What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-28 compared with 2021-03-26 · 121 added, 128 removed, 250 unchanged (50% of the section changed)

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the impact of competition;

and the impact of the Unisys Federal and Engility acquisitions.

and the impact of acquisitions.

Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors.

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The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks.

Fiscal 2019 began on February 3, 2018 and ended on February 1, 2019, fiscal 2020 began on February 2, 2019 and ended on January 31, 2020, and fiscal 2021 began on February 1, 2020 and ended on January 29, 2021.

Fiscal 2022 began on January 30, 2021 and ended on January 28, 2022, fiscal 2021 began on February 1, 2020 and ended on January 29, 2021, and fiscal 2020 began on February 2, 2019 and ended on January 31, 2020.

Business Overview

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We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years.

As one of the largest pure-play technical service providers to the U.S.

As one of the largest pure-play technology service providers to the U.S.

government, we serve markets of significant scale and opportunity.

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We serve our customers through approximately 1,900 active contracts and task orders and employ approximately 26,000 individuals who are led by an experienced executive team of proven industry leaders.

Our long history of serving the U.S government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve.

Our long history of serving the U.S.

government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve.

Substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the United States.

Economic Opportunities, Challenges, and Risks

In fiscal 2021, we generated greater than 95% of our revenues from contracts with the U.S.

In fiscal 2022, we generated 98% of our revenues from contracts with the U.S.

government, including subcontracts on which we perform.

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government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S.

Appropriations measures passed in December 2020 provided full funding for the federal government through the end of government fiscal year (GFY) 2021.

These bills are funded at levels for defense and non-defense spending based on the August 2019 Bipartisan Budget Act agreement that raises the Budget Control Act spending caps enacted in August 2011 and suspends the Federal debt ceiling until July 31, 2021.

Appropriations measures passed in March 2022 provided full funding for the federal government through the end of government fiscal year 2022.

The August 2019 Bipartisan Budget Act agreement suspended the Federal debt ceiling until July 31, 2021.

In October 2021, the Federal debt ceiling was increased by $480 billion and in December 2021 was further increased by $2.5 trillion which is expected to allow the U.S.

government to operate into 2023.

It is unlikely but possible these measures could expire without extension and lead to a partial or full government shutdown.

Adverse changes in fiscal and economic conditions could materially impact our business.

Some changes that could have an adverse impact on our business include the implementation of future spending reductions (including sequestration) and government shutdowns.

Currently, the government is operating under full funding as part of the December 2020 budget deal.

It is possible, but unlikely, that there will be a government shutdown in October 2021 when that measure expires.

Some changes that could have an adverse impact on our business include the implementation of future spending reductions (including sequestration), delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed price contracts, inability to increase or suspend the Federal debt ceiling, and potential government shutdowns.

Spending packages, including the infrastructure bill and future potential spending packages, may provide additional opportunity in areas of SAIC focus such as broadband, cyber, and climate resiliency.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity (IDIQ), U.S.

General Services Administration (GSA) schedules, and other multi-award contracts), which has resulted in greater competition and increased pricing pressure.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process.

We expect a majority of the business we seek in the foreseeable future will be awarded through a competitive bidding process.

Despite the budget and competitive pressures affecting the industry, we believe we are well-positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued.

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Our ability to be competitive in the future will continue to be driven by our reputation for successful program execution, competitive cost structure, development of new pricing and business models, and efficiencies in assigning the right people, at the right time, in support of our contracts.

On July 2, 2021, we completed the acquisition of Halfaker and Associates, LLC (Halfaker).

The acquisition of Halfaker, in alignment with our long-term strategy, grows the Company's digital transformation portfolio while expanding its ability to support the government's healthcare mission.

On March 13, 2020, we completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation.

The acquisition of Unisys Federal, in alignment with our long-term strategy, positions SAIC as a leading government services technology integrator in digital transformation.

The acquisition of Unisys Federal:

(1) enhances SAIC’s capabilities in government priority areas, including IT modernization, cloud migration, managed services, and development, security and operations;

(2) expands SAIC’s portfolio of intellectual property and technology-driven offerings that enable government-tailored, commercial-based solutions;

(3) increases SAIC’s access to current and new customers with a strong pipeline of new business opportunities;

and (4) is highly accretive across all key financial metrics.

On January 14, 2019, we completed the acquisition of Engility Holdings, Inc.

(collectively with its consolidated subsidiaries, "Engility").

The acquisition of Engility accelerates the execution of our long-term strategy to be the premier technology integrator in the government services market and deliver sustained profitable growth.

The acquisition of Engility strengthens the execution of our long-term strategy by:

(1) combining two leading government service providers with highly complementary capabilities, customers, and cultures;

(2) accelerating both companies' long-term strategies, creating sub-segment scale in strategic business areas of national interest;

and (3) enhancing shareholder value through improved cash flow and margin profile driven by cost synergies and increased growth from greater customer access with more competitive and differentiated solutions.

The acquisition of Unisys Federal, in alignment with our long-term strategy, positions SAIC as a leading government services technology integrator in digital transformation, and is highly accretive across all key financial metrics.

See “Risk Factors” in Part I of this report for additional discussion of our industry and regulatory environment.

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We are continuing to monitor the ongoing outbreak of the coronavirus disease 2019 (COVID-19) and we continue to work with our stakeholders to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.

As travel restrictions and social distancing advisories began to be implemented in early 2020, our workforce began to work remotely to the extent possible.

While a majority of our workforce is able to work remotely, some employees must still travel to client or company facilities in order to work.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was passed by Congress and signed by the President on March 27, 2020, provides a mechanism to recover our labor costs where our employees are ready and able to work but unable to access required facilities due to COVID-19.

Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a mechanism to recover our labor costs where our employees are ready and able to work but unable to access required facilities due to COVID-19.

This support from the CARES Act expired on September 30, 2021.

Reduced activity on contracts, including travel and other direct costs, caused revenues to be approximately $125 million lower for fiscal 2022 (net of $62 million of labor recovered under the provisions of the CARES Act described above to maintain our workforce in a stand-ready state).

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

We are generally not able to bill profit on the stand-ready labor costs recovered under the CARES Act and, in some cases, funding limitations and the necessity for contract modifications may cause us not to be able to recover all of the labor costs.

We are generally not able to bill profit on those costs and, in some cases, funding limitations and the necessity for contract modifications may cause us not to be able to recover all of the labor costs.

As a result, operating income for fiscal 2022 was reduced by approximately $8 million.

In addition, the CARES Act allows for the deferral of certain payroll tax payments and we have deferred payments totaling approximately $103 million as of January 29, 2021.

We must begin repaying these deferred taxes in the fourth quarter of fiscal 2022.

In addition, the CARES Act allowed for the deferral of certain payroll tax payments through December 31, 2020 and we deferred total payments of approximately $103 million.

The first installment ($51 million) of these deferred payroll taxes was paid during fiscal 2022 with the remaining amounts due in the fourth quarter of fiscal 2023.

In September 2021, the President issued an executive order which requires all federal employees and contractors to be fully vaccinated by January 18, 2022, unless an employee is legally entitled to an accommodation.

In December 2021, a federal district judge issued an order, which temporarily enjoined the federal contractor vaccine mandate.

We had taken steps to comply with the vaccine mandate across our workforce until it was enjoined.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

are continuing to monitor the impact that the enforcement of this executive order will have on our workforce and operations, but at this point the impact has not been material.

We have not experienced a significant impact to our liquidity or access to capital as a result of the COVID-19 pandemic.

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As of January 28, 2022 we were in compliance with our debt covenants and we have not been required to obtain additional financing, or make significant modifications to our capital deployment strategy, as a result of the COVID-19 pandemic.

We continue to work with our customers to implement the related provisions of the CARES Act.

We cannot currently estimate the overall impact of the COVID-19 pandemic.

The longer the duration of the event the more likely that there may be an adverse impact on our business, financial position, results of operations and/or cash flows.

While we continue to navigate the impacts of the COVID-19 pandemic, COVID-19 did not have as significant an impact on revenues and operating income as compared to the prior year.

The full extent of the impact of COVID-19 on our business and our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, all of which are uncertain and cannot be predicted.

See “Risk Factors” in Part I of this report for additional discussion of the risks associated with the COVID-19 pandemic.

Management of Operating Performance and Reporting

Our business and program management process is directed by professional managers focused on satisfying our customers by providing high quality services in achieving program requirements.

Our business and program management process is directed by professional managers focused on serving our customers by providing high quality services in achieving program requirements.

These managers carefully monitor contract margin performance by constantly evaluating contract risks and opportunities.

Through each contract’s life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available.

Throughout each contract’s life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available.

For performance obligations satisfied over time, updates to estimates are recognized on inception-to-date activity, during the period of adjustment, resulting in either a favorable or unfavorable impact to operating income.

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The following table summarizes our results of operations:

January 29, 2021 Percent change January 31, 2020 Percent change February 1, 2019

January 28, 2022 Percent change January 29, 2021 Percent change January 31, 2020

(dollars in millions)

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Cash flows provided by operating activities $ 518 (31) % $ 755 65 % $ 458

Revenues increased $677 million from fiscal 2020 to fiscal 2021 due to the acquisition of Unisys Federal ($669 million), revenue on new contracts primarily supporting the intelligence community and U.S.

Air Force ($166 million), and increased volume on existing programs ($150 million), partially offset by the impacts of COVID-19 ($248 million) and completion of contracts ($60 million).

Adjusting for the impact of acquired revenues, revenues grew 0.6%.

Revenues increased $338 million from fiscal 2021 to fiscal 2022 due to ramp up on new and existing contracts, the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker, net favorable changes in contract estimates, and the accelerated amortization on certain off-market liability contracts, partially offset by contract completions.

Adjusting for the impact of acquired revenues and divested revenues, revenues grew 2.5% primarily due to new awards and net increases in program volume.

Cost of Revenues.

Cost of revenues increased $591 million from fiscal 2020 to fiscal 2021 primarily due to the acquisition of Unisys Federal ($550 million).

Cost of revenues as a percentage of revenues decreased due to the acquisition of Unisys Federal and lower indirect costs, partially offset by lower net profit write-ups in the current year.

Cost of revenues increased $271 million from fiscal 2021 to fiscal 2022 primarily due to an increase in volume on existing contracts and the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker.

Cost of revenues as a percentage of revenues decreased due to improved profitability across our contract portfolio, net favorable changes in contract estimates, and the accelerated amortization on certain off-market liability contracts, partially offset by higher indirect costs.

Selling, General and Administrative Expenses.

SG&A increased $64 million from fiscal 2020 to fiscal 2021 primarily due to increased intangible asset amortization and the acquisition of Unisys Federal.

SG&A decreased $8 million from fiscal 2021 to fiscal 2022 primarily due to decreased intangible asset amortization related to the acquisition of Unisys Federal and lower bid and proposal costs in the current year, partially offset by intangible amortization related to the acquisition of Halfaker, gains related to the resolution of certain legal matters in the prior year, and the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker.

Operating Income.

Operating income as a percentage of revenues decreased to 5.5% for fiscal 2021, compared to 5.8% for fiscal 2020, primarily due to increased intangible asset amortization and the impacts of COVID-19, partially offset by the acquisition of Unisys Federal and gains related to the resolution of certain program contract matters.

Net Income Attributable to Common Stockholders.

Net income attributable to common stockholders decreased $17 million from fiscal 2020 to fiscal 2021 primarily due to higher interest expense, partially offset by higher operating income.

Operating income as a percentage of revenues increased to 6.2% for fiscal 2022, compared to 5.5% for fiscal 2021, primarily due to improved profitability across our contract portfolio, net favorable changes in contract estimates, benefit from a net favorable settlement of prior indirect rate years, and the accelerated amortization on certain off-market liability contracts, partially offset by higher indirect costs in the current year and gains related to the resolution of certain legal and other program contract matters in the prior year.

Cash Flows Provided by Operating Activities.

Cash flows provided by operating activities were $755 million for fiscal 2021, which represented an increase of $297 million from fiscal 2020 primarily due to sales of receivables under the MARPA Facility ($185 million) and benefit from the deferral of payroll tax payments afforded by the CARES Act.

Cash flows provided by operating activities were $518 million for fiscal 2022, which represented a decrease of $237 million from fiscal 2021.

The decrease was primarily due to higher cash provided by the Master Accounts Receivable Purchase Agreement (MARPA Facility) in the prior year ($170 million), when we initially entered into the facility, and working capital impact related to the deferred payroll taxes allowed under the CARES Act, partially offset by lower cash paid for income taxes and higher net earnings.

Non-GAAP Measures

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While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP.

Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below.

Other companies may define similar measures differently.

Reconciliations, definitions, and how we believe these measures

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

are useful to management and investors are provided below.

Other companies may define similar measures differently.

EBITDA and Adjusted EBITDA.

The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization.

Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs and restructuring costs.

Integration costs excluded are costs to integrate acquired companies and include the costs of strategic consulting services, facility consolidation and employee severance.

The acquisition and integration costs relate to the Company’s significant acquisitions of Engility and Unisys Federal.

See Note 5 to the consolidated financial Statements contained within this report for description of our restructuring costs.

Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance.

Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing performance.

Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs.

Integration costs are costs to integrate acquired companies including costs of strategic consulting services, facility consolidation and employee related costs such as retention and severance costs.

The acquisition and integration costs relate to the Company’s acquisitions of Engility Holdings, Inc., Unisys Federal, Halfaker, and Koverse.

See Note 5 to the consolidated financial statements contained within this report for description of our restructuring and impairment costs.

We believe that EBITDA and adjusted EBITDA provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of the Company.

EBITDA and adjusted EBITDA is calculated as follows:

January 29, 2021 January 31, 2020 February 1, 2019

EBITDA and adjusted EBITDA for the periods presented were calculated as follows:

January 28, 2022 January 29, 2021 January 31, 2020

(in millions)

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Acquisition and integration costs 56 54 48

Restructuring costs 4 — —

Restructuring and impairment costs 2 4 —

Depreciation included in acquisition and integration costs (1) (1) (5)

Recovery of acquisition and integration costs and restructuring costs (1)

Recovery of acquisition and integration costs and restructuring and impairment costs (1)

Adjusted EBITDA $ 686 $ 627 $ 538

Adjusted EBITDA as a percentage of revenues 9.3 % 8.9 % 8.4 %

(1) Adjustment to reflect the portion of acquisition and integration costs and restructuring costs recovered through the Company's indirect rates in accordance with Cost Accounting Standards.

Adjusted EBITDA as a percentage of revenues increased to 8.9% for fiscal 2021, compared to 8.4% for fiscal 2020, driven by the acquisition of Unisys Federal and gains related to the resolution of certain program contract matters, partially offset by the impacts of COVID-19.

(1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through the Company's indirect rates in accordance with Cost Accounting Standards.

Adjusted EBITDA as a percentage of revenues increased to 9.3% for fiscal 2022, compared to 8.9% for fiscal 2021, driven by a net increase in profitability across our existing contract portfolio, net favorable changes in contract estimates, benefit from a net favorable settlement of prior indirect rate years, and revenue resulting from the accelerated amortization on certain off-market liability contracts, partially offset by higher indirect costs in the current year and gains related to the resolution of certain legal and other program contract matters in the prior year.

Other Key Performance Measures

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We also consider measures such as contract types and cost of revenues mix to be useful for management and investors to evaluate our operating income and performance.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Net Bookings and Backlog.

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We calculate net bookings as the period’s ending backlog plus the period’s revenues less the prior period’s ending backlog and initial backlog obtained through acquisitions.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

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Total backlog $ 24,092 $ 21,548

We had net bookings worth an estimated $11.9 billion and $7.9 billion during fiscal 2021 and fiscal 2020, respectively.

We had net bookings worth an estimated $9.4 billion and $11.9 billion during fiscal 2022 and 2021, respectively.

Fiscal 2022 total backlog has increased from the prior year primarily due to several large awards received during the period from the U.S.

Army, the intelligence community, and other various federal government customers.

In addition, $1.5 billion of acquired backlog from Unisys Federal was recorded as an increase to backlog as of the acquisition date.

As described above, our backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed and is reduced as revenue is recognized or as our customers take action to close contracts and/or de-obligate funds.

Our recent experience indicates that these contract actions have not been timely on certain programs.

In the fourth quarter of fiscal 2021, we included a valuation adjustment for open unfulfilled contracts that, in our judgment, may not be converted to future sales, but which have not been closed or de-obligated by the customer.

The effect of this reduced backlog by $2.2 billion as of January 29, 2021 and would have had only an immaterial impact as of January 31, 2020.

Army and U.S.

In addition, $0.6 billion of acquired backlog from Halfaker was recorded as an increase to backlog as of the acquisition date.

Contract Types.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

generate revenue, see “Business—Contract Types” in Part I of this report.

generate revenues, see “Business—Contract Types” in Part I of this report.

The following table summarizes revenues by contract type as a percentage of revenues for the periods presented:

January 29, 2021 January 31, 2020 February 1, 2019

January 28, 2022 January 29, 2021 January 31, 2020

Cost reimbursement 54 % 54 % 57 %

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Total 100 % 100 % 100 %

Our contract mix reflects an increase in firm-fixed price and time and materials type contracts due to the acquisition of Unisys Federal, which historically had a higher proportion of these contracts.

Our contract mix reflects an increase in firm-fixed price type contracts due in part to the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker, which historically had a higher proportion of these contracts.

Cost of Revenues Mix.

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Contracts performed with a higher proportion of SAIC labor are generally more profitable.

The following table presents changes in cost mix for the periods presented:

January 29, 2021 January 31, 2020 February 1, 2019

The following table presents cost mix for the periods presented:

January 28, 2022 January 29, 2021 January 31, 2020

(as a % of total cost of revenues)

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Other materials-related cost of revenues 9 % 8 % 6 %

Cost of revenues mix for fiscal 2021 reflects an increase in other materials-related content primarily due to the acquisition of Unisys Federal, which historically had a higher proportion of such costs, and a decrease in supply chain materials-related content.

Total 100 % 100 % 100 %

Cost of revenues mix for fiscal 2022 remained consistent with the prior year.

Liquidity and Capital Resources

As a services provider, our business generally requires minimal infrastructure investment.

We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $400 million Revolving Credit Facility and $300 million receivable factoring facility.

We anticipate that our future cash needs will be for working capital, capital expenditures, and contractual and other commitments.

We consider various financial measures when we develop and update our cash deployment strategy, which include evaluating cash provided by operating activities, free cash flow and financial leverage.

We consider various financial measures when we develop and update our capital deployment strategy, which include evaluating cash provided by operating activities, free cash flow and financial leverage.

When our cash generation enables us to exceed our target average minimum cash balance, we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions.

Upon the acquisition of Unisys Federal, we drew $600 million on our incremental senior secured Term Loan B2 Facility due March 2027 and issued $400 million of Senior Notes due 2028.

In addition, in February 2020 we sold $200 million of accounts receivable under our receivable factoring facility.

The proceeds were used for the purchase of Unisys Federal.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results.

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Therefore, we cannot ensure that such financing will be available to us on acceptable terms or that such financing will be available at all.

Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to fund our short-term liquidity and long-term capital needs.

Borrowings under our Term Loan Facilities, our receivable factoring facility and, if used in the future, our Revolving Credit Facility incur interest at a variable rate.

Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Upon the acquisition of Halfaker, we drew $100 million on our incremental senior secured Term Loan A2 Facility due October 2023.

The proceeds were used for the purchase of Halfaker.

Upon the acquisition of Unisys Federal in fiscal 2021, we drew $600 million on our incremental senior secured Term Loan B2 Facility due March 2027 and issued $400 million of Senior Notes due 2028.

In addition, in February 2020 we sold $200 million of accounts receivable under our MARPA Facility.

The proceeds were used for the purchase of Unisys Federal.

Borrowings under our Term Loan Facilities, our MARPA Facility and, if used in the future, our Revolving Credit Facility incur interest at a variable rate.

In accordance with our risk management objectives, we hold fixed interest rate swap agreements to hedge the variability in interest payment cash flows on a substantial portion of our outstanding variable rate debt.

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Failure to maintain acceptable ratings could have an adverse effect on the Company’s future cost of capital and any significant increase in the level of our borrowings could negatively impact these ratings.

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the capitalization of research and development costs for tax purposes, which can then be amortized over five years.

Congress has proposed tax legislation to delay the effective date of this change to 2026, but it is uncertain whether the proposed legislation will ultimately be enacted into law.

If the current effective date remains in place, the Company's initial assessment is that the Company would experience a material decrease in cash from operations in fiscal 2023, but our net deferred tax assets will increase by a similar amount.

Management is currently evaluating the potential impact on our operating cash flows.

During fiscal 2022, we repurchased approximately 2.4 million shares of our common stock for $211 million from the open market in connection with our existing share repurchase program.

Since the program’s inception in December of 2013, we have repurchased 14.4 million shares for $946 million.

Historical Cash Flow Trends

The following table summarizes our cash flows:

January 29, 2021 January 31, 2020 February 1, 2019

(in millions)

Net cash provided by operating activities $ 755 $ 458 $ 184

Net cash used in investing activities (1,231) (47) (1,028)

Net cash provided by (used in) financing activities 464 (455) 938

Total (decrease) increase in cash, cash equivalents and restricted cash $ (12) $ (44) $ 94

Cash Provided by Operating Activities.

Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between fiscal 2021 and fiscal 2020.

Cash Used in Investing Activities.

Cash used in investing activities increased in fiscal 2021 compared to the prior year period primarily due to cash paid for the acquisition of Unisys Federal and higher capital expenditures for property, plant, and equipment, partially offset by proceeds from divestiture and lower purchases of marketable securities.

Cash Provided by/Used in Financing Activities.

Cash provided by financing activities increased in fiscal 2021 compared to the prior year period primarily due to proceeds from borrowings obtained to finance the Unisys Federal acquisition and lower share repurchases in the current year period.

These changes were partially offset by higher voluntary principal payments during the current year period and payments of debt issuance costs related to the additional borrowings.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Off-Balance Sheet Arrangements

For an understanding of our obligations relating to surety bonds, see Note 17 to the consolidated financial statements contained within this report.

Contractual Obligations

The following table summarizes, as of January 29, 2021, our obligations to make future payments pursuant to certain contracts or arrangements and provides an estimate of the fiscal years in which these obligations are expected to be satisfied:

Payments Due by Fiscal Year

Total 2022 2023-2024 2025-2026 2027 - Thereafter

The following table summarizes our principal contractual commitments as of January 28, 2022:

Total Due in Fiscal 2023

(in millions)

Contractual obligations:

Long-term debt including current portion $ 2,540 $ 148

$ 2,542 $ 68 $ 808 $ 994 $ 672

Interest payments on long-term debt (1)

346 60 124 102 60

Operating lease obligations 265 59

Estimated purchase obligations (2)

93 44 38 11 —

Other long-term liabilities (4)

193 55 107 11 20

Other liabilities (3)

Total contractual obligations $ 3,412 $ 458

(1) The amounts presented are based on an anticipated loan repayment schedule.

However, we may be required to make certain mandatory prepayments based on our level of cash flow generation and we also have the option to prepay loan principal amounts at any time.

(1) Amounts include an estimate of future variable interest payments on the Term Loan Facilities based on scheduled outstanding principal amounts, current applicable margin and projected 1-month LIBOR as of January 28, 2022.

The amounts presented in this table exclude the effects of interest rate swaps used to hedge against changes in 1-month LIBOR.

(3) Includes estimated obligations to transfer funds under legally enforceable agreements for fixed or minimum amounts or quantities of goods or services at fixed or minimum prices.

(2) Excludes purchase orders for services or products to be delivered pursuant to U.S.

government contracts in which we have full recourse under normal contract termination clauses.

(4) Other long-term liabilities primarily consist of liabilities associated with deferred compensation plan obligations, liabilities for unrecognized tax benefits, the deferral of certain payroll tax payments as permitted by the CARES Act, and expected contributions to fund defined benefit plans for fiscal 2022.

Deferred compensation plan obligations have been allocated to fiscal years based on participants’ payment elections on retirement and estimated retirement ages, but is subject to acceleration on participants’ termination of employment prior to retirement.

Liabilities for unrecognized tax benefits are allocated to the fiscal years in which the statute of limitations is currently expected to expire.

Expected contributions to fund defined benefit plans after fiscal 2022 are not estimable at this time.

(3) Other liabilities primarily consist of liabilities associated with deferred compensation plan obligations, liabilities for unrecognized tax benefits, and the deferral of certain payroll tax payments as permitted by the CARES Act.

Deferred compensation plan obligations due in fiscal 2023 are based on participants’ payment elections on retirement and estimated retirement ages.

Liabilities for unrecognized tax benefits due in fiscal 2023 are based on the fiscal year in which the statute of limitations is currently expected to expire.

See respective notes to the consolidated financial statements contained within this report for further information about our long-term debt (Note 11), lease payment obligations (Note 15), liabilities for unrecognized tax benefits (Note 10), and letters of credit and surety bonds (Note 17).

Historical Cash Flow Trends

The following table summarizes our cash flows:

January 28, 2022 January 29, 2021 January 31, 2020

(in millions)

Net cash provided by operating activities $ 518 $ 755 $ 458

Net cash used in investing activities (292) (1,231) (47)

Net cash (used in) provided by financing activities (301) 464 (455)

Total decrease in cash, cash equivalents and restricted cash $ (75) $ (12) $ (44)

Cash Provided by Operating Activities.

Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between fiscal 2022 and 2021.

Cash Used in Investing Activities.

Cash used in investing activities decreased in fiscal 2022 compared to the prior year period primarily due to cash paid for the acquisition of Unisys Federal in the prior year period, partially offset by cash paid for the acquisitions of Halfaker and Koverse in the current year period.

Cash Used in/Provided by Financing Activities.

Cash used in financing activities in fiscal 2022 was $301 million compared to cash provided by financing activities of $464 million in fiscal 2021.

This change is primarily due to proceeds from borrowings obtained to finance the Unisys Federal acquisition in the prior year period and higher share repurchases in the current year period, partially offset by higher voluntary principal prepayments in the prior year period and borrowings to finance the Halfaker acquisition in the current year period.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Commitments and Contingencies

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Estimates and assumptions may change in the future as more current information is available.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Management believes that our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

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Many of our contracts include forms of variable consideration such as reimbursable costs, award and incentive fees, usage-based pricing, service-level penalties, performance bonuses, and other provisions that can either increase or decrease the transaction price.

Variable amounts generally are determined upon our achievement of certain performance metrics, program milestones or cost targets and may be based upon customer discretion.

Variable amounts are generally determined upon our achievement of certain performance metrics, program milestones or cost targets and may be based upon customer discretion.

At contract inception, we estimate the transaction price and may include variable consideration in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

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Changes in estimates of revenues, cost of revenues or profits related to performance obligations satisfied over time are recognized in operating income in the period in which such changes are made for the inception-to-date effect of the changes.

Changes in these estimates can routinely occur over the performance period for a variety of reasons, which include:

Changes in these estimates can occur routinely over the performance period for a variety of reasons, which include:

changes in scope;

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and performance being better or worse than previously estimated.

Many of the Company's contracts recognize revenue on performance obligations using a cost input measure (cost-to-cost), which requires estimates of total costs at completion.

In cases when total expected costs exceed total estimated revenues for a performance obligation, the Company recognizes the total estimated loss in the quarter identified.

Total estimated losses are inclusive of any unexercised options that are probable of award, only if they increase the amount of the loss.

Aggregate net changes in contract estimates increased operating income by $9 million, $22 million, and $17 million for fiscal 2021, 2020, and 2019, respectively.

Aggregate net changes in contract estimates increased operating

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

income by $13 million, $9 million and $22 million for fiscal 2022, 2021 and 2020, respectively.

For additional information related to changes in estimates on contracts, including gross favorable and unfavorable adjustments as well as the impact to earnings per share, see Note 3 to the consolidated financial statements contained within this report.

Business Combinations.

We record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date, which is determined using a cost, market or income approach.

We record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date.

The excess amount of the aggregated purchase consideration paid over the fair value of the net of assets acquired and liabilities assumed is recorded as goodwill.

Acquisition date fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as measured on the acquisition date.

The fair values of assets acquired and liabilities assumed are determined using either an income, cost or market approach.

Each of these valuation methods requires significant judgment, including analysis of historical performance and estimates of future performance.

Estimates can be affected by contract performance and other factors that may cause final amounts to differ materially from original estimates.

Under the income approach, fair value is based on the present value of future cash flows to be generated over the remaining economic life of an asset or liability being measured.

This method includes estimates for projections of revenues and expenses, royalty rates, tax rates, contributory asset charges, discount rates, and tax amortization benefits.

Under the cost approach, fair value is measured by determining the replacement cost of an asset.

Under the market approach, the fair value reflects the price and other relevant information of market transactions for comparable assets, liabilities or groups of assets and liabilities.

Valuation techniques consistent with the market approach often use market multiples derived from a set of comparables.

The valuations are based on information that existed as of the acquisition date.

During the measurement period that shall not exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that we have subsequently obtained regarding facts and circumstances that existed as of the acquisition date.

Acquisition-related costs that are not part of the purchase price consideration are expensed as incurred, except for certain costs that are deferred in connection with the issuance of debt.

These costs typically include transaction-related costs, such as finder’s fees, and legal, accounting and other professional costs.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Goodwill and Intangible Assets.

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In addition, determining the carrying value of each reporting unit requires judgment and involves the assignment of assets and liabilities to the reporting units based on a systematic and rational allocation methodology.

Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information contained within our financial systems;

Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

contained within our financial systems;

whereas, other assets and liabilities may be allocated using measurable relationships or other basis for allocation.

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For information on recently issued but not yet adopted accounting pronouncements, see Note 1 to the consolidated financial statements contained within this report.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Effects of Inflation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis