Leidos Holdings (LDOS) 10-K risk factor changes: FY2021 vs FY2020

If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed and [removed: the price of] our stock [added: price] could decline.

Our business is also subject to general risks and uncertainties that affect many other companies, such as our ability to collect receivables, overall U.S. and global economic and industry conditions, geopolitical events, changes in laws or accounting rules, fluctuations in [removed: interest and] [added: interest,] exchange [removed: rates,] [added: rates and inflation,] terrorism, international conflicts, major health concerns, climate change or other disruptions of expected economic and business conditions.

Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially harm our business, financial condition or operating results and result in a decline in [removed: the price of] our [removed: stock.*][added: stock price.*]

[removed: - Because] [added: 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 [removed: have an adverse effect on] [added: adversely affect] our future [removed: revenues.][added: revenues.]

[removed: - Our] [added: Our] failure to comply with [removed: a variety of] [added: various] 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 [removed: contracting.][added: contracting.]

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

[removed: - Our] [added: For additional background on the regulations that apply to our] business [added: and the related compliance risks, see “Regulation” within Item 1 of this Annual Report on Form 10-K and the risk factor “Our business] is subject to governmental review and investigation, which could adversely affect our financial position, operating results and growth [removed: prospects.][added: prospects." The FAR and]

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[removed: -] We [added: 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 [removed: prospects.][added: prospects.” Our failure to compete effectively in this procurement environment would adversely affect our revenues and profitability.]

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

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

[removed: - Cybersecurity] [added: See also the risk factor “Cybersecurity] breaches and other information security incidents could negatively impact our business and financial results, impair our ability to effectively provide our services to our clients and cause harm to our reputation or competitive [removed: position.][added: position*.*” Although we have implemented policies, procedures, training and 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.]

[removed: - We] [added: We] cannot assure you that we will continue to pay [added: or increase] dividends on our common [removed: stock.][added: stock or to repurchase shares of our common stock at current levels.]

We generated [added: approximately] 87% of our total revenues during fiscal [added: 2021,] 2020 and 2019 [removed: and 85% of our total revenues during fiscal 2018] 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.

Our reputation and relationship with the U.S. government, [removed: and in particular] [added: particularly] with the agencies of the DoD and the U.S. Intelligence Community, are key factors in maintaining and growing our revenues.

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

Due to the sensitive nature of our work and our confidentiality obligations to our customers, [added: and despite our ongoing efforts to provide transparency,] 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.

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

If any of the foregoing occurs, the amount of business with the U.S. government and other customers could [removed: decrease] [added: decrease,] and our business, future revenues, financial condition and growth prospects 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: 44% of our total revenues for fiscal 2021,] 49% of our total revenues for fiscal 2020 and 48% of our total revenues for fiscal [removed: 2019 and 2018.][added: 2019.]

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, [removed: 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 [removed: Congress,] [added: Congress] and what challenges budget reductions will present for us and our industry generally.

Current U.S. government spending levels for defense-related or other programs may not be sustained and future spending and program authorizations may not increase or may decrease or shift to programs in areas [removed: in which] [added: where] we do not provide services or are less likely to be awarded contracts.

[removed: In the event] [added: If] 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 [removed: the prime contractor, if applicable.]

[removed: We have from] [added: From] time to [removed: time] [added: time, we have] experienced a decline in revenues in our fourth quarter as a result of this annual appropriations cycle, and we could experience similar declines in revenues from future delays in the appropriations process.

When the U.S. government fails to complete its appropriations process or [removed: to] provide for a continuing resolution, a full or partial federal government shutdown may result.

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

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

Any resulting loss or delay of start-up and funding of work under protested contract awards may adversely affect our revenues [removed: and/or] [added: and] profitability.

These programs are [removed: normally] [added: typically] funded on an annual basis.

Under our contracts, the U.S. government generally has the right [removed: to] not [added: to] exercise options to extend or expand our contracts and may otherwise terminate, cancel, modify or curtail our contracts at its convenience.

Some of our contracts involve [removed: the development of] [added: developing] complex systems and products to achieve challenging customer goals in a competitive procurement environment.

Our business is highly competitive and we compete with larger companies [removed: that have] [added: with] greater name recognition, financial resources and a larger technical staff.

We also compete with smaller, more specialized companies that [removed: are able to] [added: can] concentrate their resources on particular areas.

The markets in which we operate are characterized by rapidly changing [added: customer needs and] technology and [removed: the needs of] our [removed: customers change] [added: success depends on our ability to invest in] and [removed: evolve regularly.][added: develop services and products that address such needs.]

Our competitors may be able to provide our customers with different or greater capabilities or technologies or better contract terms than we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional [removed: personnel.][added: personnel, or be willing to accept more risk or lower profitability in competing for contracts.]

Some of our competitors have made or could make acquisitions of businesses, or establish teaming or other agreements among themselves or third parties, [removed: that] [added: which] 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 [removed: greater] [added: more significant] resources to bring these products and services to market, initiate or withstand substantial price [removed: competition or] [added: competition,] develop and expand their product and service offerings more quickly than we [removed: do.][added: do or limit our access to certain suppliers.]

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

For additional background on the [removed: regulations] [added: privacy laws] that apply to our business and the related compliance risks, see “Regulation” within Item 1 of this Annual Report on Form [removed: 10-K and the risk factor “Our business is subject to governmental review and investigation, which could adversely affect our financial position, operating results and growth prospects."][added: 10-K.]

If our reputation is negatively affected, certain customers could cease to do business with us.

the prime contractor.

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For example, some customers, including the DoD, are turning to commercial contractors, rather than traditional defense contractors, for some products and services, and may utilize small business contractors or determine to source work internally rather than hiring a contractor.

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For a description of our current legal proceedings, see "Item 3.

These laws and regulations are complex, constantly evolving, and may be subject to significant change in the future.

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applied inconsistently among jurisdictions or in a manner that is inconsistent with our current policies and practices, all of which can make compliance challenging and costly, and expose us to related risks and liabilities.

In addition, our subcontractors, and in some cases our vendors, also may be required to adhere to the CMMC program requirements and, potentially, to achieve certification.

Should our supply chain fail to meet compliance requirements or achieve certification, this may adversely affect our ability to receive awards or execute on relevant government programs.

Illness, travel restrictions or other workforce disruptions could adversely affect our supply chain and our access to suppliers of important technologies and components, our ability to timely and satisfactorily complete our clients’ projects, our ability to provide services to our clients or our other business processes.

We may take further actions that we determine are in the best interests of our employees, customers and business partners or may be required by government authorities.

For example, on September 9, 2021, President Biden issued a series of executive orders to combat COVID-19, including an executive order that would have required us, as a federal contractor, to have our employees fully vaccinated unless the employee is legally entitled to a religious or medical exemption.

That executive order is currently under a nationwide injunction and its future is uncertain.

In addition, as local conditions and regulations continue to permit the return of employees to business generally, our workforce may not be able to return to work in person immediately, if at all, or may instead choose to pursue competing employment opportunities, including as

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a result of transportation, childcare, and ongoing health issues, which could negatively affect our business.

In particular, the emergence of new and more transmissible COVID-19 variants, including the efficacy of vaccines against such variants, booster vaccinations, or a lack of public acceptance of vaccines and low vaccination rates in certain parts of the U.S., may delay economic recovery.

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Competition for skilled personnel is intense and many U.S. government programs also require contractors to have security clearances, certain of which can be difficult and time-consuming to obtain and personnel with such security clearances are in great demand.

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costs at completion, fees earned on the contract, or both.

We could also be potentially subject to operational downtimes and delays and other detrimental impacts on our operations or ability to provide products and services to our customers.

Some of these risks may be heightened due to protocols related to remote work implemented as a result of the COVID-19 pandemic.

We may also not be able to mitigate its impacts successfully.

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We have insurance against some cyber-risks and attacks; however, our insurance coverage may not be sufficient to offset the impact of a material loss event, and such insurance may increase in cost or cease to be available on commercial terms in the future.

Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, could make existing customers unable or unwilling to fulfill their contractual requirements to us, including their payment obligations, and could cause us to incur substantial expense, including expenses or liabilities arising from potential litigation.

There is also an increasing concern over the risks of climate change and related environmental sustainability matters.

In addition to physical risks, climate change risk includes longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought.

Such events could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.

Additionally, transitioning to a low-carbon economy may entail extensive policy,

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legal, technology and market initiatives.

Transition risks, including changes in consumer preferences and additional regulatory requirements or taxes, could increase our expenses and undermine our strategies.

In addition, our reputation and client relationships may be damaged as a result of our practices related to climate change, including our involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

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Acquisitions, investments and joint ventures pose many other risks that could adversely affect our reputation, operations or financial results, including that we may not be able to identify, compete effectively for or complete suitable acquisitions and investments at prices we consider attractive; we may not be able to accurately estimate the financial effect of acquisitions and investments on our business or realize anticipated synergies, business growth or profitability and may be unable to recover investments in any such acquisitions and investments; we may not be able to manage the integration process for acquisitions successfully, and the integration process may divert management time and focus from operating our business, including as a result of incompatible accounting, information management or other control systems; acquired technologies, capabilities, products and service offerings, particularly those that are still in development when acquired, may not perform as expected, may have defects or may not be integrated into our business as expected; we may have trouble retaining key employees and customers of an acquired business; we may need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies, including those relating to financial reporting, revenue recognition or other financial or control deficiencies; we may assume legal or regulatory risks, particularly with respect to smaller businesses that have immature business processes and compliance programs, or we may face litigation or material liabilities that were not identified as part of our due diligence or for which we are unable to receive a purchase price adjustment or reimbursement through indemnification, including claims from terminated employees, customers, former stockholders or other third parties, or there may be other unanticipated write-offs or charges; we may be required to spend a significant amount of cash or to incur debt, resulting in increased fixed payment obligations or covenants or other restrictions on us, or issue shares of our common stock or convertible debt, resulting in dilution of ownership; we may not be able to influence the operations of our joint ventures effectively, or we may be exposed to certain liabilities if our joint venture partners do not fulfill their obligations; and if our acquisitions, investments or joint ventures fail, perform poorly, or their value is otherwise impaired for any reason, including contractions in credit markets and global economic conditions, our business and financial results could be adversely affected.

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:

- 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.

- 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.

- 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.

- 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.

- Misconduct of employees, subcontractors, agents, suppliers, business partners 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 reputation.

- 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.

Leidos Holdings, Inc. Annual Report - 15

PART I

- A failure to attract, train, retain and motivate skilled employees, including our management team, would adversely affect our ability to execute our strategy and may disrupt our operations.

- Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration or other legal proceedings could require us to pay potentially large damage awards and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.

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

- Internal system or service failures, or failures in the systems or services of third parties on which we rely, could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

- 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.

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

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.

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.

Accordingly, our success depends on our ability to 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.

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.

Some significant laws and regulations that affect us include:

- the FAR and supplements, which regulate the formation, administration and performance of U.S. government contracts;

- the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with certain contract negotiations;

- 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;

- 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;

- the False Statements Act, which imposes civil and criminal liability for making false statements to the U.S. government; and

- the U.S. government CAS, which imposes accounting requirements that govern our right to reimbursement under certain cost-based U.S. government contracts.

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 prospects.

Both contractors and the U.S. government agencies conducting these audits and reviews have come under increased scrutiny.

In addition, responding to any action may result in a significant diversion of management's attention and resources.

Foreign laws and regulations in these areas can impose different obligations or be more restrictive than those in the U.S. These laws and regulations, which, depending on the regime, may be enforced by private parties or government entities, are constantly evolving and may be subject to significant change in the future.

The DoD expects that all new contracts will be required to comply with the CMMC by 2026, with initial requests for information beginning in June 2020 and requests for proposal beginning in September 2020.

For example, the European Union's ("EU’s") General Data Protection Regulation (“GDPR”), which took effect in May 2018, has created new compliance obligations for companies that process data of EU data subjects, which require investment into ongoing data protection activities and documentation requirements, and creates the potential for significantly increased fines for noncompliance.

In the U.S., the California Consumer Protection Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020, provides new consumer privacy rights to natural persons residing in California by regulating the processing of personal information of California residents and increasing the obligations on businesses in connection with such activities.

Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in the election on November 3, 2020 and will take effect in most material respects on January 1, 2023.

*The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations and quantitative and qualitative disclosures about business environment and trends and market risk should be read in conjunction with the consolidated financial statements and related [removed: notes.*][added: notes included elsewhere in this Annual Report on Form 10-K.]

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

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

Our 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. civilian, state and local government [removed: agencies as well as] [added: agencies,] foreign government [removed: agencies.][added: agencies and commercial businesses.]

Less than [removed: 10%] [added: 8%] of our revenues and tangible long-lived assets are generated by or owned by entities located outside of the United States.

Effective [removed: the beginning of fiscal 2020,] [added: July 3, 2021,] certain contracts were reassigned from the [removed: Civil] [added: Defense Solutions] reportable segment to the [removed: Defense Solutions] [added: Civil] reportable segment.

[removed: Prior] [added: Impact on prior] year segment results [added: were determined to be immaterial and] have [added: not] been recast to reflect this change.

For additional information regarding our reportable segments, see “Business” in Part I and "Note [removed: 23—Business] [added: 20—Business] Segments" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

*Sales Trend.* For fiscal [removed: 2020,] [added: 2021,] revenues increased [removed: $1.2] [added: $1.4] billion, or [removed: 11%,] [added: 12%,] compared to fiscal [removed: 2019,] [added: 2020,] primarily due to [removed: 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 [removed: programs.][added: programs, partially offset with the completion of certain contracts.]

*Operating Expenses and Income Trend.* For fiscal [removed: 2020,] [added: 2021,] operating expenses increased by [removed: $1.1] [added: $1.3] billion, or 11%, compared to fiscal [removed: 2019.][added: 2020.]

Operating margin for fiscal [removed: 2020] [added: 2021] was [removed: 8.1%] [added: 8.4%] compared to [removed: 8.2%] [added: 8.1%] for fiscal [removed: 2019.][added: 2020.]

Operating income was [removed: $998] [added: $1,152] million, [removed: an $86] [added: a $154] million increase compared to fiscal [removed: 2019.][added: 2020.]

Although the [added: U.S. Presidential] 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.

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

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 [removed: and efficacy] of vaccines, all of which are uncertain and cannot be predicted.

In fiscal [removed: 2020,] [added: 2021,] 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: 49%] [added: 44%] of our total revenues for fiscal [removed: 2020.][added: 2021.]

Trends in the U.S. government contracting process, including a shift towards multiple-awards contracts, in which certain contractors are preapproved using [removed: indefinite-delivery/indefinite-quantity ("IDIQ")] [added: IDIQ] and U.S. General Services Administration ("GSA") contract vehicles, have increased competition for U.S. government contracts, reduced backlogs by shortening periods of performance on contracts and increased pricing pressure.

Sales to customers in international markets represented [added: approximately] 8% of total revenues for fiscal [removed: 2020.][added: 2021.]

| | | | | | | Year Ended | | | | | | | | | | | | [removed: | | | | | | 2020 to 2019 | | | | | | | | | | | | 2019] [added: 2021] to [removed: 2018] [added: 2020] | | | | | | | | |

| | | | | | | [removed: January 1,] [added: December 31,] 2021 | | | | | | January [removed: 3, 2020 | | | | | | December 28, 2018 | | | | | | Dollar change | | | | | | Percent change] [added: 1, 2021] | | | | | | Dollar change | | | | | | Percent change | | |

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

| Selling, general and administrative expenses | | | | | | [removed: 770 | | | | | | 689] [added: 860] | | | | | | [removed: 729] [added: 770] | | | | | | [removed: 81] [added: 90] | | | | | | 12 | | % | [removed: | | | (40) | | | | | | (5) | | % |]

| Bad debt expense and recoveries | | | | | | [removed: (68) | | | | | | (40) | | | | | | — | | | | | | (28)] [added: (9)] | | | | | | [removed: 70] [added: (68)] | | [removed: %] | | | | [removed: (40)] [added: 59] | | | | | | [removed: (100)] [added: (87)] | | % |

| Acquisition, integration and restructuring costs | | | | | | [removed: 39 | | | | | | 5 | | | | | | 37 | | | | | | 34] [added: 27] | | | | | | [removed: *NM*] [added: 39] | | | | | | [removed: (32)] [added: (12)] | | | | | | [removed: (86)] [added: (31)] | | % |

| Asset impairment charges | | | | | | [removed: 12 | | | | | | — | | | | | | 7] [added: 4] | | | | | | 12 | | | | | | [removed: 100 | | % | | | | (7)] [added: (8)] | | | | | | [removed: (100)] [added: (67)] | | % |

| Equity earnings of non-consolidated subsidiaries | | | | | | [removed: (14) | | | | | | (18) | | | | | | (18) | | | | | | 4] [added: (20)] | | | | | | [removed: (22)] [added: (14)] | | [removed: %] | | | | [removed: —] [added: (6)] | | | | | | [removed: —] [added: 43] | | % |

| Non-operating expense, net | | | | | | [removed: (217) | | | | | | (46)] [added: (185)] | | | | | | [removed: (139)] [added: (217)] | | | | | | [removed: (171)] [added: 32] | | | | | | *NM* | | | [removed: | | | 93 | | | | | | (67) | | % |]

| Income before income taxes | | | | | | [removed: 781 | | | | | | 866 | | | | | | 610 | | | | | | (85)] [added: 967] | | | | | | [removed: (10)] [added: 781] | | [removed: %] | | | | [removed: 256] [added: 186] | | | | | | [removed: 42] [added: 24] | | % |

| Income tax expense | | | | | | [removed: (152) | | | | | | (196)] [added: (208)] | | | | | | [removed: (28)] [added: (152)] | | | | | | [removed: 44] [added: (56)] | | | | | | [removed: (22)] [added: 37] | | % | [removed: | | | (168) | | | | | | *NM* | | |]

| Net income | | | | | | [removed: 629 | | | | | | 670 | | | | | | 582 | | | | | | (41)] [added: 759] | | | | | | [removed: (6)] [added: 629] | | [removed: %] | | | | [removed: 88] [added: 130] | | | | | | [removed: 15] [added: 21] | | % |

| Less: net income attributable to non-controlling interest | | | | | | [removed: 1 | | | | | | 3] [added: 6] | | | | | | 1 | | | | | | [removed: (2) | | | | | | (67) | | % | | | | 2] [added: 5] | | | | | | [removed: 200] [added: *NM*] | | [removed: %] |

| Net income attributable to Leidos common stockholders | | | | | | $ | [removed: 628 | | | | | $ | 667 | | | | | $ | 581] [added: 753] | | | | | $ | [removed: (39) | | | | | (6) |] [added: 628] | [removed: %] | | | | $ | [removed: 86] [added: 125] | | | | | [removed: 15] [added: 20] | | % |

| *Operating income margin* | | | | | | [removed: 8.1] [added: 8.4] | | % | | | | [removed: *8.2* | | *%* | | | | *7.3*] [added: *8.1*] | | *%* | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Defense Solutions | | | | | | [removed: January 1,] [added: December 31,] 2021 | | | | | | January [removed: 3, 2020 | | | | | | December 28, 2018 | | | | | | Dollar change | | | | | | Percent change] [added: 1, 2021] | | | | | | Dollar change | | | | | | Percent change | | |

| Operating income | | | | | | [removed: 506 | | | | | | 471 | | | | | | 402 | | | | | | 35] [added: 569] | | | | | | [removed: 7] [added: 506] | | [removed: %] | | | | [removed: 69] [added: 63] | | | | | | [removed: 17] [added: 12] | | % |

| *Operating income margin* | | | | | | [removed: 6.9] [added: 7.1] | | % | | | | [removed: *7.5* | | *%* | | | | *7.0*] [added: *6.9*] | | *%* | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

The increase in revenues for fiscal [removed: 2020] [added: 2021] as compared to fiscal [removed: 2019] [added: 2020] was primarily attributable to [removed: $937 million of revenues related to the acquisition of Dynetics,] program [removed: wins and] [added: wins,] a net increase in [removed: materials volume] [added: volumes] on certain [removed: programs.][added: programs, $149 million of revenues from new business acquisitions and a reduction of the negative impacts from COVID-19 experienced during the prior year.]

| Civil | | | | | | [removed: January 1,] [added: December 31,] 2021 | | | | | | January [removed: 3, 2020 | | | | | | December 28, 2018 | | | | | | Dollar change | | | | | | Percent change] [added: 1, 2021] | | | | | | Dollar change | | | | | | Percent change | | |

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties, including those described under the heading “Forward-Looking Statements.” You should also review the disclosure under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

*In this section, we discuss our financial condition, changes in financial condition and results of our operations for the year ended December 31, 2021 compared to the year ended January 1, 2021.

For a discussion and analysis comparing our results for the year ended January 1, 2021 to the year ended January 3, 2020, see our Annual Report on Form 10-K for the year ended January 1, 2021, filed with the SEC on February 23, 2021, under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”*

In addition, revenue had a positive impact from business acquisitions in the Defense Solutions segment and a reduction of the negative impacts from COVID-19 experienced during the prior year.

The increase in operating income was primarily attributable to a net increase in volumes on certain programs, a reduction of the negative impacts from COVID-19 experienced during the prior year and program wins, partially offset by the completion of certain contracts.

For fiscal 2021, while we continue to navigate impacts associated with COVID-19, primarily relating to supply chain matters, we believe that COVID-19 did not have a material impact to revenues and operating income as compared to prior year results.

Section 3610 of the CARES Act, a $2 trillion coronavirus response bill providing widespread emergency relief, authorized the government to reimburse qualifying contractors for the cost of certain impacts of COVID-19.

While a portion of the recoveries that we have made are a result of Section 3610 of the CARES Act, the Act expired on September 30, 2021.

On September 9, 2021, President Biden issued a series of executive orders to combat COVID-19, one of which requires us, as a federal contractor, to have our employees fully vaccinated unless the employee is legally entitled to a religious or medical exemption.

This vaccine mandate is currently under a nationwide injunction, while courts adjudicate constitutional challenges to the executive order.

We are prepared to comply with the executive order in the event the injunction is lifted.

Congress received the GFY 2022 President’s Budget Request on May 28, 2021 and passed a Continuing Resolution ("CR") before the GFY deadline of September 30, 2021.

The CR fully funded the federal government at current levels through December 3, 2021 and provides $28.6 billion in disaster relief and $6.3 billion to support Afghanistan evacuees.

On December 2, 2021, Congress passed a second continuing resolution to fund the federal government at GFY 2021 levels until February 18, 2022.

The Senate plans to vote on a House-passed continuing resolution the week of February 14, 2022, that would extend government funding through March 11, 2022.

Congressional negotiations continue on defense and non-defense spending levels and controversial policy riders in the GFY 2022 appropriations bills.

President Biden is expected to release the GFY 2023 President’s Budget Request this spring.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

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

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

| Revenues | | | | | | $ | 13,737 | | | | | $ | 12,297 | | | | | $ | 1,440 | | | | | 12 | | % |

| Cost of revenues | | | | | | 11,723 | | | | | | 10,560 | | | | | | 1,163 | | | | | | 11 | | % |

| Operating income | | | | | | 1,152 | | | | | | 998 | | | | | | 154 | | | | | | 15 | | % |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

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

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

| | | | | | | Year Ended | | | | | | | | | | | | 2021 to 2020 | | | | | | | | |

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

| Revenues | | | | | | $ | 8,032 | | | | | $ | 7,341 | | | | | $ | 691 | | | | | 9 | | % |

The increase was partially offset by the completion of certain contracts and contracts that were reassigned from the Defense Solutions reportable segment to the Civil reportable segment during the third quarter.

In addition, in fiscal 2021, there was a $67 million benefit in exchange rate movements.

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

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

| | | | | | | Year Ended | | | | | | | | | | | | 2021 to 2020 | | | | | | | | |

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

| Revenues | | | | | | $ | 3,157 | | | | | $ | 2,994 | | | | | $ | 163 | | | | | 5 | | % |

The increase in revenues for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net increase of $48 million of revenues related to L3 Harris Technologies' security and detection businesses (the "SD&A Businesses") acquired in the prior year, a net increase in program volumes, program wins and a reduction of the negative impacts from COVID-19 experienced during the prior year.

The revenue growth was also attributable to certain contracts that were reassigned from the Defense Solutions reportable segment to the Civil reportable segment during the third quarter.

The decrease in operating income for fiscal 2021 as compared to fiscal 2020 was primarily attributable to a net decrease in volumes on certain products and product deliveries, partially offset by a $26 million benefit from an adjustment to legal reserves related to the Mission Support Alliance joint venture during the first quarter of fiscal 2021.

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

*The following discussion contains forward-looking statements, including statements regarding our intent, belief or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, initiatives, our industry, the impact of our merger and acquisition activity, government budgets and 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, including uncertainties relating to the coronavirus pandemic ("COVID-19") and 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 “Forward-Looking Statement Risks” within this Annual Report on Form 10-K).

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors" and "Business Environment and Trends.” Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.

We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.*

PART II

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.

For fiscal 2019, revenues increased $900 million, or 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.

See "Results of Operations" below for discussion of our individual segment results.

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.

For fiscal 2019, operating expenses increased by $737 million, or 8%, compared to fiscal 2018.

Operating margin for fiscal 2019 was 8.2% compared to 7.3% for fiscal 2018.

Operating income was $912 million, a $163 million increase compared to fiscal 2018.

The increases in operating margin and operating income were primarily attributable to the receipt of the Greek arbitration award, favorable program mix, decreases in acquisition, integration and restructuring costs and lower amortization of intangible assets.

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.

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.

On February 10, 2020, the President submitted the GFY 2021 budget proposal to Congress, which included discretionary spending levels for defense and non-defense programs of $741 billion and $590 billion, respectively.

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.

At [removed: January 1,] [added: December 31,] 2021 and January [removed: 3, 2020,] [added: 1, 2021,] we had [removed: $4.7] [added: $5.1] billion and [removed: $3.0] [added: $4.7] billion, respectively, of [added: short-term and] long-term debt, which included [removed: $1.4] [added: $1.7] billion and [removed: $1.9] [added: $1.4] billion, respectively, related to our senior unsecured term loans that have a variable stated interest rate that is determined based on the London Interbank Offered Rate ("LIBOR") rate plus a margin.

As of [removed: January 1,] [added: December 31,] 2021, the notional value of the interest rate swap agreements was [removed: $1.1] [added: $1.0] billion.

As of [added: December 31, 2021 and] January 1, 2021, [removed: and January 3, 2020,] the fair value of our interest rate swap agreements with respect to our Variable Rate Loan was a liability of [removed: $103] [added: $53] million and [removed: $75] [added: $103] million, respectively.

Leidos Holdings, Inc. Annual Report - [removed: 54][added: 48]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

For additional information related to our interest rate swap agreements and debt, see "Note [removed: 14—Derivative] [added: 12—Derivative] Instruments" and "Note [removed: 15—Debt,"] [added: 13—Debt,"] respectively, of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

As of [added: December 31, 2021 and] January 1, 2021, [removed: and January 3, 2020,] our cash and cash equivalents included investments in several large institutional money market accounts.

For fiscal [removed: 2020] [added: 2021] and fiscal [removed: 2019,] [added: 2020,] 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: 2021,] 2020 and [removed: 2019 and 9% of total revenues for fiscal 2018.][added: 2019.]

Leidos Holdings, Inc. Annual Report - [removed: 55][added: 49]

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

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 Loan.

Since our founding [removed: 52] [added: 53] years ago, we have applied our expertise in science, research and engineering in rapidly-evolving technologies and markets to solve complex problems of global concern.

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

Our 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. civilian, state and local government [removed: agencies as well as] [added: agencies,] foreign government [removed: agencies.][added: agencies and commercial businesses.]

With a focus on delivering mission-critical solutions, Leidos generated 87% of [removed: fiscal 2020] revenues [added: for the fiscal year ended December 31, 2021 ("fiscal 2021")] from U.S. government contracts.

At [removed: January 1,] [added: December 31,] 2021, our business is aligned into three reportable segments (Defense Solutions, Civil and Health).

Less than [removed: 10%] [added: 8%] of our revenues and tangible long-lived assets are generated by or owned by entities located outside of the United States.

Our ever-changing technologies and innovations cover a wide spectrum of markets with primary areas of concentration in digital [removed: modernization and integrated systems,] [added: transformation,] 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 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, the National Aeronautics and Space Administration ("NASA"), [added: Defense Information Systems Agency ("DISA"),] military services, government agencies of U.S. allies abroad and other federal and commercial customers in the national security industry.

Defense Solutions represented [added: 58% of total revenues for fiscal 2021,] 60% of total revenues for [added: the] fiscal [removed: 2020] [added: year ended January 1, 2021 ("fiscal 2020")] and 57% of total revenues for [added: the] fiscal [removed: 2019 and 2018.][added: year ended January 3, 2020 ("fiscal 2019").]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

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

Our capabilities support offerings including cybersecurity, data analytics, [removed: digital transformation] and operations and logistics.

Our cybersecurity solutions [added: help] detect and manage the most sophisticated cyber threats.

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

On and under the [removed: sea] [added: 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 [removed: maintenance,] [added: maintenance] and are expanding our capabilities in these areas to meet market demand for this growing threat.

Civil represented [added: 23% of total revenues for fiscal 2021,] 24% of total revenues for fiscal 2020 and 25% of total revenues for fiscal [removed: 2019 and 2018.][added: 2019.]

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

We deliver many of the FAA's key automation systems and services, including the En Route Automation [removed: Modernization,] [added: Modernization ("ERAM"),] Advanced Technology Oceanic [removed: Procedures,] [added: Procedures ("ATOP"),] Time Based Flow Management, Terminal Flight Data Management, [added: Enterprise-Information Display System,] Geo-7 and Future Flight [removed: Services as well as the recently-awarded Enterprise-Information Display System.][added: Services.]

We also provide key air traffic control systems around the world, including New [removed: Zealand, Kazakhstan] [added: Zealand] and South Korea.

[removed: *•Security] [added: - *Security] Detection and Automation –* Our comprehensive suite of fully-integrated security detection and automation solutions help increase security for aviation, ports and borders and critical infrastructure customers around the world.

With more than 24,000 products deployed across [added: over] 120 countries, this business has the most widespread global footprint within the Civil portfolio.

For ports and borders worldwide, Leidos is [removed: safeguarding] [added: helping safeguard] the flow of regulated commerce through innovations in screening technologies, common interfaces and artificial intelligence and machine learning to effectively detect and mitigate threats across all trade elements, including cargo, vehicles and people.

- *Digital Transformation [removed: 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.

Leidos is modernizing enterprise IT in classified and unclassified environments, including programs with the FAA, [removed: NASA] [added: NASA, IRS] and the Department of Justice.

- [removed: *Environment,] [added: *Climate,] Energy and [removed: Infrastructure] [added: Environment] –* We are trusted by government agencies and commercial customers with substantial environmental and sustainability driven missions.

Our [removed: pedigree] [added: reputation] 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 the critical missions of the Department of Energy ("DoE"), National Nuclear Security Administration, [added: National Science Foundation,] utilities, energy investors and developers and energy efficiency administrators.

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

Health represented [added: 19% of total revenues for fiscal 2021,] 16% of total revenues for fiscal 2020 and 18% of total revenues for [removed: fiscal 2019 and 2018.][added: 2019.]

Our expertise [removed: includes:] [added: includes] IT strategic [removed: planning;] [added: planning,] outsourcing and management of large scale data [removed: centers;] [added: centers,] agile software development and system [removed: transformation;] [added: transformation,] cloud migration and application [removed: modernization;] [added: modernization,] digitization and big data management and advanced analytics.

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

[added: During fiscal 2020, we completed the acquisitions of L3Harris Technologies' ("L3Harris") security detection and automation businesses and Dynetics, Inc.] Additionally, during fiscal 2019, we [added: completed the acquisition of] acquired IMX Medical Management Services and its affiliated businesses.

See "Note [removed: 6—Acquisitions"] [added: 5—Acquisitions] and [removed: "Note 26—Subsequent Events"] [added: Divestitures"] in Part II of this Annual Report on Form 10-K for further information.

For further information, see "Note [removed: 7—Divestitures"] [added: 5—Acquisitions and Divestitures"] in Part II of this Annual Report on Form 10-K.

[removed: Substantially all] [added: The majority] of our revenues are generated in the United States.

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, [added: DISA,] FAA, Transportation Security Administration, CBP, DHA, VA, Department of Health and Human Services, NASA, National Science Foundation, DoE, the Environmental Protection Agency and research agencies such as [removed: DARPA.][added: Defense Advanced Research Projects Agency.]

As of [removed: January 1,] [added: December 31,] 2021, we employed approximately [removed: 39,000] [added: 43,000] full and part-time employees of whom approximately [removed: 35,000] [added: 39,000] are located in the United States and the remainder of which are located in more than [removed: 35] [added: 39] countries worldwide.

Approximately [removed: 36%] [added: 35%] of our employees have degrees in science, technology, engineering or mathematics fields, approximately 22% of our employees have advanced [removed: degrees] [added: degrees, 49% of our employees possess U.S. security clearances] and approximately 20% of our employees are military veterans.

Our employees [removed: have the opportunity] [added: are encouraged] to create and join multiple employee resource groups (“ERGs”) where they can [removed: gain] [added: continue to develop cultural] competence across various categories of diversity, enhance their personal [removed: and] [added: networks, develop] leadership [removed: development] [added: skills,] and actively contribute to making Leidos a great place to work.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

Leidos recently received 10+ year extensions to the ERAM and ATOP contracts for continued delivery of the evolving National Airspace System needs.

Leidos implemented the CBP “Port of the Future” pilot at Brownsville, Texas border crossing aimed at achieving CPB cargo and privately-owned vehicle border screening goals.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

We support cybersecurity across all integrated systems.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

During fiscal 2021, we completed the acquisitions of Gibbs & Cox, 1901 Group, LLC, and an immaterial strategic business acquisition.

During fiscal 2021, we signed a definitive agreement to dispose of Aviation & Missile Solutions LLC within our Defense Solutions segment.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

As of December 31, 2021, our workforce consisted of the following:

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

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

| Gender of global employees | | | | | | Male(1) | | | | | | Female(1) | | |

| Global workforce | | | | | | 66 | | % | | | | 34 | | % |

(1) Based on employees who self-identify.

| | | | | | | | | |

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

| Age of global employees | | | | | | | | |

| Less than 30 years | | | | | | 15 | | % |

| 30-50 years | | | | | | 49 | | % |

| Greater than 50 years | | | | | | 36 | | % |

| | | | | | | | | |

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

| Ethnicity of US employees(1) | | | | | | | | |

| White | | | | | | 64 | | % |

| Black | | | | | | 13 | | % |

| Asian/Indian | | | | | | 9 | | % |

| Hispanic/Latino | | | | | | 8 | | % |

| Other | | | | | | 3 | | % |

| Undisclosed | | | | | | 3 | | % |

(1) Based on employees who self-identify.

Inclusion and Diversity

Our inclusion and diversity strategy and approach focuses on extensive education and best practices to enable leader accountability, improve enterprise representation and evolve an inclusive culture.

To further incorporate inclusion in all areas of our business processes and practices, all leaders and employees are required to take inclusion training annually to recognize challenges and mitigate barriers to inclusion in the workplace.

The Council is chaired by two senior executives, a board member who serves as a senior advisor and volunteers from across the business lines and functions.

Our Executive Mentoring Program is a year-long cohort designed to engage, develop and retain high-potential employees, most of which are female and/or ethnically diverse participants.

Our executives are each assigned to mentor at least one employee nominated through the program to provide advice and guidance on development and preparation for advancement opportunities.

They are a key component of our corporate culture and are integrated into all employees' annual assessments to reinforce expectations.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

We recognize the importance of technical upskilling and reskilling to support evolving workforce needs, and we offer programs which allow us to develop and retain internal talent while providing employees with career growth.

Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the Defense Solutions reportable segment.

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

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 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.

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.

We ensure all integrated systems are cyber secure.

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

The acquisition of 1901 Group was subsequently completed in January 2021.

We believe that a focus on inclusion and diversity improves team performance and influences innovative business strategies and enhances our reputation in the competitive marketplace for employees.

As of January 1, 2021, 33% of our global workforce was female and 32% of our U.S. workforce was ethnically diverse.

Our inclusion and diversity practices help to build and sustain a culture that values individual diversity of thought, experiences, backgrounds and perspectives and foster full participation in the use of our resources, expanding opportunities and enhancing decisions across the company.

We have ERGs for many dimensions of diversity including gender, ethnicity, military status, diverse-ability, LGBTQ+, generation and work location.

We also require all employees to take diversity and inclusion training to help employees recognize and address the effects of unconscious bias and create a culture that strives to be more inclusive.

We have an Executive Mentoring Program that works to develop high-potential female and ethnically diverse employees.

Our Executives serve as mentors to one or more female or ethnically diverse employees in a year-long program that includes several leadership development sessions.

In addition, we have integrated our values into all employees’ annual performance assessments to focus on the behaviors expected of employees.

We have an Internal Mobility Program that identifies internal opportunities, evaluates skill gaps and targets learning accordingly.

We have the Leidos Leadership program, which develops effective and inclusive leaders.

We have established a three phase COVID-19 guide recommending when it is safe for employees to return to work and the percentage of employees permitted to be in a Leidos facility.

When working at a Leidos facility, we require all employees to wear face coverings while in common areas and where social distancing is not easily maintained and common surface areas and equipment are sanitized before and after each use.

While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns.

U.S. government contracts generally are subject to the Federal Acquisition Regulation ("FAR"), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government, agency-specific regulations that implement or supplement the FAR, such as the DoD Federal Acquisition Regulation Supplement ("DFARS"), and other applicable laws and regulations.

We have provided information about legal proceedings in which we are involved in "Note [removed: 24—Contingencies"] [added: 21—Commitments and 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: 24—Contingencies”] [added: 21—Commitments and Contingencies”] of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

[removed: ][added: ]

For the fiscal year ended [removed: January 1,] [added: December 31,] 2021

As of July [removed: 3, 2020,] [added: 2, 2021,] 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: $13,224,279,479.][added: $14,463,896,796.]

The number of shares issued and outstanding of the registrant’s class of common stock as of February [removed: 15, 2021] [added: 8, 2022] was [removed: 141,894,753] [added: 140,505,454] shares ($.0001 par value per share).

Portions of Leidos Holdings, Inc.'s definitive Proxy Statement for the [removed: 2021] [added: 2022] Annual Meeting of Stockholders [removed: ("2021] [added: ("2022] Proxy Statement") are incorporated by reference in Part III of this Annual Report on Form 10-K.

| Item 1. | | | [removed: [Business](#i92ab5cb62ae34021919d48d3eef76fb0_13)] [added: [Business](#i51c376919b0c4db5a20f52c03ebbff09_16)] | | | [removed: [3](#i92ab5cb62ae34021919d48d3eef76fb0_13)] [added: [3](#i51c376919b0c4db5a20f52c03ebbff09_16)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i92ab5cb62ae34021919d48d3eef76fb0_16)] [added: Factors](#i51c376919b0c4db5a20f52c03ebbff09_19)] | | | [removed: [15](#i92ab5cb62ae34021919d48d3eef76fb0_16)] [added: [16](#i51c376919b0c4db5a20f52c03ebbff09_19)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i92ab5cb62ae34021919d48d3eef76fb0_19)] [added: Comments](#i51c376919b0c4db5a20f52c03ebbff09_22)] | | | [removed: [35](#i92ab5cb62ae34021919d48d3eef76fb0_19)] [added: [31](#i51c376919b0c4db5a20f52c03ebbff09_22)] | | |

| Item 2. | | | [removed: [Properties](#i92ab5cb62ae34021919d48d3eef76fb0_22)] [added: [Properties](#i51c376919b0c4db5a20f52c03ebbff09_25)] | | | [removed: [35](#i92ab5cb62ae34021919d48d3eef76fb0_22)] [added: [31](#i51c376919b0c4db5a20f52c03ebbff09_25)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i92ab5cb62ae34021919d48d3eef76fb0_25)] [added: Proceedings](#i51c376919b0c4db5a20f52c03ebbff09_28)] | | | [removed: [36](#i92ab5cb62ae34021919d48d3eef76fb0_25)] [added: [31](#i51c376919b0c4db5a20f52c03ebbff09_28)] | | |

| Item 4. | | | [Mine Safety [removed: Disclosures](#i92ab5cb62ae34021919d48d3eef76fb0_28)] [added: Disclosures](#i51c376919b0c4db5a20f52c03ebbff09_31)] | | | [removed: [36](#i92ab5cb62ae34021919d48d3eef76fb0_28)] [added: [31](#i51c376919b0c4db5a20f52c03ebbff09_31)] | | |

| [Executive Officers of the [removed: Registrant](#i92ab5cb62ae34021919d48d3eef76fb0_31)] [added: Registrant](#i51c376919b0c4db5a20f52c03ebbff09_34)] | | | | | | [removed: [36](#i92ab5cb62ae34021919d48d3eef76fb0_31)] [added: [31](#i51c376919b0c4db5a20f52c03ebbff09_34)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i92ab5cb62ae34021919d48d3eef76fb0_37)] [added: Securities](#i51c376919b0c4db5a20f52c03ebbff09_40)] | | | [removed: [38](#i92ab5cb62ae34021919d48d3eef76fb0_37)] [added: [34](#i51c376919b0c4db5a20f52c03ebbff09_40)] | | |

| Item 6. | | | [Selected Financial [removed: Data](#i92ab5cb62ae34021919d48d3eef76fb0_40)] [added: Data](#i51c376919b0c4db5a20f52c03ebbff09_43)] | | | [removed: [39](#i92ab5cb62ae34021919d48d3eef76fb0_40)] [added: [35](#i51c376919b0c4db5a20f52c03ebbff09_43)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i92ab5cb62ae34021919d48d3eef76fb0_43)] [added: Operations](#i51c376919b0c4db5a20f52c03ebbff09_46)] | | | [removed: [39](#i92ab5cb62ae34021919d48d3eef76fb0_43)] [added: [36](#i51c376919b0c4db5a20f52c03ebbff09_46)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i92ab5cb62ae34021919d48d3eef76fb0_76)] [added: Risk](#i51c376919b0c4db5a20f52c03ebbff09_82)] | | | [removed: [54](#i92ab5cb62ae34021919d48d3eef76fb0_76)] [added: [48](#i51c376919b0c4db5a20f52c03ebbff09_82)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i92ab5cb62ae34021919d48d3eef76fb0_79)] [added: Data](#i51c376919b0c4db5a20f52c03ebbff09_85)] | | | [removed: [56](#i92ab5cb62ae34021919d48d3eef76fb0_79)] [added: [50](#i51c376919b0c4db5a20f52c03ebbff09_85)] | | |

| Item 9. | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i92ab5cb62ae34021919d48d3eef76fb0_238)] [added: Disclosure](#i51c376919b0c4db5a20f52c03ebbff09_202)] | | | [removed: [112](#i92ab5cb62ae34021919d48d3eef76fb0_238)] [added: [103](#i51c376919b0c4db5a20f52c03ebbff09_202)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i92ab5cb62ae34021919d48d3eef76fb0_241)] [added: Procedures](#i51c376919b0c4db5a20f52c03ebbff09_205)] | | | [removed: [113](#i92ab5cb62ae34021919d48d3eef76fb0_241)] [added: [106](#i51c376919b0c4db5a20f52c03ebbff09_205)] | | |

| Item 9B. | | | [Other [removed: Information](#i92ab5cb62ae34021919d48d3eef76fb0_247)] [added: Information](#i51c376919b0c4db5a20f52c03ebbff09_211)] | | | [removed: [115](#i92ab5cb62ae34021919d48d3eef76fb0_247)] [added: [108](#i51c376919b0c4db5a20f52c03ebbff09_211)] | | |

| Item 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i92ab5cb62ae34021919d48d3eef76fb0_253)] [added: Governance](#i51c376919b0c4db5a20f52c03ebbff09_217)] | | | [removed: [116](#i92ab5cb62ae34021919d48d3eef76fb0_253)] [added: [108](#i51c376919b0c4db5a20f52c03ebbff09_217)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i92ab5cb62ae34021919d48d3eef76fb0_256)] [added: Compensation](#i51c376919b0c4db5a20f52c03ebbff09_220)] | | | [removed: [116](#i92ab5cb62ae34021919d48d3eef76fb0_256)] [added: [108](#i51c376919b0c4db5a20f52c03ebbff09_220)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i92ab5cb62ae34021919d48d3eef76fb0_259)] [added: Matters](#i51c376919b0c4db5a20f52c03ebbff09_223)] | | | [removed: [116](#i92ab5cb62ae34021919d48d3eef76fb0_259)] [added: [108](#i51c376919b0c4db5a20f52c03ebbff09_223)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i92ab5cb62ae34021919d48d3eef76fb0_262)] [added: Independence](#i51c376919b0c4db5a20f52c03ebbff09_226)] | | | [removed: [117](#i92ab5cb62ae34021919d48d3eef76fb0_262)] [added: [109](#i51c376919b0c4db5a20f52c03ebbff09_226)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i92ab5cb62ae34021919d48d3eef76fb0_265)] [added: Services](#i51c376919b0c4db5a20f52c03ebbff09_229)] | | | [removed: [117](#i92ab5cb62ae34021919d48d3eef76fb0_265)] [added: [109](#i51c376919b0c4db5a20f52c03ebbff09_229)] | | |

| Item 15. | | | [Exhibits, Financial Statement [removed: Schedules](#i92ab5cb62ae34021919d48d3eef76fb0_271)] [added: Schedules](#i51c376919b0c4db5a20f52c03ebbff09_235)] | | | [removed: [118](#i92ab5cb62ae34021919d48d3eef76fb0_271)] [added: [110](#i51c376919b0c4db5a20f52c03ebbff09_235)] | | |

| Item 16. | | | [Form 10-K [removed: Summary](#i92ab5cb62ae34021919d48d3eef76fb0_274)] [added: Summary](#i51c376919b0c4db5a20f52c03ebbff09_238)] | | | [removed: [123](#i92ab5cb62ae34021919d48d3eef76fb0_274)] [added: [115](#i51c376919b0c4db5a20f52c03ebbff09_238)] | | |

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

- the impact of the coronavirus pandemic ("COVID-19") or future epidemics on our business, including the potential for facility closures, re-evaluation of U.S. government spending levels and priorities, delay of new contract awards, our ability to recover costs under [removed: contracts] [added: contracts, the availability, acceptance] and [added: efficacy of vaccinations and laws and regulations with respect to vaccinations and] insurance challenges;

- the damage and disruption to our business resulting from natural [removed: disasters;][added: disasters and the effects of climate change;]

- the adequacy of our insurance programs, customer indemnifications or other liability protections designed to protect us from significant product or other liability [removed: claims;][added: claims, including cybersecurity attacks;]

- our ability to declare [added: or increase] future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable law and our agreements;

| [Part I](#i51c376919b0c4db5a20f52c03ebbff09_13) | | | | | | | | |

| [Part II](#i51c376919b0c4db5a20f52c03ebbff09_37) | | | | | | | | |

| [Part III](#i51c376919b0c4db5a20f52c03ebbff09_214) | | | | | | | | |

| [Part IV](#i51c376919b0c4db5a20f52c03ebbff09_232) | | | | | | | | |

| [Signatures](#i51c376919b0c4db5a20f52c03ebbff09_241) | | | | | | [116](#i51c376919b0c4db5a20f52c03ebbff09_241) | | |

- uncertainties in tax due to new tax legislation or other regulatory developments;

- rates of inflation;

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| [Part I](#i92ab5cb62ae34021919d48d3eef76fb0_10) | | | | | | | | |

| [Part II](#i92ab5cb62ae34021919d48d3eef76fb0_34) | | | | | | | | |

| [Part III](#i92ab5cb62ae34021919d48d3eef76fb0_250) | | | | | | | | |

| [Part IV](#i92ab5cb62ae34021919d48d3eef76fb0_268) | | | | | | | | |

| [Signatures](#i92ab5cb62ae34021919d48d3eef76fb0_277) | | | | | | [124](#i92ab5cb62ae34021919d48d3eef76fb0_277) | | |

- exposure to lawsuits and contingencies associated with Lockheed Martin’s Information Systems & Global Solutions business;

As of [removed: January 1,] [added: December 31,] 2021, we conducted our operations in [removed: 367] [added: 433] locations in [removed: 39] [added: 40] states, the District of Columbia and various foreign countries.

We occupy approximately [removed: 8.4] [added: 8.9] million square feet of floor space.

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: 2.3] [added: 2.2] million square feet.

As of [removed: January 1,] [added: December 31,] 2021, we owned the following properties:

Leidos Holdings, Inc. Annual Report - 35

[Table of Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)

PART I

The following is a list of the names and ages (as of February [removed: 23, 2021)] [added: 15, 2022)] 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.

| Roger A. Krone | | | | | | [removed: 64] [added: 65] | | | | | | Mr. Krone is Chairman and Chief Executive Officer of Leidos. He joined Leidos as CEO in July 2014. Mr. Krone has held leadership roles at [removed: 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 [added: advisory] board, the Business [removed: Roundtable and] [added: Roundtable,] the Aircraft Owners and Pilots Association Foundation’s Board of [removed: Advisors. He serves as the chair of the Professional Services Council,] [added: Advisors] and [removed: is] a member of the Executive Committee of the Aerospace Industries Association. | | |

| Christopher R. Cage | | | | | | [removed: 49] [added: 50] | | | | | | Mr. Cage has served as [removed: Senior] [added: Executive] Vice [removed: President,] [added: President and] Chief [removed: Accounting] [added: Financial] Officer [removed: and Corporate Controller] since [removed: June 2019.] [added: July 2021.] He has served in several capacities throughout his [removed: 20-year] [added: 23-year] tenure with Leidos, including [added: Senior Vice President,] Chief [removed: Financial] [added: Accounting] Officer [removed: for the Health Group and, most recently, as] [added: and Corporate Controller,] Senior Vice President for Financial Planning and [removed: Analysis.] [added: Analysis and Chief Financial Officer for the Health Group.] | | |

| Paul [removed: O.] Engola | | | | | | [removed: 49] [added: 50] | | | | | | Mr. Engola has served as [added: Chief National Security Space Officer since July 2021 and before that, as] Executive Vice President and Chief Human Resources Officer and Head of Business [removed: Partnerships since January 2019,] [added: Partnerships,] and [removed: 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. | | |

| Gerard A. Fasano | | | | | | [removed: 55] [added: 56] | | | | | | Mr. Fasano has served as [removed: Group] President for our Defense Group since October 2018, and before that, as Chief Business Development Strategy Officer. 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 years. | | |

Leidos Holdings, Inc. Annual Report - [removed: 36][added: 31]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

| Jerald S. Howe, Jr. | | | | | | [removed: 65] [added: 66] | | | | | | 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 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. | | |

| David A. King | | | | | | [removed: 59] [added: 60] | | | | | | 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. | | |

| James R. Moos | | | | | | [removed: 51] [added: 52] | | | | | | Mr. Moos has served as [removed: 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 Leidos' former Engineering Solutions Group. | | |

| Elizabeth A. Porter | | | | | | [removed: 50] [added: 51] | | | | | | Ms. Porter has served as [removed: Group] President for our Health Group since August 2020 and, before that, as Acting Group President for the Health Group since March [removed: 2019.] [added: 2020.] 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*.* | | |

Leidos Holdings, Inc. Annual Report - [removed: 37][added: 32]

| Carly E. Kimball | | | | | | 46 | | | | | | Ms. Kimball has served as Senior Vice President, Chief Accounting Officer and Corporate Controller since July 2021. Previously, she served as the Company’s Assistant Corporate Controller. Ms. Kimball brings over 20 years of experience leading large teams and has extensive proficiency in accounting, auditing, financial reporting, acquisitions and integrations, as well as business operations. Prior to joining Leidos, she served as Chief Financial Officer of CACI Products Company Inc. and senior manager in Ernst & Young’s Aerospace and Defense audit practice. | | |

| Roy Stevens | | | | | | 53 | | | | | | Mr. Stevens has served as President for our Intelligence Group since July 2021, and before that, as Chief of Business Development and Strategy. Prior to joining Leidos, Mr. Stevens served Lockheed Martin Corporation in a variety of executive level positions for over 20 years, most recently as Vice President of Global Solutions under the Information Systems & Global Solutions business, and has also been integral to the merger and acquisition of several companies during his career. He serves on the Board of Directors for Cornerstones. | | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

PART I

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

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

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

Leidos Holdings, Inc. Annual Report - 33

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| James C. Reagan | | | | | | 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. | | |

| Mary V. Schmanske | | | | | | 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. | | |

As of February [removed: 15, 2021,] [added: 8, 2022,] there were approximately [removed: 21,088] [added: 20,047] holders of record of Leidos common stock.

During fiscal [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] we declared and paid quarterly dividends totaling [removed: $1.36] [added: $1.40] and [removed: $1.32] [added: $1.36] per share, respectively, of Leidos common stock.

The following graph compares the total cumulative five-year return on Leidos common stock through [removed: January 1,] [added: December 31,] 2021 to two indices: (i) the Standard & Poor's 500 Composite index and (ii) the Standard & Poor's 500 IT Services Industry index.

The graph assumes an initial investment of $100 on December 31, [removed: 2015,] [added: 2016,] and that dividends, if any, have been reinvested.

[removed: ][added: ]

Leidos Holdings, Inc. Annual Report - [removed: 38][added: 34]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

[removed: On February 16, 2018, our Board of Directors authorized] [added: We have] a [removed: new] share repurchase program of up to 20 million shares of Leidos outstanding common stock.

Comparison of Cumulative Total Return

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

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

| Company/Market/Peer Group | | | | | | 12/30/2016 | | | | | | 12/29/2017 | | | | | | 12/28/2018 | | | | | | 1/3/2020 | | | | | | 1/1/2021 | | | | | | 12/31/2021 | | |

| Leidos Inc. | | | | | | $ | 100.00 | | | | | $ | 129.10 | | | | | $ | 106.88 | | | | | $ | 206.36 | | | | | $ | 221.19 | | | | | $ | 189.82 | |

| S&P 500 Composite Index | | | | | | $ | 100.00 | | | | | $ | 121.83 | | | | | $ | 115.49 | | | | | $ | 153.40 | | | | | $ | 181.35 | | | | | $ | 233.41 | |

| S&P 500 IT Services Index | | | | | | $ | 100.00 | | | | | $ | 131.22 | | | | | $ | 136.07 | | | | | $ | 193.86 | | | | | $ | 236.72 | | | | | $ | 248.27 | |

As of December 31, 2021, the maximum number of shares that may yet be repurchased under the program was 4,554,346.

For the three months ended December 31, 2021, there were no repurchases of our common stock.

The following table presents repurchases of Leidos common stock during the quarter ended January 1, 2021:

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

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

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

| October 3, 2020 - October 31, 2020 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | 7,696,108 | | |

| 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 | | | | | | | | |

(1)The total number of shares purchased includes shares surrendered to satisfy statutory tax withholdings obligations related to vesting of restricted stock units.

Leidos Holdings, Inc. Annual Report - 35

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

PART II

[removed: LEIDOS HOLDINGS, INC.][added: Leidos Holdings, Inc. Annual Report - 50]

| [Report of Independent Registered Public Accounting [removed: Firm](#i92ab5cb62ae34021919d48d3eef76fb0_88)] [added: Firm](#i51c376919b0c4db5a20f52c03ebbff09_94) (PCAOB ID No. 34)] | | | | | | [removed: [57](#i92ab5cb62ae34021919d48d3eef76fb0_88)] [added: [51](#i51c376919b0c4db5a20f52c03ebbff09_94)] | | |

| [Consolidated Balance Sheets as of [removed: January 1,] [added: December 31,] 2021 and January [removed: 3, 2020](#i92ab5cb62ae34021919d48d3eef76fb0_91)] [added: 1, 2021](#i51c376919b0c4db5a20f52c03ebbff09_97)] | | | | | | [removed: [60](#i92ab5cb62ae34021919d48d3eef76fb0_91)] [added: [54](#i51c376919b0c4db5a20f52c03ebbff09_97)] | | |

| [Consolidated Statements of Income for the fiscal years ended [added: December 31, 2021,] January 1, [removed: 2021,] [added: 2021 and] January 3, [removed: 2020 and December 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_97)] [added: 2020](#i51c376919b0c4db5a20f52c03ebbff09_100)] | | | | | | [removed: [61](#i92ab5cb62ae34021919d48d3eef76fb0_97)] [added: [55](#i51c376919b0c4db5a20f52c03ebbff09_100)] | | |

| [Consolidated Statements of Comprehensive Income for the fiscal years ended [added: December 31, 2021,] January 1, [removed: 2021,] [added: 2021 and] January 3, [removed: 2020 and December 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_100)] [added: 2020](#i51c376919b0c4db5a20f52c03ebbff09_103)] | | | | | | [removed: [62](#i92ab5cb62ae34021919d48d3eef76fb0_100)] [added: [56](#i51c376919b0c4db5a20f52c03ebbff09_103)] | | |

| [Consolidated Statements of Equity for the fiscal years ended [added: December 31, 2021,] January 1, [removed: 2021,] [added: 2021 and] January 3, [removed: 2020 and December 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_103)] [added: 2020](#i51c376919b0c4db5a20f52c03ebbff09_106)] | | | | | | [removed: [63](#i92ab5cb62ae34021919d48d3eef76fb0_103)] [added: [57](#i51c376919b0c4db5a20f52c03ebbff09_106)] | | |

| [Consolidated Statements of Cash Flows for the fiscal years ended [added: December 31, 2021,] January 1, [removed: 2021,] [added: 2021 and] January 3, [removed: 2020 and December 28, 2018](#i92ab5cb62ae34021919d48d3eef76fb0_109)] [added: 2020](#i51c376919b0c4db5a20f52c03ebbff09_109)] | | | | | | [removed: [64](#i92ab5cb62ae34021919d48d3eef76fb0_109)] [added: [58](#i51c376919b0c4db5a20f52c03ebbff09_109)] | | |

| [Notes to Consolidated Financial [removed: Statements](#i92ab5cb62ae34021919d48d3eef76fb0_115)] [added: Statements](#i51c376919b0c4db5a20f52c03ebbff09_115)] | | | | | | [removed: [66](#i92ab5cb62ae34021919d48d3eef76fb0_115)] [added: [60](#i51c376919b0c4db5a20f52c03ebbff09_115)] | | |

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

We have audited the accompanying consolidated balance sheets of Leidos Holdings, Inc. and subsidiaries (the "Company") as of [removed: January 1,] [added: December 31,] 2021 and January [removed: 3, 2020,] [added: 1, 2021,] the related consolidated statements of income, comprehensive income, equity, and cash flows, for the fiscal years ended [added: December 31, 2021,] January 1, 2021, [added: and] January 3, 2020, and [removed: December 28, 2018, 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 [removed: January 1,] [added: December 31,] 2021 and January [removed: 3, 2020,] [added: 1, 2021,] and the results of its operations and its cash flows for the fiscal years ended [added: December 31, 2021,] January 1, 2021, [added: and] January 3, 2020, [removed: and December 28, 2018,] 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 [removed: January 1,] [added: December 31,] 2021, based on criteria established in *Internal Control — Integrated Framework (2013*) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 23, 2021,] [added: 15, 2022,] expressed an unqualified opinion on the Company's internal control over financial reporting.

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

Revenues [removed: -] [added: —] Refer to Note 3 and Note 4 to the financial statements

The accounting conclusions for contracts involves judgment, particularly as it relates to determining whether multiple promises within a single contract are highly interrelated and represent a single performance [removed: obligation] [added: obligation,] and whether [removed: or not] the Company is acting as a principal in the fulfillment of the identified performance obligations on certain contracts.

- For a selection of [removed: contracts] [added: contracts,] we performed elements of the following for each contract:

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

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

[removed: On January 31, 2020] [added: During fiscal 2020, we completed] the [removed: Company acquired Dynetics, Inc. (“Dynetics”) for a purchase price] [added: acquisitions] of [removed: $1.6 billion,] [added: L3Harris Technologies' security detection] and [removed: on May 4, 2020, the Company acquired the Security Detection & Automation (“SD&A”)] [added: automation] businesses [removed: from L3Harris Technologies for a purchase price of $1.0 billion.][added: (the "SD&A Businesses") and Dynetics, Inc. ("Dynetics").]

[removed: The] [added: Estimating the] fair value of [added: a reporting unit requires] the [removed: intangible assets was determined based on estimates] [added: exercise of significant judgment] and [removed: judgments,] [added: assumptions] including [removed: the amount and timing of] [added: judgments about] expected future cash flows, [removed: long-term growth] [added: weighted-average cost of capital, discount] rates and [removed: discount] [added: expected long-term growth] rates.

| | | | | | | [removed: January 1,] [added: December 31,] 2021 | | | | | | January [added: 1, 2021 | | | | | | January] 3, 2020 | | |

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

| [removed: ASSETS] [added: Assets:] | | | | | | | | | | | | | | |

| Cash and cash equivalents | | | | | | $ | [removed: 524] [added: 727] | | | | | $ | [removed: 668] [added: 524] | |

| Receivables, net | | | | | | [removed: 2,137] [added: 2,189] | | | | | | [removed: 1,734] [added: 2,137] | | |

| Inventory, net | | | | | | [removed: 276] [added: 274] | | | | | | [removed: 72] [added: 276] | | |

| Other current assets | | | | | | [removed: 402] [added: 429] | | | | | | [removed: 338] [added: 402] | | |

| Total current assets | | | | | | [removed: 3,339] [added: 3,619] | | | | | | [removed: 2,812] [added: 3,339] | | |

| Property, plant and equipment, net | | | | | | [removed: 604] [added: 670] | | | | | | [removed: 287] [added: 604] | | |

| Intangible assets, net | | | | | | [removed: 1,216] [added: 1,177] | | | | | | [removed: 530] [added: 1,216] | | |

| Goodwill | | | | | | [removed: 6,313] [added: 6,744] | | | | | | [removed: 4,912] [added: 6,313] | | |

| Operating lease right-of-use assets, net | | | | | | [removed: 581] [added: 612] | | | | | | [removed: 400] [added: 581] | | |

| Other assets | | | | | | [removed: 458] [added: 439] | | | | | | [removed: 426] [added: 458] | | |

| [removed: LIABILITIES AND EQUITY] [added: Total liabilities and stockholders' equity] | | | | | | [added: $] | [added: 13,261] | | | | | [added: $] | [added: 12,511] | |

| Accounts payable and accrued liabilities | | | | | | $ | [removed: 2,175] [added: 2,141] | | | | | $ | [removed: 1,837] [added: 2,175] | |

| Accrued payroll and employee benefits | | | | | | [removed: 632] [added: 605] | | | | | | [removed: 435] [added: 632] | | |

| [removed: Long-term debt,] [added: Short-term debt and] current portion [added: of long-term debt] | | | | | | [removed: 100] [added: 483] | | | | | | [removed: 61] [added: 100] | | |

| Total current liabilities | | | | | | [removed: 2,907] [added: 3,229] | | | | | | [removed: 2,333] [added: 2,907] | | |

| Long-term debt, net of current portion | | | | | | [removed: 4,644] [added: 4,593] | | | | | | [removed: 2,925] [added: 4,644] | | |

| Operating lease liabilities | | | | | | [removed: 564] [added: 589] | | | | | | [removed: 326] [added: 564] | | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

Goodwill Valuation – Security Products Reporting Unit - Refer to Note 3, Note 5 and Note 8 to the financial statements

The Company performed a quantitative impairment evaluation of the goodwill for the Security Products reporting unit by comparing the estimated fair value of the reporting unit to its carrying value.

Changes in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill impairment charge, or both.

The goodwill balance was $6,744 million as of December 31, 2021 of which $926 million related to the Security Products reporting unit.

The Company’s accounting policy is to test for impairment on the first day of the fourth quarter of each year.

As a result of the quantitative assessment, the Company concluded that the fair value of the reporting unit exceeded the carrying value by approximately 6%, which resulted in no impairment for the year ended December 31, 2021.

Given the significant judgments made by management to estimate the fair value of the Security Products reporting unit and the difference between its fair value and carrying value, performing audit procedures to develop an independent estimate of the fair value of the Security Products reporting unit, which included evaluating estimates and assumptions related to the cost of capital, forecasts of future cash flows, and terminal growth rates specifically due to the sensitivity of the operations to changes in global aviation security products and related services markets, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

Our audit procedures related to the selection of the discount rate, terminal growth rate and forecasts of future revenues and cash flows for the Security Products reporting unit included the following, among others:

- We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate, terminal growth rate and management’s development of forecasts of future revenues and cash flows.

- We developed an independent estimate of the fair value of the Security Products reporting unit using both the income as well as the market approach.

We utilized historical results of the reporting unit and inspected third-party industry reports for the global aviation security products and related services markets to develop projections.

Additionally, we developed the discount rate and terminal year growth rate with the assistance of our fair value specialists.

- The market approach analysis was performed by selecting guideline peer companies and developing enterprise value multiples of revenues and Earnings Before Interest, Taxes, Depreciation and Amortization.

We reconciled the results of the market approach with the discounted cash flow approach.

- We evaluated the carrying value of the reporting unit.

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| Total assets | | | | | | $ | 13,261 | | | | | $ | 12,511 | |

| Liabilities: | | | | | | | | | | | | | | |

| Total liabilities | | | | | | $ | 8,917 | | | | | $ | 8,640 | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

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

| Net income | | | | | | — | | | | | | — | | | | | | 753 | | | | | | — | | | | | | 753 | | | | | | 6 | | | | | | 759 | | |

| Net capital contributions to non-controlling interest | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 38 | | | | | | 38 | | |

| Balance at December 31, 2021 | | | | | | 140 | | | | | | $ | 2,423 | | | | | $ | 1,880 | | | | | $ | (12) | | | | | $ | 4,291 | | | | | $ | 53 | | | | | $ | 4,344 | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| Net income | | | | | | $ | 759 | | | | | $ | 629 | | | | | $ | 670 | |

| Asset impairment charges | | | | | | 4 | | | | | | 12 | | | | | | — | | |

| Capital distributions to non-controlling interests | | | | | | (3) | | | | | | — | | | | | | — | | |

| Capital contributions from non-controlling interests | | | | | | 41 | | | | | | 4 | | | | | | — | | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| Cash and cash equivalents at end of year | | | | | | $ | 727 | | | | | $ | 524 | | | | | $ | 668 | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

MSA’s contract ended on January 24, 2021.

Effective July 3, 2021, certain contracts were reassigned from the Defense Solutions reportable segment to the Civil reportable segment.

Impact on prior year segment results were determined to be immaterial and have not been recast to reflect this change.

Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the Defense Solutions reportable segment.

| | | | | | | | | |

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

▪Involving industry experts in evaluating the appropriateness of management’s conclusions.

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.

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.

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.

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.

February 23, 2021

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

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

| Balance at December 29, 2017 | | | | | | 151 | | | | | | $ | 3,344 | | | | | $ | (7) | | | | | $ | 33 | | | | | $ | 3,370 | | | | | $ | 13 | | | | | $ | 3,383 | |

| Cumulative adjustments related to ASU adoptions | | | | | | — | | | | | | — | | | | | | (8) | | | | | | 9 | | | | | | 1 | | | | | | — | | | | | | 1 | | |

| Balance at December 30, 2017 | | | | | | 151 | | | | | | 3,344 | | | | | | (15) | | | | | | 42 | | | | | | 3,371 | | | | | | 13 | | | | | | 3,384 | | |

| Purchase of a noncontrolling interest | | | | | | — | | | | | | (1) | | | | | | — | | | | | | — | | | | | | (1) | | | | | | (10) | | | | | | (11) | | |

| Payment of tax indemnification liability | | | | | | — | | | | | | — | | | | | | (23) | | |

| Proceeds from real estate financing transaction | | | | | | — | | | | | | — | | | | | | 14 | | |

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MSA's contract is anticipated to end in early fiscal 2021.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

We disaggregated "Inventory, net" from "Other current assets" on the consolidated balance sheets.

We also disaggregated "Loss on debt extinguishment" from "Other" within operating activities and "Payments for debt issuance and modification costs" from "Other" within financing activities on the consolidated statements of cash flows.

Additionally, we combined "Other current assets" and "Other long-term assets" into "Other current assets and other long-term assets" and "Accounts payable and accrued liabilities" and "Other long-term liabilities" into "Accounts payable and accrued liabilities and other long-term liabilities" on the consolidated statements of cash flows.

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

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13 and subsequent updates, which eliminates the requirement that a credit loss on a financial instrument be "probable" prior to recognition.

Instead, a valuation allowance will be recorded to reflect an entity's current estimate of all expected credit losses, based on both historical and forecasted information related to an instrument.

The update is effective for public companies for annual and interim reporting periods beginning after December 15, 2019, and should be adopted using a modified retrospective approach, which applies a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

A prospective approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date and loans and debt securities acquired with deteriorated credit quality.

The adoption resulted in an immaterial impact to our financial assets and processes for determining the expected credit loss.

We plan to early adopt this update in the beginning of fiscal 2021, and expect the associated financial statement impacts to be immaterial.

As of January 1, 2021, we had $15.7 billion of remaining performance obligations, approximately 50%, 16% and 34% of which are expected to be recognized as revenues in fiscal 2021, fiscal 2022 and fiscal 2023 and thereafter, respectively.

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 [removed: January 1,] [added: December 31,] 2021.

During the first and second quarter of fiscal [removed: 2020,] [added: 2021,] we completed our acquisition of [removed: Dynetics, Inc. ("Dynetics") and L3Harris Technologies' security detection] [added: 1901 Group] and [removed: automation businesses (the "SD&A Businesses"),] [added: Gibbs & Cox,] respectively.

As part of the ongoing integration of [removed: Dynetics] [added: 1901 Group] and [removed: the SD&A Businesses,] [added: Gibbs & Cox,] we are in the process of incorporating the controls and related procedures of these businesses.

Other than incorporating controls for [removed: Dynetics] [added: 1901 Group] and [removed: the SD&A Businesses,] [added: Gibbs & Cox,] there have been no other changes in our internal control over financial reporting that occurred in the fourth quarter of the period ended [removed: January 1,] [added: December 31,] 2021, covered by this Annual Report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As permitted by the SEC rules, management's assessment and conclusion on the effectiveness of our internal control over financial reporting as of [removed: January 1, 2021] [added: December 31, 2021,] excludes an assessment of the internal control over financial reporting of [removed: Dynetics] [added: 1901 Group] and [removed: the SD&A Businesses,] [added: Gibbs & Cox,] acquired on January [removed: 31, 2020] [added: 14, 2021] and May [removed: 4, 2020,] [added: 7, 2021,] respectively.

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 [removed: January 1,] [added: December 31,] 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 [removed: January 1,] [added: December 31,] 2021, and has concluded that our internal control over financial reporting as of that date was effective.

Leidos Holdings, Inc. Annual Report - [removed: 113][added: 106]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

We have audited the internal control over financial reporting of Leidos Holdings, Inc. and subsidiaries (the "Company") as of [removed: January 1,] [added: December 31,] 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of [removed: January 1,] [added: December 31,] 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended [removed: January 1,] [added: December 31,] 2021, of the Company and our report dated February [removed: 23, 2021,] [added: 15, 2022,] expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at [removed: Dynetics, Inc. (“Dynetics”) and the Security Detection] [added: 1901 Group] and [removed: Automation Business (“SD&A”)] [added: Gibbs & Cox,] which were acquired on January [removed: 31, 2020] [added: 14, 2021] and May [removed: 4, 2020,] [added: 7, 2021,] respectively, whose financial statements reflect total assets of [removed: 13%] [added: 1.45%] and [removed: 10%,] [added: 3.03%,] respectively, and revenues constituting [removed: 8%] [added: 0.35%] and [removed: 2%,] [added: 0.71%,] respectively, of the consolidated financial statement amounts as of and for the fiscal year ended [removed: January 1,] [added: December 31,] 2021.

Accordingly, our audit did not include the internal control over financial reporting at [removed: Dynetics] [added: 1901 Group] and [removed: SD&A.][added: Gibbs & Cox.]

Leidos Holdings, Inc. Annual Report - [removed: 114][added: 107]

February 15, 2022

February 15, 2022

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

February 23, 2021

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PART III

For additional information required by Item 10 with respect to executive officers and directors, including audit committee and audit committee financial experts, procedures by which stockholders may recommend nominees to the Board of Directors and compliance with Section 16(a) of the Securities Exchange Act of 1934, see the information set forth under the captions "Proposal 1–Election of Directors," "Corporate Governance" and "Other Information" appearing in the [removed: 2021] [added: 2022] Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

For information required by Item 11 with respect to executive compensation and director compensation, see the information set forth under the captions "Compensation Discussion and Analysis," "Executive Compensation" and "Corporate Governance" in the [removed: 2021] [added: 2022] Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.

For information required by Item 11 with respect to compensation committee interlocks and insider participation, see the information set forth under the caption "Corporate Governance" in the [removed: 2021] [added: 2022] Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.

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PART III

For information required by Item 12 with respect to the security ownership of certain beneficial owners and management, see the information set forth under the caption "Other Information" in the [removed: 2021] [added: 2022] Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.

Information with respect to our equity compensation plans as of [removed: January 1,] [added: December 31,] 2021, is set forth below:

(2)Represents (i) [removed: 1,802,943] [added: 1,850,479] shares of Leidos common stock reserved for future issuance for service-based awards and performance and market-based awards assuming achievement of the target level of performance for unearned performance and market-based awards (does not include an additional [removed: 242,735] [added: 250,249] shares if the maximum level of performance is achieved) and other stock awards under the 2017 Omnibus Incentive Plan and 2006 Equity Incentive Plan, (ii) [removed: 5,945] [added: 9,744] shares of Leidos common stock issuable pursuant to dividend equivalent rights and (iii) [removed: 2,187,012] [added: 2,058,877] shares of Leidos common stock reserved for future issuance upon the exercise of outstanding options awarded under the 2017 Omnibus Incentive Plan and 2006 Equity Incentive Plan.

(4)Represents [removed: 8,447,628] [added: 7,992,462] and [removed: 3,847,303] [added: 3,395,643] shares of Leidos common stock under the 2017 Omnibus Incentive Plan and 2006 Employee Stock Purchase Plan, respectively.

For further information on this plan, see "Note [removed: 19—Stock-Based] [added: 17—Stock-Based] Compensation" of the notes to the consolidated financial statements contained within Part II of this Annual Report on Form 10-K.

| Equity compensation plans approved by security holders (1) | | | | | | 3,919,100 | | | (2) | | | $ | 65.18 | | (3) | | | 11,388,105 | | | (4) | | |

| Total | | | | | | 3,919,100 | | | (2) | | | $ | 65.18 | | (3) | | | 11,388,105 | | | | | |

| Equity compensation plans approved by security holders (1) | | | | | | 3,995,900 | | | (2) | | | $ | 56.01 | | (3) | | | 12,294,931 | | | (4) | | |

| Total | | | | | | 3,995,900 | | | (2) | | | $ | 56.01 | | (3) | | | 12,294,931 | | | | | |

Leidos Holdings, Inc. Annual Report - 116

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PART III

For information required by Item 13 with respect to certain relationships and related transactions and the independence of directors and nominees, see the information set forth under the caption "Corporate Governance" in the [removed: 2021] [added: 2022] Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.

For information required by Item 14 with respect to principal accounting fees and services, see the information set forth under the caption "Audit Matters" in the [removed: 2021] [added: 2022] Proxy Statement, which is incorporated by reference into this Annual Report on Form 10-K.

Leidos Holdings, Inc. Annual Report - [removed: 117][added: 109]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

[Consolidated Balance [removed: Sheets](#i92ab5cb62ae34021919d48d3eef76fb0_91)][added: Sheets](#i51c376919b0c4db5a20f52c03ebbff09_97)]

[Consolidated Statements of [removed: Income](#i92ab5cb62ae34021919d48d3eef76fb0_97)][added: Income](#i51c376919b0c4db5a20f52c03ebbff09_100)]

[Consolidated Statements of Comprehensive [removed: Income](#i92ab5cb62ae34021919d48d3eef76fb0_100)][added: Income](#i51c376919b0c4db5a20f52c03ebbff09_103)]

[Consolidated Statements of [removed: Equity](#i92ab5cb62ae34021919d48d3eef76fb0_103)][added: Equity](#i51c376919b0c4db5a20f52c03ebbff09_106)]

[Consolidated Statements of Cash [removed: Flows](#i92ab5cb62ae34021919d48d3eef76fb0_109)][added: Flows](#i51c376919b0c4db5a20f52c03ebbff09_109)]

[Notes to Consolidated Financial [removed: Statements](#i92ab5cb62ae34021919d48d3eef76fb0_115)][added: Statements](#i51c376919b0c4db5a20f52c03ebbff09_115)]

Leidos Holdings, Inc. Annual Report - [removed: 118][added: 110]

[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

| 4.12 | | | | | | [Registration Rights Agreement, dated October 8, 2020, among Leidos, Inc., Leidos Holdings, Inc., BofA Securities, Inc., Citigroup Global Markets Inc. and MUFG Securities Americas Inc. Incorporated by reference to Exhibit 4.3 to our Current [removed: R](http://www.sec.gov/Archives/edgar/data/1336920/000119312520266581/d69928dex43.htm)[e](http://www.sec.gov/Archives/edgar/data/1336920/000119312520266581/d69928dex43.htm)[port] [added: Report] on Form 8-K filed with the SEC on October 9, 2020.](http://www.sec.gov/Archives/edgar/data/1336920/000119312520266581/d69928dex43.htm) | | |

| 4.13 | | | | | | [Description of Common [removed: Stock.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex413.htm)] [added: Stock. Incorporate by reference to Exhibit 4.13 to our Annual Report on Form 10-K filed with the SEC on February 23, 2021.](https://www.sec.gov/Archives/edgar/data/0001336920/000133692021000010/ldos01012021ex413.htm)] | | |

Leidos Holdings, Inc. Annual Report - [removed: 119][added: 111]

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Leidos Holdings, Inc. Annual Report - [removed: 121][added: 113]

| 21 | | | | | | [Subsidiaries of the [removed: Registrant.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex21.htm)] [added: Registrant.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex21.htm)] | | |

| 23.1 | | | | | | [Consent of Independent Registered Public Accounting Firm, Deloitte & Touche [removed: LLP.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex231.htm)] [added: LLP.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex231.htm)] | | |

| 31.1 | | | | | | [Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex311.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex311.htm)] | | |

| 31.2 | | | | | | [Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex312.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex312.htm)] | | |

| 32.1 | | | | | | [Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex321.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex321.htm)] | | |

| 32.2 | | | | | | [Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692021000010/ldos01012021ex322.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1336920/000133692022000007/ldos12312021ex322.htm)] | | |

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[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

| 10.48 | | | | | | [Form of Commercial Paper Dealer Agreement, dated July 12, 2021, between Leidos, Inc., as issuer, the Company, as guarantor, and the applicable Dealer party thereto. Incorporated by reference to Exhibit 10.1 to our Form 8-K filed with the U.S. Securities and Exchange Commission on July 12, 2021.](https://www.sec.gov/Archives/edgar/data/0001336920/000119312521213204/d203042dex101.htm) | | |

| 22 | | | | | | [List of Guarantors and Subsidiary Issuers of Guaranteed Securities. Incorporated herein by reference from the Company's Registration Statement on Form S-4, filed with the U.S. Securities and Exchange Commission on May 6, 2021.](https://www.sec.gov/Archives/edgar/data/0001336920/000119312521153482/d397284dex22.htm) | | |

[Table of Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)

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[Table of [removed: Contents](#i92ab5cb62ae34021919d48d3eef76fb0_7)][added: Contents](#i51c376919b0c4db5a20f52c03ebbff09_7)]

| | | | [removed: James C. Reagan] [added: Christopher R. Cage] Executive Vice President and Chief Financial Officer | | |

Dated: February [removed: 23, 2021][added: 15, 2022]

| /s/ Roger A. Krone | | | Principal Executive Officer | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ [removed: James C. Reagan] [added: Christopher R. Cage] | | | Principal Financial Officer | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ [removed: Christopher R. Cage] [added: Carly E. Kimball] | | | Principal Accounting Officer | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Gregory R. Dahlberg | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ David G. Fubini | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Miriam E. John | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Robert C. Kovarik, Jr. | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Harry M. J. Kraemer, Jr. | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Gary S. May | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Surya N. Mohapatra | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Robert S. Shapard | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Susan M. Stalnecker | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

| /s/ Noel B. Williams | | | Director | | | February [removed: 23, 2021] [added: 15, 2022] | | |

Leidos Holdings, Inc. Annual Report - [removed: 124][added: 116]

| By | | | /s/ Christopher R. Cage | | |

| Carly E. Kimball | | | | | | | | |

| By | | | /s/ James C. Reagan | | |

| | | | | | | | | |

| James C. Reagan | | | | | | | | |

| /s/ Frank Kendall III | | | Director | | | February 23, 2021 | | |

| Frank Kendall III | | | | | | | | |