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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 2, 2024
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
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| Commission File Number | 001-35832 |
| Science Applications International Corporation |
| (Exact name of registrant as specified in its charter) |
| Delaware | | 46-1932921 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 12010 Sunset Hills Road, | Reston, | Virginia | | 20190 |
| (Address of principal executive offices) | | (Zip Code) |
| (703) | 676-4300 |
| (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $.0001 per share | SAIC | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | | | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares issued and outstanding of the registrant’s common stock as of August 23, 2024 was as follows:
49,520,103 shares of common stock ($.0001 par value per share)
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| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
| FORM 10-Q |
TABLE OF CONTENTS |
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| Part I | | | |
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| Item 1 | | | |
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| Item 2 | | | |
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| Part II | | | |
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| Item 1 | | | |
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| Item 1A | | | |
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| Item 2 | | | |
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| Item 3 | | | |
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| Item 4 | | | |
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| Item 5 | | | |
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| Item 6 | | | |
| | | |
| | | | |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
| | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
| (UNAUDITED) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | August 2,
2024 | | August 4,
2023 | | August 2,
2024 | | August 4,
2023 |
| | (in millions, except per share amounts) |
| Revenues | $ | 1,818 | | | $ | 1,784 | | | $ | 3,665 | | | $ | 3,812 | |
| Cost of revenues | 1,608 | | | 1,568 | | | 3,242 | | | 3,361 | |
| Selling, general and administrative expenses | 77 | | | 88 | | | 162 | | | 172 | |
| (Gain) loss on divestitures, net of transaction costs | — | | | (234) | | | — | | | (240) | |
Other operating (income) expense | (1) | | | — | | | (4) | | | — | |
| Operating income | 134 | | | 362 | | | 265 | | | 519 | |
Interest expense, net | 31 | | | 29 | | | 65 | | | 61 | |
| Other (income) expense, net | 3 | | | (2) | | | 5 | | | — | |
| Income before income taxes | 100 | | | 335 | | | 195 | | | 458 | |
| Provision for income taxes | (19) | | | (88) | | | (37) | | | (113) | |
| Net income | $ | 81 | | | $ | 247 | | | $ | 158 | | | $ | 345 | |
| Earnings per share: | | | | | | | |
| Basic | $ | 1.59 | | | $ | 4.60 | | | $ | 3.08 | | | $ | 6.40 | |
| Diluted | $ | 1.58 | | | $ | 4.56 | | | $ | 3.06 | | | $ | 6.35 | |
See accompanying notes to condensed consolidated financial statements.
| | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (UNAUDITED) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| August 2,
2024 | | August 4,
2023 | | August 2,
2024 | | August 4,
2023 |
| (in millions) |
| Net income | $ | 81 | | | $ | 247 | | | $ | 158 | | | $ | 345 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Net unrealized (loss) gain on derivative instruments | (8) | | | 7 | | | (5) | | | 1 | |
Total other comprehensive (loss) income, net of tax | (8) | | | 7 | | | (5) | | | 1 | |
| Comprehensive income | $ | 73 | | | $ | 254 | | | $ | 153 | | | $ | 346 | |
See accompanying notes to condensed consolidated financial statements.
| | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
CONDENSED CONSOLIDATED BALANCE SHEETS |
| (UNAUDITED) |
| | | | | | | | | | | |
| | August 2,
2024 | | February 2,
2024 |
| | (in millions) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 48 | | | $ | 94 | |
| Receivables, net | 946 | | | 914 | |
Prepaid expenses and other current assets | 109 | | | 123 | |
| Total current assets | 1,103 | | | 1,131 | |
| Goodwill | 2,851 | | | 2,851 | |
| Intangible assets, net | 836 | | | 894 | |
Property, plant, and equipment (net of accumulated depreciation of $193 million and $184 million at August 2, 2024 and February 2, 2024, respectively) | 95 | | | 91 | |
| Operating lease right of use assets | 168 | | | 152 | |
| Other assets | 197 | | | 195 | |
| Total assets | $ | 5,250 | | | $ | 5,314 | |
| | | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
Accounts payable | $ | 639 | | | $ | 567 | |
| Accrued payroll and employee benefits | 338 | | | 370 | |
Other accrued liabilities | 118 | | | 144 | |
| Debt, current portion | 197 | | | 77 | |
| Total current liabilities | 1,292 | | | 1,158 | |
| Debt, net of current portion | 1,970 | | | 2,022 | |
| Operating lease liabilities | 158 | | | 147 | |
| Deferred income taxes | 19 | | | 28 | |
| Other long-term liabilities | 186 | | | 174 | |
| Commitments and contingencies (Note 12) | | | |
| Equity: | | | |
Common stock, $0.0001 par value, 1 billion shares authorized, 50 million and 52 million shares issued and outstanding as of August 2, 2024 and February 2, 2024, respectively | — | | | — | |
| Additional paid-in capital | 63 | | | 337 | |
| Retained earnings | 1,551 | | | 1,432 | |
| Accumulated other comprehensive income | 11 | | | 16 | |
| Total stockholders' equity | 1,625 | | | 1,785 | |
| Total liabilities and stockholders' equity | $ | 5,250 | | | $ | 5,314 | |
See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
CONDENSED 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 3, 2024 | 51 | | | $ | 251 | | | $ | 1,489 | | | $ | 19 | | | $ | — | | | $ | 1,759 | |
| Net income | — | | | — | | | 81 | | | — | | | — | | | 81 | |
| Issuances of stock | — | | | 5 | | | — | | | — | | | — | | | 5 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (8) | | | — | | | (8) | |
Cash dividends of $0.37 per share | — | | | — | | | (19) | | | — | | | — | | | (19) | |
Stock-based compensation, net of shares withheld for taxes(1) | — | | | 11 | | | — | | | — | | | — | | | 11 | |
| Repurchases of stock | (1) | | | (204) | | | — | | | — | | | — | | | (204) | |
| Balance at August 2, 2024 | 50 | | | $ | 63 | | | $ | 1,551 | | | $ | 11 | | | $ | — | | | $ | 1,625 | |
| | | | | | | | | | | |
| Balance at February 2, 2024 | 52 | | | $ | 337 | | | $ | 1,432 | | | $ | 16 | | | $ | — | | | $ | 1,785 | |
| Net income | — | | | — | | | 158 | | | — | | | — | | | 158 | |
| Issuances of stock | — | | | 9 | | | — | | | — | | | — | | | 9 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (5) | | | — | | | (5) | |
Cash dividends of $0.74 per share | — | | | — | | | (39) | | | — | | | — | | | (39) | |
Stock-based compensation, net of shares withheld for taxes(1) | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| Repurchases of stock | (2) | | | (285) | | | — | | | — | | | — | | | (285) | |
| Balance at August 2, 2024 | 50 | | | $ | 63 | | | $ | 1,551 | | | $ | 11 | | | $ | — | | | $ | 1,625 | |
| | | | | | | | | | | |
| 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, net of shares withheld for taxes(1) | — | | | 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, net of shares withheld for taxes(1) | — | | | 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 | |
(1) During the three months ended August 2, 2024 and August 4, 2023, shares withheld for taxes related to stock-based compensation arrangements amounted to $1 million. During the six months ended August 2, 2024 and August 4, 2023, shares withheld for taxes related to stock-based compensation arrangements amounted to $23 million and $20 million, respectively.
See accompanying notes to condensed consolidated financial statements.
| | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
| | | | | | | | | | | | | | | |
| | Six Months Ended | | | | |
| | August 2,
2024 | | August 4,
2023 | | | | |
| | (in millions) | | | | |
| Cash flows from operating activities: | | | | | | | |
| Net income | $ | 158 | | | $ | 345 | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | 69 | | | 72 | | | | | |
| Deferred income taxes | (8) | | | (25) | | | | | |
| Stock-based compensation expense | 25 | | | 27 | | | | | |
(Gain) loss on sale of long-lived assets | — | | | (3) | | | | | |
(Gain) loss on divestitures | — | | | (247) | | | | | |
| Other | (3) | | | — | | | | | |
| Increase (decrease) resulting from changes in operating assets and liabilities, net of the effect of divestitures: | | | | | | | |
| Receivables | (32) | | | (90) | | | | | |
Prepaid expenses and other current assets | 14 | | | 8 | | | | | |
| Other assets | (1) | | | (3) | | | | | |
| Accounts payable and accrued liabilities | 41 | | | 52 | | | | | |
| Accrued payroll and employee benefits | (32) | | | 9 | | | | | |
| Income taxes payable | (2) | | | 74 | | | | | |
| Operating lease assets and liabilities, net | (5) | | | (2) | | | | | |
| Other long-term liabilities | 12 | | | 15 | | | | | |
| Net cash provided by operating activities | 236 | | | 232 | | | | | |
| Cash flows from investing activities: | | | | | | | |
| Expenditures for property, plant, and equipment | (12) | | | (12) | | | | | |
| Purchases of marketable securities | (8) | | | (5) | | | | | |
| Sales of marketable securities | 6 | | | 4 | | | | | |
| Proceeds from sale of long-lived assets | — | | | 3 | | | | | |
| Proceeds from divestitures | — | | | 355 | | | | | |
| Cash divested upon deconsolidation of joint venture | — | | | (8) | | | | | |
| Other | (2) | | | (3) | | | | | |
Net cash (used in) provided by investing activities | (16) | | | 334 | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Dividend payments to stockholders | (39) | | | (41) | | | | | |
| Principal payments on borrowings | (606) | | | (260) | | | | | |
| Issuances of stock | 9 | | | 8 | | | | | |
| Stock repurchased and retired or withheld for taxes on equity awards | (304) | | | (190) | | | | | |
| Proceeds from borrowings | 673 | | | 160 | | | | | |
| Net cash used in financing activities | (267) | | | (323) | | | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (47) | | | 243 | | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | 103 | | | 118 | | | | | |
| Cash, cash equivalents and restricted cash at end of period | $ | 56 | | | $ | 361 | | | | | |
See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED 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 integrates emerging technology securely and in real-time into mission critical operations that modernize and enable national imperatives. 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.
Effective February 3, 2024, the first day of fiscal 2025, the Company completed a business reorganization which replaced its previous two customer facing operating sectors with five customer facing business groups supported by the enterprise organizations, including the Innovation Factory. The Company's five business groups, which are also its operating segments, are aggregated into two reportable segments for financial reporting purposes given the similarity in economic and qualitative characteristics, and based on the nature of the customers they serve. The Company’s two reportable segments are the Defense and Intelligence segment and the Civilian segment.
The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the defense and intelligence departments and agencies of the United States Government.
The Civilian segment provides solutions to the civilian markets, encompassing federal, state, and local governments, in order to deliver services for citizen well-being and protecting lives. This includes integrating solutions into a spectrum of public service missions that impact travel, trade, health and the economy.
The offerings of both reportable segments entail the integration of emerging technologies into mission critical operations that modernize and enable national imperatives, including IT modernization, digital engineering, artificial intelligence ("AI"), mission systems support and advisory, training and simulation, and ground vehicles support. These services include end-to-end solutions spanning the design, development, integration, deployment, management and operations, sustainment and security of the customers’ entire IT infrastructure.
The Company's Innovation Factory supports the operating segments by developing enterprise-class solutions which are delivered to the Company's customers as stand-alone solutions or integrated with and aligned to product offerings through the operations of the business to meet complex customer needs and accelerate digital transformation. The Innovation Factory includes designated teams focused on AI, application development, network services, platforms and cloud, and cybersecurity. It uses a highly automated, cloud-hosted tool set to rapidly build, test and deploy solutions and works with customers to enhance solutions going forward.
Costs associated with corporate functions that are not allocable to the reportable segments are presented as Corporate activities. See Note 11—Business Segments Information for additional information.
Within this report, the Company has recast historical financial information to reflect the new reportable segments. The recast historical information has no impact on the Company's previously reported condensed consolidated financial statements.
Principles of Consolidation and Basis of Presentation
References to “financial statements” refer to the condensed 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.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Interest income was reclassified from "Other (income) expense, net" to "Interest expense, net" on the condensed consolidated statements of income, gains on divestitures, net of transaction costs were reclassified from "Other operating (income) expense" to "(Gain) loss on divestitures, net of transaction costs" on the condensed consolidated statements of income, and "Accounts Payable" is now presented separately from "Other accrued liabilities" on the condensed consolidated balance sheets. 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 2, 2024.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant estimates inherent in the preparation of the financial statements may include, but are not limited to, estimated profitability of long-term contracts, income taxes, fair value measurements, fair value of goodwill and other intangible assets, pension and defined benefit plan obligations, and contingencies. Estimates have been prepared by management on the basis of the most current and best available information at the time of estimation and actual results could differ from those estimates.
Reporting Periods
The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2025 began on February 3, 2024 and ends on January 31, 2025, while fiscal 2024 began on February 4, 2023 and ended on February 2, 2024.
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 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. Settlement amounts related to derivatives designated as cash flow hedges are presented within operating activities on the condensed consolidated statement of cash flows.
The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and their 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—Derivative Instruments Designated as Cash Flow Hedges 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 August 2, 2024 and February 2, 2024, the fair value of the Company's investments totaled $36 million and $32 million, respectively, and are included in "Other assets" on the condensed consolidated balance sheets. The Company's investments are primarily held in a custodial account, which includes investments to fund its deferred compensation plan liabilities.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported on the condensed consolidated balance sheets for the periods presented:
| | | | | | | | | | | |
| | August 2,
2024 | | February 2,
2024 |
| | (in millions) |
| Cash and cash equivalents | $ | 48 | | | $ | 94 | |
Restricted cash included in prepaid expenses and other current assets | 4 | | | 4 | |
| Restricted cash included in other assets | 4 | | | 5 | |
| Cash, cash equivalents and restricted cash | $ | 56 | | | $ | 103 | |
Restructuring Costs
The Company periodically initiates restructuring activities to support business strategies, realign resources, and enhance its operational efficiency. Restructuring costs may include severance and other employee related termination costs, costs associated with consolidating or closing facilities and consulting costs.
Restructuring costs for the three and six months ended August 2, 2024 were $2 million and $4 million, respectively, and were primarily related to activities associated with the reorganization of its business sectors into business groups and the optimization and consolidation of certain facilities. Restructuring costs for the three and six months ended August 4, 2023 were $5 million and $6 million, respectively, and were primarily associated with the optimization and consolidation of certain facilities. Restructuring costs are presented within "Selling, general and administrative expenses" on the condensed consolidated statements of income.
Accounting Standards Updates
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard includes amendments that enhance annual income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments can be applied on a prospective or retrospective basis. The Company plans to adopt this standard in fiscal 2026 and is currently evaluating the impact of adoption of this standard on its financial statement disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Amongst other amendments, the standard requires annual and interim disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), and interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This standard does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company plans to adopt the annual disclosure in fiscal 2025 and the interim disclosure in fiscal 2026 and is currently evaluating the impact of adoption of this standard on its financial statement disclosures.
Note 2—Earnings Per Share, Share Repurchases and Dividends:
Earnings Per Share ("EPS")
Basic EPS is computed by dividing net income 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-based awards. The dilutive effect of outstanding stock-based awards is computed using the treasury stock method.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
The following table provides a reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | August 2,
2024 | | August 4,
2023 | | August 2,
2024 | | August 4,
2023 |
| | (in millions) |
Basic weighted-average number of shares outstanding | 50.9 | | | 53.5 | | | 51.3 | | | 53.9 | |
| Dilutive common share equivalents - stock options and other stock-based awards | 0.3 | | | 0.4 | | | 0.4 | | | 0.4 | |
Diluted weighted-average number of shares outstanding | 51.2 | | | 53.9 | | | 51.7 | | | 54.3 | |
Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for the three and six months ended August 2, 2024 and August 4, 2023 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 the Company's 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 2, 2024, the Company has repurchased approximately 22.6 million shares of its common stock under the plan.
Dividends
The Company declared and paid a quarterly dividend of $0.37 per share of its common stock during the three months ended August 2, 2024.
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.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| August 2,
2024 | | August 4,
2023 | | August 2,
2024 | | August 4,
2023 |
| (in millions, except per share amounts) |
Net (unfavorable) favorable adjustments | $ | (1) | | | $ | (1) | | | $ | — | | | $ | 4 | |
Net (unfavorable) favorable adjustments, after tax | (1) | | | (1) | | | — | | | 3 | |
| Diluted EPS impact | $ | (0.02) | | | $ | (0.02) | | | $ | — | | | $ | 0.06 | |
Revenues were $1 million higher for the six months ended August 2, 2024 and $1 million lower and $4 million higher for the three and six months ended August 4, 2023, 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 for each of its reportable segments.
Disaggregated revenues by customer were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Department of Defense | $ | 950 | | $ | — | | $ | 950 | | | $ | 917 | | $ | 2 | | $ | 919 | |
Intelligence and other federal government agencies | 455 | | 369 | | 824 | | | 469 | | 359 | | 828 | |
Commercial, state and local governments and international | 10 | | 34 | | 44 | | | 3 | | 34 | | 37 | |
| Total | $ | 1,415 | | $ | 403 | | $ | 1,818 | | | $ | 1,389 | | $ | 395 | | $ | 1,784 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Department of Defense | $ | 1,924 | | $ | 2 | | $ | 1,926 | | | $ | 1,986 | | $ | 4 | | $ | 1,990 | |
Intelligence and other federal government agencies | 913 | | 745 | | 1,658 | | | 993 | | 755 | | 1,748 | |
Commercial, state and local governments and international | 14 | | 67 | | 81 | | | 7 | | 67 | | 74 | |
| Total | $ | 2,851 | | $ | 814 | | $ | 3,665 | | | $ | 2,986 | | $ | 826 | | $ | 3,812 | |
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Disaggregated revenues by contract type were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Cost reimbursement | $ | 1,085 | | $ | 20 | | $ | 1,105 | | | $ | 1,092 | | $ | 13 | | $ | 1,105 | |
Time and materials ("T&M") | 162 | | 264 | | 426 | | | 115 | | 243 | | 358 | |
Firm-fixed price ("FFP") | 168 | | 119 | | 287 | | | 182 | | 139 | | 321 | |
| Total | $ | 1,415 | | $ | 403 | | $ | 1,818 | | | $ | 1,389 | | $ | 395 | | $ | 1,784 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Cost reimbursement | $ | 2,219 | | $ | 41 | | $ | 2,260 | | | $ | 2,183 | | $ | 34 | | $ | 2,217 | |
Time and materials ("T&M") | 311 | | 532 | | 843 | | | 229 | | 496 | | 725 | |
Firm-fixed price ("FFP") | 321 | | 241 | | 562 | | | 574 | | 296 | | 870 | |
| Total | $ | 2,851 | | $ | 814 | | $ | 3,665 | | | $ | 2,986 | | $ | 826 | | $ | 3,812 | |
Disaggregated revenues by prime versus subcontractor were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Prime contractor to federal government | $ | 1,283 | | $ | 335 | | $ | 1,618 | | | $ | 1,261 | | $ | 330 | | $ | 1,591 | |
| Subcontractor to federal government | 122 | | 34 | | 156 | | | 125 | | 31 | | 156 | |
| Other | 10 | | 34 | | 44 | | | 3 | | 34 | | 37 | |
| Total | $ | 1,415 | | $ | 403 | | $ | 1,818 | | | $ | 1,389 | | $ | 395 | | $ | 1,784 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| August 2, 2024 | | August 4, 2023 |
| Defense and Intelligence | Civilian | Total | | Defense and Intelligence | Civilian | Total |
| (in millions) |
| Prime contractor to federal government | $ | 2,592 | | $ | 677 | | $ | 3,269 | | | $ | 2,750 | | $ | 696 | | $ | 3,446 | |
| Subcontractor to federal government | 245 | | 70 | | 315 | | | 229 | | 63 | | 292 | |
| Other | 14 | | 67 | | 81 | | | 7 | | 67 | | 74 | |
| Total | $ | 2,851 | | $ | 814 | | $ | 3,665 | | | $ | 2,986 | | $ | 826 | | $ | 3,812 | |
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Contract Balances
Contract balances for the periods presented were as follows:
| | | | | | | | | | | | | | |
| Balance Sheet line item | August 2,
2024 | | February 2,
2024 |
| | | (in millions) |
Billed and billable receivables, net(1) | Receivables, net | $ | 574 | | | $ | 555 | |
| Contract assets - unbillable receivables | Receivables, net | 372 | | | 359 | |
| Contract assets - contract retentions | Other assets | 15 | | | 14 | |
| Contract liabilities - current | Other accrued liabilities | 23 | | | 53 | |
| Contract liabilities - non-current | Other long-term liabilities | $ | 1 | | | $ | 2 | |
(1) Net of allowance of $3 million as of August 2, 2024 and February 2, 2024.
During the three and six months ended August 2, 2024, the Company recognized revenues of $10 million and $30 million, respectively, relating to amounts that were included in the opening balance of contract liabilities as of February 2, 2024. 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.
Remaining Performance Obligations
Remaining performance obligations ("RPO") represent the transaction price of exercised contracts (both funded and unfunded) less inception to date revenue recognized. RPO does not include unexercised option periods and future task orders expected to be awarded under IDIQ contracts. As of August 2, 2024, the Company had approximately $5.4 billion of RPO. The Company expects to recognize revenue on approximately 79% of the RPO over the next 12 months and approximately 90% over the next 24 months, with the remaining recognized thereafter.
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 its sole joint venture partner for a nominal amount. In conjunction with the sale, the Company remeasured its retained investment in FSA to a fair value of $14 million. As a result of the sale and amendment to the joint venture operating agreement of FSA, the Company no longer controls the joint venture and will account for its retained interest as an equity method investment as of the date of the transaction.
The equity method investment is included within "Other assets" on the condensed consolidated balance sheets. The remeasurement resulted in a gain of $7 million which is included within "(Gain) loss on divestitures, net of transaction costs" on the condensed consolidated statements of income and is reflected within "(Gain) loss on divestitures" on the condensed consolidated statements of cash flows for the six months ended August 4, 2023. 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.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
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 Company recognized the cash as "Proceeds from divestitures" on the condensed consolidated statements of cash flows. The sale enables the Company to focus its resources on long-term strategic growth areas. During the second quarter of fiscal 2024, the Company recorded a preliminary pre-tax gain of $233 million, net of $7 million of transaction costs, which is included within "(Gain) loss on divestitures, net of transaction costs" on the condensed consolidated statements of income.
The disposition did not represent a strategic shift in operations that would 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 | | | | | |
Inventories, net | 72 | | | | | |
Prepaid expenses | 1 | | | | | |
| Goodwill | 60 | | | | | |
| Operating lease right of use assets | 2 | | | | | |
| Total assets divested | $ | 181 | | | | | |
| Liabilities: | | | | | |
Accounts payable | $ | 62 | | | | | |
| Accrued payroll and employee benefits | 1 | | | | | |
Other accrued liabilities | 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 provided certain services to ASRC Federal through the first quarter of fiscal 2025 on a cost reimbursable basis. The transition services included certain IT, finance and other services necessary to support the transition of the sale.
Note 5—Goodwill and Intangible Assets:
Goodwill
The following table presents the carrying value of goodwill by reportable segment:
| | | | | | | | | | | | | | | |
| August 2,
2024 | | February 2,
2024 | | | | |
| (in millions) |
Defense and Intelligence | $ | 2,001 | | | $ | 2,001 | | | | | |
Civilian | 850 | | | 850 | | | | | |
Total | $ | 2,851 | | | $ | 2,851 | | | | | |
Goodwill is not amortized, but rather tested for potential impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The goodwill impairment test is performed at
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
the reporting unit level. As a result of the internal reorganization on February 3, 2024, the Company reallocated its goodwill to its five new goodwill reporting units.
The Company performed a goodwill impairment test immediately before and after the reorganization, both of which resulted in no impairment. For the goodwill impairment test immediately after the reorganization, the Company performed a quantitative assessment of its goodwill as of February 3, 2024 for its five new goodwill reporting units. The Company estimated the fair value of each reporting unit using a 50:50 weighting of fair values derived from an income approach and market approach.
Under the income approach, the Company estimated the fair value of its reporting units using a multi-year discounted cash flow model involving assumptions about projected future revenue growth, operating margins, income tax rates, capital expenditures, discount rate, and terminal value. Under the market approach, the Company estimated the fair value of its reporting units based on multiples of earnings derived from observable market data of comparable public companies.
Intangible Assets
Intangible assets, all of which were finite-lived, consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| August 2, 2024 | | February 2, 2024 |
| Gross carrying value | | Accumulated amortization | | Net carrying value | | Gross carrying value | | Accumulated amortization | | Net carrying value |
| (in millions) |
| Customer relationships | $ | 1,462 | | | $ | (632) | | | $ | 830 | | | $ | 1,462 | | | $ | (574) | | | $ | 888 | |
| Developed technology | 10 | | | (4) | | | 6 | | | 10 | | | (4) | | | 6 | |
| Trade name | 1 | | | (1) | | | — | | | 1 | | | (1) | | | — | |
| Total intangible assets | $ | 1,473 | | | $ | (637) | | | $ | 836 | | | $ | 1,473 | | | $ | (579) | | | $ | 894 | |
Amortization expense related to intangible assets was $29 million and $58 million for the three and six months ended August 2, 2024 and August 4, 2023, respectively. There were no intangible asset impairment losses during the periods presented.
As of August 2, 2024, the estimated future annual amortization expense related to intangible assets is as follows:
| | | | | |
| Fiscal Year | (in millions) |
Remainder of 2025 | $ | 57 | |
| 2026 | 115 | |
| 2027 | 115 | |
| 2028 | 98 | |
| 2029 | 97 | |
| Thereafter | 354 | |
| Total | $ | 836 | |
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 19.6% and 19.3% for the three and six months ended August 2, 2024, respectively, and 26.4% and 24.7% for the three and six months ended August 4, 2023, respectively. The Company’s effective tax rate primarily differs from the statutory tax rate due to the deduction for foreign derived intangible income, research and development tax credits, and stock-based compensation windfalls.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
The Company’s effective tax rate for the three and six months ended August 2, 2024 decreased compared to the same periods in the prior year due to the non-recurrence of a gain from the disposition of the Supply Chain Business and the associated non-deductible goodwill.
Note 7—Debt Obligations:
The Company’s debt as of the dates presented was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | August 2, 2024 | | February 2, 2024 |
| | Stated
interest
rate | | Effective
interest
rate | | Principal | | Unamortized
debt
issuance
costs | | Net | | Principal | | Unamortized
debt
issuance
costs | | Net |
| | | | | | (dollars in millions) |
| Term Loan A Facility due June 2027 | 6.69 | % | | 6.81 | % | | $ | 1,168 | | | $ | (3) | | | $ | 1,165 | | | $ | 1,199 | | | $ | (4) | | | $ | 1,195 | |
| Term Loan B Facility due October 2025 | — | % | | — | % | | — | | | — | | | — | | | 328 | | | (1) | | | 327 | |
Term Loan B2 Facility due March 2027 | — | % | | — | % | | — | | | — | | | — | | | 182 | | | (2) | | | 180 | |
Term Loan B3 Facility due February 2031 | 7.22 | % | | 7.38 | % | | 509 | | | (4) | | | 505 | | | — | | | — | | | — | |
| Senior Notes due April 2028 | 4.88 | % | | 5.11 | % | | 400 | | | (3) | | | 397 | | | 400 | | | (3) | | | 397 | |
| Revolving Credit Facility due June 2027 | 6.69 | % | | 6.69 | % | | 100 | | | — | | | 100 | | | — | | | — | | | — | |
Total debt | | | | | $ | 2,177 | | | $ | (10) | | | $ | 2,167 | | | $ | 2,109 | | | $ | (10) | | | $ | 2,099 | |
| Less current portion | | | | | 197 | | | — | | | 197 | | | 77 | | | — | | | 77 | |
Total debt, net of current portion | | | | | $ | 1,980 | | | $ | (10) | | | $ | 1,970 | | | $ | 2,032 | | | $ | (10) | | | $ | 2,022 | |
As of August 2, 2024, the Company had a $2.7 billion secured credit facility (the Credit Facility) consisting of a Term Loan A Facility due June 2027, a Term Loan B3 Facility due February 2031 (together, the "Term Loan Facilities"), and a $1.0 billion Revolving Credit Facility due June 2027 (the "Revolving Credit Facility").
On February 8, 2024, the Company executed the Sixth Amendment to the Third Amended and Restated Credit Agreement ("Sixth Amendment"), which established a $510 million senior secured term loan credit facility ("Term Loan B3 Facility due February 2031"). The entire Term Loan B3 Facility due February 2031 was immediately borrowed by the Company and the proceeds were used to pay in full the outstanding principal balances under the Term Loan B Facility due October 2025 and Term Loan B2 Facility due March 2027. The Tranche B3 Facility is subject to the same covenants and events of default as the Company's existing Term Loan Facilities.
Borrowings under the Term Loan B3 Facility due February 2031 amortize quarterly beginning on July 31, 2024 at 0.25% of the original borrowed amount with the remaining unamortized balance due in full upon its maturity on February 8, 2031. Borrowings will bear interest based on the Term Secured Overnight Financing Rate ("Term SOFR") or a base rate, plus an applicable margin of 1.875% for Term SOFR loans and 0.875% for base rate loans. In the event any portion of the Term Loan B3 Facility due February 2031 is repaid prior to August 8, 2024 as a result of a repricing event, the Company will be required to repay a 1.00% fee of the amount repaid. After this initial six month period, the Term Loan B3 Facility due February 2031 may be prepaid at any time without penalty and is subject to the same mandatory prepayments, including from excess cash flow, as the Company’s existing term loans under the Credit Facility.
During the six months ended August 2, 2024, the Company incurred $5 million of debt issuance costs associated with the Sixth Amendment, of which $3 million was recognized in interest expense and the remaining $2 million deferred and amortized to interest expense through the maturity date of the facility utilizing the effective interest rate method.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
During the three and six months ended August 2, 2024, the Company made scheduled principal payments of $16 million and $31 million, respectively, on the Term Loan A Facility due June 2027 and made a scheduled principal payment of $1 million on the Term Loan B3 Facility due February 2031.
During the three and six months ended August 2, 2024, the Company borrowed $380 million and $570 million, respectively, and repaid $280 million and $470 million, respectively, under the Revolving Credit Facility. As of August 2, 2024, the outstanding principal under the Revolving Credit Facility was classified as current portion of debt on the condensed consolidated balance sheets. Subsequent to quarter end, the Company repaid $50 million on the Revolving Credit Facility. Commitment fees for undrawn amounts under the Revolving Credit Facility range from 0.125% to 0.25% per annum based on the Company’s leverage ratio.
As of August 2, 2024, the Company was in compliance with the covenants under its Credit Facility.
As of August 2, 2024 and February 2, 2024, the carrying value of the Company’s outstanding debt obligations approximated its fair value. The fair value of debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s Term Loan Facilities and Senior Notes.
Maturities of debt as of August 2, 2024 are:
| | | | | |
| Fiscal Year | Total |
| (in millions) |
Remainder of 2025 | $ | 148 | |
| 2026 | 113 | |
| 2027 | 128 | |
| 2028 | 896 | |
| 2029 | 406 | |
| Thereafter | 486 | |
| Total principal payments | $ | 2,177 | |
Note 8—Derivative Instruments Designated as Cash Flow Hedges:
The Company’s derivative instruments designated as cash flow hedges consist of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Fair Value of Asset(1) at |
| | Notional Amount at August 2, 2024 | | Pay Fixed
Rate | | Receive
Variable
Rate | | Settlement and
Termination | | August 2,
2024 | | February 2, 2024 |
| | (in millions) | | | | | | | | (in millions) |
Interest rate swaps | $ | 685 | | | 2.96 | % | | 1-month Term SOFR | | Monthly through October 31, 2025 | | $ | 9 | | | $ | 15 | |
(1) The fair value of the fixed interest rate swap asset is included in "Other assets" on the condensed consolidated balance sheets.
The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company’s floating rate debt within the Credit Facility. The counterparties to all swap agreements are financial institutions.
See Note 9—Changes in Accumulated Other Comprehensive Income (Loss) by Component for the unrealized change in fair values on cash flow hedges recognized in other comprehensive income (loss) and the amounts reclassified from accumulated other comprehensive income (loss) into earnings for the current and comparative periods presented. The Company estimates that it will reclassify $8 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following August 2, 2024.
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Note 9—Changes in Accumulated Other Comprehensive Income (Loss) by Component:
The following table presents the changes in accumulated other comprehensive income (loss) attributable to the Company’s fixed interest rate swap cash flow hedges that are discussed in Note 8—Derivative Instruments Designated as Cash Flow Hedges 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 2, 2024 | | | | | |
| Balance at May 3, 2024 | $ | 14 | | | $ | 5 | | | $ | 19 | |
Other comprehensive loss before reclassifications | (6) | | | — | | | (6) | |
| Amounts reclassified from accumulated other comprehensive income | (4) | | | — | | | (4) | |
| Income tax impact | 2 | | | — | | | 2 | |
Net other comprehensive loss | (8) | | | — | | | (8) | |
| Balance at August 2, 2024 | $ | 6 | | | $ | 5 | | | $ | 11 | |
| | | | | |
| 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 | |
| | | | | |
| Six months ended August 2, 2024 | | | | | |
| Balance at February 2, 2024 | $ | 11 | | | $ | 5 | | | $ | 16 | |
| Other comprehensive income before reclassifications | 2 | | | — | | | 2 | |
| Amounts reclassified from accumulated other comprehensive income | (8) | | | — | | | (8) | |
| Income tax impact | 1 | | | — | | | 1 | |
Net other comprehensive loss | (5) | | | — | | | (5) | |
| Balance at August 2, 2024 | $ | 6 | | | $ | 5 | | | $ | 11 | |
| | | | | |
| 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 | |
(1)The amount reclassified from accumulated other comprehensive income (loss) is included in "Interest expense, net."
| | | | | | | | |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (UNAUDITED) |
Note 10—Sales of Receivables:
The Company has a Master Accounts Receivable Purchase Agreement ("MARPA Facility") with MUFG Bank, Ltd. (the "Purchaser") for the sale of up to a maximum amount of $300 million of certain designated eligible receivables with the U.S. government.
During the three and six months ended August 2, 2024, the Company incurred purchase discount fees of $4 million and $7 million, respectively. During the three and six months ended August 4, 2023, the Company incurred purchase discount fees of $2 million and $5 million, respectively. The purchase discount fees are presented in "Other (income) expense, net" on the condensed consolidated statements of income and are reflected as cash flows from operating activities on the condensed consolidated statements of cash flows.
MARPA Facility activity consisted of the following:
| | | | | | | | | | | |
| Six Months Ended |
| August 2,
2024 | | August 4,
2023 |
| (in millions) |
| Beginning balance | $ | 205 | | | $ | 250 | |
| Sale of receivables | 2,065 | | | 1,425 | |
| Cash collections | (2,095) | | | (1,425) | |
Outstanding balance sold to Purchaser(1) | 175 | | | 250 | |
Cash collected, not remitted to Purchaser(2) | (31) | | | (25) | |
| Remaining sold receivables | $ | 144 | | | $ | 225 | |
(1) For the six months ended August 2, 2024, the Company recorded a net decrease of $30 million to cash flows from operating activities from sold receivables. For the six months ended August 4, 2023, there was no net impact to cash flows from operating activities from sold receivables.
(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of August 2, 2024 and August 4, 2023. This balance is included in "Accounts payable" on the condensed consolidated balance sheets.
Note 11—Business Segments Information:
Effective February 3, 2024, the first day of fiscal 2025, the Company completed a business reorganization which replaced its previous two customer facing operating sectors with five customer facing business groups supported by the enterprise organizations, including the Innovation Factory. The five business groups represent the Company’s operating segments and have been aggregated into