Science Applications International Corp 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of January 28, 2022, and our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2022 that materially affected, or are likely to materially affect, our internal control over financial reporting. Management’s Report On Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. 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. 34 Table of Contents 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; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with GAAP; (iii) provide reasonable assurance that our receipts and expenditures are made only in accordance with the authorization of our management and directors; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements. Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified. 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. Our management has assessed in its evaluation the effectiveness of our internal control over financial reporting as of January 28, 2022 and has concluded that our internal control over financial reporting was effective. 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. 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. Also, projections of any evaluation of effectiveness in such assessment to future periods are subject to the risk that controls may be inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 35 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Science Applications International Corporation Opinion on Internal Control Over Financial Reporting We have audited Science Applications International Corporation's internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). 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. 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. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tysons, Virginia March 28, 2022 36 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Item 9B. Other Information No information is required in response to this item. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections No information is required in response to this item. 37 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Part III Item 10. Directors, Executive Officers, and Corporate Governance Our executive officers as of March 28, 2022, are listed below, along with their ages on that date, positions and offices held and business experience during at least the past five years. All such persons have been elected to serve until their successors are elected and qualified or until their earlier resignation or removal. Name of officer Age Position(s) with the Company and prior business experience Nazzic S. Keene 61 Chief Executive Officer (CEO) since July 2019. Prior to this role Ms. Keene served as Chief Operating Officer (COO) from June 2017 to July 2019, as Sector President, Global Markets and Missions from September 2013 to June 2017, and Leidos Holding Inc. (formerly SAIC, Inc.) Senior Vice President for Corporate Strategy and Planning from August 2012 to September 2013. Prior to joining us, Ms. Keene was the Senior Vice President and General Manager for U.S. Enterprise Markets at CGI Group, Inc. Steven G. Mahon 60 General Counsel and Corporate Secretary since November 2015. Mr. Mahon previously served as General Counsel, Chief Compliance Officer and Corporate Secretary at MTS Systems Corporation (MTS) from October 2011 to November 2015. Prior to MTS, Mr. Mahon was Assistant General Counsel for Alliant Techsystems Inc. and is a retired Colonel from the U.S. Army where he served in the U.S. Judge Advocate’s General’s Corps, practicing law in a variety of roles on active duty and in the U.S. Army Reserve. Prabu Natarajan 51 Chief Financial Officer (CFO) since January 2021. Prior to joining us, Mr. Natarajan was Vice President of Financial Planning and Merger and Acquisition for Northrop Grumman from January 2016 to December 2020. Mr. Natarajan joined Northrop Grumman in August 2011 and was also Vice President of Business Management and CFO for the Information Systems Sector from August 2014 to January 2016 and Vice President, Treasurer and Taxes from August 2011 to August 2014. Mr. Natarajan has held positions at The AES Corporation and PricewaterhouseCoopers LLP. Michelle A. O'Hara 46 Chief Human Resources Officer since October 2019. Prior to this role, Ms. O’Hara served as Senior Vice President for Human Resources, after serving as head of talent strategy, total rewards, learning and development, diversity, executive compensation, and talent acquisition. Prior to joining SAIC, Ms. O’Hara served as the head of talent acquisition at Bearingpoint. Robert S. Genter 46 President, Defense and Civilian Sector, since 2016. Mr. 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. Mr. Genter previously served as the Senior Vice President and General Manager of Strategic Growth Markets customer group. From 2004 to 2013, Mr. 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. Michael W. LaRouche 56 President, National Security and Space Sector, since 2019. Mr. LaRouche is responsible for supporting a variety of Intelligence Community customers, NASA and the U.S. Air Force. Before joining SAIC, Mr. LaRouche led multiple large business units at Raytheon, where he served as Vice President for 11 years. Earlier in his career, LaRouche served in leadership positions with Lockheed Martin and Hughes. For additional information required by Item 10 with respect to executive officers and directors, including audit committee and audit committee financial experts, procedures by which stockholders may recommend nominees to the Board of Directors, and compliance with Section 16(a) of the Securities Exchange Act of 1934, see the information set forth under the captions “Proposal 1—Election of Directors,” “Corporate Governance” and “Other Information” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. 38 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION We have adopted a code of conduct, which describes our standards for protecting SAIC and customer assets, fostering a safe and healthy work environment, dealing fairly with customers and others, conducting international business properly, reporting misconduct and protecting employees from retaliation. This code applies to all executive officers and employees and forms the foundation of our corporate policies and procedures designed to promote ethical behavior in all aspects of our business. To obtain copies of the Code of Conduct, visit our website at www.saic.com and click on the link titled “Corporate Governance” and then “Code of Conduct.” We intend to post on our website any material changes to or waivers from our code of business ethics. The information on our website is not incorporated by reference into and is not a part of this report. Item 11. Executive Compensation For information required by Item 11 with respect to executive compensation, see the information set forth under the captions “Compensation Discussion and Analysis,” “Executive Compensation” and “Corporate Governance” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. For information required by Item 11 with respect to compensation committee interlocks and insider participation, see the information set forth under the caption “Corporate Governance” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters For information required by Item 12 with respect to the security ownership of certain beneficial owners and management, see the information set forth under the caption “Other Information” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. We currently maintain four shareholder-approved equity compensation plans that issue stock-based awards including the 2013 Equity Incentive Plan, the Management Stock Compensation Plan, the 2013 Employee Stock Purchase Plan and the 2012 Long Term Performance Plan. For summaries of these plans, see Note 8 to the consolidated financial statements contained within this report. 39 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION The following table provides the number of shares of our common stock to be issued, the weighted-average exercise price of the outstanding stock options and the number of shares remaining for future award grants as of January 28, 2022: Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3) (a) (b) (c) Equity compensation plans approved by security holders 2,166,387 $ 72.34 5,557,369 Equity compensation plans not approved by security holders — — — Total 2,166,387 $ 72.34 5,557,369 (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. (2) Does not include shares to be issued for stock-based awards, other than stock options, which will not require any payment upon issuance of those shares. (3) Includes 2,514,092 shares of our common stock available for issuance under the 2013 Employee Stock Purchase Plan (ESPP). The maximum number of shares initially available for issuance under the ESPP was 1 million. The ESPP provides for an automatic increase to the share reserve on the first day of each fiscal year beginning on February 1, 2014 in an amount equal to the lesser of (i) 1 million shares, (ii) two percent of the number of shares of our common stock outstanding on the last day of the immediately preceding fiscal year or (iii) a number determined by the Compensation Committee of the Board of Directors. The amount authorized for issuance under the ESPP increased 500,000, 916,198 and 973,477 during fiscal 2017, 2016 and 2015 respectively. There was no increase to the amount authorized for issuance under the ESPP during fiscal 2018 - 2022. In addition, this includes 2,027,513 shares of our common stock available for issuance under the 2013 Equity Incentive Plan (EIP). The maximum number of shares initially available for issuance under the EIP was 5.7 million, which was increased by 2.8 million per the amended and restated 2013 Equity Incentive Plan, adopted June 4, 2014, amounting to a total authorized for issuance of 8.5 million. 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 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. Item 13. Certain Relationships and Related Transactions, and Director Independence For information required by Item 13 with respect to certain relationships and related transactions and the independence of directors and nominees, see the information set forth under the caption “Corporate Governance” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. Item 14. Principal Accounting Fees and Services For information required by Item 14 with respect to principal accounting fees and services, see the information set forth under the caption “Audit Matters” in the 2022 Definitive Proxy Statement, which information is incorporated by reference into this report. 40 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Part IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of the report 1. Financial Statements Our consolidated financial statements are attached hereto and listed on the Index to Consolidated Financial Statements set forth on page F-1 of this report. 2. Financial Statement Schedules Financial statement schedules are omitted because they are not applicable or the required information is shown in our consolidated financial statements or the notes thereto. 3. Exhibits See Exhibit Index at the end of this report. Item 16. Form 10-K Summary None. 41 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Science Applications International Corporation By /s/ Prabu Natarajan Prabu Natarajan Chief Financial Officer Dated: March 28, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Nazzic S. Keene Principal Executive Officer and Director March 28, 2022 Nazzic S. Keene /s/ Prabu Natarajan Principal Financial Officer and Principal Accounting Officer March 28, 2022 Prabu Natarajan /s/ Donna S. Morea Chair of the Board March 28, 2022 Donna S. Morea /s/ Robert A. Bedingfield Director March 28, 2022 Robert A. Bedingfield /s/ Carol A. Goode Director March 28, 2022 Carol A. Goode /s/ Garth N. Graham Director March 28, 2022 Garth N. Graham /s/ John J. Hamre Director March 28, 2022 John J. Hamre /s/ Yvette M. Kanouff Director March 28, 2022 Yvette M. Kanouff /s/ Timothy J. Mayopoulos Director March 28, 2022 Timothy J. Mayopoulos /s/ Katharina G. McFarland Director March 28, 2022 Katharina G. McFarland /s/ Milford W. McGuirt Director March 28, 2022 Milford W. McGuirt /s/ Steven R. Shane Director March 28, 2022 Steven R. Shane 42 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ( PCAOB ID: 42 ) F- 2 Consolidated Statements of Income F- 5 Consolidated Statements of Comprehensive Income F- 6 Consolidated Balance Sheets F- 7 Consolidated Statements of Equity F- 8 Consolidated Statements of Cash Flows F- 9 Notes to the Consolidated Financial Statements F- 10 Note 1—Business Overview and Summary of Significant Accounting Policies F- 10 Note 2—Earnings Per Share, Share Repurchases and Dividends F- 18 Note 3—Revenues F- 19 Note 4—Acquisitions F- 21 Note 5—Restructuring and Impairment F- 23 Note 6—Goodwill and Intangible Assets F- 24 Note 7—Property, Plant, and Equipment F- 25 Note 8—Stock-Based Compensation F- 25 Note 9—Retirement Plans F- 29 Note 10—Income Taxes F- 33 Note 11—Debt Obligations F- 35 Note 12—Derivative Instruments Designated as Cash Flow Hedges F- 37 Note 13—Changes in Accumulated Other Comprehensive Loss by Component F- 38 Note 14 — Sale of Receivables F- 38 Note 15—Leases F- 39 Note 16—Business Segment Information F- 41 Note 17—Legal Proceedings and Commitments and Contingencies F- 41 Financial statement schedules are omitted because they are not applicable or the required information is shown in our consolidated financial statements or the notes thereto. F-1 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Science Applications International Corporation Opinion on the Financial Statements 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 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. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 28, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-2 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Revenue recognition based on a cost input measure of progress Description of the Matter The Company recognizes a significant portion of its revenues using a cost input (cost-to-cost) measure of progress. Under the cost-to-cost measure of progress, revenue is recognized based on the ratio of costs incurred to the total estimated costs at completion. The transaction price used as the basis for revenue is the estimated amount of consideration expected to be received for performance and may include variable consideration such as reimbursable costs, award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. As described in Note 1 to the consolidated financial statements, recognizing revenue on long-term contracts involves significant judgments and estimates. 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 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. 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 recognition of revenue using the cost input measure of progress. For example, we tested controls over management’s review of the estimated transaction price and estimated costs at completion used in determining revenue using the cost input measure of progress. We also tested internal controls that management executes to validate the data used in determining this revenue was complete and accurate. To test the accuracy of the Company’s estimated transaction price and estimated costs at completion, our audit procedures included, among others, comparing estimates of labor costs, subcontractor costs, materials and variable consideration to historical results of similar contracts, and agreeing the key terms, including the terms of the variable consideration, to contract documentation and management’s estimates. Our audit procedures also included, among others, evaluating the nature, timing and extent of the amounts of revenue and costs recorded to date, including any changes in transaction price or estimated costs at completion from the prior period. For example, to test a change in estimate, we inspected underlying evidence for the reason for the change in estimate and the timing of such change, and we recalculated the inception-to-date effect recorded. We also evaluated whether a lack of change in estimate was appropriate, where applicable, on contracts. F-3 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Unrecognized tax benefits Description of the Matter As discussed in Notes 1 and 10 to the consolidated financial statements, the Company files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. The Company recognizes 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. 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 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. 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 of accounting for income taxes, including unrecognized tax benefits, during the year. For example, we tested management’s controls over the review of tax positions taken by the Company to determine whether they met the threshold for recognition within the consolidated financial statements, as well as determination of the measurement of the unrecognized tax liability. To test the recognition of the Company’s unrecognized tax benefits and measurement of unrecognized tax benefits, we involved tax professionals with specialized skills and knowledge to assess the technical merits of the Company’s material tax positions. 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. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Tysons, Virginia March 28, 2022 F-4 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions, except per share amounts) Revenues $ 7,394 $ 7,056 $ 6,379 Cost of revenues 6,535 6,264 5,673 Selling, general and administrative expenses 344 352 288 Acquisition and integration costs 56 54 48 Other operating income ( 3 ) ( 4 ) — Operating income 462 390 370 Interest expense 105 122 90 Other (income) expense, net ( 1 ) ( 3 ) ( 6 ) Income before income taxes 358 271 286 Provision for income taxes ( 79 ) ( 60 ) ( 57 ) Net income $ 279 $ 211 $ 229 Net income attributable to non-controlling interest 2 2 3 Net income attributable to common stockholders $ 277 $ 209 $ 226 Earnings per share: Basic $ 4.81 $ 3.60 $ 3.87 Diluted $ 4.77 $ 3.56 $ 3.83 See accompanying notes to consolidated financial statements. F-5 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Net income $ 279 $ 211 $ 229 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 income (loss), net of tax 52 ( 17 ) ( 58 ) Comprehensive income $ 331 $ 194 $ 171 Comprehensive income attributable to non-controlling interest 2 2 3 Comprehensive income attributable to common stockholders $ 329 $ 192 $ 168 See accompanying notes to consolidated financial statements. F-6 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS January 28, 2022 January 29, 2021 (in millions) ASSETS Current assets: Cash and cash equivalents $ 106 $ 171 Receivables, net 1,015 962 Inventories, net 64 78 Prepaid expenses 57 56 Other current assets 21 22 Total current assets 1,263 1,289 Goodwill 2,913 2,787 Intangible assets, net 1,132 1,138 Property, plant, and equipment, net 100 108 Operating lease right of use assets 209 236 Other assets 129 165 Total assets $ 5,746 $ 5,723 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 612 $ 517 Accrued payroll and other employee benefits 227 196 Accrued vacation 137 150 Other accrued liabilities 228 344 Long-term debt, current portion 148 68 Total current liabilities 1,352 1,275 Long-term debt, net of current portion 2,370 2,447 Operating lease liabilities 192 205 Deferred income taxes 43 2 Other long-term liabilities 160 242 Commitments and contingencies (Note 17) Equity: 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 Retained earnings 818 627 Accumulated other comprehensive loss ( 37 ) ( 89 ) Total common stockholders' equity 1,619 1,542 Non-controlling interest 10 10 Total stockholders' equity 1,629 1,552 Total liabilities and stockholders' equity $ 5,746 $ 5,723 See accompanying notes to consolidated financial statements. F-7 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF EQUITY Shares of common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Non-controlling Interest Total (in millions) Balance at February 1, 2019 60 $ 1,132 $ 367 $ ( 14 ) $ 14 $ 1,499 Net income — — 226 — 3 229 Issuances of stock — 12 — — — 12 Other comprehensive loss, net of tax — — — ( 58 ) — ( 58 ) Cash dividends of $1.48 per share — — ( 87 ) — — ( 87 ) Stock-based compensation — 21 — — — 21 Repurchases of stock ( 2 ) ( 182 ) — — — ( 182 ) Distributions to non-controlling interest — — — — ( 7 ) ( 7 ) Balance at January 31, 2020 58 983 506 ( 72 ) 10 1,427 Net income — — 209 — 2 211 Issuances of stock — 14 — — — 14 Other comprehensive loss, net of tax — — — ( 17 ) — ( 17 ) Cash dividends of $1.48 per share — — ( 88 ) — — ( 88 ) Stock-based compensation — 30 — — — 30 Repurchases of stock — ( 23 ) — — — ( 23 ) Distributions to non-controlling interest — — — — ( 2 ) ( 2 ) Balance at January 29, 2021 58 1,004 627 ( 89 ) 10 1,552 Net income — — 277 — 2 279 Issuances of stock 1 16 — — — 16 Other comprehensive income, net of tax — — — 52 — 52 Cash dividends of $1.48 per share — — ( 86 ) — — ( 86 ) Stock-based compensation — 32 — — — 32 Repurchases of stock ( 3 ) ( 214 ) — — — ( 214 ) Distributions to non-controlling interest — — — — ( 2 ) ( 2 ) Balance at January 28, 2022 56 $ 838 $ 818 $ ( 37 ) $ 10 $ 1,629 See accompanying notes to consolidated financial statements. F-8 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Cash flows from operating activities: Net income $ 279 $ 211 $ 229 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 165 179 131 Amortization of off-market customer contracts ( 33 ) ( 15 ) — Amortization of debt issuance costs 7 21 7 Deferred income taxes 59 12 44 Stock-based compensation expense 46 42 37 (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: Receivables ( 31 ) 221 ( 50 ) Inventory, prepaid expenses, and other current assets 14 8 ( 10 ) Other assets ( 3 ) ( 14 ) ( 34 ) Accounts payable and accrued liabilities 30 ( 76 ) 62 Accrued payroll and employee benefits 10 95 3 Operating lease assets and liabilities, net 5 ( 5 ) ( 4 ) Other long-term liabilities ( 46 ) 64 38 Net cash provided by operating activities 518 755 458 Cash flows from investing activities: Expenditures for property, plant, and equipment ( 36 ) ( 46 ) ( 21 ) Purchases of marketable securities ( 9 ) ( 6 ) ( 24 ) Sales of marketable securities 6 9 3 Cash paid for acquisitions, net of cash acquired ( 255 ) ( 1,202 ) — Proceeds from divestitures 8 17 — Other ( 6 ) ( 3 ) ( 5 ) Net cash used in investing activities ( 292 ) ( 1,231 ) ( 47 ) Cash flows from financing activities: Dividend payments to stockholders ( 86 ) ( 87 ) ( 87 ) Principal payments on borrowings ( 119 ) ( 399 ) ( 274 ) Issuances of stock 16 13 10 Stock repurchased and retired or withheld for taxes on equity awards ( 226 ) ( 34 ) ( 197 ) Proceeds from borrowings 116 1,000 100 Debt issuance costs — ( 27 ) — 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 Cash, cash equivalents and restricted cash at end of period $ 115 $ 190 $ 202 See accompanying notes to consolidated financial statements. Supplementary cash flow disclosure: Cash paid for interest $ 98 $ 96 $ 86 Cash paid for income taxes $ 7 $ 39 $ 32 Non-cash investing and financing activities: Increase (decrease) in accrued plan share repurchases $ 2 $ 1 $ ( 1 ) (Decrease) increase in accrued property, plant, and equipment $ ( 2 ) $ ( 1 ) $ 3 See accompanying notes to consolidated financial statements. F-9 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1— Business Overview and Summary of Significant Accounting Policies: Overview Description of Business. Science Applications International Corporation (collectively, with its consolidated subsidiaries, the “Company”) is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government. 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 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. See Note 4 for additional information. Principles of Consolidation and Basis of Presentation References to “financial statements” refer to the consolidated financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statements of equity and statements of cash flows. These financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). All intercompany transactions and account balances within the Company have been eliminated. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Non-controlling Interest. The Company holds a 50.1 % majority interest in Forfeiture Support Associates J.V. (FSA). 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. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant estimates inherent in the preparation of the financial statements may include, but are not limited to, estimated profitability of long-term contracts, income taxes, fair value measurements, fair value of goodwill and other intangible assets, pension and defined benefit plan obligations, and contingencies. Estimates have been prepared by management on the basis of the most current and best available information at the time of estimation and actual results could differ from those estimates. Reporting Periods 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 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. F-10 Table of Contents 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. government. 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. F-11 Table of Contents 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 F-12 Table of Contents 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 The Company issues stock-based awards as compensation to employees and directors. Stock-based awards include stock options, vesting stock awards and performance share awards. These awards are accounted for as equity awards. The Company recognizes stock-based compensation expense net of estimated forfeitures on a straight-line basis over the underlying award’s requisite service period, as measured using the award’s grant date fair value. For performance share awards, the Company reassesses the probability of achieving the performance conditions at each reporting period end and adjusts compensation expense based on the number of shares the Company expects to ultimately issue. Income Taxes The Company accounts for income taxes under the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. The provision for federal, state, local and foreign income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes. Recording the provision for income taxes requires management to make significant judgments and estimates for matters for which the ultimate resolution may not become known until the final resolution of an examination by taxing authorities or the statute of limitations lapses. Additionally, recording liabilities for uncertainty in income taxes involves significant judgment in evaluating the Company’s tax positions and developing the best estimate of the taxes ultimately expected to be paid. Tax penalties and interest are included in income tax expense. The Company records net deferred tax assets to the extent these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. 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. F-13 Table of Contents 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. Liabilities for uncertainty in income taxes are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Deferred tax assets and liabilities are netted by taxable jurisdiction and classified as noncurrent on the consolidated balance sheets. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents are comprised of cash in banks and highly liquid instruments, which primarily consist of bank deposits and investments in institutional money market funds. The Company includes outstanding payments within cash and cash equivalents and accounts payable on the consolidated balance sheets and as of January 28, 2022 and January 29, 2021 these amounts were $ 54 million and $ 25 million, respectively. The Company does not invest in high yield or high risk securities. The cash in bank accounts at times may exceed federally insured limits. Restricted cash consists of cash on deposit in rabbi trusts that are contractually restricted from use in operations, but are subject to future claims of creditors. 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 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 (in millions) Cash and cash equivalents $ 106 $ 171 Restricted cash included in other current assets 5 5 Restricted cash included in other assets 4 14 Cash, cash equivalents and restricted cash $ 115 $ 190 Receivables Receivables include billed and billable receivables, and unbilled receivables. The Company’s receivables are primarily due from the U.S. government, or from prime contractors on which we are subcontractors and the end customer is the U.S. government, and are generally considered collectable from the perspective of the customer’s ability to pay. The Company does not have a material credit risk exposure. Unbilled receivables, substantially all of which are expected to be billed and collected within one year , are stated at their estimated realizable value and consist of costs and fees billable on contract completion or the occurrence of a specified event, other than the passage of time. Legal title to the related accumulated costs of contracts in progress generally vests with the U.S. government on the Company’s receipt of progress payments. Progress payments received of $ 76 million and $ 28 million offset unbilled receivables as of January 28, 2022 and January 29, 2021, respectively. Contract retentions are billed when contract conditions have been met and may relate to uncompleted indirect cost negotiations with the U.S. government. Based on historical experience, the majority of retention balances are expected to be collected beyond one year. Retention is presented in other assets on the consolidated balance sheets, see Note 3. Write-offs of retention balances have not been significant. Receivable balances are written-off in the period during which management determines they are uncollectable, and, at that time, such balances are removed from billed receivables and, if previously reserved, from the allowance. Inventory Inventory is substantially comprised of finished goods inventory purchased for resale to customers, such as tires and lubricants, and is valued at the lower of cost or net realizable value, generally using the average method. The Company evaluates current inventory against historical and planned usage to estimate the appropriate provision for obsolete inventory. F-14 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Business Combinations The Company records 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. 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 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, 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. Acquisition and Integration Costs Acquisition-related costs that are not part of the purchase price consideration are generally 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, legal, accounting and other professional 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. The amounts recognized in acquisition and integration costs on the consolidated statements of income are as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Acquisition (1) $ 3 $ 20 $ 2 Integration (2)(3) 53 34 46 Total acquisition and integration costs $ 56 $ 54 $ 48 (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 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. 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 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. The goodwill impairment test is performed at the reporting unit level. The Company estimates and compares the fair value of each reporting unit to its respective carrying value including goodwill. 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 F-15 Table of Contents 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 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. Impairment of Long-lived Assets The Company evaluates its long-lived assets for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount of the asset exceeds its estimated future undiscounted cash flows. 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 Accruals for commitments and loss contingencies are recorded when it is both probable that they will occur and the amounts can be reasonably estimated. 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 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. Pension and Defined Benefit Plans The Company measures plan assets and benefit obligations as of the month-end that is closest to its fiscal year-end. Accounting and reporting for the Company's pension and defined benefit plans requires the use of assumptions, including but not limited to, a discount rate and an expected return on assets. These assumptions are reviewed at least annually based on reviews of current plan information and consultation with the Company's independent actuary and the plans’ investment advisor. 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 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 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); inputs other than the quoted prices in active markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3). F-16 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 due to the short-term nature of these amounts. 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 Derivative instruments are recorded on the consolidated balance sheets at fair value. 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. 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. The fair value is an estimate of the amount that the Company would pay or receive as of a measurement date if the agreements were transferred to a third party or canceled. See Note 12 for further discussion on the Company’s derivative instruments designated as cash flow hedges. Operating Cycle The Company’s operating cycle may be greater than one year and is measured by the average time intervening between the inception and the completion of contracts. Research and Development The Company conducts research and development activities under customer-funded contracts and with company-funded independent research and development (IR&D) funds. IR&D efforts consist of projects involving basic research, applied research, development, and systems and other concept formulation studies. Company-funded IR&D expense is included in selling, general and administrative expenses (SG&A) and was $ 4 million, $ 6 million and $ 7 million in fiscal 2022, 2021 and 2020, respectively. Customer-funded research and development activities performed under customer contracts are charged directly to cost of revenues for those particular contracts. Accounting Standards Updates 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. F-17 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED 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. Note 2— Earnings Per Share, Share Repurchases and Dividends: Earnings Per Share (EPS) Basic EPS is computed by dividing net income attributable to common stockholders by the basic weighted-average number of shares outstanding. Diluted EPS is computed similarly to basic EPS, except the weighted-average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock-based awards. A reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS was: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Basic weighted-average number of shares outstanding 57.6 58.1 58.4 Dilutive common share equivalents - stock options and other stock-based awards 0.5 0.6 0.6 Diluted weighted-average number of shares outstanding 58.1 58.7 59.0 The following antidilutive stock-based awards were excluded from the weighted-average number of shares outstanding used to compute diluted EPS: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Antidilutive stock options excluded — 0.3 0.3 Share Repurchases The Company may repurchase shares in accordance with established repurchase plans. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital. 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 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. Dividends 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. F-18 Table of Contents 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: Changes in Estimates on Contracts Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions, except per share amounts) Favorable adjustments $ 40 $ 41 $ 39 Unfavorable adjustments ( 27 ) ( 32 ) ( 17 ) Net favorable adjustments 13 9 22 Income tax effect ( 3 ) ( 2 ) ( 4 ) Net favorable adjustments, after tax 10 7 18 Basic EPS impact $ 0.17 $ 0.12 $ 0.31 Diluted EPS impact $ 0.17 $ 0.12 $ 0.31 Revenues were $ 21 million, $ 21 million and $ 23 million higher for fiscal 2022, 2021 and 2020, respectively, due to net revenue recognized from performance obligations satisfied in prior periods. Disaggregation of Revenues The Company's revenues are generated primarily from long-term contracts with the U.S. government including subcontracts with other contractors engaged in work for the U.S. government. The Company disaggregates revenues by customer, contract-type and prime vs. subcontractor to the federal government. Disaggregated revenues by customer were as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Department of Defense $ 3,578 $ 3,292 $ 3,330 Other federal government agencies 3,671 3,611 2,920 Commercial, state and local 145 153 129 Total $ 7,394 $ 7,056 $ 6,379 Disaggregated revenues by contract-type were as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Cost reimbursement $ 4,020 $ 3,773 $ 3,644 Time and materials (T&M) 1,473 1,557 1,280 Firm-fixed price (FFP) 1,901 1,726 1,455 Total $ 7,394 $ 7,056 $ 6,379 F-19 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Disaggregated revenues by prime vs. subcontractor were as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Prime contractor to federal government $ 6,683 $ 6,337 $ 5,662 Subcontractor to federal government 566 566 588 Other 145 153 129 Total $ 7,394 $ 7,056 $ 6,379 Contract Balances Contract balances for the periods presented were as follows: Balance Sheet line item January 28, 2022 January 29, 2021 (in millions) Billed and billable receivables, net (1) Receivables, net $ 615 $ 600 Contract assets - unbillable receivables Receivables, net 400 362 Contract assets - contract retentions Other assets 17 18 Contract liabilities - current Other accrued liabilities 55 82 Contract liabilities - non-current Other long-term liabilities $ 9 $ 17 (1) Net of allowance of $ 4 million and $ 3 million as of January 28, 2022 and January 29, 2021, respectively. The changes in the Company's contract assets and contract liabilities during the current period primarily result from timing differences between the Company's performance, invoicing and customer payments. During fiscal 2022 and 2021, the Company recognized revenues of $ 75 million and $ 30 million relating to amounts that were included in the opening balance of contract liabilities as of January 29, 2021 and January 31, 2020, respectively. Deferred Costs Deferred costs for the periods presented were as follows: Balance Sheet line item January 28, 2022 January 29, 2021 (in millions) Pre-contract costs Other current assets $ 4 $ 2 Fulfillment costs - non-current Other assets 16 15 Costs to obtain Other assets $ 3 $ — Pre-contract costs of $ 4 million and $ 8 million were expensed during fiscal 2022 and 2021, respectively. Fulfillment costs of $ 6 million and $ 4 million were amortized during fiscal 2022 and 2021, respectively. Costs to obtain of $ 1 million were amortized during fiscal 2022 and were not material for fiscal 2021. Remaining Performance Obligations As of January 28, 2022, the Company had $ 5.3 billion of remaining performance obligations. Remaining performance obligations exclude any variable consideration that is allocated entirely to unsatisfied performance obligations on our supply chain contracts. The Company expects to recognize revenue on approximately 85 % of the remaining performance obligations over the next 12 months and approximately 95 % over the next 24 months, with the remaining recognized thereafter. F-20 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 4— Acquisitions: Halfaker On July 2, 2021, the Company completed the acquisition of Halfaker, a mission focused, pure-play health IT company for a preliminary purchase price of $ 228 million, net of $ 3 million cash acquired, subject to post-closing adjustments. The Company funded the transaction from increased borrowings (as discussed in Note 11) and cash on hand. The allocation of the preliminary purchase price resulted in goodwill of $ 106 million and intangible assets of $ 112 million, both of which are deductible for income tax purposes. During fiscal 2022, the Company increased goodwill by $ 14 million, which consisted of $ 11 million in estimated fair value adjustments to certain acquired assets, and a $ 3 million increase resulting from finalization of net working capital adjustments. The recognized goodwill is primarily associated with future customer relationships and an acquired assembled work force. The intangible assets consist of customer relationships of $ 95 million and backlog of $ 17 million that will be amortized over a period of nine years and one year , respectively. As of January 28, 2022, the Company has not yet finalized the determination of fair values allocated to the acquired assets and liabilities, including but not limited to the valuation of acquired intangible assets. The Company made additional cash payments of $ 21 million in March 2022 associated with certain change in control provisions that are recognized as post-combination expense. Koverse On May 3, 2021, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data, for a purchase price of $ 30 million, net of $ 2 million cash acquired. The purchase price includes $ 3 million of contingent consideration, representing the acquisition date fair value recognized for up to $ 27 million gross of potential future earnout payments based on the achievement of certain revenue targets over the next four years. The allocation of the purchase price has been finalized by the Company and resulted in goodwill of $ 21 million and intangible assets of $ 10 million, which are both not deductible for income tax purposes. The goodwill is primarily associated with intellectual capital, future customer relationships, and an acquired assembled work force. The intangible assets, which primarily consist of developed technology, are being amortized over a weighted average period of seven years . The Company is recognizing an additional $ 13 million in post-combination compensation expense over the next two years associated with employee retention agreements. Unisys Federal On March 13, 2020, the Company completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation. Unisys Federal provides infrastructure modernization, cloud migration, managed services, and enterprise IT-as-a-service solutions to U.S. federal civilian agencies and the Department of Defense. The Company purchased substantially all of the assets and liabilities of Unisys Federal for an aggregate purchase price of $ 1.2 billion. The Company used the net proceeds from its offering of Senior Notes and borrowings under the Term Loan B2 Facility, proceeds from the sale of receivables under its MARPA Facility, and cash on its balance sheet to finance the acquisition and pay related fees and expenses. F-21 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company completed the purchase accounting valuation for this transaction in fiscal 2021 and recorded final purchase accounting entries as follows: (in millions) Receivables $ 114 Prepaid expenses 15 Goodwill 654 Intangible assets 574 Property, plant, and equipment 4 Operating lease right of use assets 43 Other assets 7 Total assets acquired 1,411 Accounts payable 42 Accrued vacation 7 Other accrued liabilities 62 Operating lease liabilities 30 Other long-term liabilities 68 Total liabilities assumed 209 Net assets acquired $ 1,202 Amount of tax deductible goodwill $ 593 Goodwill resulting from the acquisition of Unisys Federal was primarily associated with intellectual capital, an acquired assembled work force, and future customer relationships. The identifiable intangible assets and a portion of the goodwill acquired by the Company are amortizable for tax purposes. The following table summarizes the fair value of intangible assets and the related weighted-average useful lives as of the acquisition date: Amount Weighted-Average Amortization Period (in millions) (in years) Customer relationships $ 520 13 Backlog 47 1 Developed technology 7 1 Total intangible assets $ 574 12 The backlog intangible asset is comprised solely of funded backlog as of the acquisition date. The customer relationships intangible asset consists of unfunded backlog as of the acquisition date and estimated future renewals and recompetes. The backlog and customer relationships intangible assets were valued using the excess earnings method (income approach) in which the value is derived from an estimation of the after-tax cash flows specifically attributable to the intangible asset being valued. The analysis included assumptions for projections of revenues and expenses, tax rates, contributory asset charges, discount rates, and a tax amortization benefit. The developed technology asset was valued using the relief from royalty method (income approach) in which the value is derived by estimation of the after-tax royalty savings attributable to owning the developed technology asset. Assumptions in this analysis included projections of revenues, royalty rates representing costs avoided due to ownership of the developed technology asset, discount rates, a tax amortization benefit, and future obsolescence of the technology. The Company recorded a $ 67 million provision for certain off-market customer contracts whose terms were unfavorable compared to the current market terms as of the acquisition date. An income approach was used to estimate fair value, involving estimates for future costs to complete the remaining performance under the contract as well as a market participant profit rate of return. The provision for off-market customer contracts is included in other long-term liabilities and is being amortized over the remaining contractual terms as an increase to revenue. F-22 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS During fiscal 2022, the Company accelerated the amortization for certain off-market customer contracts as a result of a change in the expected contractual terms which resulted in additional amortization of $ 15 million during fiscal 2022. Amortization for the next three fiscal years is expected to be as follows: $ 9 million in fiscal 2023, $ 8 million in fiscal 2024 and $ 2 million in fiscal 2025. The Company incurred $ 49 million in acquisition-related costs associated with the acquisition of Unisys Federal, including $ 27 million of debt issue costs (as discussed in Note 11). The amount of Unisys Federal's revenue and net income attributable to common stockholders included in the consolidated statements of income for fiscal 2021 was $ 669 million and $ 62 million, respectively. The following unaudited pro forma financial information presents the combined results of operations for Unisys Federal and the Company for the twelve months ended January 29, 2021 and January 31, 2020, respectively: Year Ended January 29, 2021 January 31, 2020 (in millions) Revenues $ 7,146 $ 7,105 Net income attributable to common stockholders $ 258 $ 193 The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Unisys Federal as though it had occurred on February 2, 2019. They include adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; acquisition and other transaction costs; and certain costs allocated from the former parent. The unaudited pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on February 2, 2019, nor is it indicative of future operating results. Note 5— Restructuring and Impairment: Restructuring and impairment costs recognized were as follows: Year Ended Statement of Income line item January 28, 2022 January 29, 2021 January 31, 2020 (in millions) 2022 Restructuring: Other associated costs SG&A $ 1 $ — $ — 2021 Restructuring: Severance and other employee costs SG&A — 4 — 2019 Restructuring: Severance and other employee costs Acquisition and integration costs — 2 9 Other associated costs Acquisition and integration costs — 4 7 Total restructuring costs 1 10 16 Impairment of assets SG&A 1 1 — Impairment of assets Acquisition and integration costs 17 1 5 Total impairment of assets 18 2 5 Total restructuring costs and impairment $ 19 $ 12 $ 21 In fiscal 2022, the Company initiated and completed restructuring activities (the “2022 Restructuring”) associated with the optimization and consolidation of certain facilities. The 2022 Restructuring included total restructuring costs of $ 1 million which were fully paid as of January 28, 2022. F-23 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In fiscal 2021, the Company initiated and completed restructuring activities (the "2021 Restructuring") associated with an internal reorganization. As of January 29, 2021, the remaining liability associated with this restructuring was $ 4 million. During fiscal 2022, the Company made cash payments to fully settle this liability. In fiscal 2019, the Company initiated restructuring activities (the "2019 Restructuring") to realize cost synergies from the integration of Engility Holdings, Inc. (collectively with its consolidated subsidiaries, "Engility," which we acquired on January 14, 2019), which included employee termination costs and other costs associated with the optimization and consolidation of facilities. The 2019 Restructuring included total restructuring costs of $ 51 million, comprised of $ 40 million for severance and other employee costs and $ 11 million of other associated costs, such as contract terminations and costs incurred for facility consolidation. Cash paid for severance and other employee costs was $ 3 million and $ 12 million during fiscal 2021 and 2020, respectively. Cash paid for other associated costs was $ 4 million and $ 7 million during fiscal 2021 and 2020, respectively. The 2019 Restructuring was completed in fiscal 2021 and there was no remaining liability associated with this restructuring as of January 28, 2022 and January 29, 2021. During fiscal 2022, 2021 and 2020, the Company recognized impairment charges for certain assets associated with exited facilities of $ 18 million, $ 2 million and $ 5 million, respectively. Note 6— Goodwill and Intangible Assets: Goodwill Goodwill had a carrying value of $ 2,913 million and $ 2,787 million as of January 28, 2022 and January 29, 2021, respectively. Goodwill increased by $ 126 million during fiscal 2022, primarily due to the acquisitions of Halfaker ($ 106 million) and Koverse ($ 21 million) as discussed in Note 4. There were no impairments of goodwill during the periods presented. Intangible Assets Intangible assets, all of which were finite-lived, consisted of the following: January 28, 2022 January 29, 2021 Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value (in millions) Customer relationships $ 1,467 $ ( 351 ) $ 1,116 $ 1,371 $ ( 241 ) $ 1,130 Backlog 17 ( 10 ) 7 47 ( 41 ) 6 Developed technology 10 ( 2 ) 8 9 ( 7 ) 2 Trade name 1 — 1 — — — Total intangible assets $ 1,495 $ ( 363 ) $ 1,132 $ 1,427 $ ( 289 ) $ 1,138 Amortization expense related to intangible assets was $ 128 million, $ 147 million and $ 95 million for fiscal 2022, 2021 and 2020, respectively. There were no impairments of intangible assets during the periods presented. Intangible assets with a gross carrying value of $ 54 million became fully amortized during fiscal 2022 and are no longer reflected in the gross carrying value and accumulated amortization as of January 28, 2022. F-24 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of January 28, 2022, the estimated future annual amortization expense related to intangible assets is as follows: Fiscal Year (in millions) 2023 $ 125 2024 115 2025 115 2026 115 2027 114 Thereafter 548 Total $ 1,132 Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors. Note 7— Property, Plant, and Equipment: Property, plant, and equipment are carried at cost net of accumulated depreciation and amortization. Purchases of property, plant, and equipment, as well as costs associated with major renewals and betterments, are capitalized. Maintenance, repairs and minor renewals and betterments are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed and any resulting gain or loss is recognized. Depreciation and amortization is recognized using the methods and estimated useful lives as follows: Depreciation or amortization method Estimated useful lives (in years) January 28, 2022 January 29, 2021 (in millions) Computer equipment Straight-line or declining balance 3 - 10 $ 97 $ 90 Capitalized software and software licenses Straight-line or declining balance 3 - 10 47 45 Leasehold improvements Straight-line Shorter of lease term or 10 94 92 Office furniture and fixtures Straight-line or declining balance 3 - 10 20 17 Buildings and improvements Straight-line 40 7 7 Construction in process 16 14 Land 1 1 Property, plant, and equipment 282 266 Accumulated depreciation and amortization ( 182 ) ( 158 ) Property, plant, and equipment, net $ 100 $ 108 Depreciation and amortization expense for property, plant, and equipment was $ 37 million, $ 32 million and $ 36 million in fiscal 2022, 2021 and 2020, respectively. Note 8— Stock-Based Compensation: Plan Summaries Certain of the Company’s employees participate in the following four stock-based compensation plans: “2013 Equity Incentive Plan” (EIP), “Management Stock Compensation Plan,” “2013 Employee Stock Purchase Plan” (ESPP), and the "2012 Long Term Performance Plan" (LTPP), which are herein referred to together as the “Plans.” The Company issues new shares on the vesting of stock awards or exercise of stock options under these Plans. F-25 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The EIP provides the Company’s employees and directors the opportunity to receive various types of stock-based compensation and cash awards. The terms of the stock-based awards granted to employees and directors are the same, except that those for directors cliff vest within one year of the grant date. As of January 28, 2022, the Company has outstanding stock options, vested and vesting stock awards, and performance share awards under this plan. Stock options granted under the EIP generally become exercisable 33 %, 33 % and 33 % after one, two and three years, respectively, while vesting stock awards granted prior to fiscal 2020 generally vest 25 %, 25 %, 25 % and 25 % after one, two, three and four years, respectively. Vesting stock awards granted in fiscal 2020 and thereafter generally vest 33 %, 33 % and 33 % after one, two and three years, respectively. The maximum contractual term for stock options granted under the EIP is ten years , but historically the Company has granted stock options with a seven-year contractual term. Vesting may be accelerated for employees meeting retirement eligibility conditions. Vesting accelerates for eligible officers upon termination of employment, subject to certain conditions set forth in the Company’s Executive Severance, Change in Control and Retirement Policy effective July 1, 2020. Stock-based awards generally provide for accelerated vesting if there is a change in control (as defined in the EIP). Vesting stock awards and performance share awards have forfeitable rights to dividends. In June 2014, the EIP was amended and restated to increase the total authorized shares of common stock for issuance under the EIP from 5.7 million to 8.5 million. The Company grants performance-based stock awards to certain officers and key employees under the EIP. Performance shares are rights to receive shares of the Company’s stock on the satisfaction of certain requirements. Performance-based stock awards granted prior to fiscal 2022 include service and performance conditions. These awards cliff vest at the end of the third fiscal year following the grant date, subject to meeting the minimum service requirements and the achievement of certain annual and cumulative financial metrics of the Company’s performance, with the number of shares ultimately issued, if any, ranging up to 200 % of the specified target shares. If performance is below the minimum threshold level of performance, no shares will be issued. For all performance share awards granted, the annual financial metrics are based on operating cash flows and the cumulative financial metrics are based on a measure of earnings. Performance-based stock awards granted in fiscal 2022 also include market conditions in addition to the service and performance conditions described above. The market conditions are based on the Company’s total shareholder return over the three year performance period as compared to the total shareholder return for a specified index of companies over the same period. The Management Stock Compensation Plan provides for awards in share units to eligible employees. Benefits are payable in shares of the Company’s stock that are held in a trust for the purpose of funding benefit payments to the participants. During fiscal 2017 all remaining outstanding awards in the Management Stock Compensation Plan vested. The Board of Directors may at any time amend or terminate the Management Stock Compensation Plan. In the event of a change in control of the Company (as defined by the Management Stock Compensation Plan), participant accounts will be immediately distributed, otherwise participant accounts will generally be distributed upon retirement based on the participant’s payout election, or upon termination. The Management Stock Compensation Plan does not provide for a maximum number of shares available for future issuance. The Company’s ESPP allows eligible employees to purchase shares of the Company’s stock at a discount of up to 15 % of the fair market value on the date of purchase. During the three fiscal years ended January 28, 2022, the discount was 5 % of the fair market value on the date of purchase for purchases made under the Company’s ESPP, thereby resulting in the ESPP being non-compensatory. As of January 28, 2022, 3.4 million shares of the Company’s stock are authorized for issuance under the ESPP. The LTPP provides certain employees of the Company the opportunity to receive various types of stock-based compensation awards. Vesting stock awards issued under the LTPP generally cliff vest at the end of the third fiscal year following the grant date. Vesting may be accelerated for employees meeting retirement eligibility conditions. Vesting stock awards under the LTPP have forfeitable rights to dividends. F-26 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Expense and Related Tax Benefits Recognized Stock-based compensation expense and related tax benefits recognized under the Plans were: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Stock-based compensation expense: Stock options $ 1 $ 3 $ 4 Vesting stock awards 36 32 29 Performance share awards 9 7 4 Total stock-based compensation expense $ 46 $ 42 $ 37 Tax benefits recognized from stock-based compensation $ 15 $ 14 $ 13 Stock Options Stock options are granted with their exercise price equal to the closing market price of the Company’s stock on the last trading day preceding the grant date. Stock option activity for the year ended January 28, 2022 was: Shares of stocks under stock options Weighted-average exercise price Weighted-average remaining contractual term Aggregate intrinsic value (in millions) (in years) (in millions) Outstanding at January 29, 2021 0.7 $ 68.57 3.9 $ 20 Options granted — — Options forfeited or expired — — Options exercised ( 0.1 ) 45.21 Outstanding at January 28, 2022 0.6 $ 72.34 3.3 $ 6 Exercisable at January 28, 2022 0.5 $ 71.96 3.0 $ 5 Vested and expected to vest at January 28, 2022 0.6 $ 72.33 3.3 $ 6 As of January 28, 2022, the unrecognized compensation cost, net of estimated forfeitures, related to stock options was not material. The following table summarizes activity related to exercises of stock options: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Cash received from exercises of stock options $ 1 $ — $ — Stock exchanged at fair value upon exercises of stock options $ 1 $ 1 $ 2 Tax benefits from exercises of stock options $ 1 $ 2 $ 3 Total intrinsic value of options exercised $ 4 $ 8 $ 16 The fair value of stock option awards granted under the Company’s plan were valued using the Black-Scholes option-pricing model based on the following assumptions: Expected Term --The expected term was calculated from the Company's historical settlement data. Expected Volatility --The expected volatility is based on the historical volatility of the Company over a period commensurate with the expected term of the stock option as of the date of grant. F-27 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Risk-Free Interest Rate --The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option on the date of grant. Dividend Yield --The dividend yield assumed over the expected term of the option is calculated based on the most recently announced dividend as of the grant date. The weighted-average grant date fair value and assumptions used to determine the fair value of stock options granted for the periods presented were: Year Ended January 29, 2021 January 31, 2020 Weighted-average grant-date fair value $ 17.54 $ 16.88 Expected term (in years) 3.8 4.2 Expected volatility 35.5 % 30.0 % Risk-free interest rate 0.3 % 2.2 % Dividend yield 1.8 % 2.0 % Vesting Stock Awards Vesting stock award activity for the year ended January 28, 2022 was: Shares of stock under stock awards Weighted-average grant date fair value (in millions) Unvested at January 29, 2021 1.0 $ 76.73 Awards granted 0.6 83.65 Awards forfeited ( 0.1 ) 79.41 Awards vested ( 0.5 ) 76.07 Unvested at January 28, 2022 1.0 $ 80.78 The grant date fair value of vesting stock awards is based on the closing market price of the Company’s stock on the last trading day preceding the grant date. The weighted-average grant date fair value of the vesting stock awards granted in fiscal 2022, 2021 and 2020 was $ 83.65 , $ 76.41 and $ 76.01 , respectively. As of January 28, 2022 there was $ 38 million of unrecognized compensation cost, net of estimated forfeitures, related to vesting stock awards, which is expected to be recognized over a weighted-average period of 1.7 years. The fair value of vesting stock awards that vested in fiscal 2022, 2021 and 2020 was $ 39 million, $ 32 million and $ 35 million, respectively. Performance Share Awards Performance share award activity for the year ended January 28, 2022 was: Shares of stock under performance shares Weighted-average grant date fair value (in millions) Unvested performance shares at January 29, 2021 0.2 $ 76.54 Performance shares granted 0.1 80.57 Performance shares forfeited — — Performance shares vested ( 0.1 ) 79.04 Performance shares adjustment — — Unvested performance shares at January 28, 2022 0.2 $ 78.13 F-28 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For performance share awards granted in fiscal 2022 and 2021, the actual number of shares to be issued upon vesting range between 0 - 200 % of the specified target shares. For performance share awards granted prior to fiscal 2021, the actual number of shares to be issued upon vesting range between 0 - 150 % of the specified target shares. The number of performance shares are presented at 100 % of the specified target shares in the table above, except for performance shares that vested and performance shares adjustment. Performance shares vested reflects the number of shares to be issued based on the actual achievement of the performance goals for shares that vested during the period. Performance shares adjustment reflects the increase or decrease in the number of performance shares vested compared to the number of performance shares that would have vested at target. The weighted-average grant date fair value of the performance share awards granted in fiscal 2022, 2021 and 2020 was $ 80.57 , $ 74.40 and $ 79.04 , respectively. For performance shares granted prior to fiscal 2022, the grant date fair value was based on the closing market price of the Company’s common stock on the last trading day preceding the grant date. For performance share awards granted in fiscal 2022, the grant date fair value was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition. The primary assumptions included an expected volatility of 39.73 % and a risk-free interest rate of 0.32 %. The expected volatility was based on the historical volatility of the Company over a period commensurate with the expected term of the award as of the date of grant. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the award on the date of grant. The fair value of performance share awards that vested in fiscal 2022 was $ 7 million. For unvested performance shares as of January 28, 2022 the Company expects to issue 0.2 million shares of stock in the future based on estimated future achievement of the performance goals. As of January 28, 2022 there was $ 9.6 million of unrecognized compensation cost, net of estimated forfeitures, related to performance share awards, which is expected to be recognized over a weighted-average period of 1.7 years. Note 9— Retirement Plans: Defined Contribution Plans The Company sponsors the Science Applications International Corporation Retirement Plan (a qualified defined contribution 401(k) plan) and an employee stock ownership plan, in which most employees are eligible to participate. There are a variety of investment options available, including the Company's stock. The Science Applications International Corporation Retirement Plan allows eligible participants to contribute a portion of their income through payroll deductions and the Company makes matching company contributions and may also make discretionary contributions. The Company contributions expensed for defined contribution plans were $ 79 million, $ 73 million and $ 65 million in fiscal 2022, 2021 and 2020, respectively. Deferred Compensation Plans The Company has established the Science Applications International Corporation Deferred Compensation Plan (DCP) effective January 1, 2015, providing certain eligible employees and directors an opportunity to defer some or all of their compensation on an unfunded, nonqualified basis. Participant deferrals are fully vested and diversified at the participant’s direction among the investment options offered under the DCP. Participant accounts are credited with a rate of return based on the performance of the investment options selected. Distributions are made in cash. Deferred balances are paid on retirement based on the participant’s payout election, or upon termination. The Company may provide discretionary contributions to participants, but no Company contributions have been made. The Science Applications International Corporation Key Executive Stock Deferral Plan (KESDP) was closed on December 31, 2014, and no further deferrals are allowed. Benefits from the KESDP are payable in shares of the Company’s stock that may be held in trust for the purpose of funding benefit payments to KESDP participants. Vested deferred balances are paid on retirement based on the participant’s payout election, or upon termination. The Science Applications International Corporation 401(k) Excess Deferral Plan (Excess Plan) was also closed on December 31, 2014, and no further deferrals are allowed. Participant deferrals are fully vested and diversified at the participant’s direction among the investment options offered under the Excess Plan. Deferred balances are paid on retirement or termination. F-29 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Defined Benefit Plans In connection with the acquisition of Engility on January 14, 2019, SAIC assumed two defined benefit plans sponsored by Engility for certain current and former employees: a Defined Benefit Pension Plan (Pension Plan) and a Retiree Health Reimbursement Account Plan (RHRA Benefit Plan). Membership and participants' calculated pension benefit are frozen in the Pension Plan and membership in the RHRA Benefit Plan is frozen. Our funding policy is to contribute at least the minimum amount required by the Employee Retirement income Security Act of 1974. Additional amounts are contributed to assure that plan assets will be adequate to provide retirement benefits. During fiscal 2023, the Company expects to contribute $ 1 million to fund the RHRA Benefit Plan. During fiscal 2022, the Company recognized a net gain of $ 5 million on its retirement plans within other comprehensive income. The gain was comprised of a $ 4 million gain due to an increase in discount rates and a $ 1 million gain from the excess in actual investment return over the expected return. During fiscal 2021, the Company recognized a net gain of $ 2 million on its retirement plans within other comprehensive loss. The gain was primarily comprised of a $ 3 million gain due to assumption changes other than discount rates, $ 2 million gain from the excess in actual investment return over the expected return, and $ 1 million in settlement charges, partially offset by a $ 4 million increase in liability caused by a decrease in the discount rates. The settlement charges were driven by the Company transferring out $ 6 million of assets to settle the obligations of certain retirees within the Pension Plan. During fiscal 2020, the Company recognized net losses of $ 5 million and $ 1 million within other comprehensive loss due to changes in the net benefit obligations for the Pension Plan and RHRA Benefit Plan, respectively. The net loss of $ 6 million was attributable to a $ 9 million increase in the projected benefit obligation due to a decrease in the discount rate, partially offset by an actual investment return in excess of the expected return of $ 3 million. Net Periodic Benefit Costs The net periodic benefit cost was as follows: Pension Plan RHRA Benefit Plan Year Ended January 28, 2022 January 29, 2021 January 31, 2020 January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Interest cost on projected benefit obligation $ 1 $ 2 $ 3 $ 1 $ — $ 1 Expected return on plan assets ( 3 ) ( 3 ) ( 3 ) — — — Settlement cost — 1 — — — — Net periodic benefit cost $ ( 2 ) $ — $ — $ 1 $ — $ 1 F-30 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Obligations and Funded Status The projected benefit obligation, fair value of plan assets and funded status for each plan are as follows: Pension Plan RHRA Benefit Plan January 28, 2022 January 29, 2021 January 28, 2022 January 29, 2021 (in millions) Change in benefit obligation: Benefit obligation at beginning of year $ 70 $ 76 $ 14 $ 17 Interest cost 1 2 1 — Benefits paid ( 5 ) ( 5 ) ( 1 ) ( 1 ) Actuarial (gain) loss ( 3 ) 3 ( 1 ) ( 2 ) Settlements — ( 6 ) — — Benefit obligation at end of year $ 63 $ 70 $ 13 $ 14 Change in plan assets: Fair value of plan assets at beginning of year 55 53 — — Actual return on plan assets 4 5 — — Employer contributions — 8 1 1 Benefits paid ( 5 ) ( 5 ) ( 1 ) ( 1 ) Settlements — ( 6 ) — — Fair value of plan assets at end of year $ 54 $ 55 $ — $ — Unfunded status $ 9 $ 15 $ 13 $ 14 Amounts recognized in the consolidated balance sheets consist of: Pension Plan RHRA Benefit Plan January 28, 2022 January 29, 2021 January 28, 2022 January 29, 2021 (in millions) Other accrued liabilities $ — $ — $ 1 $ 1 Other long-term liabilities 9 15 12 13 Net amount recognized $ 9 $ 15 $ 13 $ 14 Assumptions The Company uses the spot rate approach to measure liabilities and interest costs for defined benefit obligations. Under the spot rate approach, the Company uses individual spot rates along the yield curve that correspond with the timing of each benefit payment. The discount rates represent the estimated rate at which we could effectively settle our defined benefit obligations using a high quality bond yield curve. The assumed long-term rate of return on plan assets, which is the average return expected on the funds invested or to be invested to provide future benefits to pension plan participants, is determined by an annual review of historical returns on plan assets. In selecting the expected long-term rate of return on assets used for the Pension Plan, the Company considered its investment return goals stated in the Pension Plan's investment policy. This process included determining expected returns for the various asset classes that comprise the Pension Plan's target asset allocation. F-31 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following assumptions were used to determine the benefit obligations and net periodic benefit costs: Pension Plan RHRA Benefit Plan January 28, 2022 January 29, 2021 January 31, 2020 January 28, 2022 January 29, 2021 January 31, 2020 Discount rate 3.13 % 2.47 % 2.87 % 2.78 % 1.86 % 2.56 % Interest cost effective rate 1.72 % 2.47 % 3.70 % 1.35 % 2.27 % 3.58 % Expected rate of return on assets 5.50 % 5.50 % 5.50 % N/A N/A N/A Pension Plan Assets The Company's investment policy includes a periodic review of the Pension Plan's investment in the various asset classes. During fiscal 2022, the Company's overall investment strategy was for plan assets to achieve a long-term rate of return of 5.50 %, with a wide diversification of asset types, fund strategies and fund managers. The target allocation for the plan assets is 44 % in domestic equity securities, 20 % international equity, 31 % in fixed income securities and 5 % in cash and cash equivalents. The risk management practices include regular evaluations of fund managers to ensure the risk assumed is commensurate with the given investment style and objectives. According to the plan's investment policy, performance will be evaluated across all time periods, with a particular emphasis on longer-term returns relative to associated peers and benchmarks. The fair value measurement of plan assets by category is as follows: Asset Category Fair Value Hierarchy January 28, 2022 January 29, 2021 (in millions) Mutual funds Equity Level 1 $ 34 $ 37 Fixed income Level 1 9 8 Guaranteed deposit account Level 3 3 3 Subtotal 46 48 Collective trust - fixed income (1) Measured at NAV 8 7 Total $ 54 $ 55 (1) Collective trusts are measured at fair value using net asset value (NAV) as a practical expedient and have not been categorized in the fair value hierarchy. Fair Value Measurement Using Significant Unobservable Inputs (Level 3) A reconciliation of the beginning and ending balances of the Guaranteed Deposit Account (GDA) is as follows: Guaranteed Deposit Account (in millions) Balance at January 31, 2020 $ 2 Purchases 12 Sales ( 11 ) Balance at January 29, 2021 3 Purchases 5 Sales ( 5 ) Balance at January 28, 2022 $ 3 The GDA is designed to provide liquidity and safety of principal with a competitive guaranteed rate of return. The fair value of the GDA approximates the market value of underlying investments by discounting expected future investment cash flow from both investment income and repayment of principal for each investment purchased directly for the defined benefit segment of the General Account. Principal and accumulated interest are fully guaranteed by Prudential Retirement Insurance and Annuity Company (PRIAC). The declared interest rate is F-32 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS announced each year in advance and is determined by PRIAC. The GDA invests in a broadly diversified, fixed-income portfolio within PRIAC's general account. The portfolio is invested in public bonds, commercial mortgages and private placement bonds. Estimated Future Benefit Payments The following table sets forth the expected timing of benefit payments by fiscal year: Fiscal Year Pension Plan RHRA Benefit Plan Total (in millions) 2023 $ 5 $ 1 $ 6 2024 5 1 6 2025 5 1 6 2026 5 1 6 2027 5 1 6 Five subsequent fiscal years $ 21 $ 6 $ 27 Note 10— Income Taxes: Substantially all of the Company’s income before income taxes for the three years ended January 28, 2022 is subject to taxation in the United States. The provision for income taxes for each of the periods presented include the following: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Current: Federal $ 13 $ 34 $ 10 State 7 14 3 Deferred: Federal 48 10 32 State 11 2 12 Total $ 79 $ 60 $ 57 A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for each of the periods presented was as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Amount computed at the statutory federal income tax rate $ 75 $ 57 $ 60 State income taxes, net of federal tax benefit 16 13 14 Research and development and other federal credits ( 9 ) ( 8 ) ( 11 ) Non-deductible compensation 3 3 2 Excess tax benefits for stock-based compensation ( 3 ) ( 3 ) ( 4 ) Foreign-derived intangible income ( 6 ) ( 1 ) ( 1 ) Other 3 ( 1 ) ( 3 ) Total $ 79 $ 60 $ 57 Effective income tax rate 22.1 % 22.1 % 20.0 % F-33 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The effective income tax rate for fiscal 2022 is consistent with the rate in fiscal 2021. Federal and state tax expense is higher in fiscal 2022 as compared to fiscal 2021 because of increased income before taxes. This is partially offset by research and development tax credits and increased tax benefits from the deduction of foreign-derived intangible income as a result of increased qualifying foreign sales income. Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of: January 28, 2022 January 29, 2021 (in millions) Accrued vacation and bonuses $ 30 $ 33 Accrued liabilities 12 16 Deferred compensation 18 20 Stock awards 10 11 Net operating loss and other carryforwards 94 105 Deferred revenue 17 14 Lease liability 63 65 Payroll tax deferral — 11 Accumulated other comprehensive loss 13 30 Valuation allowance ( 7 ) ( 7 ) Total deferred tax assets 250 298 Payroll tax deferral ( 2 ) — Purchased intangible assets ( 235 ) ( 198 ) Fixed asset basis difference ( 3 ) ( 4 ) Right of use assets ( 53 ) ( 61 ) Total deferred tax liabilities ( 293 ) ( 263 ) Net deferred tax (liabilities) assets $ ( 43 ) $ 35 For fiscal 2022, net deferred tax liabilities are presented as deferred income taxes on the consolidated balance sheets. For fiscal 2021, net deferred tax assets are presented in other assets on the consolidated balance sheets. Deferred tax assets for both periods include state tax credit carryforwards for which the Company has set up a valuation allowance. The changes in the unrecognized tax benefits, excluding accrued interest and penalties, were: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Unrecognized tax benefits at beginning of the year $ 66 $ 51 $ 13 Additions for tax positions related to prior years 2 8 32 Additions for tax positions related to the current year 10 9 8 Reductions for prior year tax positions related to statute expiration — ( 2 ) ( 2 ) Unrecognized tax benefits at end of the year $ 78 $ 66 $ 51 Unrecognized tax benefits that, if recognized, would affect the effective income tax rate $ 70 $ 66 $ 48 Over the next 12 months, the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at January 28, 2022. During the year ended January 28, 2022, we recognized an increase in F-34 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS unrecognized tax benefits of approximately $ 12 million related to an increase in available tax credits in fiscal year 2022. The Company recognizes net interest and penalties as a component of income tax expense. The Company has filed income tax returns in the U.S. and various state jurisdictions, which may be subject to routine compliance reviews by the Internal Revenue Service (IRS) and other taxing authorities. While the Company believes it has adequate accruals for uncertain tax positions, the tax authorities may determine that the Company owes taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities. The Company’s tax returns for fiscal years 2016 through 2021 remain subject to examination by the IRS and various other tax jurisdictions. The Company is currently under examination by the IRS for fiscal years 2016 through 2019. As of January 28, 2022, the Company has approximately $ 72 million of tax effected federal loss carryforwards, $ 12 million of tax effected state loss carryforwards and approximately $ 8 million of state credit carryforwards that will begin to expire in fiscal 2027. The valuation allowance of $ 7 million at January 28, 2022 relates to these state credit carryforwards. Note 11— Debt Obligations: The Company’s long-term debt as of the periods presented was as follows: January 28, 2022 January 29, 2021 Stated interest rate Effective interest rate Principal Unamortized debt issuance costs Net Principal Unamortized debt issuance costs Net (in millions) Term Loan A Facility due October 2023 1.85 % 2.18 % $ 785 $ ( 5 ) $ 780 $ 844 $ ( 6 ) $ 838 Term Loan A2 Facility due October 2023 1.85 % 2.01 % 100 — 100 — — — Term Loan B Facility due October 2025 1.98 % 2.18 % 983 ( 7 ) 976 1,026 ( 9 ) 1,017 Term Loan B2 Facility due March 2027 1.98 % 2.37 % 272 ( 5 ) 267 272 ( 6 ) 266 Senior Notes due April 2028 4.88 % 5.04 % 400 ( 5 ) 395 400 ( 6 ) 394 Total long-term debt $ 2,540 $ ( 22 ) $ 2,518 $ 2,542 $ ( 27 ) $ 2,515 Less current portion 148 — 148 68 — 68 Total long-term debt, net of current portion $ 2,392 $ ( 22 ) $ 2,370 $ 2,474 $ ( 27 ) $ 2,447 As of January 28, 2022, the Company has a $ 2.5 billion credit facility (the Credit Facility) consisting of a $ 785 million secured Term Loan A Facility due October 2023, a $ 100 million secured Term Loan A2 Facility due October 2023, a $ 983 million secured Term Loan B Facility due October 2025, a $ 272 million secured Term Loan B2 Facility due March 2027 (together, the Term Loan Facilities), and a $ 400 million secured Revolving Credit Facility due October 2023. The Revolving Credit Facility is available to the Company through October 2023 and there is no balance outstanding as of January 28, 2022. Any obligations under the Credit Facility are secured by liens on substantially all of the assets of the Company and its subsidiaries. As of January 28, 2022, the Company was in compliance with the covenants under its Credit Facility. During fiscal 2019, the Company entered into the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement). Borrowings under the Term Loan A Facility due October 2023 amortize quarterly beginning on January 31, 2020 at 1.25 % of the original borrowed amount thereunder, with such quarterly amortization payments increasing to 1.875 % on January 31, 2021 and then to 2.50 % on January 31, 2022. Beginning January 31, 2019, the Term Loan B Facility due October 2025 amortizes quarterly at 0.25 % of the original borrowed amount. The scheduled principal repayments for the Term Loan A and Term Loan B facilities may be further reduced or eliminated by annual mandatory prepayments of a portion of SAIC’s Excess Cash Flow (as defined in the Third F-35 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Amended Credit Agreement). Mandatory principal prepayments are allocated to the Term Loan A and Term Loan B facilities on a pro rata basis and reduce the remaining scheduled principal installments for each facility. Voluntary principal prepayments may be applied to either or both loans at the Company’s direction. During fiscal year 2020, the Company made $ 150 million of voluntary principal prepayments on the Term Loan A Facility due October 2023. During fiscal 2020, the Company borrowed and repaid $ 100 million under the Revolving Credit Facility. During fiscal 2022, the Company made $ 35 million of voluntary principal prepayments on the Term Loan B Facility due October 2025. Borrowings under the Third Amended Credit Agreement bear interest at a variable rate of interest based on LIBOR or a base rate, plus in each case an applicable margin. Applicable margins with respect to borrowings under the Term Loan B Facility due October 2025 are 1.75 % for LIBOR loans and 0.75 % for base rate loans. Applicable margins with respect to borrowings under the Term Loan A Facility due October 2023 and the Revolving Credit Facility due October 2023 range from 1.25 % to 2.00 % for LIBOR loans and 0.25 % to 1.00 % for base rate loans, in each case based on the then applicable Leverage Ratio (as defined in the Third Amended Credit Agreement). The Company also pays a commitment fee with respect to undrawn amounts under the Revolving Credit Facility due October 2023 ranging from 0.20 % to 0.35 %. The Third Amended Credit Agreement contains certain restrictive covenants applicable to the Company and its subsidiaries including a requirement to maintain a Senior Secured Leverage Ratio (as defined in the Third Amended Credit Agreement) of not greater than 3.75 to 1.00 until the effectiveness of the acquisition of Engility, not greater than 4.50 to 1.00 upon the effectiveness of the acquisition and for the succeeding six fiscal quarters, and not greater than 4.00 to 1.00 thereafter, unless a Permitted Acquisition (as defined in the Third Amended Credit Agreement) occurs in which case not greater than 4.25 to 1.00 for three consecutive quarters following such a transaction. On March 13, 2020, the Company entered into the Second Amendment to the Third Amended and Restated Credit Agreement (Second Amendment), which established, among other things, a new $ 600 million senior secured term loan "B" credit facility commitment (the Term Loan B2 Facility due March 2027) that was funded in full contemporaneously with the closing of the acquisition of Unisys Federal (see Note 4). The Term Loan B2 Facility due March 2027 bears interest at a variable rate of interest based on LIBOR or a base rate, plus an applicable margin of 2.25 % for LIBOR loans and 1.25 % for base rate loans. Effective upon funding the Term Loan B2 Facility due March 2027, the applicable margin for the Term Loan B Facility due October 2025 was increased from 1.75 % to 1.875 % for LIBOR loans and from 0.75 % to 0.875 % for base rate loans. Borrowings under the Term Loan B2 Facility due March 2027 amortize quarterly beginning on July 31, 2020 at 0.25 % of the original borrowed amount with the remaining unamortized balance due in full upon its maturity, March 13, 2027. The Term Loan B2 Facility due March 2027 is subject to the same mandatory prepayments as the Company’s existing term loans under the Credit Facility and is subject to the same covenants and events of default as the Company's Term Loan B Facility due October 2025. During fiscal 2021, the Company made voluntary principal prepayments on the Term Loan B2 Facility due March 2027 of $ 325 million. The Company wrote off debt issuance costs associated with the voluntary principal prepayments of $ 8 million. On March 13, 2020, to partially finance the acquisition of Unisys Federal, the Company issued $ 400 million of unsecured 4.875 % Senior Notes due 2028 (the Senior Notes) through a private offering. Interest is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2020, and the principal is due on April 1, 2028. The Company incurred $ 27 million of debt issue costs associated with the Second Amendment, the issuance of the Senior Notes, and an undrawn bridge facility that terminated upon the consummation of the acquisition of Unisys Federal. The Company deferred $ 22 million of financing fees and recognized $ 5 million of expenses associated with the undrawn bridge facility, which was included in interest expense. Deferred financing fees are amortized to interest expense utilizing the effective interest method. On March 1, 2021, the Company executed the Third Amendment to the Third Amended and Restated Credit Agreement, which reduced the applicable margin for the Term Loan B2 Facility due March 2027 for LIBOR loans from 2.25 % to 1.875 % and for base rate loans from 1.25 % to 0.875 %. F-36 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On July 2, 2021, the Company executed the Fourth Amendment to the Third Amended and Restated Credit Agreement, which established a new senior secured incremental term loan credit facility commitment in the amount of $ 100 million (the Term Loan A2 Facility due October 2023). The entirety of the Term Loan A2 Facility due October 2023 was borrowed by the Company and the proceeds were immediately used to pay a portion of the purchase price of Halfaker (see Note 4). The Term Loan A2 Facility due October 2023 will amortize quarterly beginning October 31, 2021 at 0.3125 % of the original borrowed amount thereunder. The Term Loan A2 Facility due October 2023 may be prepaid at any time without penalty and is subject to the same mandatory prepayments, including from excess cash flow, as the Company's existing term loans under the Credit Facility. The Term Loan A2 Facility due October 2023 will mature and be due and payable in full on October 31, 2023. The Term Loan A2 Facility due October 2023 will bear interest at a variable rate of interest based on LIBOR or a base rate, plus an applicable margin of 1.25 % to 2.00 % for LIBOR loans and 0.25 % to 1.00 % for base rate loans, dependent upon the Company's leverage ratio. The Term Loan A2 Facility due October 2023 is subject to the same covenants and events of default as the Company's existing term loans under the Credit Facility. Maturities of long-term debt as of January 28, 2022 are: Fiscal Year Total (in millions) 2023 $ 148 2024 760 2025 11 2026 949 2027 — Thereafter 672 Total principal payments $ 2,540 Note 12— Derivative Instruments Designated as Cash Flow Hedges: The Company’s derivative instruments designated as cash flow hedges consist of: Fair Value of Liability (1) at Notional Amount at January 28, 2022 Pay Fixed Rate Receive Variable Rate Settlement and Termination January 28, 2022 January 29, 2021 (in millions) (in millions) Interest rate swaps #1 $ — 2.78 % 1-month LIBOR Monthly through July 30, 2021 $ — $ ( 3 ) Interest rate swaps #2 685 3.07 % 1-month LIBOR Monthly through October 31, 2025 ( 39 ) ( 81 ) Interest rate swaps #3 563 2.49 % 1-month LIBOR Monthly through October 31, 2023 ( 12 ) ( 33 ) Total $ 1,248 $ ( 51 ) $ ( 117 ) (1) The fair value of the fixed interest rate swaps liability is included in other accrued liabilities on the consolidated balance sheets. F-37 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company’s floating rate debt. The counterparties to all swap agreements are financial institutions. See Note 13 for the unrealized change in fair values on cash flow hedges recognized in other comprehensive (loss) income and the amounts reclassified from accumulated other comprehensive (loss) income into earnings for the current and comparative periods presented. The Company estimates that it will reclassify $ 25 million of unrealized losses from accumulated other comprehensive loss into earnings in the twelve months following January 28, 2022. Note 13— Changes in Accumulated Other Comprehensive Loss by Component: The following table presents the changes in accumulated other comprehensive loss attributable to the Company’s defined benefit plans and fixed interest rate swap cash flow hedges that are discussed in Note 9 and Note 12, respectively. Unrealized Gains (Losses) on Fixed Interest Rate Swap Cash Flow Hedges (1) Defined Benefit Obligation Adjustment (2) Total (in millions) Balance at February 1, 2019 $ ( 14 ) $ — $ ( 14 ) Other comprehensive loss before reclassifications ( 76 ) ( 6 ) ( 82 ) Amounts reclassified from accumulated other comprehensive loss 4 — 4 Income tax impact 19 1 20 Net other comprehensive loss ( 53 ) ( 5 ) ( 58 ) Balance at January 31, 2020 $ ( 67 ) $ ( 5 ) $ ( 72 ) Other comprehensive (loss) income before reclassifications ( 55 ) 1 ( 54 ) Amounts reclassified from accumulated other comprehensive loss 29 1 30 Income tax impact 7 — 7 Net other comprehensive (loss) income ( 19 ) 2 ( 17 ) Balance at January 29, 2021 $ ( 86 ) $ ( 3 ) $ ( 89 ) Other comprehensive income before reclassifications 31 5 36 Amounts reclassified from accumulated other comprehensive loss 34 — 34 Income tax impact ( 17 ) ( 1 ) ( 18 ) Net other comprehensive income 48 4 52 Balance at January 28, 2022 $ ( 38 ) $ 1 $ ( 37 ) (1) The amount reclassified from accumulated other comprehensive loss is included in interest expense. (2) The amount reclassified from accumulated other comprehensive loss is included in other (income) expense, net. Note 14— Sale of Receivables: On January 21, 2020 the Company entered into the MARPA Facility with MUFG Bank, Ltd. (the Purchaser) for the sale of up to a maximum amount of $ 200 million of certain designated eligible receivables with the U.S. government. On March 17, 2020, the Company amended the MARPA Facility to increase the aggregate facility limit from $ 200 million to $ 300 million. The receivables sold under the MARPA Facility are without recourse for any U.S. government credit risk. The MARPA Facility had an initial term of one year, but effective with the renewal on January 21, 2021 will automatically renew each year unless one of the parties gives prior notice to terminate. The Company accounts for receivable transfers under the MARPA Facility as sales under ASC 860, Transfers and Servicing, and removes the sold receivables from its balance sheet. The fair value of the sold receivables approximated their book value due to their short-term nature. F-38 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of January 28, 2022 and January 29, 2021. Proceeds from the sale of receivables are reflected as cash flows from operating activities on the consolidated statements of cash flows. During fiscal 2022 and 2021, the Company incurred purchase discount fees of $ 2 million, which are presented in other (income) expense, net on the consolidated statements of income. MARPA Facility activity consisted of the following: Year Ended January 28, 2022 January 29, 2021 (in millions) Beginning balance $ 185 $ — Sale of receivables 3,224 3,226 Cash collections ( 3,209 ) ( 3,041 ) Outstanding balance sold to Purchaser (1) 200 185 Cash collected, not remitted to Purchaser (2) ( 23 ) ( 25 ) Remaining sold receivables $ 177 $ 160 (1) For fiscal 2022 and 2021, the Company recorded a net increase to cash flows from operating activities of $ 15 million and $ 185 million, respectively, from sold receivables. (2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of January 28, 2022 and January 29, 2021. This balance is included in accounts payable on the consolidated balance sheets as of January 28, 2022 and January 29, 2021. Note 15— Leases: The Company occupies most of its facilities under operating leases. Certain equipment is also leased under short-term or cancelable operating leases. The Company recognizes a right of use (ROU) asset and a lease liability upon the commencement of its operating leases. The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the ROU asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives. The Company recognizes lease costs on a straight-line basis over the remaining lease term, except for variable lease payments that are expensed in the period in which the obligation for those payments is incurred. For its facility leases, the Company combines and accounts for lease and non-lease components together as a single component. The Company does not recognize lease liabilities and ROU assets for leases with original terms of 12 months or less. ROU assets are evaluated for impairment as a long-lived asset. Total operating lease cost is comprised of the following: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Operating lease cost $ 92 $ 74 $ 64 Variable lease cost 17 21 15 Short-term lease cost 9 35 4 Sublease income ( 1 ) ( 2 ) ( 3 ) Total lease cost $ 117 $ 128 $ 80 F-39 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Lease cost and sublease income are included primarily in cost of revenues and SG&A, except for $ 12 million, $ 1 million and $ 5 million of impairment of right of use assets for fiscal 2022, 2021, and 2020, respectively, that are included in acquisition and integration costs. The Company's ROU assets and lease liabilities consisted of the following: Balance Sheet line item January 28, 2022 January 29, 2021 (in millions) Operating lease ROU asset Operating lease right of use assets $ 209 $ 236 Operating lease current liability Other accrued liabilities 52 49 Operating lease non-current liability Operating lease liabilities 192 205 Total operating lease liabilities $ 244 $ 254 Other supplemental operating lease information consists of the following: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Cash paid for amounts included in the measurement of operating lease liabilities $ 74 $ 77 $ 64 ROU assets obtained in exchange for new operating lease obligations $ 54 $ 110 $ 79 Maturities of operating lease liabilities as of January 28, 2022 were as follows: Fiscal Year Total (in millions) 2023 $ 59 2024 59 2025 44 2026 37 2027 31 Thereafter 35 Total minimum lease payments 265 Less: imputed interest ( 21 ) Present value of operating lease liabilities $ 244 The weighted-average remaining lease term and the weighted-average discount rate was 5 years and 3.1 % as of January 28, 2022, respectively, and 5 years and 3.5 % as of January 29, 2021, respectively. The Company leases IT equipment and hardware to its customers. All of the Company’s lessor arrangements are operating leases. Operating lease revenue is recognized on a straight-line basis over the term of the lease. During fiscal 2022 and 2021, operating lease income was $ 18 million and $ 40 million, respectively. Operating lease income is reported as revenue on the consolidated statements of income. As of January 28, 2022, the undiscounted future payments from our lessor arrangements are $ 3 million, which are expected to be received during fiscal 2023. F-40 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 16— Business Segment Information: The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization. The two operating sectors are responsible for customer relationships, business development and program management, and delivery and execution, while the enterprise solutions and operations organization manages the development of our offerings, solutions and capabilities. Each of the Company’s two 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 because they have similar economic characteristics and meet the other aggregation criteria including similarities in the nature of the services provided, methods of service delivery, customers served and the regulatory environment in which they operate. Substantially all of the Company’s revenues were generated by, and tangible long-lived assets owned by, entities located in the United States. As such, financial information by geographic location is not presented. In each of fiscal 2022, 2021 and 2020, 98 % of our total revenues were attributable to prime contracts with the U.S. government or to subcontracts with other contractors engaged in work for the U.S. government. Note 17— Legal Proceedings and Commitments and Contingencies: Legal Proceedings The Company is involved in various claims and lawsuits arising in the normal conduct of its business, none of which the Company’s management believes, based on current information, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. AAV Termination for Convenience On August 27, 2018, the Company received a stop-work order from the United States Marine Corps on the Assault Amphibious Vehicle (AAV) contract and on October 3, 2018 the program was terminated for convenience by the customer. The Company is continuing to negotiate with the Marine Corps to recover costs associated with the termination. Government Investigations, Audits and Reviews The Company is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect, in particular, to its role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. U.S. government agencies, including the DCAA, the Defense Contract Management Agency and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review the adequacy of the contractor’s compliance with government standards for its business systems. Adverse findings in these investigations, audits, or reviews can lead to criminal, civil or administrative proceedings, and the Company could face disallowance of previously billed costs, penalties, fines, compensatory damages, and suspension or debarment from doing business with governmental agencies. Due to the Company’s reliance on government contracts, adverse findings could also have a material impact on the Company’s business, including its financial position, results of operations and cash flows. The indirect cost audits by the DCAA of the Company’s business remain open for certain prior years and the current year. Although the Company has recorded contract revenues based on an estimate of costs that the Company believes will be approved on final audit, the Company does not know the outcome of any ongoing or future audits. If future completed audit adjustments exceed the Company’s reserves for potential adjustments, the Company’s profitability could be materially adversely affected. The Company has recorded reserves for estimated net amounts to be refunded to customers for potential adjustments for indirect cost audits and compliance with CAS. As of January 28, 2022, the Company has recorded a total liability of $ 17 million, which is presented in other accrued liabilities on the consolidated balance sheet. F-41 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Letters of Credit and Surety Bonds The Company has outstanding obligations relating to letters of credit of $ 10 million as of January 28, 2022, principally related to guarantees on insurance policies. The Company also has outstanding obligations relating to surety bonds in the amount of $ 19 million, principally related to performance and payment bonds on the Company’s contracts. F-42 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit 2.1 Distribution Agreement dated September 25, 2013, between the Company (formerly SAIC Gemini, Inc.) and Leidos Holdings, Inc. (formerly SAIC, Inc.). Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 1, 2013. 2.2 Agreement and Plan of Merger, dated September 9, 2018, by and among Science Applications International Corporation, Inc., a Delaware corporation, Engility, a Delaware corporation, and Raptors Merger Sub, Inc., a Delaware corporation. (Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to supplementally furnish to the Securities and Exchange Commission upon request any omitted schedule or exhibit to the Agreement and Plan of Merger.) Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 10, 2018. 2.3 Asset Purchase Agreement, dated February 5, 2020, by and among Science Applications International Corporation, Inc., a Delaware corporation and Unisys Corporation, a Delaware corporation. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K as filed with the SEC on February 6, 2020. 3.1 Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 1, 2013. 3.2 Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on June 8, 2017. 4.1 Description of Securities. Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K as filed with the SEC on March 27, 2020. 4.2 Indenture, dated March 13, 2020, by and among Science Applications International Corporation, the guarantors party thereto and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2020. 10.1 Fourth Amendment to the Third Amended and Restated Credit Agreement, dated July 2, 2021, by and among SAIC, Citibank N.A., as administrative agent and collateral agent, and certain other lenders and parties thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2021. 10.2 Third Amended and Restated Credit Agreement by and among SAIC, Citibank, as administrative agent and collateral agent, and certain other agents and lenders party thereto, dated October 31, 2018. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 5, 2018. 10.3 First Amendment to the Third Amended and Restated Credit Agreement by and among SAIC, Citibank, as administrative agent and collateral agent, and certain other agents and lenders party thereto, dated February 19, 2020. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 24, 2020. 10.4 Second Amendment, dated March 13, 2020, to Third Amended and Restated Credit Agreement, dated October 31, 2018 by and among Science Applications International Corporation, Citibank, N.A., as administrative agent and collateral agent, and certain other agents and lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2020. 10.5 Third Amendment to the Third Amended and Restated Credit Agreement, dated March 1, 2021, by and among SAIC, Citibank N.A., as administrative agent and collateral agent, and certain other lenders and parties thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 5, 2021. 10.6 Second Amended and Restated Credit Agreement, dated May 4, 2015 by and among the Company, Citibank N.A. as administrative agent and collateral agent, and Bank of America, N.A., as a syndication agent, and certain other lenders and parties thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on May 4, 2015. F-43 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit 10.7 First Amendment to the Second Amended and Restated Credit Agreement, dated August 23, 2016 by and among the Company, Citibank N.A. as administrative agent and collateral agent, and certain other lenders and parties thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on August 25, 2016. 10.8 Second Amendment to the Second Amended and Restated Credit Agreement, dated February 7, 2018 by and among the Company, Citibank N.A. as administrative agent and collateral agent, and certain other lenders and parties thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 9, 2018. 10.9 Master Accounts Receivable Purchase Agreement, dated January 21, 2020, among Science Applications International Corporation, Engility Services, LLC, and MUFG Bank, Ltd. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 12, 2020. 10.10 Performance Undertaking, January 21, 2020, made by Science Applications International Corporation in favor of MUFG Bank, Ltd. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 12, 2020. 10.11 Amendment No.1 to Master Accounts Receivable Purchase Agreement, dated March 17, 2020, among Science Applications International Corporation, Engility Services, LLC, and MUFG Bank, Ltd. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on March 26, 2020. 10.12* Science Applications International Corporation Management Stock Compensation Plan, effective September 27, 2013. Incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 as filed with the SEC on September 27, 2013. 10.13* Science Applications International Corporation Key Executive Stock Deferral Plan, effective September 27, 2013. Incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-8 as filed with the SEC on September 27, 2013. 10.14* Science Applications International Corporation 2013 Employee Stock Purchase Plan, effective October 1, 2013. Incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 as filed with the SEC on September 27, 2013. 10.15* Science Applications International Corporation 401(k) Excess Deferral Plan, effective September 27, 2013. Incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 as filed with the SEC on September 27, 2013. 10.16* Science Applications International Corporation Retirement Plan, effective September 27, 2013. Incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 as filed with the SEC on September 27, 2013. 10.17* Science Applications International Corporation Amended and Restated 2013 Equity Incentive Plan, effective June 4, 2014. Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A as filed with the SEC on April 24, 2014. 10.18* Form of Restricted Stock Unit Award Agreement of the Science Applications International Corporation 2013 Equity Incentive Plan. Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 9, 2014. 10.19* Form of Nonstatutory Stock Option Agreement of the Science Applications International Corporation 2013 Equity Incentive Plan. Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 9, 2014. 10.20* Form of Performance Share Award Agreement of the Science Applications International Corporation 2013 Equity Incentive Plan. Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 9, 2014. F-44 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit 10.21* Form of Restricted Stock Unit Award Agreement of the Science Applications International Corporation 2013 Amended and Restated Equity Incentive Plan. 10.22* Form of Performance Share Award Agreement of the Science Applications International Corporation 2013 Amended and Restated Equity Incentive Plan . 10.23* Deferred Compensation Plan, effective January 1, 2015. Incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2015. 10.24* SAIC Executive Severance, Change in Control and Retirement Policy, effective July 1, 2020. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on July 2, 2020. 10.25 Master Transition Services Agreement dated September 25, 2013, between the Company (formerly SAIC Gemini, Inc.) and Leidos Holdings, Inc. (formerly SAIC, Inc.). Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on October 1, 2013. 10.26* Science Applications International Corporation Third Amended and Restated 2012 Long Term Performance Plan. Incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K as filed with the SEC on March 29, 2019. 10.27 Master Transitional Contracting Agreement between the Company (formerly SAIC Gemini, Inc.) and Leidos Holdings, Inc. (formerly SAIC, Inc.) dated September 25, 2013. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on December 13, 2013. 10.28* Form of Performance Unit Award Agreement of the Science Applications International Corporation 2012 Long Term Performance Plan. Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K as filed with the SEC on March 29, 2019. 10.29* Form of Restricted Stock Unit Agreement of the Science Applications International Corporation 2012 Long Term Performance Plan. Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K as filed with the SEC on March 29, 2019. 21 Subsidiaries of Registrant. 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 104 The cover page from this Annual Report on Form 10-K, formatted as Inline XBRL. * Compensation Plans and Arrangements F-45