What changed in this filing

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Item 1. Financial Statements

2023-09-07 compared with 2023-06-05 · 177 added, 115 removed, 390 unchanged (43% of the section changed)

2 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions, except per share amounts)

3 unchanged sentences

Acquisition and integration costs 1 1 1 10

Other operating income ( 6 ) —

Other operating income (includes gain on divestiture, see Note 4)

( 235 ) — ( 241 ) —

Operating income 362 125 519 250

13 unchanged sentences

CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions)

Net income $ 247 $ 74 $ 345 $ 148

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

Other comprehensive income (loss), net of tax:

Net unrealized gain (loss) on derivative instruments 7 ( 3 ) 1 34

Total other comprehensive income (loss), net of tax 7 ( 3 ) 1 34

Comprehensive income $ 254 $ 71 $ 346 $ 182

11 unchanged sentences

Inventory, prepaid expenses and other current assets 74 152

Assets held for sale 181 —

Total current assets 1,384 1,197

1 unchanged sentence

Intangible assets, net 951 1,009

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

Property, plant, and equipment (net of accumulated depreciation of $ 193 million and $ 194 million at August 4, 2023 and February 3, 2023, respectively)

Operating lease right of use assets 140 158

5 unchanged sentences

Accrued payroll and employee benefits 330 328

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

Long-term debt, current portion 62 31

Liabilities held for sale 66 —

Total current liabilities 1,212 1,126

3 unchanged sentences

Commitments and contingencies (Note 11)

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

Common stock, $ 0.0001 par value, 1 billion shares authorized, 53 million and 54 million shares issued and outstanding as of August 4, 2023 and February 3, 2023, respectively

Additional paid-in capital 480 637

15 unchanged sentences

(in millions)

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

Net income — — 247 — — 247

Issuances of stock — 5 — — — 5

Other comprehensive income, net of tax — — — 7 — 7

Cash dividends of $ 0.37 per share

— — ( 20 ) — — ( 20 )

Stock-based compensation — 14 — — — 14

Repurchases of stock ( 1 ) ( 102 ) — — — ( 102 )

Balance at August 4, 2023 53 $ 480 $ 1,340 $ 23 $ — $ 1,843

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

1 unchanged sentence

Issuances of stock 1 9 — — — 9

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

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

Cash dividends of $ 0.74 per share

3 unchanged sentences

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

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

Balance at August 4, 2023 53 $ 480 $ 1,340 $ 23 $ — $ 1,843

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

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

See accompanying notes to condensed and consolidated financial statements.

1 unchanged sentence

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

2023 April 29,

Six Months Ended

2023 July 29,

(in millions)

7 unchanged sentences

Stock-based compensation expense 27 23

Gain on divestiture ( 7 ) —

Gain on sale of long-lived assets ( 3 ) —

Gain on divestitures ( 247 ) —

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

4 unchanged sentences

Accrued payroll and employee benefits 9 ( 27 )

Income taxes payable 74 36

Operating lease assets and liabilities, net ( 2 ) —

5 unchanged sentences

Sales of marketable securities 4 2

Proceeds from assets held for sale 355 —

Proceeds from sale of long-lived assets 3 —

Proceeds from divestitures 355 —

Cash divested upon deconsolidation of joint venture ( 8 ) —

7 unchanged sentences

Proceeds from borrowings 160 515

Debt issuance costs — ( 5 )

Distributions to non-controlling interest — ( 2 )

14 unchanged sentences

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

Core service offerings include systems engineering and the operation and maintenance of existing IT systems and networks.

Principles of Consolidation and Basis of Presentation

26 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 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.

As of August 4, 2023 and February 3, 2023, the fair value of the Company's investments totaled $ 30 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.

13 unchanged sentences

Acquisition and integration costs are presented together as acquisition and integration costs on the condensed and consolidated statements of income.

Acquisition costs for the three and six months ended August 4, 2023 were immaterial.

During the six months ended July 29, 2022, the Company recognized a $ 1 million benefit related to the acquisition of Koverse.

During the three and six months ended August 4, 2023, the Company incurred $ 1 million of integration costs related to the acquisitions of Halfaker and Koverse.

During the three and six months ended July 29, 2022, the Company incurred $ 1 million and $ 11 million of integration costs, respectively, related to the acquisitions of Halfaker and Koverse.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended

(in millions)

Acquisition (1)

Integration 10

Total acquisition and integration costs $ 9

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

Restructuring

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.

During the three and six months ended August 4, 2023, the Company incurred $ 5 million and $ 6 million of restructuring costs, respectively.

During the three and six months ended July 29, 2022, the Company incurred $ 2 million of restructuring costs.

These costs are associated with the optimization and consolidation of certain facilities and are presented within selling, general and administrative expenses on the condensed and consolidated statements of income.

Investments in Equity Securities

13 unchanged sentences

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 .

As of August 4, 2023, payment obligations outstanding under the Company’s supplier finance program were not material .

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

5 unchanged sentences

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

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions)

Basic weighted-average number of shares outstanding

53.5 55.6 53.9 55.9

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

0.4 0.3 0.4 0.4

Diluted weighted-average number of shares outstanding

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 .

53.9 55.9 54.3 56.3

Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for the three and six months ended August 4, 2023 and July 29, 2022 were immaterial .

Share Repurchases

3 unchanged sentences

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.

As of August 4, 2023, the Company has repurchased approximately 18.7 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 August 4, 2023.

Subsequent to the end of the quarter, on September 6, 2023, the Company's Board of Directors declared a quarterly dividend of $ 0.37 per share of the Company's common stock payable on October 27, 2023 to stockholders of record on October 13, 2023.

Note 3— Revenues:

12 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

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions, except per share amounts)

Net favorable adjustments $ 5 $ 5

Net favorable adjustments, after tax 4 4

Net (unfavorable) favorable adjustments $ ( 1 ) $ 5 $ 4 $ 10

Net (unfavorable) favorable adjustments, after tax ( 1 ) 4 3 8

Diluted EPS impact $ ( 0.02 ) $ 0.07 $ 0.06 $ 0.14

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.

Revenues were $ 1 million lower and $ 4 million higher for the three and six months ended August 4, 2023, respectively, and $ 5 million and $ 9 million higher for the three and six months ended July 29, 2022, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

Disaggregation of Revenues

3 unchanged sentences

Disaggregated revenues by customer were as follows:

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions)

4 unchanged sentences

Disaggregated revenues by contract type were as follows:

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions)

3 unchanged sentences

Total $ 1,784 $ 1,831 $ 3,812 $ 3,827

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenues by prime versus subcontractor were as follows:

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(in millions)

1 unchanged sentence

Subcontractor to federal government 156 130 292 267

Other 37 36 74 73

Total $ 1,784 $ 1,831 $ 3,812 $ 3,827

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 May 5,

Balance Sheet line item August 4,

2023 February 3,

6 unchanged sentences

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

(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.

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

During the three and six months ended August 4, 2023, the Company recognized revenues of $ 12 million and $ 33 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of February 3, 2023.

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.

Remaining Performance Obligations

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.

As of August 4, 2023, the Company had approximately $ 5 billion of remaining performance obligations.

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.

3 unchanged sentences

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.

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 August 4, 2023 and July 29, 2022.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 4— Divestitures:

3 unchanged sentences

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 remeasured its retained investment in FSA to a fair value of $ 14 million.

The equity method investment 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 and is reflected within gain on divestitures on the condensed and consolidated statements of cash flows.

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

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.

On May 6, 2023, the Company closed the sale of its logistics and supply chain management business (Supply Chain Business) to ASRC Federal Holding Company, LLC (ASRC Federal) for $ 356 million in cash, including $ 355 million received at closing and a preliminary post-closing adjustment 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:

The Company recorded a preliminary pre-tax gain of $ 233 million, net of $ 7 million of transaction costs, which is included within other operating income on the condensed and consolidated statements of income.

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.

The major classes of assets and liabilities divested were as follows:

(in millions)

Assets held for sale:

Receivables, net $ 46

1 unchanged sentence

Operating lease right of use assets 2

Total assets held for sale $ 181

Liabilities held for sale:

Total assets divested $ 181

Accounts payable and accrued liabilities $ 63

1 unchanged sentence

Operating lease liabilities 1

Total liabilities held for sale $ 66

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.

Total liabilities divested $ 65

In connection with the sale, the Company and ASRC Federal entered into certain transition services agreements pursuant to which the Company will provide certain services through approximately the end of fiscal 2024 on a cost reimbursable basis to ASRC Federal.

The transition services include certain IT, finance and other services necessary to support the transition of the sale.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 5— Goodwill and Intangible Assets:

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).

Goodwill had a carrying value of $ 2,851 million and $ 2,911 million as of August 4, 2023 and February 3, 2023, respectively.

Goodwill decreased $ 60 million compared to February 3, 2023 due to the sale of the Supply Chain Business (see Note 4).

There were no impairments of goodwill during the periods presented.

1 unchanged sentence

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

May 5, 2023 February 3, 2023

August 4, 2023 February 3, 2023

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

4 unchanged sentences

Total intangible assets $ 1,473 $ ( 522 ) $ 951 $ 1,478 $ ( 469 ) $ 1,009

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.

Amortization expense related to intangible assets was $ 29 million and $ 58 million for the three and six months ended August 4, 2023, respectively, and $ 32 million and $ 65 million for the three and six months ended July 29, 2022, respectively.

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

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

As of August 4, 2023, the estimated future annual amortization expense related to intangible assets is as follows:

Fiscal Year (in millions)

3 unchanged sentences

Note 6— Income Taxes:

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.

The Company's effective income tax rate was 26.4 % and 24.7 % for the three and six months ended August 4, 2023, respectively, and 21.8 % and 21.9 % for the three and six months ended July 29, 2022, respectively.

The Company’s higher effective tax rate for the three and six months ended August 4, 2023, compared to the same periods in the prior year, is primarily attributable to the gain from the disposition of the Supply Chain Business and the associated non-deductible goodwill, partially offset by higher tax benefits from stock-based compensation and the completion of a foreign-derived intangible income study.

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 (TCJA) removed the ability of taxpayers to immediately deduct specific research and development expenditures in the year incurred and instead requires taxpayers to capitalize and amortize such research expenditures over a period of five years.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

As of August 4, 2023, the Company's unrecognized tax benefits were $ 207 million, compared to $ 156 million as of February 3, 2023.

The increase during the six months ended August 4, 2023 is primarily attributable to research tax credits and capitalized research and development costs in accordance with the TCJA.

This increase also resulted in a corresponding $ 35 million increase to deferred tax assets.

As of August 4, 2023 and February 3, 2023, the net deferred tax asset balance was $ 74 million and $ 14 million, respectively, and is presented in other assets on the condensed and consolidated balance sheets.

Note 7— Debt Obligations:

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

May 5, 2023 February 3, 2023

August 4, 2023 February 3, 2023

rate Effective

12 unchanged sentences

$ 2,228 $ ( 13 ) $ 2,215 $ 2,359 $ ( 16 ) $ 2,343

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.

As of August 4, 2023, the Company has a $ 2.9 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 and six months ended August 4, 2023, the Company made principal prepayments of $ 64 million and $ 36 million on the Term Loan B Facility due October 2025 and the Term Loan B2 Facility due March 2027, respectively.

During the six months ended August 4, 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 August 4, 2023.

As of August 4, 2023, the Company was in compliance with the covenants under its Credit Facility.

As of August 4, 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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

Maturities of long-term debt as of August 4, 2023 are:

Fiscal Year Total

(in millions)

Remainder of 2024 $ 31

Thereafter 400

Total principal payments $ 2,290

Note 8— Derivative Instruments Designated as Cash Flow Hedges:

1 unchanged sentence

Fair Value of Asset (1) at

Notional Amount at May 5, 2023 Pay Fixed

Notional Amount at August 4, 2023 Pay Fixed

Rate Settlement and

Termination May 5,

Termination August 4,

2023 February 3, 2023

6 unchanged sentences

The counterparties to all swap agreements are financial institutions.

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 $ 19 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following August 4, 2023.

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 May 5, 2023

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

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

Three months ended August 4, 2023

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

Other comprehensive income before reclassifications 15 — 15

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

Income tax impact ( 2 ) — ( 2 )

Net other comprehensive income 7 — 7

Balance at August 4, 2023 $ 19 $ 4 $ 23

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 May 5, 2023 $ 12 $ 4 $ 16

Three months ended April 29, 2022

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

Six months ended August 4, 2023

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

Other comprehensive income before reclassifications 13 — 13

Amounts reclassified from accumulated other comprehensive income ( 12 ) — ( 12 )

Income tax impact — — —

Net other comprehensive income 1 — 1

Balance at August 4, 2023 $ 19 $ 4 $ 23

Six months ended July 29, 2022

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

2 unchanged sentences

Income tax impact

( 12 ) — ( 12 )

Net other comprehensive income 34 — 34

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

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

(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.

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.

During the six months ended August 4, 2023 and July 29, 2022, the Company incurred purchase discount fees of $ 5 million and $ 2 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:

Three Months Ended

2023 April 29,

Six Months Ended

2023 July 29,

(in millions)

6 unchanged sentences

Remaining sold receivables $ 225 $ 231

(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.

(1) For the six months ended August 4, 2023 there was no net impact to cash flows from operating activities from sold receivables.

For the six months ended July 29, 2022, the Company recorded a net increase to cash flows from operating activities of $ 60 million from sold receivables.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of August 4, 2023 and July 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.

A vendor used by the Company to audit employee retirement benefits confirmed to the Company on August 4, 2023, that it had experienced a cybersecurity incident related to MOVEit software, a commonly used secure file transfer application.

The vendor indicated that the incident may have resulted in the personal information of certain employees and former employees of the Company being accessed by an unauthorized third party.

The vendor and the Company have conducted a review of the incident and the vendor has undertaken remedial measures including credit monitoring at its expense.

At this time, the Company has not experienced and does not anticipate any material impact on its ongoing operations, financial condition or results of operations as a direct result of this incident.

This disclosure should be read in conjunction with "Risk Factors" in Part I of the most recently filed Annual Report on Form 10-K.

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

3 unchanged sentences

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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

AAV Termination for Convenience

1 unchanged sentence

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.

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.

As of August 4, 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 May 5, 2023, principally related to guarantees on insurance policies.

The Company has outstanding obligations relating to letters of credit of $ 9 million as of August 4, 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