Leidos Holdings Inc

To the shareholders and the Board of Directors of Leidos Holdings, Inc.

Reston, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Leidos Holdings, Inc. and subsidiaries (the "Company") as of December 29, 2023 and December 30, 2022, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for the fiscal years ended December 29, 2023, December 30, 2022, and December 31, 2021, 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 December 29, 2023 and December 30, 2022, and the results of its operations and its cash flows for the fiscal years ended December 29, 2023, December 30, 2022, and December 31, 2021, 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 December 29, 2023, 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 13, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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 our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

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Goodwill Valuation – Security Enterprise Solutions Reporting Unit - Refer to Note 3 and Note 8 to the financial statements

Critical Audit Matter Description

The Company’s accounting policy is to test goodwill for impairment on the first day of the fourth quarter of each year and more frequently if events or circumstances indicate that the carrying value may not be recoverable. During the third quarter of fiscal year 2023, the Security Enterprise Solutions (“SES”) reporting unit refined its business portfolio and made strategic business decisions to exit certain product offerings, as well as cease operations in certain countries in order to align the operations of the reporting unit with its strategic business plan. These decisions, along with the continued delays in airline travel infrastructure projects and higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows. As a result, the Company performed an interim quantitative impairment analysis of goodwill for the SES reporting unit by comparing the estimated fair value of the reporting unit to its carrying value. The Company’s determination of the estimated fair value of the reporting unit was based on a blended approach, including discounted cash flow-models and market earnings multiple. Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including judgments about expected future cash flows, weighted-average cost of capital, and growth rates in revenue and margins. 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. As a result of the quantitative assessment, the Company concluded that the carrying value of the reporting unit exceeded the fair value and recognized a goodwill impairment charge of $596 million for the year ended December 29, 2023.

We identified goodwill for the SES reporting unit as a critical audit matter due to the significant judgments made by management to estimate the fair value of the reporting unit and the sensitivity of the fair value to changes in these estimates. Performing audit procedures to evaluate the reasonableness of management’s estimate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

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 Enterprise Solutions 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, and terminal growth rates and management’s development of forecasted revenues and cash flows, including the completeness, accuracy and reasonableness of the forecasted amounts.

•We performed a sensitivity analysis of the forecasts of future revenue, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and capital expenditures, which included their impact on the fair value of the SES reporting unit.

•We evaluated management’s ability to accurately forecast future SES reporting unit revenue and operating income, comparing actual results to management’s historical forecasts.

•We evaluated the reasonableness of management’s SES reporting unit revenue growth rates, EBITDA projections and timing of future cash flows by comparing the forecasts to:

◦Historical results and current performance.

◦Internal communications to management and the Board of Directors.

◦Forecasted information included in industry reports considering macroeconomic factors.

•With the assistance of our fair value specialists, we evaluated (1) the valuation methodology utilized, including testing mathematical accuracy of calculations and (2) the projections of future revenue growth rates, the discount rate and the determination of market multiples by either testing the underlying source information, or by developing a range of independent estimates and comparing those to the rate selected by management.

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Revenues — Refer to Note 3 and Note 4 to the financial statements

Critical Audit Matter Description

The Company recognized certain customer contract revenue over time using a method that measures the extent of progress towards completion of a performance obligation, principally using a cost-input method (referred to as the cost-to-cost method). Under the cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to estimated total costs-at-completion (EAC). A performance obligation's EAC includes all direct costs such as materials, labor, subcontract costs, overhead and a ratable portion of general and administrative costs. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs for the performance obligation. In addition, an EAC of a performance obligation includes future losses estimated to be incurred on onerous contracts, as and when known.

Given the judgments necessary to determine whether multiple promises within a single contract represent a single performance obligation, whether or not the Company is acting as principal in the fulfillment of the identified performance obligations on certain contracts, and estimates of total costs for the performance obligations that recognize revenue using the cost-to-cost method, auditing such accounting conclusions and estimates required extensive audit effort due to the volume and complexity of these contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s conclusions regarding whether multiple promises within a single contract represent a single performance obligation, whether the Company is acting as a principal or an agent in fulfilling identified performance obligations on certain contracts, and estimates of total costs for the performance obligations that recognize revenue using the cost-to-cost method included the following, among others:

•We tested the effectiveness of controls over contract revenue, including management’s controls over the initial setup of new contract arrangements and the estimates of total costs and revenues for identified performance obligations.

•We developed an expectation of revenue and compared it to the recorded balance.

•For a selection of contracts, we performed the following for each contract:

◦Evaluated the terms and conditions of each contract and the appropriateness of the accounting treatment in accordance with accounting principles generally accepted in the United States of America, by:

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

▪Evaluating the contract within the context of the five-step model and that management’s conclusions were appropriate by evaluating the nature of the promises within the contract, the interrelationship of the promised services and/or products provided, the pattern by which obligations are fulfilled, the number of performance obligations identified, and which party is acting as principal in the fulfillment of the identified performance obligations.

▪Evaluating the appropriateness and consistency of the methods and assumptions used by management to develop estimates of future revenues that will be recognized and costs that will be incurred.

▪Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation.

•We analyzed cumulative adjustments recorded during the year and tested 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.

/s/Deloitte & Touche LLP

McLean, Virginia

We have served as the Company's auditor since fiscal 2000.

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