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Item 1. Financial Statements

2022-09-01 compared with 2022-06-06 · 178 added, 95 removed, 399 unchanged (41% of the section changed)

2 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions, except per share amounts)

19 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

Net income $ 74 $ 82 $ 148 $ 164

Other comprehensive income, net of tax:

Net unrealized gain on derivative instruments 37 14

Total other comprehensive income, net of tax 37 14

Other comprehensive (loss) income, net of tax:

Net unrealized (loss) gain on derivative instruments ( 3 ) 1 34 15

Total other comprehensive (loss) income, net of tax ( 3 ) 1 34 15

Comprehensive income $ 71 $ 83 $ 182 $ 179

14 unchanged sentences

Intangible assets, net 1,069 1,132

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

Property, plant, and equipment (net of accumulated depreciation of $ 194 million and $ 182 million at July 29, 2022 and January 28, 2022, respectively)

Operating lease right of use assets 173 209

12 unchanged sentences

Commitments and contingencies (Note 11)

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

Common stock, $ 0.0001 par value, 1 billion shares authorized, 55 million and 56 million shares issued and outstanding as of July 29, 2022 and January 28, 2022, respectively

Additional paid-in capital 723 838

15 unchanged sentences

(in millions)

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

Net income — — 73 — 1 74

Issuances of stock — 3 — — — 3

Other comprehensive loss, net of tax — — — ( 3 ) — ( 3 )

Cash dividends of $ 0.37 per share

— — ( 20 ) — — ( 20 )

Stock-based compensation — 12 — — — 12

Repurchases of stock ( 1 ) ( 62 ) — — — ( 62 )

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

Balance at July 29, 2022 55 $ 723 $ 923 $ ( 3 ) $ 10 $ 1,653

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

7 unchanged sentences

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

Balance at July 29, 2022 55 $ 723 $ 923 $ ( 3 ) $ 10 $ 1,653

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

Net income — — 82 — — 82

Issuances of stock — 4 — — — 4

Other comprehensive income, net of tax — — — 1 — 1

Cash dividends of $ 0.37 per share

— — ( 22 ) — — ( 22 )

Stock-based compensation — 13 — — — 13

Repurchases of stock — ( 37 ) — — — ( 37 )

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

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

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

7 unchanged sentences

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

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

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

See accompanying notes to condensed and consolidated financial statements.

1 unchanged sentence

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

2022 April 30,

Six Months Ended

2022 July 30,

(in millions)

9 unchanged sentences

Impairment of assets — 10

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

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

Receivables ( 21 ) ( 80 )

3 unchanged sentences

Accrued payroll and employee benefits ( 27 ) 20

Income taxes payable 36 —

Operating lease assets and liabilities, net — 3

5 unchanged sentences

Sales of marketable securities 2 2

Cash paid for acquisitions, net of cash acquired — ( 244 )

Proceeds from divestitures — 8

7 unchanged sentences

Proceeds from borrowings 515 116

Debt issuance costs ( 5 ) —

Distributions to non-controlling interest ( 2 ) ( 1 )

Net cash used in financing activities ( 249 ) ( 73 )

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

Net decrease in cash, cash equivalents and restricted cash ( 7 ) ( 48 )

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

46 unchanged sentences

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 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.

As of July 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.

11 unchanged sentences

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.

Integration-related costs typically include strategic consulting services, facility consolidations, 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.

2 unchanged sentences

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

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

Acquisition (1)

$ — $ 2 $ ( 1 ) $ 3

Integration (2)

Total acquisition and integration costs $ 1 $ 14 $ 10 $ 24

(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.

(1) Acquisition expenses for the six months ended July 29, 2022 reflects the amount recognized to reduce the fair value of the Koverse earnout liability.

Acquisition expenses for the three and six months ended July 30, 2021 are related to the acquisitions of Halfaker and Koverse.

See Note 4 for additional information related to the acquisitions.

(2) Integration expenses for the three and six months ended July 30, 2021 include $ 3 million and $ 10 million, respectively, for the impairment of assets.

Restructuring

During the three and six months ended July 29, 2022, the Company incurred $ 2 million of restructuring costs associated with the optimization and consolidation of certain facilities.

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

Accounting Standards Updates

5 unchanged sentences

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.

Other Accounting Standards Updates effective after July 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:

3 unchanged sentences

A reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS was:

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

Basic weighted-average number of shares outstanding

55.6 57.9 55.9 58.0

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

0.3 0.5 0.4 0.5

Diluted weighted-average number of shares outstanding

55.9 58.4 56.3 58.5

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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 .

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

Share Repurchases

2 unchanged sentences

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.

In June 2022, the number of shares of our common stock that may be repurchased under our existing repurchase plan was increased by 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares.

As of July 29, 2022, we have repurchased approximately 15.9 million shares of common stock under the program.

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

Subsequent to the end of the quarter, on August 30, 2022, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on October 28, 2022 to stockholders of record on October 14, 2022.

Note 3— Revenues:

10 unchanged sentences

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

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions, except per share amounts)

2 unchanged sentences

Diluted EPS impact $ 0.07 $ 0.08 $ 0.14 $ 0.12

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.

Revenues were $ 5 million and $ 9 million higher for the three and six months ended July 29, 2022, respectively, and $ 15 million and $ 20 million higher for the three and six months ended July 30, 2021, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

5 unchanged sentences

Disaggregated revenues by customer were as follows:

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

4 unchanged sentences

Disaggregated revenues by contract-type were as follows:

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

4 unchanged sentences

Disaggregated revenues by prime versus subcontractor were as follows:

Three Months Ended

2022 April 30,

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

(in millions)

1 unchanged sentence

Subcontractor to federal government 130 142 267 295

Other 36 37 73 72

Total $ 1,831 $ 1,836 $ 3,827 $ 3,714

3 unchanged sentences

Contract balances for the periods presented were as follows:

Balance Sheet line item April 29,

Balance Sheet line item July 29,

2022 January 28,

6 unchanged sentences

Contract liabilities - non-current Other long-term liabilities $ 6 $ 9

(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.

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

During the three and six months ended July 29, 2022, the Company recognized revenues of $ 8 million and $ 35 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022.

During the three and six months ended July 30, 2021, the Company recognized revenues of $ 14 million and $ 64 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 29, 2021.

Remaining Performance Obligations

As of April 29, 2022, the Company had $ 4.8 billion of remaining performance obligations.

As of July 29, 2022, the Company had $ 5.0 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.

5 unchanged sentences

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

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.

During the six months ended July 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 and six months ended July 29, 2022 and $ 2 million and $ 11 million for the three and six months ended July 30, 2021, respectively.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

4 unchanged sentences

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 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.

7 unchanged sentences

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 of post-combination compensation expense associated with certain employee retention agreements over a two year period.

As of July 29, 2022, the Company has recognized $ 10 million of the additional $ 13 million of post-combination compensation expense associated with certain employee retention agreements.

Unisys Federal

During the second quarter of fiscal 2023 and 2022, the Company accelerated the amortization for certain off-market customer contracts as a result of a change in their expected contractual terms.

The acceleration resulted in additional amortization of $ 2 million and $ 8 million, respectively.

The remaining unamortized balance of the provision for certain off-market customer contracts is expected to be amortized by the end of fiscal 2024.

Note 5— Goodwill and Intangible Assets:

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

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

There were no impairments of goodwill during the periods presented.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

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

April 29, 2022 January 28, 2022

July 29, 2022 January 28, 2022

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

5 unchanged sentences

Total intangible assets $ 1,478 $ ( 409 ) $ 1,069 $ 1,495 $ ( 363 ) $ 1,132

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.

Amortization expense related to intangible assets was $ 32 million and $ 65 million for the three and six months ended July 29, 2022, respectively, and $ 29 million and $ 61 million for the three and six months ended July 30, 2021, respectively.

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

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:

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

Fiscal Year (in millions)

4 unchanged sentences

Note 6— Income Taxes:

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.

The Company's effective income tax rate was 21.8 % and 21.9 % for the three and six months ended July 29, 2022, respectively, and 23.6 % and 23.0 % for the three and six months ended July 30, 2021, respectively.

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

Tax rates for the three and six months ended July 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, a deduction for foreign-derived intangible income, and other permanent book tax differences.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 7— Debt Obligations:

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

April 29, 2022 January 28, 2022

July 29, 2022 January 28, 2022

rate Effective

2 unchanged sentences

(in millions)

Term Loan A Facility due June 2027 3.68 % 3.79 % $ 1,230 $ ( 5 ) $ 1,225 $ — $ — $ —

Term Loan A Facility due October 2023

11 unchanged sentences

$ 2,480 $ ( 18 ) $ 2,462 $ 2,392 $ ( 22 ) $ 2,370

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.

As of July 29, 2022, the Company has a $ 3.1 billion secured credit facility (the Credit Facility) consisting of a Term Loan A Facility due June 2027, a Term Loan B Facility due October 2025, a Term Loan B2 Facility due March 2027 (together, the Term Loan Facilities), and a $ 1.0 billion Revolving Credit Facility due June 2027.

During the quarter, the Company borrowed and repaid $ 85 million under the Revolving Credit Facility.

There was no balance outstanding on the Revolving Credit Facility as of July 29, 2022.

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

On June 30, 2022, the Company executed the Fifth Amendment to the Third Amended and Restated Credit Agreement (Fifth Amendment), which established, among other things, a $ 1,230 million senior secured term loan credit facility (Term Loan A Facility due June 2027) and increased the Revolving Credit Facility commitment from $ 400 million to $ 1,000 million.

The entire Term Loan A Facility due June 2027 was immediately borrowed by the Company and the proceeds were used to pay in full the outstanding principal balances under the Term Loan A Facility due October 2023 and Term Loan A2 Facility due October 2023 and to prepay $ 400 million of principal on the Term Loan B Facility due October 2025.

For the three months ended July 29, 2022, the Company wrote off deferred debt issuance costs of $ 3 million associated with the Term Loan B Facility due October 2025 voluntary principal prepayments which was recognized in interest expense.

Borrowings under the Term Loan A Facility due June 2027 amortize quarterly beginning on October 31, 2023 at 1.250 % of the original borrowed amount thereunder, with such quarterly amortization increasing to 1.875 % on October 31, 2024 and to 2.500 % on October 31, 2025.

The Term Loan A Facility due June 2027 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.

As a result of the Fifth Amendment, the maturity date for the Revolving Credit Facility was extended to, and the maturity date of the Term Loan A Facility due June 2027 is, the earlier of June 30, 2027 or 91 days prior to the earliest term loan “B” facility maturity date (subject to acceleration in certain circumstances).

The Term Loan A Facility due June 2027 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 A Facility due June 2027 is subject to the same covenants and events of default as the Company’s existing term loans under the Credit Facility.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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

Effective with the Fifth Amendment, all interest rates under the Credit Facility transitioned from LIBOR to Secured Overnight Financing Rate (SOFR) plus 0.10 % for US dollar denominated loans, Sterling Overnight Index Average (SONIA) for UK pound sterling denominated loans, and Euro Interbank Offered Rate (EURIBOR) for Euro denominated loans.

The applicable interest rate margins under the Term Loan A Facility due June 2027 and the Revolving Credit Facility were reduced to a range from 0.75 % to 1.75 % per annum for SOFR, SONIA and EURIBOR loans, and from 0 % to 0.75 % per annum for base rate loans, in each case based on the Company’s leverage ratio.

Commitment fees for undrawn amounts under the Revolving Credit Facility were also reduced to a range of 0.125 % to 0.25 % per annum based on the Company’s leverage ratio.

During the three months ended July 29, 2022, the Company incurred $ 8 million of debt issuance costs associated with the Fifth Amendment, of which $ 2 million was recognized in interest expense, with the remaining $ 6 million deferred and amortized to interest expense through the maturity date of the facility utilizing the effective interest rate method.

As of July 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.

Maturities of long-term debt as of July 29, 2022 are:

Fiscal Year Total

(in millions)

Remainder of 2023 $ —

Thereafter 1,563

Total principal payments $ 2,480

Note 8— Derivative Instruments Designated as Cash Flow Hedges:

1 unchanged sentence

Fair Value of (Liability) Asset (1) at

Notional Amount at April 29, 2022 Pay Fixed

Notional Amount at July 29, 2022 Pay Fixed

Rate Settlement and

Termination April 29,

Termination July 29,

2022 January 28, 2022

(in millions) (in millions)

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

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

Interest rate swaps #2 538 2.49 % 1-month

LIBOR Monthly through October 31, 2023 2 ( 12 )

Interest rate swaps #1 $ 685 2.96 % Term SOFR Monthly through October 31, 2025 $ ( 8 ) $ ( 39 )

Interest rate swaps #2 525 2.36 % Term SOFR Monthly through October 31, 2023 3 ( 12 )

Total $ 1,210 $ ( 5 ) $ ( 51 )

3 unchanged sentences

The counterparties to all swap agreements are financial institutions.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

On June 30, 2022 and in conjunction with the Fifth Amendment, the Company transitioned the variable rate on its interest rate swaps from 1-month LIBOR to 1-month Term SOFR.

Effective with the transition, the Company will pay fixed rates of 2.96 % and 2.36 % on the group of interest rate swaps maturing on October 31, 2025 and October 31, 2023, respectively.

The Company elected to apply the optional expedient in connection with transitioning its interest rate swaps from LIBOR to Term SOFR that enabled it to consider the new swaps a continuation of the existing contracts.

As a result, the transition did not have an impact on the Company’s hedge accounting or a material impact to the Company’s financial statements.

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 $ 5 million of unrealized losses from accumulated other comprehensive loss into earnings in the twelve months following April 29, 2022.

The Company estimates that it will reclassify $ 3 million of unrealized gains from accumulated other comprehensive loss into earnings in the twelve months following July 29, 2022.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

9 unchanged sentences

(in millions)

Three months ended April 29, 2022

Three months ended July 29, 2022

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

Other comprehensive loss before reclassifications ( 8 ) — ( 8 )

Amounts reclassified from accumulated other comprehensive loss

Income tax impact 1 — 1

Net other comprehensive loss ( 3 ) — ( 3 )

Balance at July 29, 2022 $ ( 4 ) $ 1 $ ( 3 )

Three months ended July 30, 2021

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

Other comprehensive loss before reclassifications ( 6 ) — ( 6 )

Amounts reclassified from accumulated other comprehensive loss

Income tax impact ( 1 ) — ( 1 )

Net other comprehensive income 1 — 1

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

Six months ended July 29, 2022

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

3 unchanged sentences

Net other comprehensive income 34 — 34

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

Three months ended April 30, 2021

Balance at July 29, 2022 $ ( 4 ) $ 1 $ ( 3 )

Six months ended July 30, 2021

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

2 unchanged sentences

Income tax impact

( 6 ) — ( 6 )

Net other comprehensive income 15 — 15

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

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

(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:

1 unchanged sentence

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

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

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 SOFR.

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

During the six months ended July 29, 2022 and July 30, 2021, the Company incurred purchase discount fees of $ 2 million and $ 1 million, respectively, which are presented in Other (income) expense, net on the condensed and consolidated statements of income.

MARPA Facility activity consisted of the following:

Three Months Ended

2022 April 30,

Six Months Ended

2022 July 30,

(in millions)

6 unchanged sentences

Remaining sold receivables $ 231 $ 154

(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.

(1) For the six months ended July 29, 2022 and July 30, 2021, the Company recorded a net increase to cash flows from operating activities of $ 60 million and $ 15 million, respectively, from sold receivables.

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

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

5 unchanged sentences

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Government Investigations, Audits and Reviews

7 unchanged sentences

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 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.

As of July 29, 2022, the Company believes it has adequately reserved for estimated net amounts to be refunded to customers for potential adjustments for indirect cost audits and compliance with Cost Accounting Standards.

Letters of Credit and Surety Bonds

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 has outstanding obligations relating to letters of credit of $ 9 million as of July 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