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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________
Form 10-Q
_________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2022
or
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
  Exact Name of Registrant as Specified in its Charter,
Address of Principal Executive Offices and Telephone Number
State or other
jurisdiction of
incorporation or
organization
  I.R.S. Employer
Identification
No.
001-35832  Science Applications
International Corporation
Delaware 46-1932921
 
12010 Sunset Hills Road, Reston, VA 20190
703-676-4300
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.0001 per shareSAICNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No  ☐            
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒ No  ☐            
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
     Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒        
The number of shares issued and outstanding of the registrant’s common stock as of November 18, 2022 was as follows:
54,629,268 shares of common stock ($.0001 par value per share)


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS


   Page
Part I  
  
Item 1 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Item 2 
  
Item 3 
  
Item 4 
  
Part II 
  
Item 1 
  
Item 1A 
  
Item 2 
  
Item 3 
  
Item 4 
  
Item 5 
  
Item 6 
  
  

-i-

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months EndedNine Months Ended
 October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
 (in millions, except per share amounts)
Revenues$1,909 $1,898 $5,736 $5,612 
Cost of revenues1,688 1,685 5,070 4,950 
Selling, general and administrative expenses87 87 272 252 
Acquisition and integration costs1 12 11 36 
Other operating income   (3)
Operating income133 114 383 377 
Interest expense30 26 87 79 
Other (income) expense, net3  6 (3)
Income before income taxes100 88 290 301 
Provision for income taxes(20)(17)(62)(66)
Net income80 71 228 235 
Net income attributable to non-controlling interest  2 1 
Net income attributable to common stockholders$80 $71 $226 $234 
Earnings per share:
Basic$1.45 $1.24 $4.06 $4.05 
Diluted$1.45 $1.22 $4.04 $4.01 

 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 



 See accompanying notes to condensed and consolidated financial statements.
-1-

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions)
Net income$80 $71 $228 $235 
Other comprehensive income, net of tax:
Net unrealized gain on derivative instruments29 17 63 32 
Total other comprehensive income, net of tax29 17 63 32 
Comprehensive income$109 $88 $291 $267 
Comprehensive income attributable to non-controlling interest  2 1 
Comprehensive income attributable to common stockholders$109 $88 $289 $266 































See accompanying notes to condensed and consolidated financial statements.
-2-

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 October 28,
2022
January 28,
2022
 (in millions)
ASSETS  
Current assets:  
Cash and cash equivalents$53 $106 
Receivables, net1,059 1,015 
Inventory, prepaid expenses and other current assets135 142 
Total current assets1,247 1,263 
Goodwill2,911 2,913 
Intangible assets, net1,040 1,132 
Property, plant, and equipment (net of accumulated depreciation of $194 million and $182 million at October 28, 2022 and January 28, 2022, respectively)
95 100 
Operating lease right of use assets166 209 
Other assets169 129 
Total assets$5,628 $5,746 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable and accrued liabilities$819 $840 
Accrued payroll and employee benefits396 364 
Long-term debt, current portion15 148 
Total current liabilities1,230 1,352 
Long-term debt, net of current portion2,358 2,370 
Operating lease liabilities155 192 
Deferred income taxes 43 
Other long-term liabilities189 160 
Commitments and contingencies (Note 11)
Equity:  
Common stock, $0.0001 par value, 1 billion shares authorized, 55 million and 56 million shares issued and outstanding as of October 28, 2022 and January 28, 2022, respectively
  
Additional paid-in capital679 838 
Retained earnings981 818 
Accumulated other comprehensive income (loss)26 (37)
Total common stockholders' equity1,686 1,619 
Non-controlling interest10 10 
Total stockholders' equity1,696 1,629 
Total liabilities and stockholders' equity$5,628 $5,746 
 
 
 
 
   
 
See accompanying notes to condensed and consolidated financial statements.
-3-

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 July 29, 202255 $723 $923 $(3)$10 $1,653 
Net income— — 80 — — 80 
Issuances of stock— 5 — — — 5 
Other comprehensive income, net of tax— — — 29 — 29 
Cash dividends of $0.37 per share
— — (22)— — (22)
Stock-based compensation— 11 — — — 11 
Repurchases of stock— (60)— — — (60)
Distributions to non-controlling interest— — — —   
Balance at October 28, 202255 $679 $981 $26 $10 $1,696 
Balance at January 28, 202256 $838 $818 $(37)$10 $1,629 
Net income— — 226 — 2 228 
Issuances of stock1 13 — — — 13 
Other comprehensive income, net of tax— — — 63 — 63 
Cash dividends of $1.11 per share
— — (63)— — (63)
Stock-based compensation— 19 — — — 19 
Repurchases of stock(2)(191)— — — (191)
Distributions to non-controlling interest— — — — (2)(2)
Balance at October 28, 202255 $679 $981 $26 $10 $1,696 
Balance at July 30, 202158 $945 $747 $(74)$10 $1,628 
Net income— — 71 — — 71 
Issuances of stock1 4 — — — 4 
Other comprehensive income, net of tax— — — 17 — 17 
Cash dividends of $0.37 per share
— — (22)— — (22)
Stock-based compensation— 11 — — — 11 
Repurchases of stock(2)(64)— — — (64)
Distributions to non-controlling interest— — — —   
Balance at October 29, 202157 $896 $796 $(57)$10 $1,645 
Balance at January 29, 202158 $1,004 $627 $(89)$10 $1,552 
Net income— — 234 — 1 235 
Issuances of stock1 12 — — — 12 
Other comprehensive income, net of tax— — — 32 — 32 
Cash dividends of $1.11 per share
— — (65)— — (65)
Stock-based compensation— 21 — — — 21 
Repurchases of stock(2)(141)— — — (141)
Distributions to non-controlling interest— — — — (1)(1)
Balance at October 29, 202157 $896 $796 $(57)$10 $1,645 


See accompanying notes to condensed and consolidated financial statements.
-4-

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended
 October 28,
2022
October 29,
2021
 (in millions)
Cash flows from operating activities:  
Net income$228 $235 
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization118 123 
Amortization of off-market customer contracts(12)(30)
Amortization of debt issuance costs8 6 
Deferred income taxes(29)41 
Stock-based compensation expense35 35 
Gain on divestitures (2)
Impairment of assets 10 
Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of acquisitions:  
Receivables(44)(123)
Inventory, prepaid expenses and other current assets7 28 
Other assets5 (8)
Accounts payable and accrued liabilities(21)47 
Accrued payroll and employee benefits32 45 
Income taxes payable59  
Operating lease assets and liabilities, net(1)4 
Other long-term liabilities2 4 
Net cash provided by operating activities387 415 
Cash flows from investing activities:  
Expenditures for property, plant, and equipment(18)(27)
Purchases of marketable securities(5)(5)
Sales of marketable securities3 4 
Cash paid for acquisitions, net of cash acquired (247)
Proceeds from divestitures 8 
Other(3)(5)
Net cash used in investing activities(23)(272)
Cash flows from financing activities:  
Dividend payments to stockholders(63)(65)
Principal payments on borrowings(780)(84)
Issuances of stock12 12 
Stock repurchased and retired or withheld for taxes on equity awards(208)(154)
Proceeds from borrowings630 116 
Debt issuance costs(6) 
Distributions to non-controlling interest(2)(1)
Net cash used in financing activities(417)(176)
Net decrease in cash, cash equivalents and restricted cash(53)(33)
Cash, cash equivalents and restricted cash at beginning of period115 190 
Cash, cash equivalents and restricted cash at end of period$62 $157 
 See accompanying notes to condensed and consolidated financial statements.
-5-

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, the “Company”) is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government. The Company provides these services for large, complex projects with a targeted emphasis on higher-end, differentiated technology services and solutions that accelerate and transform secure and resilient digital environments through system development, modernization, integration, and sustainment to drive enterprise and mission outcomes.
The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization. The Company's operating sectors are aggregated into one reportable segment for financial reporting purposes. Each of the Company’s two customer facing operating sectors is focused on providing both (1) growth and technology accelerating solutions and (2) core IT service offerings to one or more agencies of the U.S. federal government. Growth and technology accelerating solutions include the delivery of secure cloud modernization, outcome based enterprise IT as-a-service, and the integration, production and modernization of defense systems. Core IT services include systems engineering, the operation and maintenance of existing IT systems and networks, and logistics and supply chain solutions.
During the second quarter of fiscal 2022, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, growing the Company's digital transformation portfolio. Additionally, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data.
Principles of Consolidation and Basis of Presentation
The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes. References to “financial statements” refer to the condensed and consolidated financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statements of equity and statements of cash flows. These financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). All intercompany transactions and account balances within the Company have been eliminated. The financial statements are unaudited, but in the opinion of management include all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year and should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended January 28, 2022.
Non-controlling Interest. The Company holds a 50.1% majority interest in Forfeiture Support Associates J.V. (FSA). The results of operations of FSA are included in the Company's condensed and consolidated statements of income and comprehensive income and statements of cash flows. The non-controlling interest reported on the condensed and consolidated balance sheets represents the portion of FSA's equity that is attributable to the non-controlling interest.
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.
-6-

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

Reporting Periods
The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2023 began on January 29, 2022 and ends on February 3, 2023, while fiscal 2022 began on January 30, 2021 and ended on January 28, 2022.
Operating Cycle
The Company’s operating cycle may be greater than one year and is measured by the average time intervening between the inception and the completion of contracts.
Derivative Instruments Designated as Cash Flow Hedges
Derivative instruments are recorded on the condensed and consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.
The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and fair value is calculated using a standard pricing model for interest rate swaps with contractual terms for maturities, amortization and interest rates. Level 2, or market observable inputs (such as yield and credit curves), are used within the standard pricing models in order to determine fair value. The fair value is an estimate of the amount that the Company would pay or receive as of a measurement date if the agreements were transferred to a third party. See Note 8 for further discussion on the Company’s derivative instruments designated as cash flow hedges.
Marketable Securities
Investments in marketable securities consist of equity securities, which are recorded at fair value using observable inputs such as quoted prices in active markets (Level 1). As of October 28, 2022 and January 28, 2022, the fair value of our investments totaled $26 million and $28 million, respectively, and are included in other assets on the condensed and consolidated balance sheets. The Company's investments are primarily held in a custodial account, which includes investments to fund our 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 the condensed and consolidated balance sheets for the periods presented:
 October 28,
2022
January 28,
2022
 (in millions)
Cash and cash equivalents$53 $106 
Restricted cash included in inventory, prepaid expenses and other current assets5 5 
Restricted cash included in other assets4 4 
Cash, cash equivalents and restricted cash$62 $115 
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.
-7-

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

The amounts recognized in acquisition and integration costs on the condensed and consolidated statements of income are as follows:
Three Months EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions)
Acquisition(1)
$(1)$ $(2)$3 
Integration(2)
2 12 13 33 
Total acquisition and integration costs$1 $12 $11 $36 
(1)    Acquisition expenses for the three and nine months ended October 28, 2022 reflects amounts recognized to reduce the fair value of the Koverse earnout liability. Acquisition expenses for the nine months ended October 29, 2021 are related to the acquisitions of Halfaker and Koverse. See Note 4 for additional information related to the acquisitions.
(2)    Integration expenses for the nine months ended October 29, 2021 include $10 million for the impairment of assets.
Restructuring
During the three and nine months ended October 28, 2022, the Company incurred $5 million and $7 million, respectively, of restructuring costs related to the consolidation of certain facilities and other costs associated with the optimization of business processes. These costs are presented within selling, general and administrative expenses in the condensed and consolidated statements of income.
Accounting Standards Updates
In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50), which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. These amendments are effective for fiscal years beginning after December 15, 2022, except for the requirement to provide rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured at the acquisition date in accordance with Topic 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and must be applied prospectively. Early adoption is permitted. The Company adopted the requirements of ASU 2021-08 on a prospective basis effective the first day of fiscal 2023.
Note 2—Earnings Per Share, Share Repurchases and Dividends:
Earnings Per Share (EPS)
Basic EPS is computed by dividing net income attributable to common stockholders by the basic weighted-average number of shares outstanding. Diluted EPS is computed similarly to basic EPS, except the weighted-average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock-based awards.
-8-

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

The following table provides a reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS for the periods presented:
 Three Months EndedNine Months Ended
 October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
 (in millions)
Basic weighted-average number of shares outstanding
55.0 57.5 55.6 57.8 
Dilutive common share equivalents - stock options and other stock-based awards
0.5 0.5 0.4 0.6 
Diluted weighted-average number of shares outstanding
55.5 58.0 56.0 58.4 
Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for the three and nine months ended October 28, 2022 and October 29, 2021 were immaterial.
Share Repurchases
The Company may repurchase shares in accordance with established repurchase plans. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital. The Company has not made any material purchases of common stock other than in connection with established share repurchase plans. In June 2022, the number of shares of our common stock that may be repurchased under our existing repurchase plan was increased by 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares. As of October 28, 2022, we have repurchased approximately 16.5 million shares of common stock under the program.
Dividends
The Company declared and paid a quarterly dividend of $0.37 per share of its common stock during the three months ended October 28, 2022. Subsequent to the end of the quarter, on November 29, 2022, the Company's Board of Directors declared a quarterly dividend of $0.37 per share of the Company's common stock payable on January 27, 2023 to stockholders of record on January 13, 2023.
Note 3—Revenues:
Changes in Estimates on Contracts
Changes in estimates of revenues, cost of revenues or profits related to performance obligations satisfied over time are recognized in operating income in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can occur routinely over the performance period for a variety of reasons, which include: changes in scope; changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs; changes in the estimated transaction price, such as variable amounts for incentive or award fees; and performance being better or worse than previously estimated.
Many 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.
-9-

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

Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows:
Three Months EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions, except per share amounts)
Net (unfavorable) favorable adjustments$(6)$ $4 $9 
Net (unfavorable) favorable adjustments, after tax(5) 3 7 
Diluted EPS impact$(0.09)$ $0.05 $0.12 
Revenues were $2 million lower and $7 million higher for the three and nine months ended October 28, 2022, respectively, and $1 million and $21 million higher for the three and nine months ended October 29, 2021, 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 EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions)
Department of Defense$969 $920 $2,799 $2,740 
Other federal government agencies903 940 2,827 2,762 
Commercial, state and local37 38 110 110 
Total$1,909 $1,898 $5,736 $5,612 
Disaggregated revenues by contract-type were as follows:
Three Months EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions)
Cost reimbursement$1,071 $1,045 $3,201 $3,028 
Time and materials (T&M)363 363 1,077 1,139 
Firm-fixed price (FFP)475 490 1,458 1,445 
Total$1,909 $1,898 $5,736 $5,612 
-10-

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

Disaggregated revenues by prime versus subcontractor were as follows:
Three Months EndedNine Months Ended
October 28,
2022
October 29,
2021
October 28,
2022
October 29,
2021
(in millions)
Prime contractor to federal government$1,725 $1,722 $5,212 $5,069 
Subcontractor to federal government147 138 414 433 
Other37 38 110 110 
Total$1,909 $1,898 $5,736 $5,612 
Contract Balances
Contract balances for the periods presented were as follows:
Balance Sheet line itemOctober 28,
2022
January 28,
2022
 (in millions)
Billed and billable receivables, net(1)
Receivables, net$580 $615 
Contract assets - unbillable receivablesReceivables, net479 400 
Contract assets - contract retentionsOther assets16 17 
Contract liabilities - currentAccounts payable and accrued liabilities35 55 
Contract liabilities - non-currentOther long-term liabilities$5 $9 
(1)    Net of allowance of $3 million and $4 million as of October 28, 2022 and January 28, 2022, respectively.
During the three and nine months ended October 28, 2022, the Company recognized revenues of $4 million and $39 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 28, 2022. During the three and nine months ended October 29, 2021, the Company recognized revenues of $8 million and $72 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of January 29, 2021.
Remaining Performance Obligations
As of October 28, 2022, the Company had $5.0 billion of remaining performance obligations. Remaining performance obligations exclude any variable consideration that is allocated entirely to unsatisfied performance obligations on our supply chain contracts. The Company expects to recognize revenue on approximately 85% of the remaining performance obligations over the next 12 months and approximately 95% over the next 24 months, with the remaining recognized thereafter.
Lessor Revenue
The Company leases IT equipment and hardware to its customers. All of the Company’s lessor arrangements are operating leases. Operating lease revenue is recognized on a straight-line basis over the term of the lease. Operating lease income is reported as revenue on the condensed and consolidated statements of income. During the nine months ended October 28, 2022, the Company recognized revenue of $23 million from the exercise of purchase options under certain lessor arrangements. Operating lease income was immaterial for the three and nine months ended October 28, 2022 and $3 million and $14 million for the three and nine months ended October 29, 2021, respectively.
-11-

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

Note 4—Acquisitions:
Halfaker
On July 2, 2021, the Company completed the acquisition of Halfaker, a mission focused, pure-play health IT company for a purchase price of $228 million, net of $3 million cash acquired. The Company funded the transaction from increased borrowings and cash on hand. During the first quarter of fiscal 2023, the Company made fair value adjustments decreasing goodwill and increasing customer relationships intangible assets by $2 million. The Company has completed the determination of fair values of the acquired assets and liabilities assumed. The allocation of the purchase price resulted in goodwill of $104 million and intangible assets of $114 million, both of which are deductible for income tax purposes. The recognized goodwill is primarily associated with future customer relationships and an acquired assembled work force. The intangible assets consist of customer relationships of $97 million and backlog of $17 million that will be amortized over a period of nine years and one year, respectively. The Company made additional cash payments of $21 million in March 2022 associated with certain change in control provisions that are recognized as post-combination expense.
Koverse
On May 3, 2021, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data, for a purchase price of $30 million, net of $2 million cash acquired. The purchase price included $3 million of contingent consideration, representing the acquisition date fair value recognized for up to $27 million gross of potential future earnout payments based on the achievement of certain revenue targets over the next four years. The Company has completed the allocation of the purchase price which resulted in goodwill of $21 million and intangible assets of $10 million, which are both not deductible for income tax purposes. The goodwill is primarily associated with intellectual capital, future customer relationships, and an acquired assembled work force. The intangible assets, which primarily consist of developed technology, are being amortized over a weighted-average period of seven years. As of October 28, 2022, the Company has recognized $11 million of the additional $13 million of post-combination compensation expense associated with certain employee retention agreements.
Unisys Federal
During the second quarters of fiscal 2023 and 2022, the Company accelerated the amortization for certain off-market customer contracts as a result of a change in their expected contractual terms. The accelerations resulted in additional amortization of $4 million and $6 million for the three and nine months ended October 28, 2022, respectively, and $9 million and $17 million for the three and nine months ended October 29, 2021, respectively. As of October 28, 2022, the remaining unamortized balance of the provision for certain off-market customer contracts is $7 million and is expected to be amortized by the end of fiscal 2024.
Note 5—Goodwill and Intangible Assets:
Goodwill
Goodwill had a carrying value of $2,911 million and $2,913 million as of October 28, 2022 and January 28, 2022, respectively. There were no impairments of goodwill during the periods presented.
-12-

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

Intangible Assets
Intangible assets, all of which were finite-lived, consisted of the following:
October 28, 2022January 28, 2022
Gross carrying valueAccumulated amortizationNet carrying valueGross carrying valueAccumulated amortizationNet carrying value
(in millions)
Customer relationships$1,467 $(435)$1,032 $1,467 $(351)$1,116 
Backlog   17 (10)7 
Developed technology10 (2)8 10 (2)8 
Trade name1 (1) 1  1 
Total intangible assets$1,478 $(438)$1,040 $1,495 $(363)$1,132 
Amortization expense related to intangible assets was $29 million and $94 million for the three and nine months ended October 28, 2022, respectively, and $33 million and $94 million for the three and nine months ended October 29, 2021, respectively. There were no intangible asset impairment losses during the periods presented.
As of October 28, 2022, the estimated future annual amortization expense related to intangible assets is as follows:
Fiscal Year(in millions)
Remainder of 2023$31 
2024115
2025115
2026115
2027115
Thereafter549
Total$1,040 
Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments, and other factors.
Note 6—Income Taxes:
The Company's effective income tax rate was 20.3% and 21.3% for the three and nine months ended October 28, 2022, respectively, and 19.4% and 22.0% for the three and nine months ended October 29, 2021, respectively. The Company’s effective tax rate was higher for the three months ended October 28, 2022 compared to the prior year period primarily due to a lower deduction for foreign-derived intangible income. The Company’s effective tax rate was lower for the nine months ended October 28, 2022 compared to the prior year period primarily due to tax benefits recorded in fiscal 2023 from the completion of prior year tax return planning efforts including foreign-derived intangible income studies.
Tax rates for the three and nine months ended October 28, 2022 were lower than the combined federal and state statutory rates due to excess tax benefits related to employee stock-based compensation, research and development tax credits, a deduction for foreign-derived intangible income, and other permanent book tax differences.
As of January 28, 2022, the net deferred tax liability balance was $43 million and is presented as deferred income taxes on the condensed and consolidated balance sheets. As of October 28, 2022, the net deferred tax asset balance is $3 million, which is presented in other assets on the condensed and consolidated balance sheets and is due to capitalization of certain research and development expenses required under the Tax Cuts and Jobs Act of 2017.
-13-

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

Note 7—Debt Obligations:
The Company’s long-term debt as of the dates presented was as follows:
 October 28, 2022January 28, 2022
 Stated
interest
rate
Effective
interest
rate
PrincipalUnamortized
debt
issuance
costs
NetPrincipalUnamortized
debt
issuance
costs
Net
   (in millions)
Term Loan A Facility due June 20274.38 %4.50 %$1,230 $(5)$1,225 $ $ $ 
Term Loan A Facility due October 2023
 % %   785 (5)780 
Term Loan A2 Facility due October 2023 % %   100  100 
Term Loan B Facility due October 2025
5.01 %5.22 %488 (3)485 983 (7)976 
Term Loan B2 Facility due March 2027
5.01 %5.44 %272 (4)268 272 (5)267 
Senior Notes due April 20284.88 %5.11 %400 (5)395 400 (5)395 
Total long-term debt  $2,390 $(17)$2,373 $2,540 $(22)$2,518 
Less current portion  15  15 148  148 
Total long-term debt, net of current portion
  $2,375 $(17)$2,358