UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)



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

For the quarterly period ended ~~November 3, 2017~~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~~

charter)

Delaware

46-1932921

(State or other

jurisdiction of

incorporation or

~~organization~~

organization)

(I.R.S. Employer

Identification

No.

)

~~001-35832~~

~~Science Applications~~

~~International Corporation~~

~~Delaware~~

~~46-1932921~~

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

Reston,

Virginia

20190

(Address of principal executive offices)

~~703-676-4300~~ (Zip Code)

(703)

676-4300

(Registrant's telephone number, including area code)

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 x☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ 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

x☒

Accelerated ~~filler~~filer

☐

Non-accelerated ~~Filler~~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 x☒

The number of shares issued and outstanding of the registrant’s common stock as of ~~November 24, 2017~~August 25, 2023 was as follows:

~~42,765,831~~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	12
	Condensed and Consolidated Balance Sheets	23
	Condensed and Consolidated ~~Statement~~Statements of Equity	34
	Condensed and Consolidated Statements of Cash Flows	45
	Notes to Condensed and Consolidated Financial Statements	56
	Note 1—Business Overview and Summary of Significant Accounting Policies	56
	Note 2—Earnings Per Share, Share Repurchases and Dividends	8
	Note 3—~~Stock-Based Compensation~~Revenues	9
	Note 4—~~Income Taxes~~Divestitures	912
	Note 5—~~Debt Obligations~~Goodwill and Intangible Assets	1013
	Note 6—Income Taxes	13
	Note 7—Debt Obligations	14
	Note 8 —Derivative Instruments Designated as Cash Flow Hedges	1115
	Note 7—9—Changes in Accumulated Other Comprehensive ~~Loss~~Income (Loss) by Component	1216
	Note 8—10—Sales of Receivables	17
	Note 11—Legal Proceedings and Other Commitments and Contingencies	1217

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1519

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2325

Item 4	Controls and Procedures	2426

Part II	Other Information	2527

Item 1	Legal Proceedings	2527

Item 1A	Risk Factors	2527

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2527

Item 3	Defaults Upon Senior Securities	2527

Item 4	Mine Safety Disclosures	2527

Item 5	Other Information	2527

Item 6	Exhibits	2628

	Signatures	2729

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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 ~~AND COMPREHENSIVE INCOME~~
(UNAUDITED)


	Three Months Ended				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions, except per share amounts)
Revenues	$	1,784	$	1,831	$	3,812	$	3,827
Cost of revenues	1,568		1,612		3,361		3,382
Selling, general and administrative expenses	88		93		172		185
Acquisition and integration costs	1		1		1		10
Other operating income (includes gain on divestiture, see Note 4)	(235)		—		(241)		—
Operating income	362		125		519		250
Interest expense	33		30		66		57
Other (income) expense, net	(6)		—		(5)		3
Income before income taxes	335		95		458		190
Provision for income taxes	(88)		(21)		(113)		(42)
Net income	247		74		345		148
Net income attributable to non-controlling interest	—		1		—		2
Net income attributable to common stockholders	$	247	$	73	$	345	$	146
Earnings per share:
Basic	$	4.60	$	1.31	$	6.40	$	2.61
Diluted	$	4.56	$	1.30	$	6.35	$	2.59

Three Months Ended Nine Months Ended
November 3,
2017
November 4,
2016
November 3,
2017
November 4,
2016
(in millions, except per share amounts)
Revenues $ 1,145
$ 1,114
$ 3,326
$ 3,424
Cost of revenues 1,036
1,000
3,022
3,084
Selling, general and administrative expenses 37
40
110
130
Operating income 72
74
194
210
Interest expense 11
15
32
41
Other (income) expense, net (1 ) —
(1 ) —
Income before income taxes 62
59
163
169
Provision for income taxes (Note 4) (19 ) (17 ) (35 ) (57 )
Net income $ 43
$ 42
$ 128
$ 112
Other comprehensive income, net of tax (Note 7) 1
2
2
2
Comprehensive income $ 44
$ 44
$ 130
$ 114
Earnings per share (Note 2):
Basic $ 0.99
$ 0.95
$ 2.94
$ 2.51
Diluted $ 0.98
$ 0.91
$ 2.86
$ 2.43
Cash dividends declared and paid per share $ 0.31
$ 0.31
$ 0.93
$ 0.93

~~See accompanying notes to condensed and consolidated financial statements.~~

~~Table of Contents~~

~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

~~CONDENSED AND CONSOLIDATED BALANCE SHEETS~~

~~(UNAUDITED)~~

November 3,
2017
February 3,
2017
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 125
$ 210
Receivables, net 717
539
Inventory, prepaid expenses and other current assets 134
152
Total current assets 976
901
Goodwill 863
863
Intangible assets (net of accumulated amortization of $50 million and $40 million at November 3, 2017 and February 3, 2017, respectively) 184
200
Property, plant, and equipment (net of accumulated depreciation of $136 million and $126 million at November 3, 2017 and February 3, 2017, respectively) 61
60
Other assets 17
18
Total assets $ 2,101
$ 2,042

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 490
$ 432
Accrued payroll and employee benefits 203
158
Long-term debt, current portion (Note 5) 37
25
Total current liabilities 730
615
Long-term debt, net of current portion (Note 5) 994
1,022
Deferred income taxes 13
13
Other long-term liabilities 42
38
Commitments and contingencies (Note 8)

Equity:
Common stock, $.0001 par value, 1 billion shares authorized, 43 million shares and 44 million shares issued and outstanding as of November 3, 2017 and February 3, 2017, respectively —
—
Additional paid-in capital —
91
Retained earnings 322
265
Accumulated other comprehensive loss (Note 7) —
(2 )
Total equity 322
354
Total liabilities and equity $ 2,101
$ 2,042

~~See accompanying notes to condensed and consolidated financial statements.~~

~~Table of Contents~~



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

Shares of
common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
loss

Total
(in millions)
Balance at February 3, 2017 44
$ 91
$ 265
$ (2 ) $ 354
Net income —
—
128
—
128
Issuances of stock 1
6
—
—
6
Other comprehensive income, net of tax —
—
—
2
2
Cash dividends of $0.93 per share —
—
(41 ) —
(41 )
Stock-based compensation —
(9 ) —
—
(9 )
Repurchases of stock (2 ) (88 ) (30 ) —
(118 )
Balance at November 3, 2017 43
$ —
$ 322
$ —
$ 322

~~See accompanying notes to condensed and consolidated financial statements.~~

~~Table of Contents~~

~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

~~CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

Nine Months Ended
November 3,
2017
November 4,
2016
(in millions)
Cash flows from operating activities:

Net income $ 128
$ 112
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 33
41
Stock-based compensation expense 21
25
Excess tax benefits from stock-based compensation —
(15 )
Loss on extinguishment of debt —
2
Increase (decrease) resulting from changes in operating assets and liabilities:

Receivables (178 ) 19
Inventory, prepaid expenses and other current assets 17
(13 )
Other assets 1
(1 )
Accounts payable and accrued liabilities 62
4
Accrued payroll and employee benefits 45
33
Other long-term liabilities 4
4
Net cash provided by operating activities 133
211
Cash flows from investing activities:

Expenditures for property, plant, and equipment (15 ) (11 )
Asset acquisition —
(2 )
Net cash used in investing activities (15 ) (13 )
Cash flows from financing activities:

Dividend payments to stockholders (40 ) (41 )
Principal payments on borrowings (42 ) (236 )
Issuances of stock 4
3
Stock repurchased and retired or withheld for taxes on equity awards (148 ) (137 )
Excess tax benefits from stock-based compensation —
15
Disbursements for obligations assumed from Scitor acquisition (2 ) (5 )
Proceeds from borrowings 25
209
Deferred financing costs —
(2 )
Net cash used in financing activities (203 ) (194 )
Net (decrease) increase in cash, cash equivalents and restricted cash (85 ) 4
Cash, cash equivalents and restricted cash at beginning of period 218
209
Cash, cash equivalents and restricted cash at end of period (Note 1) $ 133
$ 213

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				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions)
Net income	$	247	$	74	$	345	$	148
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on derivative instruments	7		(3)		1		34
Total other comprehensive income (loss), net of tax	7		(3)		1		34
Comprehensive income	$	254	$	71	$	346	$	182
Comprehensive income attributable to non-controlling interest	—		1		—		2
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)


	August 4, 2023		February 3, 2023
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	352	$	109
Receivables, net	958		936
Inventory, prepaid expenses and other current assets	74		152
Total current assets	1,384		1,197
Goodwill	2,851		2,911
Intangible assets, net	951		1,009
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	140		158
Other assets	256		176
Total assets	$	5,672	$	5,543

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	820	$	767
Accrued payroll and employee benefits	330		328
Long-term debt, current portion	62		31
Total current liabilities	1,212		1,126
Long-term debt, net of current portion	2,215		2,343
Operating lease liabilities	138		152
Other long-term liabilities	264		218
Commitments and contingencies (Note 11)
Equity:
Common stock, $0.0001 par value, 1 billion shares authorized, 53 million and 54 million shares issued and outstanding as of August 4, 2023 and February 3, 2023, respectively	—		—
Additional paid-in capital	480		637
Retained earnings	1,340		1,035
Accumulated other comprehensive income	23		22
Total common stockholders' equity	1,843		1,694
Non-controlling interest	—		10
Total stockholders' equity	1,843		1,704
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
	(in millions)
Balance at May 5, 2023	54	$	563	$	1,113	$	16	$	—	$	1,692
Net income	—	—		247		—		—		247
Issuances of stock	—	5		—		—		—		5
Other comprehensive income, net of tax	—	—		—		7		—		7
Cash dividends of $0.37 per share	—	—		(20)		—		—		(20)
Stock-based compensation	—	14		—		—		—		14
Repurchases of stock	(1)	(102)		—		—		—		(102)
Balance at August 4, 2023	53	$	480	$	1,340	$	23	$	—	$	1,843

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

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

Balance at January 28, 2022	56	$	838	$	818	$	(37)	$	10	$	1,629
Net income	—	—		146		—		2		148
Issuances of stock	1	8		—		—		—		8
Other comprehensive income, net of tax	—	—		—		34		—		34
Cash dividends of $0.74 per share	—	—		(41)		—		—		(41)
Stock-based compensation	—	8		—		—		—		8
Repurchases of stock	(2)	(131)		—		—		—		(131)
Distributions to non-controlling interest	—	—		—		—		(2)		(2)
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)


	Six Months Ended
	August 4, 2023		July 29, 2022
	(in millions)
Cash flows from operating activities:
Net income	$	345	$	148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	72		81
Amortization of off-market customer contracts	(4)		(6)
Amortization of debt issuance costs	4		6
Deferred income taxes	(25)		(22)
Stock-based compensation expense	27		23
Gain on sale of long-lived assets	(3)		—
Gain on divestitures	(247)		—
Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of divestitures:
Receivables	(90)		(21)
Inventory, prepaid expenses and other current assets	8		7
Other assets	(3)		5
Accounts payable and accrued liabilities	52		29
Accrued payroll and employee benefits	9		(27)
Income taxes payable	74		36
Operating lease assets and liabilities, net	(2)		—
Other long-term liabilities	15		—
Net cash provided by operating activities	232		259
Cash flows from investing activities:
Expenditures for property, plant, and equipment	(12)		(12)
Purchases of marketable securities	(5)		(4)
Sales of marketable securities	4		2
Proceeds from sale of long-lived assets	3		—
Proceeds from divestitures	355		—
Cash divested upon deconsolidation of joint venture	(8)		—
Other	(3)		(3)
Net cash provided by (used in) investing activities	334		(17)
Cash flows from financing activities:
Dividend payments to stockholders	(41)		(42)
Principal payments on borrowings	(260)		(575)
Issuances of stock	8		8
Stock repurchased and retired or withheld for taxes on equity awards	(190)		(148)
Proceeds from borrowings	160		515
Debt issuance costs	—		(5)
Distributions to non-controlling interest	—		(2)
Net cash used in financing activities	(323)		(249)
Net increase (decrease) in cash, cash equivalents and restricted cash	243		(7)
Cash, cash equivalents and restricted cash at beginning of period	118		115
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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Table of Contents


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 ~~engineering and integration~~these services for large, complex projects ~~and offers a broad range of services~~ with a targeted emphasis on higher-end, differentiated technology ~~services.~~ 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 ~~five~~two customer facing ~~organizations~~operating sectors supported by ~~several service line organizations.~~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 ~~organizations~~operating sectors is focused on providing ~~the Company’s comprehensive technical~~both (1) growth and ~~enterprise IT~~technology accelerating solutions and (2) core service offerings to one or more agencies of the ~~U.S~~U.S. federal government. ~~During~~Growth and technology accelerating solutions include the ~~second quarter~~delivery of secure cloud modernization, outcome based enterprise IT as-a-service, and the ~~current fiscal year,~~integration, production and modernization of defense systems. Core service offerings include systems engineering and the ~~Company made operational~~operation and ~~organizational changes to its management reporting structure resulting in the identification~~maintenance of ~~a single operating segment.~~existing IT systems and 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, ~~statement~~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 February 3, ~~2017.~~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.

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.



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

~~Restructuring~~

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~~2024 began on February 4, 2023 and ends on February 2, 2024, while fiscal 2023 began on January ~~30, 2016~~29, 2022 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
2023.

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.~~

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

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) ~~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.~~party. See Note 68 for further discussion on the Company’s derivative instruments designated as cash flow hedges.

Marketable Securities



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

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 August 4, 2023 and February 3, 2023, the fair value of the Company's investments totaled $30 million and $28 million, respectively, and are included in other assets on the condensed and consolidated balance sheets. The Company's investments are primarily held in a custodial account, which includes investments to fund its deferred compensation plan liabilities.

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:


	August 4, 2023		February 3, 2023
	(in millions)
Cash and cash equivalents	$	352	$	109
Restricted cash included in inventory, prepaid expenses and other current assets	5		5
Restricted cash included in other assets	4		4
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 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)

November 3,
2017
February 3,
2017
(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
Restructuring

During the three and six months ended August 4, 2023, the Company incurred $5 million and $6 million of restructuring costs, respectively. During the three and six months ended July 29, 2022, the Company incurred $2 million of restructuring costs. These costs are associated with the optimization and consolidation of certain facilities and are presented within selling, general and administrative expenses on the condensed and consolidated statements of income.

Investments in Equity Securities

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 ~~May 2014,~~September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. ~~2014-9,~~ ~~Revenue from Contracts with Customers (Topic 606)~~2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50), which ~~supersedes~~requires annual and interim disclosures for entities that use supplier finance programs in connection with 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~~purchase 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~~and services. The ~~ASU also requires additional disclosure about~~new standard does not affect the ~~nature, amount, timing and uncertainty~~recognition, measurement or financial statement presentation 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~~supplier finance program obligations. These amendments are 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 reportingyears beginning after December 15, 2022, except for the ~~year of initial application disclosing the effect of adoption.~~

~~The Company has designed controls over the adoption and continues~~requirement 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 toprovide rollforward information, 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~~years beginning after December 15, 2023. Early adoption is ~~evaluating the impact on its financial statements from the future adoption of the standard.~~



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

~~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.permitted. The Company adopted the ~~standard in~~requirements of ASU 2022-04 effective the first ~~quarter~~day of fiscal ~~2018. As~~2024.

The Company maintains a ~~result for~~supplier finance program through a financial institution in which participating suppliers, at their sole discretion, may enroll with the ~~three and nine months ended November 3, 2017,~~financial institution to finance at a discounted price one or more payment obligations of 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~~prior to their scheduled due dates. As 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 NovemberAugust 4, ~~2016. A reconciliation of cash, cash equivalents and restricted cash for each period presented is provided above~~2023, payment obligations outstanding under the ~~heading “Cash, Cash Equivalents and Restricted Cash.”~~Company’s supplier finance program were not material.

~~Other Accounting Standards Updates effective after November 3, 2017 are not expected to have a material effect on the Company’s financial statements.~~

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

Earnings Per Share (EPS)

Basic ~~earnings per share (EPS)~~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 ~~was:~~for the periods presented:


	Three Months Ended		Six Months Ended
	August 4, 2023	July 29, 2022	August 4, 2023	July 29, 2022
	(in millions)
Basic weighted-average number of shares outstanding	53.5	55.6	53.9	55.9
Dilutive common share equivalents - stock options and other stock-based awards	0.4	0.3	0.4	0.4
Diluted weighted-average number of shares outstanding	53.9	55.9	54.3	56.3

Three Months Ended Nine Months Ended
November 3,
2017
November 4,
2016
November 3,
2017
November 4,
2016
(in millions)
Basic weighted-average number of shares outstanding 43.2
44.2
43.5
44.6
Dilutive common share equivalents - stock options and other stock-based awards 1.0
1.4
1.3
1.4
Diluted weighted-average number of shares outstanding 44.2
45.6
44.8
46.0

~~The following stock-based~~Antidilutive stock awards ~~were~~ excluded from the weighted-average number of shares outstanding used to compute diluted ~~EPS:~~EPS for the three and six months ended August 4, 2023 and July 29, 2022 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 the Company's common stock that may be repurchased under its existing repurchase plan was increased by 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares. As of August 4, 2023, the Company has repurchased approximately 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 August 4, 2023. Subsequent to the end of the quarter, on September 6, 2023, the Company's Board of Directors declared a quarterly dividend of $0.37 per share of the Company's common stock payable on October 27, 2023 to stockholders of record on October 13, 2023.

Note 3—Revenues:

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.

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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Three Months Ended Nine Months Ended
November 3,
2017
November 4,
2016
November 3,
2017
November 4,
2016
(in millions)
Antidilutive stock options excluded 0.2
—
0.2
0.3

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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:

~~Note 3—Stock-Based Compensation:~~


	Three Months Ended				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions, except per share amounts)
Net (unfavorable) favorable adjustments	$	(1)	$	5	$	4	$	10
Net (unfavorable) favorable adjustments, after tax	(1)		4		3		8
Diluted EPS impact	$	(0.02)	$	0.07	$	0.06	$	0.14

~~Stock Options~~

~~During the nine months ended November 3, 2017, the Company granted certain employees 0.2~~Revenues were $1 million ~~stock options with a weighted-average exercise price~~lower and weighted-average grant date fair value of $73.36 and $16.34, respectively. These options will expire on the seventh anniversary of the grant date and will vest ratably on each anniversary of the grant date over a three-year period.

~~Restricted Stock Units (RSUs)~~

~~During the nine months ended November 3, 2017, the Company granted certain employees 0.4~~$4 million ~~RSUs with a weighted-average grant date fair value of $72.86, which will vest ratably on each anniversary of the grant date over a four-year period.~~

~~Performance Shares~~

During the nine months ended November 3, 2017, the Company granted to certain employees 0.1 million performance share awards with a grant date fair value of $72.91 per award. These awards will cliff vest at the end of the third fiscal year following the grant date, subject to meeting the minimum service requirements and the achievement of certain annual and cumulative financial metrics of the Company’s performance, with the number of shares ultimately issued, if any, ranging up to 150% of the specified target shares.

~~Note 4—Income Taxes:~~

~~Provision for income taxes as a percentage of income before income taxes was 30.7% and 21.5%~~higher for the three and ~~nine~~six months ended ~~November 3, 2017,~~August 4, 2023, respectively, and ~~28.3%~~$5 million and ~~33.6%~~$9 million higher for the three and ~~nine~~six months ended ~~November~~July 29, 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 and prime versus subcontractor to the federal government.

Disaggregated revenues by customer were as follows:


	Three Months Ended				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions)
Department of Defense	$	919	$	884	$	1,990	$	1,830
Other federal government agencies	828		911		1,748		1,924
Commercial, state and local	37		36		74		73
Total	$	1,784	$	1,831	$	3,812	$	3,827

Disaggregated revenues by contract type were as follows:


	Three Months Ended				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions)
Cost reimbursement	$	1,105	$	1,035	$	2,217	$	2,130
Time and materials (T&M)	358		328		725		714
Firm-fixed price (FFP)	321		468		870		983
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				Six Months Ended
	August 4, 2023		July 29, 2022		August 4, 2023		July 29, 2022
	(in millions)
Prime contractor to federal government	$	1,591	$	1,665	$	3,446	$	3,487
Subcontractor to federal government	156		130		292		267
Other	37		36		74		73
Total	$	1,784	$	1,831	$	3,812	$	3,827

Contract Balances

Contract balances for the periods presented were as follows:


	Balance Sheet line item	August 4, 2023		February 3, 2023
		(in millions)
Billed and billable receivables, net(1)	Receivables, net	$	608	$	572
Contract assets - unbillable receivables	Receivables, net	350		364
Contract assets - contract retentions	Other assets	14		15
Contract liabilities - current	Accounts payable and accrued liabilities	45		48
Contract liabilities - non-current	Other long-term liabilities	$	3	$	4

(1) Net of allowance of $4 million as of August 4, ~~2016, respectively.~~2023 and February 3, 2023.

During the three and six months ended August 4, 2023, the Company recognized revenues of $12 million and $33 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of February 3, 2023. During the three and six months ended July 29, 2022, the Company recognized revenues of $8 million and $35 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022.

Remaining Performance Obligations

As of August 4, 2023, the Company had approximately $5 billion of remaining performance obligations. The ~~tax rate~~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 income is recognized on a straight-line basis over the term of the lease and is reported as revenue on the condensed and consolidated statements of income. During the six months ended July 29, 2022, the Company recognized revenue of $23 million from the exercise of purchase options under certain lessor arrangements. Operating lease income was ~~higher~~immaterial for the three and six months ended ~~November 3, 2017 compared~~August 4, 2023 and July 29, 2022.

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

Note 4—Divestitures:

FSA Amendment

On February 4, 2023, the Company sold 0.1% of its 50.1% majority ownership interest in Forfeiture Support Associates J.V. (FSA) to ~~the prior year period due to lower research and development credits, partially offset by $2 million in excess tax benefits. The tax rate was lower~~its sole joint venture partner for the nine months ended November 3, 2017 compared to the same period in the prior year primarily due to $22 million in excess tax benefits recognized for the nine months ended November 3, 2017. The excess tax benefits are related to employee share-based compensation asa nominal amount. As a result of the ~~adoption~~sale and amendment to the joint venture operating agreement of ~~ASU 2016-9,~~ ~~Improvements~~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 ~~Employee Share-Based Payment Accounting~~, see “Accounting Standards Updates” in Note 1. Tax rates for the periods ended November 3, 2017 were lower than the combined federal and state statutory rates due to excess tax benefits related to employee share-based compensation and due to permanent tax benefits, including research and development credits and the manufacturer’s tax deduction.

Asa fair value of ~~November 3, 2017, the balance of unrecognized tax benefits~~$14 million. The equity method investment is included ~~liabilities for uncertainty in income taxes of $6 million; $5 million of which is classified as~~within other ~~long-term liabilities~~assets on the condensed and consolidated balance ~~sheets~~sheets. The remeasurement resulted in a gain of $7 million which is included within other operating income on the condensed and $1consolidated 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 $7 million of transaction costs, which is ~~classified~~included within other operating income on the condensed and consolidated statements of income.

The disposition does not represent a strategic shift in operations that will have a material effect on the Company's operations and financial results, and accordingly has not been presented as discontinued operations.

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


	(in millions)
Assets:
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

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

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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 ~~reduction~~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.

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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. $6 million of unrecognized tax benefits, if recognized, would affect the effective income tax rate for the Company. While the Company believes it has adequate accruals for uncertainty in income taxes, the tax authorities, on review of the Company’s tax filings, may determine that the Company owes taxes in excess of recorded accruals, or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities. Although the timing of such reviews is not certain, we do not believe that it is reasonably possible that the unrecognized tax benefits will materially change in the next 12 months.



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

Note 5—7—Debt Obligations:

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


																				August 4, 2023										February 3, 2023
	November 3, 2017											February 3, 2017								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							(dollars in millions)
					(in millions)
Term Loan A Facility due August 2021	3.50	%	3.61	%	$	643	$	(2	)	$	641	$	660	$	(2	)	$	658
Term Loan B Facility due May 2022	3.81	%	4.41	%	400		(10		)	390		400		(11		)	389
Term Loan A Facility due June 2027																			Term Loan A Facility due June 2027	6.42	%	6.54	%	$	1,230	$	(4)	$	1,226	$	1,230	$	(5)	$	1,225
Term Loan B Facility due October 2025																			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	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		(4)		396		400		(4)		396
Total long-term debt					$	1,043	$	(12	)	$	1,031	$	1,060	$	(13	)	$	1,047	Total long-term debt					$	2,290	$	(13)	$	2,277	$	2,390	$	(16)	$	2,374
Less current portion					37		—			37		25		—			25		Less current portion					62		—		62		31		—		31
Total long-term debt, net of current portion					$	1,006	$	(12	)	$	994	$	1,035	$	(13	)	$	1,022	Total long-term debt, net of current portion					$	2,228	$	(13)	$	2,215	$	2,359	$	(16)	$	2,343

As of ~~November 3, 2017,~~August 4, 2023, the Company has a ~~$1.2~~$2.9 billion secured credit facility (the Credit Facility)~~, which consists~~ consisting of a ~~$200 million secured revolving credit facility (the Revolving Credit Facility), a $643 million secured term facility (Term~~Term Loan A ~~Facility), and~~Facility due June 2027, a ~~$400 million secured term facility (Term~~Term Loan B ~~Facility)~~Facility due October 2025, a Term Loan B2 Facility due March 2027 (together, the Term Loan Facilities), and a $1.0 billion Revolving Credit Facility due June 2027 (the Revolving Credit Facility). On

During the three and six months ended August ~~2, 2017,~~4, 2023, the Company made principal prepayments of $64 million and $36 million on the Term Loan B Facility due October 2025 and the Term Loan B2 Facility due March 2027, respectively. During the six months ended August 4, 2023, the Company borrowed ~~$25~~and repaid $160 million under the Revolving Credit ~~Facility, which~~Facility. There was ~~repaid in full~~no balance outstanding on ~~August 18, 2017. The~~the Revolving Credit Facility ~~is available to the Company through August 2021 and there is no balance outstanding~~ as of ~~November 3, 2017.~~

The Credit Facility contains certain restrictive covenants applicable to the Company and its subsidiaries including a requirement to maintain a Senior Secured Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not greater than 4.00 to 1.00 until July 31, 2016, and not greater than 3.75 to 1.00 thereafter, and requires the Company to make an annual prepayment as a portion of its Excess Cash Flow (as defined in the Second Amended and Restated Credit Agreement).August 4, 2023. As of ~~November 3, 2017,~~August 4, 2023, the Company was in compliance with the covenants under its Credit Facility.

As of ~~November 3, 2017~~August 4, 2023 and February 3, ~~2017,~~2023, the carrying value of the Company’s outstanding debt obligations approximated its fair value. The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s Term Loan ~~Facilities.~~

Facilities and Senior Notes.

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

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


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

Note 6—8—Derivative Instruments Designated as Cash Flow Hedges:

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


							Fair Value of Asset(1) at
	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)
Interest rate swaps #1	$	685	2.96	%	Term SOFR	Monthly through October 31, 2025	$	23	$	16
Interest rate swaps #2	450		2.36	%	Term SOFR	Monthly through October 31, 2023	3		9
Total	$	1,135					$	26	$	25

Liability Fair Value⁽¹⁾ at
Notional Amount at November 3, 2017
Pay Fixed Rate
Receive Variable Rate Settlement and Termination November 3, 2017
February 3, 2017
(in millions) (in millions)
Term loan A interest rate swaps $ 375
1.41 % 1-month LIBOR Monthly through September 26, 2018 $ —
$ 1
Term loan B interest rate swaps 350
1.88 %
3-month LIBOR⁽²⁾
Quarterly through May 7, 2020 —
2
Total $ 725

$ —
$ 3
(1) The fair value of the fixed interest rate swap asset is included in other assets on the condensed and consolidated balance sheets.


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


⁽²⁾	~~Subject to a 0.75% floor.~~

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.

See Note 79 for ~~the effective portion of~~ the unrealized change in fair values on cash flow hedges recognized in other comprehensive ~~loss~~income (loss) and the amounts reclassified from accumulated other comprehensive ~~loss~~income (loss) into earnings for the current and comparative periods presented. ~~There was no ineffectiveness during any of the periods presented.~~ The Company estimates that it will reclassify no$19 million of unrealized ~~losses or~~ gains from accumulated other comprehensive ~~loss~~income into earnings in the twelve months following ~~November 3, 2017.~~August 4, 2023.

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

Note 7—9—Changes in Accumulated Other Comprehensive ~~Loss~~Income (Loss) by Component:

The following table presents the changes in accumulated other comprehensive ~~loss~~income (loss) attributable to the Company’s fixed interest rate swap cash flow hedges that are discussed in Note 6.8 and the Company's defined benefit plans.


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

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

Six months ended August 4, 2023
Balance at February 3, 2023	$	18	$	4	$	22
Other comprehensive income before reclassifications	13		—		13
Amounts reclassified from accumulated other comprehensive income	(12)		—		(12)
Income tax impact	—		—		—
Net other comprehensive income	1		—		1
Balance at August 4, 2023	$	19	$	4	$	23

Six months ended July 29, 2022
Balance at January 28, 2022	$	(38)	$	1	$	(37)
Other comprehensive income before reclassifications	34		—		34
Amounts reclassified from accumulated other comprehensive loss	12		—		12
Income tax impact	(12)		—		(12)
Net other comprehensive income	34		—		34
Balance at July 29, 2022	$	(4)	$	1	$	(3)

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

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Unrealized Losses on Fixed Interest Rate
Swap Cash Flow Hedges

Pre-Tax
Amount⁽¹⁾

Income
Tax⁽²⁾

Net
Amount

(in millions)
Three months ended November 3, 2017
Balance at August 4, 2017 $ 2
$ (1 ) $ 1
Other comprehensive income before reclassifications (2 ) 1
(1 )
Amounts reclassified from accumulated other comprehensive loss —
—
—
Net other comprehensive income (2 ) 1
(1 )
Balance at November 3, 2017 $ —
$ —
$ —

Three months ended November 4, 2016
Balance at August 5, 2016 $ 14
$ (5 ) $ 9
Other comprehensive loss before reclassifications —
—
—
Amounts reclassified from accumulated other comprehensive loss (2 ) —
(2 )
Net other comprehensive income (2 ) —
(2 )
Balance at November 4, 2016 $ 12
$ (5 ) $ 7

Nine months ended November 3, 2017
Balance at February 3, 2017 $ 3
$ (1 ) $ 2
Other comprehensive income before reclassifications (1 ) 1
—
Amounts reclassified from accumulated other comprehensive loss (2 ) —
(2 )
Net other comprehensive income (3 ) 1
(2 )
Balance at November 3, 2017 $ —
$ —
$ —

Nine months ended November 4, 2016
Balance at January 29, 2016 $ 14
$ (5 ) $ 9
Other comprehensive loss before reclassifications 4
(2 ) 2
Amounts reclassified from accumulated other comprehensive loss (6 ) 2
(4 )
Net other comprehensive income (2 ) —
(2 )
Balance at November 4, 2016 $ 12
$ (5 ) $ 7

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

	SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
⁽²⁾ NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
~~The amount reclassified from accumulated other comprehensive loss was included in the provision for income taxes.~~(UNAUDITED)

Note 8—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.

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

MARPA Facility activity consisted of the following:


	Six Months Ended
	August 4, 2023		July 29, 2022
	(in millions)
Beginning balance	$	250	$	200
Sale of receivables	1,425		2,010
Cash collections	(1,425)		(1,950)
Outstanding balance sold to Purchaser(1)	250		260
Cash collected, not remitted to Purchaser(2)	(25)		(29)
Remaining sold receivables	$	225	$	231

(1) For the six months ended August 4, 2023 there was no net impact to cash flows from operating activities from sold receivables. For the six months ended July 29, 2022, the Company recorded a net increase to cash flows from operating activities of $60 million from sold receivables.

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

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)

~~Scitor Acquisition~~AAV Termination for Convenience

On ~~May 4, 2015,~~August 27, 2018, the Company ~~completed~~received a stop-work order from the ~~acquisition of Scitor, a leading global provider of technical services to~~United States Marine Corps on the ~~U.S. intelligence community~~Assault Amphibious Vehicle (AAV) contract and ~~other U.S. government customers. The acquisition~~on October 3, 2018 the program was funded from cash on hand and increased borrowings. Purchase consideration paid to acquire Scitor was $764 million (net of cash acquired), including $43 million which was deposited to escrow accounts. In August 2015 $3 million was released from escrow toterminated for convenience by the sellers after finalizing the working capital adjustment and another $13 million was released in September 2016 that was held to secure a portion of the sellers’ indemnification obligations. Any remaining amount in escrow at the end of the indemnification period will be distributed to the sellers.

~~Agreements with Former Parent~~

customer. The Company commenced its operations on September 27, 2013 (the Distribution Date) following completion of a tax-free spin-off transaction from its former parent company, Leidos Holdings, Inc. (formerly SAIC, Inc., collectivelyis continuing to negotiate with ~~its consolidated subsidiaries, “former Parent”). In~~ the spin-off transaction, former Parent’s technical, engineering and enterprise IT services business was separated (the separation) into an independent, publicly traded company named Science Applications International Corporation (formerly SAIC Gemini, Inc.).

~~Former Parent and~~Marine Corps to recover costs associated with the Company executed various agreements to provide mechanisms for an orderly transition and to govern certain ongoing relationships between the companies following the separation. The agreements include a Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement, Master Transition Services Agreement, and Master Transitional Contracting Agreement (MTCA). These agreements generally provide that each party is responsible for its respective assets, liabilities and obligations, including employee benefits, insurance and tax-related assets and liabilities. The MTCA also governs the relationship between former Parent and the Company with regard to the treatment of contracts, proposals, and teaming arrangements where both companies are or will be jointly performing work after separation. Each of former Parent and the Company indemnify the other party for work performed by it under the MTCA.

Contingent losses that were unknown at the time of separation and arise from the operation of the Company’s historical business or the former Parent’s historical corporate losses will be shared between the parties to the extent that losses in any such category exceed $50 million in the aggregate. If they arise and exceed the $50 million threshold, the Company will be responsible for 30% of the former Parent’s incremental contingent losses on corporate claims (and former Parent will be responsible for 70% of the Company’s incremental losses on claims relating to operations that exceed $50 million).termination.

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 ~~fiscal 2012~~certain prior years and ~~subsequent years.~~the current year. Although the Company has recorded contract revenues ~~subsequent to and including fiscal 2012~~ 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.



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

~~The~~As of August 4, 2023, the Company believes it has ~~recorded reserves~~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, which include indemnification obligations owing to former Parent for periods prior to the Distribution Date. As of November 3, 2017, the Company has recorded a total liability of $39 million for estimated net amounts to be refunded to customers for potential adjustments from audits of contract costs, which is presented in accounts payable and accrued liabilities on the condensed and consolidated balance sheets. Any additional amounts which may be determined to be owed for periods prior to the separation will be allocated to former Parent and the Company in proportions determined in accordance with the Distribution Agreement.

~~Army Brigade Combat Team Modernization Engineering, Manufacturing and Development (BCTM) Program~~

The BCTM program was terminated for convenience by the Department of Defense (DoD) effective in September 2011. From October 2009 through termination, the Company and its prime contractor performed on this program under an undefinitized change order with a provision that allowed the Company to receive a provisional fixed fee (contract profit) lower than the estimated fixed fee due, pending completion of contract negotiations. The Company recognized revenues of approximately $480 million (including provisional fixed fee) from October 2009 through August 2013 under the undefinitized change order. In September 2017 the final contract termination proposal was ratified by the DoD. As a result of the ratification and final settlement the Company recognized approximately $2 million in additional revenues and profit in the third quarter of fiscal 2018. All administrative actions related to the close out of the BCTM program are complete as of November 3, 2017.Standards.

Letters of Credit and Surety Bonds

The Company has outstanding obligations relating to letters of credit of ~~$11~~$9 million as of ~~November 3, 2017,~~August 4, 2023, principally related to guarantees on insurance policies. The Company also has outstanding obligations relating to surety bonds ~~in the amount~~ of ~~$17~~$19 million, principally related to performance and payment bonds on the Company’s contracts. ~~The majority~~

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Table of ~~the surety bonds outstanding were initially obtained by former Parent and the Company is required to satisfy these obligations under the terms of the Distribution Agreement.~~Contents



SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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 ~~the Scitor acquisition.~~acquisitions and divestitures. Such statements are not guarantees of future performance and involve ~~risk,~~risks and uncertainties, ~~and assumptions,~~ 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 ~~material~~ 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 ~~2017~~2024 began on February 4, 2023 and ends on February 2, 2024, while fiscal 2023 began on January ~~30, 2016~~29, 2022 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:~~2023.

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

Business Overview

We are a leading technology integrator providing full ~~life-cycle~~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 4550 years. As one of the largest pure-play ~~technical~~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 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 and located in the United States.

Economic Opportunities, Challenges, and Risks

~~In fiscal 2017,~~During the three and six months ended August 4, 2023, we generated ~~greater than 95%~~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. ~~While we believe that national security will continue to be a priority,~~Appropriations measures passed in December 2022 provided full funding for the federal government through the end of government fiscal year (GFY) 2023. Delayed passage of appropriations for GFY 2024 funding could result in the U.S. government ~~budget deficit~~operating on one or more continuing resolutions and/or could potentially lead to a partial or full government shutdown. In January 2023, the Federal debt ceiling was reached and the ~~national debt have created pressure to examine and reduce spending across all federal agencies. Baseline spending for the~~U.S. Department of ~~Defense (DoD) through U.S.~~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 ~~fiscal year 2023 has been reduced and there may be further changes that negatively impact discretionary spending trends across all government agencies.~~ default.

Adverse changes in fiscal and economic conditions could materially impact our business. Some changes that could have an adverse impact on our business ~~are~~include adverse regulations, the ~~manner in which~~implementation of future spending reductions ~~are implemented~~ (including sequestration), ~~future~~delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed price contracts, and potential government ~~shutdowns and issues related to required increases to the nation’s debt ceiling.~~shutdowns.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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. ~~We expect~~Additionally, the U.S. government has put renewed emphasis on increasing the number of small business prime set-aside contracts that ~~a majority of~~further reduce the ~~business that we seek~~addressable market in ~~the foreseeable future will be awarded through a competitive bidding process.~~some areas.

Despite the budget and competitive pressures ~~impacting~~affecting the industry, we believe we are ~~well positioned~~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 ~~contracts.~~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. ~~SAIC’s~~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 ~~are~~ based on adoption of best practices and technology ~~transfer.~~integration of the best capabilities available. Our past performance was achieved by ~~employee dedication and customer focus.~~employees dedicated to supporting our customers' most challenging missions. Our current cost structure ~~as well as our~~and ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings issold "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 offor 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.

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. 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. Management expects the Restructuring to result in future annual gross cost savings of approximately $20 million which equates to net cost savings of approximately $11 million based on our current mix of cost-reimbursable contracts. Refer to "Results of Operations" below, and "Restructuring" in Note 1 of the notes to the condensed and consolidated financial statements for further details.

Management of Operating Performance and Reporting

~~We manage our business to achieve our long-term financial targets, which we expect to accomplish on average and over time. These financial targets include:~~

~~low single digit annual internal revenue growth percentage,~~

~~adjusted EBITDA margin expansion of 10 to 20 basis points annually, and~~

~~return of capital in excess of operating needs.~~

~~Internal revenue growth percentage and adjusted EBITDA are non-GAAP financial measures described in more detail in “Non-GAAP Measures” below.~~

Our business and program management process is directed by ~~professional managers~~professionals focused on ~~satisfying~~serving our customers by providing high quality services in achieving ~~contract~~program requirements. These ~~managers~~professionals carefully monitor contract margin performance by constantly evaluating contract risks and opportunities. ~~Through~~Throughout each ~~contract’s~~contract's life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available. For contracts accounted for under the percentage-of-completion method in which incurred costs or efforts expended are used as a measure of progress to project completion, updates to estimates are recognized on inception-to-date activity, during the period of adjustment, resulting in either a favorable or unfavorable impact to operating income.



~~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 ~~contracts performed~~programs with a higher proportion of SAIC labor are generally more profitable. Changes in ~~costs~~cost of revenues as a percentage of ~~revenue~~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 ~~contract~~ 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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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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
	November 3, 2017			Percent change		November 4, 2016			November 3, 2017			Percent change		November 4, 2016				August 4, 2023			Percent change		July 29, 2022			August 4, 2023			Percent change		July 29, 2022
	(in millions)																	(dollars in millions)
Revenues	$	1,145		3	%	$	1,114		$	3,326		(3	)%	$	3,424		Revenues	$	1,784		(3	%)	$	1,831		$	3,812		—	%	$	3,827
Cost of revenues	1,036			4	%	1,000			3,022			(2	)%	3,084			Cost of revenues	1,568			(3	%)	1,612			3,361			(1	%)	3,382
As a percentage of revenues	90.5		%			89.8		%	90.9		%			90.1		%	As a percentage of revenues	87.9		%			88.0		%	88.2		%			88.4		%
Selling, general and administrative expenses	37			(8	)%	40			110			(15	)%	130			Selling, general and administrative expenses	88			(5	%)	93			172			(7	%)	185
Acquisition and integration costs																	Acquisition and integration costs	1			—	%	1			1			(90	%)	10
Other operating income																	Other operating income	(235)			100	%	—			(241)			100	%	—
Operating income	72			(3	)%	74			194			(8	)%	210			Operating income	362			190	%	125			519			108	%	250
As a percentage of revenues	6.3		%			6.6		%	5.8		%			6.1		%	As a percentage of revenues	20.3		%			6.8		%	13.6		%			6.5		%
Net income	$	43		2	%	$	42		$	128		14	%	$	112
Net income attributable to common stockholders																	Net income attributable to common stockholders	$	247		238	%	$	73		$	345		136	%	$	146
Net cash provided by operating activities	$	80		(48	)%	$	153		$	133		(37	)%	$	211		Net cash provided by operating activities	$	150		6	%	$	141		$	232		(10	%)	$	259

~~Revenues~~.~~Revenues increased $31 million~~for the three months ended November 3, 2017 as compared to the same period in the prior year primarily due to higher revenue on new contracts supporting NASA, the U.S. Army and the Environmental Protection Agency (EPA) ($56 million), partially offset by the completion of contracts and other net decreases across our portfolio. These decreases include the loss of an IT integration contract supporting the Department of Homeland Security (DHS) ($14 million).

Revenues.Revenues decreased ~~$98 million~~for the nine months ended November 3, 2017 as compared to the same period in the prior year primarily due to one additional week in the prior year period ($88 million) and completion of contracts and other net decreases across our portfolio ($130 million), including the loss of an IT integration contract supporting the DHS ($41 million). These decreases were partially offset by higher revenue on new contracts supporting NASA, the U.S. Army and the EPA ($95 million) and higher revenue on platform integration programs ($25 million).

~~Cost of Revenues.~~ ~~Cost of revenues increased$36~~$47 million for the three months ended November 3, 2017 as compared to the same period in the prior year primarily due to an increase in revenue volume. Cost of revenues as a percentage of revenues increased from 89.8% in the prior year quarter to 90.5% primarily due to lower profit from a higher volume of cost reimbursable contracts and higher material cost mix. Additionally, we incurred higher employee benefit expense and restructuring costs ($6 million).



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

~~Cost of revenues decreased~~$62 million for the nine months ended November 3, 2017 as compared to the same period in the prior year primarily due to a decrease in revenue volume. Cost of revenues as a percentage of revenues increased from 90.1% in the prior year period to 90.9% primarily due to lower net favorable changes in estimates on contracts accounted for under the percentage-of-completion method ($17 million), lower profit from a higher volume of cost reimbursable contracts and higher material cost mix ($6 million). Lower net favorable changes in estimates were largely driven by increased costs to meet testing and mission requirements necessary to complete the Engineering, Manufacturing and Development (EMD) phase of the platform integration programs supporting the U.S. Marine Corps combined with prior year write-ups on certain programs supporting federal civilian agencies.

Cost of revenues also decreased due to an update to our fiscal 2018 Disclosure Statements that we prepare in accordance with U.S. government Cost Accounting Standards. We classify indirect costs as cost of revenues or selling, general and administrative expenses (SG&A) in the same manner as such costs are defined in our Disclosure Statements. The update resulted in certain types of costs that had previously been included in cost of revenues to be included in SG&A ($1 million and $6 million for the three and nine months ended November 3, 2017, respectively); however, total operating costs were not affected by this change.

~~Selling, General and Administrative Expenses.~~ SG&A decreased $3 million for the three months ended November 3, 2017 as compared to the same period in the prior year due to lower marketing and consulting costs in the current year quarter ($3 million) and lower amortization of intangible assets ($1 million). These decreases were partially offset by updates to our disclosure statements ($1 million).

~~SG&A decreased $20 million for the nine months ended November 3, 2017~~August 4, 2023 as compared to the same period in the prior year primarily due to the ~~absence~~sale of ~~acquisition and integration costs in~~ the ~~current year~~Supply Chain Business ($10 million), lower compensation and marketing costs in the current year period ($7 million), the reversal of a vacancy reserve for a facility in the National Capital Region that we now intend to occupy (net of higher facilities operating expenses) ($5149 million) and ~~lower amortization~~the deconsolidation of ~~intangible assets~~FSA ($34 million) (see Note 4 ~~million). These decreases were~~for additional information), and contract completions, partially offset by ~~updates to our disclosure statements ($6 million).~~

~~Operating Income.~~ ~~Operating income as a percentage of revenues decreased to 6.3%~~ramp up on existing and new contracts. Adjusting for the ~~three~~impact of the divestiture of the Supply Chain Business and the deconsolidation of FSA, revenues grew 8.3%.

Revenues decreased $15 million for the six months ended ~~November 3, 2017 from 6.6% in the comparable prior year period primarily due to lower profit from a higher volume of cost reimbursable contracts and higher material cost mix.~~

Operating income as a percentage of revenues decreased to 5.8% for the nine months ended November 3, 2017 from 6.1% in the comparable prior year period primarily due to lower net favorable changes in estimates on contracts accounted for under the percentage-of-completion method, lower profit from a higher volume of cost reimbursable contracts and higher material cost mix, partially offset by lower SG&A expenses.

~~Net Income.~~ ~~Net income for the three months ended November 3, 2017 increased $1 million~~August 4, 2023 as compared to the same period in the prior year primarily due to ~~lower interest expense as a result~~the sale of ~~refinancing our long-term debt in~~ the ~~prior year~~Supply Chain Business ($~~3 million, net~~149 million), the deconsolidation of ~~tax)~~FSA ($71 million), and contract completions, partially offset by ~~an increase in the effective tax rate.~~

~~Net income~~ramp up on existing and new contracts. Adjusting for the ~~nine~~impact of the divestiture of the Supply Chain Business and the deconsolidation of FSA, revenues grew 5.7%.

Cost of Revenues. Cost of revenues decreased$44 million for the three months ended ~~November 3, 2017 increased $16 million~~August 4, 2023 as compared to the same period in the prior year primarily due to ~~lower income tax expense as a result~~the sale of the ~~adoption of ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~Supply Chain Business ($22138 million) and ~~lower interest expense,~~the deconsolidation of FSA ($32 million), partially offset by ~~lower operating income.~~ramp up on new and existing contracts.

~~Net Cash Provided by Operating Activities.~~ ~~Net cash provided by operating activities was $133~~Cost of revenues decreased $21 million for the ~~nine~~six months ended ~~November 3, 2017, a decrease of $78 million~~August 4, 2023 as compared to the same period in the prior ~~year. The decrease in operating cash flows from the prior~~ year ~~period was~~ primarily due to ~~delayed customer collections~~the sale of the Supply Chain business ($~~116~~138 million) and the deconsolidation of FSA ($65 million), partially offset by ~~payments~~ramp up on new and existing contracts.

Selling, General and Administrative Expenses (SG&A). SG&A decreased $5 million and $13 million for ~~an extra week of payroll~~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 ~~($30 million)~~primarily due to the gain recognized from the sale of the Supply Chain Business, improved profitability across our contract portfolio, and ~~excess~~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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Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased $27 million for the six months ended August 4, 2023 as compared to the prior year primarily due to higher cash provided by the MARPA Facility in the prior year and higher tax ~~benefits for stock based compensation~~payments in the current year, ~~($22 million).~~partially offset by other changes in working capital.



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

Non-GAAP Measures

~~Internal revenue growth (contraction), earnings~~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.

~~Internal Revenue Growth.~~ ~~Internal revenue growth~~(or internal revenue contraction if negative) is utilized to evaluate revenue growth after the completion of acquisitions and other adjustments identified as impacting year over year comparability. Internal revenue growth is calculated by comparing our reported revenues for the current year to the reported revenues for the prior year comparable period adjusted to include any pre-acquisition historical revenues of acquired businesses. We adjust current and prior year revenue to exclude the impact of revenueperformed by our former parent company, Leidos Holdings, Inc. (“former Parent”) since revenues on pre-separation joint work are recorded equal to cost and are expected to decline over time (See Note 8 of the notes to the condensed and consolidated financial statements for information regarding our separation from former Parent). For fiscal 2017, a 53-week fiscal year, we have also adjusted revenue to exclude the estimated impact of the additional week in order to facilitate comparison to the current year period. We estimate the revenue impact of the additional week by dividing first quarter fiscal 2017 revenues by the number of days in the first quarter of fiscal 2017 and multiplying that amount by the number of additional days in the first quarter of fiscal 2017. We believe that adjusting prior year revenues to reflect the impact of the additional week improves comparability since differences in the number of days generally have a direct impact on the amount of revenues earned in our business during the respective periods.

We believe internal revenue growth provides management and investors with useful information in assessing trends on how successful the Company has been at growing revenues of our base business and of the businesses we acquire.

~~Internal revenue growth is calculated as follows:~~

Three Months Ended Nine Months Ended
November 3, 2017
(in millions)
Prior year period's revenues, as reported $ 1,114
$ 3,424
Prior year period's revenues performed by former Parent (2 ) (8 )
Estimated impact of 53rd week —
(88 )
Revenues of acquired business for the pre-acquisition prior year period —
—
Prior year period's revenues, as adjusted 1,112
3,328
Current year revenues, as reported 1,145
3,326
Internal revenue growth (contraction) $ 33
$ (2 )
Internal revenue growth (contraction) percentage 3.0 % (0.1 )%

Internal revenue growth for the three months ended November 3, 2017 was primarily due to newly awarded contracts supporting NASA, the U.S. Army and the EPA, partially offset by the completion of contracts, including the loss of an IT integration contract supporting DHS.

EBITDA and Adjusted EBITDA. The performance measure EBITDA is calculated by taking net income and excluding interest ~~expense,~~and loss on sale of receivables, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and excluding restructuring and acquisition and integration costs. The acquisition and integration costs relate to the Company’s significant acquisition of Scitor. We began excluding restructuring costs in the third quarter of fiscal 2018 as a result of the restructuring described above in "Economic Opportunities, Challenges, and Risks." 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 ~~operating~~ performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring items. Integration costs are costs to integrate acquired companies including costs of strategic consulting services, facility consolidation and employee related costs such as retention and severance costs. The acquisition and integration costs relate to the Company's 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.



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

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


	Three Months Ended						Six Months Ended
	August 4, 2023			July 29, 2022			August 4, 2023			July 29, 2022
	(dollars in millions)
Net income	$	247		$	74		$	345		$	148
Interest expense and loss on sale of receivables	35			31			71			59
Interest income	(4)			—			(5)			—
Provision for income taxes	88			21			113			42
Depreciation and amortization	36			40			72			81
EBITDA	402			166			596			330
EBITDA as a percentage of revenues	22.5		%	9.1		%	15.6		%	8.6		%
Acquisition and integration costs	1			1			1			10
Restructuring and impairment costs	5			2			6			2
Recovery of acquisition and integration costs and restructuring and impairment costs(1)	—			(3)			—			(3)
Gain on divestitures, net of transaction costs	(234)			—			(240)			—
Adjusted EBITDA	$	174		$	166		$	363		$	339
Adjusted EBITDA as a percentage of revenues	9.8		%	9.1		%	9.5		%	8.9		%

Three Months Ended Nine Months Ended
November 3,
2017
November 4,
2016
November 3,
2017
November 4,
2016
(in millions)
Net income $ 43
$ 42
$ 128
$ 112
Interest expense 11
15
32
41
Provision for income taxes 19
17
35
57
Depreciation and amortization 11
12
32
39
EBITDA 84
86
227
249
EBITDA as a percentage of revenues 7.3 % 7.7 % 6.8 % 7.3 %
Restructuring costs 1
—
3
—
Acquisition and integration costs —
—
—
10
Depreciation included in acquisition and integration costs —
—
—
(2 )
Adjusted EBITDA $ 85
$ 86
$ 230
$ 257
Adjusted EBITDA as a percentage of revenues 7.4 % 7.7 % 6.9 % 7.5 %
(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 ~~for the three months ended November 3, 2017 decreased to 7.4% of revenues from 7.7%~~as a percentage of revenues for the ~~prior year due primarily~~three and six months ended August 4, 2023 increased to ~~lower profit~~9.8% from ~~a higher volume of cost reimbursable contracts~~9.1% and ~~higher material cost mix.~~

~~Adjusted EBITDA~~increased to 9.5% from 8.9% for the ~~nine months ended November 3, 2017 decreased to 6.9% of revenues from 7.5% of revenues for~~same periods in the prior year, respectively, primarily due to ~~lower net favorable changes in estimates on contracts accounted for under the percentage-of-completion method~~improved profitability across our contract portfolio and lower ~~profit from a higher volume~~indirect costs.

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Table of cost reimbursable contracts and higher material cost mix. Lower net favorable changes in estimates were largely driven by increased costs to meet testing and mission requirements necessary to complete the Engineering, Manufacturing and Development (EMD) phase of the platform integration programs supporting the U.S. Marine Corps combined with prior year write-ups on certain programs supporting federal civilian agencies. These drivers were partially offset by lower compensation and marketing costs and the reversal of a vacancy reserve.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.

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 ofon contracts, which may cover multiple future years, under which we are obligated to perform, less ~~revenue~~revenues previously recognized on these contracts.



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

•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~~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:


	November 3, 2017		February 3, 2017			August 4, 2023		February 3, 2023
	(in millions)					(in millions)
Funded backlog	$	2,609	$	1,811	Funded backlog	$	3,716	$	3,554
Negotiated unfunded backlog	8,135		6,209		Negotiated unfunded backlog	18,808		20,248
Total backlog	$	10,744	$	8,020	Total backlog	$	22,524	$	23,802

We had net bookings worth an estimated ~~$2.6~~$0.7 billion and ~~$6.1~~$2.7 billion during the three and ~~nine~~six months ended ~~November 3, 2017, respectively. Total backlog at the end~~August 4, 2023.

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Table of the third quarter has increased compared to total backlog at prior year end due to several large awards received during the period from the U.S. Army, the Environmental Protection Agency and the U.S. Central Command.Contents


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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:


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

Nine Months Ended
November 3,
2017
November 4,
2016
Cost reimbursement 45 % 41 %
Time and materials (T&M) 28 % 30 %
Firm-fixed price (FFP) 27 % 29 %
Total 100 % 100 %

~~Revenues from cost reimbursement~~The change in contract mix for the six months ended August 4, 2023 reflects a decrease in firm-fixed price type contracts ~~increased for the nine months ended November 3, 2017 compared~~due to the ~~prior year comparable period primarily due to cost reimbursable federal civilian agency awards, an IT system integration award for~~divestiture of the ~~U.S. Army, and~~Supply Chain Business which historically had a higher ~~technology refresh activity on an existing program.~~proportion of these contracts.



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

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 ~~changes in~~ cost mix for the periods presented:


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

Three Months Ended Nine Months Ended
November 3,
2017
November 4,
2016
November 3,
2017
November 4,
2016
(as a % of total cost of revenues)
Labor-related cost of revenues 47 % 48 % 47 % 49 %
Subcontractor-related cost of revenues 33 % 34 % 34 % 34 %
Supply chain materials-related cost of revenues 12 % 12 % 12 % 12 %
Other materials-related cost of revenues 8 % 6 % 7 % 5 %

~~Cost~~The change in cost of revenues mix for the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 reflects ~~an increase~~a decrease in ~~other~~supply chain materials-related ~~cost~~costs due to the divestiture of ~~revenues, which generate lower operating margins.~~the 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 ~~$200~~$1.0 billion Revolving Credit Facility and $300 million ~~Revolving Credit~~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 ~~cash~~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, ~~of $150 million,~~ we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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.

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. We estimate that our income taxes payable for fiscal 2024 will increase by approximately $76 million as a result of this provision, offset by a corresponding deferred tax asset. The actual impact will depend on the amount of research and development costs incurred by the Company, whether the U.S. Congress modifies, or repeals this provision and 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:


	Six Months Ended
	August 4, 2023		July 29, 2022
	(in millions)
Net cash provided by operating activities	$	232	$	259
Net cash provided by (used in) investing activities	334		(17)
Net cash used in financing activities	(323)		(249)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	243	$	(7)

Nine Months Ended
November 3,
2017
November 4,
2016
(in millions)
Net cash provided by operating activities $ 133
$ 211
Net cash used in investing activities (15 ) (13 )
Net cash used in financing activities (203 ) (194 )
Net (decrease) increase in cash, cash equivalents and restricted cash $ (85 ) $ 4

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 ~~November 3, 2017~~August 4, 2023 and the comparable prior year period.



~~SCIENCE APPLICATIONS INTERNATIONAL CORPORATION~~

Net Cash 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 of $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 ~~Investing~~Financing Activities. Cash used in ~~investing~~financing activities for the ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 increased compared to the prior year period due to higher ~~capital expenditures for property, plant,~~share repurchases and ~~equipment.~~

~~Net Cash Used in Financing Activities.~~ ~~Cash used in financing activities for the nine months ended November 3, 2017 increased~~higher term loan principal payments compared to the prior year period primarily due to an increase in stock repurchased and retired or withheld for taxes on equity awards and the classification of excess tax benefits from stock based compensation as cash provided by operating activities in the current year, as opposed to a financing activity in the prior year, as a result of the adoption of ASU 2016-09,~~Improvements to Employee Share-Based Payment Accounting.~~period.

~~Contractual Obligations~~

During the second quarter of fiscal 2018, we contracted for approximately $50 million of long-lead time materials from various vendors that will be necessary to complete the low-rate initial production (LRIP) phase of our Assault Amphibious Vehicle contract with the United States Marine Corps. In the third quarter of fiscal 2018 we received partial awards which reduced our commitment on the portion of the LRIP phase not yet awarded to approximately $30 million. As of November 3, 2017, we had not yet been fully awarded the LRIP phase, however, we believe it is probable that we will receive the award. In order to meet our anticipated commitments for the LRIP phase, and to maximize volume discounts with our vendors, we committed to purchasing these materials. If we do not receive the award for the LRIP phase we may not be able to recover all of the costs associated with these orders, which would adversely affect our future profitability.

~~Other than this update, there have been no material changes to our contractual obligations as reported in our most recently filed Annual Report on Form 10-K.~~

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our condensed and consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies, as well as the reported amounts of revenues, expenses, gains and losses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information and, in some cases, are our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions may change in the future as more current information is available.

Management believes that our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain. There have been no changes to our ~~existing~~ critical accounting policies and estimates during the ~~nine~~six months ended ~~November 3, 2017~~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 ~~of the notes~~ 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~~market risks from those discussed in our most recently filed Annual Report on Form 10-K.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Item 4. Controls and Procedures

Our management, with the participation of our ~~principal executive officer (our~~ Chief Executive ~~Officer)~~Officer and ~~principal financial officer (our~~our Chief Financial ~~Officer), has~~Officer, have evaluated the effectiveness of the ~~Company’s~~Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ~~under~~of the Securities Exchange Act of 1934) and have concluded that as of ~~November 3, 2017~~August 4, 2023 these controls and procedures were operating and effective.

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 ~~reasonably~~ likely to materially affect, our internal control over financial reporting.

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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We have provided information about legal proceedings in which we are involved in our fiscal ~~2017~~2023 Annual Report on Form 10-K, and we have provided an update to this information in Note ~~8 of the notes~~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 ~~2017~~2023 Annual Report on Form 10-K, and we have also updated this information in Note ~~8 of the notes~~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 ~~November 3, 2017:~~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)
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 August 4, 2023, we have repurchased approximately 18.7 million shares of common stock under the program.

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⁾

August 5, 2017 - September 8, 2017 205,646
$ 71.08
204,605
3,565,624
September 9, 2017 - October 6, 2017 189,783
65.13
186,219
3,379,405
October 7, 2017 - November 3, 2017 171,256
70.96
170,838
3,208,567
Total 566,685
$ 69.06
561,662


⁽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⁾

On December 15, 2016 the number of additional shares of our common stock that may be repurchased under our existing repurchase program previously announced in October 2013 was increased by approximately 3.3 million shares, bringing the total authorized shares to be repurchased under the program to approximately 11.8 million shares. As of November 3, 2017, we have repurchased approximately 8.6 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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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Item 6. Exhibits


Exhibit Number			Description of Exhibit

~~Exhibit~~ ~~Number~~10.1*			~~Description of~~ 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.

~~31.1~~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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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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~~September 7, ~~2017~~

2023



Science Applications International Corporation

/s/ ~~Charles A. Mathis~~Prabu Natarajan
~~Charles A. Mathis~~ Prabu Natarajan Executive Vice President and Chief Financial Officer

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	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



							Liability Fair Value⁽¹⁾ at
	Notional Amount at November 3, 2017		Pay Fixed Rate		Receive Variable Rate	Settlement and Termination	November 3, 2017		February 3, 2017
	(in millions)						(in millions)
Term loan A interest rate swaps	$	375	1.41	%	1-month LIBOR	Monthly through September 26, 2018	$	—	$	1
Term loan B interest rate swaps	350		1.88	%	3-month LIBOR⁽²⁾	Quarterly through May 7, 2020	—		2
Total	$	725					$	—	$	3



	Unrealized Losses on Fixed Interest Rate Swap Cash Flow Hedges
	Pre-Tax Amount⁽¹⁾			Income Tax⁽²⁾			Net Amount
	(in millions)
Three months ended November 3, 2017
Balance at August 4, 2017	$	2		$	(1	)	$	1
Other comprehensive income before reclassifications	(2		)	1			(1		)
Amounts reclassified from accumulated other comprehensive loss	—			—			—
Net other comprehensive income	(2		)	1			(1		)
Balance at November 3, 2017	$	—		$	—		$	—

Three months ended November 4, 2016
Balance at August 5, 2016	$	14		$	(5	)	$	9
Other comprehensive loss before reclassifications	—			—			—
Amounts reclassified from accumulated other comprehensive loss	(2		)	—			(2		)
Net other comprehensive income	(2		)	—			(2		)
Balance at November 4, 2016	$	12		$	(5	)	$	7

Nine months ended November 3, 2017
Balance at February 3, 2017	$	3		$	(1	)	$	2
Other comprehensive income before reclassifications	(1		)	1			—
Amounts reclassified from accumulated other comprehensive loss	(2		)	—			(2		)
Net other comprehensive income	(3		)	1			(2		)
Balance at November 3, 2017	$	—		$	—		$	—

Nine months ended November 4, 2016
Balance at January 29, 2016	$	14		$	(5	)	$	9
Other comprehensive loss before reclassifications	4			(2		)	2
Amounts reclassified from accumulated other comprehensive loss	(6		)	2			(4		)
Net other comprehensive income	(2		)	—			(2		)
Balance at November 4, 2016	$	12		$	(5	)	$	7



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⁾
August 5, 2017 - September 8, 2017	205,646	$	71.08	204,605	3,565,624
September 9, 2017 - October 6, 2017	189,783	65.13		186,219	3,379,405
October 7, 2017 - November 3, 2017	171,256	70.96		170,838	3,208,567
Total	566,685	$	69.06	561,662