor “We face intense competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth prospects.” Our failure to compete effectively in this procurement environment would adversely affect our revenues and/or profitability.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

We face intense competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth prospects.

Some of our competitors have made or could make acquisitions of businesses, or establish teaming or other agreements among themselves or third parties, that allow them to offer more competitive and comprehensive solutions.

As a result of such acquisitions or arrangements, our current or potential competitors may be able to accelerate the adoption of new technologies that better address customer needs, devote greater resources to bring these products and services to market, initiate or withstand substantial price competition or develop and expand their product and service offerings more quickly than we do.

These competitive pressures in our market or our failure to compete effectively may result in fewer orders, reduced revenue and margins and loss of market share.

In addition, it is possible that industry consolidation may impact customers’ perceptions of the viability of smaller or even mid-size software firms and consequently customers’ willingness to purchase from such firms.

Legal and Regulatory Risks

Such laws and regulations may potentially impose added costs on our business and our failure to comply with them may lead to civil or criminal penalties, termination of our U.S. government contracts, or suspension or debarment from contracting with federal agencies.

Risks Relating to Our Business

We generated more than 10% of our total revenues during fiscal 2019, 2018 and 2017 from the U.S. Army.

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We are routinely subject to governmental investigations 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 the United States.

Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of laws, including for example the Anti-Kickback Act.

Our failure to compete effectively in this procurement environment would adversely affect our revenues and/or profitability.

In addition, our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address customers’ needs.

Accordingly, we anticipate that larger or new competitors or alliances among competitors may emerge, which may adversely affect our ability to compete.

Occurrence of any of these security threats could disrupt our systems or those of our customers, impair our ability to provide services to our customers, result in product development delays, compromise confidential or technical business information and, as a result, expose us to claims, contract terminations and damages and could adversely affect our reputation, ability to win work on sensitive U.S. government contracts, business operations and financial results.

As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business.

Many of these systems utilize software algorithms that are probabilistic in nature and subject to significant technical limitations.

Many of these systems are also dependent on the performance of their operators.

Additionally, these risks relating to international operations may expose us to potentially significant contract losses.

However, trade secrets are difficult to protect.

Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

The expense of defending these claims may adversely affect our financial results.

Our financial results may vary significantly from period-to-period.

Our financial results may fluctuate as a result of a number of factors, many of which are outside of our control.

For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.

Our financial results may be negatively affected by any of the risk factors listed in this "Risk Factors" section and other matters described elsewhere in this Annual Report on Form 10-K.

| • | Our certificate of incorporation provides that our bylaws and certain provisions of our certificate of incorporation may be amended by only two-thirds or more voting power of all of the outstanding shares entitled to vote. These supermajority voting requirements could impede our stockholders’ ability to make changes to our certificate of incorporation and bylaws. |

Forward-Looking Statement Risks

You may not be able to rely on forward-looking statements.

This Annual Report on Form 10-K contains forward-looking statements that are based on our management’s belief and assumptions about the future in light of information currently available to our management.

In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases.

These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity, performance or achievements.

There are a number of important factors that could cause our actual results to differ materially from those results anticipated by our forward-looking statements, which include, but are not limited to:

| • | developments in the U.S. government defense and non-defense budgets, including budget reductions, sequestration, implementation of spending limits or changes in budgetary priorities, or delays in the U.S. government budget process or approval of raising the debt ceiling; |

| • | delays in the U.S. government contract procurement process or the award of contracts and delays or loss of contracts as a result of competitor protests; |

| • | changes in U.S. government procurement rules, regulations and practices; |

| • | our compliance with various U.S. government and other government procurement rules and regulations; |

| • | governmental reviews, audits and investigations of our company; |

| • | our ability to effectively compete and win contracts with the U.S. government and other customers; |

| • | our reliance on information technology spending by hospitals/healthcare organizations; |

| • | our reliance on infrastructure investments by industrial and natural resources organizations; |

| • | energy efficiency and alternative energy sourcing investments; |

| • | investments by U.S. government and commercial organizations in environment impact and remediation projects; |

| • | our ability to accurately estimate costs associated with our FFP and other contracts; |

*The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations and quantitative and qualitative disclosures about [added: business environment and trends and] market risk should be read in conjunction with the consolidated financial statements and related notes.*

*Unless indicated otherwise, references in this report to [removed: the “Company,”] “we,” [removed: “us,”] [added: “us”] and “our” refer collectively to Leidos and its consolidated subsidiaries.*

*The following discussion contains forward-looking statements, including statements regarding our intent, [removed: belief,] [added: belief] or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, initiatives, our [removed: industry] [added: industry, the impact of our merger] and [added: acquisition activity,] government budgets and [removed: spending.][added: spending, our business contingency plans and our ability to recover certain costs through the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").]

Such statements are not guarantees of future performance and involve risks and uncertainties, [added: including uncertainties relating to the coronavirus pandemic ("COVID-19")] and [added: the actions taken by authorities and us to respond, and] actual results may differ materially from those in the forward-looking statements as a result of various factors (see [removed: “Risk Factors—Forward-Looking] [added: “Forward-Looking] Statement Risks” [removed: in Part I of] [added: within] this Annual Report on Form 10-K).

We are a FORTUNE 500® science, engineering and information technology company that provides services and solutions in the defense, intelligence, [added: homeland security,] civil and health [removed: markets.][added: markets, both domestically and internationally.]

We bring domain-specific [removed: capability] [added: capabilities] and innovations to customers in each of these markets by leveraging [removed: seven] [added: five technical] core [removed: capabilities: cyber;] [added: competencies:] digital [removed: modernization; integrated systems;] [added: modernization, cyber operations,] mission software [removed: systems; mission support; operations and logistics; and sensors, collection] [added: systems, integrated systems] and [removed: phenomenology.][added: mission operations.]

Our [removed: domestic] customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S. [added: civilian, state and local] government [removed: civilian agencies,] [added: agencies] as well as [removed: state and local] [added: foreign] government agencies.

Our international customers include foreign governments and their [removed: agencies, primarily located in Australia and the United Kingdom ("U.K.").][added: agencies.]

[removed: In addition,] [added: Effective the beginning of fiscal 2020,] certain contracts were reassigned [removed: between] [added: from] the Civil [removed: and] [added: reportable segment to the] Defense Solutions reportable [removed: segments.][added: segment.]

[removed: While this activity did not have a material impact on our reportable segments, prior] [added: Prior] year segment results have been recast to reflect this change.

For additional information regarding our reportable segments, see “Business” in Part I and "Note [removed: 24—Business] [added: 23—Business] Segments" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Leidos Holdings, Inc. Annual Report - [removed: 31][added: 44]

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[removed: | • |] [added: -] achieving [removed: internal, or non-acquisition related,] annual revenue growth through internal collaboration and better leveraging of key differentiators across our company and the deployment of resources and investments into higher growth markets; [removed: |]

[removed: | • |] [added: -] increasing headcount and internal direct labor content on our contract portfolio; [removed: |]

[removed: | • |] [added: -] continued improvement in our back office infrastructure and related business processes for greater effectiveness and efficiency across all business functions; and [removed: |]

[removed: | • |] [added: -] disciplined deployment of our cash resources and use of our capital structure to enhance shareholder value while retaining an appropriate amount of financial leverage. [removed: |]

[removed: *Sales Trend.*] For fiscal 2019, revenues increased $900 million, or [removed: 9%] [added: 9%,] compared to fiscal 2018, primarily due to program wins and a net increase in program volumes, partially offset by programs ended and the impact of the sale of our commercial cybersecurity and health staff augmentation businesses.

[removed: *Operating Expenses and Income Trend.*] For fiscal 2019, operating expenses increased by $737 million, or 8%, compared to fiscal 2018.

Operating margin for fiscal [removed: 2018] [added: 2020] was [removed: 7.3%] [added: 8.1%] compared to [removed: 5.5%] [added: 8.2%] for fiscal [removed: 2017.][added: 2019.]

Operating income was [removed: $749 million for fiscal 2018, a $190] [added: $998 million, an $86] million increase compared to fiscal [removed: 2017.][added: 2019.]

Although the [removed: current] Administration has not indicated a desire to reduce spending in the defense and homeland security sectors, the likelihood, extent and duration of current spending levels in these areas remains unclear.

In fiscal [removed: 2019,] [added: 2020,] we generated approximately 87% of our total revenues 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 DoD and U.S. Intelligence Community, including subcontracts under which the DoD or the U.S. Intelligence Community is the ultimate purchaser, represented approximately [removed: 48%] [added: 49%] of our total revenues for fiscal [removed: 2019.][added: 2020.]

Leidos Holdings, Inc. Annual Report - [removed: 32][added: 45]

Sales to customers in international markets represented 8% of total revenues for fiscal [removed: 2019.][added: 2020.]

Our international [removed: customers include foreign governments and their agencies, primarily located in Australia and the U.K. Our international] business increases our exposure to international markets and the associated international [removed: regulatory] [added: regulatory, foreign currency exchange rate] and geopolitical risks.

[removed: Recent changes] [added: Changes] in international trade policies, including higher tariffs on imported goods and materials, may increase our procurement costs of certain IT hardware used both on our contracts and for internal use.

While we [removed: are still evaluating] [added: evaluate] the impact of higher tariffs, currently, we do not expect tariffs to have a significant impact to our business.

Leidos Holdings, Inc. Annual Report - [removed: 33][added: 46]

| | | [added: | | | |] Year Ended | | | | | | | | | | | | [removed: 2019] [added: | | | | | | 2020] to [removed: 2018] [added: 2019] | | | | | | | [removed: 2018] [added: | | | | | 2019] to [removed: 2017] [added: 2018] | | | | | | [added: | | |]

| | | [added: | | | |] January [added: 1, 2021 | | | | | | January] 3, [removed: 2020] [added: 2020] | | | | [added: | |] December 28, 2018 | | | | [removed: December 29, 2017] | | [removed: | |] Dollar change | | | | [added: | |] Percent change | | | [added: | | |] Dollar change | | | | [added: | |] Percent change | | [added: |]

| | | [added: | | | |] (dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | |]

| Revenues | | [added: | | | |] $ | [removed: 11,094] [added: 12,297] | | | [added: | |] $ | [removed: 10,194] [added: 11,094] | | | [added: | |] $ | [removed: 10,170] [added: 10,194] | | | [added: | |] $ | [removed: 900] [added: 1,203] | | | [removed: 9] | [added: | 11 | |] % | | [added: | |] $ | [removed: 24] [added: 900] | | | [removed: —] | [added: | 9 | |] % |

| Cost of [removed: revenues(1)] [added: revenues] | | [removed: 9,546] | | | | [added: 10,560 | | | | | | 9,546 | | | | | |] 8,690 | | | | [removed: 8,738] | | [added: 1,014] | | [removed: 856] | | | | [removed: 10] [added: 11] | [added: |] % | | [removed: (48] | | [removed: )] [added: 856] | | [removed: (1] | [removed: )%] | [added: | | 10 | | % |]

| Selling, general and administrative [removed: expenses:] [added: expenses] | | | | | | [added: 770] | | | | | | [added: 689] | | | | | | [added: 729] | | | | | | [added: 81] | | | [added: | | | 12 | | % | | | | (40) | | | | | | (5) | | % |]

| Bad debt expense and recoveries | | [removed: (40] | | [removed: )] | | [added: (68) | | | | | | (40) | | | | | |] — | | | | [removed: 10] | | [added: (28)] | | [removed: (40] | | [removed: )] | | [removed: (100] [added: 70] | [removed: )%] | [added: %] | [removed: (10] | | [removed: )] | [added: (40)] | [removed: (100] | [removed: )%] | [added: | | | (100) | | % |]

| Acquisition, integration and restructuring costs | | [removed: 5] | | | | [added: 39 | | | | | | 5 | | | | | |] 37 | | | | [removed: 139] | | [added: 34] | | [removed: (32] | | [removed: )] | | [removed: (86] [added: *NM*] | [removed: )%] | | [removed: (102] | | [removed: )] | [added: (32)] | [removed: (73] | [removed: )%] | [added: | | | (86) | | % |]

| Asset impairment charges | | [removed: —] | | | | [removed: 7] [added: 12] | | | | [added: | |] — | | | | [removed: (7] | | [removed: )] [added: 7] | | [removed: (100] | [removed: )%] | | [removed: 7] | [added: 12] | | | [added: | | |] 100 | [added: |] % | [added: | | | (7) | | | | | | (100) | | % |]

| Equity earnings of non-consolidated subsidiaries | | [removed: (18] | | [removed: )] | | [removed: (18] [added: (14)] | | [removed: )] | | [removed: (13] | | [removed: )] [added: (18)] | | [removed: —] | | | | [removed: —] [added: (18)] | [added: | | | | | 4 | | | | | | (22) | |] % | | [removed: (5] | | [removed: )] [added: —] | | [removed: 38] | [added: | | | — | |] % |

*Sales Trend.* For fiscal 2020, revenues increased $1.2 billion, or 11%, compared to fiscal 2019, primarily due to revenues related to the acquisitions of Dynetics, Inc. ("Dynetics") and L3Harris Technologies' security detection and automation businesses ("the SD&A Businesses"), program wins and a net increase in volumes on certain programs.

This was partially offset by the completion of certain contracts, negative impacts on certain contracts due to COVID-19 and the impact of the sale of our commercial cybersecurity and health staff augmentation businesses in the prior year.

*Operating Expenses and Income Trend.* For fiscal 2020, operating expenses increased by $1.1 billion, or 11%, compared to fiscal 2019.

The increase in operating income was primarily attributable to program wins, income related to the acquisitions of Dynetics and the SD&A Businesses and a net gain recognized upon the receipt of proceeds related to the VirnetX, Inc. ("VirnetX") legal matter.

This was partially offset by negative impacts on certain contracts due to COVID-19, a net gain recognized in the prior year upon the receipt of the Greek arbitration award and increases in acquisition and integration costs and amortization expenses primarily associated with our current year acquisitions.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

*COVID-19*

The COVID-19 pandemic is affecting major economic and financial markets, and effectively all industries and governments are facing challenges, which has resulted in a period of business disruption, the length and severity of which cannot be predicted.

The pandemic has resulted in significant travel restrictions, government orders to “shelter-in-place”, quarantine restrictions and significant disruption of the financial markets.

We have acted to protect the health and safety of our employees, comply with workplace health and safety regulations and work with our customers to minimize disruptions.

The pandemic has impacted each of our groups, primarily in access to customer sites, travel restrictions, limitations of remote work and COVID-19 related costs.

Consistent with federal, state and local guidance, we perform work that is essential to support the critical infrastructure of the United States, the Defense Industrial Base and healthcare sector, and we continue to operate in support of our customers.

We have taken steps to support increased teleworking and safe workplace environments.

We have some minor business operations that are not designated as critical infrastructure and therefore have been required to operate in minimal conditions.

For fiscal 2020, COVID-19 adversely impacted revenues by approximately $198 million and impacted operating income by approximately $96 million as compared to prior year results.

The full extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute on programs in the expected timeframe, will depend on future developments, including the duration and spread of the pandemic and the distribution and efficacy of vaccines, all of which are uncertain and cannot be predicted.

While we have been able to make some recoveries, the ultimate timing and amount of recoveries remain uncertain as they will depend on a range of government actions, including each government agency and/or contracting officer's implementation of the authority granted in Section 3610 of the CARES Act, a $2 trillion coronavirus response bill providing widespread emergency relief, including the availability of funds.

As a result of Congress passing government fiscal year ("GFY") 2021 appropriations, the relief from the CARES Act has been extended until March 31, 2021.

We have experienced delays, and expect to continue experiencing delays, on certain contracts as a result of standby leave absences, which has caused a portion of our contracts to be less profitable.

Within our Health segment we saw recoveries in the fourth quarter of fiscal 2020 and continue to expect to see further recoveries in fiscal 2021.

Our Defense Solutions reportable segment experienced less of a negative impact in the fourth quarter of fiscal 2020 than in previous quarters.

We also experienced lower indirect expenditures for fiscal 2020 as a result of COVID-19 which partially offset the operating income impact on our programs.

We are seeking reimbursement of some of the COVID-19 related costs under our U.S. government contracts through a combination of equitable adjustments to the contract prices and reimbursement of the costs under Section 3610, which allows, but does not require, federal agencies to reimburse contractors at the minimum applicable contract billing rate for costs arising from certain paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of government and contractor personnel.

Reimbursement of any costs under Section 3610 increases sales, but does not include a profit or fee and has the effect of reducing our margins.

Standby cost increases, including costs for employees whose jobs cannot be performed remotely, may not be fully recoverable under our contracts, particularly fixed-price contracts.

We also have no assurance that Congress will appropriate funds to cover the reimbursement of defense contractors authorized by the CARES Act, which could reduce funds available for recovery of these costs or for other U.S. government defense priorities.

The CARES Act also enabled us to defer payment of the employer portion of social security taxes.

As of January 1, 2021, we deferred $123 million of employer social security tax payments and received $12 million from the Employee Retention Credit.

We have taken measures to protect the health and well-being of our workforce and are working with our customers to minimize the delay and disruption of the award and performance on our contracts.

Many of our employees continue to work remotely while our offices remain open with limited capacity.

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Shortly after the budget release, Congress and the Administration shifted their collective attention to mitigating the impact of COVID-19.

Prior to the beginning of GFY 2021, Congress passed a continuing resolution ("CR") that was enacted on October 1, 2020 to provide temporary funding for government operations at GFY 2020 enacted levels until December 11, 2020.

A series of short-term CRs were subsequently passed to extend temporary funding until the passage of GFY 2021 appropriations.

On December 20, 2020, Congress reached agreement on a comprehensive GFY 2021 Appropriations Package, and on December 27, 2020, the President signed the $1.4 trillion appropriations deal.

With the enactment of GFY 2021 spending levels, attention now turns to additional COVID-19 relief.

Immediately following that effort will be submission of a GFY 2021 supplemental aimed at economic recovery.

Completing action on these proposals may delay the President's GFY 2022 budget request, which is not expected to be submitted to Congress until late April or early May.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Effective the beginning of fiscal 2019, we changed the composition of our Defense Solutions reportable segment to better align the operations within the reportable segment to the customers we serve.

This resulted in the identification of new operating segments within Defense Solutions.

| | |

| --- | --- |

For fiscal 2018, revenues were $10.2 billion, consistent with fiscal 2017.

For fiscal 2018, operating expenses decreased by $161 million, or 2%, compared to fiscal 2017.

These changes were primarily attributable to decreases in acquisition, integration and restructuring costs and lower amortization of intangible assets.

From December 21, 2018 until the passage of a new continuing resolution ("CR") on January 25, 2019 there was a partial U.S. government shutdown, which reduced or delayed work on existing contracts and caused delays in other government contracting actions and payments.

Prior to the expiration of the January CR, Congress passed appropriations for the seven remaining appropriations bills, thereby completing funding for GFY 2019.

On July 22, 2019, the White House and Congress reached a two-year budget deal to raise spending caps and suspend the debt ceiling until July 2021.

Allocations for national defense spending increased to $738 billion in GFY 2020 and $741 billion in GFY 2021.

For non-defense programs, spending increased to $632 billion in GFY 2020 and $635 billion in GFY 2021.

Overall, the measure increased spending by $323 billion over the limits set under the Bipartisan Budget Act of 2018.

On December 20, 2019, Congress passed and the President signed into law two consolidated appropriations bills, thereby funding the federal government through the end of GFY 2020.

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| General and administrative(1) | | 496 | | | | 547 | | | | 573 | | | | (51 | | ) | | (9 | )% | | (26 | | ) | | (5 | )% |

| Bid and proposal | | 144 | | | | 136 | | | | 122 | | | | 8 | | | | 6 | % | | 14 | | | | 11 | % |

| Company-funded research and development | | 49 | | | | 46 | | | | 42 | | | | 3 | | | | 7 | % | | 4 | | | | 10 | % |

| (1) | Effective the beginning of fiscal 2018, we established a new U.S. government Cost Accounting Standards structure and revised our disclosure statements accordingly to reflect the related cost accounting practice changes. Consequently, $185 million was reclassified from "Cost of revenues" to "Selling, general and administrative expenses" on the consolidated statements of income for fiscal 2017. For more information, see "Note 1—Nature of Operations and Basis of Presentation" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K. |

| Revenues | | $ | 5,367 | | | $ | 4,966 | | | $ | 4,989 | | | $ | 401 | | | 8 | % | | $ | (23 | ) | | — | % |

| Operating income | | 407 | | | | 353 | | | | 312 | | | | 54 | | | | 15 | % | | 41 | | | | 13 | % |

| *Operating income margin* | | 7.6 | | % | | *7.1* | | *%* | | *6.3* | | *%* | | | | | | | | | | | | | | |

The decrease in revenues for fiscal 2018 as compared to fiscal 2017 was primarily attributable to the completion of certain contracts and adverse impact of the foreign exchange rate movements between the U.S. dollar and Australian dollar, partially offset by new awards.

| Revenues | | $ | 3,729 | | | $ | 3,411 | | | $ | 3,379 | | | $ | 318 | | | 9 | % | | $ | 32 | | | 1 | % |

| Operating income | | 295 | | | | 284 | | | | 221 | | | | 11 | | | | 4 | % | | 63 | | | | 29 | % |

The increase in revenues for fiscal 2018 as compared to fiscal 2017 was primarily attributable to a net increase in program volumes and new awards, partially offset by the completion of certain contracts and lower net profit write-ups in the current year.

The increase in operating income for fiscal 2018 as compared to fiscal 2017 was primarily due to a net increase in program volumes, partially offset by the completion of certain contracts, higher investment costs and lower net profit write-ups in the current year.

| | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Corporate operating loss represents corporate costs that are not directly related to the operating performance of the reportable segments.

The decrease in operating loss for fiscal 2018 as compared to fiscal 2017, was primarily attributable to lower acquisition, integration and restructuring costs of $102 million, partially offset by increased legal fees and an asset impairment charge of $7 million.

Non-operating expense, net decreased $27 million for fiscal 2018 as compared to fiscal 2017, primarily due to a $33 million promissory note impairment that occurred during fiscal 2017, partially offset by unfavorable fair value changes on investments held in our benefit plans.

We include the financial results for MSA in our consolidated financial statements.

| Funded backlog | | $ | 2,417 | | | $ | 2,821 | |

| Funded backlog | | $ | 1,913 | | | $ | 2,304 | |

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

In addition to the required quarterly payments, we prepaid $130 million on our senior secured term loans during fiscal 2017.

During fiscal 2017, there were no open market repurchases of our common stock.

At January [removed: 3, 2020] [added: 1, 2021] and [removed: December 28, 2018,] [added: January 3, 2020,] we had [removed: $3.0] [added: $4.7] billion and [removed: $3.1] [added: $3.0] billion, respectively, of long-term debt, which included [removed: $1.9] [added: $1.4] billion and [removed: $2.0] [added: $1.9] billion, respectively, [removed: of] [added: related to our] senior [removed: secured] [added: unsecured] term loans that have [added: a] variable stated interest [removed: rates] [added: rate] that [removed: are] [added: is] determined based on the [removed: LIBOR] [added: London Interbank Offered Rate ("LIBOR")] rate plus a margin.

We have interest rate swap agreements to hedge the cash flows of a portion of our variable rate senior [removed: secured] [added: unsecured] term [removed: loans] [added: loan] ("Variable Rate [removed: Loans").][added: Loan").]

During fiscal 2018, we terminated our existing interest rate swaps and entered into new interest rate swap agreements, which mature in August 2025 and have a fixed interest rate of 3.00%, to hedge the cash flows of $1.5 billion of our Variable Rate [removed: Loans.][added: Loan.]

The interest rate swap agreements effectively converted a portion of our variable rate [removed: borrowings] [added: borrowing] to [added: a] fixed rate [removed: borrowings.][added: borrowing.]

As of January [added: 1, 2021, and January] 3, 2020, [removed: and December 28, 2018,] the fair value of our interest rate swap agreements with respect to our [removed: variable rate senior secured loans] [added: Variable Rate Loan] was a liability of [removed: $75] [added: $103] million and [removed: $32] [added: $75] million, respectively.

Leidos Holdings, Inc. Annual Report - [removed: 44][added: 54]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

The net hypothetical 10% movement in the [removed: six-month and] one-month LIBOR [removed: rates] [added: rate] would not have a significant impact on our annual interest expense.

For additional information related to our interest rate swap agreements and debt, see "Note [removed: 15—Derivative] [added: 14—Derivative] Instruments" and "Note [removed: 16—Debt,"] [added: 15—Debt,"] respectively, of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

As of January [added: 1, 2021, and January] 3, 2020, [removed: and December 28, 2018,] our cash and cash equivalents included investments in several large institutional money market [removed: funds and bank deposits.][added: accounts.]

For fiscal [removed: 2019] [added: 2020] and fiscal [removed: 2018,] [added: 2019,] a hypothetical 10% interest rate movement would not have a significant impact on the value of our holdings or on interest income.

Our foreign operations represented 8% of total revenues for fiscal [added: 2020 and] 2019 and 9% of total revenues for fiscal [removed: 2018 and 2017.][added: 2018.]

Leidos Holdings, Inc. Annual Report - [removed: 45][added: 55]

As of January 1, 2021, the notional value of the interest rate swap agreements was $1.1 billion.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

As a result, we may experience fluctuations in interest expense.

Additionally, we have interest rate swap agreements with respect to all of the $450 million aggregate principal outstanding on our fixed rate 4.45% notes maturing in December 2020.

The interest rate swap agreements effectively converted a portion of our fixed-rate debt to floating-rate debt tied to the changes in the six-month LIBOR benchmark interest rate.

Under the terms of the interest rate swap agreements, we will receive semi-annual interest payments at the coupon rate of 4.45% and will pay variable interest based on the six-month LIBOR rate.

As of January 3, 2020, and December 28, 2018, the fair value of our interest rate swaps with respect to our fixed rate debt was a $2 million asset and a $3 million liability, respectively.

Since our founding [removed: 51] [added: 52] years ago, we have applied our expertise in science, research and engineering in [removed: rapidly evolving] [added: rapidly-evolving] technologies and markets to solve complex problems of global concern.

We use the terms [removed: "Company,"] "we," "us" and "our" to refer collectively to Leidos Holdings, Inc. and its consolidated subsidiaries.

Leidos is a FORTUNE 500® science, engineering and information technology company that provides services and solutions in the defense, intelligence, [added: homeland security,] civil and health [removed: markets.][added: markets, both domestically and internationally.]

We bring domain-specific [removed: capability] [added: capabilities] and innovations to customers in each of these markets by leveraging [removed: seven] [added: five technical] core [removed: capabilities: cyber;] [added: competencies:] digital [removed: modernization; integrated systems;] [added: modernization, cyber operations,] mission software [removed: systems; mission support; operations and logistics; and sensors, collection] [added: systems, integrated systems] and [removed: phenomenology.][added: mission operations.]

Applying our [removed: technically advanced] [added: technically-advanced] solutions to help solve our customers' most difficult problems has enabled us to build strong relationships with key customers.

Our [removed: domestic] customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security ("DHS"), the Federal Aviation Administration ("FAA"), the Department of Veterans Affairs ("VA") and many other U.S. [added: civilian, state and local] government [removed: civilian agencies,] [added: agencies] as well as [removed: state and local] [added: foreign] government agencies.

With a focus on delivering mission-critical solutions, Leidos generated 87% of fiscal [removed: 2019] [added: 2020] revenues from U.S. government contracts.

At January [removed: 3, 2020,] [added: 1, 2021,] our business is aligned into three reportable segments (Defense Solutions, Civil and Health).

Our operations and reportable segments are organized around the [added: customers and] markets we serve.

[removed: In addition,] [added: Effective the beginning of fiscal 2020,] certain contracts were reassigned [removed: between] [added: from] the Civil [removed: and] [added: reportable segment to the] Defense Solutions reportable [removed: segments.][added: segment.]

We provide a diverse portfolio of national security solutions and systems for air, land, sea, space and cyberspace for the U.S. Intelligence Community, the DoD, [added: the National Aeronautics and Space Administration ("NASA"),] military services, government agencies of U.S. allies abroad and other federal and commercial customers in the national security industry.

Our solutions deliver innovative technology, large-scale [removed: intelligence] systems, command and control platforms, data analytics, logistics and cybersecurity solutions, as well as intelligence analysis and operations support to critical missions around the world.

Defense Solutions represented [removed: 48%] [added: 60%] of total revenues for fiscal [removed: 2019] [added: 2020] and [removed: 49%] [added: 57%] of total revenues for fiscal [removed: 2018] [added: 2019] and [removed: 2017.][added: 2018.]

Leidos Holdings, Inc. Annual Report - [removed: 1][added: 11]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

By applying leading science, [removed: effective] [added: innovative] technologies and business acumen, our talented employees help customers [removed: maximize] [added: achieve] their [removed: performance] [added: missions] and take on the connected world with data-driven insights, improved efficiencies and technological [removed: advantages.][added: advantages in the areas of transportation solutions, security detection and automation, digital transformation services and environment, energy and infrastructure.]

Civil represented [removed: 34%] [added: 24%] of total revenues for fiscal [removed: 2019] [added: 2020] and [removed: 33%] [added: 25%] of total revenues for fiscal [removed: 2018] [added: 2019] and [removed: 2017.][added: 2018.]

Leidos Holdings, Inc. Annual Report - [removed: 2][added: 12]

Our Health business [removed: is focused] [added: focuses] on delivering effective and affordable solutions to federal and commercial customers that are responsible for the health and well-being of people [removed: worldwide] [added: worldwide,] including service members and veterans.

Our solutions enable customers to deliver on the health mission of providing high quality, cost effective care, and are accomplished through the integration of information technology, engineering, [removed: health and] life sciences, [added: health services,] clinical insights and health policy.

The capabilities we provide [removed: are principally encapsulated by] [added: predominantly fall in] four major areas of activity: [removed: complex systems integration,] [added: health information management services,] managed health services, [removed: enterprise IT] [added: digital] transformation and life [removed: sciences.][added: sciences research and development.]

Health represented [added: 16% of total revenues for fiscal 2020 and] 18% of total revenues for fiscal [removed: 2019, 2018] [added: 2019] and [removed: 2017.][added: 2018.]

[removed: | *•* |] [added: -] *Managed Health Services* – We deploy a national footprint of health clinics and health providers to support care delivery services, including medical disability [added: and behavioral health] examinations for the [removed: VA (including behavioral assessments),] [added: VA,] as well as serving other independent medical exam markets. [removed: We have developed unique capabilities in behavioral health management through many decades of experience with a special emphasis on substance abuse services. Our managed health services activities leverage our IT and mission enablement capabilities which underpin solutions we offer to our customers across all of our served markets. |]

[removed: | • | *Life Sciences Research & Development–* We provide life science research and development support to the National Institutes of Health, Center for Disease Control, Army Medical Research community, commercial biotech companies and the Frederick National Laboratory for Cancer Research, where we employ approximately 2,300 scientists, technicians, administrators and support staff.] Our professionals operate a wide range of leading-edge research and development laboratories in the areas of genetics and genomics, proteins and proteomics, advanced biomedical computing and information technology, biopharmaceutical development and manufacturing, nanotechnology characterization and clinical trials management. [removed: |]

From the biomedical sciences to implementing and optimizing electronic health [removed: records to] [added: records, and] enabling providers to perform care coordination and population health management, Leidos is pioneering the use of [added: the depth and breadth of] systems integration principles, processes and technologies to transform the health industry’s evolution towards better quality, more efficient and effective care.

[removed: During] [added: Additionally, during] fiscal 2019, we acquired IMX Medical Management Services and its affiliated businesses.

[removed: In early] [added: During] fiscal 2020, we acquired Dynetics, Inc. and [added: L3Harris Technologies' ("L3Harris") security detection and automation businesses and] entered into a definitive agreement to acquire [removed: L3Harris Technologies' security detection and automation businesses.][added: 1901 Group, LLC ("1901 Group").]

See "Note 6—Acquisitions" and "Note [removed: 27—Subsequent] [added: 26—Subsequent] Events" in Part II of this Annual Report on Form 10-K for further information.

[removed: Additionally, during] [added: During] fiscal 2019, we divested of our commercial cybersecurity and health staff augmentation businesses.

Our consolidated revenues are largely attributable to prime contracts or to subcontracts with other contractors engaged in work for the U.S. government, with the remaining attributable to international customers, including the U.K. [removed: MoD] [added: Ministry of Defence] and Australian [removed: Department] [added: Ministry] of [removed: Defense,] [added: Defence,] and customers across a variety of commercial markets.

Within the U.S. government, our revenues are diversified across many agencies, including various intelligence agencies, the U.S. Army, Navy and Air Force, DHS, FAA, [removed: TSA, the Defense Health Agency,] [added: Transportation Security Administration, CBP, DHA,] VA, Department of Health and Human Services, NASA, [removed: NSF,] [added: National Science Foundation, DoE,] the Environmental Protection Agency and research agencies such as [removed: the Defense Advanced Research Projects Agency.][added: DARPA.]

As of January [removed: 3, 2020,] [added: 1, 2021,] we employed approximately [removed: 34,000] [added: 39,000] full and part-time employees [added: of whom approximately 35,000 are located] in [added: the United States and the remainder of which are located in] more than [removed: 29] [added: 35] countries worldwide.

Approximately [removed: 40%] [added: 36%] of our employees have degrees in science, technology, engineering or mathematics fields, [removed: over 1,000 employees have doctoral degrees,] approximately [removed: 40%] [added: 22%] of our employees [removed: possess security clearances] [added: have advanced degrees] and approximately [removed: 22%] [added: 20%] of our employees are military veterans.

Company-funded research and development includes independent research and development ("IR&D") and commercial [added: and international] research and development.

Our company-funded research and development expense was [removed: $49] [added: $73] million, [removed: $46] [added: $49] million and [removed: $42] [added: $46] million for fiscal [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017,] [added: 2018,] respectively, which as a percentage of consolidated revenues was [removed: 0.4%, 0.5% and] [added: 0.6%,] 0.4% [added: and 0.5%] for fiscal [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017,] [added: 2018,] respectively.

This proprietary information is protected in confidence as trade secrets, using non-disclosure [removed: agreements, contracts] and other definitive agreements.

We also compete against smaller, more specialized companies that concentrate their resources on particular areas, [removed: as well as] the U.S. government’s own capabilities and federal non-profit contract research centers.

We believe that our principal competitors currently include the following companies: [removed: BAE Systems plc,] [added: Amentum Services Inc.,] Booz Allen Hamilton Inc., CACI International Inc., General Dynamics Corporation, [added: Jacobs Engineering Group Inc., KBR Inc.,] L3Harris, Lockheed Martin Corporation, ManTech International Corporation, Northrop Grumman Corporation, Perspecta Inc., Raytheon [removed: Company] [added: Technologies Corporation] and SAIC.

[removed: | • | Definitive Award Contracts. U.S. government agencies may procure services and products through single definitive award contracts which specify the scope of services or products purchased and identify the contractor that will provide the specified services or products. When an agency has a requirement, the agency will issue a solicitation or request for proposal to which interested contractors can submit a proposal. The bidding and selection process can take a year or more to complete.] For the contractor, this method of contracting may provide greater certainty of the timing and amounts to be received at the time of contract award because it generally results in the customer contracting for a specific scope of services or products from the single definitive successful awardee. [removed: |]

[removed: | • | Indefinite Delivery/Indefinite Quantity ("IDIQ") Contracts. The U.S. government uses IDIQ contracts to obtain commitments from contractors to provide certain services or products on pre-established terms and conditions. The U.S. government then issues task orders under the IDIQ contracts to purchase the specific services or products it needs. IDIQ contracts are awarded to one or more contractors following a competitive procurement process. Under a single-award IDIQ contract, all task orders under that contract are awarded to one pre-established contractor. Under a multiple-award IDIQ contract, task orders can be awarded to any of the pre-established contractors, which can result in further limited competition for the award of task orders.] Multiple-award IDIQ contracts that are open for any government agency to use for procurement are commonly referred to as "government-wide acquisition contracts." IDIQ contracts often have multi-year terms and unfunded ceiling amounts, therefore enabling, but not committing, the U.S. government to purchase substantial amounts of services or products from one or more contractors. [removed: At the time an IDIQ contract is awarded (prior to the award of any task orders), a contractor may have limited or no visibility as to the ultimate amount of services or products that the U.S. government will purchase under the contract, and in the case of a multiple-award IDIQ, the contractor from which such purchases may be made. |]

Prior year segment results have been recast to reflect this change.

Defense Solutions provides leading-edge and technologically advanced services, solutions and products to a broad customer base.

Our ever-changing technologies and innovations cover a wide spectrum of markets with primary areas of concentration in digital modernization and integrated systems, Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance ("C4ISR") technologies and services, transformative software, analytics, intelligence analysis, mission support and logistics services, weapons systems and human space exploration.

We are dedicated to delivering cost-effective solutions backed by innovation-generating research and development to meet the evolving missions of our customers.

- *Digital Modernization and Integrated Systems –* As an industry leader in enterprise IT, we provide extensive worldwide digital support operations for our nation's largest and most critical infrastructure.

We design, develop, implement and maintain IT environments to provide stability and flexibility to mission needs.

Our capabilities support offerings including cybersecurity, data analytics, digital transformation and operations and logistics.

Our cybersecurity solutions detect and manage the most sophisticated cyber threats.

- *C4ISR Technologies and Services –* We offer a wide range of technologies and services in multiple domains that address the nation's most critical threats and deliver solutions to the U.S. Intelligence Community, DoD and military services.

A primary focus is on the DoD's technology organizations, which include the Defense Advanced Research Projects Agency ("DARPA"), the U.S. Army Research Lab, the U.S. Air Force Research Lab and the Office of Naval Research.

Our market concentration is on airborne and ground intelligence, surveillance and reconnaissance ("ISR"), maritime systems, electronic warfare systems, distributed sensor systems, autonomous systems, sensors and Command and Control ("C2").

We provide multi-spectral, airborne, ground and maritime ISR collection and processing systems, advanced sensor design, C2 solutions and training systems.

Our sensor technologies have a wide range of capabilities deployed across the DoD in areas including airborne, ground, naval and space radar, electro-optical/infrared systems signals intelligence and electronic attack for the DoD.

We also provide laser and radio frequency-based communications systems for airborne, ground, naval and space platforms.

We link our high-end solutions to other key services demanded by our customers.

In the air we support a fleet of over 100 government and Leidos-owned fixed wing, rotary wing and unmanned aircraft.

Our spectrum of capabilities includes modification of commercial aircraft for military use, integration and installation of sophisticated sensors and monitoring stations and worldwide aircraft maintenance and logistics support.

On the ground, we provide mission-critical Command, Control and ISR and support through innovative solutions, essential services and enriched data management tools facilitating critical decision making.

On and under the sea we continue to enhance our surface and subsurface autonomous and unmanned technologies to help make maritime operations safer and more efficient for government and industry by providing leading sensor systems, signal processing, communications hardware and software to support these vital missions.

We are among the market leaders in submarine collection technologies and anti-submarine warfare system installation and maintenance, and are expanding our capabilities in these areas to meet market demand for this growing threat.

We also provide prototyping and research and development support services to a wide variety of DoD customers from concept analysis to classified manufacturing.

- *Transformative Software, Analytics –* We offer extensive software development capabilities for C2, intelligence and information systems and deliver mission and enterprise-level solutions to the U.S. and allied defense and intelligence organizations.

We offer innovative data analytics capabilities and we design, develop, integrate, deploy and support information-centric software and enterprise IT systems for complex, data-driven national security challenges.

Our capabilities are enhanced by our advanced software factories, providing the brainpower to deliver the optimum software solutions for our customer base.

Across the U.S. Army we perform complex software development projects, develop training simulators for Army vehicles, maintain and conduct soldier training for field C2 equipment, and we are installing our cloud-based Army base access control system throughout the U.S.

- *Intelligence Analysis, Mission Support and Logistics Services –* We deliver high-end services to the U.S. Intelligence Community, DoD and allied governments.

Operating throughout the world we provide intelligence analysis, operational support, logistics operations, security, linguistics and training.

In addition, we deliver tailored IT services and solutions to our customers across the globe.

We offer product support and lifecycle sustainment services to our U.S. Army, Navy and Air Force customers including planning and managing the cost and performance across the product’s lifecycle.

We deliver turn-key logistics support to U.S. and key allies and we provide enterprise solutions, including large-scale, end-to-end supply chain optimization and modernization.

- *Weapons Systems –* We offer tactical weapons components and systems for surface-launched missiles, cruise missiles, air-to-air, air-to-ground and anti-ship missiles and guided munitions and rockets across the DoD.

We also deliver offensive boost-glide, launcher and air-breathing systems and hypersonic defense systems.

We have capabilities in integrated force protection in both directed energy (such as high-energy lasers and microwave systems) and area defense (such as counter-unmanned aviation systems, radar systems and kinetic weapon launchers).

In addition, we provide cyber-physical systems in the development of offensive and defensive cyber command and control, toolkits and exploits, as well as offensive cyber operations.

We also support autonomous systems in the areas of unmanned aerial systems, surface ships, undersea vehicles and ground vehicles as well as autonomy software and hardware for autonomous vehicles and platforms.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

- *Human Space Exploration* – We provide integrated design, manufacturing, integration of human-rated and exploration spacecraft for NASA and commercial customers.

We have the capability to design and manufacture for satellite propulsion, structures and avionics and key launch vehicle subsystems such as avionics/mission computing, guidance, navigation and control, boosters and structures.

Our Civil business is focused on modernizing infrastructure, systems and security for government and commercial customers both domestically and internationally.

*•Transportation Solutions –* Leidos is a trusted systems developer, service provider and integrator serving Air Navigation Service Providers around the world, including the FAA.

Building on our foundation of offering innovative services and solutions to U.S. government customers, Leidos serves international government and select commercial markets.

Our international customers include foreign governments and their agencies, primarily located in Australia and the United Kingdom ("U.K.").

Effective the beginning of fiscal 2019, we changed the composition of our Defense Solutions reportable segment to better align the operations within the reportable segment to the customers we serve.

This resulted in the identification of new operating segments within Defense Solutions.

While this activity did not have a material impact on our reportable segments, fiscal 2018 and 2017 segment results and disclosures have been recast to reflect this change.

Defense Solutions is focused on rapidly deploying agile, cost-effective solutions to meet the ever-changing missions of our customers in the areas of intelligence surveillance and reconnaissance ("ISR"), enterprise information technology ("IT"), integrated systems, cybersecurity and global services.

Our Defense Solutions business offers broad technology, development and integration capabilities and is responsible for leading our efforts in surveillance and reconnaissance, integrated systems solutions and global services for the U.S. Intelligence Community, military commands and other government and commercial customers.

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| • | *Surveillance and Reconnaissance –* We offer a wide range of technologies in multiple domains that address the nation's most critical threats and deliver solutions to the U.S. Intelligence Community, DoD and military services. A primary focus is on the DoD's technology organizations, which include the Defense Advanced Research Projects Agency, Army Research Lab, Air Force Research Lab and Office of Naval Research. Our market concentration is on airborne and ground ISR, maritime systems, electronic warfare systems, distributed sensor systems, autonomous systems and command and control. We provide multi-spectral, airborne, ground and maritime ISR collection and processing systems, advanced sensor design, command and control solutions and training systems. |

| • | *Digital Transformation and Integrated Systems –* We offer extensive software development capabilities for intelligence and information systems and deliver mission and enterprise-level solutions to the U.S. and allied Intelligence Community, DoD, military services and the Australian Department of Defense. Our markets include cybersecurity, data analytics, digital transformation and operations and logistics. Our cybersecurity solutions detect and manage the most sophisticated cyber threats. We offer innovative data analytics capabilities, and we design, develop, integrate, deploy and support information-centric software and enterprise IT systems for complex, data-driven national security challenges. Our operations and logistics offerings include enterprise platforms that speed the supply chain of highly complex systems. |

| • | *Global Services –* We provide high-end services to the U.S. Intelligence Community and DoD. Operating around the world daily, we provide intelligence analysis, operational support, security, linguistics and training. In addition, we deliver tailored IT services and solutions to our customers across the globe. |

Our Civil business is focused on seamlessly integrating and protecting physical, digital and data domains.

| *•* | *Aviation Solutions –* Leidos is a trusted systems integrator serving Air Navigation Service Providers including the FAA, the Transportation Security Administration ("TSA") and airport operators. Our work in airport modernization helps stakeholders achieve stated objectives, including increased operational efficiency and safety, a technology enhanced passenger experience, non-aeronautical revenue enablement and state-of-the-art situational awareness and security. Leidos air traffic control systems are used in Air Navigation Service Provider facilities that control a majority of the world's air traffic. We work diligently to support the FAA's NextGen program with government accepted systems including En Route Automation Modernization, Advanced Technology Oceanic Procedures, Time Based Flow Management and Terminal Flight Data Management. For the National Air Traffic Services system in the U.K., we offer the SkyLine Air Traffic Management suite to enhance safety, improve on-time performance and increase fuel efficiency. |

| *•* | *Security Products –* Our Vehicle and Cargo Inspection Systems enable the rapid scanning of vehicles and cargo using patented technology that produces a high-quality image using a low radiation dose while using less space and processing higher volumes of cars and trucks than other scanning systems. Our Reveal line of explosive detection systems for checked airline baggage pioneered the "reduced size" segment of this market with small, flexible systems that are installed at airport check-in counters. We also have a line of radiation detection systems, which are used today at ports, border crossings and critical infrastructure facilities around the world – including most ports and border crossings in the United States. |

| *•* | *Digital Transformation Services –* We deliver secure, user-centric IT solutions in cloud computing, mobility, application modernization, DevOps, data center and network modernization, asset management, help desk operations and digital workplace enablement. We help our customers achieve their missions and business goals by delivering purpose-built solutions, cybersecurity as a standard, efficient project delivery and end-user satisfaction. Leidos is modernizing enterprise IT for CONUS/OCONUS programs in classified and unclassified environments, including programs with the Army Corp of Engineers, National Aeronautics and Space Administration ("NASA") and the Department of Justice. |

| • | *Federal Environment and Infrastructure –* We are trusted by civilian and defense agencies with substantial environmental and sustainability driven missions. Our pedigree across environmental management, nuclear security, energy efficiency, infrastructure management, mission support and IT modernization provides the applicable expertise needed to transform operations while modernizing aging infrastructure and maintaining environmental stewardship. We support several of the Department of Energy's largest nuclear production, operations and remediation sites. At Hanford, we provide site-wide infrastructure management and operation including oversight of land and logistics, public works, information technology, fleet transportation, environmental sustainability and compliance, first responder services and future project planning. Our environmental engineers and scientists address all aspects of remediation for soil, groundwater, surface water and sediment, including removal, treatment, bioremediation, containment, resource management, land use and institutional controls, air emission control and monitoring and remedy performance monitoring and reviews, including National Emergency Rapid Response. At the National Energy Technology Laboratory, we actively perform and provide support for fundamental and applied research efforts, including providing product and logistical support comprising of strategic business development, technology transfer and agreements and education and outreach support for the effective and efficient conduct of research. |

| • | *Logistics –* Leidos is a global leader in large-scale, complex operations and logistics. Our programs extend from the bottom of the world on the Antarctic ice to the orbiting outpost that is the International Space Station. Our expertise goes beyond supply sourcing, shipping, warehousing and maintenance as we also provide systems engineering, specialized product support, training and field readiness, base operations, data analytics and software development. We are helping our customers, including the United Kingdom Ministry of Defence ("U.K. MoD"), the National Science Foundation ("NSF") and NASA, streamline logistics through data analytics so more of their budgets can be applied to their mission activities. |

| • | *Complex Systems Integration* – Leidos employs whole-systems thinking in fielding applied technology solutions across the entire continuum of healthcare. We are working as the lead systems integrator deploying the next generation medical records system to DoD hospitals and treatment facilities worldwide, responsible for integrating software from the electronic healthcare record vendor and the dental record vendor, as well as integrating picture archiving and communications software and more. We ensure the integrated system is cyber secure. We provide enterprise information technology solutions to the VA, National Institutes of Health, DoD and other government customers that help them operate mission critical infrastructure reliably and at a reasonable cost. Commercially, we are taking these same Leidos-wide capabilities to manage critical infrastructure to the largest health systems in the United States, launching this service with a major hospital system earlier this year. |

| • | *Digital Transformation* – We manage the entire lifecycle of the IT journey for our customers. Our expertise includes IT strategic planning, outsourcing and management of large scale data centers, agile software development and system transformation, cloud migration and application modernization, digitization and advanced analytics. Our customers include the Centers for Medicare & Medicaid Services, Food and Drug Administration, Social Security Administration, VA, Defense Health Agency and commercial customers. Leidos helps transform our customers' IT environments in support of their most critical missions. All of this is accomplished in a highly secure manner by leveraging our cybersecurity capabilities. |

The percentage of total revenues for the U.S. government, its agencies and other customers comprising more than 10% of consolidated revenues for the periods presented were as follows:

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| | | Year Ended | | | | | | | |

| | | January 3, 2020 | | | December 28, 2018 | | | December 29, 2017 | |

| U.S. Government | | 87 | % | | 85 | % | | 84 | % |

| DoD and U.S. Intelligence Community | | 48 | % | | 48 | % | | 48 | % |

| U.S. Army | | 11 | % | | 13 | % | | 13 | % |

Employees

The experience and expertise of our employees makes Leidos capable of solving our customers' most challenging technical problems.

IR&D efforts consist of projects involving basic research, applied research, systems development and other concept formulation studies.

IR&D expenses are generally allocated to U.S. government contracts.

Commercial research and development efforts consist of projects funded from commercial expenses and profits.

| • | U.S. General Services Administration ("GSA") Schedule Contracts. The GSA maintains listings of approved suppliers of services and products with agreed-upon prices for use throughout the U.S. government. In order for a company to provide services under a GSA Schedule contract, a company must be pre-qualified and awarded a contract by the GSA. When an agency uses a GSA Schedule contract to meet its requirements, the agency, or the GSA on behalf of the agency, conducts the procurement. The user agency, or the GSA on its behalf, evaluates the user agency’s requirements and initiates a competition limited to GSA Schedule qualified contractors. GSA Schedule contracts are designed to provide the user agency with reduced procurement time and lower procurement costs. Similar to IDIQ contracts, at the time a GSA Schedule contract is awarded, a contractor may have limited or no visibility as to the ultimate amount of services or products that the U.S. government will purchase under the contract. |

| • | Cost-reimbursement contracts include cost-plus-fixed-fee, award-fee and incentive\-fee contracts. These contracts provide for reimbursement of our direct contract costs and allocable indirect costs, plus a fee. These contracts are generally used when uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use a fixed-price contract. Cost-reimbursement contracts generally subject us to lower risk but generally require us to use our best efforts to accomplish the scope of the work within a specified time and budget. Award and incentive fees are generally based on performance criteria such as cost, schedule, quality and/or technical performance. Award fees are determined and earned based on customer evaluation of the company's performance against contractual criteria. Incentive fees that are based on cost provide for an initially negotiated fee to be adjusted later, typically using a formula to measure performance against the associated criteria, based on the relationship of total allowable costs to total target costs. |

| • | Firm-fixed-price ("FFP") contracts provide for a fixed price for specified products, systems and/or services. This type of contract is generally used when the government acquires products and services on the basis of reasonably definitive specifications and which have a determinable fair and reasonable price. These contracts offer us potential increased profits if we can complete the work at lower costs than planned. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns. |

Backlog

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed.

Our backlog consists of funded backlog and negotiated unfunded backlog.

Backlog includes priced option periods not yet exercised.

We have provided information about legal proceedings in which we are involved in "Note [removed: 25—Contingencies"] [added: 24—Contingencies"] of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Additional information regarding such investigations and reviews is set forth in "Note [removed: 25—Contingencies”] [added: 24—Contingencies”] of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

[removed: ][added: ]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year ended January [removed: 3, 2020][added: 1, 2021]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission file [removed: number 001-33072][added: number 001-33072]

| | [added: | |] Leidos Holdings, Inc. | | [added: | | | |]

| (Exact name of registrant as specified in its charter) | | | [added: | | | | | |]

| Delaware | | | | | [added: | | | | | | | | | |] 20-3562868 | [added: | |]

| (State or other jurisdiction of incorporation or organization) | | | | | [added: | | | | | | | | | |] (I.R.S. Employer Identification No.) | [added: | |]

| (Address of principal executive offices) | | | | | [added: | | | | | | | | | |] (Zip Code) | [added: | |]

[removed: (571) 526-6000][added: (571) 526-6000]

| Title of each class | | [added: | | | |] Trading symbol(s) | | [added: | | | |] Name of each exchange on which registered | [added: | |]

| Common stock, par value $.0001 per share | | [added: | | | |] LDOS | | [added: | | | |] New York Stock Exchange | [added: | |]

| | [added: | |] Large accelerated filer | [added: | |] ☒ | | | | | [added: | | | | | | | | | |] Accelerated filer | [added: | |] ☐ | | [added: | | | |]

| | [added: | |] Non-accelerated filer | [added: | |] ☐ | | | | | [added: | | | | | | | | | |] Smaller reporting company | [added: | |] ☐ | | [added: | | | |]

| | | | | | | | [added: | | | | | | | | | | | | | |] Emerging growth company | [added: | |] ☐ | | [added: | | | |]

As of [removed: June 28, 2019,] [added: July 3, 2020,] which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of Leidos Holdings, Inc. common stock (based upon the closing price of the stock on the New York Stock Exchange) held by non-affiliates of the registrant was [removed: $11,356,349,856.][added: $13,224,279,479.]

The number of shares issued and outstanding of the registrant’s class of common stock as of February [removed: 10, 2020] [added: 15, 2021] was [removed: 141,402,269] [added: 141,894,753] shares ($.0001 par value per share).

Portions of Leidos Holdings, Inc.'s definitive Proxy Statement for the [removed: 2020] [added: 2021] Annual Meeting of Stockholders [removed: ("2020] [added: ("2021] Proxy Statement") are incorporated by reference in Part III of this Annual Report on Form 10-K.

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| Item 1. | [removed: [Business](#s1CD4011C08CB50CCAE593F5DB48DF9CF)] | [removed: [1](#s1CD4011C08CB50CCAE593F5DB48DF9CF)] | [added: [Business](#i92ab5cb62ae34021919d48d3eef76fb0_13) | | | [3](#i92ab5cb62ae34021919d48d3eef76fb0_13) | | |]

| Item 1A. | [added: | |] [Risk [removed: Factors](#s4C0B0ECD5B7A55F4B3563DE777A00169)] [added: Factors](#i92ab5cb62ae34021919d48d3eef76fb0_16)] | [removed: [11](#s4C0B0ECD5B7A55F4B3563DE777A00169)] | [added: | [15](#i92ab5cb62ae34021919d48d3eef76fb0_16) | | |]

| Item 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s339F30D62F445CEDB9407DB71ACCDEEA)] [added: Comments](#i92ab5cb62ae34021919d48d3eef76fb0_19)] | [removed: [24](#s339F30D62F445CEDB9407DB71ACCDEEA)] | [added: | [35](#i92ab5cb62ae34021919d48d3eef76fb0_19) | | |]

| Item 2. | [removed: [Properties](#sC60984A950F7527A8C01DBDC23931BA1)] | [removed: [25](#sC60984A950F7527A8C01DBDC23931BA1)] | [added: [Properties](#i92ab5cb62ae34021919d48d3eef76fb0_22) | | | [35](#i92ab5cb62ae34021919d48d3eef76fb0_22) | | |]

| Item 3. | [added: | |] [Legal [removed: Proceedings](#s4B2098B3AB3258E9AF7E49BF6064F7D1)] [added: Proceedings](#i92ab5cb62ae34021919d48d3eef76fb0_25)] | [removed: [25](#s4B2098B3AB3258E9AF7E49BF6064F7D1)] | [added: | [36](#i92ab5cb62ae34021919d48d3eef76fb0_25) | | |]

| Item 4. | [added: | |] [Mine Safety [removed: Disclosures](#s5B2712757AA75A989A083289F3F5E4A9)] [added: Disclosures](#i92ab5cb62ae34021919d48d3eef76fb0_28)] | [removed: [25](#s5B2712757AA75A989A083289F3F5E4A9)] | [added: | [36](#i92ab5cb62ae34021919d48d3eef76fb0_28) | | |]

| [removed: [Executive] [added: [Executive] Officers of the [removed: Registrant](#sF93720A3930E5850A80BF300732FC07F)] [added: Registrant](#i92ab5cb62ae34021919d48d3eef76fb0_31)] | | [removed: [25](#sF93720A3930E5850A80BF300732FC07F)] | [added: | | | [36](#i92ab5cb62ae34021919d48d3eef76fb0_31) | | |]

| Item 5. | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s550066397A725B5EBB338F4A46DCE721)] [added: Securities](#i92ab5cb62ae34021919d48d3eef76fb0_37)] | [removed: [28](#s550066397A725B5EBB338F4A46DCE721)] | [added: | [38](#i92ab5cb62ae34021919d48d3eef76fb0_37) | | |]

| Item 6. | [added: | |] [Selected Financial [removed: Data](#sB7B0E90D00ED50818E7ACDF5666B2111)] [added: Data](#i92ab5cb62ae34021919d48d3eef76fb0_40)] | [removed: [30](#sB7B0E90D00ED50818E7ACDF5666B2111)] | [added: | [39](#i92ab5cb62ae34021919d48d3eef76fb0_40) | | |]

| Item 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sA271B947098C52ABB1BE09EE245317A9)] [added: Operations](#i92ab5cb62ae34021919d48d3eef76fb0_43)] | [removed: [31](#sA271B947098C52ABB1BE09EE245317A9)] | [added: | [39](#i92ab5cb62ae34021919d48d3eef76fb0_43) | | |]

| Item 7A. | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s01761A27FD4F546CB4045ED2ADFB65FF)] [added: Risk](#i92ab5cb62ae34021919d48d3eef76fb0_76)] | [removed: [44](#s01761A27FD4F546CB4045ED2ADFB65FF)] | [added: | [54](#i92ab5cb62ae34021919d48d3eef76fb0_76) | | |]

| Item 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#s887188C3801351C88F42E88E8430E442)] [added: Data](#i92ab5cb62ae34021919d48d3eef76fb0_79)] | [removed: [46](#s887188C3801351C88F42E88E8430E442)] | [added: | [56](#i92ab5cb62ae34021919d48d3eef76fb0_79) | | |]

| Item 9. | [added: | |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sE15FE92EE9D65C498402B9ED50377A2F)] [added: Disclosure](#i92ab5cb62ae34021919d48d3eef76fb0_238)] | [removed: [102](#sE15FE92EE9D65C498402B9ED50377A2F)] | [added: | [112](#i92ab5cb62ae34021919d48d3eef76fb0_238) | | |]

| Item 9A. | [added: | |] [Controls and [removed: Procedures](#s6F4CC971A3AB539E95D625F034A323EA)] [added: Procedures](#i92ab5cb62ae34021919d48d3eef76fb0_241)] | [removed: [103](#s6F4CC971A3AB539E95D625F034A323EA)] | [added: | [113](#i92ab5cb62ae34021919d48d3eef76fb0_241) | | |]

| Item 9B. | [added: | |] [Other [removed: Information](#s98087856D7635441ADDF89B987ECFB85)] [added: Information](#i92ab5cb62ae34021919d48d3eef76fb0_247)] | [removed: [105](#s98087856D7635441ADDF89B987ECFB85)] | [added: | [115](#i92ab5cb62ae34021919d48d3eef76fb0_247) | | |]

| [removed: [Part III](#s8829F532BB8C5DC9977A11739CE245FC)] [added: [Part III](#i92ab5cb62ae34021919d48d3eef76fb0_250)] | | | [added: | | | | | |]

| Item 10. | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s0492830E46215713B2F455E20727CFF1)] [added: Governance](#i92ab5cb62ae34021919d48d3eef76fb0_253)] | [removed: [106](#s0492830E46215713B2F455E20727CFF1)] | [added: | [116](#i92ab5cb62ae34021919d48d3eef76fb0_253) | | |]

| Item 11. | [added: | |] [Executive [removed: Compensation](#s6DE460F0342554C788D6B010E1A5DFD4)] [added: Compensation](#i92ab5cb62ae34021919d48d3eef76fb0_256)] | [removed: [106](#s6DE460F0342554C788D6B010E1A5DFD4)] | [added: | [116](#i92ab5cb62ae34021919d48d3eef76fb0_256) | | |]

| Item 12. | [added: | |] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sBD39F1263B14545FA26A87E54100E591)] [added: Matters](#i92ab5cb62ae34021919d48d3eef76fb0_259)] | [removed: [106](#sBD39F1263B14545FA26A87E54100E591)] | [added: | [116](#i92ab5cb62ae34021919d48d3eef76fb0_259) | | |]

| Item 13. | [added: | |] [Certain Relationships and Related Transactions, and Director [removed: Independence](#sEE01B5C456ED5D2B8B8500F734102786)] [added: Independence](#i92ab5cb62ae34021919d48d3eef76fb0_262)] | [removed: [107](#sEE01B5C456ED5D2B8B8500F734102786)] | [added: | [117](#i92ab5cb62ae34021919d48d3eef76fb0_262) | | |]

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| 11951 Freedom Drive, | Reston, | Virginia | | | 20190 |

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| [Part II](#s3C9167510410566EBFE1B768022B0798) | | |

| [Part IV](#sDD3E0B36A4B45AD38B7EEEE261A56229) | | |

| [Signatures](#s3820734AC14F5F1398484FC73F7D549C) | | [113](#s3820734AC14F5F1398484FC73F7D549C) |

Leidos Holdings, Inc. Annual Report - 24

[Table of Contents](#s700C9EEE24335E82A90697B3433C2095)

PART I

As of January [removed: 3, 2020,] [added: 1, 2021,] we conducted our operations in [removed: 334] [added: 367] locations in 39 states, the District of Columbia and various foreign countries.

We occupy approximately [removed: 6.5] [added: 8.4] million square feet of floor space.

Of this amount, we own approximately [removed: 0.3] [added: 1.2] million square feet, and the remaining balance is leased.

Our major locations are in the Washington, D.C., metropolitan area, where we occupy a combination of leased and owned floor space of approximately [removed: 2.9] [added: 2.3] million square feet.

As of January [removed: 3, 2020,] [added: 1, 2021,] we owned the following properties:

| Location | | [added: | | | |] Number of buildings | | | [added: | | |] Square footage | | | [added: | | |] Acreage | | [added: |]

| Columbia, Maryland | | [added: | | | |] 1 | | | [added: | | |] 95,000 | | | [added: | | |] 7.3 | | [added: |]

| Orlando, Florida | | [added: | | | |] 1 | | | [added: | | |] 85,000 | | | [added: | | |] 8.5 | | [added: |]

| Oak Ridge, Tennessee | | [added: | | | |] 1 | | | [added: | | |] 83,000 | | | [added: | | |] 8.4 | | [added: |]

| Reston, Virginia | | [added: | | | |] 1 | | | [added: | | |] 62,000 | | | [added: | | |] 2.6 | | [added: |]

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| Huntsville, Alabama | | | | | | 7 | | | | | | 801,000 | | | | | | 90.7 | | |

| Decatur, Alabama | | | | | | 1 | | | | | | 50,000 | | | | | | 5.0 | | |

Leidos Holdings, Inc. Annual Report - 35

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

PART I

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See "Note 13—Leases" in Part II of this Annual Report on Form 10-K for information regarding commitments under leases.

The following is a list of the names and ages (as of February [removed: 18, 2020)] [added: 23, 2021)] of our executive officers, indicating all positions and offices held by each such person and each such person’s business experience during at least the past five years.

| Name of officer | | [added: | | | |] Age | | [added: | | | |] Position(s) with the company and prior business experience | [added: | |]

| Roger A. Krone | | [removed: 63] | | [added: | | 64 | | | | | |] Mr. Krone is Chairman and Chief Executive Officer of Leidos. He joined [removed: the Company] [added: Leidos] as CEO in July 2014. Mr. Krone has held leadership roles at some of the most prominent organizations in aerospace for nearly 40 years, including The Boeing Company, McDonnell Douglas Corp. and General Dynamics. He is a member of the Georgia Tech Foundation Board of Trustees, WETA Public Television and Radio in Washington board, the Greater Washington Urban League chapter board, the Business [removed: Roundtable,] [added: Roundtable] and the Aircraft Owners and Pilots Association Foundation’s Board of Advisors. He serves as the chair of the Professional Services Council, and is a member of the Executive Committee of the Aerospace Industries Association. | [added: | |]

Leidos Holdings, Inc. Annual Report - [removed: 25][added: 36]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

| James C. Reagan | | [removed: 61] | | [added: | | 62 | | | | | |] Mr. Reagan has served as Executive Vice President and Chief Financial Officer since July 2015. Prior to joining Leidos, from 2012 to 2015, Mr. Reagan served as Senior Vice President and Chief Financial Officer of Vencore, Inc. (formerly The SI Organization, Inc.), a provider of information solutions and engineering and analysis services to the U.S. Intelligence Community, DoD and federal and civilian agencies. From 2011 to 2012, Mr. Reagan was Executive Vice President and Chief Financial Officer of PAE, Inc., a provider of mission support services to the U.S. government. Mr. Reagan is a Certified Public Accountant. | [added: | |]

| Christopher R. Cage | | [removed: 48] | | [added: | | 49 | | | | | |] Mr. Cage has served as Senior Vice President, Chief Accounting Officer and Corporate Controller since June 2019. He has served in several capacities throughout his 20-year tenure with [removed: the Company,] [added: Leidos,] including Chief Financial Officer for the [removed: Company's] Health Group and, most recently, as Senior Vice President for Financial Planning and Analysis. | [added: | |]

| Paul O. Engola | | [removed: 48] | | [added: | | 49 | | | | | |] Mr. Engola has served as Executive Vice President and Chief Human Resources Officer and Head of Business Partnerships since January 2019, and before that, as Chief Administrative Officer and Deputy President, Defense and Intelligence Group. Prior to joining Leidos, Mr. Engola served Lockheed Martin Corporation for more than 10 years, most recently as Vice President, Transportation & Financial Solutions in their former Information Systems & Global Solutions business. | [added: | |]

| Gerard A. Fasano | | [removed: 54] | | [added: | | 55 | | | | | |] Mr. Fasano has served as Group President for our Defense Group since October 2018, and before that, as Chief Business Development Strategy Officer. [added: Mr. Fasano led the separation from Lockheed Martin and the integration of the Information Systems & Global Solutions Business into Leidos.] Prior to joining Leidos, Mr. Fasano served Lockheed Martin Corporation for over 30 [removed: years in several capacities, most recently as a Vice President and General Manager in their former Information Systems & Global Solutions business.] [added: years.] | [added: | |]

| Jerald S. Howe, Jr. | | [removed: 64] | | [added: | | 65 | | | | | |] Mr. Howe has served as Executive Vice President and General Counsel since July 2017. Prior to joining Leidos, Mr. Howe was a partner at Fried, Frank, Harris, Shriver & Jacobson LLP, where he served in the firm’s litigation, government contracts, mergers and [removed: acquisitions,] [added: acquisitions] and aerospace and defense practices. Prior to joining Fried Frank, Mr. Howe held general counsel positions at TASC, a leading aerospace and defense company, and at Veridian Corporation, a publicly traded company that provided advanced technology services and solutions to the intelligence community, military and homeland defense agencies. | [added: | |]

| David A. King | | [removed: 57] | | [added: | | 59 | | | | | |] Mr. King has served as Chief Executive Officer of Dynetics, Inc. since 2015. In February 2020, following Leidos' acquisition of Dynetics, Mr. King was elected as a Group President of Leidos with responsibility for the Dynetics business. Mr. King previously served as the Executive Vice President for special programs and President of Dynetics. Prior to joining Dynetics, he spent 25 years with NASA, as Space Shuttle Launch Director and Director of Shuttle Processing, and most recently as the Center Director of NASA Marshall Space Flight Center. | [added: | |]

| James R. Moos | | [removed: 50] | | [added: | | 51 | | | | | |] Mr. Moos has served as Group President for our Civil Group since February 2020. He previously served as Senior Vice President and Acting Group President for the Civil Group since October 2019, and before that, as Deputy President and Chief Operations Officer for the Civil Group. Prior to that, Mr. Moos has served Leidos for over 20 years in several capacities, including Senior Vice President and General Manager of [removed: the Company's] [added: Leidos'] former Engineering Solutions Group. | [added: | |]

| Mary V. Schmanske | | [removed: 57] | | [added: | | 58 | | | | | |] Ms. Schmanske has served as Group President for our Intelligence Group since October 2018, and before that, as Chief Administrative Officer and Deputy President and Chief Operations Officer for our Health Group. Prior to joining Leidos, Ms. Schmanske served Lockheed Martin Corporation in several capacities, most recently as Vice President of Operations for programs under strategic review, Civil, Defense & Intelligence Solutions. | [added: | |]

Leidos Holdings, Inc. Annual Report - [removed: 26][added: 37]

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| Name of officer | | | | | | Age | | | | | | Position(s) with the company and prior business experience | | |

| Elizabeth A. Porter | | | | | | 50 | | | | | | Ms. Porter has served as Group President for our Health Group since August 2020 and, before that, as Acting Group President for the Health Group since March 2019. She previously served as Senior Vice President and Operation Manager for Leidos’ Federal Energy and Environment business. Prior to that role, Ms. Porter served as the Department of Defense Information Networks & Mission Partner Program Director. Prior to joining Leidos, Ms. Porter served Lockheed Martin Corporation for over 20 years in several capacities, most recently as Director of Energy Initiatives, Corporate Engineering & Technology*.* | | |

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

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PART I

| Jonathan W. Scholl | | 58 | | Mr. Scholl has served as Group President for our Health Group since August 2016, and before that, as Group President for our former Health and Infrastructure Group. Prior to joining Leidos, Mr. Scholl served for five years as an executive at Texas Health Resources where he was in charge of Strategy, Business Development and Strategic Marketing, and hospital operations for physician joint venture hospitals. Prior to that, he spent 15 years with The Boston Consulting Group and served as head of its North American Healthcare Provider Practice and leader of its Lean Six Sigma initiative for hospitals. He also served as Vice President for Applications Development for the TenFold HealthCare Group in Dallas. Mr. Scholl served five years in the U.S. Navy as a nuclear submarine officer and nuclear power plant instructor. |

Leidos Holdings, Inc. Annual Report - 27

As of February [removed: 10, 2020,] [added: 15, 2021,] there were approximately [removed: 19,934] [added: 21,088] holders of record of Leidos common stock.

During fiscal [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] we declared and paid quarterly dividends totaling [removed: $1.32] [added: $1.36] and [removed: $1.28] [added: $1.32] per share, respectively, of Leidos common stock.

The following graph compares the total cumulative five-year return on Leidos common stock through January [removed: 3, 2020] [added: 1, 2021] to two indices: (i) the Standard & Poor's [removed: 400] [added: 500] Composite index and (ii) the Standard & Poor's 500 IT Services Industry index.

The [removed: graph assumes an initial investment of $100 on December 31, 2014, and that dividends, if any, have been reinvested.The] comparisons in the graph are required by the SEC, based upon historical data and are not intended to forecast or be indicative of possible future performance of Leidos common stock.

Leidos Holdings, Inc. Annual Report - [removed: 28][added: 38]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

[removed: ][added: ]

The following table presents repurchases of Leidos common stock during the quarter ended January [removed: 3, 2020:][added: 1, 2021:]

| Period | | [added: | | | |] Total Number of Shares Purchased(1) | | | [added: | | |] Average Price Paid per Share | | | | [added: | |] Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs | | | [added: | | |] Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | [added: |]

| [removed: January 1,] [added: October 3,] 2020 - [removed: January 3,] [added: October 31,] 2020 | | [added: | | | |] — | | | [added: | | | $ |] — | | | | [added: |] — | | | [added: | | |] 7,696,108 | | [added: |]

[removed: | (1) | The] [added: (1)The] total number of shares purchased includes shares surrendered to satisfy statutory tax withholdings obligations related to vesting of restricted stock units. [removed: |]

The graph assumes an initial investment of $100 on December 31, 2015, and that dividends, if any, have been reinvested.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| November 1, 2020 - November 30, 2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 7,696,108 | | |

| December 1, 2020 - December 31, 2020 | | | | | | 638,626 | | | | | | 105.36 | | | | | | 638,200 | | | | | | 7,057,908 | | |

| January 1, 2021 | | | | | | — | | | | | | — | | | | | | — | | | | | | 7,057,908 | | |

| Total | | | | | | 638,626 | | | | | | $ | 105.36 | | | | | 638,200 | | | | | | | | |

PART II

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| September 28, 2019 - September 30, 2019 | | — | | | $ | — | | | — | | | 7,976,255 | |

| October 1, 2019 - October 31, 2019 | | 1,780 | | | 85.66 | | | | — | | | 7,976,255 | |

| November 1, 2019 - November 30, 2019 | | 217,953 | | | 89.03 | | | | 211,649 | | | 7,764,606 | |

| December 1, 2019 - December 31, 2019 | | 68,609 | | | 89.85 | | | | 68,498 | | | 7,696,108 | |

| Total | | 288,342 | | | $ | 89.20 | | | 280,147 | | | | |

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Leidos Holdings, Inc. Annual Report - 29

[removed: This information should be read in conjunction with] [added: Refer to] "Management's Discussion and Analysis of Financial Condition and Results of Operations" [removed: in Part II and our consolidated] [added: for discussion of selected] financial [removed: statements and the notes thereto contained] [added: data included] within this Annual Report on Form 10-K.

The selected financial data for the five-year period set forth below is derived from our consolidated financial statements.

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| | | 12 Months Ended(1) | | | | | | | | | | | | | | | | 11 Months Ended(1) | | |

| | | January 3, 2020(2) | | | | December 28, 2018(3) | | | | December 29, 2017(4) | | | | December 30, 2016(5) | | | | January 1, 2016(6) | | |

| | | (in millions, except for per share amounts) | | | | | | | | | | | | | | | | | | |

| Consolidated Statement of Income Data: | | | | | | | | | | | | | | | | | | | | |

| Revenues | | $ | 11,094 | | | $ | 10,194 | | | $ | 10,170 | | | $ | 7,043 | | | $ | 4,712 | |

| Operating income | | 912 | | | | 749 | | | | 559 | | | | 417 | | | | 320 | | |

| Income from continuing operations | | 670 | | | | 582 | | | | 364 | | | | 246 | | | | 243 | | |

| Loss from discontinued operations, net of taxes | | — | | | | — | | | | — | | | | — | | | | (1 | | ) |

| Net income | | 670 | | | | 582 | | | | 364 | | | | 246 | | | | 242 | | |

| Less: net income (loss) attributable to non-controlling interest | | 3 | | | | 1 | | | | (2 | | ) | | 2 | | | | — | | |

| Net income attributable to Leidos common stockholders | | $ | 667 | | | $ | 581 | | | $ | 366 | | | $ | 244 | | | $ | 242 | |

| Earnings per share: | | | | | | | | | | | | | | | | | | | | |

| Basic: | | | | | | | | | | | | | | | | | | | | |

| Income from continuing operations attributable to Leidos common stockholders | | $ | 4.66 | | | $ | 3.85 | | | $ | 2.41 | | | $ | 2.39 | | | $ | 3.33 | |

| Loss from discontinued operations, net of taxes | | — | | | | — | | | | — | | | | — | | | | (0.01 | | ) |

| Net income attributable to Leidos common stockholders | | $ | 4.66 | | | $ | 3.85 | | | $ | 2.41 | | | $ | 2.39 | | | $ | 3.32 | |

| Diluted: | | | | | | | | | | | | | | | | | | | | |

| Income from continuing operations attributable to Leidos common stockholders | | $ | 4.60 | | | $ | 3.80 | | | $ | 2.38 | | | $ | 2.35 | | | $ | 3.28 | |

| Net income attributable to Leidos common stockholders | | $ | 4.60 | | | $ | 3.80 | | | $ | 2.38 | | | $ | 2.35 | | | $ | 3.27 | |

| Cash dividend per common share | | $ | 1.32 | | | $ | 1.28 | | | $ | 1.28 | | | $ | 14.92 | | | $ | 1.28 | |

| | | January 3, 2020 | | | | December 28, 2018 | | | | December 29, 2017 | | | | December 30, 2016 | | | | January 1, 2016 | | |

| | | (in millions) | | | | | | | | | | | | | | | | | | |

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |

| Total assets | | $ | 9,367 | | | $ | 8,770 | | | $ | 8,990 | | | $ | 9,132 | | | $ | 3,370 | |

| Long-term debt, including current portion | | 2,986 | | | | 3,124 | | | | 3,111 | | | | 3,287 | | | | 1,081 | | |

| Other long-term liabilities(7) | | 182 | | | | 178 | | | | 129 | | | | 204 | | | | 149 | | |

| | |

| --- | --- |

| (1) | References to financial data are to the Company's continuing operations, unless otherwise noted. |

| (2) | Fiscal 2019 reflects the effects from our December 29, 2018 adoption of ASC 842. Fiscal 2019 also includes an $88 million gain on sale related to the divestiture of our commercial cybersecurity business, a $52 million net gain recognized upon the receipt of the Greek arbitration |

Leidos Holdings, Inc. Annual Report - 30

[Table of Contents](#s700C9EEE24335E82A90697B3433C2095)

PART II

award and bad debt expense of $12 million.

For further information, see "Note 7—Divestitures" and "Note 25—Contingencies" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

| (3) | Fiscal 2018 reflects the effects from our December 30, 2017 adoption of ASC 606. Fiscal 2018 also includes acquisition, integration and restructuring costs of $37 million and a tangible asset impairment charge of $7 million. For further information, see "Note 6—Acquisitions," "Note 8—Restructuring Expenses" and "Note 12—Property, Plant and Equipment" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K. |

| (4) | Fiscal 2017 includes acquisition, integration and restructuring costs of $139 million. For further information, see "Note 6—Acquisitions" and "Note 8—Restructuring Expenses" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K. |

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| [Consolidated Balance Sheets as of January [removed: 3, 2020] [added: 1, 2021] and [removed: December 28, 2018](#sCA3D684DDBAC5DEAA2512A08A35D3C94)] [added: January 3, 2020](#i92ab5cb62ae34021919d48d3eef76fb0_91)] | | [removed: [49](#sCA3D684DDBAC5DEAA2512A08A35D3C94)] | [added: | | | [60](#i92ab5cb62ae34021919d48d3eef76fb0_91) | | |]

| [Consolidated Statements of Income for the fiscal years ended January [added: 1, 2021, January] 3, [removed: 2020, December 28, 2018,] [added: 2020] and December [removed: 29, 2017](#s2A56255D1A7659FEB0211443A008A232)] [added: 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_97)] | | [removed: [50](#s2A56255D1A7659FEB0211443A008A232)] | [added: | | | [61](#i92ab5cb62ae34021919d48d3eef76fb0_97) | | |]

| [Consolidated Statements of Comprehensive Income for the fiscal years ended January [added: 1, 2021, January] 3, [removed: 2020, December 28, 2018,] [added: 2020] and December [removed: 29, 2017](#s2A5F5AE947DB5758BC89A6C81F6705BE)] [added: 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_100)] | | [removed: [51](#s2A5F5AE947DB5758BC89A6C81F6705BE)] | [added: | | | [62](#i92ab5cb62ae34021919d48d3eef76fb0_100) | | |]

| [Consolidated Statements of Equity for the fiscal years ended January [added: 1, 2021, January] 3, [removed: 2020, December 28, 2018,] [added: 2020] and December [removed: 29, 2017](#sE7896A1975F45BBCB39DE0DACC737D9A)] [added: 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_103)] | | [removed: [52](#sE7896A1975F45BBCB39DE0DACC737D9A)] | [added: | | | [63](#i92ab5cb62ae34021919d48d3eef76fb0_103) | | |]

| [Consolidated Statements of Cash Flows for the fiscal years ended January [added: 1, 2021, January] 3, [removed: 2020, December 28, 2018,] [added: 2020] and December [removed: 29, 2017](#s2517D410756853ABA947ADC3B075E8CB)] [added: 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_109)] | | [removed: [53](#s2517D410756853ABA947ADC3B075E8CB)] | [added: | | | [64](#i92ab5cb62ae34021919d48d3eef76fb0_109) | | |]

| [Notes to Consolidated Financial [removed: Statements](#s9CF1D6EAAC8E5CA0BC1FDF7F2319C99B)] [added: Statements](#i92ab5cb62ae34021919d48d3eef76fb0_115)] | | [removed: [55](#s9CF1D6EAAC8E5CA0BC1FDF7F2319C99B)] | [added: | | | [66](#i92ab5cb62ae34021919d48d3eef76fb0_115) | | |]

Leidos Holdings, Inc. Annual Report - [removed: 46][added: 102]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]

We have audited the accompanying consolidated balance sheets of Leidos Holdings, Inc. and subsidiaries (the "Company") as of January [removed: 3, 2020] [added: 1, 2021] and [removed: December 28, 2018,] [added: January 3, 2020,] the related consolidated statements of income, comprehensive income, equity, and cash flows, for the fiscal years ended January [added: 1, 2021, January] 3, 2020, [added: and] December 28, 2018, and [removed: December 29, 2017, and] the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January [removed: 3, 2020] [added: 1, 2021] and [removed: December 28, 2018,] [added: January 3, 2020,] and the results of its operations and its cash flows for the fiscal years ended January [added: 1, 2021, January] 3, 2020, [added: and] December 28, 2018, [removed: and December 29, 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January [removed: 3, 2020,] [added: 1, 2021,] based on criteria established in [removed: Internal] [added: *Internal] Control — Integrated Framework [removed: (2013)] [added: (2013*)] issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 18, 2020,] [added: 23, 2021,] expressed an unqualified opinion on the Company's internal control over financial reporting.

[removed: Critical] [added: *Critical] Audit [removed: Matter][added: Matter Description*]

The critical audit [removed: matter] [added: matters] communicated below [removed: is a matter] [added: are matters] arising from the current-period audit of the financial statements that [removed: was] [added: were] communicated or required to be communicated to the audit committee and that (1) [removed: relates] [added: relate] to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit [removed: matter] [added: matters] below, providing a separate opinion on the critical audit [removed: matter] [added: matters] or on the accounts or disclosures to which [removed: it relates.][added: they relate.]

Leidos Holdings, Inc. Annual Report - [removed: 47][added: 103]

On firm-fixed-price (FFP) contracts requiring system [removed: integration,] [added: integration] and cost-plus contracts with variable consideration, revenue is recognized over time [added: generally] using a method that measures the extent of progress towards completion of a performance obligation, principally using a cost-input method (referred to as the cost-to-cost method).

[removed: | • |] [added: -] We tested the effectiveness of controls over contract revenue, including management’s controls over the initial setup of new contract arrangements and the estimates of total costs for identified performance obligations. [removed: |]

[removed: | • |] [added: -] We tested recorded revenue using a combination of analytical procedures and detailed contract testing. [removed: |]

[removed: | • |] [added: -] For a selection of [removed: contracts, including all new significant contracts,] [added: contracts] we performed elements of the following for each contract: [removed: |]

[removed: | ◦ | Evaluated] [added: ◦Evaluated] the terms and conditions of each contract and the appropriateness of the accounting treatment in accordance with generally accepted accounting principles, by: [removed: |]

[removed: | ▪ | Inspecting] [added: ▪Inspecting] the executed contract to verify that the facts on which management’s conclusions were reached were consistent with the actual terms and conditions of the contract. [removed: |]

[removed: | ▪ | Evaluating] [added: ▪Evaluating] the contract within the context of the five-step model prescribed by ASC 606 and that management’s conclusions were appropriate by evaluating the nature of the promises within the contract, the interrelationship of the promised services provided, the pattern by which obligations are fulfilled, the number of performance obligations identified, and which party is acting as principal in the fulfillment of the identified performance obligations. [removed: |]

[removed: | ▪ | Involving] [added: ▪Involving] industry experts in evaluating the appropriateness of management’s conclusions. [removed: |]

[removed: | ◦ | Tested] [added: ◦Tested] the mathematical accuracy of management’s calculation of revenue for the performance obligation. [removed: |]

[removed: | • |] [added: -] We analyzed cumulative adjustments recorded during the year and tested a sample to determine that the adjustments were the result of changes in facts and circumstances and not estimates that were previously inaccurate. [removed: |]

Leidos Holdings, Inc. Annual Report - [removed: 48][added: 104]

| | | [added: | | | |] January [added: 1, 2021 | | | | | | January] 3, [removed: 2020] [added: 2020] | | | | [added: | |] December 28, 2018 | | |

| | | [added: | | | |] (in millions) | | | | | | | [added: | |]

| ASSETS | | | | | | | | | [added: | | | | | |]

| Cash and cash equivalents | | [added: | | | |] $ | [removed: 668] [added: 524] | | | [added: | |] $ | [removed: 327] [added: 668] | |

| Receivables, net | | [removed: 1,734] | | | | [removed: 1,877] [added: 2,137] | | | [added: | | | 1,734 | | |]

| Other current assets | | [removed: 410] | | | | [removed: 543] [added: 23] | | |

| [removed: Assets] [added: Stock basis in subsidiary] held for sale | | [added: | | | |] — | | | | [removed: 92] | | [added: 5] | [added: | | | | | (16) | | |]

| Total current assets | | [removed: 2,812] | | | | [removed: 2,839] [added: 3,339] | | | [added: | | | 2,812 | | |]

| Property, plant and equipment, net | | [removed: 287] | | | | [removed: 237] [added: 604] | | | [added: | | | 287 | | |]

| Intangible assets, net | | [removed: 530] | | | | [removed: 652] [added: 1,216] | | | [added: | | | 530 | | |]

| Goodwill | | [removed: 4,912] | | | | [removed: 4,860] [added: 6,313] | | | [added: | | | 4,912 | | |]

Critical Audit Matters

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

Acquisitions – Valuation of Intangible Assets Acquired— Refer to Note 6 to the financial statements

As described in Note 6 of the consolidated financial statements, the Company completed two business acquisitions during the fiscal year ended January 1, 2021.

On January 31, 2020 the Company acquired Dynetics, Inc. (“Dynetics”) for a purchase price of $1.6 billion, and on May 4, 2020, the Company acquired the Security Detection & Automation (“SD&A”) businesses from L3Harris Technologies for a purchase price of $1.0 billion.

The Company’s accounting for the acquisitions included determining the fair value of the intangible assets acquired, which primarily included $485 million of program-related intangible assets acquired in the Dynetics acquisition, as well as $141 million, $48 million, $73 million and $92 million of programs, customer relations, technology and in process research and development intangible assets, respectively, acquired in the SD&A acquisition.

The fair value of the intangible assets was determined based on estimates and judgments, including the amount and timing of expected future cash flows, long-term growth rates and discount rates.

In some cases, the Company used discounted cash flow analyses, which were based on estimates of future sales, earnings and cash flows after considering such factors as general market conditions, customer budgets, existing and future orders, changes in working capital, long term business plans and recent operating performance.

These estimates and judgments are forward-looking and could be affected by future economic and market conditions.

Given the judgments necessary to audit such accounting conclusions, the estimates required extensive audit effort due to the uncertainty associated with future events and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to the valuation of intangible assets included the following, among others:

- We obtained and read the executed purchase agreements.

- We tested the effectiveness of controls over the management’s process for identifying and determining the fair value of the acquired intangible assets.

- We tested the completeness and accuracy of the underlying data used in the fair value models which included inspecting contractual documents, comparing projected cash flows to both historical actuals and industry data, and inquiring of program management.

- We involved our valuation specialists to assist with the evaluation of methodologies used by the Company and significant valuation assumptions included in the fair value estimates, including the discount rate and revenue growth rate applied to future cash flows.

- We performed a sensitivity analyses over assumptions used in the model, to evaluate the risk associated with a change in the fair value of the intangible assets resulting from changes in the assumptions.

- We compared the significant assumptions to current industry, market and economic trends, historical results of the acquired businesses, and to other relevant factors including benchmark data.

- We evaluated the adequacy of the Company’s disclosures related to these acquisitions.

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

| Inventory, net | | | | | | 276 | | | | | | 72 | | |

| Other current assets | | | | | | 402 | | | | | | 338 | | |

| | | | | | | $ | 12,511 | | | | | $ | 9,367 | |

| | | | | | | $ | 12,511 | | | | | $ | 9,367 | |

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance at January 4, 2020 | | | | | | 141 | | | | | | 2,587 | | | | | | 895 | | | | | | (70) | | | | | | 3,412 | | | | | | 4 | | | | | | 3,416 | | |

| Net income | | | | | | — | | | | | | — | | | | | | 628 | | | | | | — | | | | | | 628 | | | | | | 1 | | | | | | 629 | | |

| Capital contributions to non-controlling interest | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 4 | | | | | | 4 | | |

| Balance at January 1, 2021 | | | | | | 142 | | | | | | $ | 2,580 | | | | | $ | 1,328 | | | | | $ | (46) | | | | | $ | 3,862 | | | | | $ | 9 | | | | | $ | 3,871 | |

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

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February 18, 2020

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | $ | 9,367 | | | $ | 8,770 | |

| Liabilities held for sale | | — | | | | 23 | | |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance at December 30, 2016 | | 150 | | | $ | 3,316 | | | $ | (177 | ) | | $ | (4 | ) | | $ | 3,135 | | | $ | 12 | | | $ | 3,147 | |

| Net income (loss) | | — | | | — | | | | 366 | | | | — | | | | 366 | | | | (2 | | ) | | 364 | | |

| Adjustment to original purchase price allocation | | — | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | | |

| Non-cash interest (income) expense | | (10 | | ) | | 6 | | | | 12 | | |

| Promissory note impairment | | — | | | | — | | | | 33 | | |

Leidos' international customers include foreign governments and their agencies, primarily located in Australia and the United Kingdom ("U.K.").

The Company consolidates the financial results for MSA into its consolidated financial statements.

Effective December 29, 2018, the Company adopted the requirements of Accounting Standards Update ("ASU") 2016-02 using the modified retrospective approach (see "Note 2—Accounting Standards").

Comparative information for the prior fiscal year has not been retrospectively adjusted.

Effective the beginning of fiscal 2018, the Company established a new CAS structure and revised its disclosure statements accordingly to reflect the related cost accounting practice changes.

The Company combined "Dividends payable" and "Income taxes payable" with "Accounts payable and accrued liabilities" on the consolidated balance sheets.

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 ("ASC 842") and subsequent updates, which supersedes the lease guidance under *Leases (Topic 840)* and requires an entity to recognize a right-of-use ("ROU") asset and corresponding lease obligation on the balance sheet, classified as financing or operating, as appropriate.

As a result of the adoption of the new standard, the Company recorded $433 million and $486 million of ROU assets and lease liabilities, respectively, primarily due to its operating leases, on the Company's consolidated balance sheets.

The standard did not have a material impact on the consolidated statements of income and consolidated statements of cash flows.

The Company also recorded a $48 million increase in retained earnings due to the cumulative effect of recognizing the gain, net of taxes, related to the sale of the San Diego properties (see "Note 12—Property, Plant and Equipment").

The Company has elected to adopt certain practical expedients provided under ASC 842, including the options to not apply lease recognition for short-term leases, reassess whether expired or existing contracts contain leases, reassess lease classification for expired or existing leases, reassess initial direct costs, and combine lease and non-lease components in revenue arrangements when (i) the timing and pattern of revenue recognition for the components are the same and (ii) the lease component if accounted for separately, would be classified as an operating lease.

The Company did not elect the hindsight practical expedient to determine the lease term for existing leases and in assessing impairment for the ROU assets.

The Company also applies a single discount rate to a portfolio of leased assets with similar durations.

The cumulative effect of the changes made to the Company's consolidated balance sheet for the adoption of ASU 2016-02 was as follows:

| Equity: | | | | | | | | | | | | |

| Retained earnings | | $ | 372 | | | $ | 48 | | | $ | 420 | |

ASU 2018-13 Fair Value Measurement (*Topic 820*)

In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" to improve the effectiveness of disclosures in the notes to the financial statements.

During the quarter ended January 3, 2020, the Company early adopted the provisions related to disclosure requirements that were removed from Topic 820, including the valuation processes for Level 3 fair value measurements.

ASU 2016-13, ASU 2018-19, ASU 2019-05, and ASU 2019-11 *Financial Instruments – Credit Losses (Topic 326)*

The Company expects the impacts that this standard update will have on certain financial assets, including trade receivables, note receivables and receivables on sales-type leases and processes to be immaterial.

The Company's fiscal 2019 ended January 3, 2020.

Leidos Holdings, Inc. Annual Report - 102

[Table of Contents](#s700C9EEE24335E82A90697B3433C2095)

PART II

Our management, with the participation of our principal executive officer (our Chairman and 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 of January [removed: 3, 2020.][added: 1, 2021.]

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 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities [added: and] Exchange [removed: Commission.][added: Commission ("SEC").]

[removed: There] [added: Other than incorporating controls for Dynetics and the SD&A Businesses, there] have been no [added: other] changes in our internal control over financial reporting that occurred in the fourth quarter of the period ended January [removed: 3, 2020,] [added: 1, 2021,] covered by this Annual Report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of January [removed: 3, 2020,] [added: 1, 2021,] based on criteria established in *Internal Control—Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management has assessed the effectiveness of our internal control over financial reporting as of January [removed: 3, 2020,] [added: 1, 2021,] and has concluded that our internal control over financial reporting as of that date was effective.

Leidos Holdings, Inc. Annual Report - [removed: 103][added: 113]

[removed: [Table] [added: [Table] of [removed: Contents](#s700C9EEE24335E82A90697B3433C2095)][added: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)]