What changed in this filing

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Item 1. Financial Statements

2023-06-05 compared with 2022-12-05 · 162 added, 243 removed, 343 unchanged (54% of the section changed)

2 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions, except per share amounts)

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CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

Net income $ 98 $ 74

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

Other comprehensive (loss) income, net of tax:

Net unrealized (loss) gain on derivative instruments ( 6 ) 37

Total other comprehensive (loss) income, net of tax ( 6 ) 37

Comprehensive income $ 92 $ 111

5 unchanged sentences

CONDENSED AND CONSOLIDATED BALANCE SHEETS

2022 January 28,

2023 February 3,

(in millions)

3 unchanged sentences

Inventory, prepaid expenses and other current assets 77 152

Assets held for sale 181 —

Total current assets 1,675 1,197

1 unchanged sentence

Intangible assets, net 980 1,009

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

Property, plant, and equipment (net of accumulated depreciation of $ 189 million and $ 194 million at May 5, 2023 and February 3, 2023, respectively)

Operating lease right of use assets 154 158

5 unchanged sentences

Accrued payroll and employee benefits 277 328

Deposit liability for assets held for sale (Note 4) 355 —

Long-term debt, current portion 46 31

Liabilities held for sale 66 —

Total current liabilities 1,553 1,126

1 unchanged sentence

Operating lease liabilities 150 152

Deferred income taxes — 43

Other long-term liabilities 233 218

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 October 28, 2022 and January 28, 2022, respectively

Common stock, $ 0.0001 par value, 1 billion shares authorized, 54 million shares issued and outstanding as of May 5, 2023 and February 3, 2023

Additional paid-in capital 563 637

Retained earnings 1,113 1,035

Accumulated other comprehensive income (loss) 26 ( 37 )

Accumulated other comprehensive income 16 22

Total common stockholders' equity 1,692 1,694

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(in millions)

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

Net income — — 80 — — 80

Issuances of stock — 5 — — — 5

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

Cash dividends of $ 0.37 per share

— — ( 22 ) — — ( 22 )

Stock-based compensation — 11 — — — 11

Repurchases of stock — ( 60 ) — — — ( 60 )

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

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

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

Net income — — 226 — 2 228

Issuances of stock 1 13 — — — 13

Other comprehensive income, net of tax — — — 63 — 63

Cash dividends of $ 1.11 per share

— — ( 63 ) — — ( 63 )

Stock-based compensation — 19 — — — 19

Repurchases of stock ( 2 ) ( 191 ) — — — ( 191 )

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 February 3, 2023 54 $ 637 $ 1,035 $ 22 $ 10 $ 1,704

Net income — — 98 — — 98

Issuances of stock 1 4 — — — 4

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

Other comprehensive loss, net of tax — — — ( 6 ) — ( 6 )

Cash dividends of $ 0.37 per share

2 unchanged sentences

Repurchases of stock ( 1 ) ( 71 ) — — — ( 71 )

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

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

Deconsolidation of non-controlling interest — — — — ( 10 ) ( 10 )

Balance at May 5, 2023 54 $ 563 $ 1,113 $ 16 $ — $ 1,692

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

7 unchanged sentences

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

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

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

See accompanying notes to condensed and consolidated financial statements.

1 unchanged sentence

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

7 unchanged sentences

Stock-based compensation expense 12 11

Gain on divestitures — ( 2 )

Impairment of assets — 10

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

Gain on divestiture ( 7 ) —

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

Receivables ( 127 ) ( 89 )

3 unchanged sentences

Accrued payroll and employee benefits ( 43 ) 31

Income taxes payable 59 —

Operating lease assets and liabilities, net ( 3 ) ( 4 )

5 unchanged sentences

Sales of marketable securities 1 1

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

Proceeds from divestitures — 8

Proceeds from assets held for sale 355 —

Cash divested upon deconsolidation of joint venture ( 8 ) —

Other ( 3 ) —

Net cash used in investing activities ( 23 ) ( 272 )

Net cash provided by (used in) investing activities 336 ( 6 )

Cash flows from financing activities:

4 unchanged sentences

Proceeds from borrowings 160 —

Debt issuance costs ( 6 ) —

Distributions to non-controlling interest — ( 1 )

Net cash used in financing activities ( 105 ) ( 162 )

Net decrease in cash, cash equivalents and restricted cash ( 53 ) ( 33 )

Net increase (decrease) in cash, cash equivalents and restricted cash 313 ( 50 )

Cash, cash equivalents and restricted cash at beginning of period 118 115

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Note 1— Business Overview and Summary of Significant Accounting Policies:

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.

Science Applications International Corporation (collectively, with its consolidated subsidiaries, and herein referred to as "SAIC," the “Company,” "we," "us," or "our") is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S.

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.

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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.

Each of the Company’s two customer facing operating sectors is focused on providing both (1) growth and technology accelerating solutions and (2) core 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.

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

Principles of Consolidation and Basis of Presentation

The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes.

The accompanying financial information was prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes.

References to “financial statements” refer to the condensed and consolidated financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statements of equity and statements of cash flows.

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All intercompany transactions and account balances within the Company have been eliminated.

The financial statements are unaudited, but in the opinion of management include all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof.

The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year and should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended January 28, 2022.

Non-controlling Interest.

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

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

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

The financial statements are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation thereof.

Use of Estimates

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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.

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.

Fiscal 2024 began on February 4, 2023 and ends on February 2, 2024, while fiscal 2023 began on January 29, 2022 and ended on February 3, 2023.

Operating Cycle

The Company’s operating cycle may be greater than one year and is measured by the average time intervening between the inception and the completion of contracts.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments Designated as Cash Flow Hedges

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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 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.

As of May 5, 2023 and February 3, 2023, the fair value of the Company's investments totaled $ 29 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 its deferred compensation plan liabilities.

Cash, Cash Equivalents and Restricted Cash

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

2022 January 28,

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

2023 February 3,

(in millions)

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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

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

(in millions)

Acquisition (1)

$ ( 1 ) $ — $ ( 2 ) $ 3

Integration 10

Total acquisition and integration costs $ 9

(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 nine months ended October 29, 2021 include $ 10 million for the impairment of assets.

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

Restructuring

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.

During the three months ended May 5, 2023, the Company incurred $ 1 million of restructuring costs associated with the optimization and consolidation of certain facilities.

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

Investments in Equity Securities

The Company invests in certain companies that advance or develop new technologies applicable to its business.

The Company also occasionally forms joint ventures as a part of its investment strategy for the purpose of bidding and executing on specific projects.

Each investment is evaluated for consolidation under the variable interest entities (VIEs) model and/or the voting interest model.

The results of these investments are not material to the unaudited condensed and consolidated financial statements for the periods presented.

The Company applies the equity method of accounting to its unconsolidated investments when it has the ability to exercise significant influence over the entity and recognizes its proportionate share of the entities’ net income or loss within other operating income on the condensed and consolidated statements of income.

Equity investments in entities over which the Company does not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary impairments.

Accounting Standards Updates

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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):

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.

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.

The Company adopted the requirements of ASU 2022-04 effective the first day of fiscal 2024.

The Company maintains a supplier finance program through a financial institution in which participating suppliers, at their sole discretion, may enroll with the financial institution to finance at a discounted price one or more payment obligations of the Company prior to their scheduled due dates.

As of May 5, 2023, payment obligations outstanding under the Company’s supplier finance program were not material .

Note 2— Earnings Per Share, Share Repurchases and Dividends:

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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,

Three Months Ended

2023 April 29,

(in millions)

Basic weighted-average number of shares outstanding

55.0 57.5 55.6 57.8

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

0.5 0.5 0.4 0.6

Diluted weighted-average number of shares outstanding

55.5 58.0 56.0 58.4

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 .

Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for the three months ended May 5, 2023 and April 29, 2022 were immaterial .

Share Repurchases

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

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 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.

In June 2022, the number of shares of the Company's common stock that may be repurchased under its 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 May 5, 2023, the Company has repurchased approximately 17.7 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 May 5, 2023.

Note 3— Revenues:

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and performance being better or worse than previously estimated.

Many of the Company's contracts recognize revenue on performance obligations using a cost input measure (cost-to-cost), which requires estimates of total costs at completion.

A significant portion of the Company's contracts recognize revenue on performance obligations using a cost input measure (cost-to-cost), which requires estimates of total costs at completion.

In cases when total expected costs exceed total estimated revenues for a performance obligation, the Company recognizes the total estimated loss in the quarter identified.

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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

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions, except per share amounts)

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

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

Net favorable adjustments $ 5 $ 5

Net favorable adjustments, after tax 4 4

Diluted EPS impact $ 0.07 $ 0.07

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.

Revenues were $ 5 million and $ 4 million higher for the three months ended May 5, 2023 and April 29, 2022, 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 Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

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Disaggregated revenues by contract type were as follows:

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

3 unchanged sentences

Total $ 2,028 $ 1,996

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenues by prime versus subcontractor were as follows:

Three Months Ended Nine Months Ended

2022 October 29,

2021 October 28,

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

1 unchanged sentence

Subcontractor to federal government 136 137

Other 37 38 110 110

Total $ 2,028 $ 1,996

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 October 28,

2022 January 28,

Balance Sheet line item May 5,

2023 February 3,

(in millions)

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Contract liabilities - non-current Other long-term liabilities $ 3 $ 4

(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.

(1) Net of allowance of $ 4 million as of May 5, 2023 and February 3, 2023.

During the three months ended May 5, 2023 and April 29, 2022, the Company recognized revenues of $ 21 million and $ 27 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of February 3, 2023 and January 28, 2022, respectively.

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.

As of May 5, 2023, the Company had approximately $ 5 billion of remaining performance obligations.

Remaining performance obligations exclude any variable consideration that is allocated entirely to unsatisfied performance obligations on the Company's supply chain contracts.

The Company expects to recognize revenue on approximately 85 % of the remaining performance obligations over the next 12 months and approximately 95 % over the next 24 months, with the remaining recognized thereafter.

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All of the Company’s lessor arrangements are operating leases.

Operating lease revenue is recognized on a straight-line basis over the term of the lease.

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

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.

Operating lease income is recognized on a straight-line basis over the term of the lease and 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 May 5, 2023 and April 29, 2022.

Note 4— Divestitures:

FSA Amendment

On February 4, 2023, the Company sold 0.1 % of its 50.1 % majority ownership interest in Forfeiture Support Associates J.V.

(FSA) to its sole joint venture partner for a nominal amount.

As a result of the sale and amendment to the joint venture operating agreement of FSA, the Company no longer controls the joint venture and will account for its retained interest as an equity method investment as of the date of the transaction.

The Company remeasured its retained investment in FSA to a fair value of $ 14 million which is included within other assets on the condensed and consolidated balance sheets.

The remeasurement resulted in a gain of $ 7 million which is included within other operating income on the condensed and consolidated statements of income.

The Company estimated the fair value of its retained investment in FSA based on Level 3 inputs of the fair value hierarchy.

The Company used the income approach which involves the use of estimates and assumptions, including revenue growth rates, projected operating margins, discount rates and terminal growth rates.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 4— Acquisitions:

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.

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 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 .

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 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.

Sale of Logistics and Supply Chain Management Business

On March 23, 2023, the Company executed a definitive agreement to sell its logistics and supply chain management business (Supply Chain Business) to ASRC Federal Holding Company, LLC (ASRC Federal), a subsidiary of Arctic Slope Regional Corporation, for $ 350 million of pre-tax cash proceeds, subject to certain adjustments for working capital.

The sale enables the Company to focus its resources on long-term strategic growth areas.

The Company has presented the associated assets and liabilities of the Supply Chain Business as held for sale.

The major classes of assets and liabilities classified as held for sale as of May 5, 2023 were as follows:

(in millions)

Assets held for sale:

Receivables, net $ 46

Inventory, prepaid expenses and other current assets 73

Operating lease right of use assets 2

Total assets held for sale $ 181

Liabilities held for sale:

Accounts payable and accrued liabilities $ 63

Accrued payroll and employee benefits 2

Operating lease liabilities 1

Total liabilities held for sale $ 66

The disposition does not represent a strategic shift in operations that will have a material effect on the Company's operations and financial results, and accordingly has not been presented as discontinued operations.

During the first quarter of fiscal 2024, the Company received a refundable cash deposit of $ 355 million which represents the expected proceeds due upon closing of the transaction with ASRC Federal including preliminary adjustments for working capital.

The Company recognized the cash as a deposit liability for assets held for sale on the condensed and consolidated balance sheets.

Note 5— Goodwill and Intangible Assets:

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

Goodwill had a carrying value of $ 2,851 million and $ 2,911 million as of May 5, 2023 and February 3, 2023, respectively.

Goodwill decreased $ 60 million compared to February 3, 2023 due to the reclassification of goodwill associated with the Supply Chain Business to assets held for sale (see Note 4).

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:

October 28, 2022 January 28, 2022

May 5, 2023 February 3, 2023

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

1 unchanged sentence

Customer relationships $ 1,462 $ ( 489 ) $ 973 $ 1,467 $ ( 466 ) $ 1,001

Backlog — — — 17 ( 10 ) 7

Developed technology 10 ( 3 ) 7 10 ( 2 ) 8

1 unchanged sentence

Total intangible assets $ 1,473 $ ( 493 ) $ 980 $ 1,478 $ ( 469 ) $ 1,009

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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense related to intangible assets was $ 29 million and $ 33 million for the three months ended May 5, 2023 and April 29, 2022, respectively.

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

As of October 28, 2022, the estimated future annual amortization expense related to intangible assets is as follows:

As of May 5, 2023, the estimated future annual amortization expense related to intangible assets is as follows:

Fiscal Year (in millions)

1 unchanged sentence

Thereafter 451

Total $ 1,040

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 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.

The Company's effective income tax rate was 20.0 % and 22.0 % for the three months ended May 5, 2023 and April 29, 2022, respectively.

The Company’s effective tax rate was lower for the three months ended May 5, 2023 compared to the prior year period, primarily due to an increased deduction for foreign-derived intangible income and higher tax benefits from stock-based compensation.

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated the option for taxpayers to deduct certain research and development expenditures in the year incurred and instead requires taxpayers to capitalize and amortize such research expenditures over five years.

The Company's liabilities for uncertain tax positions were $ 176 million and $ 156 million as of May 5, 2023 and February 3, 2023, respectively.

The increase during the three months ended May 5, 2023 is primarily related to research tax credits and capitalized research and development costs pursuant to the TCJA, with a corresponding $ 15 million increase to deferred tax assets.

As of May 5, 2023 and February 3, 2023, the net deferred tax asset balance was $ 37 million and $ 14 million, respectively, and is presented in other assets on the condensed and consolidated balance sheets.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2 unchanged sentences

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

October 28, 2022 January 28, 2022

May 5, 2023 February 3, 2023

rate Effective

1 unchanged sentence

costs Net Principal Unamortized

(in millions)

(dollars in millions)

Term Loan A Facility due June 2027 6.33 % 6.45 % $ 1,230 $ ( 5 ) $ 1,225 $ 1,230 $ ( 5 ) $ 1,225

Term Loan A Facility due October 2023

— % — % — — — 785 ( 5 ) 780

Term Loan A2 Facility due October 2023 — % — % — — — 100 — 100

Term Loan B Facility due October 2025

7 unchanged sentences

$ 2,344 $ ( 15 ) $ 2,329 $ 2,359 $ ( 16 ) $ 2,343

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.

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

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 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.

As of May 5, 2023, 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 (the Revolving Credit Facility).

During the three months ended May 5, 2023, the Company borrowed and repaid $ 160 million under the Revolving Credit Facility.

There was no balance outstanding on the Revolving Credit Facility as of May 5, 2023.

As of May 5, 2023, the Company was in compliance with the covenants under its Credit Facility.

As of May 5, 2023 and February 3, 2023, 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 October 28, 2022 are:

Fiscal Year Total

(in millions)

Remainder of 2023 $ —

Thereafter 1,563

Total principal payments $ 2,390

Note 8— Derivative Instruments Designated as Cash Flow Hedges:

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

Fair Value of Asset (Liability) (1) at

Notional Amount at October 28, 2022 Pay Fixed

Fair Value of Asset (1) at

Notional Amount at May 5, 2023 Pay Fixed

Rate Settlement and

Termination October 28,

2022 January 28, 2022

Termination May 5,

2023 February 3, 2023

(in millions) (in millions)

3 unchanged sentences

(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.

2 unchanged sentences

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 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 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

The Company estimates that it will reclassify $ 18 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following May 5, 2023.

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

7 unchanged sentences

(in millions)

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 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 )

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 )

Nine months ended October 28, 2022

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

Other comprehensive income before reclassifications 72 — 72

Amounts reclassified from accumulated other comprehensive loss

Three months ended May 5, 2023

Balance at February 3, 2023 $ 18 $ 4 $ 22

Other comprehensive loss before reclassifications ( 2 ) — ( 2 )

Amounts reclassified from accumulated other comprehensive income ( 6 ) — ( 6 )

Income tax impact 2 — 2

Net other comprehensive income 63 — 63

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

Nine months ended October 29, 2021

Net other comprehensive loss ( 6 ) — ( 6 )

Balance at May 5, 2023 $ 12 $ 4 $ 16

Three months ended April 29, 2022

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

2 unchanged sentences

Income tax impact ( 13 ) — ( 13 )

( 11 ) — ( 11 )

Net other comprehensive income 37 — 37

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

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

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

4 unchanged sentences

(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 SOFR.

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

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.

During the three months ended May 5, 2023 and April 29, 2022, the Company incurred purchase discount fees of $ 3 million and $ 1 million, respectively, which are presented in other (income) expense, net on the condensed and consolidated statements of income and are reflected as cash flows from operating activities on the condensed and consolidated statements of cash flows.

MARPA Facility activity consisted of the following:

Nine Months Ended

2022 October 29,

Three Months Ended

2023 April 29,

(in millions)

6 unchanged sentences

Remaining sold receivables $ 210 $ 178

(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.

(1) There was no net impact to cash flows from operating activities from sold receivables for the three months ended May 5, 2023 and April 29, 2022.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of May 5, 2023 and April 29, 2022.

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

2 unchanged sentences

The Company is involved in various claims and lawsuits arising in the normal conduct of its business, none of which the Company’s management believes, based on current information, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

In April 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S.

Department of Justice, Antitrust Division (DOJ).

As required by the subpoena, the Company has provided the DOJ with a broad range of documents related to the investigation, and the Company’s collection and production process remains ongoing.

The Company is fully cooperating with the investigation.

At this time, it is not possible to determine whether the Company will incur, or to reasonably estimate the amount of, any fines, penalties or further liabilities in connection with the investigation pursuant to which the subpoena was issued.

AAV Termination for Convenience

12 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 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.

As of May 5, 2023, 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 October 28, 2022, principally related to guarantees on insurance policies.

The Company has outstanding obligations relating to letters of credit of $ 9 million as of May 5, 2023, 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.

Note 12— Subsequent Events:

Sale of Logistics and Supply Chain Management Business

On May 6, 2023, the Company closed the sale of its Supply Chain Business to ASRC Federal for $ 355 million in cash, subject to certain post-closing adjustments for working capital.

The Company expects to record a gain during the second quarter of fiscal 2024 upon the completion of the divestiture.

Quarterly Dividend Declared

On June 1, 2023, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on July 28, 2023 to stockholders of record on July 14, 2023.

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