What changed in this filing

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Item 1. Financial Statements

2022-12-05 compared with 2022-09-01 · 138 added, 129 removed, 448 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions, except per share amounts)

19 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

Net income $ 80 $ 71 $ 228 $ 235

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

Other comprehensive income, net of tax:

Net unrealized gain on derivative instruments 29 17 63 32

Total other comprehensive income, net of tax 29 17 63 32

Comprehensive income $ 109 $ 88 $ 291 $ 267

14 unchanged sentences

Intangible assets, net 1,040 1,132

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

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

Operating lease right of use assets 166 209

12 unchanged sentences

Commitments and contingencies (Note 11)

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

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

Additional paid-in capital 679 838

Retained earnings 981 818

Accumulated other comprehensive loss ( 3 ) ( 37 )

Accumulated other comprehensive income (loss) 26 ( 37 )

Total common stockholders' equity 1,686 1,619

9 unchanged sentences

comprehensive

loss Non-controlling

income (loss) Non-controlling

interest Total

(in millions)

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

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

Net income — — 80 — — 80

Issuances of stock — 5 — — — 5

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

Other comprehensive income, net of tax — — — 29 — 29

Cash dividends of $ 0.37 per share

3 unchanged sentences

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

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

Balance at October 28, 2022 55 $ 679 $ 981 $ 26 $ 10 $ 1,696

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

7 unchanged sentences

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

Balance at October 28, 2022 55 $ 679 $ 981 $ 26 $ 10 $ 1,696

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

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

Net income — — 71 — — 71

6 unchanged sentences

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

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

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

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

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

See accompanying notes to condensed and consolidated financial statements.

1 unchanged sentence

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

2022 July 30,

Nine Months Ended

2022 October 29,

(in millions)

81 unchanged sentences

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.

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.

See Note 8 for further discussion on the Company’s derivative instruments designated as cash flow hedges.

1 unchanged sentence

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 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.

As of October 28, 2022 and January 28, 2022, the fair value of our investments totaled $ 26 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.

16 unchanged sentences

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

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

3 unchanged sentences

Total acquisition and integration costs $ 1 $ 12 $ 11 $ 36

(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.

(1) Acquisition expenses for the three and nine months ended October 28, 2022 reflects amounts recognized to reduce the fair value of the Koverse earnout liability.

Acquisition expenses for the nine months ended October 29, 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.

(2) Integration expenses for the nine months ended October 29, 2021 include $ 10 million 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.

During the three and nine months ended October 28, 2022, the Company incurred $ 5 million and $ 7 million, respectively, of restructuring costs related to the consolidation of certain facilities and other costs associated with the optimization of business processes.

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

Accounting Standards Updates

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

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) , which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services.

The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

These amendments are effective for fiscal years beginning after December 15, 2022, except for the requirement to provide rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

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

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:

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.

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:

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS for the periods presented:

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

5 unchanged sentences

55.5 58.0 56.0 58.4

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 and six months ended July 29, 2022 and July 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 nine months ended October 28, 2022 and October 29, 2021 were immaterial .

Share Repurchases

3 unchanged sentences

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.

As of October 28, 2022, we have repurchased approximately 16.5 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 October 28, 2022.

Subsequent to the end of the quarter, on November 29, 2022, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on January 27, 2023 to stockholders of record on January 13, 2023.

Note 3— Revenues:

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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 Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions, except per share amounts)

Net favorable adjustments $ 5 $ 6 $ 10 $ 9

Net favorable adjustments, after tax 4 5 8 7

Net (unfavorable) favorable adjustments $ ( 6 ) $ — $ 4 $ 9

Net (unfavorable) favorable adjustments, after tax ( 5 ) — 3 7

Diluted EPS impact $ ( 0.09 ) $ — $ 0.05 $ 0.12

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

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Revenues were $ 2 million lower and $ 7 million higher for the three and nine months ended October 28, 2022, respectively, and $ 1 million and $ 21 million higher for the three and nine months ended October 29, 2021, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

Disaggregation of Revenues

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Disaggregated revenues by customer were as follows:

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

4 unchanged sentences

Disaggregated revenues by contract-type were as follows:

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

3 unchanged sentences

Total $ 1,909 $ 1,898 $ 5,736 $ 5,612

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenues by prime versus subcontractor were as follows:

Three Months Ended Six Months Ended

2022 July 30,

2021 July 29,

2022 July 30,

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

(in millions)

3 unchanged sentences

Total $ 1,909 $ 1,898 $ 5,736 $ 5,612

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Contract Balances

Contract balances for the periods presented were as follows:

Balance Sheet line item July 29,

Balance Sheet line item October 28,

2022 January 28,

6 unchanged sentences

Contract liabilities - non-current Other long-term liabilities $ 5 $ 9

(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.

(1) Net of allowance of $ 3 million and $ 4 million as of October 28, 2022 and January 28, 2022, respectively.

During the three and nine months ended October 28, 2022, the Company recognized revenues of $ 4 million and $ 39 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022.

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.

Remaining Performance Obligations

As of July 29, 2022, the Company had $ 5.0 billion of remaining performance obligations.

As of October 28, 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 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.

During the nine months ended October 28, 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 nine months ended October 28, 2022 and $ 3 million and $ 14 million for the three and nine months ended October 29, 2021, respectively.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

14 unchanged sentences

The intangible assets, which primarily consist of developed technology, are being amortized over a weighted-average period of seven years .

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.

As of October 28, 2022, the Company has recognized $ 11 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.

During the second quarters 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 accelerations resulted in additional amortization of $ 4 million and $ 6 million for the three and nine months ended October 28, 2022, respectively, and $ 9 million and $ 17 million for the three and nine months ended October 29, 2021, respectively.

As of October 28, 2022, the remaining unamortized balance of the provision for certain off-market customer contracts is $ 7 million and 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 July 29, 2022 and January 28, 2022, respectively.

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

There were no impairments of goodwill during the periods presented.

3 unchanged sentences

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

July 29, 2022 January 28, 2022

October 28, 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 $ ( 438 ) $ 1,040 $ 1,495 $ ( 363 ) $ 1,132

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.

Amortization expense related to intangible assets was $ 29 million and $ 94 million for the three and nine months ended October 28, 2022, respectively, and $ 33 million and $ 94 million for the three and nine months ended October 29, 2021, respectively.

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

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

As of October 28, 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 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.

The Company's effective income tax rate was 20.3 % and 21.3 % for the three and nine months ended October 28, 2022, respectively, and 19.4 % and 22.0 % for the three and nine months ended October 29, 2021, respectively.

The Company’s effective tax rate was higher for the three months ended October 28, 2022 compared to the prior year period primarily due to a lower deduction for foreign-derived intangible income.

The Company’s effective tax rate was lower for the nine months ended October 28, 2022 compared to the prior year period primarily due to tax benefits recorded in fiscal 2023 from the completion of prior year tax return planning efforts including foreign-derived intangible income studies.

Tax rates for the three and nine months ended October 28, 2022 were lower than the combined federal and state statutory rates 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.

As of January 28, 2022, the net deferred tax liability balance was $ 43 million and is presented as deferred income taxes on the condensed and consolidated balance sheets.

As of October 28, 2022, the net deferred tax asset balance is $ 3 million, which is presented in other assets on the condensed and consolidated balance sheets and is due to capitalization of certain research and development expenses required under the Tax Cuts and Jobs Act of 2017.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2 unchanged sentences

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

July 29, 2022 January 28, 2022

October 28, 2022 January 28, 2022

rate Effective

11 unchanged sentences

Senior Notes due April 2028 4.88 % 5.11 % 400 ( 5 ) 395 400 ( 5 ) 395

4.88 % 5.11 % 400 ( 5 ) 395 400 ( 5 ) 395

Total long-term debt $ 2,390 $ ( 17 ) $ 2,373 $ 2,540 $ ( 22 ) $ 2,518

2 unchanged sentences

$ 2,375 $ ( 17 ) $ 2,358 $ 2,392 $ ( 22 ) $ 2,370

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.

As of October 28, 2022, the Company has a $ 3.0 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 made a $ 90 million voluntary principal prepayment on the Term Loan B Facility due October 2025.

During the nine months ended October 28, 2022, the Company borrowed and repaid $ 200 million under the Revolving Credit Facility.

There was no balance outstanding on the Revolving Credit Facility as of October 28, 2022.

As of October 28, 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.

8 unchanged sentences

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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.

Effective with the Fifth Amendment, all interest rates under the Credit Facility transitioned from LIBOR to Term Secured Overnight Financing Rate (Term 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 Term 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.

During the nine months ended October 28, 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 October 28, 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:

Maturities of long-term debt as of October 28, 2022 are:

Fiscal Year Total

5 unchanged sentences

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

Fair Value of (Liability) Asset (1) at

Notional Amount at July 29, 2022 Pay Fixed

Fair Value of Asset (Liability) (1) at

Notional Amount at October 28, 2022 Pay Fixed

Rate Settlement and

Termination July 29,

Termination October 28,

2022 January 28, 2022

3 unchanged sentences

Total $ 1,210 $ 34 $ ( 51 )

(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.

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

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 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.

4 unchanged sentences

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.

The Company elected to apply the optional expedient in ASC 848 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 $ 3 million of unrealized gains from accumulated other comprehensive loss into earnings in the twelve months following July 29, 2022.

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 income (loss) into earnings for the current and comparative periods presented.

The Company estimates that it will reclassify $ 22 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following October 28, 2022.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 9— Changes in Accumulated Other Comprehensive Loss by Component:

The following table presents the changes in accumulated other comprehensive loss attributable to the Company’s fixed interest rate swap cash flow hedges that are discussed in Note 8 and the Company's defined benefit plans.

Note 9— Changes in Accumulated Other Comprehensive Income (Loss) by Component:

The following table presents the changes in accumulated other comprehensive income (loss) attributable to the Company’s fixed interest rate swap cash flow hedges that are discussed in Note 8 and the Company's defined benefit plans.

Unrealized Gains

5 unchanged sentences

(in millions)

Three months ended July 29, 2022

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

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

Three months ended October 28, 2022

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

Other comprehensive income before reclassifications 38 — 38

Amounts reclassified from accumulated other comprehensive loss

Income tax impact ( 10 ) — ( 10 )

Net other comprehensive loss ( 3 ) — ( 3 )

Net other comprehensive income 29 — 29

Balance at October 28, 2022 $ 25 $ 1 $ 26

Three months ended October 29, 2021

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

Three months ended July 30, 2021

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

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

Other comprehensive income before reclassifications 13 — 13

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

Net other comprehensive income 17 — 17

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

Six months ended July 29, 2022

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

Nine months ended October 28, 2022

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

3 unchanged sentences

Net other comprehensive income 63 — 63

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

Six months ended July 30, 2021

Balance at October 28, 2022 $ 25 $ 1 $ 26

Nine months ended October 29, 2021

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

4 unchanged sentences

Net other comprehensive income 32 — 32

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

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

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

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

5 unchanged sentences

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.

During the nine months ended October 28, 2022 and October 29, 2021, the Company incurred purchase discount fees of $ 4 million and $ 2 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:

Six Months Ended

2022 July 30,

Nine Months Ended

2022 October 29,

(in millions)

6 unchanged sentences

Remaining sold receivables $ 245 $ 169

(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.

(1) For the nine months ended October 28, 2022 and October 29, 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 October 28, 2022 and October 29, 2021.

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

16 unchanged sentences

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

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.

As of October 28, 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 U.S.

government Cost Accounting Standards.

Letters of Credit and Surety Bonds

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.

The Company has outstanding obligations relating to letters of credit of $ 9 million as of October 28, 2022, principally related to guarantees on insurance policies.

The Company also has outstanding obligations relating to surety bonds of $ 19 million, principally related to performance and payment bonds on the Company’s contracts.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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