UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 28, 2022~~August 4, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission
File Number

001-35832

Science Applications International Corporation

(Exact ~~Name~~name of ~~Registrant~~registrant as ~~Specified~~specified in its Charter,
Address of Principal Executive Offices and Telephone Number

State or other
jurisdiction of
incorporation or
organization

I.R.S. Employer
Identification
No.charter)

~~001-35832~~

Science Applications
International Corporation

Delaware

46-1932921

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

12010 Sunset Hills Road,

Reston,

Virginia

20190

(Address of principal executive offices)

(Zip Code)

(703)

676-4300

(Registrant's telephone number, including area code)

~~12010 Sunset Hills Road, Reston, VA 20190~~

~~703-676-4300~~

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.0001 per share	SAIC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares issued and outstanding of the registrant’s common stock as of ~~November 18, 2022~~August 25, 2023 was as follows:

~~54,629,268~~52,935,354 shares of common stock ($.0001 par value per share)


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS


		Page
Part I	Financial Information

Item 1	Financial Statements	1
	Condensed and Consolidated Statements of Income	1
	Condensed and Consolidated Statements of Comprehensive Income	2
	Condensed and Consolidated Balance Sheets	3
	Condensed and Consolidated Statements of Equity	4
	Condensed and Consolidated Statements of Cash Flows	5
	Notes to Condensed and Consolidated Financial Statements	6
	Note 1—Business Overview and Summary of Significant Accounting Policies	6
	Note 2—Earnings Per Share, Share Repurchases and Dividends	8
	Note 3—Revenues	9
	Note 4—~~Acquisitions~~Divestitures	12
	Note 5—Goodwill and Intangible Assets	1213
	Note 6—Income Taxes	13
	Note 7—Debt Obligations	14
	Note 8 —Derivative Instruments Designated as Cash Flow Hedges	15
	Note 9—Changes in Accumulated Other Comprehensive Income (Loss) by Component	1716
	Note 10—Sales of Receivables	1817
	Note 11—Legal Proceedings and Other Commitments and Contingencies	1817

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2019

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2725

Item 4	Controls and Procedures	2726

Part II	Other Information	2927

Item 1	Legal Proceedings	2927

Item 1A	Risk Factors	2927

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2927

Item 3	Defaults Upon Senior Securities	2927

Item 4	Mine Safety Disclosures	2927

Item 5	Other Information	2927

Item 6	Exhibits	3028

	Signatures	3129

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Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions, except per share amounts)									(in millions, except per share amounts)
Revenues	Revenues	$	1,909	$	1,898	$	5,736	$	5,612	Revenues	$	1,784	$	1,831	$	3,812	$	3,827
Cost of revenues	Cost of revenues	1,688		1,685		5,070		4,950		Cost of revenues	1,568		1,612		3,361		3,382
Selling, general and administrative expenses	Selling, general and administrative expenses	87		87		272		252		Selling, general and administrative expenses	88		93		172		185
Acquisition and integration costs	Acquisition and integration costs	1		12		11		36		Acquisition and integration costs	1		1		1		10
Other operating income		—		—		—		(3)
Other operating income (includes gain on divestiture, see Note 4)										Other operating income (includes gain on divestiture, see Note 4)	(235)		—		(241)		—
Operating income	Operating income	133		114		383		377		Operating income	362		125		519		250
Interest expense	Interest expense	30		26		87		79		Interest expense	33		30		66		57
Other (income) expense, net	Other (income) expense, net	3		—		6		(3)		Other (income) expense, net	(6)		—		(5)		3
Income before income taxes	Income before income taxes	100		88		290		301		Income before income taxes	335		95		458		190
Provision for income taxes	Provision for income taxes	(20)		(17)		(62)		(66)		Provision for income taxes	(88)		(21)		(113)		(42)
Net income	Net income	80		71		228		235		Net income	247		74		345		148
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	—		—		2		1		Net income attributable to non-controlling interest	—		1		—		2
Net income attributable to common stockholders	Net income attributable to common stockholders	$	80	$	71	$	226	$	234	Net income attributable to common stockholders	$	247	$	73	$	345	$	146
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	1.45	$	1.24	$	4.06	$	4.05	Basic	$	4.60	$	1.31	$	6.40	$	2.61
Diluted	Diluted	$	1.45	$	1.22	$	4.04	$	4.01	Diluted	$	4.56	$	1.30	$	6.35	$	2.59

See accompanying notes to condensed and consolidated financial statements.

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Table of Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions)									(in millions)
Net income	Net income	$	80	$	71	$	228	$	235	Net income	$	247	$	74	$	345	$	148
Other comprehensive income, net of tax:
Net unrealized gain on derivative instruments		29		17		63		32
Total other comprehensive income, net of tax		29		17		63		32
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on derivative instruments										Net unrealized gain (loss) on derivative instruments	7		(3)		1		34
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	7		(3)		1		34
Comprehensive income	Comprehensive income	$	109	$	88	$	291	$	267	Comprehensive income	$	254	$	71	$	346	$	182
Comprehensive income attributable to non-controlling interest	Comprehensive income attributable to non-controlling interest	—		—		2		1		Comprehensive income attributable to non-controlling interest	—		1		—		2
Comprehensive income attributable to common stockholders	Comprehensive income attributable to common stockholders	$	109	$	88	$	289	$	266	Comprehensive income attributable to common stockholders	$	254	$	70	$	346	$	180

See accompanying notes to condensed and consolidated financial statements.

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Table of Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


		October 28, 2022		January 28, 2022			August 4, 2023		February 3, 2023
		(in millions)					(in millions)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	53	$	106	Cash and cash equivalents	$	352	$	109
Receivables, net	Receivables, net	1,059		1,015		Receivables, net	958		936
Inventory, prepaid expenses and other current assets	Inventory, prepaid expenses and other current assets	135		142		Inventory, prepaid expenses and other current assets	74		152
Total current assets	Total current assets	1,247		1,263		Total current assets	1,384		1,197
Goodwill	Goodwill	2,911		2,913		Goodwill	2,851		2,911
Intangible assets, net	Intangible assets, net	1,040		1,132		Intangible assets, net	951		1,009
Property, plant, and equipment (net of accumulated depreciation of $194 million and $182 million at October 28, 2022 and January 28, 2022, respectively)		95		100
Property, plant, and equipment (net of accumulated depreciation of $193 million and $194 million at August 4, 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)	90		92
Operating lease right of use assets	Operating lease right of use assets	166		209		Operating lease right of use assets	140		158
Other assets	Other assets	169		129		Other assets	256		176
Total assets	Total assets	$	5,628	$	5,746	Total assets	$	5,672	$	5,543

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	819	$	840	Accounts payable and accrued liabilities	$	820	$	767
Accrued payroll and employee benefits	Accrued payroll and employee benefits	396		364		Accrued payroll and employee benefits	330		328
Long-term debt, current portion	Long-term debt, current portion	15		148		Long-term debt, current portion	62		31
Total current liabilities	Total current liabilities	1,230		1,352		Total current liabilities	1,212		1,126
Long-term debt, net of current portion	Long-term debt, net of current portion	2,358		2,370		Long-term debt, net of current portion	2,215		2,343
Operating lease liabilities	Operating lease liabilities	155		192		Operating lease liabilities	138		152
Deferred income taxes		—		43
Other long-term liabilities	Other long-term liabilities	189		160		Other long-term liabilities	264		218
Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)					Commitments and contingencies (Note 11)
Equity:	Equity:					Equity:
Common stock, $0.0001 par value, 1 billion shares authorized, 55 million and 56 million shares issued and outstanding as of October 28, 2022 and January 28, 2022, respectively		—		—
Common stock, $0.0001 par value, 1 billion shares authorized, 53 million and 54 million shares issued and outstanding as of August 4, 2023 and February 3, 2023, respectively						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	Additional paid-in capital	679		838		Additional paid-in capital	480		637
Retained earnings	Retained earnings	981		818		Retained earnings	1,340		1,035
Accumulated other comprehensive income (loss)		26		(37)
Accumulated other comprehensive income						Accumulated other comprehensive income	23		22
Total common stockholders' equity	Total common stockholders' equity	1,686		1,619		Total common stockholders' equity	1,843		1,694
Non-controlling interest	Non-controlling interest	10		10		Non-controlling interest	—		10
Total stockholders' equity	Total stockholders' equity	1,696		1,629		Total stockholders' equity	1,843		1,704
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	5,628	$	5,746	Total liabilities and stockholders' equity	$	5,672	$	5,543

See accompanying notes to condensed and consolidated financial statements.

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Table of Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)


		Shares of common stock	Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interest		Total			Shares of common stock	Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interest		Total
		(in millions)												(in millions)
Balance at July 29, 2022		55	$	723	$	923	$	(3)	$	10	$	1,653
Balance at May 5, 2023													Balance at May 5, 2023	54	$	563	$	1,113	$	16	$	—	$	1,692
Net income	Net income	—	—		80		—		—		80		Net income	—	—		247		—		—		247
Issuances of stock	Issuances of stock	—	5		—		—		—		5		Issuances of stock	—	5		—		—		—		5
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		29		—		29		Other comprehensive income, net of tax	—	—		—		7		—		7
Cash dividends of $0.37 per share	Cash dividends of $0.37 per share	—	—		(22)		—		—		(22)		Cash dividends of $0.37 per share	—	—		(20)		—		—		(20)
Stock-based compensation	Stock-based compensation	—	11		—		—		—		11		Stock-based compensation	—	14		—		—		—		14
Repurchases of stock	Repurchases of stock	—	(60)		—		—		—		(60)		Repurchases of stock	(1)	(102)		—		—		—		(102)
Balance at August 4, 2023													Balance at August 4, 2023	53	$	480	$	1,340	$	23	$	—	$	1,843

Balance at February 3, 2023													Balance at February 3, 2023	54	$	637	$	1,035	$	22	$	10	$	1,704
Net income													Net income	—	—		345		—		—		345
Issuances of stock													Issuances of stock	1	9		—		—		—		9
Other comprehensive income, net of tax													Other comprehensive income, net of tax	—	—		—		1		—		1
Cash dividends of $0.74 per share													Cash dividends of $0.74 per share	—	—		(40)		—		—		(40)
Stock-based compensation													Stock-based compensation	—	7		—		—		—		7
Repurchases of stock													Repurchases of stock	(2)	(173)		—		—		—		(173)
Deconsolidation of non-controlling interest													Deconsolidation of non-controlling interest	—	—		—		—		(10)		(10)
Balance at August 4, 2023													Balance at August 4, 2023	53	$	480	$	1,340	$	23	$	—	$	1,843

Balance at April 29, 2022													Balance at April 29, 2022	56	$	770	$	870	$	—	$	10	$	1,650
Net income													Net income	—	—		73		—		1		74
Issuances of stock													Issuances of stock	—	3		—		—		—		3
Other comprehensive loss, net of tax													Other comprehensive loss, net of tax	—	—		—		(3)		—		(3)
Cash dividends of $0.37 per share													Cash dividends of $0.37 per share	—	—		(20)		—		—		(20)
Stock-based compensation													Stock-based compensation	—	12		—		—		—		12
Repurchases of stock													Repurchases of stock	(1)	(62)		—		—		—		(62)
Distributions to non-controlling interest	Distributions to non-controlling interest	—	—		—		—		—		—		Distributions to non-controlling interest	—	—		—		—		(1)		(1)
Balance at October 28, 2022		55	$	679	$	981	$	26	$	10	$	1,696
Balance at July 29, 2022													Balance at July 29, 2022	55	$	723	$	923	$	(3)	$	10	$	1,653

Balance at January 28, 2022	Balance at January 28, 2022	56	$	838	$	818	$	(37)	$	10	$	1,629	Balance at January 28, 2022	56	$	838	$	818	$	(37)	$	10	$	1,629
Net income	Net income	—	—		226		—		2		228		Net income	—	—		146		—		2		148
Issuances of stock	Issuances of stock	1	13		—		—		—		13		Issuances of stock	1	8		—		—		—		8
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		63		—		63		Other comprehensive income, net of tax	—	—		—		34		—		34
Cash dividends of $1.11 per share		—	—		(63)		—		—		(63)
Cash dividends of $0.74 per share													Cash dividends of $0.74 per share	—	—		(41)		—		—		(41)
Stock-based compensation	Stock-based compensation	—	19		—		—		—		19		Stock-based compensation	—	8		—		—		—		8
Repurchases of stock	Repurchases of stock	(2)	(191)		—		—		—		(191)		Repurchases of stock	(2)	(131)		—		—		—		(131)
Distributions to non-controlling interest	Distributions to non-controlling interest	—	—		—		—		(2)		(2)		Distributions to non-controlling interest	—	—		—		—		(2)		(2)
Balance at October 28, 2022		55	$	679	$	981	$	26	$	10	$	1,696

Balance at July 30, 2021		58	$	945	$	747	$	(74)	$	10	$	1,628
Net income		—	—		71		—		—		71
Issuances of stock		1	4		—		—		—		4
Other comprehensive income, net of tax		—	—		—		17		—		17
Cash dividends of $0.37 per share		—	—		(22)		—		—		(22)
Stock-based compensation		—	11		—		—		—		11
Repurchases of stock		(2)	(64)		—		—		—		(64)
Distributions to non-controlling interest		—	—		—		—		—		—
Balance at October 29, 2021		57	$	896	$	796	$	(57)	$	10	$	1,645

Balance at January 29, 2021		58	$	1,004	$	627	$	(89)	$	10	$	1,552
Net income		—	—		234		—		1		235
Issuances of stock		1	12		—		—		—		12
Other comprehensive income, net of tax		—	—		—		32		—		32
Cash dividends of $1.11 per share		—	—		(65)		—		—		(65)
Stock-based compensation		—	21		—		—		—		21
Repurchases of stock		(2)	(141)		—		—		—		(141)
Distributions to non-controlling interest		—	—		—		—		(1)		(1)
Balance at October 29, 2021		57	$	896	$	796	$	(57)	$	10	$	1,645
Balance at July 29, 2022													Balance at July 29, 2022	55	$	723	$	923	$	(3)	$	10	$	1,653

See accompanying notes to condensed and consolidated financial statements.

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Table of Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


		Nine Months Ended					Six Months Ended
		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022
		(in millions)					(in millions)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	228	$	235	Net income	$	345	$	148
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	118		123		Depreciation and amortization	72		81
Amortization of off-market customer contracts	Amortization of off-market customer contracts	(12)		(30)		Amortization of off-market customer contracts	(4)		(6)
Amortization of debt issuance costs	Amortization of debt issuance costs	8		6		Amortization of debt issuance costs	4		6
Deferred income taxes	Deferred income taxes	(29)		41		Deferred income taxes	(25)		(22)
Stock-based compensation expense	Stock-based compensation expense	35		35		Stock-based compensation expense	27		23
Gain on sale of long-lived assets						Gain on sale of long-lived assets	(3)		—
Gain on divestitures	Gain on divestitures	—		(2)		Gain on divestitures	(247)		—
Impairment of assets		—		10
Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of acquisitions:
Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of divestitures:						Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of divestitures:
Receivables	Receivables	(44)		(123)		Receivables	(90)		(21)
Inventory, prepaid expenses and other current assets	Inventory, prepaid expenses and other current assets	7		28		Inventory, prepaid expenses and other current assets	8		7
Other assets	Other assets	5		(8)		Other assets	(3)		5
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(21)		47		Accounts payable and accrued liabilities	52		29
Accrued payroll and employee benefits	Accrued payroll and employee benefits	32		45		Accrued payroll and employee benefits	9		(27)
Income taxes payable	Income taxes payable	59		—		Income taxes payable	74		36
Operating lease assets and liabilities, net	Operating lease assets and liabilities, net	(1)		4		Operating lease assets and liabilities, net	(2)		—
Other long-term liabilities	Other long-term liabilities	2		4		Other long-term liabilities	15		—
Net cash provided by operating activities	Net cash provided by operating activities	387		415		Net cash provided by operating activities	232		259
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Expenditures for property, plant, and equipment	Expenditures for property, plant, and equipment	(18)		(27)		Expenditures for property, plant, and equipment	(12)		(12)
Purchases of marketable securities	Purchases of marketable securities	(5)		(5)		Purchases of marketable securities	(5)		(4)
Sales of marketable securities	Sales of marketable securities	3		4		Sales of marketable securities	4		2
Cash paid for acquisitions, net of cash acquired		—		(247)
Proceeds from sale of long-lived assets						Proceeds from sale of long-lived assets	3		—
Proceeds from divestitures	Proceeds from divestitures	—		8		Proceeds from divestitures	355		—
Cash divested upon deconsolidation of joint venture						Cash divested upon deconsolidation of joint venture	(8)		—
Other	Other	(3)		(5)		Other	(3)		(3)
Net cash used in investing activities		(23)		(272)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	334		(17)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Dividend payments to stockholders	Dividend payments to stockholders	(63)		(65)		Dividend payments to stockholders	(41)		(42)
Principal payments on borrowings	Principal payments on borrowings	(780)		(84)		Principal payments on borrowings	(260)		(575)
Issuances of stock	Issuances of stock	12		12		Issuances of stock	8		8
Stock repurchased and retired or withheld for taxes on equity awards	Stock repurchased and retired or withheld for taxes on equity awards	(208)		(154)		Stock repurchased and retired or withheld for taxes on equity awards	(190)		(148)
Proceeds from borrowings	Proceeds from borrowings	630		116		Proceeds from borrowings	160		515
Debt issuance costs	Debt issuance costs	(6)		—		Debt issuance costs	—		(5)
Distributions to non-controlling interest	Distributions to non-controlling interest	(2)		(1)		Distributions to non-controlling interest	—		(2)
Net cash used in financing activities	Net cash used in financing activities	(417)		(176)		Net cash used in financing activities	(323)		(249)
Net decrease in cash, cash equivalents and restricted cash		(53)		(33)
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	243		(7)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	115		190		Cash, cash equivalents and restricted cash at beginning of period	118		115
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	62	$	157	Cash, cash equivalents and restricted cash at end of period	$	361	$	108

See accompanying notes to condensed and consolidated financial statements.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

Overview

Science Applications International Corporation (collectively, with its consolidated subsidiaries, and herein referred to as "SAIC," the ~~“Company”~~“Company,” "we," "us," or "our") is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government. The Company provides these services for large, complex projects with a targeted emphasis on higher-end, differentiated technology services and solutions that accelerate and transform secure and resilient digital environments through system development, modernization, integration, and sustainment to drive enterprise and mission outcomes.

The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization. The Company's operating sectors are aggregated into one reportable segment for financial reporting purposes. Each of the Company’s two customer facing operating sectors is focused on providing both (1) growth and technology accelerating solutions and (2) core IT service offerings to one or more agencies of the U.S. federal government. Growth and technology accelerating solutions include the delivery of secure cloud modernization, outcome based enterprise IT as-a-service, and the integration, production and modernization of defense systems. Core ~~IT services~~service offerings include systems engineering and the operation and maintenance of existing IT systems and ~~networks, and logistics and supply chain solutions.~~

During the second quarter of fiscal 2022, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, growing the Company's digital transformation portfolio. Additionally, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data.networks.

Principles of Consolidation and Basis of Presentation

The accompanying financial information ~~has been~~was prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes. References to “financial statements” refer to the condensed and consolidated financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statements of equity and statements of cash flows. These financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). All intercompany transactions and account balances within the Company have been eliminated. The financial statements are unaudited, but in the opinion of management include all adjustments ~~which consist of normal recurring adjustments,~~ necessary for a fair presentation thereof. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year and should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended ~~January 28, 2022.~~

~~Non-controlling Interest.~~ The Company holds a 50.1% majority interest in Forfeiture Support Associates J.V. (FSA). The results of operations of FSA are included in the Company's condensed and consolidated statements of income and comprehensive income and statements of cash flows. The non-controlling interest reported on the condensed and consolidated balance sheets represents the portion of FSA's equity that is attributable to the non-controlling interest.February 3, 2023.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant estimates inherent in the preparation of the financial statements may include, but are not limited to estimated profitability of long-term contracts, income taxes, fair value measurements, fair value of goodwill and other intangible assets, pension and defined benefit plan obligations, and contingencies. Estimates have been prepared by management on the basis of the most current and best available information at the time of estimation and actual results could differ from those estimates.

Reporting Periods

The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2024 began on February 4, 2023 and ends on February 2, 2024, while fiscal 2023 began on January 29, 2022 and ended on February 3, 2023.

Operating Cycle

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

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

~~Reporting Periods~~

The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2023 began on January 29, 2022 and ends on February 3, 2023, while fiscal 2022 began on January 30, 2021 and ended on January 28, 2022.

~~Operating Cycle~~

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

Derivative Instruments Designated as Cash Flow Hedges

Derivative instruments are recorded on the condensed and consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and fair value is calculated using a standard pricing model for interest rate swaps with contractual terms for maturities, amortization and interest rates. Level 2, or market observable inputs (such as yield and credit curves), are used within the standard pricing models in order to determine fair value. The fair value is an estimate of the amount that the Company would pay or receive as of a measurement date if the agreements were transferred to a third party. See Note 8 for further discussion on the Company’s derivative instruments designated as cash flow hedges.

Marketable Securities

Investments in marketable securities consist of equity securities, which are recorded at fair value using observable inputs such as quoted prices in active markets (Level 1). As of ~~October 28, 2022~~August 4, 2023 and ~~January 28, 2022,~~February 3, 2023, the fair value of ~~our~~the Company's investments totaled ~~$26~~$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 ~~our~~its deferred compensation plan liabilities.

Cash, Cash Equivalents and Restricted Cash

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


		October 28, 2022		January 28, 2022			August 4, 2023		February 3, 2023
		(in millions)					(in millions)
Cash and cash equivalents	Cash and cash equivalents	$	53	$	106	Cash and cash equivalents	$	352	$	109
Restricted cash included in inventory, prepaid expenses and other current assets	Restricted cash included in inventory, prepaid expenses and other current assets	5		5		Restricted cash included in inventory, prepaid expenses and other current assets	5		5
Restricted cash included in other assets	Restricted cash included in other assets	4		4		Restricted cash included in other assets	4		4
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	62	$	115	Cash, cash equivalents and restricted cash	$	361	$	118

Acquisition and Integration Costs

Acquisition-related costs that are not part of the purchase price consideration are generally expensed as incurred, except for certain costs that are deferred in connection with the issuance of debt. These costs typically include transaction-related costs, such as finder’s fees, legal, accounting, and other professional costs. Integration-related costs represent costs directly related to combining the Company and its acquired businesses. Integration-related costs typically include strategic consulting services, facility consolidations, ~~employee-related~~employee related costs, such as retention and severance, costs to integrate information technology infrastructure, enterprise planning systems, processes, and other non-recurring integration-related costs. 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.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

Three Months Ended Nine Months Ended
October 28,
2022 October 29,
2021 October 28,
2022 October 29,
2021
(in millions)
Acquisition(1)
$ (1) $ — $ (2) $ 3
Integration(2)
2 12 13 33
Total acquisition and integration costs $ 1 $ 12 $ 11 $ 36

(1) Acquisition expenses for the three and nine months ended October 28, 2022 reflects amounts recognized to reduce the fair value of the Koverse earnout liability. Acquisition expenses for the nine months ended October 29, 2021 are related to the acquisitions of Halfaker and Koverse. See Note 4 for additional information related to the acquisitions.

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

Restructuring

During the three and ~~nine~~six months ended ~~October 28, 2022,~~August 4, 2023, the Company incurred $5 million and $7$6 million ~~respectively,~~ of restructuring costs, ~~related to~~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 ~~other costs associated with the optimization of business processes. These costs~~ are presented within selling, general and administrative expenses inon the condensed and consolidated statements of income.

Investments in Equity Securities

The Company invests in certain companies that advance or develop new technologies applicable to its business. The Company also occasionally forms joint ventures as a part of its investment strategy for the purpose of bidding and executing on specific projects. Each investment is evaluated for consolidation under the variable interest entities (VIEs) model and/or the voting interest model. The results of these investments are not material to the unaudited condensed and consolidated financial statements for the periods presented.

The Company applies the equity method of accounting to its unconsolidated investments when it has the ability to exercise significant influence over the entity and recognizes its proportionate share of the entities’ net income or loss within other operating income on the condensed and consolidated statements of income. Equity investments in entities over which the Company does not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary impairments.

Accounting Standards Updates

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50), which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. These amendments are effective for fiscal years beginning after December 15, 2022, except for the requirement to provide rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company ~~does not expect the adoption of this standard to have a material impact on its consolidated financial statements.~~

~~In October 2021, the FASB issued ASU No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured at the acquisition date in accordance with Topic 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and must be applied prospectively. Early adoption is permitted. The Company adopted the requirements of ASU ~~2021-08 on a prospective basis~~2022-04 effective the first day of fiscal ~~2023.~~2024.

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

Earnings Per Share (EPS)

Basic EPS is computed by dividing net income attributable to common stockholders by the basic weighted-average number of shares outstanding. Diluted EPS is computed similarly to basic EPS, except the weighted-average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock-based awards.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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


		Three Months Ended		Nine Months Ended			Three Months Ended		Six Months Ended
		October 28, 2022	October 29, 2021	October 28, 2022	October 29, 2021		August 4, 2023	July 29, 2022	August 4, 2023	July 29, 2022
		(in millions)					(in millions)
Basic weighted-average number of shares outstanding	Basic weighted-average number of shares outstanding	55.0	57.5	55.6	57.8	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	Dilutive common share equivalents - stock options and other stock-based awards	0.5	0.5	0.4	0.6	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	Diluted weighted-average number of shares outstanding	55.5	58.0	56.0	58.4	Diluted weighted-average number of shares outstanding	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 ~~nine~~six months ended ~~October 28,~~August 4, 2023 and July 29, 2022 ~~and October 29, 2021~~ were immaterial.

Share Repurchases

The Company may repurchase shares in accordance with established repurchase plans. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital. The Company has not made any material purchases of common stock other than in connection with established share repurchase plans. In June 2022, the number of shares of ~~our~~the Company's common stock that may be repurchased under ~~our~~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 ~~October 28, 2022, we have~~August 4, 2023, the Company has repurchased approximately ~~16.5~~18.7 million shares of common stock under the program.

Dividends

The Company declared and paid a quarterly dividend of $0.37 per share of its common stock during the three months ended ~~October 28, 2022.~~August 4, 2023. Subsequent to the end of the quarter, on ~~November 29, 2022,~~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 ~~January~~October 27, 2023 to stockholders of record on ~~January~~October 13, 2023.

Note 3—Revenues:

Changes in Estimates on Contracts

Changes in estimates of revenues, cost of revenues or profits related to performance obligations satisfied over time are recognized in operating income in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can occur routinely over the performance period for a variety of reasons, which include: changes in scope; changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs; changes in the estimated transaction price, such as variable amounts for incentive or award fees; and performance being better or worse than previously estimated.

~~Many~~A significant portion of the Company's contracts recognize revenue on performance obligations using a cost input measure (cost-to-cost), which requires estimates of total costs at completion. In cases when total expected costs exceed total estimated revenues for a performance obligation, the Company recognizes the total estimated loss in the quarter identified. Total estimated losses are inclusive of any unexercised options that are probable of award, only if they increase the amount of the loss.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions, except per share amounts)									(in millions, except per share amounts)
Net (unfavorable) favorable adjustments	Net (unfavorable) favorable adjustments	$	(6)	$	—	$	4	$	9	Net (unfavorable) favorable adjustments	$	(1)	$	5	$	4	$	10
Net (unfavorable) favorable adjustments, after tax	Net (unfavorable) favorable adjustments, after tax	(5)		—		3		7		Net (unfavorable) favorable adjustments, after tax	(1)		4		3		8
Diluted EPS impact	Diluted EPS impact	$	(0.09)	$	—	$	0.05	$	0.12	Diluted EPS impact	$	(0.02)	$	0.07	$	0.06	$	0.14

Revenues were $2$1 million lower and $7$4 million higher for the three and ~~nine~~six months ended ~~October 28, 2022,~~August 4, 2023, respectively, and $1$5 million and ~~$21~~$9 million higher for the three and ~~nine~~six months ended ~~October~~July 29, ~~2021,~~2022, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

Disaggregation of Revenues

The Company's revenues are generated primarily from long-term contracts with the U.S. government including subcontracts with other contractors engaged in work for the U.S. government. The Company disaggregates revenues by customer, ~~contract-type~~contract type and prime versus subcontractor to the federal government.

Disaggregated revenues by customer were as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions)									(in millions)
Department of Defense	Department of Defense	$	969	$	920	$	2,799	$	2,740	Department of Defense	$	919	$	884	$	1,990	$	1,830
Other federal government agencies	Other federal government agencies	903		940		2,827		2,762		Other federal government agencies	828		911		1,748		1,924
Commercial, state and local	Commercial, state and local	37		38		110		110		Commercial, state and local	37		36		74		73
Total	Total	$	1,909	$	1,898	$	5,736	$	5,612	Total	$	1,784	$	1,831	$	3,812	$	3,827

Disaggregated revenues by ~~contract-type~~contract type were as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions)									(in millions)
Cost reimbursement	Cost reimbursement	$	1,071	$	1,045	$	3,201	$	3,028	Cost reimbursement	$	1,105	$	1,035	$	2,217	$	2,130
Time and materials (T&M)	Time and materials (T&M)	363		363		1,077		1,139		Time and materials (T&M)	358		328		725		714
Firm-fixed price (FFP)	Firm-fixed price (FFP)	475		490		1,458		1,445		Firm-fixed price (FFP)	321		468		870		983
Total	Total	$	1,909	$	1,898	$	5,736	$	5,612	Total	$	1,784	$	1,831	$	3,812	$	3,827

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Disaggregated revenues by prime versus subcontractor were as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(in millions)									(in millions)
Prime contractor to federal government	Prime contractor to federal government	$	1,725	$	1,722	$	5,212	$	5,069	Prime contractor to federal government	$	1,591	$	1,665	$	3,446	$	3,487
Subcontractor to federal government	Subcontractor to federal government	147		138		414		433		Subcontractor to federal government	156		130		292		267
Other	Other	37		38		110		110		Other	37		36		74		73
Total	Total	$	1,909	$	1,898	$	5,736	$	5,612	Total	$	1,784	$	1,831	$	3,812	$	3,827

Contract Balances

Contract balances for the periods presented were as follows:


		Balance Sheet line item	October 28, 2022		January 28, 2022			Balance Sheet line item	August 4, 2023		February 3, 2023
			(in millions)						(in millions)
Billed and billable receivables, net(1)	Billed and billable receivables, net(1)	Receivables, net	$	580	$	615	Billed and billable receivables, net(1)	Receivables, net	$	608	$	572
Contract assets - unbillable receivables	Contract assets - unbillable receivables	Receivables, net	479		400		Contract assets - unbillable receivables	Receivables, net	350		364
Contract assets - contract retentions	Contract assets - contract retentions	Other assets	16		17		Contract assets - contract retentions	Other assets	14		15
Contract liabilities - current	Contract liabilities - current	Accounts payable and accrued liabilities	35		55		Contract liabilities - current	Accounts payable and accrued liabilities	45		48
Contract liabilities - non-current	Contract liabilities - non-current	Other long-term liabilities	$	5	$	9	Contract liabilities - non-current	Other long-term liabilities	$	3	$	4

(1) Net of allowance of ~~$3 million and~~ $4 million as of ~~October 28, 2022~~August 4, 2023 and ~~January 28, 2022, respectively.~~February 3, 2023.

During the three and ~~nine~~six months ended ~~October 28,~~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 $4$8 million and ~~$39~~$35 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022. During the three and nine months ended October 29, 2021, the Company recognized revenues of $8 million and $72 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 29, 2021.

Remaining Performance Obligations

As of ~~October 28, 2022,~~August 4, 2023, the Company had ~~$5.0~~approximately $5 billion of remaining performance obligations. ~~Remaining performance obligations exclude any variable consideration that is allocated entirely to unsatisfied performance obligations on our supply chain contracts.~~ 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.

Lessor Revenue

The Company leases IT equipment and hardware to its customers. All of the Company’s lessor arrangements are operating leases. Operating lease ~~revenue~~income is recognized on a straight-line basis over the term of the ~~lease. Operating~~ lease ~~income~~and is reported as revenue on the condensed and consolidated statements of income. During the ~~nine~~six months ended ~~October 28,~~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 ~~nine~~six months ended ~~October 28, 2022~~August 4, 2023 and ~~$3 million and $14 million for the three and nine months ended October~~July 29, ~~2021, respectively.~~2022.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4—~~Acquisitions:~~Divestitures:

~~Halfaker~~FSA Amendment

On ~~July 2, 2021,~~February 4, 2023, the Company ~~completed the acquisition~~sold 0.1% of ~~Halfaker, a mission focused, pure-play health IT company~~its 50.1% majority ownership interest in Forfeiture Support Associates J.V. (FSA) to its sole joint venture partner for a ~~purchase price~~nominal amount. As a result of ~~$228~~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. 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.

Sale of Logistics and Supply Chain Management Business

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 recorded a preliminary pre-tax gain of $233 million, net of $3$7 million ~~cash acquired.~~ of transaction costs, which is included within other operating income on the condensed and consolidated statements of income.

The ~~Company funded~~disposition does not represent a strategic shift in operations that will have a material effect on the ~~transaction from increased borrowings~~Company's operations and ~~cash on hand. During the first quarter~~financial results, and accordingly has not been presented as discontinued operations.

The major classes of fiscal 2023, the Company made fair value adjustments decreasing goodwill and increasing customer relationships intangible assets by $2 million. The Company has completed the determination of fair values of the acquired assets and liabilities assumed. The allocation of the purchase price resulted in goodwill of $104 million and intangible assets of $114 million, both of which are deductible for income tax purposes. The recognized goodwill is primarily associated with future customer relationships and an acquired assembled work force. The intangible assets consist of customer relationships of $97 million and backlog of $17 million that will be amortized over a period of nine years and one year, respectively. The Company made additional cash payments of $21 million in March 2022 associated with certain change in control provisions that are recognizeddivested were as ~~post-combination expense.~~

~~Koverse~~

On May 3, 2021, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data, for a purchase price of $30 million, net of $2 million cash acquired. The purchase price included $3 million of contingent consideration, representing the acquisition date fair value recognized for up to $27 million gross of potential future earnout payments based on the achievement of certain revenue targets over the next four years. The Company has completed the allocation of the purchase price which resulted in goodwill of $21 million and intangible assets of $10 million, which are both not deductible for income tax purposes. The goodwill is primarily associated with intellectual capital, future customer relationships, and an acquired assembled work force. The intangible assets, which primarily consist of developed technology, are being amortized over a weighted-average period of seven years. As of October 28, 2022, the Company has recognized $11 million of the additional $13 million of post-combination compensation expense associated with certain employee retention agreements.

~~Unisys Federal~~

During the second quarters of fiscal 2023 and 2022, the Company accelerated the amortization for certain off-market customer contracts as a result of a change in their expected contractual terms. The accelerations resulted in additional amortization of $4 million and $6 million for the three and nine months ended October 28, 2022, respectively, and $9 million and $17 million for the three and nine months ended October 29, 2021, respectively. As of October 28, 2022, the remaining unamortized balance of the provision for certain off-market customer contracts is $7 million and is expected to be amortized by the end of fiscal 2024.

~~Note 5—Goodwill and Intangible Assets:~~

~~Goodwill~~

~~Goodwill had a carrying value of $2,911 million and $2,913 million as of October 28, 2022 and January 28, 2022, respectively. There were no impairments of goodwill during the periods presented.~~

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~~Table of Contents~~follows:


	~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~(in millions)
~~NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS~~Assets:
~~(UNAUDITED)~~Receivables, net	$	46
Inventory, prepaid expenses and other current assets	73
Goodwill	60
Operating lease right of use assets	2
Total assets divested	$	181
Liabilities:
Accounts payable and accrued liabilities	$	63
Accrued payroll and employee benefits	1
Operating lease liabilities	1
Total liabilities divested	$	65

~~Intangible Assets~~

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

October 28, 2022 January 28, 2022
Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value
(in millions)
Customer relationships $ 1,467 $ (435) $ 1,032 $ 1,467 $ (351) $ 1,116
Backlog — — — 17 (10) 7
Developed technology 10 (2) 8 10 (2) 8
Trade name 1 (1) — 1 — 1
Total intangible assets $ 1,478 $ (438) $ 1,040 $ 1,495 $ (363) $ 1,132

Amortization expense related to intangible assets was $29 million and $94 million for the three and nine months ended October 28, 2022, respectively, and $33 million and $94 million for the three and nine months ended October 29, 2021, respectively. There were no intangible asset impairment losses during the periods presented.

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

Fiscal Year (in millions)
Remainder of 2023 $ 31
2024 115
2025 115
2026 115
2027 115
Thereafter 549
Total $ 1,040

~~Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments, and other factors.~~

~~Note 6—Income Taxes:~~

The Company's effective income tax rate was 20.3% and 21.3% for the three and nine months ended October 28, 2022, respectively, and 19.4% and 22.0% for the three and nine months ended October 29, 2021, respectively. The Company’s effective tax rate was higher for the three months ended October 28, 2022 compared to the prior year period primarily due to a lower deduction for foreign-derived intangible income. The Company’s effective tax rate was lower for the nine months ended October 28, 2022 compared to the prior year period primarily due to tax benefits recorded in fiscal 2023 from the completion of prior year tax return planning efforts including foreign-derived intangible income studies.

Tax rates for the three and nine months ended October 28, 2022 were lower than the combined federal and state statutory rates due to excess tax benefits related to employee stock-based compensation, research and development tax credits, a deduction for foreign-derived intangible income, and other permanent book tax differences.

As of January 28, 2022, the net deferred tax liability balance was $43 million and is presented as deferred income taxes on the condensed and consolidated balance sheets. As of October 28, 2022, the net deferred tax asset balance is $3 million, which is presented in other assets on the condensed and consolidated balance sheets and is due to capitalization of certain research and development expenses required under the Tax Cuts and Jobs Act of 2017.sale.

~~-13-~~-12-

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 5—Goodwill and Intangible Assets:

Goodwill

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.

Intangible Assets

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


	August 4, 2023						February 3, 2023
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in millions)
Customer relationships	$	1,462	$	(518)	$	944	$	1,467	$	(466)	$	1,001
Developed technology	10		(3)		7		10		(2)		8
Trade name	1		(1)		—		1		(1)		—
Total intangible assets	$	1,473	$	(522)	$	951	$	1,478	$	(469)	$	1,009

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


Fiscal Year	(in millions)
Remainder of 2024	$	57
2025	115
2026	115
2027	115
2028	98
Thereafter	451
Total	$	951

Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments, and other factors.

Note 6—Income Taxes:

The Company's effective income tax rate was 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.

-13-

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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:


		October 28, 2022										January 28, 2022							August 4, 2023										February 3, 2023
		Stated interest rate		Effective interest rate		Principal		Unamortized debt issuance costs		Net		Principal		Unamortized debt issuance costs		Net			Stated interest rate		Effective interest rate		Principal		Unamortized debt issuance costs		Net		Principal		Unamortized debt issuance costs		Net
						(in millions)																	(dollars in millions)
Term Loan A Facility due June 2027	Term Loan A Facility due June 2027	4.38	%	4.50	%	$	1,230	$	(5)	$	1,225	$	—	$	—	$	—	Term Loan A Facility due June 2027	6.42	%	6.54	%	$	1,230	$	(4)	$	1,226	$	1,230	$	(5)	$	1,225
Term Loan A Facility due October 2023		—	%	—	%	—		—		—		785		(5)		780
Term Loan A2 Facility due October 2023		—	%	—	%	—		—		—		100		—		100
Term Loan B Facility due October 2025	Term Loan B Facility due October 2025	5.01	%	5.22	%	488		(3)		485		983		(7)		976		Term Loan B Facility due October 2025	7.29	%	7.50	%	424		(2)		422		488		(3)		485
Term Loan B2 Facility due March 2027	Term Loan B2 Facility due March 2027	5.01	%	5.44	%	272		(4)		268		272		(5)		267		Term Loan B2 Facility due March 2027	7.29	%	7.73	%	236		(3)		233		272		(4)		268
Senior Notes due April 2028	Senior Notes due April 2028	4.88	%	5.11	%	400		(5)		395		400		(5)		395		Senior Notes due April 2028	4.88	%	5.11	%	400		(4)		396		400		(4)		396
Total long-term debt	Total long-term debt					$	2,390	$	(17)	$	2,373	$	2,540	$	(22)	$	2,518	Total long-term debt					$	2,290	$	(13)	$	2,277	$	2,390	$	(16)	$	2,374
Less current portion	Less current portion					15		—		15		148		—		148		Less current portion					62		—		62		31		—		31
Total long-term debt, net of current portion	Total long-term debt, net of current portion					$	2,375	$	(17)	$	2,358	$	2,392	$	(22)	$	2,370	Total long-term debt, net of current portion					$	2,228	$	(13)	$	2,215	$	2,359	$	(16)	$	2,343

As of ~~October 28, 2022,~~August 4, 2023, the Company has a ~~$3.0~~$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.~~ 2027 (the Revolving Credit Facility).

During the ~~quarter,~~three and six months ended August 4, 2023, the Company made ~~a $90~~principal prepayments of $64 million ~~voluntary principal prepayment~~and $36 million on the Term Loan B Facility due October ~~2025.~~2025 and the Term Loan B2 Facility due March 2027, respectively. During the ~~nine~~six months ended ~~October 28, 2022,~~August 4, 2023, the Company borrowed and repaid ~~$200~~$160 million under the Revolving Credit Facility. There was no balance outstanding on the Revolving Credit Facility as of ~~October 28, 2022.~~August 4, 2023. As of ~~October 28, 2022,~~August 4, 2023, the Company was in compliance with the covenants under its Credit Facility.

On June 30, 2022, the Company executed the Fifth Amendment to the Third Amended and Restated Credit Agreement (Fifth Amendment), which established, among other things, a $1,230 million senior secured term loan credit facility (Term Loan A Facility due June 2027) and increased the Revolving Credit Facility commitment from $400 million to $1,000 million. The entire Term Loan A Facility due June 2027 was immediately borrowed by the Company and the proceeds were used to pay in full the outstanding principal balances under the Term Loan A Facility due OctoberAs of August 4, 2023 and ~~Term Loan A2 Facility due October~~February 3, 2023, and to prepay $400 million of principal on the Term Loan B Facility due October 2025. For the three months ended July 29, 2022, the Company wrote off deferred debt issuance costs of $3 million associated with the Term Loan B Facility due October 2025 voluntary principal prepayments which was recognized in interest expense.

Borrowings under the Term Loan A Facility due June 2027 amortize quarterly beginning on October 31, 2023 at 1.250% of the original borrowed amount thereunder, with such quarterly amortization increasing to 1.875% on October 31, 2024 and to 2.500% on October 31, 2025. The Term Loan A Facility due June 2027 may be prepaid at any time without penalty and is subject to the same mandatory prepayments, including from excess cash flow, as the Company’s existing term loans under the Credit Facility.

As a result of the Fifth Amendment, the maturity date for the Revolving Credit Facility was extended to, and the maturity date of the Term Loan A Facility due June 2027 is, the earlier of June 30, 2027 or 91 days prior to the earliest term loan “B” facility maturity date (subject to acceleration in certain circumstances). The Term Loan A Facility due June 2027 is secured by substantially all of the assets of the Company and the Company’s wholly owned domestic subsidiaries, and is guaranteed by each of the Company’s wholly owned domestic subsidiaries. The Term Loan A Facility due June 2027 is subject to the same covenants and events of default as the Company’s existing term loans under the Credit Facility.

~~-14-~~

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~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~
~~NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~

Effective with the Fifth Amendment, all interest rates under the Credit Facility transitioned from LIBOR to Term Secured Overnight Financing Rate (Term SOFR) plus 0.10% for US dollar denominated loans, Sterling Overnight Index Average (SONIA) for UK pound sterling denominated loans, and Euro Interbank Offered Rate (EURIBOR) for Euro denominated loans. The applicable interest rate margins under the Term Loan A Facility due June 2027 and the Revolving Credit Facility were reduced to a range from 0.75% to 1.75% per annum for Term SOFR, SONIA and EURIBOR loans, and from 0% to 0.75% per annum for base rate loans, in each case based on the Company’s leverage ratio. Commitment fees for undrawn amounts under the Revolving Credit Facility were also reduced to a range of 0.125% to 0.25% per annum based on the Company’s leverage ratio.

During the nine months ended October 28, 2022, the Company incurred $8 million of debt issuance costs associated with the Fifth Amendment, of which $2 million was recognized in interest expense, with the remaining $6 million deferred and amortized to interest expense through the maturity date of the facility utilizing the effective interest rate method.

~~As of October 28, 2022 and January 28, 2022,~~ the carrying value of the Company’s outstanding debt obligations approximated its fair value. 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.

-14-

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Maturities of long-term debt as of ~~October 28, 2022~~August 4, 2023 are:


Fiscal Year	Fiscal Year	Total		Fiscal Year	Total
		(in millions)			(in millions)
Remainder of 2023		$	—
2024		31
Remainder of 2024				Remainder of 2024	$	31
2025	2025	77		2025	77
2026	2026	596		2026	532
2027	2027	123		2027	123
2028				2028	1,127
Thereafter	Thereafter	1,563		Thereafter	400
Total principal payments	Total principal payments	$	2,390	Total principal payments	$	2,290

Note 8—Derivative Instruments Designated as Cash Flow Hedges:

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


								Fair Value of Asset (Liability)(1) at											Fair Value of Asset(1) at
		Notional Amount at October 28, 2022		Pay Fixed Rate		Receive Variable Rate	Settlement and Termination	October 28, 2022		January 28, 2022			Notional Amount at August 4, 2023		Pay Fixed Rate		Receive Variable Rate	Settlement and Termination	August 4, 2023		February 3, 2023
		(in millions)						(in millions)					(in millions)						(in millions)
Interest rate swaps #1	Interest rate swaps #1	$	685	2.96	%	Term SOFR	Monthly through October 31, 2025	$	23	$	(39)	Interest rate swaps #1	$	685	2.96	%	Term SOFR	Monthly through October 31, 2025	$	23	$	16
Interest rate swaps #2	Interest rate swaps #2	525		2.36	%	Term SOFR	Monthly through October 31, 2023	11		(12)		Interest rate swaps #2	450		2.36	%	Term SOFR	Monthly through October 31, 2023	3		9
Total	Total	$	1,210					$	34	$	(51)	Total	$	1,135					$	26	$	25

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

The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company’s floating rate debt. The counterparties to all swap agreements are financial institutions.

~~-15-~~

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~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~
~~NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~

On June 30, 2022 and in conjunction with the Fifth Amendment, the Company transitioned the variable rate on its interest rate swaps from 1-month LIBOR to 1-month Term SOFR. Effective with the transition, the Company will pay fixed rates of 2.96% and 2.36% on the group of interest rate swaps maturing on October 31, 2025 and October 31, 2023, respectively. The Company elected to apply the optional expedient in ASC 848 in connection with transitioning its interest rate swaps from LIBOR to Term SOFR that enabled it to consider the new swaps a continuation of the existing contracts. As a result, the transition did not have an impact on the Company’s hedge accounting or a material impact to the Company’s financial statements.

See Note 9 for the unrealized change in fair values on cash flow hedges recognized in other comprehensive income (loss) and the amounts reclassified from accumulated other comprehensive income (loss) into earnings for the current and comparative periods presented. The Company estimates that it will reclassify ~~$22~~$19 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following ~~October 28, 2022.~~August 4, 2023.

~~-16-~~-15-

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

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


		Unrealized Gains (Losses) on Fixed Interest Rate Swap Cash Flow Hedges(1)		Defined Benefit Obligation Adjustment		Total			Unrealized Gains (Losses) on Fixed Interest Rate Swap Cash Flow Hedges(1)		Defined Benefit Obligation Adjustment		Total
		(in millions)							(in millions)
Three months ended October 28, 2022
Balance at July 29, 2022		$	(4)	$	1	$	(3)
Three months ended August 4, 2023								Three months ended August 4, 2023
Balance at May 5, 2023								Balance at May 5, 2023	$	12	$	4	$	16
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	38		—		38		Other comprehensive income before reclassifications	15		—		15
Amounts reclassified from accumulated other comprehensive income								Amounts reclassified from accumulated other comprehensive income	(6)		—		(6)
Income tax impact								Income tax impact	(2)		—		(2)
Net other comprehensive income								Net other comprehensive income	7		—		7
Balance at August 4, 2023								Balance at August 4, 2023	$	19	$	4	$	23

Three months ended July 29, 2022								Three months ended July 29, 2022
Balance at April 29, 2022								Balance at April 29, 2022	$	(1)	$	1	$	—
Other comprehensive loss before reclassifications								Other comprehensive loss before reclassifications	(8)		—		(8)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	1		—		1		Amounts reclassified from accumulated other comprehensive loss	4		—		4
Income tax impact	Income tax impact	(10)		—		(10)		Income tax impact	1		—		1
Net other comprehensive income		29		—		29
Balance at October 28, 2022		$	25	$	1	$	26
Net other comprehensive loss								Net other comprehensive loss	(3)		—		(3)
Balance at July 29, 2022								Balance at July 29, 2022	$	(4)	$	1	$	(3)

Three months ended October 29, 2021
Balance at July 30, 2021		$	(71)	$	(3)	$	(74)
Six months ended August 4, 2023								Six months ended August 4, 2023
Balance at February 3, 2023								Balance at February 3, 2023	$	18	$	4	$	22
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	13		—		13		Other comprehensive income before reclassifications	13		—		13
Amounts reclassified from accumulated other comprehensive loss		9		—		9
Amounts reclassified from accumulated other comprehensive income								Amounts reclassified from accumulated other comprehensive income	(12)		—		(12)
Income tax impact	Income tax impact	(5)		—		(5)		Income tax impact	—		—		—
Net other comprehensive income	Net other comprehensive income	17		—		17		Net other comprehensive income	1		—		1
Balance at October 29, 2021		$	(54)	$	(3)	$	(57)
Balance at August 4, 2023								Balance at August 4, 2023	$	19	$	4	$	23

Nine months ended October 28, 2022
Six months ended July 29, 2022								Six months ended July 29, 2022
Balance at January 28, 2022	Balance at January 28, 2022	$	(38)	$	1	$	(37)	Balance at January 28, 2022	$	(38)	$	1	$	(37)
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	72		—		72		Other comprehensive income before reclassifications	34		—		34
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	13		—		13		Amounts reclassified from accumulated other comprehensive loss	12		—		12
Income tax impact	Income tax impact	(22)		—		(22)		Income tax impact	(12)		—		(12)
Net other comprehensive income	Net other comprehensive income	63		—		63		Net other comprehensive income	34		—		34
Balance at October 28, 2022		$	25	$	1	$	26

Nine months ended October 29, 2021
Balance at January 29, 2021		$	(86)	$	(3)	$	(89)
Other comprehensive income before reclassifications		17		—		17
Amounts reclassified from accumulated other comprehensive loss		26		—		26
Income tax impact		(11)		—		(11)
Net other comprehensive income		32		—		32
Balance at October 29, 2021		$	(54)	$	(3)	$	(57)
Balance at July 29, 2022								Balance at July 29, 2022	$	(4)	$	1	$	(3)

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

~~-17-~~-16-

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 10—Sales of Receivables:

The Company has a Master Accounts Receivable Purchase Agreement (MARPA Facility) with MUFG Bank, Ltd. (the Purchaser) for the sale of up to a maximum amount of $300 million of certain designated eligible receivables with the U.S. government. Effective March 31, 2022, the Company amended the MARPA Facility to transition the purchase discount rate defined within the facility agreement from using LIBOR to Term SOFR. The amendment did not have a material impact on the Company's financial statements.

During the ~~nine~~six months ended ~~October 28,~~August 4, 2023 and July 29, 2022, ~~and October 29, 2021,~~ the Company incurred purchase discount fees of $4$5 million and $2 million, respectively, which are presented in ~~Other~~other (income) expense, net on the condensed and consolidated statements of ~~income.~~income and are reflected as cash flows from operating activities on the condensed and consolidated statements of cash flows.

MARPA Facility activity consisted of the following:


		Nine Months Ended					Six Months Ended
		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022
		(in millions)					(in millions)
Beginning balance	Beginning balance	$	200	$	185	Beginning balance	$	250	$	200
Sale of receivables	Sale of receivables	2,776		2,484		Sale of receivables	1,425		2,010
Cash collections	Cash collections	(2,716)		(2,469)		Cash collections	(1,425)		(1,950)
Outstanding balance sold to Purchaser(1)	Outstanding balance sold to Purchaser(1)	260		200		Outstanding balance sold to Purchaser(1)	250		260
Cash collected, not remitted to Purchaser(2)	Cash collected, not remitted to Purchaser(2)	(15)		(31)		Cash collected, not remitted to Purchaser(2)	(25)		(29)
Remaining sold receivables	Remaining sold receivables	$	245	$	169	Remaining sold receivables	$	225	$	231

(1) For the ~~nine~~six months ended ~~October 28,~~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, ~~and October 29, 2021,~~ the Company recorded a net increase to cash flows from operating activities of $60 million ~~and $15 million, respectively,~~ from sold receivables.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of ~~October 28, 2022~~August 4, 2023 and ~~October~~July 29, ~~2021.~~2022. This balance is included in accounts payable and accrued liabilities on the condensed and consolidated balance sheets.

Note 11—Legal Proceedings and Other Commitments and Contingencies:

Legal Proceedings

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. Department of Justice, Antitrust Division (DOJ). As required by the subpoena, the Company has provided the DOJ with a broad range of documents related to the investigation, and the Company’s collection and production process remains ongoing. The Company is fully cooperating with the investigation. At this time, it is not possible to determine whether the Company will incur, or to reasonably estimate the amount of, any fines, penalties or further liabilities in connection with the investigation pursuant to which the subpoena was issued.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

AAV Termination for Convenience

On August 27, 2018, the Company received a stop-work order from the United States Marine Corps on the Assault Amphibious Vehicle (AAV) contract and on October 3, 2018 the program was terminated for convenience by the customer. The Company is continuing to negotiate with the Marine Corps to recover costs associated with the termination.

~~-18-~~

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~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~
~~NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~

Government Investigations, Audits and Reviews

The Company is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect, in particular, to its role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. U.S. government agencies, including the Defense Contract Audit Agency (DCAA), the Defense Contract Management Agency and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review the adequacy of the contractor’s compliance with government standards for its business systems. Adverse findings in these investigations, audits, or reviews can lead to criminal, civil or administrative proceedings, and the Company could face disallowance of previously billed costs, penalties, fines, compensatory damages and suspension or debarment from doing business with governmental agencies. Due to the Company’s reliance on government contracts, adverse findings could also have a material impact on the Company’s business, including its financial position, results of operations and cash flows.

The indirect cost audits by the DCAA of the Company’s business remain open for certain prior years and the current year. Although the Company has recorded contract revenues based on an estimate of costs that the Company believes will be approved on final audit, the Company does not know the outcome of any ongoing or future audits. If future completed audit adjustments exceed the Company’s reserves for potential adjustments, the Company’s profitability could be materially adversely affected.

As of ~~October 28, 2022,~~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 ~~October 28, 2022,~~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.

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Item 2. 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 unaudited condensed and consolidated financial statements and the related notes. 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 of the most recently filed Annual Report on Form 10-K), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations (including our financial targets discussed below under “Management of Operating Performance and Reporting” and “Liquidity and Capital Resources”); backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of ~~acquisitions.~~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. Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below, in “Risk Factors” in Part II of this report and in Part I of the most recently filed Annual Report on Form 10-K. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments.

We use the terms "SAIC," the “Company,” “we,” “us” and “our” to refer to Science Applications International Corporation and its consolidated subsidiaries.

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

Business Overview

We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and enterprise information technology (IT) markets. We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years. As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government. We serve our customers through approximately 1,900 active contracts and task orders and employ approximately ~~26,000~~24,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve. Substantially all of our revenues and tangible long-lived assets are generated ~~by or owned by entities~~and located in the United States.

Economic Opportunities, Challenges, and Risks

During the three and ~~nine~~six months ended ~~October 28, 2022,~~August 4, 2023, we generated ~~approximately~~ 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. Appropriations measures passed in ~~March~~December 2022 provided full funding for the federal government through the end of government fiscal year (GFY) ~~2022. The U.S. government is currently operating under a Continuing Resolution~~2023. Delayed passage of appropriations for GFY ~~2023. In October 2021, the Federal debt ceiling was increased by $480 billion and~~2024 funding could result in ~~December 2021 was further increased by $2.5 trillion which is expected to allow~~ the U.S. government ~~to operate into 2023. It is unlikely but possible these measures~~operating on one or more continuing resolutions and/or could ~~expire without extension and~~potentially lead to a partial or full government shutdown. In January 2023, the Federal debt ceiling was reached and the U.S. 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.

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.

The U.S. government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity (IDIQ), U.S. General Services Administration (GSA) schedules, and other multi-award contracts), which has resulted in greater competition and increased pricing pressure. Additionally, the U.S. government has put renewed emphasis on increasing the number of small business prime set-aside contracts that further reduce the addressable market in some areas.

Despite the budget and competitive pressures affecting the industry, we believe we are well-positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued. Our scale, size, and prime contractor leadership position are expected to help differentiate us from our competitors, especially on large contract opportunities. We believe our long-term, trusted customer relationships and deep technical expertise provide us with the sophistication to handle highly complex, mission-critical contracts. Our value proposition is found in the proven ability to serve as a trusted adviser to our customers. In doing so, we leverage our expertise and scale to help them execute their mission.

We succeed as a business based on the solutions we deliver, our past performance, and our ability to compete on price. Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available. Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions. Our current cost structure and ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings sold "as a service" and as managed services in a more commercial business model are expected to allow us to compete effectively on price in an evolving environment. ~~Our~~We believe that 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 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.

~~Impacts of the COVID-19 Pandemic~~

We are continuing to monitor the ongoing outbreak of the coronavirus disease 2019 (COVID-19) and we continue to work with our stakeholders to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.

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 of these deferred payroll taxes was paid during the third quarter of fiscal 2022 (approximately $51 million) with the remaining amounts due in the fourth quarter of fiscal 2023.

We have not experienced a significant impact to our liquidity or access to capital as a result of the COVID-19 pandemic. While we continue to navigate the impacts of the COVID-19 pandemic, COVID-19 did not have a material impact to revenues and operating income for the three and nine months ended October 28, 2022. 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.

Management of Operating Performance and Reporting

Our business and program management process is directed by ~~professional managers~~professionals focused on serving our customers by providing high quality services in achieving program requirements. These ~~managers~~professionals carefully monitor contract margin performance by constantly evaluating contract risks and opportunities. Throughout each contract's life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available. For performance obligations satisfied over time, updates to estimates are generally recognized on inception-to-date activity, during the period of adjustment, resulting in either a favorable or unfavorable impact to operating income.

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~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

We evaluate our results of operations by considering the drivers causing changes in revenues, operating income and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations inresulting from these ~~terms.~~factors. Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor orand materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable. 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 ~~delivery~~providing 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

The primary financial performance measures we use to manage our business and monitor results of operations are revenues, operating income, and cash flows from operating activities. The following table summarizes our results of operations:


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
		October 28, 2022			Percent change		October 29, 2021			October 28, 2022			Percent change		October 29, 2021				August 4, 2023			Percent change		July 29, 2022			August 4, 2023			Percent change		July 29, 2022
		(dollars in millions)																	(dollars in millions)
Revenues	Revenues	$	1,909		1	%	$	1,898		$	5,736		2	%	$	5,612		Revenues	$	1,784		(3	%)	$	1,831		$	3,812		—	%	$	3,827
Cost of revenues	Cost of revenues	1,688			—	%	1,685			5,070			2	%	4,950			Cost of revenues	1,568			(3	%)	1,612			3,361			(1	%)	3,382
As a percentage of revenues	As a percentage of revenues	88.4		%			88.8		%	88.4		%			88.2		%	As a percentage of revenues	87.9		%			88.0		%	88.2		%			88.4		%
Selling, general and administrative expenses	Selling, general and administrative expenses	87			—	%	87			272			8	%	252			Selling, general and administrative expenses	88			(5	%)	93			172			(7	%)	185
Acquisition and integration costs	Acquisition and integration costs	1			(92	%)	12			11			(69	%)	36			Acquisition and integration costs	1			—	%	1			1			(90	%)	10
Other operating income	Other operating income	—			—	%	—			—			(100	%)	(3)			Other operating income	(235)			100	%	—			(241)			100	%	—
Operating income	Operating income	133			17	%	114			383			2	%	377			Operating income	362			190	%	125			519			108	%	250
As a percentage of revenues	As a percentage of revenues	7.0		%			6.0		%	6.7		%			6.7		%	As a percentage of revenues	20.3		%			6.8		%	13.6		%			6.5		%
Net income attributable to common stockholders	Net income attributable to common stockholders	$	80		13	%	$	71		$	226		(3	%)	$	234		Net income attributable to common stockholders	$	247		238	%	$	73		$	345		136	%	$	146
Net cash provided by operating activities	Net cash provided by operating activities	$	128		(4	%)	$	134		$	387		(7	%)	$	415		Net cash provided by operating activities	$	150		6	%	$	141		$	232		(10	%)	$	259

Revenues. Revenues ~~increased $11~~decreased $47 million for the three months ended ~~October 28, 2022~~August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($149 million) and the deconsolidation of FSA ($34 million) (see Note 4 for additional information), and contract completions, partially offset by ramp up on ~~new~~existing and ~~existing contracts, partially offset by contract completions and lower accelerated amortization on certain off-market liability contracts.~~

~~Revenues increased $124 million for the nine months ended October 28, 2022 as compared to the same period in the prior year due to ramp up on~~ new and existing contracts and the acquisition of Halfaker (approximately $72 million), partially offset by contract completions, one fewer working day compared to the prior year period, lower net favorable changes in contract estimates, and lower accelerated amortization on certain off-market liability contracts. Adjusting for the impact of ~~acquired~~the divestiture of the Supply Chain Business and ~~divested revenues,~~the deconsolidation of FSA, revenues grew ~~approximately 1%~~8.3%.

~~Cost of Revenues.~~ ~~Cost of revenues increased~~$3Revenues decreased $15 million for the ~~three~~six months ended ~~October 28, 2022~~August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($149 million), the deconsolidation of FSA ($71 million), and contract completions, partially offset by ramp up on existing and new contracts. Adjusting for the impact of the divestiture of the Supply Chain Business and ~~existing contracts.~~the deconsolidation of FSA, revenues grew 5.7%.

Cost of Revenues. Cost of revenues ~~increased $120~~decreased$44 million for the ~~nine~~three months ended ~~October 28, 2022~~August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($138 million) and the deconsolidation of FSA ($32 million), partially offset by ramp up on new and existing ~~contracts and the acquisition~~contracts.

Cost of ~~Halfaker.~~

~~Selling, General and Administrative Expenses.~~ ~~SG&A remained consistent for the three months ended October 28, 2022 as compared with the same period in the prior year.~~

~~SG&A increased $20~~revenues decreased $21 million for the ~~nine~~six months ended ~~October 28, 2022~~August 4, 2023 as compared to the same period in the prior year primarily due to ~~higher indirect expenses~~the sale of the Supply Chain business ($138 million) and the ~~acquisition~~deconsolidation of ~~Halfaker.~~FSA ($65 million), partially offset by ramp up on new and existing contracts.

Selling, General and Administrative Expenses (SG&A). SG&A decreased $5 million and $13 million for the three and six months ended August 4, 2023, respectively, as compared to the same periods in the prior year primarily due to lower indirect costs and intangible asset amortization.

Operating Income. Operating income as a percentage of revenues for the three months ended August 4, 2023 increased from the comparable prior year period primarily due to the gain recognized from the sale of the Supply Chain Business, improved profitability across our contract portfolio, and lower indirect costs.

Operating income as a percentage of revenues increased for the six months ended August 4, 2023 from the comparable prior year period 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 indirect costs.

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~~Operating Income.~~ Operating income as a percentage of revenues for the three months ended October 28, 2022 increased from the comparable prior year period primarily due to lower acquisition and integration costs and indirect costs, partially offset by lower accelerated amortization on certain off-market liability contracts.

Operating income as a percentage of revenues remained consistent for the nine months ended October 28, 2022 as compared with the same period in the prior year. Lower net favorable changes in contract estimates and accelerated amortization on certain off-market liability contracts were offset by lower acquisition and integration costs.

Net Cash Provided by Operating Activities. Net cash provided by operating activities ~~was $387~~decreased $27 million for the ~~nine~~six months ended ~~October 28, 2022, a decrease of $28 million~~August 4, 2023 as compared to the prior year primarily due to ~~the timing of customer collections and other changes in working capital,~~higher cash ~~payments during the year associated with certain change in control provisions related to the acquisition of Halfaker, and lower net earnings, partially offset~~provided by the ~~first installment of the deferred payroll taxes allowed under the CARES Act paid~~MARPA Facility in the prior year and higher ~~cash provided~~tax payments in the current year, partially offset by ~~the MARPA Facility.~~other changes in working capital.

Non-GAAP Measures

Earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures ~~may be~~are useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently.

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. Adjusted EBITDA is a performance measure that excludes ~~costs~~the impact of non-recurring transactions that we do not consider to be indicative of our ongoing performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring ~~costs.~~items. Integration costs are costs to integrate acquired companies including costs of strategic consulting services, facility ~~consolidations~~consolidation and ~~employee-related~~employee related costs such as retention and severance costs. The acquisition and integration costs relate to the Company's ~~acquisitions of Halfaker and Koverse in fiscal 2022 and Unisys Federal in fiscal 2021.~~acquisitions.

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.

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~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

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


		Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
		October 28, 2022			October 29, 2021			October 28, 2022			October 29, 2021				August 4, 2023			July 29, 2022			August 4, 2023			July 29, 2022
		(in millions)													(dollars in millions)
Net income	Net income	$	80		$	71		$	228		$	235		Net income	$	247		$	74		$	345		$	148
Interest expense and loss on sale of receivables	Interest expense and loss on sale of receivables	32			27			91			81			Interest expense and loss on sale of receivables	35			31			71			59
Interest income	Interest income	(1)			—			(1)			—			Interest income	(4)			—			(5)			—
Provision for income taxes	Provision for income taxes	20			17			62			66			Provision for income taxes	88			21			113			42
Depreciation and amortization	Depreciation and amortization	37			44			118			123			Depreciation and amortization	36			40			72			81
EBITDA	EBITDA	168			159			498			505			EBITDA	402			166			596			330
EBITDA as a percentage of revenues	EBITDA as a percentage of revenues	8.8		%	8.4		%	8.7		%	9.0		%	EBITDA as a percentage of revenues	22.5		%	9.1		%	15.6		%	8.6		%
Acquisition and integration costs	Acquisition and integration costs	1			12			11			36			Acquisition and integration costs	1			1			1			10
Restructuring and impairment costs	Restructuring and impairment costs	5			1			7			1			Restructuring and impairment costs	5			2			6			2
Depreciation included in acquisition and integration costs and restructuring and impairment costs		(1)			—			(1)			(1)
Recovery of acquisition and integration costs and restructuring and impairment costs(1)	Recovery of acquisition and integration costs and restructuring and impairment costs(1)	(3)			(1)			(6)			(1)			Recovery of acquisition and integration costs and restructuring and impairment costs(1)	—			(3)			—			(3)
Gain on divestitures, net of transaction costs														Gain on divestitures, net of transaction costs	(234)			—			(240)			—
Adjusted EBITDA	Adjusted EBITDA	$	170		$	171		$	509		$	540		Adjusted EBITDA	$	174		$	166		$	363		$	339
Adjusted EBITDA as a percentage of revenues	Adjusted EBITDA as a percentage of revenues	8.9		%	9.0		%	8.9		%	9.6		%	Adjusted EBITDA as a percentage of revenues	9.8		%	9.1		%	9.5		%	8.9		%

(1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through the Company's indirect rates in accordance with U.S. government Cost Accounting Standards.

Adjusted EBITDA as a percentage of revenues for the three and six months ended ~~October 28, 2022 decreased~~August 4, 2023 increased to ~~8.9%~~9.8% from ~~9.0%~~9.1% and increased to 9.5% from 8.9% for the same ~~period~~periods in the prior year, respectively, primarily due to ~~lower revenue resulting from accelerated amortization on certain off-market liability contracts~~improved profitability across our contract portfolio and ~~net unfavorable changes in contract estimates, partially offset by~~ lower indirect costs.

~~Adjusted EBITDA as a percentage~~

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Table of revenues for the nine months ended October 28, 2022 decreased to 8.9% from 9.6% for the same period in the prior year primarily due to lower net favorable changes in contract estimates and lower revenue resulting from accelerated amortization on certain off-market liability contracts.Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Other Key Performance Measures

In addition to the financial measures described above, we believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues. We also consider measures such as contract types and cost of revenues mix to be useful for management and investors to evaluate our operating income and performance.

Net Bookings and Backlog. Net bookings represent the estimated amount of revenues to be earned in the future from funded and negotiated unfunded contract awards that were received during the period, net of adjustments to estimates on previously awarded contracts. We calculate net bookings as the period’s ending backlog plus the period’s revenues less the prior period’s ending backlog and initial backlog obtained through acquisitions.

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. We do not include in backlog estimates of revenues to be derived from IDIQ contracts, but rather record backlog and bookings when task orders are awarded on these contracts. Given that much of our revenue is derived from IDIQ contract task orders that renew annually, bookings on these contracts tend to refresh annually as the task orders are renewed. 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:

•Funded Backlog. Funded backlog for contracts with government agencies primarily represents estimated amounts of revenue to be earned in the future from contracts for which funding is appropriated less revenues previously recognized on these contracts. It does not include the unfunded portion of contracts in which funding is incrementally appropriated or authorized on a quarterly or annual basis by the U.S. government and other customers even though the contract may call for performance over a number of years. Funded backlog for contracts with non-government customers represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on these contracts.

•Negotiated Unfunded Backlog. Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from negotiated contracts for which funding has not been appropriated or otherwise authorized and from unexercised priced contract options. Negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under IDIQ, GSA Schedules or other master agreement contract ~~vehicles.~~vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.

We expect to recognize revenue from a substantial portion of our funded backlog within the next twelve months. However, the U.S. government can adjust the scope of services of or cancel contracts at any time. Similarly, certain contracts with commercial customers include provisions that allow the customer to cancel prior to contract completion. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees (contract profit) for work performed.

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


		October 28, 2022		January 28, 2022			August 4, 2023		February 3, 2023
		(in millions)					(in millions)
Funded backlog	Funded backlog	$	4,019	$	3,491	Funded backlog	$	3,716	$	3,554
Negotiated unfunded backlog	Negotiated unfunded backlog	20,413		20,601		Negotiated unfunded backlog	18,808		20,248
Total backlog	Total backlog	$	24,432	$	24,092	Total backlog	$	22,524	$	23,802

We had net bookings worth an estimated ~~$2.0~~$0.7 billion and ~~$6.1~~$2.7 billion during the three and ~~nine~~six months ended ~~October 28, 2022. Total backlog at the end of the third quarter is consistent with our total backlog at prior year end.~~August 4, 2023.

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Contract Types. 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 “Contract Types” in Part I of the most recently filed Annual Report on Form 10-K. The following table summarizes revenues by contract type as a percentage of revenues for the periods presented:


		Nine Months Ended					Six Months Ended
		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022
Cost reimbursement	Cost reimbursement	56	%	54	%	Cost reimbursement	58	%	56	%
Time and materials (T&M)	Time and materials (T&M)	19	%	20	%	Time and materials (T&M)	19	%	18	%
Firm-fixed price (FFP)	Firm-fixed price (FFP)	25	%	26	%	Firm-fixed price (FFP)	23	%	26	%
Total	Total	100	%	100	%	Total	100	%	100	%

The change in contract mix for the six months ended August 4, 2023 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. We generate revenues by providing a customized mix of services to our customers. The profit generated from our service contracts is affected by the proportion of cost of revenues incurred from the efforts of our employees (which we refer to below as labor-related cost of revenues), the efforts of our subcontractors and the cost of materials used in the performance of our service obligations under our contracts. Contracts performed with a higher proportion of SAIC labor are generally more profitable. The following table presents cost mix for the periods presented:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
		(as a % of total cost of revenues)									(as a % of total cost of revenues)
Labor-related cost of revenues	Labor-related cost of revenues	53	%	53	%	54	%	54	%	Labor-related cost of revenues	56	%	53	%	54	%	54	%
Subcontractor-related cost of revenues	Subcontractor-related cost of revenues	29	%	30	%	29	%	29	%	Subcontractor-related cost of revenues	32	%	30	%	30	%	29	%
Supply chain materials-related cost of revenues	Supply chain materials-related cost of revenues	8	%	7	%	7	%	8	%	Supply chain materials-related cost of revenues	—	%	7	%	4	%	7	%
Other materials-related cost of revenues	Other materials-related cost of revenues	10	%	10	%	10	%	9	%	Other materials-related cost of revenues	12	%	10	%	12	%	10	%
Total	Total	100	%	100	%	100	%	100	%	Total	100	%	100	%	100	%	100	%

~~Cost~~The change in cost of revenues mix for the three and ~~nine~~six months ended ~~October 28, 2022 were consistent with~~August 4, 2023 reflects a decrease in supply chain materials-related costs due to the ~~same periods in~~divestiture of the ~~prior year.~~Supply Chain Business.

Liquidity and Capital Resources

As a services provider, our business generally requires minimal infrastructure investment. 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.

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

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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. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our direct control. Although we believe that the financing arrangements in place will permit us to finance our operations on acceptable terms and conditions for at least the next year, our future access to, and the availability of financing on acceptable terms and conditions will be impacted by many factors (including our credit rating, capital market liquidity and overall economic conditions). Therefore, we cannot ensure that such financing will be available to us on acceptable terms or that such financing will be available at all. 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 7 to the condensed and consolidated financial statements contained within this report for additional information.~~

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the capitalization of research and development costs for tax purposes and requires taxpayers to amortize such expenditures over five years. ~~Congress may defer, modify, or repeal this provision, however, if the current effective date and current legislation remain in place, the Company's initial assessment is~~We estimate that ~~cash flows from operations in~~our income taxes payable for fiscal ~~2023 will decrease by a minimum of $90 million, butnet deferred tax assets~~2024 will increase by approximately $76 million as a ~~similar amount.~~result of this provision, offset by a corresponding deferred tax asset. The ~~cash flow~~actual impact ~~would continue over~~will depend on the ~~five-year amortization period, but would decrease over~~amount of research and development costs incurred by the ~~period~~Company, whether the U.S. Congress modifies, or repeals this provision and ~~be immaterial in year six.~~whether new guidance and interpretive rules are issued by the U.S. Treasury, among other factors.

Historical Cash Flow Trends

The following table summarizes our cash flows:


		Nine Months Ended					Six Months Ended
		October 28, 2022		October 29, 2021			August 4, 2023		July 29, 2022
		(in millions)					(in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	387	$	415	Net cash provided by operating activities	$	232	$	259
Net cash used in investing activities		(23)		(272)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	334		(17)
Net cash used in financing activities	Net cash used in financing activities	(417)		(176)		Net cash used in financing activities	(323)		(249)
Net decrease in cash, cash equivalents and restricted cash		$	(53)	$	(33)
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	$	243	$	(7)

Net Cash Provided by Operating Activities. Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between the ~~nine~~six months ended ~~October 28, 2022~~August 4, 2023 and the comparable prior year period.

Net Cash ~~Used in~~Provided by (Used in) Investing Activities. Cash provided by investing activities for the six months ended August 4, 2023 was $334 million compared to cash used in investing activities ~~for the nine months ended October 28, 2022 decreased compared to the prior year period primarily due to cash paid for the acquisitions~~ of ~~Halfaker and Koverse~~$17 million in the prior year period. This change is primarily due to the $355 million of cash proceeds for the sale of the Supply Chain Business (see Note 4 to the condensed and consolidated financial statements).

Net Cash Used in Financing Activities. Cash used in financing activities for the ~~nine~~six months ended ~~October 28, 2022~~August 4, 2023 increased compared to the prior year period ~~as a result of borrowings obtained~~due to ~~finance the Halfaker acquisition in~~higher share repurchases and higher term loan principal payments compared to the prior year ~~period, a $90 million voluntary principal prepayment during the third quarter of fiscal 2023, and higher share repurchases of $53 million.~~period.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates during the ~~nine~~six months ended ~~October 28, 2022~~August 4, 2023 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 and consolidated financial statements contained within this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks from those discussed in our most recently filed Annual Report on Form 10-K.

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Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) and have concluded that as of ~~October 28, 2022~~August 4, 2023 these controls and procedures were operating and effective.

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarterly period covered by this report that materially affected, or are likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We have provided information about legal proceedings in which we are involved in our fiscal ~~2022~~2023 Annual Report on Form 10-K, and we have provided an update to this information in Note 11 to the condensed and consolidated financial statements contained within this ~~report.~~report, which is incorporated herein by reference.

In addition to the described legal proceedings, we are routinely subject to investigations and reviews relating to compliance with various laws and regulations. Additional information regarding such investigations and reviews is included in our fiscal ~~2022~~2023 Annual Report on Form 10-K, and we have also updated this information in Note 11 to the condensed and consolidated financial statements contained within this report, under the heading “Government Investigations, Audits and ~~Reviews.~~Reviews,” which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in our most recently filed Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities. We may repurchase shares on the open market in accordance with established repurchase plans. Whether repurchases are made and the timing and amount of repurchases depend on a variety of factors including market conditions, our capital position, internal cash generation and other factors. We also repurchase shares in connection with stock option and stock award activities to satisfy tax withholding obligations.

The following table presents repurchases of our common stock during the three months ended ~~October 28, 2022:~~August 4, 2023:

Period(1)
Total Number of
Shares (or Units)
Purchased(2)
Average Price Paid
per Share (or Unit) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs(3)
July 30, 2022 - September 2, 2022 226,413 $ 93.86 226,413 8,315,323
September 3, 2022 - September 30, 2022 205,791 91.84 205,791 8,109,532
October 1, 2022 - October 28, 2022 196,770 95.07 196,770 7,912,762
Total 628,974 $ 93.57 628,974


Period(1)	Total Number of Shares (or Units) Purchased(2)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(3)
May 6, 2023 - June 9, 2023	446,227	$	99.61	446,227	6,282,675
June 10, 2023 - July 7, 2023	269,209	109.71		269,209	6,013,466
July 8, 2023 - August 4, 2023	223,238	117.68		223,238	5,790,228
Total	938,674	$	106.80	938,674

(1)Date ranges represent our fiscal periods during the current quarter. Our fiscal quarters typically consist of one five-week period and two four-week periods.

(2)Includes shares purchased on surrender by stockholders of previously owned shares to satisfy minimum statutory tax withholding obligations related to stock option exercises and vesting of stock awards in addition to shares purchased under our publicly announced plans or programs.

(3)In June 2022, the number of shares that may be purchased increased by 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares. As of ~~October 28, 2022,~~August 4, 2023, we have repurchased approximately ~~16.5~~18.7 million shares of common stock under the program.

Item 3. Defaults Upon Senior Securities

No information is required in response to this item.

Item 4. Mine Safety Disclosures

No information is required in response to this item.

Item 5. Other Information

~~No information is required~~During the three months ended August 4, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as such terms are defined in ~~response to this item.~~Item 408 of Regulation S-K.

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Item 6. Exhibits


Exhibit Number			Description of Exhibit

10.1*			Science Applications International Corporation 2023 Equity Incentive Plan, effective June 7, 2023. Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No. 333-272484) as filed with the Securities and Exchange Commission (SEC) on June 7, 2023.

10.2*			Form of Restricted Stock Unit Award Agreement of the Science Applications International Corporation 2023 Equity Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on June 13, 2023.

10.3*			Form of Performance Stock Unit Award Agreement of the Science Applications International Corporation 2023 Equity Incentive Plan. Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on June 13, 2023.

10.4*			Science Applications International Corporation Amended and Restated 2013 Employee Stock Purchase Plan, effective June 7, 2023. Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the SEC on June 13, 2023.

31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

104			The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.

*			Management contract or compensatory plan or agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~December 5, 2022~~September 7, 2023


Science Applications International Corporation

/s/ Prabu Natarajan
Prabu Natarajan Executive Vice President and Chief Financial Officer

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