| Business Overview and Summary of Significant Accounting Policies | Business Overview and Summary of Significant Accounting Policies: Overview Science Applications International Corporation (collectively, with its consolidated subsidiaries, the “Company”) is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government. The Company provides engineering and integration services for large, complex projects and offers a broad range of services with a targeted emphasis on higher-end, differentiated technology services. The Company is organized as a matrix comprised of five customer facing organizations supported by several service line organizations. Each of the Company’s customer facing organizations is focused on providing the Company’s comprehensive technical and enterprise IT service offerings to one or more agencies of the U.S federal government. During the second quarter of the current fiscal year, the Company made operational and organizational changes to its management reporting structure resulting in the identification of a single operating segment. Principles of Consolidation and Basis of Presentation The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes. 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, statement 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 February 3, 2017 . 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, 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. Changes in estimates of revenues, cost of revenues or profits related to contracts accounted for using the cost-to-cost and efforts expended methods of percentage-of-completion accounting 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 routinely occur over the contract performance period for a variety of reasons, which include: changes in contract scope; changes in contract cost estimates due to unanticipated cost growth or reassessments of risks impacting costs; changes in estimated incentive or award fees; and performance being better or worse than previously estimated. Aggregate changes in contract estimates increased operating income by $5 million ( $0.07 per diluted share) and $1 million ( $0.01 per diluted share) for the three and nine months ended November 3, 2017 , respectively, and increased operating income by $5 million ( $0.08 per diluted share) and $18 million ( $0.26 per diluted share) for the three and nine months ended November 4, 2016 , respectively. Restructuring During fiscal 2018, the Company initiated restructuring activities intended to improve operational efficiency, reduce costs, and better position the Company to drive future growth (the "Restructuring"). Management's restructuring activities in the second and third fiscal quarter included involuntary and voluntary terminations. The restructuring activities are also expected to include future consolidation of existing leased facilities. Restructuring costs for employee severance of $1 million and $3 million were recognized for the three and nine months ending November 3, 2017, respectively, and are included in cost of revenues in the condensed and consolidated statements of income and comprehensive income. The Company expects to complete the Restructuring in the fourth quarter of fiscal 2018, with total expenses expected to be incurred and recognized of approximately $13 million , comprised of $6 million in severance expense and $7 million in lease exit costs. No cash payments were made for the Restructuring for the three and nine months ended November 3, 2017. 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 2017 began on January 30, 2016 and ended on February 3, 2017 , while fiscal 2018 began on February 4, 2017 and ends on February 2, 2018 . The number of weeks for each quarter for fiscal 2018 and 2017 are as follows: Fiscal 2018 Fiscal 2017 (weeks) First Quarter 13 14 Second Quarter 13 13 Third Quarter 13 13 Fourth Quarter 13 13 Fiscal Year 52 53 Operating Cycle The Company’s operating cycle for long-term contracts may be greater than one year and is measured by the average time intervening between the inception and the completion of those contracts. Contract-related assets and liabilities are classified as current assets and current liabilities. 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 (loss) income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized immediately in earnings. 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 or canceled. See Note 6 for further discussion on the Company’s derivative instruments designated as cash flow hedges. Cash, Cash Equivalents and Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed and consolidated balance sheets for the periods presented: November 3, February 3, (in millions) Cash and cash equivalents 125 210 Restricted cash included in inventory, prepaid expenses and other current assets — 1 Restricted cash included in other assets 8 7 Cash, cash equivalents and restricted cash $ 133 $ 218 Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-9, Revenue from Contracts with Customers (Topic 606) , which supersedes the revenue recognition requirements and some cost guidance included in the Accounting Standards Codification (ASC). This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date , resulting in a one-year deferral of the effective date of ASU 2014-9, which will become effective for the Company in the first quarter of fiscal 2019. The Company intends to adopt the standard as of February 3, 2018, using the modified retrospective transition method. Upon adoption, the Company will recognize the cumulative effect of adopting this standard as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted, but the Company will maintain dual reporting for the year of initial application disclosing the effect of adoption. The Company has designed controls over the adoption and continues to evaluate the potential effects on its financial statements and has been revising its accounting policies, business processes, systems, controls and procedures to conform to the new standard. The Company has identified certain changes that will result from the future adoption of the new standard, but has not yet determined the potential impact to the consolidated financial statements. The Company will continue to recognize revenue over time as services are rendered to fulfill its contractual obligations; however, under the new standard, the Company generally will account for customer option period exercises (renewals) and service contract modifications prospectively, instead of as a cumulative adjustment to revenue under a single unit of accounting. Also, award and incentive based fees generally will be recognized during the discrete periods of performance to which they relate as opposed to on a cumulative basis over the contract period. Additionally, the Company will no longer defer the recognition of costs and revenues associated with significant upfront material acquisitions on programs currently accounted for using the efforts-expended method of percentage of completion. Instead, the Company may recognize revenue on an adjusted cost-to-cost basis, where the amount of revenue that is recognized is equal to the amount of costs incurred plus profit based on the measure of progress. In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842) , which supersedes the existing lease accounting standards ( Topic 840 ). Under the new guidance, a lessee will be required to recognize lease assets and lease liabilities for all leases with lease terms in excess of twelve months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as either a finance lease or operating lease. The criteria for distinction between a finance lease and an operating lease are substantially similar to existing lease guidance for capital leases and operating leases. Some changes to lessor accounting have been made to conform and align that guidance with the lessee guidance and other areas within GAAP, such as Revenue from Contracts with Customers (Topic 606) . ASU 2016-2 becomes effective for the Company in the first quarter of fiscal 2020 and will be adopted using a modified retrospective approach. The Company has commenced the assessment phase of the project and is evaluating the impact on its financial statements from the future adoption of the standard. In March 2016, the FASB issued ASU No. 2016-9, Improvements to Employee Share-Based Payment Accounting , which provides amendments to simplify several aspects of the accounting for share-based payment transactions. Among other requirements in the new standard, the ASU requires that an entity, (i) recognize excess tax benefits and deficiencies related to employee share-based payment transactions in the provision for income taxes, instead of in equity; (ii) classify excess tax benefits as an operating activity on the statement of cash flows, instead of the previous classification as a financing activity; (iii) classify all cash payments made to the taxing authorities on the employees’ behalf for withheld shares as financing activities on the statement of cash flows; and (iv) make a policy election to either estimate expected forfeitures or to account for them as they occur. The Company adopted the standard in the first quarter of fiscal 2018. As a result for the three and nine months ended November 3, 2017 , the Company recognized a $2 million and $22 million tax benefit, respectively, which is included in the provision for income taxes on the condensed and consolidated statements of income and comprehensive income and as an operating activity in the condensed and consolidated statement of cash flows. The Company will continue to classify cash paid for tax withholding purposes as a financing activity in the statement of cash flows and to estimate forfeitures rather than account for them as they occur. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company early adopted this new standard during the first quarter of fiscal 2018, which resulted in a $4 million reduction to cash flows from investing activities for the nine months ended November 4, 2016 . A reconciliation of cash, cash equivalents and restricted cash for each period presented is provided above under the heading “Cash, Cash Equivalents and Restricted Cash.” Other Accounting Standards Updates effective after November 3, 2017 are not expected to have a material effect on the Company’s financial statements. |
