What changed in this filing

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Item 1. Financial Statements

2022-06-06 compared with 2021-12-06 · 136 added, 228 removed, 358 unchanged (50% of the section changed)

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CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions, except per share amounts)

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CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

Net income $ 74 $ 82

Other comprehensive income (loss), net of tax:

Net unrealized gain (loss) on derivative instruments 17 11 32 ( 26 )

Total other comprehensive income (loss), net of tax 17 11 32 ( 26 )

Other comprehensive income, net of tax:

Net unrealized gain on derivative instruments 37 14

Total other comprehensive income, net of tax 37 14

Comprehensive income $ 111 $ 96

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Intangible assets, net 1,101 1,132

Property, plant, and equipment (net of accumulated depreciation of $ 181 million and $ 158 million at October 29, 2021 and January 29, 2021, respectively)

Property, plant, and equipment (net of accumulated depreciation of $ 189 million and $ 182 million at April 29, 2022 and January 28, 2022, respectively)

Operating lease right of use assets 187 209

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Operating lease liabilities 175 192

Deferred income taxes 45 43

Other long-term liabilities 170 160

Commitments and contingencies (Note 11)

Common stock, $ 0.0001 par value, 1 billion shares authorized, 57 million shares and 58 million shares issued and outstanding as of October 29, 2021 and January 29, 2021, respectively

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

Additional paid-in capital 770 838

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(in millions)

Balance at July 30, 2021 58 $ 945 $ 747 $ ( 74 ) $ 10 $ 1,628

Net income — — 71 — — 71

Issuances of stock 1 4 — — — 4

Other comprehensive income, net of tax — — — 17 — 17

Cash dividends of $ 0.37 per share

— — ( 22 ) — — ( 22 )

Stock-based compensation — 11 — — — 11

Repurchases of stock ( 2 ) ( 64 ) — — — ( 64 )

Distributions to non-controlling interest — — — — — —

Balance at October 29, 2021 57 $ 896 $ 796 $ ( 57 ) $ 10 $ 1,645

Balance at January 28, 2022 56 $ 838 $ 818 $ ( 37 ) $ 10 $ 1,629

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Distributions to non-controlling interest — — — — ( 1 ) ( 1 )

Balance at October 29, 2021 57 $ 896 $ 796 $ ( 57 ) $ 10 $ 1,645

Balance at July 31, 2020 58 $ 996 $ 550 $ ( 109 ) $ 13 $ 1,450

Net income — — 60 — — 60

Issuances of stock — 4 — — — 4

Other comprehensive income, net of tax — — — 11 — 11

Cash dividends of $ 0.37 per share

— — ( 23 ) — — ( 23 )

Stock-based compensation — 11 — — — 11

Repurchases of stock — ( 1 ) — — — ( 1 )

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

Balance at October 30, 2020 58 $ 1,010 $ 587 $ ( 98 ) $ 11 $ 1,510

Balance at April 29, 2022 56 $ 770 $ 870 $ — $ 10 $ 1,650

Balance at January 29, 2021 58 $ 1,004 $ 627 $ ( 89 ) $ 10 $ 1,552

1 unchanged sentence

Issuances of stock — 4 — — — 4

Other comprehensive loss, net of tax — — — ( 26 ) — ( 26 )

Other comprehensive income, net of tax — — — 14 — 14

Cash dividends of $ 0.37 per share

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Distributions to non-controlling interest — — — — ( 1 ) ( 1 )

Balance at October 30, 2020 58 $ 1,010 $ 587 $ ( 98 ) $ 11 $ 1,510

Balance at April 30, 2021 58 $ 965 $ 687 $ ( 75 ) $ 10 $ 1,587

See accompanying notes to condensed and consolidated financial statements.

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CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

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Stock-based compensation expense 11 10

(Gain) loss on divestitures ( 2 ) 10

Impairment of right of use assets 10 —

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

Gain on divestitures — ( 3 )

Impairment of assets — 7

Increase (decrease) resulting from changes in operating assets and liabilities:

Receivables ( 89 ) ( 61 )

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Sales of marketable securities 1 1

Cash paid for acquisitions, net of cash acquired ( 247 ) ( 1,202 )

Proceeds from divestitures — 8

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Proceeds from borrowings — 16

Debt issuance costs — ( 27 )

Distributions to non-controlling interest ( 1 ) ( 1 )

Net cash (used in) provided by financing activities ( 176 ) 526

Net decrease in cash, cash equivalents and restricted cash ( 33 ) ( 1 )

Net cash used in financing activities ( 162 ) ( 95 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 50 ) 90

Cash, cash equivalents and restricted cash at beginning of period 115 190

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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.

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 provides these services for large, complex projects with a targeted emphasis on higher-end, differentiated technology services and solutions that accelerate and transform secure and resilient digital environments through system development, modernization, integration, and sustainment to drive enterprise and mission outcomes.

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 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.

Each of the Company’s two customer facing operating sectors is focused on providing both (1) growth and technology accelerating solutions and (2) core IT service offerings to one or more agencies of the U.S.

federal government.

Growth and technology accelerating solutions include the delivery of secure cloud modernization, outcome based enterprise IT as-a-service, and the integration, production and modernization of defense systems.

Core IT services include systems engineering, the operation and maintenance of existing IT systems and networks, and logistics and supply chain solutions.

During the second quarter of fiscal 2022, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, growing the Company's digital transformation portfolio.

Additionally, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data.

During the first quarter of fiscal 2021, 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.

Principles of Consolidation and Basis of Presentation

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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 2021 began on February 1, 2020 and ended on January 29, 2021, while fiscal 2022 began on January 30, 2021 and ends on January 28, 2022.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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 2023 began on January 29, 2022 and ends on February 3, 2023, while fiscal 2022 began on January 30, 2021 and ended on January 28, 2022.

Operating Cycle

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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 October 29, 2021 and January 29, 2021, the fair value of our investments totaled $ 31 million and $ 27 million, respectively, and are included in other assets on the condensed and consolidated balance sheets.

As of April 29, 2022 and January 28, 2022, the fair value of our investments totaled $ 27 million and $ 28 million, respectively, and are included in other assets on the condensed and consolidated balance sheets.

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

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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, severance and accelerated vesting of assumed stock awards, costs to integrate information technology infrastructure, enterprise planning systems, processes, and other non-recurring integration-related costs.

Integration-related costs 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 condensed and consolidated statements of income.

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The amounts recognized in acquisition and integration costs on the condensed and consolidated statements of income are as follows:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

Acquisition (1)

$ — $ — $ 3 $ 20

Integration (2)

Total acquisition and integration costs $ 9 $ 10

(1) Acquisition expenses for the nine months ended October 29, 2021 were related to the acquisitions of Halfaker and Koverse.

Acquisition expenses for the nine months ended October 30, 2020 were related to the acquisition of Unisys Federal.

(2) Integration expenses for the nine months ended October 29, 2021 include a $ 10 million impairment of right of use lease assets.

Integration expenses for the nine months ended October 30, 2020 include an $ 11 million loss on divestiture of non-strategic international operations.

Integration expenses for the three and nine months ended October 30, 2020 also include restructuring costs of $ 2 million and $ 6 million, respectively.

Restructuring

During the three and nine months ended October 30, 2020, the Company incurred $ 4 million of severance and other employee costs associated with an internal reorganization.

These costs are presented within selling, general and administrative expenses in the condensed and consolidated statements of income.

(1) Acquisition expenses for the three months ended April 29, 2022 and April 30, 2021 relate to the acquisition of Koverse.

The three months ended April 29, 2022 reflects the amount recognized to reduce the fair value of the Koverse earnout liability.

See Note 4 for additional information related to the acquisition.

(2) Integration expenses for the three months ended April 30, 2021 include $ 7 million for the impairment of assets.

Accounting Standards Updates

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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.

Other Accounting Standards Updates effective after October 29, 2021 are not expected to have a material effect on the Company’s financial statements.

Note 2— Earnings Per Share and Dividends:

Basic earnings per share (EPS) is computed by dividing net income attributable to common stockholders by the basic weighted-average number of shares outstanding.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and must be applied prospectively.

Early adoption is permitted.

The Company adopted the requirements of ASU 2021-08 on a prospective basis effective the first day of fiscal 2023.

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 and derivative instruments 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 April 29, 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 earnings per share 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:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

Basic weighted-average number of shares outstanding

57.5 58.2 57.8 58.1

Dilutive common share equivalents - stock options and other stock-based awards

0.5 0.5 0.6 0.5

Diluted weighted-average number of shares outstanding

58.0 58.7 58.4 58.6

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

(in millions)

Antidilutive stock options excluded — 0.4 — 0.4

The Company declared and paid a quarterly dividend of $ 0.37 per share of its common stock during the three months ended October 29, 2021.

Subsequent to the end of the quarter, on December 1, 2021, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on January 28, 2022 to stockholders of record on January 14, 2022.

Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for the three months ended April 29, 2022 and April 30, 2021 were immaterial .

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 April 29, 2022, we have repurchased approximately 15.2 million shares of common stock under the program.

Subsequent to the end of the quarter, the number of shares that may be repurchased increased by approximately 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares.

The Company declared and paid a quarterly dividend of $ 0.37 per share of its common stock during the three months ended April 29, 2022.

Subsequent to the end of the quarter, on May 31, 2022, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on July 29, 2022 to stockholders of record on July 15, 2022.

Note 3— Revenues:

Changes in Estimates

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.

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Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions, except per share amounts)

Net favorable (unfavorable) adjustments $ — $ ( 4 ) $ 9 $ ( 1 )

Net favorable (unfavorable) adjustments, after tax — ( 3 ) 7 ( 1 )

Net favorable adjustments $ 5 $ 3

Net favorable adjustments, after tax 4 2

Diluted EPS impact $ 0.07 $ 0.03

Revenues were $ 1 million and $ 21 million higher for the three and nine months ended October 29, 2021, respectively, and $ 1 million lower and $ 5 million higher for the three and nine months ended October 30, 2020, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

Revenues were $ 4 million and $ 5 million higher for the three months ended April 29, 2022 and April 30, 2021, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Disaggregation of Revenues

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

The Company disaggregates revenues by customer, contract-type and prime vs.

subcontractor to the federal government.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

The Company disaggregates revenues by customer, contract-type and prime versus subcontractor to the federal government.

Disaggregated revenues by customer were as follows:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

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Disaggregated revenues by contract-type were as follows:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

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Total $ 1,996 $ 1,878

Disaggregated revenues by prime vs.

subcontractor were as follows:

Three Months Ended Nine Months Ended

2021 October 30,

2020 October 29,

2021 October 30,

Disaggregated revenues by prime versus subcontractor were as follows:

Three Months Ended

2022 April 30,

(in millions)

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Subcontractor to federal government 137 153

Other 38 41 110 113

Total $ 1,996 $ 1,878

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Contract balances for the periods presented were as follows:

Balance Sheet line item October 29,

Balance Sheet line item April 29,

2022 January 28,

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Contract liabilities - non-current Other long-term liabilities $ 8 $ 9

(1) Net of allowance of $ 3 million as of October 29, 2021 and January 29, 2021.

During the three and nine months ended October 29, 2021, the Company recognized revenues of $ 8 million and $ 72 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 29, 2021.

During the three and nine months ended October 30, 2020, the Company recognized revenues of $ 5 million and $ 27 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 31, 2020.

(1) Net of allowance of $ 4 million as of April 29, 2022 and January 28, 2022.

During the three months ended April 29, 2022 and April 30, 2021, the Company recognized revenues of $ 27 million and $ 50 million relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022 and January 29, 2021, respectively.

Remaining Performance Obligations

As of October 29, 2021, the Company had $ 6.0 billion of remaining performance obligations.

Remaining performance obligations represent the expected value, both funded and unfunded, yet to be recognized on exercised contracts.

Remaining performance obligations exclude unexercised option periods and unissued task orders under indefinite delivery, indefinite quantity (IDIQ) contracts.

Remaining performance obligations also exclude any variable consideration that is allocated entirely to unsatisfied performance obligations on our supply chain contracts.

As of April 29, 2022, the Company had $ 4.8 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 80 % of the remaining performance obligations over the next 12 months and approximately 90 % over the next 24 months, with the remaining recognized thereafter.

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Operating lease income is reported as revenue on the condensed and consolidated statements of income.

Operating lease income was $ 3 million and $ 14 million for the three and nine months ended October 29, 2021, respectively, and $ 11 million and $ 28 million for the three and nine months ended October 30, 2020, respectively.

During the three months ended April 29, 2022, the Company recognized revenue of $ 23 million from the exercise of purchase options under certain lessor arrangements.

Operating lease income was immaterial for the three months ended April 29, 2022 and $ 9 million for the three months ended April 30, 2021.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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Note 4— Acquisitions:

Halfaker Acquisition

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 $ 220 million, net of $ 3 million cash acquired, subject to post-closing adjustments.

The Company funded the transaction from increased borrowings (as discussed in Note 7) and cash on hand.

The allocation of the preliminary purchase price resulted in goodwill of $ 98 million and intangible assets of $ 112 million, all of which is deductible for income tax purposes.

During the third quarter of fiscal 2022, the Company increased goodwill by $ 6 million which consisted of a $ 3 million increase in the preliminary purchase price for final working capital adjustments and $ 3 million in fair value adjustments for other assets acquired.

The goodwill is primarily associated with future customer relationships and an acquired assembled work force.

On July 2, 2021, the Company completed the acquisition of Halfaker, a mission focused, pure-play health IT company for a purchase price of $ 228 million, net of $ 3 million cash acquired.

The Company funded the transaction from increased borrowings and cash on hand.

During the first quarter of fiscal 2023, the Company made fair value adjustments decreasing goodwill and increasing customer relationships intangible assets by $ 2 million.

As of April 29, 2022, the Company has completed the determination of fair values of the acquired assets and liabilities assumed.

The allocation of the purchase price resulted in goodwill of $ 104 million and intangible assets of $ 114 million, both of which are deductible for income tax purposes.

The recognized goodwill is primarily associated with future customer relationships and an acquired assembled work force.

The intangible assets consist of customer relationships of $ 97 million and backlog of $ 17 million that will be amortized over a period of nine years and one year , respectively.

The Company has not yet finalized the purchase accounting for the acquisition as it is still in the process of finalizing the valuation for certain assets acquired.

The Company will make additional cash payments of $ 21 million in March 2022 associated with certain change in control provisions that will be recognized as post-combination expense.

Koverse Acquisition

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 preliminary purchase price of $ 30 million, net of $ 2 million cash acquired, subject to post-closing adjustments.

The preliminary purchase price includes $ 3 million of contingent consideration, representing the fair value recognized for potential future earnout payments of up to $ 27 million based on the achievement of certain revenue targets over the next four years.

The allocation of the preliminary purchase price resulted in goodwill of $ 21 million and intangible assets of $ 10 million, which are not deductible for income tax purposes.

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.

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 included $ 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 Company has completed the allocation of the purchase price which 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 Acquisition

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.

During the second quarter of 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 $ 9 million and $ 17 million for the three and nine months ended October 29, 2021.

Amortization for the next four years is expected to be as follows:

$ 3 million for the remainder of 2022, $ 9 million in 2023, $ 8 million in 2024, and $ 2 million in 2025.

The amount of Unisys Federal's revenue included in the condensed and consolidated statements of income for the three and nine months ended October 30, 2020, was $ 200 million and $ 479 million, respectively, and the amount of net income attributable to common stockholders included in the condensed and consolidated statements of income for the three and nine months ended October 30, 2020, was $ 21 million and $ 40 million, respectively.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma financial information presents the combined results of operations for Unisys Federal and the Company for the three and nine months ended October 30, 2020:

Three Months Ended Nine Months Ended

October 30, 2020 October 30, 2020

(in millions)

Revenues $ 1,818 $ 5,429

Net income attributable to common stockholders $ 71 $ 186

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.

The Company is recognizing an additional $ 13 million of post-combination compensation expense associated with certain employee retention agreements over a two year period.

Note 5— Goodwill and Intangible Assets:

Goodwill had a carrying value of $ 2,905 million and $ 2,787 million as of October 29, 2021 and January 29, 2021, respectively.

Goodwill increased by $ 118 million during the nine months ended October 29, 2021, primarily due to the acquisitions of Halfaker ($ 98 million) and Koverse ($ 21 million) as discussed in Note 4.

Goodwill had a carrying value of $ 2,911 million and $ 2,913 million as of April 29, 2022 and January 28, 2022, respectively.

There were no impairments of goodwill during the periods presented.

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Intangible assets, all of which were finite-lived, consisted of the following:

October 29, 2021 January 29, 2021

April 29, 2022 January 28, 2022

Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value

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Total intangible assets $ 1,495 $ ( 394 ) $ 1,101 $ 1,495 $ ( 363 ) $ 1,132

Amortization expense related to intangible assets was $ 33 million and $ 94 million for the three and nine months ended October 29, 2021, respectively, and $ 40 million and $ 108 million for the three and nine months ended October 30, 2020, respectively.

Amortization expense related to intangible assets was $ 33 million and $ 32 million for the three months ended April 29, 2022 and April 30, 2021, respectively.

There were no intangible asset impairment losses during the periods presented.

As of October 29, 2021, the estimated future annual amortization expense related to intangible assets is as follows:

Fiscal Year Ending (in millions)

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

As of April 29, 2022, the estimated future annual amortization expense related to intangible assets is as follows:

Fiscal Year (in millions)

Remainder of 2023 $ 92

1 unchanged sentence

Total $ 1,101

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments, and other factors.

Note 6— Income Taxes:

The Company's effective income tax rate was 19.4 % and 22.0 % for the three and nine months ended October 29, 2021, respectively, and 22.4 % and 22.2 % for the three and nine months ended October 30, 2020, respectively.

The Company’s effective tax rate was lower for the three and nine months ended October 29, 2021 compared to the prior year periods primarily due to the completion of prior year tax return planning efforts recorded during the three months ended October 29, 2021.

Tax rates for the three and nine months ended October 29, 2021 were lower than the combined federal and state statutory rates principally due to excess tax benefits related to employee stock-based compensation, research and development tax credits, a Foreign Derived Intangible Income deduction, and other permanent book tax differences.

As of October 29, 2021, the Company's total liability for unrecognized tax benefits was $ 71 million, which is classified as other long-term liabilities on the condensed and consolidated balance sheets, and if recognized, would positively impact the effective tax rate.

While the Company believes it has adequate accruals for uncertainty in income taxes, the tax authorities, on review of the Company’s tax filings, 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 the tax authorities.

Although the timing of such reviews is not certain, over the next 12 months the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at October 29, 2021.

The Company's effective income tax rate was 22.0 % and 22.5 % for the three months ended April 29, 2022 and April 30, 2021, respectively.

The Company’s effective tax rate was lower for the three months ended April 29, 2022 compared to the prior year period primarily due to an increased deduction for foreign-derived intangible income.

Tax rates for the three months ended April 29, 2022 were lower than the combined federal and state statutory rates principally due to excess tax benefits related to employee stock-based compensation, research and development tax credits, and other permanent book tax differences.

Note 7— Debt Obligations:

The Company’s long-term debt as of the dates presented was as follows:

October 29, 2021 January 29, 2021

April 29, 2022 January 28, 2022

rate Effective

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$ 2,362 $ ( 20 ) $ 2,342 $ 2,392 $ ( 22 ) $ 2,370

As of October 29, 2021, the Company has a $ 2.6 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 $ 1,018 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.

There is no balance outstanding on the Revolving Credit Facility as of October 29, 2021.

As of October 29, 2021, the Company was in compliance with the covenants under its Credit Facility.

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 %.

As of April 29, 2022, the Company has a $ 2.5 billion credit facility (the Credit Facility) consisting of a secured Term Loan A Facility due October 2023, a secured Term Loan A2 Facility due October 2023, a secured Term Loan B Facility due October 2025, a secured Term Loan B2 Facility due March 2027 (together, the Term Loan Facilities), and a $ 400 million secured Revolving Credit Facility due October 2023.

There is no balance outstanding on the Revolving Credit Facility as of April 29, 2022.

As of April 29, 2022, the Company was in compliance with the covenants under its Credit Facility.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND 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 is secured by substantially all of the assets of the Company and the Company’s wholly owned domestic subsidiaries, and is guaranteed by each of the Company’s wholly owned domestic subsidiaries.

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.

As of October 29, 2021 and January 29, 2021, the carrying value of the Company’s outstanding debt obligations approximated its fair value.

As of April 29, 2022 and January 28, 2022, the carrying value of the Company’s outstanding debt obligations approximated its fair value.

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

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The Company’s derivative instruments designated as cash flow hedges consist of:

Fair Value of Liability (1) at

Notional Amount at October 29, 2021 Pay Fixed

Fair Value of (Liability) Asset (1) at

Notional Amount at April 29, 2022 Pay Fixed

Rate Settlement and

Termination October 29,

Termination April 29,

2022 January 28, 2022

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Interest rate swaps #1 $ 685 3.07 % 1-month

LIBOR Monthly through

July 30, 2021 $ — $ ( 3 )

Interest rate swaps #2 685 3.07 % 1-month

LIBOR Monthly through October 31, 2025 $ ( 4 ) $ ( 39 )

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Total $ 1,223 $ ( 2 ) $ ( 51 )

(1) The fair value of the fixed interest rate swaps liability is included in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

(1) The fair value of the fixed interest rate swap liability is included in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

The fair value of the fixed interest rate swap asset is included in other assets on the condensed and consolidated balance sheets.

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.

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See Note 9 for the unrealized change in fair values on cash flow hedges recognized in other comprehensive income (loss) and the amounts reclassified from accumulated other comprehensive loss into earnings for the current and comparative periods presented.

The Company estimates that it will reclassify $ 32 million of unrealized losses from accumulated other comprehensive loss into earnings in the twelve months following October 29, 2021.

The Company estimates that it will reclassify $ 5 million of unrealized losses from accumulated other comprehensive loss into earnings in the twelve months following April 29, 2022.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

9 unchanged sentences

(in millions)

Three months ended October 29, 2021

Balance at July 30, 2021 $ ( 71 ) $ ( 3 ) $ ( 74 )

Other comprehensive income before reclassifications 13 — 13

Amounts reclassified from accumulated other comprehensive loss

Income tax impact ( 5 ) — ( 5 )

Net other comprehensive income 17 — 17

Balance at October 29, 2021 $ ( 54 ) $ ( 3 ) $ ( 57 )

Three months ended October 30, 2020

Balance at July 31, 2020 $ ( 104 ) $ ( 5 ) $ ( 109 )

Three months ended April 29, 2022

Balance at January 28, 2022 $ ( 38 ) $ 1 $ ( 37 )

Other comprehensive income before reclassifications 42 — 42

2 unchanged sentences

Net other comprehensive income 37 — 37

Balance at October 30, 2020 $ ( 93 ) $ ( 5 ) $ ( 98 )

Nine months ended October 29, 2021

Balance at April 29, 2022 $ ( 1 ) $ 1 $ —

Three months ended April 30, 2021

Balance at January 29, 2021 $ ( 86 ) $ ( 3 ) $ ( 89 )

3 unchanged sentences

Net other comprehensive income 14 — 14

Balance at October 29, 2021 $ ( 54 ) $ ( 3 ) $ ( 57 )

Nine months ended October 30, 2020

Balance at January 31, 2020 $ ( 67 ) $ ( 5 ) $ ( 72 )

Other comprehensive loss before reclassifications ( 55 ) — ( 55 )

Amounts reclassified from accumulated other comprehensive loss

Income tax impact

Net other comprehensive loss ( 26 ) — ( 26 )

Balance at October 30, 2020 $ ( 93 ) $ ( 5 ) $ ( 98 )

Balance at April 30, 2021 $ ( 72 ) $ ( 3 ) $ ( 75 )

(1) The amount reclassified from accumulated other comprehensive loss is included in interest expense.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 10— Sales of Receivables:

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(the Purchaser) for the sale of up to a maximum amount of $ 300 million of certain designated eligible receivables with the U.S.

During the nine months ended October 29, 2021 and October 30, 2020, the Company incurred purchase discount fees of $ 2 million, which are presented in Other (income) expense, net on the condensed and consolidated statements of income.

Effective March 31, 2022, the Company amended the MARPA Facility to transition the purchase discount rate defined within the facility agreement from using LIBOR to Term Secured Overnight Finance Rate (SOFR).

The amendment did not have a material impact on the Company's condensed and consolidated financial statements.

During the three months ended April 29, 2022 and April 30, 2021, the Company incurred purchase discount fees of $ 1 million, which are presented in Other (income) expense, net on the condensed and consolidated statements of income.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

MARPA Facility activity consisted of the following:

Nine Months Ended

2021 October 30,

Three Months Ended

2022 April 30,

(in millions)

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Remaining sold receivables $ 178 $ 158

(1) For the nine months ended October 29, 2021 and October 30, 2020, the Company recorded a net increase to cash flows from operating activities of $ 15 million and $ 200 million, respectively, from sold receivables.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of October 29, 2021 and October 30, 2020.

(1) There was no net impact to cash flows from operating activities from sold receivables for the three months ended April 29, 2022.

For the three months ended April 30, 2021, the Company recorded a net increase to cash flows from operating activities of $ 15 million from sold receivables.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of April 29, 2022 and April 30, 2021.

This balance is included in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

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The Company is continuing to negotiate with the Marine Corps to recover costs associated with the termination.

Beginning in fiscal 2018, the Company entered into contracts with various vendors for long-lead time materials that would be necessary to complete the low-rate initial production (LRIP) phase of the program, including portions of the LRIP phase that had not yet been awarded.

Government Investigations, Audits and Reviews

4 unchanged sentences

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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

The indirect cost audits by the DCAA of the Company’s business remain open for certain prior years and the current year.

1 unchanged sentence

If future completed audit adjustments exceed the Company’s reserves for potential adjustments, the Company’s profitability could be materially adversely affected.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

The Company has recorded reserves for estimated net amounts to be refunded to customers for potential adjustments for indirect cost audits and compliance with Cost Accounting Standards.

As of October 29, 2021, the Company has recorded a total liability of $ 18 million which is presented in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

As of April 29, 2022, the Company has recorded a total liability of $ 14 million which is presented in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

Letters of Credit and Surety Bonds

The Company has outstanding obligations relating to letters of credit of $ 10 million as of October 29, 2021, principally related to guarantees on insurance policies.

The Company has outstanding obligations relating to letters of credit of $ 10 million as of April 29, 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.

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements