What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-12-04 compared with 2025-09-04 · 89 added, 79 removed, 280 unchanged (38% of the section changed)

27 unchanged sentences

Our two reportable segments are the Defense and Intelligence segment and the Civilian segment.

The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the Department of Defense ("DoD") and Intelligence Community of the United States Government.

The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the Department of War ("DoW", formerly referred to as the Department of Defense) and Intelligence Community of the United States Government.

The Civilian segment provides solutions to the civilian markets, encompassing federal, state, and local governments, in order to deliver services for citizen well-being, border security, and protecting lives.

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See Note 11—Business Segments Information to the condensed consolidated financial statements contained within this report for additional information.

On October 15, 2025, we acquired SilverEdge Government Solutions ("SilverEdge"), an innovative provider of mission-driven technology solutions and products, for a preliminary purchase price of $203 million, net of $6 million cash acquired, subject to post-closing adjustments.

The acquisition advances our strategy to provide mission focused, IP-based solutions and commercial products to our customers.

Economic Opportunities, Challenges, and Risks

During the three and six months ended August 1, 2025, we generated 98% of our revenues from contracts with the U.S.

During the three and nine months ended October 31, 2025, we generated 98% of our revenues from contracts with the U.S.

government, including subcontracts on which we perform.

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The measure provides budget certainty for agencies through September 30, 2025.

The CR also provides flexibility for new starts on programs at the DoD, which are typically not allowed under CRs.

The CR also provides flexibility for new starts on programs at the DoW, which are typically not allowed under CRs.

In July 2025, Congress passed a budget reconciliation package that will add approximately $150 billion in new non-border defense spending, and $175 billion in new border security and enforcement spending, among other provisions.

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The measure also extended and expanded key tax provisions that will positively impact our Company.

To avoid a government shutdown starting October 1, 2025, Congress will need to pass, and the President will need to sign, additional appropriations.

Failure to pass full-year appropriations or a CR by September 30, 2025 could result in an interruption in government funding that could impact many of our contracts.

On October 1, 2025, the federal government shut down following the expiration of the March 2025 CR.

On November 12, 2025, the President signed a spending agreement that officially reopened the government after 43 days.

The agreement includes three full-year appropriations bills, including the Agriculture-FDA, Military Construction-Veterans Affairs, and Legislative Branch packages.

All agencies and functions funded by those bills will now be covered in full through September 30, 2026, the close of GFY 2026.

All remaining agencies have resumed operations under a CR that runs through January 30, 2026.

If Congress is not able to pass the remaining appropriations by that date, it could potentially lead to a partial or full government shutdown affecting any outstanding unfunded agencies.

Any additional delay in funding could negatively impact our business operations, revenues, cash flows, and profitability.

As part of the budget reconciliation package signed into law in July 2025, the federal debt limit was increased by $5 trillion.

This is expected to extend protection from a potential government default until at least the end of calendar year 2026.

government administration is putting in place a number of executive orders and actions which could affect our business.

government administration has put in place a number of executive orders and actions which could affect our business.

In addition, the Department of Government Efficiency is driving changes in the structure and priorities of Federal agencies.

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However, ongoing reductions in personnel, changes in agency alignment, required reviews of new contracting activity, decreases or delays in new or existing contract awards and in government spending on the types of programs that we support, and terminations or stop-work-orders and delay in funding on government contracts on which we are currently performing could adversely affect our future revenues, cash flows, and profitability.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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, and potential government shutdowns.

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

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 our focus such as digital modernization, cyber, microelectronics support, and climate resiliency.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity ("IDIQ"), U.S.

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The following table summarizes our condensed consolidated results of operations:

Three Months Ended Six Months Ended

change August 2,

2024 August 1,

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Three Months Ended Nine Months Ended

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2024 October 31,

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(dollars in millions)

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$ 78 (26 %) $ 106 $ 273 3 % $ 264

Revenues decreased $49 million for the three months ended August 1, 2025 as compared to the same period in the prior year primarily due to contract completions and ramp down in volume on existing contracts, partially offset by new contracts.

Revenues decreased $19 million for the six months ended August 1, 2025 as compared to the same period in the prior year primarily due to due to contract completions, partially offset by ramp up in volume on existing and new contracts.

Revenues decreased $110 million and $129 million for the three and nine months ended October 31, 2025, respectively, as compared to the same period in the prior year primarily due to ramp down in volume on existing contracts, including approximately $16 million attributable to the government shutdown, and contract completions, partially offset by new contracts.

Revenues recognized from the acquisition of SilverEdge for the three months ended October 31, 2025 were immaterial.

Operating Income.

Operating income as a percentage of revenues for the three months ended August 1, 2025 increased from the comparable prior year period primarily due to improved profitability across our contract portfolio and a recovery of costs from the settlement of a patent infringement matter (see Note 11—Legal Proceedings and Other Commitments and Contingencies for additional information), partially offset by costs related to the settlement of federal tax audits and the indirect rates impact of state taxes related to the One Big Beautiful Bill Act ("the Act").

Operating income as a percentage of revenues for the six months ended August 1, 2025 decreased from the comparable prior year period primarily due to costs related to the settlement of federal tax audits and the indirect rates impact of state taxes related to the Act, partially offset by a recovery of costs from the settlement of a patent infringement matter.

Operating income as a percentage of revenues for the three months ended October 31, 2025 decreased from the comparable prior year period primarily due to executive transition costs, net of recoveries, and the favorable resolution of the Assault Amphibious Vehicle ("AAV") contract termination in the prior year ($14 million), partially offset by timing and volume mix in our contract portfolio.

Operating income as a percentage of revenues for the nine months ended October 31, 2025 decreased from the comparable prior year period primarily due to executive transition costs, net of recoveries, the favorable resolution of the AAV contract termination in the prior year ($14 million), and costs related to the settlement of federal tax audits, partially offset by a recovery of costs from the settlement of a patent infringement matter (see Note 12—Legal Proceedings and Other Commitments and Contingencies for additional information) and timing and volume mix in our contract portfolio.

Income Taxes.

Our effective income tax rate was (17.2)% and (0.4)% for the three and six months ended August 1, 2025 and 19.6% and 19.3% for the three and six months ended August 2, 2024, respectively.

The effective tax rate significantly decreased compared to the same period last year primarily due to a $47 million benefit from an IRS audit settlement subject to final administrative approvals covering fiscal years 2016 through 2019 and decreases in liabilities for uncertain tax positions for the remaining open tax years.

Additionally, our effective tax rate differs from the statutory tax rate primarily due to research and development tax credits and tax benefits from employee share-based compensation.

Our effective income tax rate was 16.7% and 5.2% for the three and nine months ended October 31, 2025 and 15.6% and 17.8% for the three and nine months ended November 1, 2024, respectively.

The effective tax rate for the three months ended October 31, 2025 increased compared to the same period last year, primarily due to the impacts of the One Big Beautiful Bill Act (“the Act”).

The effective tax rate for the nine months ended October 31, 2025 decreased compared to the same period last year primarily due to a $47 million benefit from an IRS audit settlement, pending final administrative approvals, covering fiscal years 2016 through 2019, and reductions in liabilities for uncertain tax positions for the remaining open tax years.

Additionally, our effective tax rate further differs from the statutory tax rate due to research and development tax credits and tax benefits from employee share-based compensation.

On July 4, 2025, the Act was enacted, introducing several significant changes to U.S.

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The following tables summarize our results of operations by reportable segment:

Defense and Intelligence Three Months Ended Six Months Ended

change August 2,

2024 August 1,

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Defense and Intelligence Three Months Ended Nine Months Ended

change November 1,

2024 October 31,

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(dollars in millions)

3 unchanged sentences

As a percentage of revenues 8.2 % 9.8 % 8.4 % 9.1 %

Revenues decreased $41 million for the three months ended August 1, 2025 as compared to the same period in the prior year primarily due to contract completions and ramp down in volume on existing contracts, partially offset by new contracts.

Revenues decreased $44 million for the six months ended August 1, 2025 as compared to the same period in the prior year primarily due to contract completions, partially offset by ramp up in volume on existing and new contracts.

Revenues decreased $76 million and $120 million for the three and nine months ended October 31, 2025, respectively, as compared to the same period in the prior year primarily due to contract completions and ramp down in volume on existing contracts, partially offset by new contracts.

Adjusted operating income.

Adjusted operating income as a percentage of revenues for the three months ended August 1, 2025 increased compared to the comparable prior year period primarily due to timing and volume mix in our contract portfolio.

Adjusted operating income as a percentage of revenues for the six months ended August 1, 2025 decreased from the comparable prior year period primarily due to timing and volume mix in our contract portfolio.

Three Months Ended Six Months Ended

change August 2,

2024 August 1,

change August 2,

Adjusted operating income as a percentage of revenues for the three and nine months ended October 31, 2025 decreased compared to the comparable prior year period primarily due to timing and volume mix in our contract portfolio and the favorable resolution of the AAV contract termination in the prior year ($14 million).

Three Months Ended Nine Months Ended

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2024 October 31,

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(dollars in millions)

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As a percentage of revenues 14.5 % 10.6 % 13.3 % 11.1 %

Revenues decreased $8 million for the three months ended August 1, 2025 as compared to the same period in the prior year primarily due to contract completions and ramp down in volume on existing contracts.

Revenues increased $25 million for the six months ended August 1, 2025 as compared to the same period in the prior year primarily due to ramp up in volume on existing contracts, partially offset by contract completions.

Revenues decreased $34 million and $9 million for the three and nine months ended October 31, 2025, respectively, as compared to the same period in the prior year primarily due to ramp down in volume on existing contracts and contract completions, partially offset by new contracts.

Adjusted operating income.

Adjusted operating income as a percentage of revenues for the three and six months ended August 1, 2025 increased from the comparable prior year period due to improved profitability across our contract portfolio.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Three Months Ended Six Months Ended

change August 2,

2024 August 1,

change August 2,

Adjusted operating income as a percentage of revenues for the three and nine months ended October 31, 2025 increased from the comparable prior year period primarily due to improved profitability across our contract portfolio.

Three Months Ended Nine Months Ended

change November 1,

2024 October 31,

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(dollars in millions)

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$ 3 (250 %) $ (2) $ (2) (75 %) $ (8)

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Adjusted operating income (loss).

Adjusted operating income was $4 million for the three months ended August 1, 2025 compared to an adjusted operating loss of $1 million during the same period in the prior year primarily due to a recovery of costs from the settlement of a patent infringement matter, partially offset by higher other selling, general and administrative expenses.

Adjusted operating loss decreased $1 million for the six months ended August 1, 2025 as compared to the same period in the prior year primarily due to a recovery of costs from the settlement of a patent infringement matter, partially offset by higher other selling, general and administrative expenses.

Adjusted operating income was $3 million for the three months ended October 31, 2025, compared to an adjusted operating loss of $2 million during the same period in the prior year primarily due to lower other selling, general and administrative expenses.

Adjusted operating loss decreased $6 million for the nine months ended October 31, 2025 as compared to the same period in the prior year primarily due to a recovery of costs from the settlement of a patent infringement matter, partially offset by higher other selling, general and administrative expenses.

Non-GAAP Measures

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Costs related to the settlement of federal tax audits represent costs related to the IRS audit settlement for fiscal years 2016 through 2019 .

We believe that these performance measures provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding our long-term financial performance.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Executive transition costs, net of recoveries, represent costs associated with the immediate departure of our CEO and other executives, net of the portion recovered through our indirect rates in accordance with Cost Accounting Standards.

We believe that this performance measure provides management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding our long-term financial performance.

Adjusted operating income for the periods presented were calculated as follows:

Three Months Ended Six Months Ended

2025 August 2,

2024 August 1,

2025 August 2,

Three Months Ended Nine Months Ended

2025 November 1,

2024 October 31,

2025 November 1,

(dollars in millions)

8 unchanged sentences

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

— (1) (2) (2)

Costs related to the settlement of federal tax audits

Executive transition costs, net of recoveries

Adjusted operating income

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government Cost Accounting Standards.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

EBITDA and Adjusted EBITDA.

The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization.

EBITDA is a performance measure that is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization.

Adjusted EBITDA is a performance measure that excludes the impact of non-recurring transactions and activities that we do not consider to be indicative of our ongoing operating performance.

3 unchanged sentences

Costs related to the settlement of federal tax audits represent costs related to the IRS audit settlement for fiscal years 2016 through 2019 .

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 our long-term financial performance.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

Three Months Ended Six Months Ended

2025 August 2,

2024 August 1,

2025 August 2,

Three Months Ended Nine Months Ended

2025 November 1,

2024 October 31,

2025 November 1,

(dollars in millions)

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Interest expense, net and loss on sale of receivables

Income tax expense (benefit)

36 36 104 108

Income tax expense (benefit)

Depreciation and amortization 38 35 109 104

3 unchanged sentences

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

— (1) (2) (2)

Costs related to the settlement of federal tax audits

Executive transition costs, net of recoveries

Adjusted EBITDA $ 185 $ 197 $ 527 $ 533

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government Cost Accounting Standards.

Adjusted operating income and adjusted EBITDA as a percentage of revenues for the three months ended August 1, 2025 increased compared to the same period in the prior year primarily due to improved profitability across our contract portfolio and a recovery of costs from the settlement of a patent infringement matter, partially offset by the indirect rates impact of state taxes related to the Act.

Adjusted operating income and adjusted EBITDA as a percentage of revenues for the six months ended August 1, 2025 increased compared to the same period in the prior year primarily due to a recovery of costs from the settlement of a patent infringement matter, partially offset by the indirect rates impact of state taxes related to the Act.

Adjusted operating income and adjusted EBITDA as a percentage of revenues for the three months ended October 31, 2025 decreased compared to the same period in the prior year primarily due to the favorable resolution of the AAV contract termination in the prior year ($14 million), partially offset by timing and volume mix in our contract portfolio.

Adjusted operating income and adjusted EBITDA as a percentage of revenues for the nine months ended October 31, 2025 increased compared to the same period in the prior year primarily due to a recovery of costs from the settlement of a patent infringement matter and timing and volume mix in our contract portfolio, partially offset by the favorable resolution of the AAV contract termination in the prior year ($14 million).

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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:

August 1, 2025 January 31, 2025

October 31, 2025 January 31, 2025

Defense and Intelligence

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Total backlog $ 19,449 $ 4,339 $ 23,788 $ 17,940 $ 3,917 $ 21,857

We had net bookings worth an estimated $2.6 billion and $5.0 billion during the three and six months ended August 1, 2025.

We had net bookings worth an estimated $2.2 billion and $7.2 billion during the three and nine months ended October 31, 2025, respectively.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Contract Types.

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Three Months Ended

August 1, 2025

August 2, 2024

October 31, 2025

November 1, 2024

Defense and Intelligence

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Total 100 % 100 % 100 % 100 % 100 % 100 %

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Six Months Ended

August 1, 2025

August 2, 2024

Nine Months Ended

October 31, 2025

November 1, 2024

Defense and Intelligence

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Three Months Ended

August 1, 2025

August 2, 2024

October 31, 2025

November 1, 2024

Defense and Intelligence

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Total 100 % 100 % 100 % 100 % 100 % 100 %

Six Months Ended

August 1, 2025

August 2, 2024

Nine Months Ended

October 31, 2025

November 1, 2024

Defense and Intelligence

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We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $1.0 billion Revolving Credit Facility and $300 million MARPA Facility.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

We anticipate that our future cash needs will be for working capital, capital expenditures, and contractual and other commitments.

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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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

During the third quarter of fiscal 2026, we issued unsecured senior notes through a private offering and amended our Credit Facility.

See Note 7—Debt Obligations to the condensed consolidated financial statements contained within this report for additional information.

Historical Cash Flow Trends

The following table summarizes our cash flows:

Six Months Ended

2025 August 2,

Nine Months Ended

2025 November 1,

(in millions)

3 unchanged sentences

Net decrease in cash, cash equivalents and restricted cash

$ (11) $ (49)

Net Cash Provided by Operating Activities.

Cash flows provided by operating activities for the six months ended August 1, 2025 decreased $14 million compared to the prior year primarily due to timing of customer collections and vendor payments, partially offset by higher cash provided by the Master Accounts Receivable Purchase Agreement ("MARPA Facility") (see Note 9—Sales of Receivables to the condensed consolidated financial statements contained within this report for additional information), lower incentive-based compensation payments in the current year and other changes in working capital.

Cash flows provided by operating activities for the nine months ended October 31, 2025 decreased $28 million compared to the prior year primarily due to timing of vendor payments, lower cash inflows from the usage of the Master Accounts Receivable Purchase Agreement ("MARPA Facility") in the current year, and other changes in working capital, partially offset by timing of customer collections, lower cash taxes paid, and lower incentive-based compensation payments in the current year.

Net Cash Used in Investing Activities.

Cash used in investing activities for the six months ended August 1, 2025 increased $6 million compared to the prior year primarily due to higher contributions to investments in the current year.

Cash used in investing activities for the nine months ended October 31, 2025 increased $222 million compared to the prior year primarily due to $203 million of cash paid in the current year for the acquisition of SilverEdge, net of cash acquired (see Note 4 to the condensed consolidated financial statements) and proceeds from the sale of equity method investments in the prior year.

Net Cash Used in Financing Activities.

Cash used in financing activities for the six months ended August 1, 2025 decreased $59 million compared to the prior year period primarily due to lower plan share repurchases and higher proceeds from borrowings, net of principal payments in the current year.

Cash used in financing activities for the nine months ended October 31, 2025 decreased $288 million compared to the prior year period primarily due to higher proceeds from borrowings, net of principal payments and debt issuance costs, and lower plan share repurchases in the current year.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates during the six months ended August 1, 2025 from those disclosed in our most recently filed Annual Report on Form 10-K.

There have been no changes to our critical accounting policies and estimates during the nine months ended October 31, 2025 from those disclosed in our most recently filed Annual Report on Form 10-K.

Recently Issued But Not Yet Adopted Accounting Pronouncements

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Quantitative and Qualitative Disclosures About Market Risk

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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 2. Management’s Discussion and Analysis