What changed in this filing

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Item 9A. Controls and Procedures

2022-03-28 compared with 2021-03-26 · 382 added, 445 removed, 1199 unchanged (41% of the section changed)

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Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, completely, accurately and fairly reflect the transactions and dispositions of our assets;

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Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

As permitted by the SEC rules, management’s assessment and conclusion on the effectiveness of the Company’s internal control over financial reporting as of January 29, 2021, excludes an assessment of the internal control over financial reporting of Unisys Federal, acquired on March 13, 2020.

Unisys Federal represented 3% of the Company’s consolidated total assets, excluding the value of goodwill and intangible assets related to Unisys Federal, at January 29, 2021, and 9% and 21% of the Company’s consolidated revenues and operating income, respectively, for the fiscal year then ended.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting as of January 28, 2022 based on the framework established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Ernst & Young LLP, an independent registered public accounting firm, audited our consolidated financial statements included in this report and our internal control over financial reporting, and the firm’s report on our internal control over financial reporting are set forth below this report.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Although our management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, because of inherent limitations, our management does not expect that our internal controls over financial reporting will prevent or detect all errors and all fraud.

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In our opinion, Science Applications International Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 28, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Unisys Federal, which is included in the fiscal year 2021 consolidated financial statements of the Company and constituted 3% of the Company’s consolidated total assets, excluding the value of goodwill and intangible assets related to Unisys Federal as of January 29, 2021 and 9% and 21% of the Company’s consolidated revenues and operating income, respectively, for the fiscal year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Unisys Federal.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 28, 2022 and January 29, 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended January 28, 2022, and the related notes and our report dated March 28, 2022 expressed an unqualified opinion thereon.

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and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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No information is required in response to this item.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

No information is required in response to this item.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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O’Hara served as the head of talent acquisition at Bearingpoint.

Genter 45 Executive Vice President and General Manager, Civilian Markets Group, since 2016.

Genter is responsible for strategy, business development, and program execution for the portfolio including NASA, the FAA, Department of State, USDA, EPA, DOE, Commerce, DHS, GSA, and FTRB.

Genter 46 President, Defense and Civilian Sector, since 2016.

Genter is responsible for strategy, business development, and program execution for the portfolio including the majority of the Department of Defense, the FAA, Department of State, USDA, EPA, DOE, Commerce, DHS, GSA, and FTRB.

Genter previously served as the Senior Vice President and General Manager of Strategic Growth Markets customer group.

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Genter held various leadership and P&L roles at CGI, ultimately serving as Vice President of Consulting Services for Commercial Markets, and prior to joining CGI, held several finance and operations roles at American Management Systems.

LaRouche 55 Executive Vice President and General Manager, National Security Group, since 2019.

LaRouche is responsible for supporting a variety of Intelligence Community customers, the U.S.

Air Force, the Combatant Commands, and numerous other DoD offices and agencies.

LaRouche 56 President, National Security and Space Sector, since 2019.

LaRouche is responsible for supporting a variety of Intelligence Community customers, NASA and the U.S.

Before joining SAIC, Mr.

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Total 2,166,387 $ 72.34 5,557,369

(1) This amount includes 711,900 stock options outstanding, 1,338,518 shares issuable for other stock-based awards under the 2013 Equity Incentive Plan and 35,359 shares issuable for other stock-based awards under the 2012 Long Term Performance Plan (for assumed Engility awards, see Note 8 to the consolidated financial statements contained within this report).

(1) This amount includes 612,984 stock options outstanding and 1,553,403 shares issuable for other stock-based awards under the 2013 Equity Incentive Plan.

This amount does not include shares to be issued pursuant to purchase rights under the 2013 Employee Stock Purchase Plan.

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Lastly, this includes 1,015,764 shares of our common stock available for issuance under the 2012 Long Term Performance Plan (LTPP), see Note 8 to the consolidated financial statements contained within this report.

The shares outstanding under the LTPP relate to assumed awards from the Engility acquisition, and as of the acquisition date, January 14, 2019, the maximum number of shares available for issuance under the LTPP was 1,198,010.

The shares outstanding under the LTPP relate to assumed awards from the Engility Holdings, Inc.

acquisition, and as of the acquisition date, January 14, 2019, the maximum number of shares available for issuance under the LTPP was 1,198,010.

We expect that the number of shares actually issued under the EIP and LTPP will be significantly less than the number of total awards outstanding under the respective plans because (a) a net option exercise results in a smaller portion of the number of award shares being issued when a participant uses award shares, rather than cash, to pay the exercise price, which historically most participants have elected to do, (b) most participants historically have elected to let the Company retain award shares to pay for taxes due on the exercise of options and all participants are required to use award shares to pay for taxes upon the vesting of restricted stock or restricted stock units, (c) some participants may terminate employment with the Company before the vesting of awards resulting in awards being forfeited and (d) some participants may not exercise stock options before the expiration date for a variety of reasons, including if the exercise price exceeds the then current market price of shares.

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McFarland Director March 28, 2022

/s/ Milford W.

McGuirt Director March 28, 2022

/s/ Steven R.

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CONSOLIDATED FINANCIAL STATEMENTS Page

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( PCAOB ID:

Consolidated Statements of Income

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We have audited the accompanying consolidated balance sheets of Science Applications International Corporation (the Company) as of January 28, 2022 and January 29, 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended January 28, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at January 29, 2021 and January 30, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2021, in conformity with U.S.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 28, 2022 and January 29, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2022, in conformity with U.S.

generally accepted accounting principles.

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As described in Note 1 to the consolidated financial statements, recognizing revenue on long-term contracts involves significant judgments and estimates.

Changes in estimates can routinely occur due to changes in the estimated transaction price or estimated costs to completion and for a variety of reasons including changes in scope, changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs, and changes in the estimated transaction price, such as variable amounts for incentive or award fees.

Changes in estimates (as quantified in Note 3 to the consolidated financial statements) can routinely occur due to changes in the estimated transaction price or estimated costs to completion and for a variety of reasons including changes in scope, changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs, and changes in the estimated transaction price, such as variable amounts for incentive or award fees.

A significant change in an estimate on one or more contracts could have a material effect on the Company’s results of operations.

Auditing the Company’s accounting for revenue using the cost input measure of progress was complex due to the judgment involved in estimating the transaction price (which may include variable consideration) and total estimated costs at completion for these contracts.

Auditing the Company’s accounting for revenue using the cost input measure of progress was complex due to the judgment involved in estimating the transaction price and total estimated costs at completion for these contracts.

The transaction price may include variable consideration.

Additionally, management estimates total costs at completion by making assumptions regarding the complexity of the work to be performed, the schedule and associated tasks, labor productivity and availability, increases in wages and prices of materials, execution by subcontractors, overhead cost rates, and other variables.

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During the year ended January 28, 2022, the Company has recorded additional unrecognized tax benefits of $12 million, resulting in a total liability of $78 million.

Auditing these reserves was challenging due to the judgment in applying the tax law and inherent uncertainty involved in predicting the ultimate resolution of the matters with the taxing authority.

Auditing these reserves was challenging due to the significant judgment in applying the tax law and inherent uncertainty involved in predicting the ultimate resolution of the matters with the taxing authority.

Changes to the liability resulting from ongoing or future audits by the taxing authorities could have a material effect on the Company’s results of operations.

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We performed audit procedures that included, among others, evaluating communications with relevant taxing authorities, evaluating whether management appropriately considered new information that could significantly change the recognition, measurement, or disclosure of the unrecognized tax benefits, and testing the assumptions used by management in estimating the valuation of any associated liability.

Valuation of acquired intangible assets

Description of the Matter As discussed in Notes 1 and 4 to the consolidated financial statements, the Company acquired Unisys Federal on March 13, 2020.

The Company’s accounting for the acquisition included determining the fair value of the intangible assets acquired, which primarily included customer relationships and backlog.

The Company recognized acquired intangible assets of $567 million, using income approach methodologies to determine the fair value.

Auditing the Company’s accounting for the acquired intangible assets was challenging due to the estimation required in management’s determination of the fair value of the intangible assets.

The estimation was primarily due to the sensitivity of the fair values to underlying assumptions including discount rates and projections of revenues and expenses, which include assumptions around contract renewals and recompetes.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for accounting for acquired intangible assets.

For example, we tested controls over management’s review of the valuation of intangible assets, including the review of the valuation model and significant assumptions used in the valuation.

To test the fair value of the acquired intangible assets, our audit procedures included, among others, evaluating the Company’s use of valuation methodologies, evaluating the projected revenues and expenses used in the valuation, and testing the completeness and accuracy of underlying data.

We involved our valuation specialists to assist in testing the significant assumptions used to value the acquired intangible asset.

For example, we compared the significant assumptions to current industry, market, and economic trends, historical results of the acquired businesses, and to other relevant factors.

We also performed sensitivity analyses of the significant assumptions to evaluate the change in fair value resulting from changes in the assumptions.

/s/ Ernst & Young LLP

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2022 January 29,

2020 February 1,

2021 January 31,

(in millions, except per share amounts)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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

(in millions)

Net income $ 279 $ 211 $ 229

Other comprehensive (loss) income, net of tax:

Net unrealized loss on derivative instruments ( 19 ) ( 53 ) ( 18 )

Other comprehensive income (loss), net of tax:

Net unrealized gain (loss) on derivative instruments 48 ( 19 ) ( 53 )

Defined benefit obligation adjustment 4 2 ( 5 )

Total other comprehensive (loss) income, net of tax ( 17 ) ( 58 ) ( 18 )

Total other comprehensive income (loss), net of tax 52 ( 17 ) ( 58 )

Comprehensive income $ 331 $ 194 $ 171

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Operating lease liabilities 192 205

Deferred income taxes 43 2

Other long-term liabilities 160 242

Commitments and contingencies (Note 17)

Common stock, $ 0.0001 par value, 1 billion shares authorized, 58 million shares issued and outstanding as of January 29, 2021 and January 31, 2020

Common stock, $ 0.0001 par value, 1 billion shares authorized, 56 million shares and 58 million shares issued and outstanding as of January 28, 2022 and January 29, 2021, respectively

Additional paid-in capital 838 1,004

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comprehensive

income (loss)

Non-Controlling Interest Total

loss Non-controlling Interest Total

(in millions)

Balance at February 1, 2019 60 $ 1,132 $ 367 $ ( 14 ) $ 14 $ 1,499

Cumulative impact from adopting ASC 606 on February 3, 2018 — — 3 — — 3

Net income attributable to common stockholders — — 137 — — 137

Net income — — 226 — 3 229

Issuances of stock — 12 — — — 12

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Cash dividends of $1.48 per share — — ( 87 ) — — ( 87 )

— — ( 54 ) — — ( 54 )

Stock-based compensation — 21 — — — 21

Repurchases of stock ( 2 ) ( 182 ) — — — ( 182 )

Stock issued for the Engility acquisition 17 1,084 — — — 1,084

Acquired non-controlling interest — — — — 13 13

Contribution from non-controlling interest — — — — 1 1

Balance at February 1, 2019 60 1,132 367 ( 14 ) 14 1,499

Distributions to non-controlling interest — — — — ( 7 ) ( 7 )

Balance at January 31, 2020 58 983 506 ( 72 ) 10 1,427

Net income — — 209 — 2 211

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Cash dividends of $1.48 per share — — ( 88 ) — — ( 88 )

— — ( 87 ) — — ( 87 )

Stock-based compensation — 30 — — — 30

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Issuances of stock 1 16 — — — 16

Other comprehensive loss, net of tax — — — ( 17 ) — ( 17 )

Other comprehensive income, net of tax — — — 52 — 52

Cash dividends of $1.48 per share — — ( 86 ) — — ( 86 )

— — ( 88 ) — — ( 88 )

Stock-based compensation — 32 — — — 32

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2022 January 29,

2020 February 1,

2021 January 31,

(in millions)

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Stock-based compensation expense 46 42 37

Loss on divestiture 10 — —

Impairment of right of use assets 2 5 —

Loss on extinguishment of debt — — 4

Provisions for inventory and deferred contract costs — — 36

(Gain) loss on divestitures ( 2 ) 10 —

Impairment of assets 18 2 5

Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of the acquisitions:

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Cash paid for acquisitions, net of cash acquired ( 255 ) ( 1,202 ) —

Proceeds from divestiture 17 — —

Proceeds from divestitures 8 17 —

Other ( 6 ) ( 3 ) ( 5 )

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Debt issuance costs — ( 27 ) —

Equity issuance costs — — ( 2 )

(Distributions to) contributions from non-controlling interest ( 2 ) ( 7 ) 1

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

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

Distributions to non-controlling interest ( 2 ) ( 2 ) ( 7 )

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

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

Cash, cash equivalents and restricted cash at beginning of period 190 202 246

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Increase (decrease) in accrued plan share repurchases $ 2 $ 1 $ ( 1 )

(Decrease) increase in accrued plant, property, and equipment $ ( 1 ) $ 3 $ ( 3 )

Fair value of equity consideration paid for acquisition $ — $ — $ 1,108

(Decrease) increase in accrued property, plant, and equipment $ ( 2 ) $ ( 1 ) $ 3

See accompanying notes to consolidated financial statements.

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The Company provides engineering and integration services for large, complex projects and offers a broad range of services with a targeted emphasis on higher-end, differentiated technology services.

The Company is organized as a matrix comprised of three customer facing operating segments supported by a strategy, growth and innovation organization.

Each of the Company’s three customer facing operating segments is focused on providing the Company’s comprehensive technical, engineering and enterprise IT service offerings to one or more agencies of the U.S federal government.

The Company's operating segments are aggregated into one reportable segment for financial reporting purposes, see Note 16.

The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization.

Each of the Company’s two customer facing operating sectors is focused on providing the Company’s comprehensive technical, engineering and enterprise IT service offerings to one or more agencies of the U.S federal government.

The Company's operating sectors are aggregated into one reportable segment for financial reporting purposes, see Note 16.

Acquisitions.

On July 2, 2021, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company.

On May 3, 2021, the Company completed the acquisition of Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data.

On March 13, 2020, the Company completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation, which enhances our capabilities in government priority areas, expands our portfolio of intellectual property and technology-driven offerings, and increases our access to current and new customers.

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

(collectively with its consolidated subsidiaries, "Engility"), which provides increased customer and market access, as well as increased scale in strategic business areas of national interest, such as defense, federal civilian agencies, intelligence and space.

See Note 4 for additional information.

Principles of Consolidation and Basis of Presentation

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The Company holds a 50.1 % majority interest in Forfeiture Support Associates J.V.

The results of operations of FSA are included in the Company's consolidated statements of income and comprehensive income.

The results of operations of FSA are included in the Company's consolidated statements of income and comprehensive income and statements of cash flows.

The non-controlling interest reported on the consolidated balance sheets represents the portion of FSA’s equity that is attributable to the non-controlling interest.

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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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company provides technical, engineering and enterprise IT services under long-term service arrangements primarily with the U.S.

government, including subcontracts with other contractors engaged in work for the U.S.

The Company also serves a number of state and local governments, foreign governments and U.S.

commercial customers.

The Company provides services under various contract types, including firm-fixed price (FFP), time-and-materials (T&M), cost-plus-fixed-fee, cost-plus-award-fee and cost-plus-incentive-fee contracts.

Our service arrangements typically involve an annual base period of performance followed by renewal option periods that upon exercise are generally accounted for as separate contracts.

To determine the proper revenue recognition, the Company first evaluates whether we have a duly approved and enforceable contract with a customer, in which rights of parties and payment terms are identified and collectability is probable.

We also evaluate whether two or more contracts should be combined and accounted for as a single contract and whether modifications to existing contracts should be accounted for as part of the original contract or as a separate contract.

Contract modifications that create new enforceable rights and obligations are accounted for prospectively.

Contract modifications that do not add distinct goods or services are accounted for through cumulative catch-up adjustments.

The Company recognizes revenue when, or as, we satisfy our performance obligations under a contract.

A performance obligation is the unit of account for revenue recognition and refers to a promise in a contract to transfer a distinct service or good to the customer.

The majority of the Company’s contracts contain a single performance obligation involving a significant integration of various activities that are performed together to deliver a combined service or solution.

Performance obligations may be satisfied over time or at a point in time, but the majority of the Company’s performance obligations are satisfied over time.

The Company selects the appropriate measure of progress for revenue recognition based on the nature of the performance obligation, contract type and other pertinent contract terms.

Over time performance obligations may involve a series of recurring services, such as network operations and maintenance, operation and program support services, IT outsourcing services, and other IT arrangements where the Company is standing ready to provide support, when-and-if needed.

Such performance obligations are satisfied over time because the customer simultaneously receives and consumes the benefits of our performance as services are provided.

Alternatively, over time performance obligations may involve the completion of a contract deliverable.

Examples include systems integration, network engineering, network design, and engineering and build services.

Deliverable-based performance obligations are satisfied over time when the Company’s performance creates or enhances an asset that is controlled by the customer, or when the Company’s performance creates an asset that is customized to the customer’s specifications and the Company has a right to payment, including profit, for work performed to date.

For recurring services performance obligations, the Company measures progress using either a cost input measure (cost-to-cost), a time-elapsed output measure, or the as-invoiced practical expedient.

A cost input measure typically is applied to the Company’s cost-reimbursable contracts.

Revenue is recognized based on the ratio of costs incurred to total estimated costs at completion.

Award or incentive fees are allocated to the distinct periods to which they relate.

For fixed-price contracts, a time-elapsed output measure is applied to fixed consideration, such that revenue is recognized ratably over the period of performance.

Where fixed-price contracts also provide for reimbursement of certain costs, such as travel or other direct costs, consideration may be attributed only to a distinct subset of time within the performance period.

The Company’s time-and-material and fixed price-level of effort contracts generally qualify for the as-invoiced practical expedient.

Revenue is recognized in the amount to which the Company has a contractual right to invoice.

For deliverable-based performance obligations satisfied over time, the Company recognizes revenue using a cost input measure of progress (cost-to-cost), regardless of contract type.

Revenue is recognized based on the ratio of costs incurred to total estimated costs at completion, except for certain contracts for which the costs associated with significant materials or hardware procurements are excluded from the measure of progress and revenue is recognized on an adjusted cost-to-cost basis.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For performance obligations in which the Company does not transfer control over time, we recognize revenue at the point-in-time when the customer obtains control of the related asset, usually at the time of shipment or upon delivery.

The Company accrues for shipping and handling costs occurring after the point-in-time control transfers to the customer.

Recognizing revenue on long-term contracts involves significant estimates and judgments.

The transaction price is the estimated amount of consideration we expect to receive for performance under our contracts.

Contract terms may include variable consideration, such as reimbursable costs, award and incentive fees, usage-based fees, service-level penalties, performance bonuses, or other provisions that can either increase or decrease the transaction price.

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

When making our estimates, the Company considers the customer, contract terms, the complexity of the work and related risks, the extent of customer discretion, historical experience and the potential of a significant reversal of revenue.

The Company includes 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.

Estimating costs at completion is complex due to the nature of the services being performed and the length of certain contracts.

Contract costs generally include direct costs, such as labor, subcontract costs and materials, and indirect costs identifiable with or allocable to a specific contract.

Management must make assumptions regarding the complexity of the work to be performed, the schedule and associated tasks, labor productivity and availability, increases in wages and prices of materials, execution by our subcontractors, overhead cost rates, and other variables.

Contract costs incurred for U.S.

government contracts, including indirect costs, are subject to audit and adjustment by the Defense Contract Audit Agency (DCAA).

The Company provides for anticipated losses on contracts with the U.S.

government by recording an expense for the total expected loss during the period in which the losses are first determined.

For contracts with multiple performance obligations, the Company allocates transaction price to each performance obligation based on the relative standalone selling price of each distinct performance obligation within the contract.

Since the Company typically provides customized services and solutions that are specific to a single customer’s requirements, standalone selling price is most often estimated based on expected costs plus a reasonable profit margin.

Changes in Estimates on Contracts

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 occur routinely over the performance period for a variety of reasons, which include:

changes in scope;

changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs;

changes in the estimated transaction price, such as variable amounts for incentive or award fees;

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.

Contract Balances

The timing of revenue recognition may differ from the timing of billing and cash receipts from customers.

Amounts are invoiced as work progresses, typically biweekly or monthly in arrears, or upon achievement of contractual milestones.

We record a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance of recognizing revenue.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time.

Contract assets include unbillable receivables and contract retentions, but exclude billed and billable receivables.

Billed and billable receivables are rights to consideration, which are

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

unconditional other than to the passage of time.

Contract liabilities include customer advances, billings in excess of revenues and deferred revenue.

Contract assets and liabilities are recorded net on a contract-by-contract basis and are generally classified as current based on our contract operating cycle.

Deferred revenue attributable to long-term contract material renewal options may be classified as non-current when the option renewal period will not occur within one year of the balance sheet date.

Deferred Costs

Certain eligible costs, such as costs to obtain and costs to fulfill our service contracts, are capitalized when the costs relate directly to the contract, are expected to be recovered, and generate or enhance resources to be used in satisfying the performance obligation.

These costs primarily consist of commissions, transition and set-up costs.

Capitalized costs to obtain and fulfill a contract are amortized on a straight-line basis over the expected period of benefit, which generally includes the contract base period and anticipated renewals.

The Company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs.

The carrying amount of the asset is compared to the remaining amount of consideration the Company expects to receive for the services to which the asset relates, less the costs that relate directly to providing those services that have not yet been recognized.

If the carrying amount is not recoverable, an impairment loss is recognized.

Costs Allocated to Contracts

The Company classifies indirect costs as overhead (included in cost of revenues) or general and administrative expenses in the same manner as such costs are defined in the Company’s Disclosure Statements under U.S.

government Cost Accounting Standards (CAS).

Stock-based Compensation

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If it is determined that the Company would be able to realize the deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize the deferred income tax assets in the future as currently recorded, an adjustment would be made to the valuation allowance, which would decrease or increase the provision for income taxes.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has also recognized liabilities for uncertainty in income taxes when it is more likely than not that a tax position will not be sustained on examination and settlement with various taxing authorities.

1 unchanged sentence

Deferred tax assets and liabilities are netted by taxable jurisdiction and classified as noncurrent on the consolidated balance sheets.

Costs Allocated to Contracts

government Cost Accounting Standards (CAS).

Cash, Cash Equivalents and Restricted Cash

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Restricted cash will be used primarily to fund future payment obligations related to deferred compensation plans and our voluntary disability insurance plan in California.

The following table

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets for the periods presented:

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets for the periods presented:

January 28, 2022 January 29, 2021

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The Company evaluates current inventory against historical and planned usage to estimate the appropriate provision for obsolete inventory.

The Company recognized a $ 26 million provision for inventory within cost of revenues during fiscal 2019 related to firm purchase commitments on a firm-fixed price program.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Acquisition and Integration Costs

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

Integration-related costs typically include strategic consulting services, employee related costs, such as severance and accelerated vesting of assumed stock awards, costs to integrate information technology infrastructure, enterprise planning systems, processes, and other non-recurring integration-related costs.

Integration-related costs represent costs directly related to combining the Company and its acquired businesses.

Integration-related costs typically include strategic consulting services, facility consolidation, employee related costs, such as retention and severance, costs to integrate information technology infrastructure, enterprise planning systems, processes, and other non-recurring integration-related costs.

Acquisition and integration costs are presented together as acquisition and integration costs on the consolidated statements of income.

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2022 January 29,

2020 February 1,

2021 January 31,

(in millions)

Acquisition (1)

$ 20 $ 2 $ 31

Integration (2)(3)

Total acquisition and integration costs $ 56 $ 54 $ 48

(1) Acquisition expenses recognized for the twelve months ended January 29, 2021, and January 31, 2020 are related to the acquisition of Unisys Federal.

Acquisition expenses recognized for the twelve months ended February 1, 2019 are related to the acquisition of Engility.

(1) Acquisition expenses recognized for fiscal 2022 were related to the acquisitions of Halfaker and Koverse.

Acquisition expenses recognized for fiscal 2021 and 2020 were related to the acquisition of Unisys Federal.

See Note 4 for additional information related to the acquisitions.

(2) Integration expenses for the twelve months ended January 29, 2021, include an $ 11 million loss associated with the divestiture of non-strategic international operations.

(3) Includes $ 6 million, $ 16 million, and $ 29 million of restructuring costs for the year ended January 29, 2021, January 31, 2020, and February 1, 2019, respectively, and $ 1 million and $ 5 million of impairment of right of use lease assets for fiscal 2021 and fiscal 2020, respectively.

(2) Integration expenses for fiscal 2021 include an $ 11 million loss associated with the sale of certain non-strategic international operations.

(3) Integration expenses include $ 6 million and $ 16 million of restructuring costs for fiscal 2021 and 2020, respectively, and $ 17 million, $ 1 million and $ 5 million for the impairment of assets for fiscal 2022, 2021 and 2020, respectively.

See Note 5 for additional information related to restructuring costs and impairments.

On July 3, 2020, in connection with the integration of Engility, the Company sold certain non-strategic international operations for $ 22 million and recognized a loss on the divestiture of $ 11 million, including $ 1 million of transaction costs.

The loss is included in acquisition and integration costs on the consolidated statements of income.

The Company has received $ 17 million in cash proceeds through January 29, 2021, with the remaining balance due in installments through October 2021.

Goodwill and Intangible Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed.

Goodwill and indefinite-lived intangible assets are not amortized, but rather are tested for potential impairment annually at the beginning of the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill and indefinite-lived intangible assets are not amortized, but rather are tested for potential impairment annually at the beginning of the Company's fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

There were no impairments during the periods presented.

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The fair value of the Company’s reporting units are determined using either a market approach, income approach, or a combination of both, which involves the use of estimates and assumptions, including projected future operating results and cash flows, the cost of capital, and financial measures derived from observable market data of comparable public companies.

If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives.

Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.

Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Impairment of Long-lived Assets

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When the carrying amount of the asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of its estimated future cash flows.

In circumstances in which the Company has the ability and intent to sublease an exited facility, the Company performs an impairment test of the asset group (mainly consisting of right of use lease assets and leasehold improvements) on the earlier of the cease use date or sublease inception date by comparing the carrying amount of the asset group to the undiscounted cash flows associated with the asset group (mainly sublease income).

When the carrying amount of the asset group exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset group’s carrying amount to its estimated fair value based on the present value of estimated future cash flows.

In circumstances in which the Company does not have the ability or intent to sublease an exited facility, the Company adjusts the estimated useful life of the facility related assets to end on the cease use date and recognizes accelerated depreciation and amortization.

Commitments and Contingencies

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In addition, legal fees are accrued for cases where a loss is probable and the related fees can be reasonably estimated.

Significant judgment is required to determine both probability and the estimated amount of loss.

Significant judgment is required to determine both the probability and the estimated amount of loss.

The Company reviews these accruals quarterly and adjusts the accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information.

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If these assumptions differ materially from actual results, the Company's obligations under the pension and defined benefit plans could also differ materially, potentially requiring the Company to record an additional liability.

The Company's pension and defined benefit plan liabilities are developed from actuarial valuations, which are performed each year.

Marketable Securities

Investments in marketable securities consist of equity securities, which are recorded at fair value using observable inputs such as quoted prices in active markets (Level 1).

As of January 29, 2021 and January 31, 2020, the fair value of our investments total $ 27 million and was included in other assets on the consolidated balance sheets.

The Company's investments are primarily held in a custodial account, which includes investments to fund our deferred compensation plan liabilities.

The Company's pension and defined benefit plan liabilities are developed from actuarial valuations performed each year.

Fair Value Measurements

The Company utilizes fair value measurement guidance prescribed by GAAP to value its financial instruments.

The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

The accounting standard for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

observable inputs such as quoted prices in active markets (Level 1);

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and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3).

The carrying amounts of cash and cash equivalents, receivables, accounts payable and other amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts.

The carrying value of the Company’s outstanding debt obligations approximates its fair value.

The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The carrying value of the Company’s outstanding debt obligations approximates its fair value, which is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

Non-financial assets acquired and liabilities assumed in a business combination were measured at fair value using income, market and cost valuation methodologies.

See Note 4 for additional information.

The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement.

Marketable Securities

Investments in marketable securities consist of equity securities, which are recorded at fair value using observable inputs such as quoted prices in active markets (Level 1).

As of January 28, 2022 and January 29, 2021, the fair value of our investments total $ 28 million and $ 27 million, respectively, and was included in other assets on the consolidated balance sheets.

The Company's investments are primarily held in a custodial account, which includes investments to fund our deferred compensation plan liabilities.

Derivative Instruments Designated as Cash Flow Hedges

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Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and fair value is calculated using a standard pricing model for interest rate swaps with contractual terms for maturities, amortization and interest rates.

The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and their fair value is calculated using a standard pricing model for interest rate swaps with contractual terms for maturities, amortization and interest rates.

Level 2, or market observable inputs (such as yield and credit curves), are used within the standard pricing models in order to determine fair value.

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Accounting Standards Updates

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires entities to use a forward-looking model to estimate credit losses over the contractual term of financial assets, including short-term trade receivables and contract assets.

The Company adopted ASU 2016-13 in the first quarter of fiscal 2021 using the modified retrospective approach.

The adoption did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software ( Subtopic 350-40 ).

During the third quarter of fiscal 2020, the Company early adopted ASU 2018-15 and applied its provisions prospectively.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases ( Topic 842 ), which supersedes the existing lease accounting standards ( Topic 840 ).

The Company adopted the standard using the optional transition method.

Accordingly, the prior periods were not recast, and all prior period amounts disclosed are presented under Accounting Standards Codification (ASC 840).

As a result of the adoption of the new standard, on February 2, 2019, the Company recognized approximately $ 169 million of right of use operating assets and $ 184 million of operating lease liabilities, of which $ 140 million was noncurrent.

The adoption did not have a material impact on retained earnings, the consolidated statements of income, or the consolidated statements of cash flows.

In August 2018, the FASB issued ASU No.

2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans , which modifies the disclosure requirements for the defined benefit pension plans and other postretirement plans.

The Company early adopted the provisions of the standard in the fourth quarter of fiscal 2019, which did not result in a material impact to its consolidated financial statements.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606) , which supersedes the revenue recognition requirements and some cost guidance included in the ASC.

The Company adopted the standard on February 3, 2018, using the modified retrospective method.

Under this method, the Company recognized the cumulative effect of adoption as an adjustment to its opening balance of retained earnings on February 3, 2018.

Prior year periods were not retrospectively adjusted.

The net impact to opening retained earnings as a result of the adoption was $ 3 million, attributable primarily to the change in accounting for programs previously accounted for using the efforts-expended method of percentage of completion.

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured at the acquisition date in accordance with Topic 606 as if the acquirer had originated the contracts.

ASU 2021-08 becomes effective for the Company in the first quarter of fiscal 2024 and is required to be adopted on a prospective basis with early adoption permitted.

The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedge Activities , which simplifies the application of hedge accounting and eliminates the requirement to separately measure and report hedge ineffectiveness.

The Company early adopted the provisions of the standard in the first quarter of fiscal 2019.

The adoption did not have a material impact on the Company's financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued due to reference rate reform.

The Company adopted this standard on a prospective basis in the fourth quarter of fiscal 2021, and the adoption did not have a material impact on the Company’s financial statements.

The Company’s credit facility, derivative instruments and Master Accounts Receivable Purchase Agreement (MARPA Facility) reference LIBOR-based rates.

Although the Company does not expect the transition from LIBOR to have a material impact on its financial statements, it will continue to monitor the impact until transition is completed.

Other Accounting Standards Updates effective after January 28, 2022 are not expected to have a material effect on the Company’s financial statements.

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2022 January 29,

2020 February 1,

2021 January 31,

(in millions)

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Diluted weighted-average number of shares outstanding 58.1 58.7 59.0

The following stock-based awards were excluded from the weighted-average number of shares outstanding used to compute diluted EPS:

The following antidilutive stock-based awards were excluded from the weighted-average number of shares outstanding used to compute diluted EPS:

2022 January 29,

2020 February 1,

2021 January 31,

(in millions)

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The Company has not made any material purchases of common stock other than in connection with established share repurchase plans.

On March 27, 2019, the number of shares of our common stock that may be repurchased under our existing repurchase plan, previously announced in October 2013, was increased by approximately 4.6 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 16.4 million shares.

On March 27, 2019, the number of shares of our common stock that may be repurchased under our existing repurchase plan was increased by approximately 4.6 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 16.4 million shares.

As of January 28, 2022, the Company has repurchased approximately 14.4 million shares of common stock under the plan.

The Company declared and paid quarterly dividends every quarter for the years presented, increasing from $ 0.31 to $ 0.37 per share in the first quarter of fiscal 2020.

Total dividends declared and paid were $ 1.48 per share during fiscal 2021 and fiscal 2020 and $ 1.24 per share during fiscal 2019.

Subsequent to the end of fiscal 2021, on March 23, 2021, the Company’s Board of Directors declared a cash dividend of $ 0.37 per share of the Company’s common stock payable on April 30, 2021 to stockholders of record on April 16, 2021.

The Company declared and paid quarterly dividends of $ 0.37 per share every quarter for the years presented.

Total dividends declared and paid were $ 1.48 per share during fiscal 2022, 2021 and 2020.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the end of fiscal 2022, on March 23, 2022, the Company’s Board of Directors declared a cash dividend of $ 0.37 per share of the Company’s common stock payable on April 29, 2022 to stockholders of record on April 14, 2022.

Note 3— Revenues:

Revenue Recognition

The Company provides technical, engineering and enterprise IT services under long-term service arrangements primarily with the U.S.

government including subcontracts with other contractors engaged in work for the U.S.

The Company also serves a number of state and local governments, foreign governments and U.S.

commercial customers.

The Company provides services under various contract types, including firm-fixed price (FFP), time-and-materials (T&M), cost-plus-fixed-fee, cost-plus-award-fee and cost-plus-incentive-fee contracts.

Our service arrangements typically involve an annual base period of performance followed by renewal periods that are accounted for as separate contracts upon each exercise.