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Item 7. Management’s Discussion and Analysis

2024-03-20 compared with 2023-04-03 · 104 added, 74 removed, 265 unchanged (40% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended January 28, 2022, which provides additional information on comparisons of fiscal 2022 and 2021.

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended February 3, 2023, which provides additional information on comparisons of fiscal 2023 and 2022.

It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I, Item 1A of this report), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations;

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the impact of competition;

and the impact of acquisitions.

and the impact of acquisitions and divestitures.

Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors.

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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 ended on February 3, 2023, fiscal 2022 began on January 30, 2021 and ended on January 28, 2022, and fiscal 2021 began on February 1, 2020 and ended on January 29, 2021.

Fiscal 2023 consisted of 53 weeks with the extra week occurring in the fourth quarter, while fiscal 2022 and 2021 consisted of 52 weeks.

Fiscal 2024 began on February 4, 2023 and ended on February 2, 2024, fiscal 2023 began on January 29, 2022 and ended on February 3, 2023, and fiscal 2022 began on January 30, 2021 and ended on January 28, 2022.

Fiscal 2024 consisted of 52 weeks, and fiscal 2023 and 2022 consisted of 53 weeks and 52 weeks, respectively.

Business Overview

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Substantially all of our revenues and tangible long-lived assets are generated and located in the United States.

Effective February 3, 2024, the first day of fiscal 2025, the Company completed a business reorganization which replaces its current two operating sectors with five customer facing business groups supported by the enterprise organizations, including the Innovation Factory.

The reorganization is designed to enhance management's involvement with customers and advance SAIC’s innovation and go-to-market strategy.

The new business group leaders will report directly to the Company's CEO who will continue to be the chief operating decision maker ("CODM").

The Company is currently evaluating the impact of the reorganization on its segment reporting.

Economic Opportunities, Challenges, and Risks

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government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S.

Appropriations measures passed in December 2022 provided full funding for the federal government through the end of government fiscal year 2023.

In October 2021, the Federal debt ceiling was increased by $480 billion and in December 2021 was further increased by $2.5 trillion.

Appropriations measures passed in December 2022 provided full funding for the federal government through the end of government fiscal year ("GFY") 2023.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

In March 2024, the President signed appropriation measures that provide funding for GFY 2024 for non-defense departments of the U.S.

Congress is currently in the process of considering legislation for the remaining federal budget which will include the Department of Defense, the Department of State and the Department of Homeland Security.

If Congress is not able to pass the remaining GFY 2024 funding measures by the end of April 2024, it could result in the U.S.

government operating on additional continuing resolutions, potentially lead to a partial or full government shutdown, and a cut to defense spending for GFY 2024 as prescribed in the Fiscal Responsibility Act of 2023.

In March 2024, the President submitted the GFY 2025 budget request which adheres to the Fiscal Responsibility Act of 2023.

In January 2023, the Federal debt ceiling was reached and the U.S.

Department of the Treasury is currently operating under “extraordinary measures.”

Department of the Treasury was operating under "extraordinary measures." In June 2023, the President signed the Fiscal Responsibility Act of 2023 which suspends the Federal debt ceiling until January 1, 2025, postponing the threat of a federal government default.

If a new debt ceiling agreement is not reached by January 2025, the U.S.

Department of the Treasury will return to operating under "extraordinary measures."

Adverse changes in fiscal and economic conditions could materially impact our business.

Some changes that could have an adverse impact on our business include adverse regulations, the implementation of future spending reductions (including sequestration), delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed-price contracts, inability to increase or suspend the Federal debt ceiling, and potential government shutdowns.

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Spending packages, including the infrastructure bill, Inflation Reduction Act, and CHIPS and Science Act, as well as future potential spending packages, may provide additional opportunity in areas of SAIC focus such as digital modernization, cyber, microelectronics support, and climate resiliency.

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Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available.

Our Innovation Factory develops superior enterprise-class solutions which are delivered to our customers as stand-alone solutions or integrated with and aligned to our product offerings to meet complex customer needs and accelerate digital transformation.

Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions.

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Our ability to be competitive in the future will continue to be driven by our reputation for successful program execution, competitive cost structure, development of new pricing and business models, and efficiencies in assigning the right people, at the right time, in support of our contracts.

On May 6, 2023, SAIC closed the sale of its logistics and supply chain management business ("Supply Chain Business") to ASRC Federal Holding Company, LLC ("ASRC Federal").

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

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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 accounts for its retained interest as an equity method investment as of the date of the transaction.

On July 2, 2021, we completed the acquisition of Halfaker and Associates, LLC ("Halfaker").

The acquisition of Halfaker, in alignment with our long-term strategy, grows the Company's digital transformation portfolio while expanding its ability to support the government's healthcare mission.

On March 13, 2020, we completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation.

The acquisition of Unisys Federal, in alignment with our long-term strategy, positions SAIC as a leading government services technology integrator in digital transformation, and is highly accretive across all key financial metrics.

Additionally, 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.

See “Risk Factors” in Part I, Item 1A of this report for additional discussion of our industry and regulatory environment.

Impacts of the COVID-19 Pandemic

While we are continuing to monitor the ongoing outbreak of COVID-19, the pandemic did not have a material impact to revenues and operating income during fiscal 2023.

The full extent of the impact of COVID-19 on our business and our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, all of which are uncertain and cannot be predicted.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) allowed for the deferral of certain payroll tax payments through December 31, 2020 and we deferred total payments of approximately $103 million.

The first installment (approximately $51 million) of these deferred payroll taxes was paid during fiscal 2022 and the second and final installment was paid during fiscal 2023.

We have not experienced a significant impact to our liquidity or access to capital as a result of the COVID-19 pandemic.

As discussed in “Liquidity and Capital Resources” we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs.

As of February 3, 2023 we were in compliance with our debt covenants and we have not been required to obtain additional financing, or make significant modifications to our capital deployment strategy, as a result of the COVID-19 pandemic.

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Management of Operating Performance and Reporting

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Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.

Changes in operating cash flows are described with regard to changes in cash generated through the rendering of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements.

Changes in operating cash flows are described with regard to changes in cash generated through the provision of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements.

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Results of Operations

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The following table summarizes our results of operations:

February 3, 2023 Percent change January 28, 2022 Percent change January 29, 2021

February 2, 2024 Percent change February 3, 2023 Percent change January 28, 2022

(dollars in millions)

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Acquisition and integration costs 1 (92) % 13 (77) % 56

Gain on divestitures, net of transaction costs

(240) 100 % — (100) % (2)

Other operating income (3) 100 % — (100) % (1)

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Cash flows provided by operating activities $ 396 (26) % $ 532 3 % $ 518

Revenues increased $310 million from fiscal 2022 to fiscal 2023 due to ramp up on new and existing contracts, four additional working days in the current year period, and the acquisition of Halfaker (approximately $72 million), partially offset by contract completions and lower net favorable changes in contract estimates.

Adjusting for the impact of acquired and divested revenues and the estimated impact of the additional four working days in fiscal 2023, revenues grew approximately 1.5%.

Revenues decreased $260 million from fiscal 2023 to fiscal 2024 primarily due to the sale of the Supply Chain Business ($493 million) and the deconsolidation of FSA ($143 million) (see Note 5—Divestitures), contract completions and five additional working days in the prior year period.

This was partially offset by ramp up in volume on existing and new contracts.

Adjusting for the impact of the divestiture, deconsolidation and estimated impact of the additional five working days in the prior year period, revenues grew approximately 7.4%.

Cost of Revenues.

Cost of revenues increased $281 million from fiscal 2022 to fiscal 2023 primarily due to ramp up on new and existing contracts, four additional working days in the current year period, and the acquisition of Halfaker.

Cost of revenues decreased $244 million from fiscal 2023 to fiscal 2024 primarily due to the sale of the Supply Chain Business ($461 million) and the deconsolidation of FSA ($132 million), contract completions and five additional working days in the prior year period.

This was partially offset by ramp up in volume on existing and new contracts.

Adjusting for the impact of the divestiture, deconsolidation and estimated impact of the additional five working days in the prior year period, cost of revenues grew approximately 7.7%.

Selling, General and Administrative Expenses ("SG&A").

SG&A increased $30 million from fiscal 2022 to fiscal 2023 primarily due to higher restructuring costs (see Note 5 to the consolidated financial statements contained within this report) and the acquisition of Halfaker.

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SG&A decreased $1 million from fiscal 2023 to fiscal 2024 primarily due to lower indirect spend and intangible amortization and depreciation, partially offset by higher incentive-based compensation expense, including acceleration of stock-based compensation related to the reorganization and executive transition.

Acquisition and integration costs.

Acquisition and integration costs decreased $43 million from fiscal 2022 to fiscal 2023 primarily due to the acquisitions of Halfaker and Koverse in the prior year period.

Acquisition and integration costs decreased $12 million from fiscal 2023 to fiscal 2024 due to no acquisitions in the current year.

Operating Income.

Operating income as a percentage of revenues increased from fiscal 2022 to fiscal 2023 primarily due to improved profitability across our contract portfolio and lower acquisition and integration costs, partially offset by higher restructuring costs and lower net favorable changes in contract estimates.

Operating income as a percentage of revenues increased from fiscal 2023 to fiscal 2024 primarily due to a $233 million gain recognized from the sale of the Supply Chain Business, a $7 million gain recognized from the deconsolidation of FSA, improved profitability across our contract portfolio and lower acquisition and integration costs, partially offset by higher incentive-based compensation expense, including acceleration of stock-based compensation related to the reorganization and executive transition.

Cash Flows Provided by Operating Activities.

Cash flows provided by operating activities were $532 million for fiscal 2023, which represented an increase of $14 million from fiscal 2022.

The increase was primarily due to higher cash provided by the Master Accounts Receivable Purchase Agreement (MARPA Facility) (see Note 14 to the consolidated financial statements), the timing of collections and other changes in working capital, partially offset by tax payments associated with Section 174 of the Internal Revenue Code and cash payments during the year associated with certain change in control provisions related to the acquisition of Halfaker (see Note 4 to the consolidated financial statements).

Cash flows provided by operating activities were $396 million for fiscal 2024, which represented a decrease of $136 million from fiscal 2023.

The decrease was primarily due to lower cash provided by the Master Accounts Receivable Purchase Agreement ("MARPA Facility") (see Note 15—Sale of Receivables to the consolidated financial statements contained within this report for additional information) and higher tax payments in the current year, partially offset by lower incentive-based compensation payments in the current year and other changes in working capital.

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Non-GAAP Measures

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The acquisition and integration costs relate to the Company’s acquisitions.

See Note 1 and Note 5 to the consolidated financial statements contained within this report for information related to our restructuring and impairment costs.

See Note 1—Business Overview and Summary of Significant Accounting Policies and Note 6—Restructuring and Impairment to the consolidated financial statements contained within this report for information related to our restructuring and impairment costs.

We believe that EBITDA and adjusted EBITDA provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of the Company.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

EBITDA and adjusted EBITDA for the periods presented were calculated as follows:

February 3, 2023 January 28, 2022 January 29, 2021

February 2, 2024 February 3, 2023 January 28, 2022 (2)

(in millions)

$ 7,444 $ 7,704 $ 7,394

Net income 477 303 279

Interest expense and loss on sale of receivables 128 107 124

Interest income (2) — (1)

Interest expense, net and loss on sale of receivables

Provision for income taxes 143 72 79

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Recovery of acquisition and integration costs and restructuring and impairment costs (1)

Gain on divestitures, net of transaction costs (240) — —

Adjusted EBITDA $ 668 $ 680 $ 686

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government Cost Accounting Standards.

Adjusted EBITDA as a percentage of revenues decreased to 8.8% for fiscal 2023, compared to 9.3% for fiscal 2022, primarily due to lower net favorable changes in contract estimates and higher indirect expenses, partially offset by improved profitability across our contract portfolio.

(2) In fiscal 2022, the Company recognized a gain on divestitures, net of transaction costs of $2 million.

This is not presented separately on the "Gain on divestitures, net of transaction costs" line in the table above, as it was immaterial.

Adjusted EBITDA as a percentage of revenues increased to 9.0% for fiscal 2024, compared to 8.8% for fiscal 2023, primarily due to improved profitability across our contract portfolio, partially offset by higher incentive-based compensation expense, including acceleration of stock-based compensation related to the reorganization and executive transition.

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Other Key Performance Measures

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Additionally, we do not include in backlog contract awards that are under protest until the protest is resolved in our favor.

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We segregate our backlog into two categories as follows:

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The estimated value of our total backlog as of the dates presented was:

February 3, 2023 January 28, 2022

February 2, 2024 February 3, 2023

(in millions)

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Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract.

For a discussion of the types of contracts under which we generate revenues, see “Business—Contract Types” in Part I, Item 1 of this report.

For a discussion of the types of contracts under which we

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

generate revenues, see “Business—Contract Types” in Part I, Item 1 of this report.

The following table summarizes revenues by contract type as a percentage of revenues for the periods presented:

February 3, 2023 January 28, 2022 January 29, 2021

February 2, 2024 February 3, 2023 January 28, 2022

Cost reimbursement 61 % 56 % 54 %

Time and materials ("T&M")

20 % 19 % 20 %

Firm-fixed price ("FFP")

19 % 25 % 26 %

Total 100 % 100 % 100 %

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

The change in contract mix for fiscal 2024 reflects a decrease in firm-fixed price type contracts due to the divestiture of the Supply Chain Business which historically had a higher proportion of these contracts.

Cost of Revenues Mix.

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The following table presents cost mix for the periods presented:

February 3, 2023 January 28, 2022 January 29, 2021

February 2, 2024 February 3, 2023 January 28, 2022

(as a % of total cost of revenues)

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Total 100 % 100 % 100 %

The change in cost of revenues mix for fiscal 2024 reflects a decrease in supply chain materials-related costs due to the divestiture of the Supply Chain Business.

Liquidity and Capital Resources

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We consider various financial measures when we develop and update our capital deployment strategy, which include evaluating cash provided by operating activities, free cash flow and financial leverage.

When our cash generation enables us to exceed our target average minimum cash balance, we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions.

Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results.

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Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs.

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During the second quarter of fiscal 2023, we amended our Credit Facility.

See Note 11 to the consolidated financial statements contained within this report for additional information.

See Note 12—Debt Obligations to the consolidated financial statements contained within this report for additional information.

Upon the acquisition of Halfaker in fiscal 2022, we drew $100 million on our incremental senior secured Term Loan A2 Facility due October 2023.

The proceeds were used for the purchase of Halfaker.

Upon the acquisition of Unisys Federal in fiscal 2021, we drew $600 million on our incremental senior secured Term Loan B2 Facility due March 2027 and issued $400 million of Senior Notes due 2028.

In addition, in February 2020 we sold $200 million of accounts receivable under our MARPA Facility.

The proceeds were used for the purchase of Unisys Federal.

Borrowings under our Term Loan Facilities, our MARPA Facility, and our Revolving Credit Facility incur interest at a variable rate.

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Under the swap agreements, we pay the fixed rate and the counterparties to the agreement pay a floating interest rate.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Our Credit Facility contains customary terms and conditions including financial covenants and covenants restricting the Company's ability to merge or consolidate with another entity or undertake other fundamental changes, enter into property sale and leaseback transactions, and incur liens.

The Company’s dividends and share repurchases may be limited under certain leverage ratios, and we may be required to make an annual debt prepayment based on our cash flows from operating activities.

See Note 11 to the consolidated financial statements contained within this report for a more complete understanding of our Credit Facility.

See Note 12—Debt Obligations to the consolidated financial statements contained within this report for a more complete understanding of our Credit Facility.

We currently maintain credit ratings from major U.S.

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Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.

This provision resulted in an increase to income taxes payable of approximately $94 million, offset by a corresponding increase to net deferred tax assets in fiscal 2023.

While the impact to income taxes payable was most significant in fiscal 2023, this impact will decrease over the five-year amortization period and is anticipated to be immaterial in year six.

The actual impact will depend on the amount of research and development costs incurred by the Company, whether Congress modifies, or repeals this provision and whether new guidance and interpretive rules are issued by the U.S.

Treasury, among other factors.

While the impact to income taxes payable is most significant in fiscal 2023, this impact will decrease over the five-year amortization period and is anticipated to be immaterial in year six.

As of February 2, 2024, we have not experienced a significant impact to our liquidity or access to capital, and we have not been required to obtain additional financing or make significant modifications to our capital deployment strategy, as a result of the COVID-19 pandemic.

The Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") allowed for the deferral of certain payroll tax payments through December 31, 2020 and we deferred total payments of approximately $103 million.

The first installment (approximately $51 million) of these deferred payroll taxes was paid during fiscal 2022 and the second and final installment was paid during fiscal 2023.

During fiscal 2024, we repurchased approximately 3.3 million shares of our common stock for $357 million from the open market in connection with our existing share repurchase program.

Since the program’s inception in December of 2013, we have repurchased 20.3 million shares for $1,548 million.

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The following table summarizes our principal contractual commitments as of February 2, 2024:

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Liabilities for unrecognized tax benefits due in fiscal 2024 are based on the fiscal year in which the reversals of timing positions are likely to occur.

See respective notes to the consolidated financial statements contained within this report for further information about our long-term debt (Note 11), lease payment obligations (Note 15), liabilities for unrecognized tax benefits (Note 10), and letters of credit and surety bonds (Note 17).

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See respective notes to the consolidated financial statements contained within this report for further information about our long-term debt (Note 12—Debt Obligations), lease payment obligations (Note 16—Operating Leases), liabilities for unrecognized tax benefits (Note 11—Income Taxes), and letters of credit and surety bonds (Note 18—Legal Proceedings and Other Commitments and Contingencies).

Historical Cash Flow Trends

The following table summarizes our cash flows:

February 3, 2023 January 28, 2022 January 29, 2021

February 2, 2024 February 3, 2023 January 28, 2022

(in millions)

Net cash provided by operating activities $ 396 $ 532 $ 518

Net cash used in investing activities (36) (292) (1,231)

Net cash (used in) provided by financing activities (493) (301) 464

Total increase (decrease) in cash, cash equivalents and restricted cash $ 3 $ (75) $ (12)

Net cash provided by (used in) investing activities

314 (36) (292)

Net cash used in financing activities

(725) (493) (301)

Total (decrease) increase in cash, cash equivalents and restricted cash

$ (15) $ 3 $ (75)

Cash Provided by Operating Activities.

Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between fiscal 2024 and 2023.

Cash Used in Investing Activities.

Cash used in investing activities decreased in fiscal 2023 compared to the prior year period primarily due to cash paid for the acquisitions of Halfaker and Koverse in the prior year period.

Cash Used in/Provided by Financing Activities.

Cash used in financing activities increased in fiscal 2023 compared to the prior year period primarily due to borrowings obtained to finance the Halfaker acquisition in the prior year period of $100 million, a $90 million voluntary principal prepayment during the third quarter of fiscal 2023, and higher share repurchases of $37 million, partially offset by a $35 million voluntary principal prepayment during the fourth quarter of fiscal 2022.

Cash Provided by (Used in) Investing Activities.

Cash provided by investing activities was $314 million in fiscal 2024 compared to cash used in investing activities of $36 million in the prior year period primarily due to the $356 million of cash proceeds for the sale of the Supply Chain Business in the current year (see Note 5—Divestitures to the consolidated financial statements contained within this report for additional information).

Cash Used in Financing Activities.

Cash used in financing activities increased in fiscal 2024 compared to the prior year period primarily due to higher principal payments, net of proceeds received from borrowings of $131 million and higher plan share repurchases of $112 million in the current year.

Commitments and Contingencies

We are subject to a number of reviews, investigations, claims, lawsuits and other uncertainties related to our business.

For a discussion of these items, see Note 17 to the consolidated financial statements contained within this report.

For a discussion of these items, see Note 18—Legal Proceedings and Other Commitments and Contingencies to the consolidated financial statements contained within this report.

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Critical Accounting Policies and Estimates

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These estimates of costs can span several years and take into account many factors including the availability, productivity and cost of labor, potential delays in our performance and the level of future indirect cost allocations.

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Many of our contracts include forms of variable consideration such as reimbursable costs, award and incentive fees, usage-based pricing, service-level penalties, performance bonuses, and other provisions that can either increase or decrease the transaction price.

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and performance being better or worse than previously estimated.

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

Estimating costs at completion is complex due to the nature of the services being performed and the length of certain contracts.

Contract costs generally include direct costs, such as labor, subcontract costs and materials, and indirect costs identifiable with or allocable to a specific contract.

Management must make assumptions regarding the complexity of the work to be performed, the schedule and associated tasks, labor productivity and availability, increases in wages and prices of materials, execution by our subcontractors, overhead cost rates, and other variables.

For contracts using a cost input measure, when total expected contract costs exceed total estimated contract revenues, the Company recognizes the total estimated loss in the quarter identified.

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

Aggregate net changes in contract estimates increased operating income by $4 million, $13 million and $9 million for fiscal 2023, 2022 and 2021, respectively.

For additional information related to changes in estimates on contracts, including gross favorable and unfavorable adjustments as well as the impact to earnings per share, see Note 3 to the consolidated financial statements contained within this report.

Aggregate net changes in contract estimates had an immaterial impact on operating income in fiscal 2024.

Aggregate net changes in contract estimates increased operating income by $4 million and $13 million for fiscal 2023 and 2022, respectively.

For additional information related to changes in

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estimates on contracts, including gross favorable and unfavorable adjustments as well as the impact to earnings per share, see Note 3—Revenues to the consolidated financial statements contained within this report.

Business Combinations.

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The goodwill impairment test is performed at the reporting unit level.

The Company estimates and compares the fair value of each reporting unit to its respective carrying value including goodwill.

In the Company’s qualitative assessment, an evaluation is performed to determine whether it is more likely than not that an impairment exists based on qualitative factors.

Qualitative factors include macroeconomic, industry and market conditions, cost factors, overall financial performance, relevant entity-specific events, factors affecting the reporting unit, and share price.

The Company may additionally perform a quantitative assessment in which the estimated fair value of each reporting unit is compared to its respective carrying value including goodwill.

If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.

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Determining the fair value of each reporting unit involves judgment and the use of estimates and assumptions.

We estimate the fair value of our reporting units using either a market approach, income approach, or a combination of both.

For our annual impairment analysis, we reconcile the aggregate fair value of all of our reporting units to our market capitalization as of the measurement date.

When performing a quantitative assessment for our annual impairment analysis, we reconcile the aggregate fair value of all of our reporting units to our market capitalization as of the measurement date.

Under the income approach, we estimate the fair value of a reporting unit using a multi-year discounted cash flow model that involves assumptions about projected future revenue growth, operating margins, income tax rates, capital expenditures, discount rate and terminal value.

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We analyze historical acquisitions in our industry to estimate a control premium that we incorporate into the fair value estimate of a reporting unit under the market approach.

During the fourth quarter of fiscal 2023, we completed our annual goodwill impairment testing and determined that each reporting unit's fair value significantly exceeded its carrying value.

In addition, determining the carrying value of each reporting unit requires judgment and involves the assignment of assets and liabilities to the reporting units based on a systematic and rational allocation methodology.

Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information contained within our financial systems;

Determining the carrying value of each reporting unit requires judgment and involves the assignment of assets and liabilities to the reporting units based on a systematic and rational allocation methodology.

Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information contained within

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our financial systems;

whereas, other assets and liabilities may be allocated using measurable relationships or other basis for allocation.

During the fourth quarter of fiscal 2024, we completed our annual goodwill impairment testing using a qualitative assessment and determined that it was more likely than not that an impairment did not exist and that a quantitative analysis was not necessary.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives.

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Recently Issued But Not Yet Adopted Accounting Pronouncements

For information on recently issued but not yet adopted accounting pronouncements, see Note 1 to the consolidated financial statements contained within this report.

For information on recently issued but not yet adopted accounting pronouncements, see Note 1—Business Overview and Summary of Significant Accounting Policies to the consolidated financial statements contained within this report.

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-K

Item 7. Management’s Discussion and Analysis